Introduction i

The purpose of this publication is to describe how a school becomes eligible to participate in the
Student Financial Assistance (SFA) Programs and to explain the administrative and fiscal re-
quirements of SFA Program participation. In addition, this publication discusses other issues rel-
evant to the general administration of the SFA Programs.

T his introduction provides a brief overview of each chapter and

lists the major changes to the content of each.

New information is indicated with the following symbol:

Major Changes by Chapter:

Chapter 1: Institutional and Program Eligibility

Chapter 1 explains the statutory definitions for eligible institutions
and program eligibility requirements.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ The eligible institution definitions are consolidated in the

law.
∆ Schools are required to provide evidence of their authority
to operate in a state.
∆ Student eligibility is extended to some home-schooled stu-
dents.
∆ Clarification of the definition of a branch campus is pro-
vided.
∆ The definition of “additional location” is explained.
∆ Schools must make a good faith effort to distribute voter
registration forms unless the school is located in a state
that has in effect the motor vehicle-voter registration provi-
sion of the National Voter Registration Act.
∆ Schools in Puerto Rico are not required to distribute voter
registration forms because Puerto Rico is not a State under
the National Voter Registration Act.
∆ The percentage of revenue from the SFA Programs that a
proprietary school may derive is changed from 85% to
90%.
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Vol. 2 — Institutional Eligibility and Participation, 2000-2001

∆ A Proprietary institution of higher education must use the

cash basis of accounting in determining whether it satisfies
the 90/10 rule.
∆ Funds received from prepaid State tuition plans, loan pro-
ceeds from institutional loans which were disbursed to stu-
dents, and institutional scholarships cannot be used as “in-
come” in a school’s 90/10 calculation.
∆ Funds held as credit balances in institutional accounts can
not be counted in the 90/10 formula.
∆ Revenue generated from the sale of non-recourse institu-
tional loans to unrelated parties is counted as revenue in
the denominator of the 90/10 calculation to the extent of
actual proceeds.
∆ The Incarcerated Student Limitation waiver is expanded.
∆ An exemption from bankruptcy provision for some schools
that provide health care services are added.
∆ Requirements for foreign medical schools now apply to
foreign veterinary schools.

• The procedures a school should follow to report a change in

primary institution-wide accreditation, add an additional
accrediting agency or to change their primary accreditor is
discussed.

• Additional guidance on 90/10 and institutional loans and

scholarships can be found in Dear Partner Letter GEN-99-33
and Dear CPA Letters: CPA-99-01 and CPA-99-02.

• The Solomon-Pombo Amendments no longer effect the SFA

Programs.

Chapter 2: General Participation Requirements

Chapter 2 is an overview of the general requirements for SFA
Program participation.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ An exemption is added for some schools from the re-

quired submission of a default management plan.
∆ The requirement that a school submit information related
to athletically related student aid is moved, with some
modifications, from the Program Participation Agreement
section of the law to the Equity in Athletics section of the
law.
∆ Schools are required to make a good faith effort to distrib-
ute voter registration forms unless the school is in a state
that has in effect the motor vehicle registration provision
of the National Voter Registration Act.
∆ Clarification that a school must provide a copy of its con-
tract with a third-party servicer only upon request is pro-
vided.

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 Introduction

Chapter 3: Administrative Capability

Chapter 3 discusses the requirements a school must meet to
demonstrate that it is administratively capable of participating in the
SFA Programs.

• Information is included on Action Letter GEN-97-11, published

October 1997, that provides additional guidance on the
implementation of the electronic processes requirements.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ The Department must notify schools, guaranty agencies,

lenders, interested software providers and others of soft-
ware and hardware requirements by December 1 prior to
the beginning of the award year.
∆ An exemption is provided for some schools from required
submission of a default management plan.
∆ A school is ineligible to participate in the Pell Grant Pro-
gram if it loses eligibility to participate in the FFEL or the
Direct Loan programs due to high default rates.

• Information is provided on the Department’s “fax broadcast”

service.

Chapter 4: Financial Responsibility

Chapter 4 describes the financial responsibility requirements for
all schools participating in the SFA Programs.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ The criteria used to determine the financial responsibility of

a school is revised to be based on whether it meets certain ra-
tios that demonstrate financial responsibility. Previous criteria
required the Department to consider operating losses, net
worth, asset-to-liabilities ratios, or operating fund deficits.
∆ Public schools are included with for-profit and nonprofit in-
stitutions with respect to taking into consideration differ-
ences in generally accepted accounting principles.
∆ The Department is permitted to determine what third-party
financial guarantees are acceptable in order for a school to
be considered financially responsible even though it failed to
meet other mandated measures of financial responsibility.

• This chapter includes a discussion of the November 25, 1997

final regulations that substantially revised the financial
responsibility requirements.

