The Department of Education held the first three-day session of negotiating rulemaking on Title IV general provisions last week.

This round of negotiated rulemaking brought together representatives of the various stakeholders in the Title IV programs, including state education agencies, postsecondary institutions, students, and other associations to offer advice and feedback on the current regulations. The Department will then incorporate that input into draft proposed regulatory language for negotiators to consider during the next round of negotiations in March, 2007. Negotiators in this round considered 20 regulatory items. A few issues concerning cash management are still being analyzed by NASFAA staff and a final article summarizing those discussions and implications will be released in the coming days.

Consistent Enrollment Status Definitions for All Title IV Programs

Negotiators considered whether a consistent definition of undergraduate enrollment terms should be stipulated in regulation and applied to all Title IV programs. While "full time" is currently defined in the General Provisions, the definitions of other less than full-time statuses are defined in the individual program regulations. For example, a student is considered full time when taking at least 12 credit hours, although an institution can set a higher requirement. Part-time statuses for Pell Grant may be based on either the institution’s definition of full-time or the regulatory minimum of 12 credits, while part-time statuses for the FFEL and Direct Loan programs must be based on the institution’s definition of full-time. Thus, at an institution that defines full-time as 15 credits, a student taking 6 credits may be considered half time for Pell Grant but must be considered less than half time for loans.

While negotiators were not able to identify any specific examples of problems arising from these inconsistent definitions, the general feeling was that it would be good to make as many definitions as consistent as possible throughout the programs.

Consistent Definitions of Undergraduate and Graduate Student 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. Much of the discussion surrounding these definitions concerned dual degree programs in which a student begins as an undergraduate and progresses as some point to graduate student status. Among the issues considered was at what point that transition occurs, after two years in the program, three years, or some student-specific point as recognized by the institution.

Some negotiators advocated that any student in a professional program be considered a professional level student - irrespective of whether or not they had received their bachelor’s degree. Some students - like students in a doctorate of pharmacy program - enter into their doctorate program prior to the receipt of a Bachelor’s degree.

A related issue concerns students enrolled in a teacher certification program. These students are restricted to fifth-year undergraduate loan limits in the FFEL and Direct Loan programs, but may be considered an undergraduate or graduate level student by the institution for Perkins Loan purposes. However, the definition of "graduate student" in all of the loan program regulations disallows that classification if the student is receiving aid as an undergraduate student at the same time.

This has implications for students who may have reached their aggregate or annual loan limits and whether or not they are then eligible for graduate level loans.

Define 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. Negotiators also pointed out that ED introduced a new definition in the ACG and National SMART Grant program regulations for nonterm "self-paced" programs.

Some institutions have found it difficult to distinguish between independent study and telecommunications or correspondence study and how independent study differs from a self-paced program described in CFR 691.75(e) for ACG and National SMART Grant funds.

Negotiators discussed whether regulatory language should be provided that defines independent study. There are guidelines in place to differentiate between online correspondence versus telecommunications courses, but not for independent study courses. While no particular cohort of students could be defined as losing out on aid due to the current lack of definition, negotiators felt that it would be in the community’s best interest to define independent study.

Current regulations state that telecommunications courses are offered "principally through the use of one or a combination of technologies including television, audio, or computer transmission through open broadcast, closed circuit, cable, microwave, or satellite; audio conferencing; computer conferencing; or video cassettes or discs to deliver instruction to students who are separated from the instructor and to support regular and substantive interaction between these students and the instructor." The allusion to "regular and substantive interaction" was emphasized during this discussion as a key distinction between telecommunications courses and correspondence courses, and its applicability to independent study was examined.

The panel also discussed methods of delivery of course content, such as on-line courses, and how the delivery method relates to the program’s classification. Negotiators also examined whether a distinction should be made between individual courses of independent study taken alongside traditionally-delivered coursework, and programs that consist wholly of independent study.

Negotiators suggested that the Department consider using a time frame to help define independent study - that it contain a definite start and end time - and contain terms such as, "non-classroom," "faculty guided," and "leading to a degree." Negotiators also suggested that the Department seek suggestions from accreditation agencies that may already have a working definition for independent study.

