Technical Amendments

In addition to the changes necessary to implement provisions of the HEOA, these final regulations also incorporate technical amendments made to the HEA by The Higher Education Technical Corrections (Pub. L. 11139), enacted on July 1, 2009. These changes are as follows: In Sec. 690.75(e) we proposed that a student whose parent was in the Armed Forces and died in Iraq or Afghanistan could receive the maximum Federal Pell Grant eligibility if the student was under 24 years old or enrolled in an institution of higher education at the time the parent died, in accordance with section 401(f)(4) of the HEA, as amended by the HEOA. However, Public Law 11139 removed section 401(f)(4) from the HEA and added new sections 473(b) and 420R effective July 1, 2009. Section 401(f)(4) provided that, for purposes of Federal Pell Grants only, a student was deemed to have an expected family contribution (EFC) of zero if the student's parent was in the Armed Forces and died in Iraq or Afghanistan when the student was under 24 years old or enrolled in an institution of higher education at the time the parent died.

Section 473(b) was added to Part FNeed Analysis of the HEA and provides that, beginning with the 20092010 and succeeding award years, each student with a Federal Pell Granteligible EFC whose parent or guardian was a member of the Armed Forces of the United States and died as a result of performing military service in Iraq or Afghanistan after September 11, 2001, will be determined to have an EFC of zero that will generally apply to all Title IV, HEA programs. Because part F of the HEA, where these changes are reflected, is subject to section 478(a) of the HEA, which generally prohibits regulating the requirements in part F, we are removing proposed Sec. 690.75(e).

Section 420R of the HEA establishes a new, nonneedbased program called the Iraq and Afghanistan Service Grants Program (IASG Program) starting in the 20102011 award year. To qualify for an IASG, a student must have a parent or guardian who died as a result of military service in Iraq or Afghanistan after September 11, 2001, and must be, at the time of the parent or guardian's death, less than 24 years of age or enrolled at an institution of higher education. A qualifying student who is not eligible for a Federal Pell Grant would be eligible to receive an IASG that is the same amount as a maximum Federal Pell Grant to assist in paying the student's cost of attendance at an institution of higher education. Grants under the IASG Program may not exceed the student's cost of attendance, and payments are adjusted like Federal Pell Grants if the student is enrolled less than fulltime; unlike Federal Pell Grants, IASG Program grants are not considered to be estimated financial assistance. Under this program, the student's EFC will not be changed as a result of a parent or guardian's service. Regulations are necessary to implement this Title IV, HEA program. However, section 409 of Public Law 11139 waives the provisions of sections 482 and 492 of the HEA concerning the master calendar for regulatory effective dates and the requirement to use negotiated rulemaking to formulate regulations for the IASG Program. We, therefore, expect to initiate the regulatory process without negotiated rulemaking and adopt the necessary regulations that would be effective on July 1, 2010, for the 20102011 award year.

We have also made a number of minor technical corrections and conforming changes. Changes that are statutory or that involve only minor technical corrections are generally not discussed in the Analysis of Comments and Changes section.
Waiver of Proposed Rulemaking for Additional Conforming Changes

These final regulations incorporate a statutory change made to the HEA by the HEOA that was not included on Team V's negotiating agenda or in the NPRM published on August 21, 2009. However, this statutory change in section 485(h) of the HEA is referenced in Sec. 602.24 of the Team III (Accreditation) final regulations published in the Federal Register as Docket ID ED2009OPE0009. We are amending Sec. 668.43(a) of these regulations to reflect the statutory provisions by adding new paragraph (a)(11).

We are also amending Sec. 690.6 by adding paragraph (e) to reflect a statutory change made by the HEOA to section 401(c)(5) of the HEA. Section 690.6(e) provides that, if a student receives a Federal Pell Grant for the first time on or after July 1, 2008, the student may receive no more than the equivalent of nine Scheduled Awards.

Because these amendments implement changes to the HEA that were not negotiated, we do not discuss them in the Analysis of Comments and Changes section.

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Under the Administrative Procedure Act (5 U.S.C. 553) (APA), the Department is generally required to publish a notice of proposed rulemaking and provide the public with an opportunity to comment on proposed regulations prior to issuing final regulations. In addition, all Department regulations for programs authorized under title IV of the HEA are subject to the negotiated rulemaking requirements of section 492 of the HEA. However, both the APA and the HEA provide for exemptions from these rulemaking requirements. The APA provides that an agency is not required to conduct noticeandcomment rulemaking when the agency for good cause finds that notice and comment are impracticable, unnecessary, or contrary to the public interest. Similarly, section 492 of the HEA provides that the Secretary is not required to conduct negotiated rulemaking for Title IV, HEA program regulations if the Secretary determines that applying that requirement is impracticable, unnecessary, or contrary to the public interest within the meaning of the HEA.

Although the regulations implementing the HEOA are subject to the APA's noticeandcomment and the HEA's negotiated rulemaking requirements, the Secretary determined that it was unnecessary to conduct negotiated rulemaking or noticeandcomment rulemaking on the changes needed in Sec. 668.43. These changes simply amend the Department's regulations to reflect statutory changes made by the HEOA to paragraph (h) of section 485 of the HEA, and these changes are already effective. The Secretary does not have discretion in whether or how to implement these changes. Accordingly, negotiated rulemaking and noticeandcomment rulemaking are unnecessary.

Implementation Date of These Regulations

Section 482(c) of the HEA requires that regulations affecting programs under title IV of the HEA be published in final form by November 1 prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulation may choose to implement earlier and the conditions under which the entity may implement the provisions early.

