Yesterday, Today's News included the first of NASFAA's two-part summary of the second round of negotiated rulemaking sessions on Title IV General Provisions. The Department had provided draft proposed regulatory language for negotiators to consider during this round of negotiations. This article completes our summary of the main points discussed during the latest rounds of negotiations by addressing the following topics:

• Nonterm Credit Hour Programs - Use of Completion of Half the Weeks of Instructional Time for Timing of Loan Disbursements
• Require Institutions to Use Consistent Disbursement Periods for Title IV Programs Where Allowed Under Law
• Determining Loan Eligibility for Nonstandard Term Programs
• Treatment of FFEL and Direct Loan Funds When a Student Withdraws Before Beginning Class
• Minimum Period for Certifying a Loan
• Consistent Definitions for Undergraduate Student, Graduate or Professional Student and First-Professional Degree for All Title IV Programs
• Definition of Independent Study

Nonterm Credit Hour Programs - Use of Completion of Half the Weeks of Instructional Time for Timing of Loan Disbursements

Currently, there are differences in the timing of disbursements from the various Title IV programs based on the structure of the student's program of study. For example, when paying a Federal Family Education Loan (FFEL) or Direct Loan to a student in a nonterm credit-hour program, an institution may not make a second disbursement until the later of (1) the calendar midpoint between the first and last scheduled days of class of the loan period, or (2) the date, as determined by the institution, that the student has completed half of the academic coursework. But the second disbursement of a Title IV grant or Perkins Loan may be disbursed after the student has completed half the number of credit hours and half the number of weeks of instructional time in the academic year or program. This could result in the student receiving second disbursements of some program funds at a different point than others. Differences in the timing of Title IV program disbursements also apply to students enrolled in clock-hour programs or in nonstandard term programs consisting of terms that are not substantially equal.

The Department provided proposed regulatory language that would amend the definitions of a payment period by defining, for each type of academic program structure, the same payment period for all Title IV programs, except where prohibited by law and regulation (i.e., for nonstandard term programs using terms that are not substantially equal in length). This would be accomplished by the modifying provisions regarding the timing of FFEL and Direct Loan disbursements and incorporating them within the definitions of payment period in §668.8 of the Student Assistance General Provisions regulations. In addition, the proposed regulations would modify the payment period definitions in §668.8 applicable to the other Title IV programs as indicated below.

1. For credit-hour programs that are offered in standard term or nonstandard terms that have substantially equal terms, the payment period for all Title IV programs would be the term. The proposed regulatory language in §668.8 does not define "substantially equal terms"; however, FFEL and Direct Loan regulations define "substantially equal terms" as no term having more than two weeks of instructional time longer than any other term.
2. For credit-hour programs offered in nonstandard terms that do not have terms that are substantially equal, different payment period definitions would continue to apply for FFEL and Direct Loan purposes. For the Title IV grant and Perkins Loan programs, the payment period would be the term, as is in current regulations. However, the payment periods for FFEL and Direct Loans would be based on completion of half the credit hours and half the weeks of instructional time instead of current requirements (i.e., the later of the calendar midpoint or completion of half the coursework, as determined by the institution).

   If the student is enrolled in a program or a remaining portion of a program that is shorter than or equal to one academic year, the first payment period would be the period in which the student successfully completes half the credit hours and half the weeks in the program or academic year. The second payment period would be the remainder of the academic year or program. If the student is enrolled in a program that is longer than an academic year, the first payment period for the first academic year and any subsequent full academic year would be the period of time in which the student successfully completes half the credit hours and half the weeks in the academic year. The second payment period would be the period in which the student successfully completes the academic year.

3. For nonterm credit-hour programs and clock-hour programs, the payment periods would be defined the same for all Title IV programs. The proposed regulatory definitions would be based on modified regulatory provisions currently in §668.8 for these types of program structures. The modifications to §668.8 would require that any remaining portion of the student's program be divided into two payment periods, and that students enrolled in clock-hour programs successfully complete half the weeks of instructional time in addition to half the clock hours in the payment period.

