Session #6
School Compliance Update
Doug LaineLinda Henderson
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This session will cover…• What to know before
Establishing a New or Moving an Existing Location
• How and When to Report expansions such as new locations or programs
• Do’s and Don’ts for Additional Locations and Programs
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This session will cover…
• Change in Ownership Process• Do’s and Don’ts of Borrower
Choice
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Applying for or Reporting New Programs or Locations
• Some expansions require an institution to apply and wait for ED’s approval
• Some expansions need only be reported to ED often referred to as updates
• Timing of application or reporting is key
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Expansions Applied for or Reported Up Front
• Adding a location where at least 50% percent of title IV program offered
• Adding a program outside of scope of approval on ECAR
– Higher level program
– Program leading to different employment objectives
• Adding a short term program
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Expansion Reported After the Fact
• New Programs within scope and not short-term (for fully certified schools)–School may self-determine eligibility
–State and accreditor approval must be obtained
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Establishing A New Or Moving An Existing Location
• Obtain any necessary State and accreditor approvals
• If moving more than 25 miles or 30
minutes contact School Participation Team
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Establishing A New Or Moving An Existing Location
• Moving a school should result in the Transfer of students and faculty/staff to new location
• Not closure and re-opening
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Establishing A New Or Moving An Existing Location
• Timing of applying, reporting and awarding – when to wait!
• The institution must APPLY and wait for ED’s approval before it can disburse Title IV funds for students at the new location if the institution-
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Establishing A New Or Moving An Existing Location
• Is provisionally certified• Is on reimbursement or cash monitoring payment
method• Has acquired the assets of another institution that
participated in title IV during the preceding year• Is subject to loss of eligibility based on default
rates• Is told by ED to wait
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Establishing A New Or Moving An Existing Location
• If you do not meet one of these conditions, you can disburse title IV funds to students at the new location AFTER…
• You have submitted a MATERIALLY complete application including mailing all supporting documents for the licensed and accredited location
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Establishing A New Or Moving An Existing Location
Be mindful of the 2-Year Rule
• If the location was used by another title IV school and you acquire certain of its assets or the acquired school was in violation of a debt to ED, you must accept all title IV liabilities of that school or be inactive in title IV for two years.
• Contact School Participation Team
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Adding Vocational Program
• Always apply and wait when
– the program is different from the currently approved subject matter
– the program is a short-term program
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Short-Term Program
• Eligible for FFEL and Direct Loans only• Must be between 300 and 599 clock
hours• At least 10 weeks in length• Cannot be more than 50% of state
required minimum hours
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Short-Term Program
• Must have been legally authorized to provide and continuously provided the program during the 12 months preceding the application date
• Must admit as regular students some students who have not completed an associate degree
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Short-Term Program
• Must provide training that prepares a student for gainful employment in a recognized occupation
• Substantiated completion rate of at least 70%
• Substantiated placement rate of at least 70% in related job fields
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Short-Term Program
• Rates must be reported in the annual audit (financial/compliance)
• If rates are not met, the program is not eligible for the next award year
• Institution can apply for re-approval of the program once it again meets the program eligibility requirements
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Clock to Credit Hours
• Formula that limits title IV eligible program length and is based on the number of approved clock hours
• ED will only approve credit hours up to the amount that is approved by the state and accrediting agencies
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Clock to Credit Hours
• Programs are exempt from formula when each course within the program is acceptable towards that school’s degree provided that the institution’s degree requires at least two academic years of study
• Public or private nonprofit hospital-based school of nursing that awards a diploma are also exempt
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Other Reporting
• Closure of a location• The institution must report a closure
of a location using the Application within 10 days of the closure of the location, branch or main campus
• The institution may be liable for closed school loan discharges if the students are unable to complete their program of study
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Do’s
• Use the EAPP for to apply for or report (www.eligcert.ed.gov)
• In Question 1, select the purpose “Update Information” and make the appropriate selection from the “pick list”
• Use Q 69 to clarify purpose
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Do’s
• Submit State and accreditor approvals
• Apply for or report additional locations where students would receive 50% or more of program by closed-circuit television or other transmission
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Do’s
• Work with your School Participation Team if you have any doubt about the reporting or approval process.
