Chapter General Institutional

Responsibilities
2 Summary
This chapter discusses the broad range of responsibilities of schools participating
in the U.S. Department of Education’s (ED’s) Title IV student financial aid
programs (Title IV programs). It presents information about institutional fiscal
operations and network of responsibilities; institutional eligibility; financial
responsibility; administrative capability (including separation of functions); and
other areas such as consumer information, institutional policies and procedures,
program evaluation, return of Title IV funds, record maintenance, and disclosing
student information.

Key Terms*
administrative capability institutional charges
allowable charges leave of absence (LOA)
Application for Approval to letter-of-credit alternative
Participate in Federal Student
Modernization Blueprint
Financial Aid Programs
net income ratio
approval letter
90/10 rule
Campus Security Act
Catalog of Federal Domestic overpayment
Assistance (CFDA) post-withdrawal disbursement
composite score primary reserve ratio
Debt Collection Service (DCS) Program Participation Agreement
(PPA)
earned aid
provisional certification alternative
Eligibility and Certification Approval
Report (ECAR) Quality Assurance Tools (QAT)
Equity in Athletics Disclosure Act return of Title IV funds
(EADA) Student Right-To-Know (SRK) Act
equity ratio unearned aid
experimental site withdrawal date
Family Education Rights and zone alternative
Privacy Act of 1974 (FERPA)
financial responsibility

*Key terms are in boldface type when they first appear in the text.

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2.1 Overview of Fiscal Operations and the

Network of Responsibilities
Reference: The term “fiscal operations” encompasses a broad range of processes. For
• 34 CFR 600 Title IV programs, these include, but are not limited to:
• 34 CFR 668, Subparts
B, L ♦ requesting funds from the federal government,
• Student Financial Aid
Handbook , Volume 2: ♦ disbursing funds to eligible students and parents,
Institutional Eligibility
♦ keeping accurate and auditable financial records,

♦ managing cash,

♦ accounting for funds and financial activities, and

♦ reporting on these activities.

Schools organize and manage their fiscal operations differently, depending on

such factors as the size of the school, administrative structure, staffing,
automation, and federal program participation. Although fiscal operations can
vary from school to school, successfully managing Title IV programs at any
school depends on coordinated efforts across institutional offices.

Coordination has become increasingly important as automated systems have

replaced paper-based ones. Automated systems bring many benefits, such as
enhanced data integrity and speedy data exchange. However, they also present
challenges; the most critical, perhaps, is that automation can blur responsibility
for functions that, by law, must be kept separate, such as authorizing and
disbursing financial aid awards.

Managing Title IV Programs

Managing Title IV financial aid is an institution-wide responsibility. The entire
school benefits from Title IV programs, so all offices at a school need to work
together. However, managing Title IV programs includes three main functional
areas:

♦ the administrative (president’s) office,

♦ the financial aid office, and

♦ the business (bursar’s) office.

As mentioned earlier in this chapter, schools differ in how they divide these
functions among administrative offices. However, the president’s office, the
financial aid office, and the business office always play key roles.

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 General Institutional Responsibilities

The Administrative (President’s) Office

Responsibility for overall administration resides with the school’s president,
chancellor, or chief executive officer (CEO). The leadership and management
style of the person in this position sets the tone and direction of the financial aid
program for the entire institution.

Although authority and responsibility are delegated to other offices, the

leadership and support of the CEO/president are crucial to successfully
administering Title IV programs. By recognizing the importance of federal aid
programs, making Title IV program administration a high priority, and holding
key officials accountable, CEO/president leadership can foster an environment
that promotes an effective and responsive financial aid program that meets
institutional goals, students’ needs, and federal requirements.

The checklist on the next page lists the legal responsibilities of the
CEO/president.

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The CEO/President must ensure that a school...

q is financially responsible to administer Title IV q refers any suspected cases of Title IV fraud, abuse,
programs or misrepresentation to ED’s Office of Inspector
General (OIG)
q is administratively capable of administering
Title IV programs q obtains a letter of credit (if the school has failed to
meet the standards of financial responsibility) 1
q has a capable individual to administer Title IV
programs and coordinate federal and nonfederal q has an independent auditor perform an annual
financial aid programs nonfederal audit of the school’s Title IV financial
operations2
q has an adequate number of qualified staff to
administer Title IV programs q cooperates fully with any program reviews or audits
and makes available all necessary information to the
q has a procedure to report changes to ED about the reviewers or auditors
school’s current eligibility status (for example,
change in ownership, address, name, officials, q has no criminal or fraudulent activities occur as it
third-party servicers, and so on) manages federal funds and administers Title IV
programs
q has a procedure to ensure that Title IV funds for
new programs and locations are not disbursed until q has established reasonable standards of satisfactory
approvals (when required ) are received from ED academic progress (SAP) for students
q has established clear lines of responsibility among q has established a fair and equitable institutional
the pertinent school offices refund policy (if required by the school’s accrediting
agency)
q has good communication and cooperation among
personnel in the pertinent school offices q has an operable and accessible drug-abuse
prevention program, as required by the Drug-Free
q maintains effective record-keeping systems for Schools and Communities Act
both student records and financial records
q is a drug-free workplace, as required by the Drug-
q has an adequate system of checks and balances to Free Workplace Act
ensure separation of award functions from
disbursement functions q makes available all published information required
by the Student Right-to-Know Act and the
q has accurate information about student applicants Campus Security Act and any other pertinent
for Title IV aid and resolves any discrepancies or laws and regulations
inconsistencies
q provides the services described in its publications
q provides adequate financial aid and loan debt
management counseling to students

1. This letter of credit (LOC) is an ED requirement if the school fails to meet the standards of financial responsibility. A school would
obtain the LOC from a bank or other financial institution in the amount of Title IV program funds the school received during its most
recently completed fiscal year. If it is a new school, the LOC would be 50 percent of the amount of Title IV program funds ED expects
the school to receive during its initial year. The LOC would be payable to ED, and ED would draw on the LOC if there is cause. While
the school may contest ED’s action to draw LOC funds, ED holds these funds while the school protest is processed. Although ED no
longer requires a school to obtain a fidelity bond, the school may choose to obtain one as a good business practice to protect itself
against improper actions of employees, board members, and so on.
2. If a school disburses less than $200,000 in Title IV funds annually in each of the two award years prior to the audit period, ED may
authorize it to have audits every three years if the school submits a letter of credit for not less than 10 percent of the amount of Title IV
program funds the institution disbursed during the award year preceding the institution’s waiver request. [See 34 CFR 668.27(D).] In
addition, schools that are subject to the rules under the A-133 audit and have under $300,000 in Title IV funds are completely exempt
from an annual audit. However, if the schools have audited financial statements done for them, ED can ask for the audits.

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The Financial Aid Office

While a school’s financial aid office assumes most of the responsibility for
administering Title IV programs, its role in the institution’s fiscal operation is
usually a limited one. See the checklist below for a list of functions carried out
by financial aid administrators.

Common responsibilities assigned to a school’s financial aid office:

q Advise and counsel students and parents about q Reconcile student financial aid data provided
financial aid to the business office to ensure that all
q Provide students with consumer information, payments have been made, return of Title IV
as required by federal regulations funds have been accounted for, and
expenditures have been reported
q Develop written policies and procedures about
the way the school administers Title IV programs q Have a procedure to report any changes to
ED about the school’s current eligibility status
q Determine students’ eligibility for financial aid (for example, change in ownership, address,
q Make financial aid awards to students, but not name, officials, third-party servicers, and so
disburse the funds on)

q Adhere to the principle of separation of q Have a procedure to ensure Title IV funds for
functions (no single office or individual may new programs and locations are not disbursed
authorize payments and disburse Title IV until the approvals (when required) are
funds to students) received from ED

q In administering financial aid programs, q Perform (limited) fiscal operations, such as:
coordinate financial aid activities with those • authorizing payment of Title IV funds to
of other school offices student accounts or to students directly
q Interact with various outside groups, agencies, • authorizing return of Title IV funds to
associations, and individuals about issues program accounts and post-withdrawal
concerning the school’s administration of disbursements to students
financial aid programs
• notifying a student who owes an
q Monitor students’ satisfactory academic overpayment as a result of the student’s
progress (SAP) withdrawal from the school in order for
q Maintain school records and student records ED or the school to recover the
that document activities of the financial aid overpayment
office and provide data for reports • notifying ED of the overpayment
q Keep current on changes in laws and regulations to • coordinating submission of the Fiscal
ensure that the school remains in compliance Operations Report and Application to
q Assist in reporting Pell Grant expenditures Participate (FISAP)

q Manage and report on activities that involve q Provide entrance and exit counseling to
financial aid funds borrowers of FFEL Program loans and Direct
Loan Program loans as part of the award and
q Calculate the return of Title IV funds and, if it delivery process2
applies, authorize post-withdrawal
disbursements to students1 q Provide entrance and exit counseling to
borrowers of Federal Perkins Loans as part of
q Assist in reconciling loan records (for schools that the award and delivery process2
participate in the Direct Loan Program)
1. At some schools, the business office performs this function.
2. At some schools, these activities are performed by the business office. See page 2-7.

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The Business (Bursar’s) Office

Title IV-related fiscal operations are handled by an institution’s business office.
This office may go by another name—fiscal office, finance office, comptroller’s
office, bursar’s office, treasurer’s office, or student accounts office. For the
duration of this book, this office will be referred to simply as “the fiscal office”
or “the business office.”

The business office provides critical services to the school in managing both
federal and nonfederal financial aid programs. Maintaining accounting,
recordkeeping, and reporting functions related to the institution’s use of federal
and other funds requires many detailed, complex systems. Strong internal
controls and sound business and financial management practices are keys to the
success of these operations and delivering funds to students.

The checklist on the next page lists some of the common responsibilities of the
fiscal office.

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Common responsibilities assigned to a school’s business office:

q Coordinate activities and cooperate with the q Establish and implement the institution’s
financial aid office in: refund policy (if required by the school’s
accrediting or state agency)2
• projecting cash flow needed to cover
disbursements q Establish and monitor Federal Work-Study
(FWS) payroll and time sheets
• processing cancellations and institutional
refunds q Process return of Title IV funds to program
accounts and post-withdrawal disbursements
• obtaining authorization to pay Title IV to students according to the applicable federal
funds laws and regulations
• being aware of the changes in Title IV laws q Assist in reporting Title IV expenditures to
and regulations ED in a timely manner
• submitting accurate and timely reports q Reconcile accounts, including:
• reconciling with the financial aid office to • reconciling cash between school records
ensure that all financial aid adjustments and bank statements
have been properly recorded
• reconciling federal funds between bank
q Maintain a system of internal controls that statements and federally reported balances
includes adequate checks and balances
q Assist in completing applications and fiscal
q Ensure that the functions of authorizing and reports for federal funds
disbursing Title IV funds remain separate
q Maintain a cash management system to meet
q Maintain records according to federal and disbursement requirements and federal laws
generally accepted accounting procedures and regulations
(GAAP)
q Provide general stewardship for federal funds,
q Maintain records to ensure a clear audit trail including maintaining bank accounts and
q Draw down and return Title IV funds to investments as appropriate
program accounts q Prepare for and participate in Title IV
q Disburse funds to eligible students from program reviews and audits
Title IV program accounts q Provide entrance and exit counseling to
q Maintain a system of student accounts that borrowers of FFEL Program loans and Direct
records changes, credits, and amounts due Loan Program loans as part of the
(if the school uses individual student accounts) disbursement process2

q Collect Federal Perkins Loans1 q Provide entrance and exit counseling to

borrowers of Federal Perkins Loans as
q Calculate the return of Title IV funds, and if it part of the disbursement process3
applies, authorize post-withdrawal
disbursements to students2
1. At some schools, a separate student loan office collects these loans.
2. At some schools, the financial aid office performs this function.
3. At some schools, these activities are performed by the financial aid office (see page 2-5). In addition, the business office
may be responsible for administering other aspects of the Federal Perkins Loan Program. While the financial aid office
may be responsible for awarding Perkins Loan funds, the business office may be responsible for collecting and handling
promissory notes, billing borrowers in repayment, collecting payments, authorizing deferments, canceling loans, and
reporting Perkins Loans to NSLDS.

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Merging Responsibilities
To ensure that all functions are carried out for each Title IV aid program, each
office within your school has certain responsibilities. To illustrate this network of
responsibilities, consider the relatively routine activity of managing Federal
Work-Study (FWS) Program time sheets for student employees. For example, the
financial aid office typically authorizes FWS awards and monitors student
earnings to make sure students have not exceeded their authorized award
amount. In this scenario, the business office processes payroll and monitors the
school’s nonfederal share of FWS to ensure the school is adequately matching
the federal share.

Reference
Remember, by law, no single office or individual can both
• 34 CFR 668.16(c)(2) authorize and disburse federal student financial aid funds,
nor can the individuals be members of the same family.

Your process probably demonstrates a similar interdependence of various offices

at your school. To further demonstrate this principle, try completing the FWS
questionnaire on the next page as it applies to your school.

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Network of Responsibilities—FWS Questionnaire

1) The Federal Work-Study (FWS) Program time sheet requires oversight certification.

♦ Who is authorized to certify that a student’s work was performed in a satisfactory manner?________
________________________________________________________________________________

2) Students must remain eligible from one term to the next.

♦ Who monitors student eligibility and academic progress?___________________________________

3) Some eligibility requirements are school policies.

♦ Who develops these policies for the school?_____________________________________________

4) Students are paid their wages on the basis of their time sheets.

♦ Who collects the time sheets from students? _____________________________________________

♦ Who processes the payroll? __________________________________________________________
♦ Who reconciles the payroll to the time sheets ?____________________________________________

5) Students may only earn up to the amount of their authorized FWS awards.

♦ Who determines the amount of the award?_______________________________________________

♦ Who monitors students’ earnings to ensure they do not earn more than that amount? _________

6) All schools are required to spend at least 7 percent of the federal allocation of their FWS funds to
employ students in community-service positions.

♦ Who locates and develops these jobs ?__________________________________________________

♦ Who monitors the percentage of funds used for these jobs? _________________________________

7) Student earnings are part of the institution’s overall FWS budget.

♦ Who develops the budget? __________________________________________________________

♦ Who monitors expenditures ?_________________________________________________________

8) Schools that receive FWS funds are required to apply for those funds and to report to ED on the
use of those funds.

