Session #6

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

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

4. 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 Applying for or Reporting New Programs or Locations

5. 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 Expansions Applied for or Reported Up Front

6. New Programs within scope and not short-term (for fully certified schools) School may self-determine eligibility State and accreditor approval must be obtained Expansion Reported After the Fact

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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 Establishing A New Or Moving An Existing Location

13. Always apply and wait when the program is different from the currently approved subject matter the program is a short-term program Adding Vocational Program

14. 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

15. 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

16. 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

17. 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 Short-Term Program

18. 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

19. 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 Clock to Credit Hours

20. 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 Other Reporting

21. 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

22. 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

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

24. 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

25. 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 Don’ts

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

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

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

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

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

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

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

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

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

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

43. 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

44. 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

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

46. 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

47. 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

48. 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

49. 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

50. 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