Consistent with the intent of this regulatory effort to strengthen and improve the administration of the Title IV, HEA programs, the Secretary is using the authority granted him under section 482(c) of the HEA to designate the following new and amended provisions for early implementation, at the discretion of each institution, lender, guaranty agency, or servicer, as appropriate:

In addition, the revisions to Sec. Sec. 690.63, 690.64, and 690.67 of the Federal Pell Grant Program regulations may apply to the crossover payment period that is in both the 200910 and 201011 award years, i.e., a payment period that includes June 30, 2010, and July 1, 2010. If an institution does not implement these regulations prior to July 1, 2010, but, prior to July 1, 2010, designates a student's 2010 crossover payment period as being in the 200910 award year, the Secretary does not consider these revisions to be applicable to the crossover payment period. Nothing will prevent the institution from subsequently designating the 2010 payment period as being in the 2009 10 award year with the revisions to Sec. Sec. 690.63, 690.64, and 690.67 then being applicable.

Analysis of Comments and Changes

Except as noted under Waiver of Proposed Rulemaking for Additional Conforming Changes, the regulations in this document were developed through the use of negotiated rulemaking. Section 492 of the HEA requires that, before publishing any proposed regulations to implement programs under title IV of the HEA, the Secretary must obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations, the Secretary must conduct a negotiated rulemaking process to develop the proposed regulations. The negotiated rulemaking committee did not reach consensus on the proposed regulations that were published on August 21, 2009. The Secretary invited comments on the proposed regulations by September 21, 2009. More than 113 parties submitted comments, a number of which were substantially similar. An analysis of the comments and of the changes in the regulations since publication of the NPRM follows.

We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the regulations to which they pertain. Generally, we do not address minor, nonsubstantive changes, recommended changes that the law does not authorize the Secretary to make, or comments pertaining to operational processes. We also do not address comments pertaining to issues that were not within the scope of the NPRM.
Part 600 Institutional Eligibility Under the Higher Education Act of 1965, as Amended
Definition of Baccalaureate Liberal Arts Programs Offered by Proprietary Institutions (Sec. 600.5)

Comments: One commenter supported the proposed change, stating that it was a reasonable way to clarify the term program leading to a baccalaureate degree in liberal arts. One commenter stated that the requirement that an institution ``has provided that program since January 1, 2009'' should be interpreted to mean that any new liberal arts program added from January 1, 2009, forward will qualify an otherwise eligible institution as an eligible proprietary institution, so long as the institution has been accredited by a recognized regional accrediting agency or association since October 1, 2007, or earlier.

Discussion: The Department does not agree that the requirement that the institution ``has provided that program since January 1, 2009'' should be interpreted to mean that any new liberal arts program added from January 1, 2009, forward will qualify an otherwise eligible institution as an eligible proprietary institution. Rather, the requirement means that an institution was providing the program (i.e., was enrolling students in the program) on January 1, 2009, and has continued to do so.

Changes: Section 600.5(a)(5)(i)(B)(1) has been revised to clarify that an institution meets the definition of a proprietary institution of higher education if, in addition to being accredited by a recognized regional accrediting agency or association continuously since October 1, 2007, it has provided a program leading to a baccalaureate degree in liberal arts continuously since January 1, 2009.
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Institutional Requirements for TeachOuts and Eligibility and Certification Procedures (Sec. Sec. 600.2, 600.32, 668.14)

Comments: Several commenters supported the proposed changes. One commenter stated that Sec. 600.32(d) should be expanded to provide that the exemptions from the twoyear in existence requirement, the assumption of liabilities, and the assumption of the cohort default rate apply when an institution conducts a teachout at an institution that closes because a guaranty agency initiated an action to limit, suspend, or terminate (LS&T) the participation of an institution, or took an emergency action against the institution. One commenter explained that a closing can be a very confusing time for students if they were not given accurate information about what was happening at their institution, and urged the Department to monitor closely the process for establishing an additional location under these regulations. The commenter noted that accurate and effective communication to students is especially critical when the teachout institution is establishing a permanent location at a closed institution. The commenter asserted that an institution establishing a permanent location at the site of a closed institution must be able to provide a teachout option that meets appropriate quality standards even in cases when the prior institution did not meet these standards. The commenter stated that the mere submission of a teachout plan should not be viewed as evidence that these standards were met for purposes of the closed school discharge.

Discussion: LS&T and emergency actions initiated by a guaranty agency against an institution are promptly reported to the Department, and the Department investigates those reports to determine whether to initiate a separate LS&T or emergency action against the institution. Therefore, we do not believe it is necessary to include as a trigger an LS&T or emergency action initiated by a guaranty agency that would provide the twoyear requirement, liability, and default rate exemptions to an institution conducting a teachout at a closed institution. Because of the interplay between the actions taken by a guaranty agency and the Department, there may be some instances when an institution may close prior to the Department initiating an LS&T or emergency action. In other instances, an institution may close precipitously before the Department has time to initiate an appropriate action under the circumstances. To address these instances, the final regulations have been modified so that the action taken by the Department may be initiated after the institution closes. The Department recognizes that a school closure and teachout can be a confusing time for students, and intends to work closely with the States and accrediting agencies to make sure that students are given accurate information about their options during this transition. The opportunity for another institution to perform the teachout, and open a permanent location under this exemption, should also ensure that the teachout is adequately staffed and designed to serve the students that attended the closed school.