♦ Who completes the application?_______________________________________________________

♦ Who completes the report?___________________________________________________________

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 Chapter 2

2.2 Institutional Eligibility

Reference:
• Student Financial Aid To participate in any Title IV program(s), an institution must:
Handbook: Volume 2
Institutional Eligibility ♦ meet the standards for an eligible institution,
♦ demonstrate that it meets Title IV financial responsibility requirements,

♦ demonstrate that it is administratively capable of managing

Title IV programs,

♦ enter into a written Program Participation Agreement (PPA)

with ED, and
♦ be certified to participate in Title IV programs.
Some conditions that could cause an eligible institution to become ineligible are:
Reference:
• 34 CFR 600.7 ♦ more than 50 percent of the institution’s courses are correspondence
courses;

♦ 50 percent or more of the institution’s regular enrolled students are

enrolled in correspondence courses;

♦ more than 25 percent of the institution’s regular enrolled students are

incarcerated;

♦ more than 50 percent of its regular enrolled students have neither a high
school diploma nor a recognized equivalent of a high school diploma,
and the school does not provide a four-year educational program for
which it awards a bachelor’s degree or a two-year program for which it
awards an associate degree; or

♦ the institution (or an affiliate of the institution that has the power by
contract or ownership interest) files for relief in bankruptcy; or has
entered against it an order for relief in bankruptcy; or the institution, its
owner, or its CEO has pled guilty to, has pled nolo contendere to, or is
found guilty of a crime involving the acquisition, use, or expenditure of
Title IV program funds or has been judicially determined to have
committed fraud involving Title IV program funds.

Types of Eligible Institutions

The Higher Education Act of 1965, as amended (HEA), defines three types of
postsecondary institutions that are eligible to participate in Title IV programs:
Reference:
♦ institutions of higher education,
• 34 CFR 600.4 – 600.6

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 General Institutional Responsibilities

♦ proprietary institutions of higher education, and

♦ postsecondary vocational institutions.

A public or private, nonprofit school can fall into more than one category.
However, a proprietary school cannot fall into more than one category. The type
of institution is defined mainly by how the school is controlled (public, private,
for-profit, nonprofit) and by the minimum program length offered by the
school. Proprietary institutions have an additional eligibility requirement called
the “90/10” rule.

90/10 Rule
The 90/10 rule means that no more than 90 percent of a proprietary institution’s
revenue in a fiscal year may be derived from Title IV program funds; at least
10 percent must come from non-Title IV funds. Federal funding that is not
from Title IV funds may be included in the 10 percent.

♦ A proprietary institution that determines it satisfied the 90/10 rule during

its most recently completed fiscal year must have the auditor preparing its
audited financial statement verify and attest to the accuracy of that
determination. This is done in a footnote to the audited financial
statement.

♦ When schools do not satisfy this requirement, they must report this
Reference: directly to ED within 90 days of the end of their fiscal year. Audits of
• 34 CFR 668.16 schools that do satisfy this requirement must include a statement to that
effect.

♦ The institution’s overall financial management capability must be

examined annually by auditors to ensure that good practices are
*The standards of maintained and that poor ones are corrected. Two important areas in
financial responsibility which standards must be upheld for continued participation in Title IV
and administrative
capability applies to all programs are financial responsibility and administrative capability.*
schools, not just those Reference:
affected by the 90/10
Application forFinancial
• Student Approval Aid to Participate
rule.
Handbook , Volume 2:
An institution must be
Institutional approved and certified by ED to participate in any of the
Eligibility
following• Title IV programs:
HEA, Section 102(b)
• 34 CFR 600.5(a)(8) and (d)
♦ Federal Pell Grant,
Reference:
• 34 CFR 668.12 and 13
♦ Federal Supplemental Educational Opportunity Grant (FSEOG),
• 34 CFR 600.20 and 21
♦ Federal Work-Study (FWS),

♦ Federal Perkins Loan (Perkins),

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 Chapter 2

♦ Federal Direct Loan, and

♦ Federal Family Education Loan (FFEL).

Reference: To apply for institutional participation, an institution must submit an

• http://www.eligcert. Application for Approval to Participate in Federal Student Financial Aid
ed.gov Programs to ED, as well as any other requested materials (such as a current
letter of accreditation and a valid state license or other state authorization).
Schools access the application electronically using ED’s Web site, complete the
electronic application (E-App), and submit it to ED. This automated format has
greatly streamlined the old paper-based application process, and results in
significant time saved for school staff and ED. However, schools must sign and
mail to ED Section L (paper signature page) of the application along with all
required supporting documents.

ED uses the information in the application to determine whether the school

meets Title IV eligibility requirements and is administratively capable and
financially responsible.

Program Participation Agreement and the ECAR

Reference: When ED approves a school’s application, ED sends the school two copies of a
• 34 CFR 668.14 Program Participation Agreement (PPA). The PPA includes the date the
school’s eligibility to participate in Title IV programs expires. The school must
sign and return both copies of the PPA to ED to participate in any Title IV
program other than the Leveraging Educational Assistance Partnership (LEAP)
Program (formerly the State Student Incentive Grant Program). ED then sends
the school an approval letter, an Eligibility and Certification Approval
Report (ECAR), and a copy of the school’s PPA signed and dated by ED.

♦ The approval letter details what changes at the school would need to be
reported to ED, as well as what changes would cause the school to lose
its eligibility to participate in Title IV programs. In addition, the approval
letter provides the school with its OPE-ID number and a description of
the ECAR.

♦ The ECAR contains the critical data elements that form the basis of the
school’s approval. It also lists the highest level of educational offering,
any non-degree programs or short-term programs, and any additional
locations at which the school has been approved for the Title IV
programs. All of these documents must be kept available to be reviewed
by auditors and ED officials, including Title IV program reviewers.

Under the PPA, an institution agrees to comply with the laws and regulations
governing Title IV programs. When entering into a PPA, the school must
demonstrate it can carry out its administrative responsibilities for properly
managing Title IV programs and that it has the financial resources necessary for
providing the education it promises under the factors of financial responsibility.

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A school that is participating for the first time in federal student aid programs is
provisionally certified for one award year.

A school that wishes to continue to participate in Title IV aid programs is

required to be recertified before the expiration date of its PPA. Recertification
may last up to six years, but could be for a shorter period under certain
conditions. Six months before its PPA expires, ED will send a recertification
reminder notice to the school. The school must submit a materially complete
application that includes all required supporting documentation requesting
recertification 90 days before the expiration date of its current PPA if it wants to
continue to award federal financial aid funds without interruption.

Single Identifier Initiative

Schools currently use an OPE-ID number — an eight digit, system-generated
Reference: identifier issued by ED — that accounts for the institution’s main location, its
• DCL ANN-97-4 off-site locations, and its Electronic Data Exchange (EDE) addresses. In some
• DCL ANN-97-7
cases, different OPE-ID numbers (for the same Title IV program) have been
used for the same institution. This type of overlap impairs ED’s ability to
• DCL GEN-98-8
provide accurate information about the amount of financial aid a college or
university receives and hinders effective oversight of Title IV programs. To
remedy this, ED has implemented a single identifier for schools.

In December 1998, ED completed and populated an identifier crosswalk in the

Reference: Postsecondary Education Participants System (PEPS). From July 1999 to June
• http://www.dnb.com 2000, ED implemented a single, eight-digit identification numbering system. ED
rearranged identifiers so that each school uses only one OPE-ID number. Those
identifiers are now crossed to a single revised OPE-ID numbering system.

2.3 Financial Responsibility Standards

Congress requires ED to assess whether schools meet financial responsibility
Reference:
standards. To meet these standards, schools must satisfy three statutory
• Student Financial Aid
Handbook , Volume 2: components.
Institutional Eligibility
• HEA, Section 498(c)
According to ED regulations, a school is considered to be financially responsible
if it:
• 34 CFR 668, Subpart L
1. provides the services described in its official publications and statements,

2. properly administers the Title IV programs in which it participates, and

3. meets all of its financial obligations.

Using institutional audited financial statements and other information, ED

evaluates whether the school meets required financial responsibility standards.
See the chart on the next page for details.

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Reference:
Financial Responsibility Standards for Public Institutions
• Student Financial Aid
Handbook , Volume 2: ED considers a public institution to be financially responsible if the institution:
Institutional Eligibility
• 34 CFR 668.171(c) ♦ notifies ED that it is designated as a public institution by the state, local,
or municipal government entity, tribal authority, or other government
entity that has legal authority to make that designation;

♦ provides a letter from an official of that state or government entity

Reference:
confirming that the institution is a public institution; and
• 34 CFR 668.174

♦ is not in violation of any past-performance requirement.

Financial Responsibility Standards for Proprietary and Private

Institutions
Reference: A for-profit or nonprofit, private institution is financially responsible if ED
• Student Financial Aid determines that it meets all of the four standards that follow and does not have
Handbook , Volume 2: an adverse, qualified (limited or modified in some way), or disclaimed audit
Institutional Eligibility
opinion or past-performance problem.
• 34 CFR 668.171(b)(1)
• 34 CFR 668.172(b)(1)(2)
• 34 CFR 668, Appendix F Standard #1
• 34 CFR 668, Appendix G The institution’s equity, primary reserve, and net income ratios must yield a
composite score of at least 1.5. ED determines the composite score by:

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*DCL GEN-01-02 deals

1. calculating the result of the school’s primary reserve,* equity, and
with the inclusion of net income ratios,
“debt obtained for
long-term purposes” in
the primary reserve
2. calculating the strength-factor score for each of those ratios by using the
ratio. corresponding algorithm,

3. calculating the weighted score for each ratio by multiplying the

strength-factor score by its corresponding weighted percentage,

4. summing the resulting weighted scores to arrive at the composite score,

and
Reference:
• See pages 2-68 5. rounding the composite score to one digit after the decimal point.
through 2-73 of this
book for more The ratios for proprietary institutions are:
information on
calculating ratio
methodologies for ♦ Primary Reserve Ratio = Adjusted Equity
proprietary and private, Total Expenses
nonprofit institutions.
♦ Equity Ratio = Modified Equity
Modified Assets

♦ Net Income Ratio = Income Before Taxes

Total Revenues

The ratios for private, nonprofit institutions are:

♦ Primary Reserve Ratio = Expendable Net Assets

Total Expenses

♦ Equity Ratio = Modified Net Assets

Modified Assets

Reference: ♦ Net Income Ratio = Change in Unrestricted Net Assets

• 34 CFR 668.172(c)(1) Total Unrestricted Revenues

In calculating an institution’s ratios, ED generally excludes:

♦ extraordinary gains or losses,

♦ income or losses from discontinued operations,

♦ prior-period adjustments,

♦ the cumulative effect of changes in accounting principles, and

Reference:
• 34 CFR 668.172(c)(2), ♦ the effect of changes in accounting estimates.
(3), and (4)
ED may include or exclude the effects of questionable accounting treatments,
such as excessive capitalization of marketing costs.

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ED also excludes:

♦ all unsecured or uncollateralized related-party receivables,

♦ all intangible assets defined as intangible according to generally accepted

Reference: accounting principles (GAAP), and
• 34 CFR 668.172(c)(5)
♦ federal funds provided to an institution by ED as authorized by the HEA
only if:

♦ the auditor, in notes to the audited financial statement or as a

separate attestation, discloses by name and Catalog of Federal
Domestic Assistance (CFDA) number, the amount of HEA
program funds reported as expenses in the Statement of Activities for
the fiscal year covered by the audit or attestation and

♦ the institution’s composite score, as determined by ED, is less than

1.5 before the reported expenses arising from those HEA funds are
excluded from the Primary Reserve Ratio.

Reference: Standard #2
• 34 CFR 668.171(b)(2)
• 34 CFR 668.173(a)
The institution must have sufficient cash reserves to make required refunds. An
institution is considered to have sufficient cash reserves if it:

♦ satisfies the requirements of a public institution,

♦ demonstrates that it makes its refunds and returns in a timely manner, or

♦ is located in a state that has a tuition-recovery fund approved by ED and

Reference: the institution contributes to that fund.
• 34 CFR 668.173(b)(1)
and (2) An institution makes timely refunds (which includes payments from return of
Title IV funds calculations and institutional refunds) if neither the auditor(s) who
conducted the institution’s compliance audits for the institution’s two most
recently completed fiscal years nor ED, nor a state, nor guaranty agency that
conducted a review of the institution covering those fiscal years:

♦ found in the sample of student records that:

♦ the institution made late refunds (including students who received or

should have received a refund or repayment of unearned Title IV aid)
to 5 percent or more of the students in that sample or

♦ the institution made only one late refund or repayment of unearned

Title IV aid to a student in that sample, and

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♦ did not note for either of those fiscal years a material weakness or a
reportable condition in the institution’s report on internal controls that is
related to refunds.
Reference: If an institution no longer satisfies a refund standard or is not making its refunds
• 34 CFR 668.173(c) in a timely manner, the institution must submit an irrevocable letter of credit.
The letter of credit must be:

♦ acceptable and payable to ED and

♦ equal to 25 percent of the total amount of Title IV refunds the institution

made or should have made during its most recently completed fiscal year.
Reference: The institution must submit this letter of credit to ED no later than:
• 34 CFR 668.173(c)(1)
and (2) ♦ 30 days after the date the institution is required to submit its compliance
audit to ED, if the finding is by the auditor who conducted that
compliance audit or

♦ 30 days after the date ED or the state or guaranty agency that conducted
a review of the institution notifies the institution of the finding.

♦ The institution must also notify ED of that finding and of the state
or guaranty agency that conducted a review of the institution.

Reference: To determine whether to approve a state’s tuition-recovery fund, ED considers

• 34 CFR 668.173(d) the extent to which that fund:

♦ provides refunds to both in-state and out-of-state students,

♦ allocates all refunds according to the order required under

34 CFR 668.22 (referred to as either treatment of Title IV funds when a
student withdraws or return of Title IV funds), and

♦ provides a reliable mechanism for the state to replenish the fund if any
claims arise that deplete the fund’s assets.

Standard #3
Reference: The institution must be current in its debt payments. An institution is not
• 34 CFR 668.171(b)(3) current in its debt payments if:

♦ it is in violation of any existing loan agreement at its fiscal-year end, as

disclosed in a note to its audited financial statements or audit opinion, or

♦ it fails to make a payment according to existing debt obligations for more

than 120 days and at least one creditor has filed suit to recover funds
under those obligations.

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Standard #4
Reference: The institution must meet all of its financial obligations, including (but not
• 34 CFR 668.171(b)(4) limited to):

♦ refunds that it is required to make under its refund policy, return of

Title IV funds, and payments of post-withdrawal disbursements, and

♦ repayments to ED for debts and liabilities arising from its participation in

Title IV programs.

