Volume 2 – Contents

CHAPTER 1 – INSTITUTIONAL ELIGIBILITY ...................................... 2-1

.............................................................................................................................................. 2-1
The Three Definitions of Eligible Institutions ...................................................................... 2-1
Institutional Control .............................................................................................................. 2-1
Eligible Institution ................................................................................................................ 2-2
Type and Control of Eligible Institutions ............................................................................. 2-2
Legal Authorization by a State ............................................................................................. 2-2
Accreditation ........................................................................................................................ 2-3
Alternatives to accreditation ........................................................................................................ 2-4
Primary accreditor ....................................................................................................................... 2-4
Dual accreditation ........................................................................................................................ 2-4
Admissions Standards........................................................................................................... 2-4
High school diploma .................................................................................................................... 2-5
Recognized equivalent of a high school diploma ........................................................................ 2-5
Home schooling ........................................................................................................................... 2-6
“Two-Year” Rule .................................................................................................................. 2-6
Additional Institutional Eligibility Factors ........................................................................... 2-7
Demonstrations of compliance .................................................................................................... 2-7
The 90/10 Rule ............................................................................................................................ 2-8
Correspondence course and correspondence student limitation ................................................ 2-12
Incarcerated student limitation .................................................................................................. 2-12
Ability-to-benefit limitation ...................................................................................................... 2-13
Bankruptcy ................................................................................................................................ 2-13
Crimes involving FSA program funds ....................................................................................... 2-13
Foreign Schools Eligible for FFEL Programs .................................................................... 2-14

CHAPTER 2 – APPLYING FOR PARTICIPATION IN

THE FSA PROGRAMS .......................................................................... 2-15
Applying as an eligible nonparticipating school ................................................................ 2-18
Applying for initial certification as a participating school ................................................. 2-18
FSA Administration Training Requirement ............................................................................... 2-20
Reinstatement ..................................................................................................................... 2-20
Outcomes of the application process .................................................................................. 2-21
Effective date for participation .................................................................................................. 2-22
Beginning to disburse funds ...................................................................................................... 2-22
Provisional certification ............................................................................................................. 2-22
The Program Participation Agreement ............................................................................... 2-23
Purpose and scope of the PPA ................................................................................................... 2-24
PPA Requirements ................................................................................................................ 2-25
General Participation Requirements ................................................................................... 2-29
CHAPTER 3 – GENERAL PARTICIPATION REQUIREMENTS ........... 2-29
General requirements .......................................................................................................... 2-29
Voter registration ....................................................................................................................... 2-29
GED preparatory program required ........................................................................................... 2-29
Civil rights and privacy requirements ....................................................................................... 2-30
Contracts with third-party servicers ................................................................................... 2-30
Excluded activities, employees of a school, requirements for contracting with
a third-party servicer, institutional liability, notifying the department of contracts
Incentive compensation ...................................................................................................... 2-33
Prohibited activities in the loan programs .......................................................................... 2-38
Anti-drug abuse requirements ............................................................................................ 2-38
Anti-lobbying certification and disclosure ......................................................................... 2-41
A school acting as a lender in the FFEL program .............................................................. 2-42
Reporting Information on foreign sources and gifts ........................................................... 2-42

CHAPTER 4 –PROGRAM ELIGIBILITY .....................................................2-45

Program Eligibility Requirements ...................................................................................... 2-45
Determination of program eligibility ...................................................................... 2-45
Types of eligible programs at an institution of higher education .............................................. 2-46
Types of eligible programs at a proprietary or postsecondary vocational institution ................ 2-46
Additional Eligibility Requirements ................................................................................... 2-48
ESL Programs ............................................................................................................................ 2-48
Flight School Programs ............................................................................................................. 2-48
Clock Hour/Credit Hour conversions in determining program eligibility ........................ 2-50
How clock hour/credit hour conversions affect student eligibility ..................................... 2-52

