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Institutional Eligibility and Administrative Requirements - Institutional and Program Eligibility

AwardYear: 1996-1997
EnterChapterNo: 3
EnterChapterTitle: Institutional Eligibility and Administrative Requirements
SectionNumber: 1
SectionTitle: Institutional and Program Eligibility
PageNumbers: 5-32



This section will discuss the three types of institutions that are
eligible to participate in the SFA Programs and the effect of program
eligibility requirements on institutional eligibility. Not every
program at an eligible institution is an eligible program, nor must all
eligible programs at the school have the same minimum program
length or admissions standards.

A school applying for approval to participate for the first time should
refer to Section 10 of this chapter. Section 10 also discusses other
changes in participation, loss of eligibility, and ownership changes.

THE THREE DEFINITIONS OF ELIGIBLE INSTITUTIONS

Previously, the Institutional Eligibility regulations (34 CFR Part 600)
defined four types of eligible institutions; however, the Higher
Education Amendments of 1992 made several changes regarding
institutional participation, including eliminating one of the four types
of eligible institutions. The definition of "vocational school" was
removed. Therefore, such a school can no longer participate in the
SFA Programs, unless the school qualifies under one of the
remaining definitions. (Refer to the chart on page 3-6.) Under the
remaining three definitions, a school is eligible to participate in ALL
the SFA Programs, provided the school offers the appropriate type of
eligible program. This section covers the key elements of the three
definitions, giving special attention to those requirements that affect
the definition of an eligible program.

[[School may meet more than one definition]]
Although the participation criteria defined for each of the three types
of institutions differ somewhat, these eligible school definitions are
not mutually exclusive. That is, a school may meet the definition of
more than one type of institution.

[[Page 3-6, entitled "Eligible School Definitions," is currently
unavailable for viewing. Please reference your paper handbook
for additional information.]]

CONTROL AND LEGAL AUTHORIZATION

[[Public/private nonprofit/for-profit]]
The "control" of an institution distinguishes whether the school is
public or private, nonprofit or for-profit. Under the institutional
definitions, an "institution of higher education" or a "postsecondary
vocational institution" can be either public or private, but is always
nonprofit. A "proprietary institution of higher education" is always a
private, for-profit institution.

A nonprofit institution

- is owned and operated by one or more nonprofit corporations or
associations whose net earnings do not benefit any private
shareholder or individual,

- is legally authorized to operate as a nonprofit organization by
each state in which it is physically located, and

- is determined by the Internal Revenue Service to be eligible for
tax-deductible contributions.

[[School's main campus must be located "in a state"]]
[[Definition of a "state"]]
With the exception of certain foreign schools that are eligible only
for the Federal Family Education Loan (FFEL) Program, an eligible
institution under any of the three definitions must be located in a
state. The definition of a "state" includes not only the 50 States of
the Union, but also American Samoa, Puerto Rico, the District of
Columbia, Guam, the Virgin Islands, and the Northern Mariana
Islands. For the purposes of the Federal Pell Grant (Pell Grant),
Federal Supplemental Educational Opportunity Grant (FSEOG), and
Federal Work-Study (FWS) programs, a "state" also includes the
Federated States of Micronesia, the Marshall Islands, and the
Republic of Palau. GENERALLY, THE DETERMINING FACTOR
IS THE PHYSICAL LOCATION OF THE MAIN CAMPUS OR
PLACE OF INSTRUCTION. For instance, if a school's main
campus is in a state, as defined above, the school can still have an
additional location in a foreign country. (For more information on
additional locations and branch campuses, see Section 10 of this
chapter.) However, a correspondence school is considered to be
located in the state where its administrative office is located.

[[Authorization by a state]]
To qualify under any of the three institutional definitions, a school
must be legally authorized by the state in which it offers an
educational program to provide the program. The state's legal
authorization may be provided by the licensing board or educational
agency. In some cases, the school's charter is its legal authorization.
In other cases, a school is considered to be legally authorized if state
law does not require it to have a license or other formal approval.

ACCREDITATION

Generally, an institution must be accredited by a nationally
recognized accrediting agency to be eligible. (See alternatives listed
below.) The Department has published regulations governing the
procedures and criteria for recognizing accrediting agencies. For
more information, see the Accreditation regulations (34 CFR Part
602), published in the April 29, 1994 Federal Register. The
Department periodically publishes a list of recognized accrediting
bodies in the Federal Register, based on criteria given in CFR Part
602. Copies of this list are also available from the

U.S. Department of Education
Accrediting and State Liaison Division
600 Independence Ave. S.W. Room 3915 (ROB-3)
Washington DC 20202-5244

Previously, the law provided three statutory alternatives to
accreditation; now there are only two. First, an institution may be
preaccredited by an agency or association that has been approved by
the U.S. Department of Education (the Department) to grant such
preaccreditation. Secondly, unaccredited postsecondary vocational
institutions may be eligible for SFA funds if approved by a state
agency that the Department determines to be a reliable authority.
Schools wishing to apply under these procedures should contact the
Institutional Participation Division (IPD) at (202) 708-4906 for
further information.

NATIONALLY RECOGNIZED ACCREDITING AGENCY OR
ASSOCIATION: An accrediting agency or association which the
Secretary of Education has recognized to accredit or pre-accredit a
particular category of institution, school, or educational program
in accordance with the provisions in 34 CFR 602 and 603.

PRE-ACCREDITED: A status granted by a nationally recognized
accrediting agency or association to a public or private nonprofit
institution that is progressing towards accreditation within a
reasonable period of time. The pre-accredited status must be
recognized by the Department.

[[Changes in accreditation may affect eligibility]]
[[Dual accreditation]]
If a school loses its accreditation, it is ineligible to participate in the
SFA Programs and must notify the Department within 30 days.*1*
However, if a school's accrediting agency loses its recognition from
the Department, the school has up to 18 months in which to obtain
accreditation from another recognized agency. Other changes in
accreditation may also jeopardize institutional participation. If a
school changes accrediting agencies, it may be subject to termination
unless the school submits to the Department all materials relating to
the prior accreditation, including materials demonstrating reasonable
cause for changing accrediting agencies. If a school is accredited by
two agencies at the same time, the school must designate which
agency's accreditation will be used in determining institutional
eligibility for SFA funds and must inform the Department of the
designation. Further, the school must provide to the Department
(and to both agencies involved) all materials documenting sufficient
reason and cause for dual accreditation. See Section 10 of this
chapter for more on loss of accreditation and loss of eligibility.