Changes: Section 600.32(d)(1)(i) is revised to clarify that an institution that conducts a teachout at a site of a closed institution may apply to have that site approved as an additional location if the closed institution ceased operations because the Secretary has taken an LS&T or emergency action, regardless of whether the Secretary took that action before or after the institution closed.
Part 668 Student Assistance General Provisions

Readmission Requirements for Servicemembers (Sec. 668.18)

Comments: One commenter supported the proposed regulations, including the proposed requirement limiting the institutional charges that an institution may charge a returning servicemember. Several commenters opposed the proposed requirement limiting the institutional charges that an institution may charge a returning servicemember because they stated it would be administratively and financially burdensome for institutions. For the same reason, some of these commenters also opposed the requirement that an institution waive charges for previously purchased equipment for the first academic year in which the servicemember returns if the returning servicemember is readmitted to the same program for the same reason. Many of these commenters asserted that, because many of the affected servicemembers will receive full tuition and fee benefits under the Post9/11 GI Bill, charging the returning servicemember the current institutional charges for a program, rather than the same charges that the returning servicemember was or would have been assessed for the academic year during which he or she left the institution, will not penalize the student for having left to serve in the uniform services. One commenter added that this argument is supplemented by the fact that at least one State waives any tuition charges not paid by the GI Bill at public universities. One of these commenters stated that limiting charges to the first year only would create an unrealistic expectation for returning servicemembers for the full cost of the program. A few of the commenters stated that limiting institutional charges for returning servicemembers would be unfair to other students at the institution who would assume higher costs, or noted that the proposed requirement could preempt State requirements.

Several commenters asserted that the forced manual billing determinations that the regulations would require of institutions would be unduly burdensome as the billing software used by most institutions, which uses preprogrammed data, including current year charges, does not accommodate special case situations, such as the proposed regulations would create. Specifically, a few commenters noted that institutions would be forced to maintain multifaceted data tables over an undetermined number of years to recreate the prior institutional charges for servicemembers who may or may not return, as institutions do not keep student financial records for the entire period covered by the readmission requirements and billing systems are not designed to archive the data necessary to calculate institutional charges years later. The commenters contended that, even if an institution has all the information necessary, recreating the institutional charges would be complicated as institutional charges cover many types of charges involving variations by program. One commenter asserted that some Department of Defense tuition assistance systems, such as GoArmy, do not allow variations in tuition rates and could potentially delay tuition assistance processing for both impacted and nonimpacted servicemembers. A few commenters stated that determining institutional charges for returning servicemembers who may have been admitted, but were not enrolled or attending prior to leaving to serve, would be particularly difficult as they had never incurred specific charges, with one of these commenters noting that their institution has an open admission policy resulting in a large number of these students.

One commenter generally supported the requirement limiting the institutional charges that an institution may charge a returning servicemember, but stated that an institution should be permitted to charge a returning servicemember for new classes when a program has changed, requiring the servicemember to take additional
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classes in the form of prerequisites or new requirements. A few commenters noted that requiring an institution to provide, if necessary, refresher courses at no extra cost seemed to preclude an institution from collecting funding from other entities to cover those expenses. One commenter stated that requiring an institution to make reasonable efforts to help the servicemember become prepared to resume the program or to enable the servicemember to complete the program at no extra cost, would impose an undue financial hardship and administrative burden on the institution. The commenter asserted that, when there is only the normal reasonable progression from one year to the next, rather than any actual change to the program in the servicemember's absence, it is the servicemember's responsibility to retain the knowledge attained in the normal course of educational progression. In addition, the commenter stated that the definition of ``reasonable efforts'' is ambiguous and would be difficult to determine.

Discussion: The Department believes that the goal of these provisions is to minimize the disruption to the lives of persons performing service in the uniformed services, allowing a servicemember to return to an institution without penalty for having left because of that service. We believe that limiting charges for the year in which the servicemember returns to the charges the servicemember was or would have been assessed for the academic year during which the servicemember left is an important part of this goal, and may necessitate additional efforts by institution as well as the absorption of some costs. However, we agree that this goal would still be achieved if any increase in charges from the amount the servicemember was or would have been assessed for the academic year during which the servicemember left the institution is covered by veterans' or servicemember education benefits. In addition, we believe that requiring institutions to maintain only past tuition and fee charges, rather than requiring them to maintain all institutional charges and waive charges for new equipment required in lieu of equipment previously paid for, will accomplish this goal, while minimizing burden to institutions that may have had difficulty determining the previous institutional charges beyond tuition and fees, as well as difficulty determining which of the current institutional charges beyond tuition and fees would be covered by veterans' and servicemember education benefits. Therefore, for a servicemember who is readmitted to the same program, an institution will be considered to have admitted the servicemember with the same academic status if, for the first academic year in which the servicemember returns, the institution does not increase the tuition and fee charges above the prior amount the servicemember was or would have been assessed for the academic year when the servicemember left the institution, unless there are sufficient veterans' education benefits or other servicemember education benefits to pay the increased amount of those tuition and fee charges. Consider, for example, a servicemember who is readmitted to the same program and was assessed tuition and fee charges of $5,000 for the academic year when the servicemember left the institution. The current tuition and fee charges for the program are $7,000, a $2,000 increase over the charges formerly assessed the student. In addition to the original $5,000 in charges, the institution may charge the readmitted servicemember for any portion of that $2,000 increase that will be covered by veterans' education benefits or other servicemember education benefits. If this student receives $1,000 in veterans' education benefits or other servicemember education benefits for tuition and fees, the institution may assess the student tuition and fee charges of up to $6,000. If the student receives $2,000 or more in veterans' education benefits or other servicemember education benefits for tuition and fees, the institution may assess up to $7,000, the tuition and fee charges for other students admitted to the program for the current academic year. This approach will significantly reduce the burden on institutions to track many of the variable charges that were included in the proposed regulation, and will simplify the determinations of what tuition or fee amounts would be subject to the oneyear transition period for a returning servicemember. The portion of tuition and fees that are subject to this temporary restriction may also be reduced or eliminated by other policies set by the institution, or under State law, but the Federal requirement will provide a consistent base line for all institutions in every State and serve the purpose intended by this provision in the law.