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Vol. 2 — Institutional Eligibility and Participation, 2000-2001

Chapter 5: Cash Management

Cash management rules are discussed in Chapter 5.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ Provided exemptions, under certain circumstances, to

schools with low default rates from multiple disbursement re-
quirements and the 30-day delay requirements.
∆ 1. The terms “post-withdrawal disbursement” and “late dis-
bursements” are clarified.
∆ 2. Schools may now carry funds forward to subsequent
years as well as back in both the Federal SEOG and Fed-
eral Work Study. Funds can also be moved in either direc-
tion between the two programs.
• Clarification on the definition and handling of SFA credit
balances is provided.

Chapter 6: Return of Title IV Funds

Chapter 6 explains how SFA Program funds are handled for
students who withdraw from school.

• This chapter has been updated in its entirety to reflect the new
regulations.

∆ The Amendments of 1998 changed substantially the way

funds paid toward a student’s education are to be handled
when a recipient of SFA Program funds withdraws from
school. Schools are not required to implement these new
provisions until October 7, 2000. However, a school may
choose to implement the new provisions prior to that date.
∆ Only Title IV funds are used in the calculation. Institu-
tional refund or withdrawal policies and non-title IV funds
are not applicable to the formula.
∆ The amount that a student “earns” is proportionate to the
amount of time he or she was enrolled in the school’s pay-
ment period or period of enrollmment. The remaining
amount must be returned to the Title IV programs propor-
tionally from the school and the student.
∆ “Funds that were disbursed” and “funds that could have
been disbursed” are discussed.
∆ Counting the number of days in the pay period or period
of enrollment, leaves of absence and excused absences are
discussed.
∆ Determining the withdrawal date for schools that do and
do not take attendance is discussed.
∆ Both the school and the student must return loan funds
before grant funds.
∆ The Department has implemented new collection options
for collection of grant overpayments.
∆ The Department has created separate worksheets for
Credit Hour and Clock Hour Schools.
∆ Blank worksheets, and case studies with completed
worksheets are provided at the end of the chapter.
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 Introduction

∆ The Department may now assess a penalty, equivalent to the

penalty applicable to nonpayment of taxes, for a willful fail-
ure to pay a refund.
• Clarification is provided on the definition of institutional
charges. This clarification was published in a Policy Bulletin that
was published on the Information for Financial Aid
Professionals (IFAP) web site on January 7, 1999.

Chapter 7: Consumer Information

Chapter 7 provides information on the requirements for the
consumer information that a school must provide to students, the
Department, and others.

• The Amendments of 1998 made the following changes that

effect this chapter:

Basic Consumer Information Requirements

∆ A school may use electronic media to provide required con-
sumer information to students.
∆ Each year a school must provide to enrolled students a list of
the information it must disseminate under the Higher Edu-
cation Act of 1965, as amended, and the Family Education
Rights and Privacy Act (FERPA) and the procedures for ob-
taining the information.
∆ Schools must provide information about deferments avail-
able to their borrowers who are performing volunteer
work.

Campus Security Requirements

∆ Schools must submit their crime statistics annually to the De-
partment. The Department is required to make copies of
these statistics available to the public and must submit to
Congress a comprehensive report on crime statistics by Sep-
tember 1, 2000.
∆ By October 1 of each year, a school must publish and dis-
tribute its annual campus security report to all enrolled
students, current employees, prospective students and pro-
spective employees using specific methods.
∆ Changes are made to the definition of a campus.
∆ The list of crimes that a school must include in its annual
statistical report and its Annual Security Report have ex-
panded and changed.
∆ The reports required in the school’s Annual Security Re-
port have also changed.
∆ Schools must make, keep and maintain daily logs of crimes
reported to police or security departments by a school calen-
dar year in which the crime was reported. It may not in-
clude the identification of the victim or the person ac-
cused of committing the crime.
∆ “Campus Security Authority” and “pastoral or professional
counselor” are defined.

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Vol. 2 — Institutional Eligibility and Participation, 2000-2001

∆ A school must provide a geographic breakdown for the re-

quired crime statistics.
∆ The previous three calendar years’ crime statistics must be
disclosed.
∆ A school is not required to report statistics related to
crimes that are reported to a pastoral counselor or a pro-
fessional counselor who is functioning within the scope of
his or her license or certification.
∆ In their campus crime statistics, schools should report only
those alcohol, drug, and weapons offenses that are viola-
tions of the law.

Student Right to Know Requirements

∆ Disclosures must be made by July 1 of each year.
∆ A specific cohort of sttudents must be tracked annually.
∆ Schools may provide supplemental information about stu-
dents who were excluded from the completion rate calcula-
tion or for students transferring into the institution. It may
report information showing the rate at which students trans-
fer out of the institution if its mission ddoes not include
providing substantial preparation for its students to enroll
in another eligible school.
∆ A school is required to calculate and disclose its transfer
out rates if it determines that its mission includes prepar-
ing students to enroll in other institutions (such as a com-
munity college).
∆ The NCAA is allowed to distribute graduation rate informa-
tion to all secondary schools in the U.S. to satisfy the distribu-
tion requirements for prospective student athletes’ guidance
counselors and coaches.