ADMISSIONS STANDARDS

[[Admissions standards]]
Each eligible institution definition includes a provision specifying
the admissions standards that apply to that type of postsecondary
school. An eligible school may admit as regular students only
persons who have a high school diploma or its recognized
equivalent, or persons who are beyond the age of compulsory school
attendance.

REGULAR STUDENT : A person who is enrolled (or is accepted
for enrollment) in an eligible program for the purpose of obtaining
a degree, certificate, or other recognized credential.

Students who are beyond the age of compulsory attendance but who
do not have a high school diploma or General Education
Development (GED) Certificate must meet ability-to-benefit criteria
to be eligible for aid from the SFA Programs. For more information
on this student eligibility requirement, see Chapter 2 under "Ability
to Benefit."

[[Student may certify that high school diploma/GED was granted]]
For SFA purposes, the school is not required to keep a copy of a
student's high school diploma or GED. Rather, the school may rely
on the student's certification that he or she has received the
credential and a copy of the certification must be kept on file. (This
certification need not be a separate document. It may be collected on
the school's admissions application.) The school may also require
the student to provide supporting documentation.

[[Alternatives for special cases]]
Generally, a RECOGNIZED EQUIVALENT OF A HIGH SCHOOL
DIPLOMA is either a GED or a state certificate (received after the
student has passed a state authorized test) that the state recognizes as
being equivalent to a high school diploma. However, the
Department recognizes that there are special cases. If a student has
successfully completed at least a two-year program that is acceptable
for full credit toward a bachelor's degree, the student's academic
transcript is considered equivalent to a high school diploma. A
student without a high school diploma who is seeking enrollment in a
program of at least the associate-degree level, and who has excelled
academically in high school and met formalized written admissions
policies of the school is also considered to have the equivalent of a
high school diploma. These students may be eligible to receive SFA
funds without having to meet the ability-to-benefit requirements,
provided the students are no longer enrolled in high school.

A school that admits students who do not have a high school diploma
or recognized equivalent has some additional considerations. An
otherwise eligible institution does not qualify as an eligible
institution if

- it does not provide a four-year or two-year program leading to a
bachelor's or associate degree, and

- for its latest complete award year, 50% or more of its regular
enrolled students had neither a high school diploma or equivalent.

[[Waiver]]
This requirement is waived for a nonprofit institution if the
institution demonstrates to the Department's satisfaction that it met
or exceeded the 50% threshold because the school serves, through
contracts with federal, state or local government agencies, significant
numbers of students who do not have a high school diploma or its
recognized equivalent . A school will not be granted this waiver if
more than 40% of the school's enrolled regular students do not have
a high school diploma or equivalent and are not served through
contracts with federal, state, or local government agencies. The
purpose of the contracts must be to provide job training to low-
income individuals who are in need of the training.

[[School must make GED program available]]
Also, a school that admits students without a high school diploma or
its equivalent must make a GED preparatory program available to its
students. The course does not have to be provided by the school
itself, and the school is not required to pay the costs of the program.
The GED program must be offered at a place that is convenient for
the students and the school must take reasonable steps to ensure that
its students have access to the program, such as coordinating the
timing of its program offerings with that of the GED program. The
school must provide information about the availability of the GED
program to affected students. The GED program must be proven
successful in preparing its students to obtain a GED--such programs
include GED programs that are conducted by state and local
secondary school authorities, as well as programs for which the
school has documentation that statistically demonstrates the success.

The law does not require a school to verify that a student is enrolled
in a GED program or to monitor the student's progress in the
program. A student without a high school diploma or recognized
equivalent is not required by law to enroll in a GED program, but the
school may choose to make this an admissions requirement. A
student may not receive SFA funds for the GED program although
he or she may be paid for postsecondary courses taken at the same
time as the GED coursework, including remedial coursework*2* at
the secondary level or higher.

OTHER ELIGIBILITY FACTORS

The Higher Education Amendments of 1992 added requirements for
institutional eligibility which have been incorporated into the
Institutional Eligibility regulations published April 29, 1994. These
requirements are referred to here as: the 85 Percent Rule, the
Correspondence Course Limitation, the Correspondence Student
Limitation, the Incarcerated Student Limitation, and the Ability-To-
Benefit Student Limitation.

[[School calculations must be attested to by CPA]]
All of these requirements involve certain percentage calculations,
which are performed by the school either to demonstrate compliance
with a requirement or to demonstrate eligibility for a limitation
waiver. In each instance, a calculation performed by the school must
be attested to by the certified public accountant (CPA) who prepares
the school's audited financial statement or its SFA compliance audit.
The CPA's report must be part of the audit record and must include a
recalculation if a school's initial calculation was in error. The CPA's
attestation report must indicate whether the school's determinations
(including any relevant waiver or exception) are accurate.

[[School required to notify the Department]]
For each of the requirements and limitations discussed below, the
school must notify the Department of the school's failure to meet a
requirement, its falling within a prohibited limitation, or its
ineligibility for a continued limitation waiver. Except for the
specific notification requirements under the 85 Percent Rule, this
notification must occur by July 31 following the end of an award
year.

[[Requirements to regain eligibility]]
To regain institutional eligibility lost due to the requirements or
limitations listed below, the school must demonstrate its compliance
with all eligibility requirements and its ability to stay outside
prohibited limits for at least one award year. Further, it must also
show how its administrative practices and policies have been
changed to ensure that it will not fall within prohibited limits in the
future.

THE 85 PERCENT RULE. To be eligible for SFA participation, a
proprietary institution may derive no more than 85% of its revenues
from the SFA Programs. As specified in section 600.5(d), a school
must determine its revenue percentages using the following formula:

[[Fraction for 85% Rule calculation]]
SFA Program funds (except SSIG or FWS) used for
tuition, fees, and other institutional charges to students
----------------------------------------------------
The sum of revenues generated by the school from:
(1) tuition, fees, and other institutional charges for
students enrolled in eligible programs; plus (2) school
activities* necessary for the education or training of
students enrolled in those eligible programs

*to the extent not included in tuition, fees, and other
institutional charges

[[Refunds not counted in fraction]]
In determining whether a school satisfies the 85 Percent Rule, the
totals used in the fraction do NOT include refunds paid to or on behalf
of students who have withdrawn, dropped out, been expelled, or
otherwise failed to complete the period of enrollment. Charges for
books, supplies, and equipment are not included in the fraction
unless the amount is part of the tuition, fees, or other institutional
charges.