CHAPTER 5 – UPDATING APPLICATION INFORMATION .....................2-55

Recertification .................................................................................................................... 2-55
Change in ownership of for profit and nonprofit institutions ............................................. 2-56
Change in ownership that results in a change of control, structure, or governance ........... 2-56
Change in controlling interest, Change in ownership for publicly traded corporations,
Steps to be taken by former owners. Steps to be taken by prospective owners,
Accepting liabilities and responsibility for return of funds, Payments to eligible students,
Preacquisition review
Temporary approval for continued participation on provisional
notification after change in ownership ....................................................................... 2-61
Effect of cohort default requirements ........................................................................................ 2-62
Changes at public institution ..................................................................................................... 2-63
An eligible nonparticipating school .......................................................................................... 2-63
Substantive changes and how to report them ..................................................................... 2-64
All schools must report and wait for written approval before disbursing funds
when the following occur ....................................................................................................... 2-64
Changes that do not require the Department’s written approval ............................................... 2-65
Adding locations ................................................................................................................. 2-67
Eligibility of additional locations .............................................................................................. 2-67
Reporting a new location ..................................................................................................... 2-68
Applying for approval of a new location ............................................................................. 2-68
Adding programs ................................................................................................................ 2-69
Changing the status of a campus or branch ........................................................................ 2-70
Changing from a non-main campus to a branch campus........................................................... 2-70
Changing from a branch campus to a freestanding main campus ...................................... 2-71
Disbursement rules related to applications for new locations and programs ..................... 2-72
Changes in accreditation ..................................................................................................... 2-72
Loss of accreditation .................................................................................................................. 2-73
Change in institution-wide accreditation ................................................................................... 2-73
Changing to accreditation by more than one institution-wide accrediting agency.................... 2-74
Notification of school closure or bankruptcy ..................................................................... 2-74
Changes in ownership interest and 25% threshold ............................................................. 2-74
Chart on “Updating the Application” ................................................................................. 2-76

CHAPTER 6 – PROVIDING CONSUMER INFORMATION ......................2-79

Basic consumer information requirements ......................................................................... 2-80
Financial aid information........................................................................................................... 2-80
General information about the school ....................................................................................... 2-81
Consumer information from the Department ..................................................................... 2-82
Student right-to-know disclosures ...................................................................................... 2-84
Waivers ...................................................................................................................................... 2-87
Disclosing and reporting information on completion or graduation rates for
the general student body cohort .............................................................................................. 2-88
Reporting information on completion or graduation rates for student athletes .................. 2-92
Equity in athletics ............................................................................................................... 2-94
Disclosure of the report ............................................................................................................. 2-94
Contents of the Equity in Athletics/EADA Report .................................................................... 2-95
Definitions ................................................................................................................................. 2-97
Loan counseling .................................................................................................................. 2-98
Entrance counseling ................................................................................................................... 2-99
Exit counseling ........................................................................................................................ 2-103
Providing borrower information at separation......................................................................... 2-105
Exit counseling follow up ........................................................................................................ 2-105
Drug and alcohol abuse prevention information .............................................................. 2-107
Information to be included in drug prevention materials ........................................................ 2-107
Misrepresentation ............................................................................................................. 2-108
Campus Security ................................................................................................................ 2-111
General information ................................................................................................................. 2-111
Distribution of the Campus Crime Report ............................................................................... 2-111
Definition of campus ............................................................................................................... 2-112
Timely warning ........................................................................................................................ 2-113
Campus security authority ....................................................................................................... 2-114
 Professional and pastoral counselors excluded from reporting requirements .................. 2-114
Daily crime log ........................................................................................................................ 2-115
The annual security report ....................................................................................................... 2-116
Policies and procedures for reporting crimes ................................................................... 2-116
Campus security and The Family Educational Rights and Privacy Act (FERPA) ........... 2-121
Chart “School Disclosure Requirements” ........................................................................ 2-122