Equity in Athletics Requirements

∆ The requirement that a school submit information related
to athletically related student aid is moved from the Pro-
gram Participation Agreement section of the law to the Eq-
uity in Athletics section of the law.
∆ The Department will collect the EADA data through the
World Wide Web at: http://www.ed.gov/offices/OPE/
News/.
∆ The contents of the Equity in Athletics/EADA Report has
changed.

Chapter 8: Recordkeeping and Disclosure

Chapter 8 discusses the requirements for maintaining and
disclosing records for the SFA Programs.

• No major changes.

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 Introduction

Chapter 9: Agreements Between Schools

Chapter 9 discusses the use of agreements between schools to pay
a student who is taking courses in an eligible program at more than
one school.

• No major changes.

Chapter 10: Applying for and Maintaining Participation in the

SFA Programs
Chapter 10 explains how to apply for SFA participation, changes
that can affect a school’s participation and how to report these
changes, the Quality Assurance Program, and the Experimental Sites
Initiative.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ A school is allowed to provide a copy of its contract with a

third-party servicer upon request, rather than being required
to submit it as part of the certification process.
∆ The Application must contain information that allows the
Department to evaluate a school’s financial responsibility and
administrative capability.
∆The certification period is extended to up to 6 years. In addi-
tion, the Department must notify schools six months in ad-
vance of the expiration of their certification.
∆ Site visits as part of the certification and recertification pro-
cess are now permissive rather than mandatory.
∆ Schools may submit an application marked “preacquisition
review” before a change in ownership takes place.
∆ The Department may grant provisional certification to a
school seeking approval of a change in ownership based on
the Department’s review of a materially complete application
and supporting documents that is received by the Depart-
ment within 10 business days of the transaction for which ap-
proval is sought.
∆ A school is exempt from submitting a default management
plan if (a) neither the subordinate institution nor parent in-
stitution has a cohort default rate of more than 10 percent
and (b) the new owner does not own, and has not owned,
any other school with a cohort default rate in excess of 10
percent.
∆ The Department must publish special recertification regula-
tions for foreign schools that receive less than $500,000 in
FFEL loan funds.
∆ The Amendments also made several changes to the Qual-
ity Assurance Program and the Experimental Sites Initia-
tive.
• This chapter provides an update on the Single Identifier
Initiative.

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Vol. 2 — Institutional Eligibility and Participation, 2000-2001

• The electronic application process is described.

• Changing from a non-main campus to a brranch campus is

discussed.

Chapter 11: Program Reviews and Audits

Program Integrity issues, such as audits and program reviews,
responsibilities that a school must fulfill when leaving the SFA
Programs, and sanctions and corrective actions taken by the
Department are discussed in Chapter 11.

• The Amendments of 1998 made the following changes that

effect this chapter:

∆ Each state (through at least one state agency) must furnish

the Department, upon request, with information regarding
licensing and other authorization for a school to operate in
that state, promptly notify the Department of revocations of
licensure or authorization, and promptly notify the Depart-
ment of credible evidence that a school has committed fraud
in the administration of the SFA Programs or has substan-
tially violated a provision of the HEA.
∆ Changes are made to the requirements for accrediting
agencies.
∆ A limited exception to the annual audit requirement was
created.
∆ Site visits as part of the certification and recertification pro-
cess are now permissive rather than mandatory.
∆ The Department is required to give priority in program re-
views to schools that meet certain criteria. In addition, the
Amendments added special administrative rules for program
reviews. Civil penalties arising from a program review or au-
dit to be based upon the gravity of the violation are now re-
quired.
∆ The Department is given the authority to issue administra-
tive subpoenas to assist in conducting investigations of pos-
sible violations of the provisions of SFA Programs. In addi-
tion, the law authorizes the Department to request the Attor-
ney General to invoke the assistance of any court of the
United States for purposes of enforcement of a subpoena if
necessary.
∆ A school is now required to agree to submit any dispute in-
volving the final denial, withdrawal or termination of ac-
creditation to “initial” rather than “binding” arbitration.
∆ A school may request a waiver which allows the school to
submit cumulative annual reports every three years under
certain conditions.
∆ Guidance for audits of third-party servicers is found in the
January 2000 Department of Education’s Audit Guide, Au-
dits of Federal Student Financial Assistance Programs at
Participating Institutions and Institution Servicers.

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 Introduction

• A phone number is provided for small businesses to call to

comment on the enforcement actions of the Department of
Education, call 1-888-REG-Fair (1-888-734-3247).

Chapter 12: Distance Education

Chapter 12 discusses the applicability of the SFA Program
requirements to distance education programs.

• The Amendments of 1998, Public Law 105-244 (the

Amendments of 1998) created a Distance Education
Demonstration Program.

• This chapter also repeats the guidance on the applicability of

current SFA Program requirements provided in Dear Colleague
letter GEN-98-10.

We are interested in hearing your comments or suggestions on

ways to make the SFA Handbook more useful. Please send your
comments to:

Schools Channel
Research and Publications
Department of Education
ROB-3, Room 3060
7th and D Streets, SW
Washington, DC 20202

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