School negotiators expressed two major concerns regarding the proposed changes to the payment period definitions for programs offered in nonstandard credit-hour terms that do not have substantially equal terms, nonterm terms, and clock-hour programs. First is the requirement that students enrolled in these types of programs must successfully complete the credit hours or clock hours in the payment period. Although the term "successfully complete" is not defined in regulation, the Department explained that it means the student must earn a passing grade and credit for the course. School negotiators argued that this requirement is discriminatory since no comparable requirement exists for credit-hour programs offered in standard terms or nonstandard terms that have substantially equal terms. For example, assuming that an institution checks satisfactory academic progress as required at least once a year, a student enrolled in a semester-based program can fail one or more courses during the first payment period and still receive Title IV funds for the second payment period.

The second area of concern to school negotiators is the requirement that there must be two payment periods if the student is completing the remaining portion of his or her program. Several problems were identified. For students enrolled in the final portion of a nonstandard credit-hour program, the disbursement of any FFEL or Direct Loan proceeds would not coincide with the disbursement of his or her other Title IV aid.

The proposed requirement to disburse Title IV funds in two payment periods for the remaining portion of the student's program that is less than an academic year would be overly burdensome to schools and may preclude the student from ever receiving funds for the second payment period. For example, suppose after completing the first academic year of his program, a student has 100 clock hours and 4 weeks remaining to complete the program. The proposed requirement for a second payment period would result in two very short payment periods (i.e., two weeks in each payment period) as well as create unnecessary additional administrative work for the school. Furthermore, if the student completes all of the 100 remaining clock hours during the first two weeks, he would not be eligible for a second payment since he completed his program before the second payment period began. Consequently, the student would be deprived of funds that he had needed and relied on at the beginning of the second academic year.

The Department argued that the reason for this proposed change for remaining portions of programs was to make disbursement rules more consistent among the Title IV programs. Negotiators would have to weigh whether having more aligned disbursements was worth the extra burden of dealing with extra disbursements for students who have a "trailer" in their last academic year.

In addition to these payment period changes, the proposed regulatory language would amend §668.22(e)(5) regarding the use of the payment period or enrollment period in the return of Title IV funds calculations for students enrolled in nonstandard terms that do not have substantially equal terms. If the institution chooses to use the payment period for the return of Title IV funds, it must attribute any Title IV funds that have not been disbursed by the payment.

The Department will re-examine the proposed regulatory language regarding payment periods prior to the next round of negotiations.

Require Institutions to Use Consistent Disbursement Periods for Title IV Programs, Where Allowed Under the Law

Currently, there are inconsistencies in the timing of Title IV disbursements based on different Title IV programs. Draft proposed regulatory changes discussed earlier would require the school to establish consistent payment periods for all Title IV programs except for when prohibited by the law and regulations. To ensure consistency in the timing of Title IV disbursements, the Department proposed amending §668.4 further to no longer permit an institution to have more than two payment periods in an academic year or in the student's program. For example, for a clock hour program of 900 hours, an institution would be required to disburse Title IV grant and Perkins Loan funds using two 450 hour payment periods.

While negotiators did not expresses reservations or objections about this issue, tentative agreement was withheld pending the further review and discussion of the other proposed changes to the payment period definition.

Determining Loan Eligibility for Nonstandard Term Programs

Students enrolled in nonstandard credit-hour programs currently do not become eligible for a new annual Stafford Loan limit until they have completed both the number of credit hours and weeks of instruction in an academic year The Department has provided proposed regulatory language that would modify when students enrolled in these types of programs may borrow a new annual loan limit. Under the proposed language, the same rules that apply to students enrolled in standard term credit-hour programs would also apply to students enrolled in credit-hour programs offered in nonstandard terms having substantially equal terms that are at least nine weeks. That is, the student enrolled in such nonstandard term credit-hour programs would be eligible for the next annual loan limit when the academic year calendar has elapsed. The Department did not indicate whether schools also would be able use the scheduled academic year (SAY) or must continue to use the borrower-based academic year (BBAY) standard when certifying or originating Stafford Loans.

School negotiators questioned the nine-week time period, how the Department came to that number, and whether that length of time could be shortened. The Department responded that lowering that amount of time has cost implications as more loans would be made over a shorter period.

Negotiators reached tentative agreement on the concept of this item, but the Department may tweak the language prior to the next round of negreg in April.

Affirmative Confirmation of a Loan

The Department provided draft proposed regulatory language that would modify the cash management notification provisions to require written, active confirmation from a student that he or she accepts any Title IV loan awarded him or her prior to the loan's disbursement.