Even if an institution satisfies all of these standards, ED will not consider the
school financially responsible if:
Reference: 1. the institution’s audited financial statements contain an adverse, qualified
• 34 CFR 668.171(d)(1) (limited or modified in some way), or disclaimed audit opinion, or the
and (2) auditor expresses doubts about the continued existence of the institution
as a going concern; (ED will disregard this reason if the qualified or disclaimed
opinion does not have a significant bearing on the institution’s financial condition.)

OR
Reference: 2. the institution violated a Title IV program requirement or the persons or
• 34 CFR 668.174(b)(2) entities affiliated with the institution owe a liability for a violation of a
Title IV program requirement. (ED will disregard this reason if the liability in
question is being repaid or the persons or entities owing the liability do not exercise
substantial control over the institution.)

Past Performance
Reference: An institution is not financially responsible if it:
• Student Financial Aid
Handbook , Volume 2: ♦ has been limited, suspended, terminated, or entered into a settlement
Institutional Eligibility agreement to resolve a limitation, suspension, or termination action
• 34 CFR 668.174(a)(1) initiated by ED (or by a guaranty agency as defined in 34 CFR Part 682
for the Federal Family Education Loan [FFEL] Program) within the
preceding five years;

Reference: ♦ in either of its two most recent compliance audits had an audit finding or
• 34 CFR 668.174(a)(2) in a report issued by ED had a program review finding for its current
fiscal year or in either of its preceding two fiscal years that resulted in the
institution being required to repay an amount greater than 5 percent of
the funds that the institution received under the Title IV programs during
the year covered by that audit or program review;

Reference: ♦ has been cited during the preceding five years for failing to submit in a
• 34 CFR 668.174(a)(3) timely fashion acceptable compliance and financial statement audits
required under 34 CFR 668.174 or acceptable audit reports required
under individual Title IV program regulations; or

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 General Institutional Responsibilities

♦ has failed to resolve satisfactorily any compliance problems identified in

Reference:
audit or program review reports based on a final decision issued by ED
• 34 CFR 668.174(a)(4) according to subpart G or H of the General Provisions.

Other Financial Responsibility Standards

Reference: Some schools that are not financially responsible under the regular standards may
• Student Financial Aid begin participating or continue participating in Title IV programs by qualifying
Handbook , Volume 2: under an alternative standard. There are three types of alternative standards:
Institutional Eligibility letter-of-credit alternative, zone alternative, and provisional certification
• 34 CFR 668.175(a) alternative. There are also specific financial responsibility standards for schools
that change ownership and for guaranty agencies.

Letter-of-Credit Alternative
Reference: An institution that seeks to participate in Title IV programs for the first time, but
• 34 CFR 668.175(b) is not financially responsible solely because its composite score (from its equity,
primary reserve, and net income ratios) is less than 1.5, will qualify as a financially
responsible institution by submitting an irrevocable letter of credit that is
acceptable and payable to ED. ED will specify the amount, but regulations
require the letter of credit to equal at least 50 percent of the amount of Title IV
program funds that ED determines the institution will receive during its initial
year of participation.

Reference: A participating institution that is not financially responsible because it does not
• 34 CFR 668.175(c) satisfy one or more of the financial responsibility standards or has an
unsatisfactory audit opinion can also qualify by using an irrevocable letter of
credit. To qualify as financially responsible, the letter must be acceptable and
payable to ED. ED will specify the amount, but regulations require the letter of
credit to equal at least 50 percent of the Title IV program funds received by the
institution during its most recently completed fiscal year.

A participating school that is not financially responsible

due to past performance problems is not eligible for this
letter-of-credit alternative.

Zone Alternative
Reference: The zone alternative is an option for a participating institution only if the school
• Student Financial Aid is not financially responsible because its composite score (from its equity,
Handbook , Volume 2: primary reserve, and net-income ratios) is less than 1.5. If a participating school
Institutional Eligibility
fails any other test of financial responsibility, the school cannot qualify for the
• 34 CFR 668.175(d) zone alternative.

An institution may participate in Title IV programs under this alternative if its

composite score is in the range from 1.0 to 1.4 (based on the audited financial

June 2001 The Blue Book

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statement for its most recently completed fiscal year) and it satisfies other
standards of financial responsibility. ED may allow a school to participate under
the zone alternative for no more than three consecutive years. An institution
that qualifies under this alternative, whether for three years or just one or two
years, cannot use the zone alternative again until the year after it achieves a
composite score of at least 1.5.

To participate under the zone alternative, ED requires an institution to:

♦ use the cash monitoring or reimbursement payment method to make

disbursements to eligible students and parents and

♦ provide timely information about any of the following six oversight and
financial events:

1. any adverse action, including a probation or similar action, taken

against the institution by its accrediting agency;

2. any event that causes the institution or a related entity to realize

(convert to cash) any liability that was noted as a contingent liability
in the institution’s or related entity’s most recent audited financial
statement;

3. any violation by the institution of any loan agreement;

4. any failure of the institution to make a payment according to its debt

obligations that results in a creditor filing suit to recover funds under
those obligations;

5. any withdrawal of owner’s equity from the institution by any means,

including declaring a dividend; or

6. any extraordinary losses.

No later than 10 days after the event occurs, the school must
provide information on the above events to ED by certified
mail, fax, or other electronic transmission. If fax or other
electronic transmission is used, the school is responsible for
confirming that ED received a complete, legible copy of the
transmission.

Under the zone alternative, the institution must, as a part of its compliance audit,
require its auditor to express an opinion on the school’s compliance with the
requirements under the zone alternative, including the school’s administration of
the payment method under which it received and disbursed Title IV program
funds.

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 General Institutional Responsibilities

ED may also require:

Reference: ♦ the institution’s audited financial statement and compliance audit to be

• 34 CFR 668.23(a)(4) submitted earlier than specified in regulations (for example, instead of six
months after the end of the school’s fiscal year, ED could require the
school to submit its audit as early as 60 days after the end of its fiscal
year) and

♦ the institution to provide information about its current operations and

future plans.

Provisional Certification Alternative

Reference: The provisional certification alternative differs from the standard provisional
• Student Financial Aid certification for a school that is new to the Title IV program the first year it
Handbook , Volume 2: participates in Title IV programs. The provisional certification alternative is for
Institutional Eligibility
participating institutions that cannot qualify, or choose not to qualify, under any
• 34 CFR 668.175(f) of the other alternatives. Additionally, a school may be granted provisional
certification if it allowed its certification to lapse, had significant audit or
program review findings, or owes outstanding liabilities to ED.
Reference:
• 34 CFR 668.171 ED, at its discretion, may allow provisional certification for an institution that is
(b) and (d) not financially responsible because:
Reference:
♦ it does not satisfy the financial responsibility standards or has an
• 34 CFR 668.174(a) unsatisfactory audit opinion or

♦ its past performance shows that it violated a Title IV program

requirement, but it has satisfied or resolved the violation.

Under this alternative, an institution receives an initial annual provisional

certification, which cannot exceed three consecutive fiscal years. An initial
provisional certification carries the following three main conditions:

1. The institution must submit an irrevocable letter of credit that is

Reference:
acceptable and payable to ED. ED decides on the amount, but it cannot
• 34 CFR 668.171
be less than 10 percent of the Title IV program funds received by the
(b)(3) and (b)(4)
institution during its most recently completed fiscal year.

2. The institution must demonstrate it was current on its debt payments and
has met all of its financial obligations for its two most recent fiscal years.

Reference: 3. The institution must comply with all of the provisions of the zone
• 34 CFR 668.175(d)(2) alternative.
and (d)(3)
When the initial provisional certification ends, if the institution is still not
financially responsible, ED may again permit it to participate under a provisional
certification alternative. However, ED may impose one or both of the following
additional conditions:

June 2001 The Blue Book

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1. ED may require the institution, or one or more persons or entities that

exercise substantial control over it, to submit financial guarantees for an
amount determined by ED to be sufficient to satisfy any potential
liabilities arising from the institution’s participation in Title IV programs.

2. ED may require one or more persons or entities that exercise substantial

control over the institution to be jointly or severally liable for any
liabilities arising from the institution’s participation in Title IV programs.

Provisional Certification Alternative for Institutions Controlled by Persons or

Entities Owing Liabilities
Reference: An institution may be deemed not financially responsible because the persons or
• Student Financial Aid entities that exercise substantial control over the institution owe a liability for a
Handbook , Volume 2: violation of a Title IV program requirement.
Institutional Eligibility
• 34 CFR 668.175(g) In such cases, ED may allow the school to participate under a provisional
certification alternative only on three conditions:

1. Either the persons or entities that exercise substantial control repay or

enter into an agreement with ED to repay the applicable portion of that
liability, or the institution assumes that liability and repays or enters into
an agreement with ED to repay that liability.

Reference: 2. The institution must satisfy the standards of financial responsibility and
• Student Financial Aid demonstrate that it is current on its debt payments and has met all of its
Handbook , Volume 2: financial obligations for its two most recent fiscal years.
Institutional Eligibility
3. The institution must submit an irrevocable letter of credit that is
acceptable and payable to ED. ED decides on the amount, but it cannot
be less than 10 percent of the Title IV program funds received by the
institution during its most recently completed fiscal year.
Reference: ED also requires the institution to comply with the provisions under the zone
• 34 CFR 668.175(f)(3) alternative. Furthermore:

1. ED may require the institution, or one or more persons or entities that

exercise substantial control over the institution, or both, to submit
financial guarantees for an amount determined by ED to be sufficient to
satisfy any potential liabilities arising from the institution’s participation
in Title IV programs; and

2. ED may require one or more of the persons or entities that exercise

substantial control over the institution to be jointly or severally liable for
any liabilities arising from the institution’s participation in Title IV
programs.

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Schools That Change Ownership

A school loses eligibility to award Title IV funds when it undergoes a change in
ownership that results in a change of control. If the school wants to regain its
eligibility, it must reapply under the new ownership. If a school submits a
materially complete application within 10 days of the date of the change, the
regulations now provide that ED (at its discretion) may offer a temporary PPA
that extends the previous PPA.
Reference:
• 34 CFR 668.15 A newly eligible institution or an institution that is undergoing a change of
ownership is required to implement a default management plan for two years
Reference: unless:
• 34 CFR 668.15(b)(15)(ii)
(A) and (B) ♦ the school’s branch campus or main campus has a cohort default rate of
10 percent or less and

♦ the new owner does not own, and has not owned, any other school with a
Reference:
cohort default rate in excess of 10 percent.
• HEA, Section 487
• 34 CFR 668.14(b)(15) The checklist on the next page lists the general rules that a school with a change
in ownership must follow to be considered financially responsible.

June 2001 The Blue Book

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To be considered financially responsible, a school that changes ownership must...

q provide the services described in its official q not have been limited, suspended, or
publications and statements terminated from a Title IV program
q provide the administrative resources or not have entered into a settlement
necessary to comply with requirements for agreement to resolve a limitation,
participating in Title IV programs suspension, or termination within the
preceding five years
q meet all of its financial obligations, including
paying required institutional refunds q not have been required to repay an
(including post-withdrawal disbursements) amount greater than 5 percent of
to students and all debts (including the Title IV funds received for an award
return of Title IV funds payments) to ED year as a result of a finding during its
two most recent program reviews or
q be current in paying any institutional debts audits
q post an irrevocable letter of credit, q not have been cited during the
acceptable and payable to ED, equal to preceding five years for failure to
25 percent of the total amount of Title IV submit acceptable audit reports in a
program refunds paid by the school in the timely manner
previous fiscal year
q not have failed to satisfactorily
q not have as part of its most recent audit resolve any compliance problems
report a statement expressing substantial identified during a program review or
doubt of the school’s ability to continue as a audit
“going concern” or a disclaimed or adverse
opinion by the accountant
q not have an individual who exercises
significant control over the school and owes
a liability for a Title IV program violation
unless the school and the individual owing
the liability meet certain regulatory
provisions

References:
• CFR 668.15(a)(3)
• CFR 668.15(d)(1)C

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2.4 Administrative Capability

In addition to demonstrating that it is financially responsible, a school must be
administratively capable of participating in Title IV programs. Using a school’s
audited financial statements and other information, ED evaluates the school’s
administrative capability according to the standards contained in regulations.
(See the checklist on the next page for specifics.)
Reference:
If ED finds that a school is not administratively capable based solely on its
Reference:
• 34 CFR 668.16
cohort default rate(s) for the Direct Loan Program, FFEL Program, and/or
• 34 CFR 668.16(m)(2)
Federal Perkins Loan Program, ED may provisionally certify the school’s
participation in Title IV programs.

June 2001 The Blue Book

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Chapter 2

To be considered administratively capable, a school must...

q administer Title IV programs according to q refer any credible information about Title IV
all Title IV requirements fraud, abuse, or misrepresentation to ED’s
Office of Inspector General (OIG)
q use an adequate number of qualified persons
to administer Title IV programs in which q submit required Title IV reports in a timely
the school participates manner, including fiscal reports, financial
statements, and reconciliations
q designate a capable individual to be
responsible for administering all Title IV q not demonstrate any significant problems in
programs its ability to administer Title IV programs
q communicate to the individual responsible q not have as a principal or affiliate of the
for administering Title IV programs all school any individual who is/has been
information that bears on students’ Title IV debarred or suspended or engaged in any
eligibility activity that would be cause for debarment
or suspension
q have written procedures for administering
Title IV aid programs q not have had more than 33 percent1 of its
undergraduate regular students2 withdraw
q administer Title IV programs with adequate during the latest completed award year
checks and balances in its system of internal (for a school seeking initial participation in a
controls Title IV program)
q separate the functions of authorizing q have a cohort default rate of less than
Title IV payments and disbursing and/or 25 percent under the FFEL Program/Direct
delivering Title IV funds so no one person Loan Program for each of the three most
or office has responsibilities for both actions recent fiscal years and that is equal to or less
q establish, maintain, and retain required than 15 percent under the Federal Perkins
Title IV records Loan Program
q establish, publish, and apply reasonable q not appear to lack the ability to administer
standards for measuring students’ Title IV programs competently
satisfactory academic progress (SAP) q participate in electronic processes that ED
q develop an adequate system for resolving provides at no substantial charge and
discrepancies in information related to identifies through a notice published in the
students’ applications for Title IV funds Federal Register
q have procedures that ensure frequent q have procedures that ensure that its requests
periodic reconciliation of fiscal office and for federal cash do not exceed the amount
financial aid office award data of the funds it needs immediately to make
aid disbursements to students
q have a process to notify ED within ten days
about important changes, such as changes in q implement procedures for the return of
its name, address, or ownership Title IV funds
q provide adequate financial aid counseling to q perform annual compliance audits
Title IV applicants

1. Students who withdraw and receive a 100 percent refund of tuition and fees are not included in the 33 percent.
2. A regular student is a person who is enrolled or accepted for enrollment at an institution for the purpose of obtaining a
degree, certificate, or other recognized educational credential offered by that institution. See 34 CFR 600.2.