In figuring what SFA funds were used to pay tuition, fees, and other
institutional charges, a school may assume that any SFA funds
disbursed (or delivered) to or on behalf of a student were used for
such costs, unless those costs were otherwise paid by

- grant funds provided by non-federal public agencies,

- grant funds provided by independent private sources, or

- funds from qualified government agency job training contracts.

[[Revenues from school activities]]
In figuring revenues generated by school activities, a school may
include only revenue from activities that are conducted on campus or
at a facility under the control of the school, that are performed under
the supervision of a faculty member, and that are required for all
students in a specific educational program at the school. The
school's "85 Percent Rule" calculation must be attested to by a CPA,
as discussed previously.

The 85 Percent Rule was published in final regulations on April 29,
1994. However, Public Law 103-333 precluded the Department
from implementing the 85 Percent Rule regulations until July 1,
1995. As of July 1, 1995, the 85 Percent Rule applies to all
institutional eligibility determinations for proprietary institutions.*3*

[[Most recently completed fiscal year]]
A proprietary institution must determine whether it satisfied the 85
Percent Rule during its most recently completed fiscal year. For
example, for schools using a calendar year as their fiscal year, their
most recently completed fiscal year is the one that ended on
December 31, 1995. For those schools using the award year as their
fiscal year, their most recently completed fiscal year will be the one
that ends on June 30, 1996.

[[Failure to meet the 85% Rule]]
Schools that fail to satisfy the 85 Percent Rule lose their eligibility on
the last day of that fiscal year. Schools have 90 days after their most
recently completed fiscal year has ended to report to the Secretary if
they did not satisfy the 85 Percent Rule for that period.

[[Attestation engagement]]
Schools that determine that they satisfied the 85 Percent Rule during
their most recently completed fiscal year must have the CPA who
prepares their audited financial statement report on the accuracy of
that determination based upon performing an attestation engagement.
The report must be submitted as part of the audited financial
statement.

[[NEW]]
The CPA's report must indicate whether the school's determination
is fairly presented in all material aspects. The CPA can provide this
type of report only in an "examination" level attestation engagement.
Accordingly, the attestation engagement should be an examination
engagement in accordance with the American Institute of Certified
Public Accountants (AICPA) Statement on Attestation Engagements
No. 3, Compliance Attestation. A report prepared under an
examination level attestation agreement must be included with an
audited financial statement of a school's fiscal year for any fiscal
year that ends on or after June 30, 1996.

[[Notification to the Department]]
A school must notify the Department of its failure to satisfy the 85
Percent Rule or, if it does satisfy the 85 Percent Rule, the school
must submit the auditor's report to the Department at the following
address:

U.S. Department of Education
Institutional Participation Division
Room 3522, ROB-3
600 Independence Avenue, S.W.
Washington DC 20202

CORRESPONDENCE COURSE LIMITATION. An otherwise
eligible institution is not eligible for SFA Program participation if,
during the school's latest complete award year, more than 50% of its
COURSES are taught through correspondence.*4*

CORRESPONDENCE COURSE: A home study course provided
to students who are not physically attending classes at the school;
a course that is part residential and part correspondence. (Includes
video courses unless students physically in attendance at the
school receive the same video instruction in the same award year.)

TELECOMMUNICATIONS COURSE: A course offered
principally through television, audio, or computer transmission,
including open broadcast, closed circuit, cable, microwave,
satellite, or audio or computer conferences. (Includes video
courses if student physically attending the school also receive the
video course in the same award year.)

[[Exception for certain institutions]]
This requirement does not apply to an institution that mainly
provides vocational adult education or job training (as defined under
the Carl D. Perkins Vocational and Applied Technology Education
Act).

In calculating the percentage of "correspondence courses," a
correspondence course can be either a complete educational program
offered by correspondence or a single course offered by
correspondence that is part of a larger, on-campus (residential)
program. Regardless of how many times a course or program is
offered during the award year, it is counted only once. (A course
offered both through correspondence and on campus is counted as
two courses when determining the total number of courses offered by
the school.) The school's Correspondence Course calculation must
be attested to by a CPA, as discussed previously.

[[Head count]]
CORRESPONDENCE STUDENT LIMITATION. An otherwise
eligible institution is also NOT eligible for SFA Program
participation if, for its latest complete award year, 50% or more of its
regular STUDENTS are enrolled in correspondence courses.
"Telecommunications courses" may be considered to be
correspondence courses (see the definitions and the footnote on this
page). The rules for calculating this percentage are the same as
given previously for the calculation of the correspondence course
percentage. The calculation should reflect a straight "head count" of
students. That is, each regular student must be counted regardless of
full-time or part-time attendance and will be counted only once
during an award year, regardless of withdrawal and reenrollment.
(Students who enrolled, withdrew, and subsequently received a full
refund should not be included in the count.) The school's
Correspondence Student calculation must be attested to by a CPA, as
discussed previously.

[[Exceptions for certain institutions]]
This requirement is waived for a school that offers a two-year
associate degree or four-year baccalaureate degree program if the
students enrolled in correspondence courses receive no more than
5% of the total SFA funds received by all of the school's students.
This requirement also does not apply to an institution that mainly
provides vocational adult education or job training (as defined under
the Carl D. Perkins Vocational and Applied Technology Education
Act).

[[Waiver possible]]
INCARCERATED STUDENT LIMITATION. An otherwise
eligible institution is NOT eligible for SFA Program participation if,
for its latest complete award year, 25% or more of its regular
students are incarcerated.*5* If requested by the school, the
Department may waive this limitation for a nonprofit school offering
a two-year associate degree or a four-year baccalaureate degree
program, upon the school's request. (For the purposes of this
waiver, "nonprofit" includes public institutions.) For information on
the eligibility of incarcerated students for SFA assistance, see
Chapter 2.

For a school offering ONLY four-year or two-year programs that
lead to bachelor's or associate degrees, respectively, the waiver
applies to all programs offered at the school. However, if the school
offers other types of programs, the waiver would apply to any of the
school's four-year and two-year programs leading to a bachelor's or
associate degree, respectively, and also to any other programs in
which the incarcerated regular students enrolled have a 50% or
greater completion rate. (The calculation of this completion rate is
specified in Section 600.7(e)(2) of the Institutional Eligibility
regulations and must be attested to by a CPA, as discussed
previously.) If granted, the waiver is effective as long as the school
continues to meet the waiver requirements each award year.