Treatment of Programs with only Standard Terms for Federal Pell Grants, ACG, and National SMART Grants

Currently, eligible programs offered in semesters, trimesters, or quarters, but which do not meet certain other criteria to qualify for Pell Grant Formula 1, must use Formula 3. Formula 3 calculates payments based - at least in part - on the weeks of instructional time in each term. Other criteria that allow use of Formula 1 include offering the terms over a fall through spring academic year calendar and without overlap.

Some schools offer programs in semesters, trimesters, or quarters, but with multiple start dates, such as monthly where students are starting a term each month throughout the year. So while these programs still award credits and operate on a standard term schedule, they may also have new groups of students starting classes beginning in January, February, March, etc.

Negotiators discussed whether or not students with traditional standard terms in a nontraditional calendar could be awarded grants using Formula 1. Negotiators felt that those students, mostly out of simplicity, should be allowed to use Formula 1 and that the Department alter the regulations accordingly.

Proration of Awards for Federal Pell, ACG, and National SMART Grants

Grants are awarded evenly across an academic year so that students have available funds throughout their academic year. For undergraduate programs, Title IV is awarded based on two measures: weeks of instructional time and credit or clock hours. However, this standard is applied differently to different program formats in the Pell Grant Program. The Department explained that for each formula, first weeks of instructional time and then credit or clock hours are considered:

• For term-based programs, the weeks of the terms are taken into consideration and then the award is prorated for credit hours using disbursement schedules based on the student’s enrollment status.
• For clock-hour and non-term credit-hour programs, weeks of progression in the lesser of the academic year or program are considered and then the award is prorated based on the hours in the payment period in relation to the hours in the academic year.

Negotiators contended that for clock-hour and non-term credit-hour programs, this formula results in a double proration of the student’s award. For example, students enrolled in a 600 hour clock-hour program are first prorated based on the weeks in the program. Then, they are prorated again based on the hours in the payment period in relation to the hours in the academic year (300 hours / 900 hours).

Some negotiators felt that students in career training programs or technical schools are not being treated equitably and should receive the maximum amount possible with only one proration.

The Department countered that all students are treated equitably although it many not appear that way on the surface. Officials in the Department contended that double proration does not seem to occur in term-based programs because the proration is already built into the table - not requiring the FAA to actually perform two proration calculations.

Several negotiators asked the Department to provide comparative examples of calculations under the different formulas. The Department concluded that it would take a look at the current formulas to ensure equitable treatment of students without respect to the type of eligible program.

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

Currently, there are inconsistencies in the timing of Title IV disbursements based on different Title IV programs. For example, when paying a FFEL or Direct loan to a student in a non-term 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 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.

The Department suggested that non-term credit hour programs, non-standard credit hour programs with terms that are not substantially equal, and clock hour programs be required to disburse the second disbursements of FFEL and Direct loans after the completion of half the weeks of instructional time rather than using the calendar midpoint, to bring these disbursements in line with the timing of grant and Perkins loan disbursements and introduce consistency among all program formats.

School negotiators pointed out that because schools already have the option of holding the second disbursement until the completion of half the weeks of instructional time, there may be no reason for additional regulations that force schools to do so.

Determining Loan Eligibility for Nonstandard Term Programs

In standard term programs, students become eligible for a new annual loan limit once the time period associated with all the terms in an academic year has elapsed. Students in clock hour, non-term credit hour, or non-standard term programs cannot progress to the next loan limit until they have completed an academic year in both time and credit or clock hours. In recent years nonstandard term programs with terms that are substantially equal in length have been allowed to disburse proceeds on the same payment period basis as standard term programs. Along those lines, the Department is considering permitting a student to progress to the next loan limit based on time only, if the terms in the program are of a minimum length and are substantially equal in length.

Negotiators who supported this suggestion also pointed out that satisfactory academic progress requirements is a second check that will eventually take eligibility away from students who are not keeping up with the credit hour component of the academic year definition.

Certifying Loans for Transfer Students

Many students transfer to a new school within their borrower based academic year. That puts transfer students - particularly in nonstandard-term or clock-hour programs - in a precarious situation because they must wait for their prior academic year 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.

In effect, students from nonstandard term or clock-hour programs are often required to make do on reduced loan amounts or break from school, waiting for their prior academic year to expire.

A suggestion by one of the negotiators would allow schools to certify the remaining balance for the remaining portion of an academic year for transfer students in clock-hour, nonstandard programs. The Department stated that it would consider the suggestion prior to the next round of negotiations.