We agree that students who are not informed of any increase in tuition and fee charges for subsequent years may have unrealistic expectations of the total cost of the program. We would expect that an institution would actively inform affected servicemembers upon readmission of any subsequent increase and the total expected charges for the program (an institution is required to make this information available at all times and include it in its annual distribution of institutional and financial information to all enrolled students in accordance with Sec. 668.41(c) and (d)). To the extent that this temporary restriction on the amount of tuition and fees for returning servicemembers is a benefit not provided to the other students at an institution, it is provided under the law to ease the transition back to the institution for the returning servicemembers. We also believe that this provision will not create conflicts for benefits provided to other servicemembers under the GoArmy education program.

Although we appreciate that current institutional billing software may not easily accommodate affected servicemembers, we believe that any burden incurred by an institution that must manually process such a student is outweighed by the benefit to the returning servicemember. We also believe that limiting the covered costs to tuition and fees significantly simplifies this provision for institutions.

In accordance with Sec. 668.18(a)(2)(iv), an institution may not charge a returning servicemember for additional classes offered by the institution that are prerequisites for the program. The institution does not have to readmit such a servicemember if the institution can demonstrate that providing the classes at no cost places an undue hardship on the institution. If new classes are required for the program and those classes are taken by the servicemember in the academic year in which he or she returns, the institution may not charge the additional tuition and fees for those programs unless doing so does not increase the tuition and fee charges above the prior amount the student was or would have been assessed for the academic year when he or she left the institution, or there are sufficient veterans' education benefits or other servicemember education benefits to pay the increased amount of those tuition and fee charges. In requiring an institution to provide, if necessary, refresher courses at no extra cost, we did not intend to preclude an institution from collecting funding from other assisting agencies to cover those expenses. Also, we note that any reasonable efforts an institution must make to help the student become prepared to resume the program, or to enable the student to complete the
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program must be provided at no extra cost to the student. We do not agree that requiring an institution to make reasonable efforts to help a servicemember become prepared to resume the program or to enable the servicemember to complete the program at no extra cost, would automatically impose an undue financial hardship and administrative burden on the institution, nor do we agree that, in cases where there is only the normal reasonable progression from one year to the next, rather than any actual change to the program in the servicemember's absence, it is the servicemember's responsibility to retain the knowledge attained in the normal course of educational progression. Again, the goal of these provisions is to minimize the disruption to the lives of persons performing service in the uniformed services, allowing a servicemember to return to an institution without penalty for having left because of that service. Holding a servicemember responsible for retaining all knowledge attained through previous attendance of the program would be penalizing the servicemember for having left to serve. ``Reasonable efforts'' are actions that do not place an undue hardship on an institution. An action places an undue hardship on an institution if it requires significant difficulty or expense to the institution. The mere fact that the readmission of a student will create additional expenses or burden to the institution is not enough for an institution to deny a student readmission. The expenses must be significant when considered in light of the overall financial resources of the institution and the impact otherwise of such action upon the operation of the institution. An institution carries the burden to prove by a preponderance of the evidence that the expense or difficulty of readmitting a student would be significant.

Changes: Section 668.18(a)(2)(iii)(E) is revised to provide that, for a servicemember who is readmitted to the same program, an institution will be considered to have admitted the servicemember with the same academic status if, for the first academic year in which he or she returns, the institution does not increase the tuition and fee charges above the prior amount the student was or would have been assessed for the academic year when the student left the institution, unless there are sufficient veterans' education benefits or other servicemember education benefits to pay the increased amount of those tuition and fee charges. Proposed Sec. 668.18(a)(2)(iii)(F), which would have required an institution to waive charges for previously purchased equipment, is removed. Section 668.18(a)(2)(iv)(A) has been revised: (1) To make clear that any reasonable efforts an institution must make to help the servicemember become prepared to resume the program, or to enable the servicemember to complete the program must be provided at no extra cost, and (2) to make clear that those efforts must be provided at no extra cost to the student, to permit an institution to collect from other entities for costs associated with making such reasonable efforts. The definition of undue hardship in Sec. 668.18(a)(2)(iv)(C)(2) is amended to clarify that difficulty and expenses must be significant when considered in light of the overall financial resources of the institution and the impact otherwise of such action on the operation of the institution.

Comments: One commenter asked what would be required of an institution to ``promptly readmit'' an affected servicemember if the program to which the servicemember was previously admitted is offered infrequently, or is no longer offered. One commenter asked how long a servicemember may delay readmission to an institution by requesting to be readmitted at a later date, and at what point the institutional charges would be locked in. The commenter also questioned whether the unusual circumstances under which an institution may admit a servicemember at a date later than the next class or classes in the program pertain to the institution or just to the servicemember.