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Separation of Functions
Reference: Federal regulations require an institution to divide the functions of authorizing
• 34 CFR 668.16(c)(2) payments and disbursing funds so that no single office or individual has
• See Section 5.4 of this responsibility for both functions for any student receiving Title IV funds.
book for further details Even at very small institutions, no one person may be allowed to authorize
on the separation of
functions.
payment of Title IV funds and to disburse those funds.

A school must ensure that authorizing payment and

disbursing payment for any student receiving ANY
Title IV student aid are carried out by at LEAST two
organizationally independent individuals. These
individuals cannot be members of the same family, and
they cannot together exercise substantial control over the
school.

Typically, the financial aid office awards Title IV funds and authorizes payment
of those funds to students. The fiscal office requests funds from ED’s Grant
Administration and Payment System (GAPS) and disburses the funds by
crediting student accounts, delivering checks to students, or delivering cash to
students. The person who awards Title IV funds is not allowed to be authorized
by the institution to sign checks or deliver them to students, nor may he or she
be permitted to deliver cash to students or to credit student accounts with
Title IV aid to cover allowable costs (such as tuition, fees, books, supplies, or
other authorized charges).

As mentioned earlier, electronic processes enhance accuracy and efficiency.

They also, however, can blur separation of functions so the awarding and
disbursement occur virtually simultaneously. For example:
*Under the just-in-time
payment method, ♦ In the advance payment method* under the Recipient Financial
schools handle the Management System (RFMS), an origination record, as well as a
authorization and disbursement record, must be created for each student eligible to receive a
disbursement process
differently. The Federal Pell Grant. The financial aid office authorizes the payment
disbursement record (origination record and disbursement record) and the business office
itself causes RFMS to requests the funds from GAPS and disburses those funds to the student.
deposit funds in the
school’s bank account.
♦ In the Direct Loan Program, for the student to be eligible for a
**Schools that use disbursement of a Direct Loan, a promissory note must be on file and an
student accounts must origination record and disbursement record must be created. Once the
disburse Direct Loan origination record is created, the financial aid office receives a
funds directly to the
student’s school disbursement list. The financial aid office then authorizes the loan to be
account to pay for disbursed and the business office requests the funds from GAPS and
allowable charges. disburses the funds to the student’s school account.**
See Section 4.7 of this
book for more
information.

June 2001 The Blue Book

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 Chapter 2

Reference: Schools must set up controls to prevent an individual or an office from having
• See Appendix D for the authority to perform both functions. For guidance on the separation of
more information on functions, contact the ED Case Management and Oversight Team that serves
Case Management your school’s state.
Teams.

Because electronic processes can blur separation of

functions, a school must be careful to create controls that
ensure separation of authorizing Title IV payments and
disbursing Title IV payments.

Required Electronic Processes

Reference: To be considered administratively capable to participate in Title IV programs, an
• Student Financial Aid institution must use electronic processes to communicate with ED systems. ED:
Handbook , Volume 2:
Institutional Eligibility ♦ provides these at no substantial charge to the school and
• Federal Register,
September 19, 1997
♦ identifies them through a notice published in the Federal Register.
• 34 CFR 668.16(o)
ED requires all schools to use certain electronic processes to participate in and
administer Title IV programs. A list of the required minimum technical
specifications is on page 29.*

Beginning with the 2002-03 processing cycle (January 1, 2002), schools using a
PC platform to participate in and administer Title IV programs must be prepared
to process ED data using a 32-bit operating system:

♦ Microsoft Windows 98,

*For optimal
configuration ♦ Microsoft Windows NT 4.0, or
specifications, refer
to EDExpress
Technical ♦ Microsoft Windows 2000.
Reference.
ED’s electronic services no longer support the disk operating system (DOS) or
any earlier versions of Windows.

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 General Institutional Responsibilities

Technical Specifications
Equipment Minimum REQUIRED Configuration
by January 1, 2002 (for the 2002-03 processing cycle)
♦ IBM or fully IBM-compatible PC
Hardware ♦ 800 MHz Pentium processor or comparable
♦ 128 MB RAM or more
♦ 20 GB hard drive, with at least 500 MB available hard-disk space
♦ 56K modem (that meets or is upgradeable to v.90)
♦ 3.5-inch/1.44 MB diskette drive
♦ Microsoft-compatible mouse
♦ SVGA monitor (capable of 800 X 600 resolution [small fonts] or higher)
♦ Windows 95 keyboard
♦ Speakers
♦ Laser printer capable of printing on standard paper (8.5-inch x 11-inch)
♦ 24x CD-ROM drive or higher, read/write with sound board
♦ 32-bit operating system
Software
♦ Microsoft Windows 98, Microsoft Windows NT 4.0, or Microsoft
Windows 2000
♦ Supported network: Windows NT
♦ Internet service provider (ISP)1

Portal Browser Requirements

♦ Internet Explorer v4.01 or higher
♦ Netscape Navigator v4.73 or above

Other Browser Requirements

♦ Internet Explorer v4.01 or higher
♦ Netscape Navigator v4.0 or above

♦ Dedicated phone line

Phone Line
♦ 3.5-inch, high-density, double-sided diskettes
Diskettes
1
An Internet service provider (ISP) is needed to access the Information for Financial Aid Professionals (IFAP) Web
site, RFMS, GAPS, NSLDS, and to submit the Application for Approval to Participate in Federal Student Financial
Aid Programs (initial certification, recertification, reinstatement, and changes).

Note: For optimal configuration specifications, refer to the EDExpress Technical Reference.

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 Chapter 2

Modernization Blueprint
Reference: On August 1, 1995, the U.S. Secretary of Education requested ED and its
• Student Financial Aid partners in the postsecondary education community to design, integrate, and
Handbook , Volume 2:
develop a comprehensive financial aid delivery system. In response to this
Institutional Eligibility
challenge, government, education, students, and business leaders initiated the
Modernization Blueprint.

The Modernization Blueprint is a collaborative effort by members of the

postsecondary education community (including ED, schools, lenders, servicers,
guarantors, professional organizations, and state agencies) to define and
implement a customer-focused system to support postsecondary education,
as well as to improve customer access to information and funding for education
beyond high school. Updates to the Modernization Blueprint are released
Reference: quarterly on ED’s Modernization Blueprint Web site and incorporate the
http://sfablueprint.ed.gov comments and suggestions of the postsecondary education community.

The goals of the Modernization Blueprint include providing system users with a
single point of interface to the more streamlined processes associated with
postsecondary education, while simultaneously reducing complexity, redundancy,
and cost.

The Modernization Blueprint has six major functional areas:

1. sharing information

2. applying for and processing federal financial aid

3. disbursing federal financial aid

4. tracking and reporting enrollment

5. handling repayments of federal financial aid

6. providing program management and oversight

When fully implemented, the Modernization Blueprint will assist students and
their families in planning for postsecondary education, choosing among
postsecondary schools, and financing their choices.

Access America for Students

The Access America for Students (AAFS) Pilot Program, initiated by ED’s
Office of Student Financial Assistance, was used to test key concepts for
improving the delivery of student aid and was incorporated into the
Modernization Blueprint. In particular, AAFS tested three pilot program
components:

♦ Commercial Student Account/Account Manager

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 General Institutional Responsibilities

♦ Internet Web Portal

♦ Electronic ID

Through partnership with federal agencies and the postsecondary education

community, the AAFS pilot successfully met its objectives and has provided SFA
with valuable information concerning the use of commercial transaction
processors, the integration of data from legacy systems, and the use of Web
portals to improve access to information and services. Key pilot components
have graduated to become mainstream efforts in the design and development of
SFA’s future systems.

2.5 Student Consumer Information

Reference: Regulations specify published information that institutions are required to make
• Student Financial Aid available to currently enrolled students, prospective students, and employees.
Handbook , Volume 2: These regulations also allow ED to fine a school, or to limit, suspend, or
Institutional Eligibility
terminate the Title IV program participation of any school that substantially
• 34 CFR 668, Subpart D misrepresents the nature of its educational program, financial charges, or the
employability of its graduates.

Providing this consumer information is an area of responsibility that is shared

among institutional offices. In general, the financial aid office and business
office share primary responsibility for providing this information, but other
offices must be involved as well. For example, the Campus Security Act requires
schools to publish, on an annual basis, the occurrence of certain types of crime.
If schools do not comply with this and other student consumer information
requirements, they may lose their eligibility to participate in Title IV programs.

Financial Aid Information

Reference: All institutions are required to provide information about:
• 34 CFR 668.42
♦ all financial aid programs available to students, the amounts of aid
available from each source, and the required application procedures;

♦ how student eligibility for aid is determined;

♦ how the school distributes aid among students;

♦ the rights and responsibilities of financial aid recipients;

♦ how and when financial aid will be disbursed;

♦ the terms and conditions of any employment offered as financial aid;

♦ deferment and forbearance options for its loan borrowers;

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♦ the terms of, schedules for, and necessity of repaying loans;

♦ the criteria for measuring students’ satisfactory academic progress and the
procedures students must follow to regain eligibility if they fail to meet
these criteria;

♦ information on preventing drug and alcohol abuse;

Reference:
• 34 CFR 668.14(b)(14) ♦ information about the availability of federal financial aid funds for
• 34 CFR 668.43(a)(9) study-abroad programs; and

♦ information on availability of community-service FWS jobs.

General Information
Reference: Schools are also required to provide general information about themselves.
• 34 CFR 668.43 This information includes matters related to fiscal operations, such as:

♦ licensing and accreditation;

♦ costs of attendance, including tuition, fees, room and board,

transportation, books and supplies (which can include the cost of buying
or renting a computer), loan fees, and additional costs associated with
certain programs of study;

♦ all requirements for officially withdrawing from school;

♦ its institutional refund policy (if the school is required by its state agency
or its accrediting agency to provide that information);

♦ the policy on the return of Title IV funds; and

♦ how the school returns Title IV funds to program accounts.

Availability of Personnel
Reference: Federal regulations require that schools make personnel available during normal
• 34 CFR 668.44 operating hours to help current and prospective students obtain consumer
information.

Job-Placement Claims
A school that makes marketing claims about job-placement rates to recruit
students must disclose information supporting these claims to prospective
Reference:
students at or before the time they apply. This means that a school must provide
• 34 CFR 668.14(b)(10)
detailed statistics and other information needed to substantiate the truthfulness
of its claims. If a school advertises job-placement rates to attract enrollment,

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 General Institutional Responsibilities

it must inform prospective students of the state licensing requirements for the
jobs for which the students seek training.

Student Right-To-Know Provisions

Reference: All schools participating in Title IV programs are subject to the disclosure
• 34 CFR 668.45 requirements of the Student Right-To-Know (SRK) Act. SRK requires a
school to make available its completion or graduation rates by July 1 of each
year. A school must provide the information to enrolled and prospective
students on request.

♦ In the case of a prospective student, the school must provide information

before the student enters into a financial obligation.

A school also must provide the information to ED through the annual National
Center for Education Statistics (NCES) graduation-rate survey.

By July 1 of each year, SRK requires a school that awards athletically related
student aid to report to ED various types of information concerning students
who receive athletic aid, including their completion rate or graduation rate. SRK
also requires a school to provide the information to a prospective student-athlete
and his or her parents, high school coach, and guidance counselor at the time the
school offers the prospective student-athlete athletically related student aid.

Equity in Athletics Provisions

Reference: The Equity in Athletics Disclosure Act (EADA) is designed to make students,
• 34 CFR 668.47 prospective students, and the interested public aware of:

♦ the athletic opportunities available to a school’s male and female students

and

♦ the financial resources and personnel the school dedicates to its men’s and
women’s teams.

EADA applies to any coeducational institution of higher education that

participates in a Title IV student aid program and has an intercollegiate athletic
*The reauthorization of program. According to EADA,* a school that fits this category must prepare an
the HEA in 1998 moved annual report that includes such information as:
certain athletically related
expense and revenue
disclosure requirements ♦ the number of male and female full-time undergraduate students that
that had been in the attend the institution,
section of the HEA
dealing with a school’s
Program Participation ♦ a list of the school’s varsity teams,
Agreement to EADA.
These amendments also ♦ the number of participants on each team,
repealed the audit
requirement for those
disclosures. ♦ the number of coaches for each team,

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♦ various breakdowns of athletically related expenses and revenues, and

♦ the number of students receiving athletically related financial aid and the
amount of that aid.

Reference: A school must make its EADA report available on request to enrolled students,
• 34 CFR 668.41(g)
prospective students, and the public by October 15 of each year, and the school
also must submit the report to ED within 15 days of making it available to the
public.

Reference: Campus Security Provisions

• HEA, Section 485(f)
• 34 CFR 668.46
The Jeanne Clery Disclosure of Campus Security Policy and Campus Crime
Statistics Act (formerly the Campus Security Act of 1990) requires schools to
publish specific crime-related information on an annual basis. The report
includes information about a school’s security policies and procedures, crime-
prevention programs, and campus-crime statistics. The school must distribute
this information to all current students and employees and, on request, to
prospective students and employees. See Appendix A of this publication for
definition of “campus.”

Schools also must provide timely warning to the campus community of any
occurrences of crimes that are reported to the campus-security authorities or
local police agencies and that are considered to represent a continuing threat to
students and/or employees. The crimes to be reported are:

♦ murder and negligent manslaughter,

♦ forcible and nonforcible sex offenses,

♦ robbery,

♦ aggravated assault,

♦ burglary,

♦ motor-vehicle theft,

♦ arson, and

♦ arrests or persons referred for campus disciplinary action for liquor law
violations, drug-related violations, and weapons possession.

Campus-crime statistics must be categorized on the basis of where a criminal

offense occurs:

♦ on campus,

♦ in or on a non-campus building or property,

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 General Institutional Responsibilities

♦ on public property, and

♦ in dormitories or other residential facilities for students on campus.

Schools must also maintain statistics by “category of prejudice” for any hate
crimes involving bodily injury. That is, crimes to any person in which the victim
is intentionally selected because of actual or perceived race, gender, religion,
*Before October 1998, sexual orientation, ethnicity, or disability.
schools submitted these
statistics to ED only These statistics are reported annually* to ED using the Internet. Schools sign on
when ED requested them.
to an ED-designated Web site and enter the appropriate information online.
Notification of the URL and deadlines for submitting data are published each
year in a “Dear Partner” letter in the spring. ED makes copies of the statistics
available to the public.

The provisions of the Family Educational Rights and Privacy Act (FERPA)
are not in conflict with and do not prohibit a school from complying with the
Reference:
• DCL GEN-00-11 requirements of the campus-security regulations.