School negotiators asked what problem the proposed requirement is intended to resolve, and how the requirement would mesh with current loan processes. Federal negotiators underscored the need for active confirmation by pointing to the same requirement in notifications from almost all other consumer credit good and services. However, nonfederal negotiators were concerned that, in addition to numerous other documents that a borrower must fill out, aid administrators would have to obtain yet another piece of documentation that the student wanted the loan. School negotiators further questioned why the MPN wasn't sufficient documentation to show that a student wants a loan. Negotiators wondered if after signing the MPN, receiving an award letter and a tuition invoice that shows the application of loan funds, and then going through loan counseling, another step would really have much effect on a borrower.

"If there is a problem, it isn't with first-year students who have to go through all of these steps," said a school negotiator. "The problem might be with second-, third-, or fourth-year students, and that makes me wonder why we went through all of this work to create and use MPNs."

When asked for evidence from the Department on how widespread this problem really was, the Department was only able to provide anecdotal evidence. The Department pointed out that almost no students reject loan funds after receiving them, but that a higher number of students cancel loan funds prior to disbursement if informed beforehand about the loans. Active confirmation ensures that students know about the loan prior to the disbursement.

Nonfederal negotiators saw this regulation as another obstacle for borrowers and pointed to record low default rates as a sign that borrowers are not having major troubles keeping track of their loans. A nonfederal negotiator suggested that if this regulation is going to be implemented, it should only be applied to schools with high default rates.

Some negotiators explained that many schools are already in compliance because software capabilities make the process almost seamless. However, some schools cannot afford these proprietary financial aid software applications.

Schools may also end up with excess cash when first disbursements automatically are deposited in schools' accounts and they are missing necessary authorizations from students. A school negotiator in opposition to the regulatory language offered a compromise that would require schools to receive signed award letters, but still objected to a separate, active confirmation. The Department will take into consideration comments made by negotiators before the next meeting in April.

Treatment of FFEL and Direct Loan Funds When a Student Withdraws Before Beginning Class

FFEL and Direct Loans have their own regulations that govern what happens with funds that are disbursed to students who never attend any classes. The current regulations do not put onto schools the responsibility of returning FFEL or Direct Loans that were delivered as cash disbursements to students in this instance, which is different from all other Title IV HEA programs, which hold schools responsible for the return of those funds.

The proposed regulatory language would require that, should the student withdraw before beginning attendance in a course for the payment period, the institution and not the borrower would be responsible for returning any FFEL and Direct Loan funds that it disbursed to the student's account or as a direct payment. A school would not be held responsible for Stafford Loan funds disbursed directly from the lender to the student enrolled in a study abroad program or in an eligible foreign institution, but the school would be required to notify the lender that the student had not begun classes.

Negotiators reiterated that if the Department implemented the draft proposed provision, schools would be less likely to disburse any funds - irrespective of student need - before the beginning of classes. As a result, students who have real need even before classes begin would adversely affected. Even though the Department has stated that the regulatory change would bring loans into alignment with other Title IV programs, school negotiators pointed out that their liability with loan funds is much higher than their liability with grants and campus-based funds simply because loan funds make up a larger amount of the aid packages of most students. School negotiators were also concerned that this could lead to student profiling, an unethical practice where a school might try to identify students who may be less likely to attend and then withhold early disbursements only for those students.

Making schools liable could also increase the likelihood of a scam as schools repay the government on behalf of the students and then try to collect from students directly. By owing only the school, scheming students would be able to do the same thing at multiple schools without leaving any record of their previous activity on NSLDS or with the Department.

Instead, negotiators asked that lenders - as currently required - be liable for recouping those loans since they have the resources in place to require loan repayment.

The Department will re-examine the regulatory language on this issue prior to the next round of negotiations.

Minimum Period for Certifying a Loan

Under current regulations, the minimum period for which a school may certify or originate a Stafford Loan for students enrolled in programs that are not standard credit-hour programs is the lesser of the length of the program's academic year or the academic year. Students who transfer from such programs to a new school within their BBAY are put in a precarious situation because they must wait for their prior academic year (i.e., both weeks and credit or clock hours) to expire before regaining eligibility for maximum annual loan limits. The student may take the remaining eligibility in their previous award year, but the new school would be required to certify that loan for an entirely new academic year.