Discussion: If the program to which the servicemember was previously admitted is no longer offered, Sec. 668.18(a)(2)(iii)(A) requires the institution to admit the servicemember to the program that is most similar to that program, unless the student requests or agrees to admission to a different program. An institution readmits a servicemember ``promptly'' if, in accordance with Sec.
668.18(a)(2)(ii), the institution readmits the servicemember into the next class or classes in the program beginning after he or she provides notice of his or her intent to reenroll, unless the servicemember requests a later date of readmission or unusual circumstances require the institution to admit the servicemember at a later date.

These regulations presume that a returning servicemember who provides notice of his or her intent to reenroll at an institution plans to do so soon after providing such notice. The provision that an institution must admit a returning servicemember to the next class or classes in the student's program unless the student requests a later date of admission was included to ensure that an institution could not delay a servicemember's readmission until, for example, the next semester if classes in the student's program were offered during the upcoming semester. However, the regulations do not preclude the returning servicemember from deciding that a later admission date, such as the next semester, is acceptable. No matter when the student actually resumes his or her program, if the returning servicemember is within the window of eligibility in Sec. 668.18(c)(iii), the requirements of this section apply. Thus, for the first academic year in which the servicemember returns, the institution cannot increase the tuition and fee charges above the prior amount the servicemember was or would have been assessed for the academic year when the servicemember left the institution, unless there are sufficient veterans' education benefits or other servicemember education benefits to pay the increased amount of those tuition and fee charges. Unusual circumstances under which an institution may admit a servicemember at a date later than the next class or classes in the program may pertain to the institution or to the servicemember. There are a number of factors an institution may consider when determining whether unusual circumstances require a later date of readmission, such as the length of any necessary retraining or intervening changes in the circumstances of the institution. State laws or requirements (including any local law or ordinance) or institutional requirements that restrict enrollment, due to class size, for example, or otherwise conflict with the requirements of this section are not ``unusual circumstances'' as such laws and requirements are superseded by the requirements of this section for the initial enrollment period. Institutions should take reasonable steps to resolve such restrictions as soon as possible to come into compliance with those provisions.

Changes: None.
NonTitle IV Revenue Requirement
Compliance Audits and Audited Financial Statements (Sec. 668.23)

Comments: A few commenters asked the Department to clarify the proposed requirement in Sec. 668.23(d)(4) under which a proprietary institution must disclose in a footnote to its audited financial statements the 90/10 revenue percentage and the components of that percentage. The commenters suggested
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that the Department specify that the reference in the regulations to Federal revenue means Title IV, HEA revenue and confirm their understanding that an institution must disclose: (1) The dollar amount of the numerator and denominator of the 90/10 ratio; (2) the dollar amount of the temporary relief attributed to institutional loans under the Net Present Value (NPV) calculation; and (3) the amount of loan funds that exceed the loan limits in effect before ECALSA that are treated as nonFederal revenue in the denominator of the 90/10 ratio.

Discussion: Under proposed Sec. 668.23(d)(4), a proprietary institution would have to disclose, by source, the amount of Federal and nonFederal revenue the institution included in its 90/10 calculation. We are amending the regulations to clarify that ``source'' means the individual categories of revenues identified in Appendix C to subpart B of part 668. To calculate its 90/10 percentage, an institution would have to compile the information detailed in Appendix C, particularly the aggregated and adjusted amounts in section 2. We therefore believe that it is reasonable to require the institution to disclose this information. Given the added complexities that come from these additional categories of revenue, disclosing the institution's calculation will simplify the presentation in the financial statements and facilitate the review of that information by the Department.

Changes: Section 668.23(d)(4) is amended to provide that a proprietary institution must disclose in a footnote to its audited financial statements, 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 part 668.
Revenue Generated From Programs and Activities (Sec. 668.28)

Comments: One commenter asked the Department to clarify whether the revenue from students taking a course offered by an institution as part of an eligible Title IV, HEA educational program counts for 90/10 purposes if the students are taking the course to prepare for an industry recognized credential or to transfer to another institution. For example, students that are not enrolled in a Title IV, HEAeligible program take an Accounting 400 course, normally offered as part of a Title IV, HEAeligible accounting program, as a refresher course to sit for the Certified Public Accounting exam or to transfer the credits from the course to another institution.

Discussion: An institution may count the revenue described by the commenter as long as the course or program is offered for the purpose of preparing students for taking an examination for an industry recognized credential, or for any other purpose described in Sec. 668.28(a)(3)(iii) that would otherwise qualify the revenue from that course or program to be included in the 90/10 calculation. However, payments from a student taking the class for transfer credits would not count as revenue because the student is not taking the class for any of these purposes. An institution should make sure that it appropriately documents any revenue the institution includes from these classes in its 90/10 calculation.

Changes: None.

Revenue Generated From Institutional Aid (Sec. 668.28)

Comments: A few commenters asked the Department to clarify whether installment sales contracts are considered to be loans made to students under Sec. 668.28(a)(5)(i). Other commenters noted that funds are not advanced to a student under an installment sales contract, and funds are not paid in full to a student's account. Rather, an installment sales contract is paid over time by the student to the institution. As a result, the commenters concluded that installment sales contracts should not be treated as loans under the NPV formula.

Some commenters asked for clarification of the preamble discussion (74 FR 42390) regarding the disposition of thirdparty loans made to students that are subsequently acquired by the institution.

Other commenters urged the Department to reconsider the provision in Sec. 668.28(a)(5)(iv) that a tuition discount is a form of a scholarship that must be disbursed from a restricted account with funds from an outside source. The commenters stated that treating a tuition discount in this way is inconsistent with the intent of the HEOA and would encourage students to incur more debt.

A few commenters asked the Department to clarify that payments made by students on financing arrangements that do not qualify as institutional loans count as cash collected by the institution for 90/ 10 purposes.

