Session #6

School Compliance Update

Doug Laine
Linda Henderson
This session will cover…
• What to know before
Establishing a New or Moving an
Existing Location
• How and When to Report
expansions such as new
locations or programs
• Do’s and Don’ts for Additional
Locations and Programs
This session will cover…

• Change in Ownership Process

• Do’s and Don’ts of Borrower
Choice
Applying for or Reporting
New Programs or Locations
• Some expansions require an
institution to apply and wait for
ED’s approval
• Some expansions need only be
reported to ED often referred to
as updates
• Timing of application or reporting
is key
Expansions Applied for or
Reported Up Front
• Adding a location where at least 50%
percent of title IV program offered
• Adding a program outside of scope of
approval on ECAR
– Higher level program
– Program leading to different
employment objectives
• Adding a short term program
Expansion Reported After the
Fact
• New Programs within scope and
not short-term (for fully certified
schools)
–School may self-determine
eligibility
–State and accreditor approval
must be obtained
Establishing A New Or Moving
An Existing Location
• Obtain any necessary State and
accreditor approvals

• If moving more than 25 miles or 30

minutes contact School Participation
Team
Establishing A New Or Moving
An Existing Location

• Moving a school should result in the

Transfer of students and faculty/staff
to new location

• Not closure and re-opening

Establishing A New Or Moving
An Existing Location
• Timing of applying, reporting
and awarding – when to wait!
• The institution must APPLY and wait
for ED’s approval before it can
disburse Title IV funds for students
at the new location if the institution-
Establishing A New Or Moving
An Existing Location
• Is provisionally certified
• Is on reimbursement or cash
monitoring payment method
• Has acquired the assets of another
institution that participated in title IV
during the preceding year
• Is subject to loss of eligibility based
on default rates
• Is told by ED to wait
Establishing A New Or Moving
An Existing Location
• If you do not meet one of these
conditions, you can disburse title IV
funds to students at the new location
AFTER…
• You have submitted a MATERIALLY
complete application including mailing
all supporting documents for the
licensed and accredited location
Establishing A New Or Moving
An Existing Location
Be mindful of the 2-Year Rule
• If the location was used by another
title IV school and you acquire
certain of its assets or the acquired
school was in violation of a debt to
ED, you must accept all title IV
liabilities of that school or be inactive
in title IV for two years.
• Contact School Participation Team
Adding Vocational Program
• Always apply and wait when

–the program is different from the

currently approved subject matter
–the program is a short-term
program
Short-Term Program
• Eligible for FFEL and Direct Loans
only
• Must be between 300 and 599 clock
hours
• At least 10 weeks in length
• Cannot be more than 50% of state
required minimum hours
Short-Term Program
• Must have been legally authorized to
provide and continuously provided
the program during the 12 months
preceding the application date
• Must admit as regular students some
students who have not completed an
associate degree
Short-Term Program
• Must provide training that prepares
a student for gainful employment in
a recognized occupation
• Substantiated completion rate of at
least 70%
• Substantiated placement rate of at
least 70% in related job fields
Short-Term Program
• Rates must be reported in the
annual audit (financial/compliance)
• If rates are not met, the program is
not eligible for the next award year
• Institution can apply for re-approval
of the program once it again meets
the program eligibility requirements
Clock to Credit Hours
• Formula that limits title IV eligible
program length and is based on the
number of approved clock hours
• ED will only approve credit hours up
to the amount that is approved by
the state and accrediting agencies
Clock to Credit Hours
• Programs are exempt from formula
when each course within the
program is acceptable towards that
school’s degree provided that the
institution’s degree requires at least
two academic years of study
• Public or private nonprofit hospital-
based school of nursing that awards
a diploma are also exempt
Other Reporting
• Closure of a location
• The institution must report a closure
of a location using the Application
within 10 days of the closure of the
location, branch or main campus
• The institution may be liable for
closed school loan discharges if the
students are unable to complete
their program of study
Do’s

• Use the EAPP for to apply for or

report (www.eligcert.ed.gov)
• In Question 1, select the
purpose “Update Information”
and make the appropriate
selection from the “pick list”
• Use Q 69 to clarify purpose
Do’s