Prorating a Loan for Graduating Seniors

Instead of using exact proration - using credit hours remaining in a student’s program divided by credit hours in the academic year - as required by current regulation, a negotiator asked if regulations could be drafted that would allow schools to prorate loans at a simple 50 percent calculation for students in their last period of enrollment at an institution, when that period is less than a full academic year in length. Negotiators thought the proposal was good, but wanted schools to have the option of using either exact proration or a simple 50 percent proration. The Department gave no indication whether or not it would provide draft regulations allowing a simple 50 percent proration prior to the next round of negotiations.

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

Regulations governing the disposition of Title IV funds for students who never begin attending any class are contained in CFR 668.21 except for FFEL and Direct loans - which have their own regulations for this situation. Current regulations do not put the responsibility of returning FFEL or Direct loans that were delivered as cash disbursements to students on the school in this instance. The Department is considering regulatory language that would bring FFEL and Direct loans in alignment with other Title IV programs to simplify the process and make schools responsible for the return of those funds.

Negotiators were concerned that since the Department allows FFEL and Direct loans to be disbursed several days prior to the beginning of classes to help students cover certain educational costs, the school would become liable for funds that were disbursed to students that do not enroll. School negotiators argued that it would be better to leave the borrower liable to the lender since they accepted funds without ever attending school.

Schools are caught in a catch-22 in this instance because the Department gives FFEL borrowers in this situation 30 days to repay the loan in full, after which the borrower is moved into default. This could have a negative effect on a school’s cohort default rate as well as the student’s future ability to receive Title IV funds. As a result, many schools choose to just pay off the loan for the student and then attempt to collect from the student at a later date.

Negotiators went on to say that if the Department implemented this policy, schools would be less likely to disburse any funds - irrespective of student need - before the beginning of classes which would negatively affect students that have real need even before classes begin.

Eliminate the Single Disbursement Provision for Perkins and FSEOG Funds

Under current regulations, an institution may make a single disbursement of a Perkins loan or FSEOG award if the annual award under either program is less than $501. The Department solicited input on a proposed regulation that would require multiple disbursements to be consistent with other Title IV programs. The Department reminded participants that this provision was only introduced on August 28, 1978, to ease the administrative burden on schools - that were, at that time, filling out checks by hand. Now, because of the ease of delivering funds electronically, the Department would like to move back to multiple disbursements over the course of the academic year.

The Department assured negotiators that this would not interfere with their ability to "front-load" campus based disbursements when a borrower has uneven costs or resources for a single payment period.

Post-withdrawal Disbursement

Currently, a school can pay a post-withdrawal disbursement directly to a withdrawn student only after obtaining a borrower’s confirmation that he or she still wants the funds. The requirement to get a borrower’s confirmation prior to making a cash disbursement of loan funds as part of a post-withdrawal disbursement was part of the HERA legislation. However, the extension of this requirement to grants was regulatory, not statutory. A negotiator asked whether the rules should be amended to remove the confirmation requirement to make the post-withdrawal disbursement of grant funds.

Several negotiators expressed the opinion that the student has earned those funds based on rules governing the return of Title IV funds and there should be no further barriers put in their way for receiving them. Some felt that the students already indicated that they wanted that money and it is redundant to ask them if they want it again.

The Department countered that some students may not want those funds after withdrawing so they could use them at a different institution. Other negotiators suggested that the student could just as well use the funds to attend another institution having received them as a post-withdrawal disbursement.

Require Institutions to Use Consistent Disbursement Periods for Title IV Programs

Where allowed under statute, the Department would like to mandate that all Title IV funds be disbursed on the same disbursement schedule. While many schools disburse all programs on the same disbursement schedule, others disburse programs on different payment schedules which may cause confusion for the student.

The Department also stated that using inconsistent payment schedules increases the complexity of the return of Title IV funds regulations.

For example, while the law requires that the second half of FFEL and Direct Loans be disbursed no earlier than midway through the loan period for clock hour and nonterm credit hour programs, other program funds can be disbursed more frequently if the institution divides its academic year into more than two payment periods. A student could withdraw during a payment period having received half of the loan but one-third of a grant.

Some negotiators argued that current rules allow an institution to deliver grant funds on a better schedule for the student and preferred not to see those rules changed.

By Justin Draeger
NASFAA Assistant Director for Communications

By Joan Berkes
NASFAA Senior Associate Director for Regulatory Assistance

Posted 02/13/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.