Reference: Campus-Crime Log

• 34 CFR 668.46(f)
Schools that maintain a campus police or campus security department must
maintain written, easily understood daily logs of crimes reported to the campus
police or security department. These daily logs:

♦ must include the nature, date, time, and general location of the crime and

♦ the disposition of the complaint, if known.

Entries to daily logs must be made within two business days of when the
information is reported to the campus police or security department. The
exception is when disclosing the information is prohibited by law or it would
jeopardize the confidentiality of the victim.

Schools must make the crime log for the most recent 60-day period open to
public inspection during normal business hours. Any portion of the log that is
older than 60 days must be produced within two business days on request.

Daily logs must be open to public inspection within two business days of the
report except where release of the information would:

♦ jeopardize an ongoing criminal investigation or the safety of an individual,

♦ cause a suspect to flee or evade detection, or

♦ result in the destruction of evidence.

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2.6 Institutional Policies and Procedures Manual

The law requires schools to have written policies and procedures for
Reference: administering Title IV programs. The policies and procedures must include but
• 34 CFR 668.16(b)(4) are not limited to:

♦ student consumer information,

♦ verification of information reported on a student’s financial aid

application,

♦ satisfactory academic progress,

♦ return of Title IV funds, and

♦ loan disclosure statements and fact sheets (this requirement does not
apply to Direct Loans).

Advantages of Policies and Procedures Manual

Although the law does not require schools to maintain written policies and
procedures in a manual, schools generally find that a manual helps them
manage financial aid programs more effectively, efficiently, and consistently.
A comprehensive manual can:

♦ document how and when the school establishes specific policies and
procedures,

♦ provide a single location for the school’s policies and procedures, and

♦ serve as a reference guide and training resource.

A policies and procedures manual is also an extremely valuable compilation to
have on hand when a school undergoes a compliance audit or program review.

Many institutions have business procedures manuals to cover fiscal matters, such
as accounting, budgeting, payroll, personnel, and the like. Due to the broad
scope and complexity of financial aid programs, it is also wise to develop a
separate financial aid policies and procedures manual. This manual should
address policies and procedures that affect all aspects of financial aid
administration from the perspectives of both the business office and the financial
aid office.

Suggested Topics for Policies and Procedures Manual

In addition to the required written policies listed earlier in this section, a
comprehensive policies and procedures manual would include:

♦ an overview of the institution itself, its mission, its students, and its
philosophies;

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 General Institutional Responsibilities

♦ descriptions of all federal, state, and institutional financial aid programs,

including application procedures, award amounts, and eligibility
requirements;

♦ descriptions of the organizational structures of the business office and the

financial aid office;

♦ a statement of the institution’s policy for awarding financial aid

(commonly referred to as its “packaging policy”);

♦ procedures for processing financial aid applications;

♦ procedures used in recordkeeping and reporting;

♦ a calendar of aid-related activities, including dates and deadlines for

students;

♦ procedures for evaluating business office and financial aid office

operations; and

♦ copies of forms, applications, standard correspondence, and other printed

materials routinely used by the financial aid office and business office
and/or distributed to students.

2.7 Experimental Sites Initiative

Reference:
• HEA Section 487A(b) For schools designated as “experimental sites,” ED has approved exemptions
• Student Financial Aid to a variety of requirements. This initiative enables ED to work collaboratively
Handbook , Volume 2: with schools to find possible ways to reduce the cost, complexity, and burden of
Institutional Eligibility administering the Title IV programs to schools and their students. If a school
wants to “test” what it considers a better way to administer certain student
financial aid statutory and regulatory requirements, it submits a proposal to ED.
If approved, the school is exempt from specific requirements while conducting
the experiment. More than 135 schools have been designated as experimental
sites.

Experimental sites allow schools spend more time helping to:

♦ improve cash flow for students,

♦ expedite financial aid delivery, and

♦ improve student service, allowing more time for financial aid counseling
and less time on unnecessary paperwork.

The outcome of this experience will help improve Title IV regulations and
requirements.

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Thirteen areas of experimentation have been approved since the 1995-96 award
year. The areas that pertain to fiscal administration are:

♦ entrance and exit loan counseling,

*Schools exempt from ♦ multiple disbursement for single-term loans,*
this requirement
because of low cohort- ♦ 30-day delay in loan disbursements for first-time, first-year borrowers,*
default rates are not
considered ♦ loan fees in cost of attendance,
experimental sites. ♦ loan proration for graduating borrowers,
♦ FWS time records and payment,
♦ credit Title IV funds to prior term charges and institutional charges, and
♦ overaward tolerance.
Schools that are interested in participating in the Experimental Sites Initiative
should contact ED’s Performance Improvement and Procedures Division at
202-708-8197.

2.8 Evaluating Your Management of Student

Financial Aid Programs
Schools should evaluate the way they administer Title IV programs on a regular
basis. This is a priority item for ED, as well as for the business officer and
financial aid administrators. The starting point for strengthening a school’s
administration of Title IV aid is to evaluate and analyze existing procedures,
practices, and polices to determine where improvements are needed.
Evaluating Title IV administration serves many purposes, including:

♦ ensuring that the school is complying with statutory and regulatory

requirements and
♦ identifying school policies and procedures that need updating or revising.
All schools that participate in Title IV financial aid programs must ensure that
their student aid operations, procedures, and policies remain in compliance with
statutory and regulatory requirements. Failing to do so may have serious
consequences:

♦ Institutional liabilities—The school will be required to repay any misused

funds to ED.

♦ Inequitable student aid distribution—Students at the school may be awarded

less aid or more aid than they are entitled to receive.

♦ Possible fines, limitation, suspension, or termination—If audits and program

reviews identify serious instances of noncompliance, inappropriate use of
funds, or fraud, the school may be subject to emergency action by ED

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 General Institutional Responsibilities

and may ultimately lose its eligibility to take part in federal student aid
programs.

♦ Debarment—Individuals found responsible for fraud or serious misuse of

federal funds may be barred from involvement in any federal programs.

Evaluation Methods
The primary methods for evaluating an institution’s management of Title IV
programs are:

♦ self-evaluation (Management Assessment/Management Enhancement)

and

♦ peer evaluation.

Self-Evaluation (Management Assessment/Management Enhancement)

The Management Assessment is the starting point for any institution’s quality
improvement initiatives. The Assessment can be used to evaluate and analyze an
institution’s existing policies, procedures, and practices to determine where
improvements are needed. The benefit from this process is that the institution
assesses its own systems and identifies areas that need improvement. Institutions
are encouraged to use the Management Assessment and Management
Enhancement activities on an ongoing basis to attain compliance and to lay the
foundation for continuous improvement.

The Management Assessment consists of a comprehensive set of activities and

questions designed to help institutions assess current operations in eight major
areas in the delivery of student aid. Some of the assessments may require an
institution to select a few files to review in order to complete the exercises. Each
assessment contains the major functional requirements, as well as suggested
assessment steps. The assessments give an institution the opportunity to take a
“snapshot” of its current Title IV management. The end result is a better
understanding of not only what the requirements are, but how well they are
being met at a particular institution or what improvements need to be made in
order to meet the requirements as outlined in the regulations. The areas covered
include institutional participation, fiscal management, recipient eligibility, award
requirements, disbursement, reporting and reconciliation, automation, and other
administrative practices. Further, at the end of each section, there are links to
management enhancements for areas that need improvement. Since financial aid
is an institutional responsibility, some assessments may need to involve several
offices on campus (financial aid, business office, bursar) to complete the
Reference: assessment.
• http://ed.gov/offices/
OSFAP/QAP The Management Assessment Tools, developed by ED’s Quality Assurance
Program, are available to all schools. ED encourages all schools to use the
Management Assessment/Management Enhancement Tools which are available
on the following Web site: http://www.ed.gov/offices/OSFAP/QAP.

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The Self-Evaluation Guide, published by the National Association of Student

Financial Aid Administrators (NASFAA), can help schools develop
Reference:
comprehensive evaluation systems. This publication provides a step-by-step
• http://www.nasfaa.org outline for reviewing financial aid and fiscal policies, procedures, and practices.

Peer Evaluation
Peer evaluation is another technique for obtaining an independent, objective
review of an institution’s administration of Title IV programs. The peer
evaluator can be a financial aid administrator or fiscal officer from another
school or a financial aid consultant.

During a peer evaluation, the school obtains an objective assessment of its

operation from someone at a similar institution. The person performing the
evaluation also benefits by getting a first hand look at how another school
manages financial aid programs. Comparing notes and exchanging ideas are
methods by which colleagues in financial aid offices and business offices can
share their expertise for the good of all.

Other Opportunities for Schools to Advance Quality

Quality Assurance (QA) Program/Quality Analysis Tool (QAT)

Participation in the QA Program allows schools to advance quality in their
verification initiatives. Participating QA schools have been given the flexibility
to establish their own customized institutional verification program and have
been given the regulatory waivers to make that happen. Institutions seeking to
participate in any of these areas of flexibility which comprise the Assurance
Program (verification, entrance and exit counseling, processing, and disbursing
aid) must apply, be accepted, and return a signed amendment to their Title IV
Program Participation Agreement.

The Quality Analysis Tool (QAT) is a software product that allows schools to
determine what student reported items were misreported on the FAFSA and the
impact it had on their Expected Family Contribution and Federal Pell Grant
eligibility for their entire aid population. Schools will be able to use this
information to assist students in the completion of their FAFSAs to ensure they
are receiving the aid for which they are entitled. It will provide supportable data
that will assist schools in providing better and more accurate service to students.
In addition, if a school participates in the Quality Assurance Program, it can use
this data to design a meaningful institutional verification process.

The QAT is a software product developed for QA institutions. This product will
be made available to all Title IV institutions after it is pilot-tested by QA
institutions and needed enhancements are made.

Schools interested in participating in the QA Program should contact ED’s QA

Team in the Performance Improvement and Procedures Divisions at
202-708-8197.

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 General Institutional Responsibilities

Direct Loan Quality Assurance Component

It is important to note that the quality assurance (QA) component of the Direct
Loan Program is different from the Title IV QA Program. Quality assurance is
required for all schools participating in the Direct Loan Program. ED assists
these schools in conducting QA activities by providing tools such as the Direct
Loan Quality Assurance Planning Guide (QA Planning Guide) and the “Tools”
submenu in EDExpress. Direct Loan Schools have to maintain documentation
about their quality assurance activities in a QA master file. There is no QA
reporting requirement.

2.9 Return of Title IV Funds

The Higher Education Amendments of 1998 changed the refund and repayment
provisions for Title IV programs. In addition to renaming the process
“treatment of Title IV funds when a student withdraws,” (it is also known as the
“return of Title IV funds”), the amendments also revised how to calculate both
the earned and unearned amount of Title IV when a student does not complete a
period of enrollment or payment period. This section of The Blue Book will
concentrate on the institutional responsibilities of returning Title IV funds from
Reference:
the fiscal operations standpoint.
• HEA, Section 484B
• 34 CFR 668.22 Full implementation of the provisions was required as of October 7, 2000,
• Student Financial Aid although institutions could choose to implement the full set of provisions as of
Handbook , Volume 2: October 7, 1998, the date the amendments were enacted.
Institutional Eligibility
• DCL GEN-00-24 A school must:

♦ have established a specific date (no later than October 7, 2000) to

implement the new provisions,

♦ upon implementation, have implemented all of the provisions in their

entirety (including the November 1, 1999 final regulations when they were
published),

♦ have applied the provisions to all students (not on a student-by-student

basis),

♦ have advised all currently enrolled and prospective students of the new
provisions, and

♦ not have reverted back to the old provisions.

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*The period used in the Overview of Return of Title IV Funds

calculation of the
period of enrollment for When students who were disbursed Title IV aid or could have been disbursed
which the student was
charged under refunds Title IV aid withdraw from school during a payment period or period of
of Title IV aid was enrollment*, they are eligible to receive aid for the percentage of the payment
changed to payment period or period of enrollment that they attended school.** When a student
period or period of
enrollment under return
withdraws, the school is required to determine how much Title IV aid the
of Title IV funds. student “earned.” If a student has “unearned” aid because he or she was
disbursed more aid than he or she earned, it must be returned. If a student has
“earned aid” that he or she has not received, he or she is eligible to receive
** If the student never those funds as a post-withdrawal disbursement.
actually began
attending the school,
any Title IV funds Note that the return of Title IV funds calculations are done either on a payment
disbursed must be period or period of enrollment basis, rather than the “period for which he or she
handled according to was charged,” which was the period used for calculating refunds.
the requirements of 34
CFR 668.21, 682.604
(d)(3) or (4) and After the school completes the calculation for the treatment of Title IV funds for
685.303 (b)(3), as a student who withdraws, the school then must:
applicable.
♦ return any amount of disbursed, unearned Title IV funds to the
appropriate Title IV program, and follow the procedures for handling any
grant overpayments due from the student, including notifying the student
of the overpayment; and/or
***A post-withdrawal ♦ initiate, offer, and complete a post-withdrawal disbursement*** of any
disbursement is not
considered an undisbursed, earned funds to the student, including the school’s
overpayment. notification to the student of a post-withdrawal disbursement.

General Definitions****
****These definitions
apply only to ♦ Title IV recipient—a student who has actually received Title IV funds or
calculating return of
Title IV funds, unless
has met the conditions that entitle the student to a late disbursement.
otherwise noted.
♦ Payment period—the definition of a “payment period” is the same definition
used for other Title IV purposes and found in 34 CFR 668.4. (For
example, for an eligible program that has academic terms and measures
Reference: progress in credit hours, the payment period is the academic term.)
• 34 CFR 668.164
(g)(2) ♦ Period of enrollment—the academic period established by the school for
which institutional charges are generally assessed (that is, the length of the
student’s program or academic year).

♦ Title IV aid disbursed—generally, funds that the school credits a student’s

account with or pays a student or parent directly with:

♦ Title IV funds received from ED,

♦ FFEL funds received from a lender, or

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 General Institutional Responsibilities

♦ institutional funds labeled as Title IV funds in advance of receiving

actual Title IV funds.

♦ Title IV aid that could have been disbursed—funds for which the student has
met the conditions of a late disbursement; it does not include Title IV
funds the student was not otherwise eligible for at the time he or she
withdrew.

♦ Earned aid—the amount of aid, determined through calculating return of

Title IV funds, that the student is eligible to receive. This amount may or
may not include amounts that are already disbursed.

♦ Unearned aid—the amount of aid, determined through calculating return

of Title IV funds, that the student has not earned. This amount may or
may not include amounts that are already disbursed.