Discussion: An installment sales contract was included in the proposed regulations because we believed that it could be structured to satisfy all of the conditions of an institutional loan that were set forth in proposed Sec. 668.28(a)(5)(i). However, although we noted in the preamble to the NPRM (74 FR 42389) that, to be included in the NPV calculation, an installment sales contract that would be classified as an institutional loan would have to be credited in full to the student's account, this condition was not included in the proposed regulations. To address the confusion reflected in the comments over the qualifying conditions for institutional loans, and the general public view that a typical installment sales contract does not provide for funds to be credited to a student's account, we agree to remove installment sales contracts from this section of the regulations.

With regard to a loan made by a third party to a student at an institution, in the normal course, the proceeds of the loan would be credited to the student's account, and the amount credited that paid for tuition and fees not covered by Title IV, HEA aid would count as nonTitle IV, HEA revenue in the 90/10 calculation. If the institution made the same loan itself, it would only be permitted to count the NPV of the loan in the 90/10 calculation. In both cases the institution has credited loan proceeds of the same value to the student's account but the institution would derive a greater benefit for 90/10 purposes from the loan that was made by the third party. For example, assuming the loan proceeds from a third party pay $1,000 for tuition and fees not covered by Title IV, HEA aid, the entire $1,000 is counted as non Federal revenue for 90/10 purposes. If the institution made the same loan, the amount of funds counted as nonFederal revenue would be less because of the NPV calculation. For instance, if the institution uses the simpler alternative NPV approach, the amount of the nonFederal revenue would be $500 or 50% of the loan. This different treatment of the loan proceeds is based upon which party is making the loan to the student without transferring it afterwards to, or from, the institution. These provisions are not intended to permit an institution to arrange with a third party to transfer student loans after they are made in order to distort the way the revenue from those loans is treated under this provision. To equalize the outcome between an institution and a third party making and purchasing a loan, an institution that purchases a student loan must treat it for 90/10 purposes as if the institution made the loan itself.

Similarly, if an institution makes a loan and transfers it to a third party, the Department would not view that loan as a loan that could be included in any NPV calculation pursuant to section 487(d)(1)(d)(III) of the HEA. That section
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requires a loan that is included in the NPV calculation to be subject to regular loan repayment and collection. Any institutional loan that is sold to a third party within a year of when it was made must be treated for 90/10 purposes as a loan made by a third party. The amount the institution may count as nonFederal revenue may not be more than the amount paid to the institution for that loan, less any amount the institution agrees to pay the third party if the loan goes into default or otherwise triggers a contingent payment by the institution. Consistent with the Department's current treatment of recourse loans and the requirement to use the cash basis of accounting, the institution must adjust its 90/10 revenue for any such payment on an institutional loan in the fiscal year when the payment is made.

We disagree with the commenters that the proposed regulations regarding tuition discounts are inconsistent with the intent of the law. The regulations simply reflect section 487(d)(1)(D)(iii) of the HEA by specifying that an institution may include scholarships as revenue if the scholarships are disbursed from an established restricted account and that funds in that account represent designated funds from an outside source or from income earned on those funds. That section of the HEA states that scholarships may be provided by an institution in the form of monetary aid or tuition discounts.

With regard to financing arrangements that are not loans, there is no change in the Department's policy that cash payments made under those arrangement count as nonTitle IV, HEA revenue for 90/10 purposes.

Changes: Section 668.28(a)(5)(i) is revised to provide that, to be included as an institutional loan for NPV purposes, a loan made to a student must be credited in full to the student's account.

Net Present Value (NPV)

Comments: Several commenters objected to the provision in Sec. 668.28(b)(2) that an institution may not sell a loan it made to student until the loan is in repayment for at least two years. Although this provision would apply only if an institution chose to use the alternative approach to calculating the NPV of its loans (using 50 percent of loans made as the NPV), the commenters argued that holding the loans for at least two years is contrary to both statutory intent and institutional mission. The commenters reasoned that in response to the loss of availability of private student loans, the NPV approach provided by the HEOA is intended to give an immediate benefit to an institution that had to fill a funding gap itself by making loans to its students. To the second point, the commenters stated that the primary mission of an institution is to provide education and training, not to become a lender or remain in the lending business.

Other commenters agreed with the rationale for the twoyear ban on selling loans, but argued that the twoyear period was too long and would unfairly impact an institution that provided loan funds to students who are not ``high risk'' and whose loans would perform within commercially acceptable norms. To mitigate this impact, the commenters recommended reducing the ban to one year.

One commenter questioned whether the proposed regulations ensure that the calculation of the NPV for institutional loans takes into account the possibility that institutions do not intend to collect the loans they make to students. The commenter asserted that this practice calls into question an institution's willingness or ability to accurately report estimates of annual payments due, as well as annual payments collected on these loans. The commenter also asked whether institutional loans that default are properly accounted for 90/10 purposes and if the Department has the authority to require, or would require, an institution to disclose information about its loan defaults.

Discussion: As stated in the NPRM (74 FR 42391), we proposed the alternative approach for calculating the NPV as an administrative convenience for an institution that either prefers a simpler method to determine the NPV or does not need the additional nonFederal revenues that might be counted if the NPV formula is used. It is solely up to the institution whether to use this alternative method or the actual NPV calculation. Each approach has costs and benefits that must be weighed by the institution. If the institution believes the alternative approach is too restrictive or somehow not in keeping with its mission, it should use the NPV calculation.