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Don’ts
• Award aid without all requisite State and accreditor approvals
• Assume a location near a main campus does not have to be reported– It does need to be reported if the
state and accreditor refer to site as a “branch” or “additional location”
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Don’ts
• Forget to report, and provide accreditor approval of externships/other written agreements between– School/organization where
ineligible organization provides instruction for > 25%, but not > 50%, of program
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Change In Ownership Process
Process• Three Stages
– Pre-acquisition Review (optional)– Approval of Temporary
Participation (or loss of certification)
– Approval of Change in Ownership (CIO) or denial
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Change In Ownership Process
Process• Review Focuses on Two Areas
– Eligibility Criteria •State and Accreditor
– Financial Analysis•School and Purchaser
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Change In Ownership Process
Pre-Acquisition Review• School Applies 45 days prior to
CIO• We advise school of deficiencies
and potential conditions for new owner
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Change In Ownership Process
Temporary Participation• PPA Issued after CIO takes place• Application must be “Materially
Complete” • Continues pre-CIO participation• Expires at end of month after
the month in which CIO occurs
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Change In Ownership ProcessMaterial Completeness• Current State and Accreditor
approvals• 2 Years of Audited Financials
from school (GAAP/GAGAS)• 2 Years of audited financials
from Purchaser (GAAP/GAAS) or• Other equivalent information
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Change In Ownership Process
Approval of CIO• Based on receipt of State and
Accreditor approvals• Based on receipt of audited same
day balance sheet of school• Receipt by end of the month
following the month of the CIO– Extends temporary PPA
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Change In Ownership Process
Intent• School is in good standing before
and after with State and Accreditor
• School meets Federal financial responsibility requirements
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Change In Ownership Process
Financial Responsibility• To Provide Published Services• To Provide Resources to meet Title
IV Requirements• To meet Financial Obligations
– Refunds– Liabilities– Debts
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Change In Ownership Process
Financial Responsibility• Two Regulatory Methods
–Composite Score–Acid Test Ratio/Positive Tangible Net Worth
–Based on U.S. GAAP
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Change In Ownership Process
Financial Responsibility• Composite Score
–Based on three ratios •Primary Reserve Ratio•Equity Ratio•Net Income Ratio
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Change In Ownership Process
Composite Score• Cushion Against Adversity• Inference of Ability to Borrow• Measure of Profitability
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Change In Ownership Process Acid Test• Cash and equivalents + current
receivables divided by current liabilities
• Primary measure of financial responsibility after CIO
• Ratio applied to same day balance sheet
• 1 to 1 or better is passing
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Change In Ownership Process
Positive Tangible Net Worth• Tangible Assets exceed
liabilities• Additional Factor of Financial
Responsibility after a CIO
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Change In Ownership Process
Exceptions• New Corporations (no financials)• Non-GAAP Financials• Purchaser is not a Business
–Fund–Individual
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Change In Ownership Process
Exceptions• Multiple Owners• Limited Liability Entities• Multiple Ownership Levels• Multiple Acquisitions
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Change In Ownership Process
ED Responses–Letters of credit–Growth restrictions–Additional Signatures on PPA– Increased Financial Reporting
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Do’s and Don’ts of Borrower Choice
SchoolFFEL
Loan Certification
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Do’s and Don’ts of Borrower Choice
Current Regulations:
34 C.F.R. § 682.401(b)(5)(i) - The borrower must indicate his or her preferred lender on the promissory note or other written or electronic documentation submitted during the loan origination process if he or she has such a preference.
