1. Session #6 School Compliance Update Doug Laine Linda Henderson

2. 2 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

3. 3 This session will cover… Change in Ownership Process Do’s and Don’ts of Borrower Choice

4. 4 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

5. 5 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

6. 6 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

7. 7 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

8. 8 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

9. 9 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-

10. 10 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

11. 11 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

12. 12 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

13. 13 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

14. 14 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

15. 15 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

16. 16 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

17. 17 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

18. 18 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

19. 19 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

20. 20 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

21. 21 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

22. 22 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

23. 23 Do’s Work with your School Participation Team if you have any doubt about the reporting or approval process.

24. 24 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”

25. 25 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

26. 26 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

27. 27 Change In Ownership Process Process Review Focuses on Two Areas –Eligibility Criteria State and Accreditor –Financial Analysis School and Purchaser

28. 28 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

29. 29 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

30. 30 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

31. 31 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

32. 32 Change In Ownership Process Intent School is in good standing before and after with State and Accreditor School meets Federal financial responsibility requirements

33. 33 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

34. 34 Change In Ownership Process Financial Responsibility Two Regulatory Methods –Composite Score –Acid Test Ratio/Positive Tangible Net Worth –Based on U.S. GAAP

35. 35 Change In Ownership Process Financial Responsibility Composite Score –Based on three ratios Primary Reserve Ratio Equity Ratio Net Income Ratio

36. 36 Change In Ownership Process Composite Score Cushion Against Adversity Inference of Ability to Borrow Measure of Profitability

37. 37 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

38. 38 Change In Ownership Process Positive Tangible Net Worth Tangible Assets exceed liabilities Additional Factor of Financial Responsibility after a CIO

39. 39 Change In Ownership Process Exceptions New Corporations (no financials) Non-GAAP Financials Purchaser is not a Business –Fund –Individual

40. 40 Change In Ownership Process Exceptions Multiple Owners Limited Liability Entities Multiple Ownership Levels Multiple Acquisitions

41. 41 Change In Ownership Process ED Responses –Letters of credit –Growth restrictions –Additional Signatures on PPA –Increased Financial Reporting

42. 42 Do’s and Don’ts of Borrower Choice School FFEL Loan Certification

43. 43 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.

44. 44 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.

45. 45 Do’s and Don’ts of Borrower Choice Proposed Regulations: 34 C.F.R. § 682.603(f) (Effective July 1, 2008)

46. 46 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

47. 47 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

48. 48 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

49. 49 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

50. 50 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

51. 51 Do’s and Don’ts of Borrower Choice School Preferred Lender Lists

52. 52 Do’s and Don’ts of Borrower Choice No Current Regulations to govern a school’s use of such lists

53. 53 Do’s and Don’ts of Borrower Choice Preferred Lender Lists: School’s Option Historically allowed but never regulated

54. 54 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

55. 55 Do’s and Don’ts of Borrower Choice Proposed Regulation: 34 C.F.R. § 682.212 (f) (Effective July 1, 2008)

56. 56 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

57. 57 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

58. 58 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

59. 59 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

60. 60 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

61. 61 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…

62. 62 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

63. 63 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…

64. 64 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

65. 65 Contact Information We appreciate your feedback and comments. We can be reached at: Douglas.Laine@ed.gov Linda.Henderson@ed.gov