• Submit State and accreditor

approvals

• Apply for or report additional

locations where students would
receive 50% or more of program
by closed-circuit television or
other transmission
Do’s

• Work with your School

Participation Team if you have
any doubt about the reporting or
approval process.
Don’ts

• Award aid without all requisite State

and accreditor approvals

• Assume a location near a main

campus does not have to be
reported
–It does need to be reported if the
state and accreditor refer to site as
a “branch” or “additional location”
Don’ts

• Forget to report, and provide

accreditor approval of
externships/other written
agreements between
–School/organization where
ineligible organization provides
instruction for > 25%, but not >
50%, of program
Change In Ownership Process
Process
• Three Stages
–Pre-acquisition Review (optional)
–Approval of Temporary
Participation (or loss of
certification)
–Approval of Change in Ownership
(CIO) or denial
Change In Ownership Process
Process
• Review Focuses on Two Areas
–Eligibility Criteria
•State and Accreditor
–Financial Analysis
•School and Purchaser
Change In Ownership Process
Pre-Acquisition Review
• School Applies 45 days prior to
CIO
• We advise school of deficiencies
and potential conditions for new
owner
Change In Ownership Process
Temporary Participation
• PPA Issued after CIO takes place
• Application must be “Materially
Complete”
• Continues pre-CIO participation
• Expires at end of month after
the month in which CIO occurs
Change In Ownership Process
Material Completeness
• Current State and Accreditor
approvals
• 2 Years of Audited Financials
from school (GAAP/GAGAS)
• 2 Years of audited financials
from Purchaser (GAAP/GAAS) or
• Other equivalent information
Change In Ownership Process
Approval of CIO
• Based on receipt of State and
Accreditor approvals
• Based on receipt of audited same
day balance sheet of school
• Receipt by end of the month
following the month of the CIO
–Extends temporary PPA
Change In Ownership Process
Intent
• School is in good standing
before and after with State and
Accreditor
• School meets Federal financial
responsibility requirements
Change In Ownership Process
Financial Responsibility
• To Provide Published Services
• To Provide Resources to meet Title
IV Requirements
• To meet Financial Obligations
– Refunds
– Liabilities
– Debts
Change In Ownership Process
Financial Responsibility
• Two Regulatory Methods
–Composite Score
–Acid Test Ratio/Positive
Tangible Net Worth
–Based on U.S. GAAP
Change In Ownership Process
Financial Responsibility
• Composite Score
–Based on three ratios
•Primary Reserve Ratio
•Equity Ratio
•Net Income Ratio
Change In Ownership Process
Composite Score
• Cushion Against Adversity
• Inference of Ability to Borrow
• Measure of Profitability
Change In Ownership Process
Acid Test
• Cash and equivalents + current
receivables divided by current
liabilities
• Primary measure of financial
responsibility after CIO
• Ratio applied to same day balance
sheet
• 1 to 1 or better is passing
Change In Ownership Process
Positive Tangible Net Worth
• Tangible Assets exceed
liabilities
• Additional Factor of Financial
Responsibility after a CIO
Change In Ownership Process
Exceptions
• New Corporations (no financials)
• Non-GAAP Financials
• Purchaser is not a Business
–Fund
–Individual
Change In Ownership Process
Exceptions
• Multiple Owners
• Limited Liability Entities
• Multiple Ownership Levels
• Multiple Acquisitions
Change In Ownership Process
ED Responses
–Letters of credit
–Growth restrictions
–Additional Signatures on PPA
–Increased Financial Reporting
Do’s and Don’ts of Borrower
Choice

School
FFEL
Loan Certification
Do’s and Don’ts of Borrower
Choice
Current Regulations:
34 C.F.R. § 682.401(b)(5)(i) - The
borrower must indicate his or her
preferred lender on the promissory
note or other written or electronic
documentation submitted during the
loan origination process if he or she
has such a preference.
Do’s and Don’ts of Borrower
Choice
34 C.F.R. § 682.603(e)(3) - The
school does not engage in any
pattern or practice that results in a
denial of a borrower's access to FFEL
loans because of race, sex, color,
religion, national origin, age,
handicapped status, income, or
selection of a particular lender or
guaranty agency.
Do’s and Don’ts of Borrower
Choice
Proposed Regulations:

34 C.F.R. § 682.603(f)
(Effective July 1, 2008)
Do’s and Don’ts of Borrower
Choice
DO
• Counsel perspective borrowers
about their right to select lender of
their choice
• Advise borrowers they are not
required to use a lender from
school’s preferred lender list
Do’s and Don’ts of Borrower
Choice
DO
• Update policies and procedures to
include process for borrowers to
select a lender of choice
• Ensure school’s lender of choice
policy and process is available and
accessible
Do’s and Don’ts of Borrower
Choice
DON’T
• Refuse to certify a FFEL based on
borrower’s choice of lender or
guaranty agency
• Cause unnecessary certification
delays for borrowers who use a
lender that has not been
recommended or suggested by
school
Do’s and Don’ts of Borrower
Choice
DON’T
• Assign a lender to first-borrowers
through award packaging or other
method
• Engage in a pattern or practice of
discrimination to deny FFEL access
Do’s and Don’ts of Borrower
Choice
DON’T
• Refuse to certify a Stafford Loan
for a borrower or certify a reduced
amount; except on a case-by-case
basis, documented, and reason
must be provided in writing
Do’s and Don’ts of Borrower
Choice

School
Preferred Lender
Lists
Do’s and Don’ts of Borrower
Choice

No Current Regulations to
govern a school’s use of
such lists
Do’s and Don’ts of Borrower
Choice
Preferred Lender Lists:
• School’s Option
• Historically allowed but never
regulated
Do’s and Don’ts of Borrower
Choice
Preferred Lender Lists:
• Evolution:
– Default prevention
– Simplification of the process
(electronic transmission)
– Competition
– Proliferation of borrower benefits
Do’s and Don’ts of Borrower
Choice
Proposed Regulation:

34 C.F.R. § 682.212 (f)

(Effective July 1, 2008)
Do’s and Don’ts of Borrower
Choice
DO
• Continue to provide a preferred
lender list as a resource for
borrowers (School’s Option)
• Provide a list of at least 3
unaffiliated lenders
Do’s and Don’ts of Borrower
Choice
DO
–Unaffiliated means:
•No common control or ownership
•No common director, trustees, or
general partners
•No trustee lender of another
listed lender
Do’s and Don’ts of Borrower
Choice
DO
• Develop a method/criteria for
choosing lenders for preferred lender
list (include policies and procedures)
• Provide comparative information on
borrower benefits offered by listed
lenders
– ED will provide a model format for
school’s use
Do’s and Don’ts of Borrower
Choice
DO
• Include prominent statement in
any information (publication,
websites, etc.) related to
borrower’s selection of lender
–Advising prospective borrower use
of school preferred lender is not
required
Do’s and Don’ts of Borrower
Choice
DO
• Include lenders solicited for the best
benefits to the borrower
• Include only lenders willing to offer
the same borrower benefits to all of
the school’s borrowers
Do’s and Don’ts of Borrower
Choice
DON’T
Provide or make available a list
of recommended or suggested
lenders in print or any other
medium or form for use by the
school’s students or their
parents that…
Do’s and Don’ts of Borrower
Choice
DON’T
• Is used to deny or otherwise impede
a borrower’s choice of lender

• Contains fewer than three lenders

who will make loans to borrowers or
students attending the school
Do’s and Don’ts of Borrower
Choice
DON’T
• Includes lenders solicited to
offer, financial aid or other
benefits to the school, school
employees, or its borrowers in
exchange for…
Do’s and Don’ts of Borrower
Choice
DON’T
–Inclusion on the list or any
promise that a certain number of
loan applications will be sent to
the lender by the school or its
students
Contact Information
We appreciate your feedback and
comments. We can be reached
at:

Douglas.Laine@ed.gov
Linda.Henderson@ed.gov