With regard to the comments about an institution's unwillingness to collect the loans it makes, we note that the institution might benefit initially from the NPV calculation, but because its collection rate would decrease significantly if it continues this practice, the institution would derive no benefit from future NPV calculations. We also note that the twoyear ban on selling institutional loans, which applies to institutions that choose to use the alternate NPV approach, is necessary to ensure that the Department and other oversight entities have sufficient time to monitor whether the loans are subjected to routine collection efforts.

Changes: None.

Revenue From Loan Funds (Sec. 668.28)

Comments: A few commenters noted that, although the proposed regulations in Sec. 668.28(a)(6) provide that an institution may count as nonTitle IV, HEA revenue the amount of a loan disbursement for a payment period that exceeds the amount a student would have received before the enactment of ECALSA, the regulations did not address how an institution should treat the excess loan funds when a student withdraws during a payment period. The commenters suggested that the excess loan funds should be returned in proportion to the overall loan disbursement for the payment period. Another commenter requested that when a student takes sequential courses within a nonterm program, and is charged on a coursebycourse basis, the excess loan funds should be attributed within a payment period on a coursebycourse basis. In this case, several courses make up the payment period.

Discussion: When some of a student's loan funds are classified as funds in excess of loan limits existing prior to ECASLA, those excess loan amounts are included as revenue from a source other than Title IV, HEA program funds under Sec. 668.28(a)(6) if those excess amounts pay for institutional charges remaining on the student's account after Title IV, HEA funds are applied. The determination of which loan funds are classified as ``postECASLA'' funds, i.e., are funds in excess of loan limits existing prior to ECASLA, is generally made on a payment period basis. That is, if a student's loan for the loan period contains a postECASLA amount and the postECASLA amount is \1/3\ of the total loan amount, then each payment period's loan disbursement is generally considered to consist of \1/3\ postECASLA loan funds and \2/3\ pre ECASLA loan funds. However, if a student takes sequential courses within a nonterm program where several courses make up a payment period, and the student is charged on a coursebycourse basis, then the determination of which loan funds are classified as postECASLA funds may be determined on a coursebycourse basis. Under Sec. 668.28(a)(7)(iv), loan funds that are returned pursuant to Sec. 668.22 when a student withdraws from school are excluded from school revenues. The Secretary intends that, when a school determines the amount of loan funds that are excluded from revenues under
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Sec. 668.28(a)(7)(iv), it considers the returned loan funds to be pre ECASLA loan amounts and postECASLA loan amounts based on the ratio that existed for those categories of funds in the student's loan for the loan period.

Changes: Section 668.28(a)(7)(iv) is amended to provide that, in determining the amount of loan funds that are excluded from 90/10 revenues under Sec. 668.28(a)(7)(iv) when a student withdraws pursuant to Sec. 668.22, and the institution returns loan funds from a loan disbursement considered to consist of preECASLA loan funds and loan funds that were in excess of loan limits existing prior to ECASLA, the funds that the institution returns are preECASLA loan amounts and postECASLA loan amounts based on the proportion of those loan amounts that existed in the loan disbursement used in the Return calculation. For example, a student's loan disbursement for a payment period is $3,000, and $1,000 represents the funds in excess of loan limits existing prior to ECASLA. The proportional breakdown of the funds returned under the Return calculation is twothirds preECALSA loan funds and onethird postECASLA loan funds.

Application of Funds (Sec. 668.28)

Comments: A few commenters noted that the proposed regulations did not address how military education benefits are treated for 90/10 purposes. The commenters argued that because students have earned these benefits through employment in difficult and often dangerous conditions, and are free to use the benefits at an eligible institution, the benefits should be treated for 90/10 purposes as earned employment benefits. However, a student receiving these benefits, which are essentially restricted to pay for tuition and fees, may also be fully eligible for Title IV, HEA aid. Consequently, the commenters asked the Department to revise the regulations to provide that military education benefits overcome the presumption that Title IV, HEA funds are used first to pay for tuition and fees.

Discussion: Section 487(d)(1)(C) of the HEA contains the list of funds or sources of aid that overcome the presumption that Title IV, HEA funds are used first to pay for tuition and fees. The Department does not have the authority to expand that list.

Changes: None.

Notification to the Department (Sec. 668.28)

Comments: Several commenters objected to the proposal in Sec. 668.28(c)(3) that an institution must notify the Department that it failed the 90/10 requirement no later than 45 days after the end of its fiscal year. Some of the commenters stated that there was no reason to shorten the current 90day notification period. Other commenters argued that because the penalty for failing 90/10 (especially for a second consecutive year) is so severe, an institution should not be required to report unaudited data. According to the commenters, this may result because the small number of independent auditors who are experts in 90/ 10 calculations may be unavailable to the large percentage of for profit institutions that have fiscal years ending December 31, because this is time that the auditors would normally be busy doing audit and tax work.

Discussion: We are not persuaded that an institution that knows it is close to failing the 90/10 requirement could not plan for or take the steps necessary to engage an audit firm in time to meet the 45day reporting deadline.

Changes: None.
Institutional Plans for Improving the Academic Program (Sec. 668.43(a))

Comments: A few commenters stated that the requirement in the proposed regulations that an institution make readily available to enrolled and prospective students any plans by the institution for improving the academic program of the institution should include the statement in the preamble of the NPRM that an institution is allowed to determine what a ``plan'' is, including when a plan becomes a plan.

Discussion: We agree that including the concept that an institution has the discretion to determine when a plan exists would clarify the intent of the regulations.