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Do’s and Don’ts of Borrower Choice
34 C.F.R. § 682.603(e)(3) - The school does not engage in any pattern or practice that results in a denial of a borrower's access to FFEL loans because of race, sex, color, religion, national origin, age, handicapped status, income, or selection of a particular lender or guaranty agency.
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Do’s and Don’ts of Borrower Choice
Proposed Regulations:
34 C.F.R. § 682.603(f) (Effective July 1, 2008)
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Do’s and Don’ts of Borrower Choice
DO• Counsel perspective borrowers
about their right to select lender of their choice
• Advise borrowers they are not required to use a lender from school’s preferred lender list
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Do’s and Don’ts of Borrower Choice
DO• Update policies and procedures to
include process for borrowers to select a lender of choice
• Ensure school’s lender of choice policy and process is available and accessible
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Do’s and Don’ts of Borrower Choice
DON’T• Refuse to certify a FFEL based on
borrower’s choice of lender or guaranty agency
• Cause unnecessary certification delays for borrowers who use a lender that has not been recommended or suggested by school
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Do’s and Don’ts of Borrower Choice
DON’T• Assign a lender to first-borrowers
through award packaging or other method
• Engage in a pattern or practice of discrimination to deny FFEL access
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Do’s and Don’ts of Borrower Choice
DON’T• Refuse to certify a Stafford Loan for
a borrower or certify a reduced amount; except on a case-by-case basis, documented, and reason must be provided in writing
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Do’s and Don’ts of Borrower Choice
School Preferred Lender Lists
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Do’s and Don’ts of Borrower Choice
No Current Regulations to govern a school’s use of
such lists
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Do’s and Don’ts of Borrower Choice
Preferred Lender Lists:• School’s Option• Historically allowed but never
regulated
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Do’s and Don’ts of Borrower Choice
Preferred Lender Lists:• Evolution:
– Default prevention– Simplification of the process (electronic transmission)– Competition– Proliferation of borrower benefits
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Do’s and Don’ts of Borrower Choice
Proposed Regulation:
34 C.F.R. § 682.212 (f) (Effective July 1, 2008)
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Do’s and Don’ts of Borrower Choice
DO• Continue to provide a preferred
lender list as a resource for borrowers (School’s Option)
• Provide a list of at least 3 unaffiliated lenders
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Do’s and Don’ts of Borrower Choice
DO–Unaffiliated means:
•No common control or ownership•No common director, trustees, or general partners
•No trustee lender of another listed lender
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Do’s and Don’ts of Borrower Choice
DO• Develop a method/criteria for
choosing lenders for preferred lender list (include policies and procedures)
• Provide comparative information on borrower benefits offered by listed lenders– ED will provide a model format for
school’s use
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Do’s and Don’ts of Borrower Choice
DO• Include prominent statement in
any information (publication, websites, etc.) related to borrower’s selection of lender– Advising prospective borrower use
of school preferred lender is not required
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Do’s and Don’ts of Borrower Choice
DO• Include lenders solicited for the best
benefits to the borrower• Include only lenders willing to offer
the same borrower benefits to all of the school’s borrowers
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Do’s and Don’ts of Borrower Choice
DON’TProvide or make available a list of recommended or suggested lenders in print or any other medium or form for use by the school’s students or their parents that…
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Do’s and Don’ts of Borrower Choice
DON’T• Is used to deny or otherwise impede
a borrower’s choice of lender
• Contains fewer than three lenders who will make loans to borrowers or students attending the school
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Do’s and Don’ts of Borrower Choice
DON’T• Includes lenders solicited to
offer, financial aid or other benefits to the school, school employees, or its borrowers in exchange for…
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Do’s and Don’ts of Borrower Choice
DON’T– Inclusion on the list or any promise
that a certain number of loan applications will be sent to the lender by the school or its students
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Contact Information
We appreciate your feedback and comments. We can be reached at:
[email protected]@ed.gov