♦ Withdrawal date—the date the student stopped attending the school. This
*Determining
withdrawal dates date is determined by the institution according to the regulatory
differs depending on requirements for defining a withdrawal date.*
whether or not the
school is required to
take attendance. For Institutional Responsibilities
additional guidance,
see the Student After a student fails to complete the payment period or period of enrollment for
Financial Aid which the student received Title IV funds, schools are required to determine
Handbook, Volume 2:
whether the student has been disbursed unearned Title IV funds that must be
Institutional Eligibility.
returned or has not received all the Title IV aid he or she earned. A school
determines this by completing a return of Title IV funds calculation.

Return of Title IV Funds Calculation**

Reference: ED has developed worksheets to help schools calculate the return of Title IV
• Student Financial Aid funds. There are separate worksheets for credit-hour programs and clock-hour
Handbook , Volume 2: programs. The calculation is divided into eight steps:
Institutional Eligibility
**Examples of the ♦ Step 1 – Student’s Title IV Aid Information: This step collects
calculation appear in
the Student Financial information about the student’s Title IV grant and loan assistance. It
Aid Handbook. consists of two columns: amount disbursed and net amount that could
have been disbursed (for loans, the net amount of the disbursement
issued). The calculation requires the school to separately determine the
totals of the Title IV aid disbursed plus Title IV aid that could have been
disbursed for the payment period or enrollment period.

♦ Step 2 – Percentage of Title IV Aid Earned: Using the student’s

withdrawal date, the school calculates the percentage of the payment
period or period of enrollment that the student completed (which is the
same as the percentage of Title IV aid earned).

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Note: The calculation in Step 2 varies based on whether the program is a clock or credit hour
program. For a program that is measured in clock hours, the percentage of Title IV aid is
determined based on completed clock hours or, in some cases, scheduled clock hours at the time
the student withdrew. For a program that is measured in credit hours, the percentage of Title
IV aid is based on completed calendar days. For credit hour programs, scheduled breaks of at
least five consecutive days and days on which the student is on an approved leave of absence are
excluded from the calculation.

♦ Step 3 – Amount of Title IV Aid Earned by the Student: The school

multiplies the percentage of the payment period or period of enrollment
completed by the student (Step 2) by the total amount of aid that was
disbursed or that could have been disbursed (Step 1).

♦ Step 4 – Total Title IV Aid to be Disbursed or Returned: This step is used

to determine whether the school must disburse additional aid to the
student (called a post-withdrawal disbursement) or whether Title IV aid
must be returned. If the student has earned less than he or she received,
the Title IV aid must be returned to the appropriate program(s). If the
opposite is true, the school completes the post-withdrawal disbursement
worksheet to determine how much the student receives.
*Qualified institutional
charges are detailed in ♦ Step 5 – Amount of Unearned Title IV Aid Due from the SCHOOL:
the Policy Bulletin, Using the percentage of unearned Title IV aid, the school multiplies this
“Calculating
Institutional Refunds: percentage by the total amount of qualified institutional charges.* The
What Are Institutional lesser of this amount or the total Title IV aid to be returned (Step 4) is
Charges?” (January 7, entered here.
1999).

♦ Step 6 – Return of Funds by the SCHOOL: A school must return the

unearned aid for which the school is responsible (Step 5). The funds
**Funds should be
returned up to the net must be returned to the appropriate Title IV programs from which the
amount disbursed from student received aid in the following order**:
each source.
1. Unsubsidized Federal Stafford Loans

2. Subsidized Federal Stafford Loans

3. Unsubsidized Federal Direct Stafford Loans

4. Subsidized Federal Direct Stafford Loans

5. Federal Perkins Loans

6. Federal PLUS Loans

7. Direct PLUS Loans

8. Federal Pell Grants

9. Federal Supplemental Educational Opportunity Grant Program

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 General Institutional Responsibilities

10. Other grant or loan assistance authorized by Title IV of the HEA

♦ Step 7 – Initial Amount of Unearned Title IV Aid Due from the

STUDENT: The school subtracts the amount of unearned aid the school
is responsible for (Step 5) from the total amount of Title IV aid to be
returned (Step 4). If the amount is $0, the student has nothing to repay.

♦ Step 8 – Return of Funds by the STUDENT: The school determines the

amount to be returned by the student to each Title IV program from
which he or she received funds. If the student is to return loan funds, he
or she repays that amount according to the terms of the promissory note
he or she signed. If the student is to return grant funds, the school must
follow the procedures for handling any grant overpayments due from the
student, including notifying the student of the overpayment.

ED has developed software to assist schools with performing return of Title IV

aid calculations, which is known as R2T4 software. When using the software, a
school can set up predetermined values for such “standard” things as its tuition,
fees, room and board (if contracted through the school), and books and supplies
(if they are available only through the school). The software covers these
institutional charges for payment periods in various programs of study.

The software, along with reference materials and user guides, can be downloaded
from ED’s SFA Download Web site.
Reference:
• http://sfadownload.ed.gov
Post-Withdrawal Disbursements

If the school determined through its return of Title IV funds calculation that a
student is due a post-withdrawal disbursement, the school must notify the
student of this fact.

For the school to make a post-withdrawal disbursement, the student must meet
the required conditions for a late disbursement*; this must be before the date the
*Late disbursement student became ineligible.
requirements are listed
in 34 CFR 668.164(g). Post-withdrawal disbursements differ from typical late disbursements in the
following ways:

♦ the school is required to make a post-withdrawal disbursement if the school

determines the student is otherwise eligible to receive one,

♦ the amount of a post-withdrawal disbursement is determined by following

the requirements for calculating earned Title IV aid; it does not depend on
the amount of incurred educational costs, and

♦ the post-withdrawal disbursement must be made within 90 days of the

date the school determined the student withdrew, not from the date the
student became ineligible.

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The school may credit a student’s school account with post-withdrawal

disbursement funds without the student’s permission to cover current charges
for tuition, fees, and room and board (if the student contracts with the school).
However, a student’s or parent’s (for PLUS Loans) authorization is still required
if the post-withdrawal disbursement will be used to cover other current charges
for educationally related activities. A school may credit a student’s account for
Reference: minor prior-award-year charges according to cash management requirements.
• 34 CFR 668.165(b)
• 34 CFR 668.16(d)(1)-(3) Earned funds in excess of those credited to a student’s school account must be
offered to the student. A school is required to notify and offer the student (or
• parent for PLUS Loan funds), in writing, any amount of post-withdrawal
disbursement that is not credited to the student’s school account. In the
notification, the school must advise the student that he or she has 14 calendar
days from the date the school sent the notice to accept the post-withdrawal
disbursement. If the student responds after the 14-day period, the school is not
required to make the post-withdrawal disbursement, but the school may choose to
do so. The institution must notify the student or parent of its decision.

The written notification must be sent as soon as possible, but no later than
30 calendar days after the date the school determines the student withdrew.

If a student or parent submits a response within the 14-day time period,

accepting all or a portion of a post-withdrawal disbursement, the school must
disburse the funds within 90 days of the date the school determined that the
student withdrew.

A post-withdrawal disbursement must be made first from

grant funds that could have been disbursed, then from
other funds that could have been disbursed. The reason:
It is in the student's best interest to minimize loan debt.

Grant Overpayments
Once the initial amount of the Title IV grant overpayment is determined, it is
reduced by 50 percent. The adjusted grant overpayment is the amount the
student is responsible to repay.

Within 30 days of the date that the school determined that a student withdrew, a
school is required to notify the student that he or she must repay the
overpayment. In the notification, the school must:

♦ inform the student that he or she owes a Title IV grant overpayment;

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 General Institutional Responsibilities

♦ state that the student’s eligibility for additional Title IV funds will end if
the student fails to take positive action by the 45th day following the date
the school sent the notification (or was required to send the notification);

♦ present the student with the option of taking one of the following actions
to enable the student to maintain his or her eligibility for Title IV funds:

1. repay the overpayment in full to the school,

2. sign a repayment agreement with ED’s Debt Collection Service

(DCS), or

3. if the institution chooses to offer an institutional repayment plan (a

school does not have to offer this option), sign a repayment
agreement with the school.

♦ notify the student that if he or she doesn’t take positive action within the
required time period, the overpayment will be reported and referred to
NSLDS and ED’s DCS; and

♦ tell the student the appropriate person at the school to contact to discuss
his or her options.

Students who owe overpayments as a result of withdrawing from school retain

their eligibility for Title IV funds for at most 45 days from the earlier of:

♦ the date the school sends the student notice of the overpayment or

♦ the date the school was required to notify the student of the overpayment.

If no positive action is taken by the student during the 45-day period, the school
should immediately report the overpayment to NSLDS.

Repayment Arrangements
To maintain eligibility for Title IV funds, the student has three options for
repaying a grant overpayment:

♦ Pay the overpayment in full to the school.

If a school receives a payment for an overpayment from a student who

has not been referred to ED’s DCS, the school should NOT send the
payment to ED. Depending on the program type, the school should do
the following:

♦ If the payment received is for a Pell Grant award (for current award
year or prior award year) or for an FSEOG for the current award
year, the school should handle the funds according to excess-cash
regulations and GAPS procedures.

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♦ For a Pell Grant overpayment, the school should reduce the student’s
award by entering a negative disbursement in RFMS. The school
then adjusts its institutional ledgers and the student’s account.

♦ For an FSEOG overpayment, the school should adjust its

institutional ledgers, financial aid records, and the student’s school
account. The school’s FISAP, in turn, will reflect the net award to
the student. If the payment is for an FSEOG from a prior award
year, the funds should be returned to ED using GAPS procedures.

♦ Enter into a repayment arrangement with the school.

A school is not required to enter into a repayment agreement with a

student. If the school chooses to do so and is able, ED encourages the
school to negotiate a repayment agreement that includes terms permitting
the student to repay the overpayment while maintaining his or her
eligibility for Title IV funds. The school’s repayment arrangement must
provide for complete repayment of the overpayment within two years of
the date the school determined the student withdrew. If a school does not
choose to offer a repayment option, it is required to report the
overpayment information to NSLDS and refer the overpayment to DCS.

♦ Enter into a repayment arrangement with ED.

If a student chooses this option, the school must report the overpayment to
NSLDS and then refer the overpayment to ED’s DCS.

Then, the school should provide the student with the address, phone
number, and email address of ED’s DCS.

U.S. Department of Education

Student Financial Assistance Programs
P.O. Box 4222
Iowa City, IA 52245

Phone: 1-800-621-3115

Email: [email protected]

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 General Institutional Responsibilities

Student Responsibilities
If a student has received an overpayment that he or she must repay, he or she
should respond to the school’s notification and reach an agreement with the
school about paying the overpayment.

Failing to respond in a timely manner could result in the student’s loss of

eligibility for Title IV student financial aid.

Factors Affecting Return of Title IV Funds

Before schools can effectively follow return of Title IV funds policies, they must
understand factors that relate to the laws and regulations. These include:

♦ applying for and disbursing aid,

♦ whether or not the school is required to take attendance,

♦ withdrawal date,

♦ last date of attendance,

♦ payment period or period of enrollment,

♦ post-withdrawal disbursements,

♦ leave of absence,

♦ institutional charges, and

♦ noninstitutional charges.

Institutional Charges
Unless demonstrated otherwise, institutional charges are charges assessed by
the school for tuition, fees, room and board contracted with the school, and
Reference:
other charges assessed by the school. They are usually assessed for direct
• Policy Bulletin,
“Calculating Institutional educational expenses and are paid directly to the school.
Refunds: What Are
Institutional Charges?” To be classified as an institutional charge, a charge does not have to be charged
(January 7, 1999). to all students or be listed as a charge in an enrollment agreement.

Institutional charges may or may not be charged to the student’s school account.
Conversely, all charges on a student’s school account are not necessarily
institutional charges.

Books, supplies, and equipment are considered institutional charges if there is no

real and reasonable opportunity to buy the books, supplies, or equipment from a
source other than the institution.

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Noninstitutional Charges
Noninstitutional charges are not owed directly to the school but are related to a
student’s education. Noninstitutional charges include:

♦ room and board charges not contracted with the school;

♦ charges for any required course materials that a school can document are
noninstitutional because the student had a real and reasonable opportunity
to purchase them elsewhere;

♦ a charge to a student’s account for room charges that are collected by the
school but are “passed through” to an unaffiliated entity;

♦ a charge to a student’s account for group health insurance fees, if the

insurance is required for all students and the coverage remains in effect
for the entire period for which the student was charged, despite the
student’s withdrawal; and

♦ a charge to a student’s account for discretional, educationally related

expenses, such as:

♦ parking or library fines or

♦ cost of athletic or concert tickets.

Applying and Disbursing Aid

The presumption of the return of aid provisions in the law is that Title IV funds
are used to pay institutional charges ahead of all other sources of aid. That is
why the requirements look first to the school to repay unearned Title IV funds.
This does not mean that a school is required to apply Title IV funds to
institutional charges before other aid is applied. However, an institution must
return the full amount of Title IV funds for which it is responsible, regardless of
whether or not the Title IV funds were used to pay institutional charges.

Withdrawal Date
The definition of withdrawal date:

*Examples of outside ♦ for institutions required to take attendance by an outside entity,* the date
entities are a school’s
accrediting agency or a
of withdrawal is the last date of academic attendance as determined from
school’s state attendance records.
licensing agency.
♦ for institutions not required to take attendance by an outside entity,* the
withdrawal date (determined by the school) is:

♦ the date the student began the withdrawal process prescribed by the
school;

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 General Institutional Responsibilities

♦ the date that the student otherwise provided the school with official
notification of the intent to withdraw;

♦ the date a student began a leave of absence, if the student takes an

unapproved leave of absence or does not return from an approved
leave of absence; or

♦ the midpoint of the payment period or period of enrollment for

which Title IV aid was disbursed or a later date documented by the
institution, if a student unofficially withdraws.

If a student both begins the schools’ withdrawal process and otherwise provides
official notification to the school of his or her intent to withdraw, the withdrawal
date is the earlier of these two dates.

If a student withdraws after rescinding a previous official notification of

withdrawal, the withdrawal date is the original withdrawal date from the original
(previous) official notification.

Special rule: The institution may determine the appropriate withdrawal date that is
related to a student’s special circumstances if the student did not begin the
withdrawal process or otherwise notify the institution of the intent to withdraw
due to:

♦ illness,

♦ accident,

♦ grievous personal loss, or

♦ other such circumstances beyond the student’s control.