CHAPTER 7 – WRITTEN AGREEMENTS BETWEEN SCHOOLS .........2-127

Consortium agreement ...................................................................................................... 2-128
Contractual agreement ...................................................................................................... 2-129
Limitations on contractual agreements .................................................................................... 2-129
Study abroad or domestic exchange programs ................................................................. 2-130

CHAPTER 8 – DISTANCE EDUCATION .............................................. 2-133

Correspondence and telecommunications courses .......................................................... 2-134
What is a correspondence course? What is a telecommunications course? ..................... 2-134
The effects of correspondence and telecommunications courses
on institutional eligibility............................................................................................... 2-135
The consequences of the 50% Rule for three types of eligible institutions ............................ 2-138
Student eligibility ............................................................................................................. 2-142
Are there any limits on a student’s eligibility for FSA program funds for attendance
in correspondence courses? Are there any limits on a student’s eligibility for
FSA program funds for attendance in a telecommunications program?
Cost of Attendance, Federal Pell Grant Program and Federal Supplemental
Educational Opportunity Grant (FSEOG) Program disbursements, Are there any
special disbursement rules that apply to students in correspondence courses?
FSEOG Program, Federal Pell Grant Program

CHAPTER 9 – RECORDKEEPING AND DISCLOSURE ...................... 2-147

Required records ............................................................................................................... 2-147
Program Records ..................................................................................................................... 2-148
Fiscal records ........................................................................................................................... 2-148
Loan Program Records ............................................................................................................ 2-149
Records of the schools administration of the FSA programs .................................................. 2-150
Record retention periods ................................................................................................... 2-152
Record maintenance ......................................................................................................... 2-153
Acceptable formats .................................................................................................................. 2-153
Special requirements for SARs and ISIRs ............................................................................... 2-154
Examination of records ..................................................................................................... 2-155
Location ................................................................................................................................... 2-155
Cooperation with agency representatives ................................................................................ 2-155
Timely access........................................................................................................................... 2-155
FSA recipient information ....................................................................................................... 2-155
Reasonable access to personnel ........................................................................................ 2-156
FSA recipient information ................................................................................................ 2-156
Disclosing student information ......................................................................................... 2-156
The Family Educational Rights and Privacy Act (FERPA) ..................................................... 2-156
What constitutes written consent, Additional Privacy Requirements, Education Records
and their release ................................................................................................................ 2-159
Disclosure of requests for information .................................................................................... 2-161
Sample disclosure statement .................................................................................................... 2-162
Redisclosure to other authorized parties .................................................................................. 2-162
Ex Parte Orders ........................................................................................................................ 2-163
Lawfully issued subpoenas and court orders ........................................................................... 2-163
Health or safety emergency ..................................................................................................... 2-164

CHAPTER 10 – ADMINISTRATIVE CAPABILITY ................................ 2-165

Required electronic processes .......................................................................................... 2-165
Summary of required processes ............................................................................................... 2-165
Information for Financial Aid Professionals (IFAP) ............................................................... 2-166
Administrative requirements for the financial aid office .................................................. 2-167
Coordinating official ................................................................................................................ 2-167
Consistency of information ..................................................................................................... 2-168
Exchanging information on borrowers .................................................................................... 2-170
Providing borrower information at separation......................................................................... 2-171
Information about delinquency and default ............................................................................ 2-171
Counseling ............................................................................................................................... 2-172
Adequate staffing ..................................................................................................................... 2-172
System of checks and balances ................................................................................................ 2-172
OIG Referrals .......................................................................................................................... 2-173
Satisfactory academic progress ........................................................................................ 2-174
Financial aid history ......................................................................................................... 2-180
Cohort default rates .......................................................................................................... 2-180
Effect of default rates .............................................................................................................. 2-181
Default management plan ........................................................................................................ 2-182
Withdrawal rates ............................................................................................................... 2-182
Debarment and suspension certification ........................................................................... 2-183
Debarment of school or its principals ...................................................................................... 2-183
Certifying current or prospective employees or contractors ................................................... 2-184
Lower-tier covered transactions .............................................................................................. 2-185