ABILITY-TO-BENEFIT LIMITATION. An otherwise eligible
institution that does NOT offer a two-year associate degree or a four-
year baccalaureate degree program is NOT eligible for SFA Program
participation if 50% or more of its regular enrolled students are
admitted without a high school diploma or its equivalent (here called
ability-to-benefit students).

[[Waiver possible]]
The Department may waive this limitation for a nonprofit school if it
exceeds the limitation because it serves significant numbers of
ability-to-benefit students through government agency contracts,
such as a contract under the Job Training Partnership Act. Such a
waiver is only possible if no more than 40% of the school's regular
enrollment consists of ability-to-benefit students who are not served
under the above-mentioned contracts. If granted, the waiver extends
as long as the school continues to meet the waiver requirements each
award year. The school's "Ability-To-Benefit" calculation must be
attested to by a CPA, as discussed previously.

"TWO-YEAR" RULE

To be eligible as a proprietary institution or a postsecondary
vocational institution, the applicant institution must have provided
continuous postsecondary instruction (and been legally authorized to
do so) for at least two consecutive years. The educational
program(s) offered must remain substantially the same in length and
subject matter, except for changes made because of new technology
or other federal agencies' requirements. An additional location must
also satisfy the two-year rule by operating independently for two
years before it may be evaluated to be considered a free-standing
institution. Time as an additional location of an eligible proprietary
institution or postsecondary vocational institution does not count
toward the two-year rule, but time as an eligible institution of higher
education or its additional location does.

A branch campus*6* seeking status as a main campus or free-
standing institution is subject to the two-year rule, but its time as a
branch campus counts toward the two years. (For more information
on additional locations and branch campuses, including definitions of
these two terms, see Section 10.)

FOREIGN SCHOOLS ELIGIBLE FOR FFEL PROGRAMS

Subpart E of the Institutional Eligibility regulations establishes the
eligibility criteria for foreign schools. In general, by law, foreign
schools can participate in FFEL and Direct Loan programs if they are
comparable to an institution of higher education as defined earlier in
this section (also see Chapter 10) and have been approved by the
Secretary. Additionally, the regulations added specific requirements
for foreign medical schools.*7*

[[Requirements for foreign medical schools]]
To be eligible for FFEL and Direct Loan participation, a foreign
medical school must meet the same requirements as other foreign
schools and must also

- provide, and require its students to complete, a medical program
of clinical and classroom instruction not less than 32 months long
that is supervised closely by members of the school's faculty and
that is provided either

- Outside the U. S., in facilities adequately equipped and staffed to
afford students comprehensive clinical and classroom medical
instruction, or

- In the U. S., through a training program for foreign medical
students that has been approved by all medical licensing boards
and evaluating bodies whose views are considered relevant by
the Department;

- have graduated classes during each of the two years preceding the
school's application for eligibility;

- for the above-mentioned medical program, employ only faculty
members whose credentials are equivalent to the credentials of
faculty teaching similar courses in U.S. medical schools; and

- for a public or private nonprofit school, be accredited by a
recognized agency, OR for all other schools, by an authorized
agency whose standards have been determined by a panel
approved by the Department to be comparable to U.S. standards of
accreditation for medical schools.

In addition, the law specifies the following requirements for foreign
medical schools

- at least 60% of the full-time regular students enrolled in the
previous year and 60% of the most recent graduates must be other
than U.S. citizens or nationals, permanent residents, or eligible
noncitizens of the United States, and

- at least 60% of the students and graduates (for the past three
years) who took any step of an exam from the Educational
Commission for Foreign Medical Graduates (ECFMG)--including
the ECFMG English test--in the previous year must have received
a passing score.

A school not meeting all the 60 percent requirements can still be
eligible if the school's clinical training program was approved by a
state as of January 1, 1992 and is currently approved. Continued
eligibility is dependent upon annual submission of the data and
information that demonstrates compliance with these 60%
requirements (or the exception).

REPORTING INFORMATION ON FOREIGN SOURCES

The Amendments of 1992 require certain postsecondary schools
(whether or not the school is eligible to participate in the SFA
Programs) to report ownership or control by foreign sources. The
law also requires these postsecondary schools to report contracts
with, or gifts from the same foreign source that, alone or combined,
have a value of $250,000 or more for a calendar year. These reports
must be filed with the Department by the January 31 or July 31,
whichever is sooner, after the date of receipt of the gifts, date of the
contract, or date of ownership or control. The January 31 report
should cover the period July 1--December 31 of the previous year,
and the July 31 report should cover January 1--June 30 of the same
year.

[[Definitions of gift and contract]]
CONTRACT: Any agreement for the acquisition by purchase,
lease, or barter of property or services for the direct benefit or use
of either of the parties.

GIFT: Any gift of money or property

[[Who must report]]
A school (and each campus of a multicampus school) must report
this information if the school

- is legally authorized to provide a program beyond the secondary
level within a state,

- provides a program for which it awards a bachelor's degree or a
more advanced degree, or provides at least a two-year program
acceptable for full credit toward a bachelor's degree,

- is accredited by a nationally recognized accrediting agency, and

- is extended any federal financial assistance (directly or indirectly
through another entity or person), or receives support from the
extension of any federal financial assistance to the school's
subunits.

[[Contents of disclosure report]]
Each disclosure report to the Department must contain

- for gifts received from or contracts entered into with a foreign
source other than a foreign government, the aggregate dollar
amount of the gifts and contracts attributable to a particular
country.*8*

- in the case of a school that is owned or controlled by a foreign
source, the identity of the foreign source, the date on which the
foreign source assumed ownership or control, and any changes in
program or structure resulting from the change in ownership or
control.

- for gifts received from or contracts entered into with a foreign
government, the aggregate amount of the gifts and contracts
received from each foreign government.

- for restricted or conditional gifts received from or restricted or
conditional contracts entered into with a foreign source (other than
a foreign government), the amount, date of receipt of the gift or
date of the contract, and description of the conditions and
restrictions.

