Volume 2 – Contents

Chapter 1 – Institutional Eligibility....................................... 2-1

The Three Definitions of Eligible Institutions.....................................................................................................2-1
Institutional Control....................................................................................................................................................2-1
Type and Control of Eligible Institutions.............................................................................................................2-2
Eligible Institution........................................................................................................................................................2-3
Legal Authorization by a State................................................................................................................................2-3
Accreditation..................................................................................................................................................................2-3
Alternatives to Accreditation...................................................................................................................................2-4
Primary accreditor, Dual accreditation, Admissions Standards
Admissions Standards................................................................................................................................................2-5
High school diploma, Recognized equivalent of a high school diploma,
Criteria for ability-to-benefit and home school students
“Two-Year” Rule.............................................................................................................................................................2-6
Additional Institutional Eligibility Factors...........................................................................................................2-7
Demonstrations of compliance, The 90/10 Rule, Correspondence course
and correspondence student limitation, Incarcerated student limitation,
Limitation on students admitted without HS diploma or equivalent,
Bankruptcy, Crimes involving FSA program funds
Foreign Schools Eligible for FFEL Programs..................................................................................................... 2-12

Chapter 2 – Applying for Participation in

the FSA Programs........................................................................... 2-13
Applying to Participate........................................................................................................................................... 2-13
The Electronic Application (E-App), Applying for initial certification
as a participating school, Applying for reinstatement after voluntary withdrawal,
Applying for reinstatement after termination or preemptive withdrawal
Eligibility During Review Period and after Approval.................................................................................... 2-15
Effective date for participation (if approved), Beginning to disburse funds (if approved)
Provisional Certification.......................................................................................................................................... 2-16
Revoking provisional certification
Other Requirements................................................................................................................................................. 2-18
FSA Administration training requirement, Application fees prohibited
The Program Participation Agreement............................................................................................................. 2-20
Purpose and scope of the PPA, Expiration or termination of the Agreement
Contents of the Program Participation Agreement...................................................................................... 2-21

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Chapter 3 – General Participation Requirements............. 2-25
Contracts with Third-Party Servicers .................................................................................................................. 2-25
Excluded functions, Requirements for contracting with a third-party servicer,
Notifying the Department of contracts
School Lender in the FFEL Program..................................................................................................................... 2-28
Incentive Compensation......................................................................................................................................... 2-29
Adjustments to employee compensation, Enrollments in programs that are not
eligible for FSA funds, Contracts with employers to provide training,
Profit-sharing or bonus payments, Compensation based upon program completion,
Pre-enrollment activities, Managerial and supervisory employees, Token gifts,
Profit distribution, Internet-based activities, Payments to third parties for
non-recruitment activities, Payments to third parties for recruitment activities
Prohibited Activities in the Loan Programs..................................................................................................... 2-33
Programs to Prevent Drug & Alcohol Abuse................................................................................................... 2-34
Drug & alcohol abuse prevention programs, Drug-Free Workplace requirements
for Campus-Based schools
Anti-Lobbying Certification and Disclosure.................................................................................................... 2-36
Reporting Information on Foreign Sources and Gifts.................................................................................. 2-37
Who must report, Timing of submission, Information to be reported,
Alternative reporting
General Requirements............................................................................................................................................. 2-39
Voter registration, Preparatory programs for students without
high school diploma or equivalent

Chapter 4 –Program Eligibility................................................... 2-41

Program Eligibility Requirements......................................................................................................................... 2-41
Determination of program eligibility ................................................................................................................. 2-41
Types of eligible programs at an institution of higher education
Types of eligible programs at a proprietary or postsecondary vocational institution
Additional Eligibility Requirements.................................................................................................................... 2-44
ACG and National SMART Grant programs, ESL programs,
Direct Assessment programs, Study abroad programs, Flight school programs
Clock Hour/Credit Hour Conversions in Determining Program Eligibility........................................... 2-47
Formulas for clock/credit hour conversion,
Credits approved by state and accrediting agencies