Changes: Section 668.43(a)(5)(iv) is amended to clarify that an institution must make readily available to students any plans by the institution for improving the academic program of the institution, upon a determination by the institution that such a plan exists. PeertoPeer File Sharing and Copyrighted Material (Sec. Sec. 668.14(b)(30) and 668.43(a)(10))

Comments: A few commenters supported the proposed changes asserting that they represented a fair interpretation of the intent of the statute and would aid institutions in both interpreting and properly following the new statute. One commenter asked whether the requirement that an institution offer, to the extent practicable, legal alternatives to illegal downloading or otherwise acquiring copyrighted material could be satisfied by the institution simply not blocking legal alternatives. One commenter expressed concern that the requirement that, as a part of an institution's plans for combating the unauthorized distribution of copyrighted material, the institution must include the use of one or more technologybased deterrents as well as procedures for periodically reviewing the effectiveness of the plans would be unduly financially and administratively burdensome for institutions.

Discussion: We do not believe that simply not blocking legal alternatives for downloading or otherwise acquiring copyrighted material qualifies as ``offering'' legal alternatives. The requirements of Sec. 668.14(b)(30)(ii)(A) and (B), that an institution must periodically review the legal alternatives and make available the results of the review to its students through a Web site or other means, support the notion that an institution's actions in this area must be active, rather than passive. We note, however, that an institution must offer such legal alternatives ``to the extent practicable.'' Thus, how or whether the institution offers such alternatives is controlled by the extent to which it is practicable for the institution to do so. As stated in the preamble to the NPRM (74 FR 42393), the Department anticipates that individual institutions, national associations, and commercial entities will develop and maintain uptodate lists of legal alternatives to illegal downloading that may be referenced for compliance with this provision.

The requirement that, as a part of an institution's plans for combating the unauthorized distribution of copyrighted material, the institution must include the use of one or more technologybased deterrents is statutory (see section 485(a)(1)(P) of the HEA) and we do not have the authority to remove this requirement. Moreover, we believe that the requirement that an institution's plans include procedures for periodically reviewing the effectiveness of the institution's plans for combating the unauthorized distribution of copyrighted material is essential for institutions to comply with the requirements in section 485(a)(1)(P) and 487(a)(29) of the HEA.

Changes: None.

Consumer Information (Sec. Sec. 668.41 and 668.45)

Comment: One commenter suggested that we remove the definition of ``Retention rate'' from the regulations in Sec. 668.41. The commenter stated that it is unnecessary because the regulations already instruct institutions to disclose
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retention rates as they are reported to the Integrated Postsecondary Education Data System (IPEDS) and IPEDS provides the definition on its Web site for institutions when they report that information. Of greater importance is the fact that, if the National Center for Education Statistics decides to modify the definition in the future, it would be better for them not to be constrained by having the current definition codified in the regulations.

Discussion: We agree.

Changes: We have removed the definition of ``Retention rate'' from the regulations.

Comments: Although some commenters agreed with some or all of the proposed regulations addressing consumer information disclosures, a number of them objected to the proposed provision in Sec. 668.41(d)(5)(iii) that would require an institution to disclose any placement rates it calculates, noting that, regarding placement, the statute only requires disclosure of information, not an actual rate. The statute addresses the requirement to report information about the ``placement in employment of, and types of employment obtained by, graduates of the institution's degree or certificate programs.'' Because the statute specifically uses the term ``rates'' when it addresses graduation, completion, and retention, but not when it addresses placement, the commenters stated that the reporting of a ``rate'' for placement information exceeds the scope of the statute.

For similar reasons, some of the commenters objected to the requirement to report the methodology that the institution uses in determining placement information, because a methodology would appear to be applicable only to an officially calculated rate. Further

FOR FURTHER INFORMATION CONTACT

For general information or information regarding these regulations related to the nontitle IV revenue requirement (90/10), John Kolotos. Telephone: (202) 5027762 or via the Internet at: John.Kolotos@ed.gov.

For information related to all Federal Pell Grant Program issues and the LEAP/GAP Program, Fred Sellers and Jacquelyn Butler. Telephone: (202) 5027502 and (202) 5027890, respectively or via the Internet at: Fred.Sellers@ed.gov or Jacquelyn.Butler@ed.gov.

For information related to the provisions for readmission for servicemembers, teachouts, peertopeer file sharing, baccalaureate in liberal arts, and institutional plans for improving the academic program, Wendy Macias. Telephone: (202) 5027526 or via the Internet at: Wendy.Macias@ed.gov.

For information related to all FWS Program issues, Nikki Harris and Harold McCullough. Telephone: (202) 2197050 and (202) 3774030, respectively, or via the Internet at Nikki.Harris@ed.gov or Harold.McCullough@ed.gov.

For information related to the provisions for fire safety standards, missing students procedures, hate crime reporting, emergency response and evacuation, and students with intellectual disabilities, Jessica Finkel. Telephone: (202) 5027647 or via the Internet at: Jessica.Finkel@ed.gov.

For information related to the provisions for extenuating circumstances under the TEACH Grant Program, Jacquelyn Butler. Telephone: (202) 5027890 or via the Internet at:
Jacquelyn.Butler@ed.gov.

For information related to the consumer information requirements, Brian Kerrigan. Telephone: (202) 2197058 or via the Internet at: Brian.Kerrigan@ed.gov.

If you use a telecommunications device for the deaf (TDD), call the Federal Relay Service (FRS), toll free, at 18008778339.

Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or computer diskette) on request to one of the contact persons listed under FOR FURTHER INFORMATION CONTACT.