- for restricted or conditional gifts received from or restricted or
conditional contracts entered into with a foreign government, the
amount, the date of receipt of the gift or date of the contract, a
description of the conditions or restrictions, and the name of the
foreign government.

RESTRICTED OR CONDITIONAL GIFT OR CONTRACT: Any
endowment, gift, grant, contract, award, present, or property of any
kind which includes provisions regarding

- the employment, assignment, or termination of faculty;

- the establishment of departments, centers, research or lecture
programs, or new faculty positions;

- the selection or admission of students; or

- the award of grants, loans, scholarships, fellowships, or other
forms of financial aid restricted to students of a specified
country, religion, sex, ethnic origin, or political opinion.

In lieu of the reporting requirements listed above

- If a school is in a state that has substantially similar laws for
public disclosure of gifts from, or contracts with, a foreign source,
a copy of the report to the state may be filed with the Department.
The school must provide the Department with a statement from the
appropriate state official indicating that the school has met the
state requirements.

- If another department, agency, or bureau of the Executive Branch
of the federal government has substantially similar requirements
for public disclosure of gifts from, or contracts with, a foreign
source, the school may submit a copy of this report to the
Department.

"Dear Colleague" letter GEN-95-12 was the first official notification
to schools of these requirements, and contains information on
reporting procedures for the period July 23, 1992 to July 31, 1995.

Reports should be sent to the Department by one of the following
methods:

[[Where to send reports]]
If by mail...
U.S. Department of Education
Institutional Participation Division
Foreign Gift Team
600 Independence Avenue, S.W.
Washington, D.C. 20202-5323

If by fax...
(202)260-6107
ATTN: Foreign Gift Team

If by overnight mail or courier delivery...
U.S. Department of Education
Institutional Participation Division
Foreign Gift Team
GSA Building Room 3030
7th and D Streets S.W.
Washington, D.C. 20407

If by Internet...
forgift@sfa.ope.ed.gov

If a school fails to comply with the requirements of this law in a
timely manner, the Department is authorized to undertake a civil
action in federal district court to ensure compliance. Following a
knowing or willful failure to comply, a school must reimburse the
Treasury of the United States for the full costs of obtaining
compliance with the law.

All information provided by schools under this law is open to
inspection and duplication by members of the public.


*1* An accredited or preaccredited school must agree to submit, for
any dispute involving the termination of accreditation, to binding
arbitration before initiating any other legal action.

*2* It is the school's responsibility to determine whether a remedial
program is at the secondary level. However, if the state, the school's
accrediting agency, or the state agency recognized for the approval
of public postsecondary vocational education determines that a
remedial program is at the elementary level, the school must abide by
that determination. For more on remedial coursework, including the
admission of ability-to-benefit students, see Chapter 2.

*3* The statutory delay in implementing the 85 Percent Rule
required special considerations for reporting and determining
eligibility for the 1995-96 award year. A discussion of these
considerations is contained in "Dear Colleague" letter GEN-95-26
published May 1995.

*4* A telecommunications course is considered to be a
correspondence course if the sum of telecommunications courses and
other correspondence courses provided by the school during its latest
complete award year was equal to or more than 50% of the total
courses provided that year.

*5* An "incarcerated student" is a student who is serving a criminal
sentence in a federal, state, or local penitentiary, prison, jail,
reformatory, work farm or other similar correctional institution.
(Does not include detention in a halfway house, home detention, or
weekend-only sentences.)

*6* A "branch campus" is geographically apart and independent of
the main campus of an institution. It must be permanent in nature,
offer courses in educational programs leading to a degree or
certificate, have its own faculty and administration, and have its own
budgetary and hiring authority.

*7* A "foreign medical school" is defined as a school that is not
located in a state, and is qualified and listed as a medical school in
the most current World Directory of Medical Schools, published by
the World Health Organization (WHO).

*8* The country to which a gift or a contract is attributable is the
country of citizenship; or, if unknown, the principal residence for a
foreign source who is a "natural person" and the country of
incorporation, or, if unknown, the principal place of business for a
foreign source which is a legal entity.

PROGRAM ELIGIBILITY REQUIREMENTS

To qualify as an eligible institution, a school must offer at least one
eligible program. As stated previously, not all programs at an
eligible institution will necessarily be eligible, but at least one of the
programs at the school must meet the eligible program requirements.

It is not uncommon for a school to offer programs that meet different
eligible program definitions. For example, a school that offers a
bachelor's degree program (qualifying the school as an institution of
higher education) may also offer a nondegree training program that
is eligible under a definition that qualifies the school as a
postsecondary vocational institution. If the training program is
measured in credit hours without standard terms, the 12-hour rule
applies (see page 3-23).

[[Institution of higher education]]
A school qualifies as an institution of higher education if (in addition
to meeting all other eligibility requirements, including being a
nonprofit school) it offers a program that leads to an associate,
bachelor's, professional, or graduate degree. For such programs,
there are no minimum program length requirements.

A school may also qualify as an institution of higher education if it
offers a program of at least two academic years in duration that is
acceptable for full credit toward a bachelor's degree, or if it offers a
program of at least one academic year in duration that leads to a
certificate, degree, or other recognized credential and prepares
students for gainful employment in a recognized occupation.*9*

[[Proprietary or postsecondary vocational schools]]
There are three types of eligible programs that will qualify an
otherwise eligible school as a proprietary institution or a
postsecondary vocational institution. All of these programs are
required to have a specified number of weeks of instruction, and
must provide training that prepares a student for gainful employment
in a recognized occupation.

[[Undergraduate programs]]
The FIRST TYPE of eligible program is one that must provide at
least 600 clock hours, 16 semester or trimester hours, or 24 quarter
hours of undergraduate instruction offered during a minimum of 15
weeks. The program MAY admit as regular students persons who
have not completed the equivalent of an associate degree.

[[Shorter programs]]
The SECOND TYPE of eligible program is one that must provide at
least 300 clock hours, 8 semester hours, or 12 quarter hours of
instruction offered during a minimum of 10 weeks. The program
must be a graduate or professional program OR must admit as regular
students ONLY persons who have completed the equivalent of an
associate degree. Effective July 1, 1993, this type of program may
qualify to participate in ALL SFA Programs, not just FFEL.