Chapter 5 – Updating Application Information ................ 2-49

Recertification............................................................................................................................................................ 2-49
Change in Ownership of For-Profit and Nonprofit Institutions................................................................ 2-50
Changes at public institutions, Change in ownership that results in a change of control, structure,
or governance, Change in ownership for closely-held corporations,
Change in ownership for publicly traded corporations, Change in ownership
for corporations that are not closely held or registered with SEC
Changes in Ownership Interest and 25% Threshold.................................................................................... 2-52

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Steps to be Taken During Change in Ownership........................................................................................... 2-54
Steps to be taken by former owners, Steps to be taken by prospective owners,
Accepting liabilities and responsibility for return of funds, Payments to eligible students,
Temporary Approval for Continued Participation . ...................................................................................... 2-56
Substantive Changes and How to Report Them............................................................................................ 2-58
Approval required from accreditor & state agency,
Notification of school closure or bankruptcy
Adding Locations...................................................................................................................................................... 2-61
Eligibility of additional locations, Reporting a new location,
Applying for approval of a new location
Adding programs...................................................................................................................................................... 2-63
Adding a program—when a school may make eligibility determinations,
ED must approve all other added programs, Maximum percentages of
correspondence courses, students admitted without HS diploma or equivalent,
and incarcerated students
Changing the Status of a Campus or Branch.................................................................................................. 2-64
Changing from a non-main campus to a branch campus,
Changing from a branch campus to a freestanding main campus
Changes in Accreditation....................................................................................................................................... 2-65
Loss of accreditation, Change in institution-wide accreditation,
Changing to accreditation by more than one institution-wide accrediting agency

Chapter 6 – Providing Consumer Information................... 2-67

Basic Consumer Information Requirements.................................................................................................... 2-68
Financial aid information, General information about the school,
Consumer information from the Department
Graduation & Completion Rates (Student right-to-know disclosures).................................................. 2-70
Reporting information on completion or graduation and transfer-out rates to the Department,
Disclosing and reporting information on completion or graduation and transfer-out rates for
the general student body cohort, Reporting completion/graduation rates for student athletes,
Disclosing the rates for student athletes, Reporting the rates for student athletes, Supplemental
information
Equity in Athletics (Participation Rates & Support for Athletic Programs)........................................... 2-74
Disclosure of the report, Contents of the Equity in Athletics/EADA Report
Loan Counseling........................................................................................................................................................ 2-76
Providing borrower information at separation, Exit counseling follow up,
Counseling for correspondence and study abroad students
Drug and alcohol abuse prevention information.......................................................................................... 2-82
Information to be included in drug prevention materials,
Distribution of materials to all students and employees
Misrepresentation..................................................................................................................................................... 2-83
Definition of misrepresentation
Campus Security........................................................................................................................................................ 2-85
Compiling & reporting campus security policies and crime statistics,
Distribution of the annual security report

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Chapter 7 – Written Agreements Between Schools......... 2-89
Consortium Agreement.......................................................................................................................................... 2-90
Elements of a consortium agreement
Contractual Agreement.......................................................................................................................................... 2-91
Study Abroad or Domestic Exchange Programs............................................................................................ 2-92
Students in approved study abroad programs are entitled to FSA

Chapter 8 – Distance Education................................................. 2-93

Telecommunications Courses . ............................................................................................................................ 2-94
Correspondence Courses....................................................................................................................................... 2-95
Definition of correspondence course, School eligibility: limits on correpondence courses and
correspondence students, Exceptions and other considerations

chapter 9 – Recordkeeping and Disclosure......................... 2-99

Required Records...................................................................................................................................................... 2-99
Program Records, Fiscal records, Loan program records,
Records of the schools administration of the FSA programs
Record Retention Periods.....................................................................................................................................2-104
Record Maintenance..............................................................................................................................................2-104
Acceptable formats, Special requirements for SARs and ISIRs
Examination of records.........................................................................................................................................2-106
Location, Cooperation with agency representatives, Timely access
FSA recipient information, Reasonable access to personnel
Privacy of Student Information (FERPA Rules)..............................................................................................2-108
Students & parents’ rights to review educational records,
Prior written consent to disclose student’s records,
Disclosures to school officials, Disclosures to government agencies,
Disclosures in response to subpoenas or court orders,
Documenting the disclosure of information
Establishing and Maintaining an Information Security Program...........................................................2-112