Leave of Absence for the Purpose of the Return of Title IV Funds

A student who is granted an approved leave of absence (LOA) is not
considered to have withdrawn and no return of Title IV funds calculation is
required. A leave of absence is an approved LOA if:

♦ the institution determines there is a reasonable expectation that the

student will return to the institution;

♦ the student is a loan recipient, and the institution explains to the student,
before granting the LOA, the effects that the student failing to return
from the LOA may have on the student’s loan repayment terms, including
exhausting some or all of the student’s grace period;

♦ the LOA does not exceed 180 days in length in any 12-month period;

♦ the LOA does not involve additional charges to the student;

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♦ on the student’s return, he or she is permitted to complete the course

work he or she began before the LOA;

♦ the institution has a formal written LOA policy;

♦ the student followed the institution’s policy in requesting an LOA; and

♦ the institution approved the request according to its policy.

If a student does not return to the institution at the end of an approved LOA,
the institution is required to calculate a return of Title IV funds based on the date
the student left on the approved LOA.

Generally, only one leave of absence may be granted to a student in a 12-month

period. However, one additional leave of absence of no more than 30 days may
be granted if the institution determines that it is necessary because of unforeseen
circumstances (this LOA may not be the student’s first LOA). Also, subsequent
LOA may be granted for jury duty, military reasons, or circumstances covered
under the Family Leave and Medical Act of 1993.

A school may accept one request for multiple leaves of absence from a student
when those leaves are all requested for the same reason. For example, a student
who will be receiving multiple chemotherapy treatments over the course of the
student’s enrollment could submit one request to cover the recovery time needed
for each session.
The total number of days of all LOAs may not exceed 180 days in any 12-month
period.

2.10 Record Maintenance and Retention

fRequirements
Institutions participating in Title IV programs collect and generate a significant
Reference: volume of program-related and student-related information on a yearly basis.
• Student Financial Aid Federal regulations specify which of these records must be maintained and the
Handbook , Volume 2: period of time they must be retained. These record maintenance and retention
Institutional Eligibility requirements are school-wide, and they include fiscal, financial aid, and general
• 34 CFR 668.24 institutional records.

The importance of maintaining complete and consistent records cannot be

overemphasized. These records are used to document a school’s administrative
capability and financial responsibility and are crucial in maintaining eligibility to
participate in Title IV programs. As such, schools must make student financial
aid program and general records available to auditors and representatives of ED
at their request. Records that are poorly maintained or that are not readily
available for review can lead to findings, exceptions, and liabilities in the course
of an audit or program review.

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This section describes the recordkeeping requirements contained in ED

regulations. A discussion of the Family Educational Rights and Privacy Act
(FERPA) is also included, beginning on page 2-64. FERPA is an important law
that protects the privacy of students and families by controlling disclosure of
student records to parties outside the institution and by allowing students access
to their own school records.

General Student Records

Schools must maintain records related to a student’s participation in the Title IV
programs. Examples include:

♦ the student’s admission and enrollment status at the institution,

♦ the program of study and the courses in which the student is enrolled,
♦ the student’s academic progress,
♦ all financial aid the student receives at the institution,

♦ the student’s prior receipt of financial aid at other institutions, if

applicable,

♦ all return of Title IV funds due or paid to the student, Title IV programs,
or FFEL Program lenders,

♦ the student’s job placement (if the school provides a placement service
and the student uses that service), and

♦ verification of information reported on the student’s financial aid

application, if the student is chosen for verification.
For all students, not just Title IV recipients, the school must keep records about
its admission requirements and the educational qualifications of each student
admitted to or enrolled in each eligible program.

Schools must also keep records relating to student consumer-information

requirements and to requirements under the Student Right-To-Know (SRK) Act
and Campus Security Act.

General Institutional Records

Reference: Schools must maintain all records that relate generally to the institution’s
• Student Financial Aid eligibility to participate in Title IV programs. Examples include:
Handbook , Volume 2:
Institutional Eligibility ♦ the institution’s Program Participation Agreement (PPA), approval letter,
and Eligibility and Certification Approval Report (ECAR) sent from ED;
♦ accrediting agency and licensing agency reviews, approvals, and reports;

♦ state agency reports;

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♦ audit and program review reports; and

♦ self-evaluation reports.

General Fiscal Records

A school must keep consistent and accurate records of its use of Title IV funds.
Program and fiscal records must show a clear (easily followed) audit trail for
Reference: expenditures of federal funds. Similarly, these records must clearly show that
• Student Financial Aid funds were obtained, managed, disbursed, and returned according to federal
Handbook , Volume 2:
Institutional Eligibility regulations. Fiscal records that must be maintained include:
• 34 CFR 668.24(b)
♦ records of all Title IV program transactions;

♦ bank statements for accounts containing Title IV funds;

♦ student school accounts, including (for each enrollment period)

institutional charges, cash payments, Title IV payments, cash
disbursements, and return of Title IV funds;

♦ general ledger (control accounts) and related subsidiary ledgers that

identify each program transaction and separate those transactions from
the institution’s other financial transactions;

♦ Federal Work-Study (FWS) payroll records; and

♦ records that support data that appear on required reports.

Specific fiscal recordkeeping requirements for each Title IV program are

discussed in that program’s regulations.

Financial Aid Application and Award Records

Schools are required to keep extensive records involving student applications for
financial aid and financial aid awards. Required records include:
Reference:
• 34 CFR 668.24(c) ♦ student applications for financial aid and need analysis documents for all
eligible aid applicants who attended the school, whether or not they received any
financial aid;

♦ documents establishing a student’s financial need and eligibility for Title

IV aid;

♦ financial aid awards made to and accepted or declined by students*;

*Schools have to provide
auditors or program ♦ cost of attendance information for individual students;
reviewers with records of
the notifications they ♦ verification documents, including student (and spouse, if applicable) and
sent students about their
parent federal tax returns of students selected for verification;
financial aid awards.

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 General Institutional Responsibilities

♦ records of FFEL Program loans and Direct Loans;

♦ documentation of required entrance and exit loan counseling for students

borrowing under the FFEL, Direct Loan, and Federal Perkins Loan
Programs;

♦ data used to establish a student’s full-time or part-time enrollment status

and period(s) of enrollment;

♦ records of returns of Title IV funds due to or paid to students, Title IV

program accounts, or FFEL Program lenders; and

♦ required certification statements and any documents used to support or

verify those certifications.

Financial Aid Software Records

Schools should, but are not required to, keep copies of any software used to
calculate and help determine a student’s eligibility for Title IV aid. If a non-ED
Reference:
software package is needed to access and review records that a school maintains
• 34 CFR 668.24 (d)(2)
and (3) on its students, the school must maintain a copy of that software as well.
Reporting Records
Schools must maintain reports or copies of reports submitted or received in
connection with administering Title IV programs, including:

♦ Fiscal Operations Report and Application to Participate (FISAP),

♦ Federal Pell Grant Program Electronic Statements of Account (ESOAs),

♦ Grant Administration and Payment System (GAPS) cash requests,

♦ reconciliation reports for Title IV programs,

♦ federal, state, and independent audit reports and school responses*,

♦ state grant and scholarship award rosters and reports, and

*In any case that is still
pending, a school is
required to keep all
♦ accrediting and licensing agency reports.
student records that
pertain to audit or In addition, schools must maintain records that support the data that appear on
program review all required reports.
findings.

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Program Records
Reference:
Schools must also keep records that relate specifically to each Title IV program,
• Student Financial Aid
Handbook , Volume 2:
including records of:
Institutional Eligibility
• 34 CFR 668.24(a) ♦ its eligibility to participate in Title IV programs,

♦ the eligibility of its educational programs for Title IV funds,

♦ its administration of Title IV programs according to all applicable

requirements,

♦ its financial responsibility,

♦ information included in any application for Title IV funds,

♦ its disbursement and delivery of Title IV funds,

♦ the eligibility of any additional location that offers at least 50 percent of

the program and offers Title IV funds, and

♦ its admission policy.

Federal Pell Grant Program

Reference:
For the Federal Pell Grant Program, the records a school must maintain include,
• 34 CFR 668.24 but are not limited to:
• 34 CFR 690.82
♦ a valid Institutional Student Information Record (ISIR) or Student Aid
Report (SAR) for each student applying for a Federal Pell Grant,

♦ records of the eligibility of each enrolled student for whom the school has
*The ISIR must be
maintained in the an ISIR* or SAR,
electronic format in
which it was originally ♦ the name and Social Security number of and the amount paid to each
received from ED.
The SAR must be
student,
maintained in its
original, hard-copy ♦ the amount and date of any overpayment that is restored to the program
format or an imaged- account,
media format.

♦ each student’s cost of attendance,

♦ how each student’s full-time or part-time enrollment status was

determined, and

♦ records of each student’s enrollment period.

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FSEOG Program
For the Federal Supplemental Educational Opportunity Grant (FSEOG)
Program, the records a school must maintain include, but are not limited to:
Reference:
• 34 CFR 668.24
♦ program records that are reconciled at least monthly,
• 34 CFR 676.19
♦ each student’s school account and status,

♦ the eligibility of each student assisted under the program and how each
student’s need was met,

♦ all FSEOG applications for those students reported on the FISAP,

♦ all records supporting the school’s application for FSEOG funds, and

♦ a noncash-contribution record to document payment of the institution’s

share (nonfederal share) of grants to students.

Federal Perkins Loan Program

For the Federal Perkins Loan Program, the records a school must maintain
include, but are not limited to:
Reference:
• 34 CFR 668.24 ♦ program and fiscal records that are reconciled at least monthly;
• 34 CFR 674.19
♦ each student’s school account and status;

♦ the eligibility of each student assisted under the program and how each
student’s need was met;

♦ original promissory notes and repayment schedules in a locked, fireproof

container until the loans are satisfied or until they are assigned to ED for
collection, or as long as the documents are needed to enforce the loan
obligation;

♦ all loan applications for those students reported on the FISAP;

♦ all records supporting the school’s application for funds under the Federal
Perkins Loan Program;

♦ a repayment history for each borrower that shows the date and amount of
each repayment over the life of the loan and that indicates the amount of
each repayment credited to principal, interest, collection costs, and penalty
or late charges;

♦ documentation of the date, nature, and result of each contact with the
borrower or endorser in collecting an overdue loan, including copies of all

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 Chapter 2

correspondence to or from the borrower and endorser (except bills,

routine overdue notices, and routine form letters);

♦ payment records (including cancellation and deferment requests);

♦ collection agency reports (if collection attempts were made);

♦ litigation records (if litigation occurred); and

♦ information collected at entrance and exit loan counseling conducted for

the borrower.

Federal Work-Study Program

For the Federal Work-Study (FWS) Program, the records a school must maintain
include, but are not limited to:

Reference: ♦ program records that:

• 34 CFR 668.24 ♦ are reconciled at least monthly,
• 34 CFR 675.19
♦ identify each student’s school account and status,
♦ show the eligibility of each student assisted under the program, and
♦ show how each student’s need was met;
♦ all employment records for those students reported on the FISAP;
♦ all records supporting the school’s application for FWS funds;

♦ a certification by the student’s supervisor, an official of the institution, or

off-campus employer, that each student has worked and earned the
amount paid*;

*Schools now have the option to allow electronic certification:

§ of the hours a student worked and
§ that the amount paid was earned by the student.
Schools can still require supervisors to sign paper certifications.

♦ a time sheet showing the hours each student worked in clock-time

sequence for students paid on an hourly basis, or the total hours worked
each day,

♦ a payroll voucher containing sufficient information to support all payroll

disbursements, and

♦ a noncash-contribution record to document any payment of the

institution’s share of the student’s earnings in the form of services and
equipment.

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Federal Family Education Loan Program

For the Federal Family Education Loan (FFEL) Program, the records a school
must maintain include, but are not limited to:

♦ a copy of the loan certification or data electronically submitted to the

lender, that includes the amount of the loan and the loan period for which
the loan was intended;

♦ the data used to construct an individual student’s budget or the school’s

itemized standard budget used to calculate students’ estimated costs of
Reference:
attendance;
• 34 CFR 668.24
• 34 CFR 682.610 ♦ the sources and amounts of financial aid available to the student that the
school used to determine the student’s estimated financial aid for the loan
period;

♦ the amount of the student’s tuition and fees paid for the loan period and
the date the student paid the tuition and fees;

♦ the amount and basis of the calculation of any return of Title IV funds
paid to or on behalf of a student;

♦ the data used to determine the student’s Expected Family Contribution

(EFC) and the corresponding certification by the school to the lender, for
a subsidized Federal Stafford Loan for which the borrower receives an
interest subsidy;

♦ the date of each disbursement of the loan and the amount of that
disbursement;

♦ the date the school endorsed each loan check;

♦ the date(s) loan proceeds were delivered by the school to the student;

♦ a copy of the student’s (or parent’s, for a PLUS Loan) written

authorization for initial and subsequent disbursements for loans delivered
by electronic funds transfer (EFT) or master check and for which the
*The description of the school has no authorization on the loan application;
MPN confirmation
process(es) need not ♦ a description of any master promissory note (MPN) confirmation process
be included in
individual borrower or processes in effect for each academic year in which the school makes
files. Ideally, it should second or subsequent loans under an MPN*;
be included in a
student handbook or
other publication that
♦ documentation that the student received entrance and exit loan
explains the school’s counseling; and
financial aid policies
to students. This ♦ litigation records (if litigation occurred).
information must be
kept indefinitely.

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In addition, schools must maintain any other records that document their
compliance with any applicable loan-related requirements.

Federal Direct Loan Program

For the Federal Direct Loan Program, the records a school must maintain
include, but are not limited to:
Reference:
• 34 CFR 668.24 ♦ application data submitted to ED;
• 34 CFR 685.309 ♦ the amount of the loan and the loan period;
♦ the amount and date of tuition and fees paid for the loan period;
♦ the data in an individual student budget or the school’s itemized standard
budget that were used in calculating the student’s estimated cost of
attendance;
♦ the sources and amounts of financial aid available to the student that the
school used to determine the student’s estimated financial aid for the loan
period;
♦ the cost of attendance used to determine the student’s loan;
♦ the amount and basis of the calculation of any return of Title IV funds
paid to or on behalf of a student;
♦ the data used to determine the student’s EFC, for a subsidized Direct
Loan;
♦ the date of each disbursement of the loan, for a subsidized or
unsubsidized Direct Loan;
♦ the date of each disbursement of the loan and the amount of the
disbursement;
♦ a description of the master promissory note (MPN) confirmation process
*The description of or processes in effect for each academic year in which the school makes
the MPN second or subsequent loans under an MPN*;
confirmation
process(es) need
not be included in ♦ the borrower’s information collected at the exit interview and
individual borrower documentation that confirms that the student received entrance and exit
files. Ideally, it loan counseling;
should be included
in a student ♦ all records involved in any loan, claim, or expenditure questioned by a
handbook or other
publication that federal audit until the resolution of any audit questions;
explains the
school’s financial ♦ program records that are reconciled at least monthly;
aid policies to
students. This ♦ each student’s account and status; and
information must be
kept indefinitely. ♦ the eligibility of each student assisted under the program and how each
student’s need was met.