[["Short-term" programs]]
The THIRD TYPE of program is known as the "short-term
program." A SHORT-TERM PROGRAM QUALIFIES FOR THE
FFEL AND DIRECT LOAN PROGRAMS ONLY. A short-term
program must provide at least 300 but less than 600 clock hours of
instruction offered during a minimum of 10 weeks. The program
must admit as regular students SOME persons who have not
completed the equivalent of an associate degree. These programs
must also satisfy the qualitative factors for completion rates,
placement rates, program length, and period of existence of the
program. Specifically, these programs must

[[Qualitative factors for short-term programs]]
- have verified completion and placement rates of at least 70%,

- not be more than 50% longer than the minimum training period
required by the state (or federal agency), if any, for the occupation
for which the program of instruction is intended, and

- have been in existence for at least one year.

For the purpose of demonstrating compliance with these qualitative
factors, a school must calculate the completion and placement rates
FOR THE AWARD YEAR, as explained below. As discussed
previously in this section (in relation to the 85 Percent Rule), the
CPA who prepares the school's compliance audit report must attest
to the accuracy of the school's calculation of completion and
placement rates.

COMPLETION RATE CALCULATION

Number of regular students who received credential
for successfully completing the program within 150 %
of the length of the program
----------------------------------------------------
Number of regular students enrolled for the year
- number of regular students who withdrew with a
100% refund*
- number of regular students enrolled at the
end of the year

*less any permitted administrative fee

PLACEMENT RATE CALCULATION

Number of students who obtained employment* within
180 days of receiving credential, and who are employed
(or have been employed) for at least 13 weeks following
receipt of credential
----------------------------------------------------
Number of students who received credential for
successfully completing the program

*in the recognized occupation for which they were trained
or in a related comparable occupation

[[School must document employment]]
The school must document the employment of any student it
includes as "employed" in the placement rate calculation. Examples
of such documentation would include, but are not limited to, a
written statement from the employer, signed copies of state or federal
income tax forms, or written evidence of payments of Social Security
taxes.

[[Definition of comparable occupation]]
The school must reasonably determine whether a related occupation
is comparable. For instance, for a student who was trained as an auto
mechanic, it is reasonable to determine that a job as a boat mechanic
is comparable. However, for a person trained in retail sales
management, a counter-service job at a fast-food restaurant is not
comparable.

[[Exceptions to eligible program definition]]
Note that there are two cases (certain types of preparatory
coursework and teacher-certification programs) where students may
receive FFEL or Direct Loan funds for enrollment in a program that
does not meet the eligible program definition. For more information,
please see Chapter 2.

THE 12-HOUR RULE

The three types of eligible programs discussed above, which qualify
an otherwise eligible school as a proprietary institution or as a
postsecondary vocational institution, are required to have a specified
number of weeks of instruction. Definitions for a "week of
instruction" and for a "week of instructional time" for the academic
year definition are similar. (See the discussion of academic year on
page 3-24.)

[[Week of instruction]]
For all programs except those measured in credit hours without
standard terms, a "week of instruction" is any seven-day period in
which at least one day of regularly scheduled instruction,
examination, or preparation for examinations occurs.

Instruction does not include periods of orientation, counseling,
vacation, or other activity not related to class preparation or
examination.

Beginning with the 1995-96 award year, for educational programs
measured in credit hours without standard terms (semesters,
trimesters, or quarters), a week of instruction must include at least
12 HOURS of instruction, examinations, or preparation for
examination within a consecutive seven-day period.

[[Minimum number of weeks, minimum number of hours]]
The 12-hour rule in effect requires a school to demonstrate that
certain programs have not only a minimum number of weeks, but
also a minimum number of hours. For example, in order for a
program to meet the eligible program definition that requires at least
600 clock hours, 16 semester or trimester hours, or 24 quarter hours
of instruction, examinations, or preparation for examinations offered
during a minimum of 15 weeks of instruction, the program must
meet for a minimum of 15 calendar weeks over which a MINIMUM
OF 180 HOURS OF INSTRUCTION, examinations, or preparation
for examinations occur (12 hours of instruction, examinations, or
preparation for examinations for 15 calendar weeks).

A school that wants to set its program to be only 15 calendar weeks
long would therefore have to meet an average of 12 hours per week
for the 15 calendar week period in order for the program to be
eligible. A school with a program that meets less frequently than 12
hours a week would have to meet for enough weeks to provide 180
hours of instruction, examinations, or preparation for examinations.
For example, a program meeting 6 hours per week would have to be
30 calendar weeks long in order to be eligible under this provision.

[[Inclusion of holidays]]
Because the 12-hour rule does not require a school to offer
instruction, examinations, or preparation for examinations on
specific days, an institution may not include a holiday for these
calculations unless regularly scheduled instruction, examinations, or
preparation for examinations occurs on that day.

ACADEMIC YEAR REQUIREMENTS

[[30-week minimum of instruction time]]
Every eligible program, including graduate programs, must have a
defined academic year that contains a minimum of 30 weeks of
instructional time. In addition, for undergraduate programs, the law
requires that over the minimum of 30 weeks of instructional time a
full-time student must be expected to complete at least 24 semester
or trimester hours, 36 quarter hours, or 900 clock hours. A school
may determine on its own the amount of work a full-time graduate or
professional student is expected to complete over an academic year.

[[Determining academic year length]]
A school may have different academic years for different programs,
but must use the same academic year (1) for calculating all SFA
awards for students enrolled in a particular program and (2) for all
other SFA Program purposes. Note that a school may establish a
different academic year for an evening version of a day program, and
may establish different academic years for versions of the same
program offered at different campuses. To determine the number of
weeks of instructional time, a school must count the period that
begins on the first day of classes and ends on the last day of classes
or examinations.

[[Definition of a week]]
For all programs except those measured in credit hours without
standard terms, a "week of instructional time" is any seven day
period in which at least one day of regularly scheduled instruction,
examination, or preparation for examinations occurs. (Instructional
time does not include periods of orientation, counseling, vacation, or
other activity not related to class preparation or examination.) The
requirements for a "week of instructional time" are similar to those
for a "week of instruction" for the eligible program definitions (see
page 3-23).

Beginning with the 1995-96 award year, for educational programs
measured in credit hours without standard terms (semesters,
trimesters, or quarters), a week of instruction must include at least
12 HOURS of instruction, examinations, or preparation for
examinations within a consecutive seven-day period.