CHAPTER 11 – FINANCIAL STANDARDS ........................................... 2-187

Standards for public schools ............................................................................................. 2-188
General standards for proprietary or private nonprofit schools ........................................ 2-188
Refund reserve standards .................................................................................................. 2-192
Returning funds in a timely manner ........................................................................................ 2-192
Compliance thresholds ............................................................................................................ 2-193
Letter of credit ......................................................................................................................... 2-194
Exceptions to the letter of credit requirement ......................................................................... 2-195
 Tuition Recovery Funds .......................................................................................................... 2-195
Current in debt payments ......................................................................................................... 2-195
Alternatives to the general standards ................................................................................ 2-196
Letter of credit alternative for new school............................................................................... 2-196
Letter of credit alternative for participating school ................................................................. 2-196
Zone alternative ....................................................................................................................... 2-196
Provisional certification for school not meeting standards ..................................................... 2-197
Provisional certification for school where persons or entities owe liabilities ......................... 2-198
Past performance and affiliation standards ....................................................................... 2-199
Past performance of a school ................................................................................................... 2-199
Past performance of persons affiliated with a school .............................................................. 2-200

CHAPTER 12 – PROGRAM INTEGRITY............................................... 2-201

State and Accrediting Agency Roles. ............................................................................... 2-201
State role .................................................................................................................................. 2-201
Accrediting agency role ........................................................................................................... 2-201
The Department’s Role ..................................................................................................... 2-203
FSA Audit requirements for schools ................................................................................. 2-204
Simultaneous FSA audit submissions ...................................................................................... 2-204
Waivers of the FSA audit requirement .................................................................................... 2-205
Submission dates for FSA audits ............................................................................................. 2-207
FSA Compliance audit submission requirements .................................................................... 2-208
FSA Audited financial statement requirements ....................................................................... 2-209
FSA Consolidated statements .................................................................................................. 2-209
Required disclosure of 90/10 revenue test ............................................................................... 2-210
A-133 audit guidelines............................................................................................................. 2-210
Audits for third-party servicers................................................................................................ 2-211
Having the audit performed ..................................................................................................... 2-212
eZAudit ..........................................................................................................................2-2122-213
Access to records .............................................................................................................. 2-214
Program reviews ............................................................................................................... 2-215
Unannounced Program Reviews ............................................................................................. 2-216
Written report........................................................................................................................... 2-216
Appealing audit and program review determinations....................................................... 2-216
Reviews conducted by guaranty agencies ....................................................................... 2-217
Case management ............................................................................................................. 2-218
Possible actions ....................................................................................................................... 2-219
Corrective Actions and Sanctions ..................................................................................... 2-220
Sanctions .................................................................................................................................. 2-220
Actions due to program violations or misrepresentation ......................................................... 2-220
Emergency action .................................................................................................................... 2-220
Fine .......................................................................................................................................... 2-221
Limitation ................................................................................................................................ 2-221
Suspension ............................................................................................................................... 2-221
Corrective action...................................................................................................................... 2-221
Termination .............................................................................................................................. 2-221
 Possibility of reinstatement................................................................................................ 2-222
Criminal penalties .................................................................................................................... 2-222
Requirements when a school ceases to be an eligible institution ..................................... 2-223
Loss of accreditation ................................................................................................................ 2-223
Requirements when a school’s FSA participation ends .................................................... 2-224
Voluntary withdrawal from FSA participation ................................................................. 2-224
Involuntary withdrawal from FSA participation .............................................................. 2-225
When participation ends .......................................................................................................... 2-225
Additional closeout procedures ............................................................................................... 2-226
Loss of eligibility or withdrawal from loan programs ...................................................... 2-227
Quality Assurance Program .............................................................................................. 2-228
FSA Assessments .............................................................................................................. 2-228
ISIR Analysis Tool ............................................................................................................ 2-229
Experimental Sites Initiative ............................................................................................ 2-230