For example, suppose a student pursuing an associate's degree in a nonstandard term program at a community college is required to take 60 credits, and completes 48 credits in 2 years. The community college certifies a loan for the remaining 12 credit hours left in the student's program. Because the remaining portion of the student's program is less than an academic year, the student is eligible only for a prorated amount of the annual loan limit. Should the student transfer to a bachelor's program upon completion of the associate degree, the student could not take a loan for the full annual loan limit that is applicable to his or her new program until the academic year at the community college had elapsed. In effect, such students are often required to make do on reduced loan amounts or take a break from school, waiting for their prior academic year to expire.

In response, the Department has proposed regulatory language that would allow a school to certify or originate a loan for a single nonstandard term if the nonstandard terms in the student's program are substantially equal in length and at least 9 weeks long. In addition, for a student who transfers within his or her BBAY, the student's new school would be able certify or originate a loan for an enrollment period that overlaps the period for which the student's prior school certified or originated a loan. The new loan period would be for the lesser of the remaining portion of the student's academic year or program, and the amount would be limited to the remaining balance of the student's annual loan limit.

Although the negotiators supported the draft proposed regulatory language, the changes do not address transfers between academic programs at the same institution and inequities related to grade level progression. If the borrower is transferring to a program with a higher annual loan limit, such as transferring from an associate degree program to a bachelor's degree program, the proposed language does not permit the student borrow the difference between the higher annual loan limit applicable to the new academic program and the amount already borrowed for the BBAY.

The Department will take into consideration comments made by negotiators before the next meeting in April.

Consistent Definitions for Undergraduate Student, Graduate or Professional Student and First-Professional Degree for All Title IV Programs

Currently there are wording differences in the definitions of "undergraduate student" and "graduate student" in the various program-specific regulations.

The proposed draft regulations would consolidate and move the definitions for undergraduate and graduate or professional students to §668.2(b) and references to these terms in §674.2(b), §675.2(b), §676.2(b), §682.200, §690.2, and §691.2 have been removed.

Language was added to the definition of an "undergraduate student" to clarify that any student who is enrolled in a dual degree program would be considered an undergraduate student for purposes of Federal student aid for his/her first three academic years in the program. Additionally, the regulations would define "first professional degree" based on the definition used by the Integrated Postsecondary Education Data System (IPEDS).

Negotiators reached tentative agreement on the proposed regulatory language.

Definition of Independent Study

Current regulations do not define the term "independent study." As a result, there has been some confusion over what forms of independent study are acceptable for different Title IV programs.

The Department offered proposed regulatory language that would define independent study as a course of study in which:

1. An individual student works with a faculty member to design a unique course or program of study tailored to that student's academic objectives and interests, or
2. For purposes of direct assessment programs, a student follows a course of study with predefined objectives but works with a faculty member to decide how the student is going to meet those objectives; and
3. The student and faculty member agree on what the student will do (e.g., required readings, research, and work products), how the student's work will be evaluated, and on what the relative timeframe for completion of the work will be. The student must interact with the faculty member on a regular and substantive basis to track progress within the course or program.

A school negotiator questioned whether it is appropriate to require that a student interact with a faculty member on a regular and substantive basis. They asked how they often "regular and substantive basis" might be and how schools and student will be held responsible for it. Another nonfederal negotiator expressed concern that students could lose program flexibility because of that phrasing and described the troubles that schools have had with their accrediting agencies on the same matter. Another nonfederal negotiator suggested that the language stay as-is, because it would allow flexibility in how schools interpret that regulation.

The Department admitted its own lack of experience in regulating these programs and asked negotiators for suggested regulatory language. The range of opinions from negotiators emphasized the complexity of the issue. Some negotiators wanted the language to be more vague while others wanted the language to be more specific. Some negotiators wanted to change words, such as changing the word "track" to "ensure," while still others wanted entire portions of the language removed, such as "and substantive" or any language dealing with coursework.

The Department said it would consider all of the points raised by negotiators, but voiced some frustration by the differing opinions and inconsistent ideas expressed by schools that "never want more regulations... except when they want more regulations."

The Department noted all objections and questions raised by negotiators and will take another look at the proposed regulations prior to the next round of negotiations in April.

By Justin Draeger
NASFAA Assistant Director for Communications

By Eileen Welsh
NASFAA Assistant Director for Professional Assessment, Training, and Regulatory Assistance

Posted 03/22/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.