[[30 calendar week year assumes class meets 12 hours per week]]
A school wishing to set its academic year to be only 30 calendar
weeks long (for this purpose a calendar week is seven consecutive
days) would have to meet an average of 12 hours per week for the 30
calendar-week period. A school with a program that meets less
frequently than 12 hours a week would have to meet enough
calendar weeks to provide 360 hours of instruction, examinations, or
preparation for examinations (30 calendar weeks x 12 hours per
week) in order to have a program offered over a full academic year
(equivalent to 30 weeks of INSTRUCTIONAL time).

For example, if a school wants to establish an academic year of 30
weeks of instructional time for a credit-hour, nonterm program that
meets 10 hours a week, the school would need to have approximately
36 calendar weeks (36 calendar weeks x 10 hours per week = 360
hours of instruction, examinations, or preparation for examinations)
in order to have the equivalent of 30 weeks of instructional time for a
full academic year. Therefore, in this example, a student enrolled in
this program would not be eligible to take out another Stafford Loan
until he or she had completed the required amount of work and 36
calendar weeks had elapsed. A school must also use this calculation
to determine when one-third and two-thirds of an academic year
have occurred.

[[Pell calculations]]
When calculating awards under the Pell Grant Program, a school
must always use weeks of instructional time (see Chapter 4).
However, the length of the academic year in calendar weeks will
probably exceed the number of weeks of instructional time.

[[Inclusion if holidays]]
Because the 12-hour rule does not require a school to offer
instruction, examinations, or preparation for examinations on
specific days, a school may not include a holiday as a day of
instruction unless regularly scheduled instruction, examinations, or
preparation for examinations occurs on that day.

For more information on the effects of the 12-hour rule on a
particular SFA Program, see the relevant program chapter in this
Handbook.

[[Reductions in academic-year length]]
The law permits schools that provide two-year or four-year associate
or baccalaureate degree programs to apply to the Department if they
want to establish a full academic year of less than 30 weeks of
instructional time. The Department is permitted to grant a reduction
in the length of an academic year to no less than 26 weeks of
instructional time. Under the law, these schools would be permitted
to have an academic year of less than 30 weeks of instructional time
(but no less than 26 weeks of instructional time) without any
reduction in the amount of SFA funds that a student enrolled in those
programs is eligible to receive for an entire academic year.

[[Long-term reductions]]
A LONG-TERM REDUCTION is available to schools that want to
begin or continue to operate with a reduced academic year on a long-
term basis. This reduction must be renewed each time a school is
required to apply for recertification.

When evaluating a school's application for a reduction, the
Department will consider factors such as

- the school's compliance with awarding and disbursement
procedures based on the academic year requirements of the Higher
Education Amendments of 1992,

- the approval of the academic year by the school's accrediting
agency or state agency,

- the hours of attendance and other coursework that a full-time
student is required to complete in the academic year, and

- any unique circumstances the justify granting the request.

For further details on the information required for submission of a
request for a reduction, see 34 CFR 668.3.

The November 29, 1994 final regulations clarified that if a school is
ineligible for a reduction in the length of an academic year because
of noncompliance with awarding and disbursement procedures, that
school may be eligible if the school makes arrangements with the
Department to recalculate and, if necessary, to repay any resulting
liabilities.

[[Transitional reduction]]
A TRANSITIONAL REDUCTION was available to schools that had
an academic year of 26-29 weeks as of July 1, 1994, and needed a
period of transition to lengthen the academic year of their programs
to 30 weeks. Transitional reductions cannot extend beyond July 1,
1996.

[[NEW]]
CLOCK HOUR/CREDIT HOUR CONVERSIONS

[[Court decision]]
"Dear Colleague" letter GEN-95-38 (August 1995) advised schools
of the court decision regarding litigation of the July 23, 1993 clock
hour/credit hour conversion regulations and informed schools of the
steps necessary to come into compliance with the regulations.

In the spring of 1994, the court issued a preliminary injunction
preventing the Department from implementing the clock hour/credit
hour conversion regulations that were to go into effect on July 1,
1994. On June 16, 1995, the court ruled in favor of the Department.
The Department decided to require schools to comply with the
requirements as of June 16, 1995, rather than exercising its option to
enforce the regulations as of the original effective date of July 1,
1994. Schools should refer to "Dear Colleague" letter GEN-95-38
for implementation requirements prior to the 1996-97 award year.

The clock hour/credit hour requirements affect both program
eligibility, and the determination of the amount of SFA Program
funds a student who is enrolled in the program may receive.

[[Exceptions]]
Schools must determine whether an undergraduate program
measured in credit hours qualifies as an eligible program in credit
hours after using the required conversion formula unless

- the program is at least two academic years in length and provides
an associate, bachelor's, or professional degree (or a degree that
the Department has determined to be equivalent to one of these
degrees), or

- each course within the program is acceptable for full credit toward
one of these degrees at the school, and the degree requires at least
two academic years of study.

Note that the exemption for programs that lead to a degree that is
EQUIVALENT to an associate, bachelor's, or professional degree
program of at least two years does not permit a school to ask for a
determination that a NONDEGREE program is equivalent to a
degree program.

Also, Public Law 103-382 exempts public or private nonprofit
hospital-based diploma schools of nursing from using the clock-to-
credit hour conversion formula to calculate awards for the SFA
Programs.

To determine the number of credit hours in a program for SFA
purposes, schools must use the appropriate formula.

[[Formulas]]
For a semester or trimester hour program--

Number of clock hours in the credit-hour program
------------------------------------------------
30

For a quarter hour program--

Number of clock hours in the credit-hour program
-------------------------------------------------
20

[[Program eligibility]]
The school must use the resulting number of credit hours to
determine if a program is eligible under the eligible program
requirements explained on pages 21-23. For a program to qualify as
eligible by providing at least 16 semester or trimester credit hours or
24 quarter credit hours, the program must include at least 480
CLOCK HOURS OF INSTRUCTION. For a program to qualify as
eligible by providing at least 8 semester or trimester credit hours or
12 quarter credit hours, the program must include at least 240
CLOCK HOURS OF INSTRUCTION.

If a school applies the appropriate formula and finds that a program
is eligible, the converted credit hours are used to determine the
amount of SFA funds that a student who is enrolled in the program is
eligible to receive under the Pell Grant, FFEL, and Direct Loan
programs. If, after applying the formula, the number of credit hours
in the program has decreased, a student's enrollment status could
change resulting in a decrease in SFA eligibility under these
programs.