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Reference:
Record-Retention Requirements
• Student Financial Aid
Handbook , Volume 2: Schools must retain all required records for a minimum of three years.*
Institutional Eligibility
However, all records do not have the same starting point. In addition, some
• 34 CFR 668.24(e)
states require schools to retain such records for longer periods.

*If the record is The chart below shows the required minimum retention period for records under
involved in any loan, various Title IV programs.
claim, or expenditure
questioned by a
Title IV program
audit, program
review, investigation
or other review, the
record must also be
maintained until the
issue is resolved.

Note: An institution must keep all records involved in any loan, claim, or
expenditure questioned by a Title IV HEA audit or program review,
investigation, or other review until the later of (a) the resolution of that
questioned loan, claim, or expenditure or (b) the end of the retention period that
applies to the record. In addition, the description of the MPN confirmation
process must be kept indefinitely.

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Record Maintenance for Paper and Imaged Formats

Reference: A school must maintain all required records in a systematically organized
• Student Financial Aid manner. Unless a specific format is required, a school may keep required records
Handbook , Volume 2:
Institutional Eligibility
in hard copy, microform, computer file, optical disk, CD-ROM, or other media
form.
• 34 CFR 668.24(d)

Regardless of the format used to keep a record, all records (except ISIRs, see the
special requirements section below) must be retrievable in a coherent hard-copy
format.

♦ A coherent hard-copy format could be, for example, an easily

understandable printout of a computer file.

Any document that contains a signature, seal, certification, or any other image or
*In the case of mark required to validate the authenticity of its information must be maintained
Perkins Loans, the in its original hard-copy format or in an imaged-media format.*
promissory notes
and repayment
schedules must be ♦ A school may maintain a record in an imaged-media format only if the
maintained in their format is capable of reproducing an accurate, legible, and complete copy
hard-copy format of the original document. When printed, the copy must be approximately
only.
the same size as the original document.

Special Requirements
Special maintenance and availability requirements apply to SARs and ISIRs
because it is essential that these basic eligibility records be available in a
consistent, comprehensive, and verifiable format for program review and audit
purposes.

Reference: ♦ The SAR must be available in its original, hard-copy format or in an

• 34 CFR 668.24(d)(3)(ii) imaged-media format.

**The original format ♦ The ISIR, an electronic record, must be maintained and available in its
is in the form of a original format,** that is, as ED supplied it to the school.
magnetic tape,
cartridge, or as it was
archived using A school that uses EDExpress software has the ability to maintain ISIR data by
EDExpress software. archiving the data to a disk or other computer format.

Records Examination
Reference: Schools must make their records available to ED at an institutional location that
• Student Financial Aid ED designates. These records must be readily available for review, including any
Handbook , Volume 2: records of transactions between a school and the financial institution where the
Institutional Eligibility
school deposits its Title IV funds.
• 34 CFR 668.24(f)
A school and its third-party servicer must cooperate with the agencies or
individuals conducting audits, program reviews, investigations, or other reviews

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authorized by law. This cooperation must be extended to the following

individuals and their authorized representatives:

♦ independent auditors,

♦ the U.S. Secretary of Education,

♦ ED’s Inspector General,

♦ the Comptroller General of the United States,

♦ any guaranty agency in whose program the school participates, and

♦ the school’s accrediting agency.

In the review process, a school or its third-party servicer must cooperate by

providing timely access to requested records, pertinent books, documents,
papers, or computer programs for examination and copying.

A school or its third-party servicer must also provide reasonable access to all
personnel associated with the school’s or servicer’s administration of federal
student financial aid programs so any of the agents listed above may obtain
relevant information. A school or its third-party servicer has not provided
reasonable access if it:

♦ refuses to allow its personnel to supply all relevant information,

♦ permits interviews with those personnel only if the school’s or servicer’s

management is present, or

♦ permits interviews with those personnel only if the interviews are tape
recorded by the school or servicer.

If ED requests it, a school or its third-party servicer must promptly provide any
information about the last known address, full name, telephone number,
enrollment information, employer, and employer address of Title IV fund
recipients who attend or attended the school. A school must also provide this
information, on request, to a lender or guaranty agency in the case of a FFEL
Program borrower.
Reference: A school must still provide for the retention of required records, and for access
• 34 CFR 668.24(d)(4)(i) to those records, if the school:
and (ii)
♦ stops providing educational programs,

♦ is terminated or suspended from participating in a Title IV program(s),

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♦ undergoes a change of ownership that results in a change in control, or

♦ closes.

These records must be accessible for inspection and copying by ED or ED’s

authorized representative and the appropriate guaranty agency (if applicable).

Disclosing Student Information

The Family Education Rights and Privacy Act of 1974 (FERPA) sets certain
Reference: conditions on disclosing personal information from records kept by schools.
• Student Financial Aid The law pertains to all students attending these schools, not just Title IV
Handbook , Volume 2: recipients. In addition, federal regulations issued under FERPA apply to all
Institutional Eligibility school records, including admissions records, academic records, and financial aid
records.

FERPA excludes from the definition of “education records” (and from the
restrictions and rights of access under FERPA) records that are maintained by a
Reference:
law enforcement unit of an education agency or institution that were created by
• 34 CFR Part 99 that unit for the purpose of law enforcement.

School Requirements
Under FERPA, a school is required to:

♦ develop a written policy listing the types and locations of education

records maintained by the school and stating the procedures for students
and parents to review the records,

♦ notify students and parents of their rights with respect to education

records, and

♦ document a student’s file each time personally identifiable information is

disclosed to a person other than the student.

Student Rights
A student has the right to:

♦ inspect and review his or her education records,

♦ request an amendment to the records, and

♦ if the request for an amendment is denied, to request a hearing to

challenge the contents of the education records on the grounds that the
records are inaccurate, misleading, or violate the student’s rights.

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Disclosure to Third Parties

Reference: FERPA regulations also govern disclosing student information to parties other
• Student Financial Aid than the student. There are several conditions under which personally
Handbook , Volume 2: identifiable information may be disclosed without the student’s prior written
Institutional Eligibility consent. Some of these conditions are of interest to the fiscal officer:

♦ Disclosure may be made to authorized representatives of ED, ED’s

Office of Inspector General, or state and local education authorities.
These officials may have access to records as part of an audit or program
review, or to ensure compliance with Title IV program requirements.

♦ Disclosure may be made if it is in connection with financial aid that the

student received or applied for. Information may be released only if it is
needed to determine the amount of the aid, the conditions for the aid,
the student’s eligibility for the aid, or to enforce the terms or conditions
of the aid.

♦ Disclosure may be made to the student’s parent, if the student is a

dependent of the parent as defined by the Internal Revenue Service.

♦ Disclosure may be made to organizations that are conducting studies

concerning administration of student aid programs on behalf of
educational agencies or institutions.

Recording Disclosures
Schools are required to keep a record of each request for access and each
disclosure of personally identifiable student information. The record must
identify the parties who requested the information and their legitimate interest in
the information. This disclosure record must be maintained as long as the
records themselves are maintained.

Record-Management Procedures
It is essential that schools maintain records related to Title IV programs in an
organized manner. Good record-management procedures assist institutions in
carrying out daily functions associated with administering Title IV funds, filing
required reports in an accurate and timely manner, and maintaining a clear audit
trail.

One important aspect of record management is careful and orderly filing of

original records. To do this, many schools establish individual, cumulative
student aid files, separating documents within each student’s file on the basis of
award year.

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Clear Audit Trail

Although it is important to keep original records used in processing financial aid,
schools must also have a recordkeeping system that traces transactions involving
those records. A school’s recordkeeping procedures should allow for
establishing and maintaining a clear (easily followed) audit trail. A clear audit trail
is defined as maintaining required documentation that supports each transaction
involving receiving or expending federal funds.

A school may maintain records in a manual, paper-based system or in a

computer database, or it may use a combination of these methods. For example,
a school that uses an automated system to manage records might also maintain
paper files that contain original documents needed to support the electronic
information stored in a database. As imaging technology becomes more
available, schools might choose to maintain electronically imaged documents
instead of paper originals.

In-House Control Documents

The in-house control documents a school uses to manage records can vary on
the basis of institutional policies and procedures. Some commonly used control
documents, whether paper or electronic, include:

♦ a communication log that summarizes all in-person or telephone contacts

with a student or about a student’s financial aid;

♦ a document-control checklist that monitors documents received against

documents needed to process a student’s financial aid;

♦ an award-packaging log that shows how and when a student’s award was
packaged and by whom;

♦ a loan-status log for each federal student loan program that tracks loan
applications, disbursements, entrance and exit loan counseling, refunds,
repayments, and collection activities (if applicable); and

♦ a student master record that contains financial aid information for a

student for each award year.

Student Master Record

A student master record is used to record basic information relating to a
student’s application for and receipt of financial aid. The student master record
typically contains:

♦ demographic information, such as name, address, date of birth, and

citizenship status;

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♦ enrollment information, such as admission status, enrollment dates,

credits attempted and completed, and grade point average;

♦ need analysis information, such as Expected Family Contribution (EFC),

family income, and cost of attendance (COA);

♦ award information, such as amounts and sources of funds awarded and

whether awards were accepted or declined; and

♦ student account information, such as tuition and fee charges assessed,

cash payments made by a student or parent, financial aid disbursements,
and return of Title IV funds.

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Section 2, Calculating the Ratios from the Balance Sheet and Income Statement

Balance Sheet Statement of Income and Retained Earnings

Line Line

1 Cash $ 190,000 25 Operating Income $ 9,700,000

2 Accounts Receivable 1,010,000 26 Non-Operating Income 300,000

3 Prepaid Expenses 150,000 27 Total Income 10,000,000

4 Inventoried 130,000 28 Cost of Goods Sold 6,800,000

5 Note Receivable from Affiliate 200,000 29 Administrative Expenses 2,600,000

6 Investments 330,000 30 Depreciation Expense 60,000

7 Total Current Assets 2,010,000 31 Interest Expense 40,000

8 Property and Equipment, net 500,000 32 Total Expenses 9,500,000

9 Amount Due from Owner 170,000 33 Other: Gain on Sale of Investments 10,000

10 Goodwill 80,000 34 Net Income Before Taxes 510,000

11 Organization Costs 70,000 35 Federal Income Taxes 53,000

12 Deposits 60,000 36 Net Income After Taxes 357,000

13 Total Assets 2,890,000 37 Extraordinary Loss, net of Tax 800,000

14 Accounts Payable 200,000 38 Net Income (443,000)

15 Accrued Expenses 330,000 39 Retained Earnings, Beginning of year 1,263,000

16 Current Portion of Long-Term Debt 120,000 22 Total Expenses 820,000

17 Deferred Revenue 650,000

18 Total Current Liabilities 1,300,000
19 Long-Term Debt, net of Current Portion 330,000
20 Total Liabilities 1,630,000
21 Contributed Capital 440,000
22 Retained Earnings 820,000 Primary Reserve Ratio = (lines) 23-5-9-10-8+(16+19)* = $ 760,000 = 0.080
32 9,500,000
23 Total Owner’s Equity 1,260,000
24 Total Liabilities and Owner’s 2,890,000 Equity Ratio = (lines) 23-5-9-10 = $ 810,000 = 0.332
Equity 13-5-9-10 $ 2,440,000

Net Income Ratio = (lines) _34___ = $ 510,000 = 0.051

27+33 $ 10,010,000

*Long-Term Debt (lines 16 + 19) cannot exceed Property and

Equipment (line 8) in the formula.

Source: 34 CFR 668 Subpart K.

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Section 2, Calculating the Ratios from the Balance Sheet and Statement of Activities
Statement of Activities a b c d
Balance Sheet
Temporarily Permanently
Unrestricted Restricted Restricted Total
Line Line

1 Cash and Cash Equivalents $ 1,000,000 27 Tuition and Fees $45,000,000 $ 45,000,000

2 Accounts Receivable 6,000,000 28 Contributions 1,200,000 $ 300,000 $ 120,000 1,620,000

3 Prepaid Expenses 1,500,000 29 Auxiliary Enterprises 5,500,000 5,500,000

4 Inventories 500,000 30 Net Assets Released from Restrictions 200,000 200,000

5 Contributions Receivable 2,000,000 31 Total Revenue 51,900,000 300,000 120,000 52,320,000

6 Student Loans Receivable 8,000,000 32 Operating Expenses 38,000,000 38,000,000

7 Investments 6,000,000 33 Depreciation 5,000,000 5,000,000

8 Property and Equipment, net 50,000,000 34 Interest Expense 2,880,000 2,880,000

9 Bond Insurance Costs 720,000 35 Auxiliary Enterprises 5,200,000 5,200,000

10 Goodwill 500,000 36 Non-Operating Expenses 900,000 900,000

11 Deposits 20,000 37 Net Assets Released from Restrictions 200,000 200,000

12 Total Assets 76,240,000 38 Total Expenses 51,980,000 200,000 52,180,000

13 Line of Credit 500,000 39 Change in Net Assets (80,000)* 100,000 120,000 140,000

14 Accounts Payable 2,000,000 40 Net Assets at beginning of year 15,270,000 2,700,000 8,880,000 26,850,000

15 Accrued Expenses 3,500,000 41 Net Assets at end of year 15,190,000 2,800,000 9,000,000 26,990,000

16 Deferred Revenue 650,000

17 Post-Retirement Benefits Liability 6,600,000

18 Bonds Payable** 36,000,000 Primary Reserve Ratio = (lines) 20+23-21-10-8+18**+17 = $ 9,790,000 = 0.188
38a $ 51,980,000
19 Total Liabilities 49,250,000
Equity Ratio = (lines) 25 -10 = $ 26,490,000 = 0.350
20 Unrestricted Net Assets 15,190,000 12 -10 $ 75,740,000

21 Annuities 300,000 Net Income Ration = (lines) 39a___ = $ (80,000) = -0.0015

31a $ 51,900,000
22 John Doe Scholarship Fund 2,500,000

23 Total Temp. Restricted Net Assets 2,800,000

*In accounting statements, parentheses denote negative numbers [i.e., (80,000) equals
24 Permanent Restr. Net Assets 9,000,000 negative 80,000] .

25 Total Net Assets 26,990,000 ***Long-term Debt (line 18) cannot exceed Property and Equipment, net (line 8) in this formula.

26 Total Liabilities & Net Assets 76,240,000 Source: 34 CFR 668 Subpart K

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