Chapter 10 – Administrative Capability................................. 2-115

Required Electronic Processes............................................................................................................................2-115
Information for Financial Aid Professionals (IFAP)
Administrative requirements for the financial aid office..........................................................................2-118
Coordinating official, Consistency of information & conflicting information,
Counseling, Adequate staffing, System of checks and balances
Satisfactory Academic Progress.........................................................................................................................2-121
Qualitative component, Quantitative component, Other required components,
Counting all periods of enrollment, Appeals and probationary/conditional periods,
Reestablishing academic progress
Sharing Information with NSLDS, the DL Servicing Center, and Guarantors....................................2-127
Reporting student enrollment data to NSLDS, Updating borrower information
at separation, Sharing information about delinquent/defaulted borrowers,
Financial aid history & transfer monitoring

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Cohort Default Rates..............................................................................................................................................2-130
Release of draft and official rates for FFEL and DL programs, Effect of cohort default rates,
Default prevention & management plan,
Withdrawal Rates.....................................................................................................................................................2-131
Debarment and Suspension Certification......................................................................................................2-132
Debarment of school or its principals, Certifying current or prospective
employees or contractors, Lower-tier covered transactions

chapter 11 – Financial Standards............................................ 2-135

General Standards for Public Schools..............................................................................................................2-136
General Standards for Proprietary or Private Nonprofit Schools...........................................................2-136
Composite score, Refund reserve standards, Returning funds in a timely manner,
Compliance thresholds for timely return of funds, Letter of credit required when
funds are not returned in a timely manner, Exceptions to the letter of credit requirement,
Current in debt payments
Alternatives to the General Standards.............................................................................................................2-142
Letter of credit alternative for new school, Letter of credit alternative for participating school,
Zone alternative, Provisional certification for school not meeting standards,
Provisional certification for school where persons or entities owe liabilities
Past Performance and Affiliation Standards..................................................................................................2-145
Past performance of a school, Past performance of persons affiliated with a school

Chapter 12 – Program Integrity................................................ 2-147

The Department’s Role..........................................................................................................................................2-147
FSA Audit Requirements for Schools...............................................................................................................2-147
Simultaneous FSA audit submissions, Waivers of the FSA audit requirement,
Submission dates for FSA audits, FSA compliance audit submission requirements, FSA audited
financial statement requirements, FSA consolidated statements, Required disclosure of 90/10
revenue test, Single Audit Act and A-133 audit guidelines, Audits for third-party servicers, Having
the audit performed, Review of FSA Audit submissions, Access to records, eZ-Audit
Program reviews......................................................................................................................................................2-158
Unannounced Program Reviews, Written report, Appealing audit and program review
determinations, Case management
Reviews Conducted by Guaranty Agencies...................................................................................................2-161
Corrective Actions & Sanctions..........................................................................................................................2-162
Sanctions, Criminal penalties
Notifying ED When a School’s FSA Participation Ends...............................................................................2-164
Involuntary withdrawal from FSA participation, Voluntary withdrawal from FSA participation
Closeout Procedures..............................................................................................................................................2-166
When participation ends, Additional closeout procedures, Unpaid commitments
Loss of Eligibility or Withdrawal from the Loan Programs........................................................................2-167
Quality Assurance Program ................................................................................................................................2-168
Experimental Sites Initiative................................................................................................................................2-168
FSA Assessments ....................................................................................................................................................2-169
ISIR Analysis Tool......................................................................................................................................................2-169

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