EXAMPLE

Sternberg University (SU) states that a two-year nondegree
program measured in semester credit hours is 16 credit hours per
semester. Courses within the program are not creditable toward a
degree at SU. SU determines that there are 330 clock hours in the
first and second semesters, and 390 in the third and fourth
semesters. By applying the conversion formula, the school
determines that the number of credit hours for SFA purposes is 11
for the first two semesters, and 13 for the last two semesters.

330 clock hours = 11 credit hours for SFA purposes
-----------------
30

390 clock hours = 13 credit hours for SFA purposes
-----------------
30

Total clock hours in the program is 1440. Because the program is
longer than 15 weeks and contains more than 480 clock hours of
instruction, the program remains an eligible program, provided it
is otherwise eligible (see page 3-21). However, for the first two
semesters of the program, students are eligible for payment for
only 11 credit hours of instruction. Because this is less than the
full-time student minimum of 12 credit hours, students who attend
the first two semesters are eligible to be paid for only three-quarter
time attendance.

[[Units of measurement--clock hours vs. credit hours]]
A student's period of attendance is measured according to several
commonly accepted academic standards. A clock hour is based on
an actual hour of attendance, though each hour may include a 10-
minute break. Credit hours are typically based on two hours of
homework for each hour of class attendance.

A school is not permitted to count more than one clock hour per
60-minute period; in other words, a school may not schedule
several hours of instruction without breaks, and then count clock
hours in 50-minute increments. The result would be that seven
hours of consecutive instruction would count as 8.4 clock hours
(420 minutes / 50 minutes = 8.4 hours). Seven real-time attendance
hours MAY NOT count for more than seven clock hours.

[[Credit hours -- semester hours vs. quarter hours]]
The difference between semester hours and quarter hours is
significant. A semester term at a traditional school may last 16
weeks, allowing for 15 weeks of classes and an exam week. Thus,
one semester hour would consist of 15 hours of class and 30 hours of
preparation. Since an academic quarter consists of 10 weeks of class
and an exam week, a quarter hour would be made up of 10 hours of
class and 20 hours of preparation. Based on this comparison, a
quarter hour represents two-thirds of the academic work required by
a semester hour. The difference between semester and quarter hours
is reflected in the standards for minimum program length -- a 15-
week training program must be at least 16 semester hours or 24
quarter hours. (The same distinction is made when defining an
academic year and full-time enrollment.)

In 1989, the Institutional Eligibility regulations were amended to
require a school to use clock hours for determining SFA Program
eligibility if the school's state licensing agency required a school to
measure its educational programs in clock hours in order to be
legally authorized or as part of applying for a license or charter. The
regulations published April 29, 1994 omitted the specific language of
this requirement; however, schools must still comply with this
requirement if mandated by the school's state licensing agency.

INTERPRETING ELIGIBLE PROGRAM REQUIREMENTS

[[Program length and educational credentials]]
Generally, a student must be enrolled in an eligible program to
receive SFA funds. A school's eligibility does not necessarily extend
to all its programs, as is illustrated on the following page. Two of
the basic characteristics of an eligible program are its length and the
educational credentials it offers. As discussed earlier, certain eligible
programs must meet minimum program length requirements.

A school's eligibility extends to all eligible programs and locations
that were identified on the school's application for participation,
unless the Department determined that certain school programs or
locations did not meet the eligibility requirements. In general, the
school's eligible non-degree programs and locations are specifically
named on the approval notice. Locations and programs may be
added later; the related requirements and procedures are discussed in
Section 10.

[[Programs that meet more than one definition]]
The school is ultimately responsible for ensuring that a program is
eligible BEFORE awarding SFA funds to students in that program.
The school should review such factors as the length of the program,
the program's admissions requirements, and the degree or certificate
awarded upon completion. In addition, the school should make
certain that the program is included under the notice of accreditation
from a nationally recognized accrediting agency (unless the agency
does not require that particular programs be accredited). The school
should also make certain that it is authorized by the appropriate state
agency to offer the program (if the state licenses individual programs
at postsecondary institutions). As noted previously, a school's
educational programs may meet more than one statutory definition. It
is imperative to understand the various requirements and know
which take precedence.

[[Page 3-31, an illustration depicting examples of eligible and
ineligible programs at an eligible institution, is currently unavailable
for viewing. Please reference your paper handbook for
additional information.]]

ADDITIONAL ELIGIBLE PROGRAM REQUIREMENTS

Several SFA Programs have additional requirements that an
educational program must meet to be eligible. For example, only
UNDERGRADUATE EDUCATIONAL PROGRAMS are eligible
under the Pell Grant and FSEOG programs. Further,
CORRESPONDENCE PROGRAMS are not eligible unless they
meet the general requirements for an eligible program and are
required for the student's regular program of study leading to a
degree or certificate. As mentioned earlier in this section, certain
telecommunications courses may be considered correspondence
courses and therefore may be subject to the same requirements.

[[ESL programs]]
An English as a Second Language (ESL) program is eligible ONLY
for Pell Grant participation. It must meet the general requirements
for an eligible program (that is, it must lead to a degree or other
credential) and may admit only students who need instruction in
English to be able to use the knowledge, training, or skills they
already have. (The school must document its determination that the
ESL instruction is necessary for each student enrolled.)

A school may request an eligibility determination from IPD for an
ESL Program. (Remember, a student may receive SFA funds for
ESL coursework that is part of a larger eligible program.)

[[Study abroad programs]]
In previous years, schools have had difficulty determining the
eligibility of study-abroad programs. However, the law clarifies that
study-abroad courses are eligible for SFA funds, regardless of
whether they are REQUIRED for the student's program of study, as
long as they are ACCEPTED FOR CREDIT in the student's
program. Other language in the law requires schools to notify study-
abroad students of the availability of such assistance and to certify on
the new Program Participation Agreement that they will not deny
SFA funds to such students. (An eligible study-abroad program must
also meet the contractual requirements discussed in Section 6)

[[Flight school]]
Under the FFEL programs, a FLIGHT SCHOOL PROGRAM must
maintain current valid certification by the Federal Aviation
Administration to be eligible.


*9* A "recognized occupation" is one that is listed in the
"occupational division" of the Dictionary of Occupational Titles
(published by the U.S. Department of Labor) or one that is
considered by the Department, in consultation with the Department
of Labor, to be a recognized occupation.