Institutional Eligibility for Participation in Title IV Student Aid Programs Under the Higher Education Act: Background and Reauthorization Issues

Institutional Eligibility for Participation in
Title IV Student Aid Programs Under the
Higher Education Act: Background and
Reauthorization Issues
March 9, 2007
Rebecca R. Skinner
Specialist in Social Legislation
Domestic Social Policy Division

Institutional Eligibility for Participation in Title IV
Student Aid Programs Under the Higher Education Act:
Background and Reauthorization Issues
Summary
Title IV of the Higher Education Act (HEA) authorizes programs that provide
student financial aid to support attendance at a variety of institutions of higher
education (IHEs). These institutions include public institutions, private non-profit
institutions, and private for-profit (proprietary) institutions. In order for students
attending a school to receive federal Title IV assistance, the school must:
^!Be licensed or otherwise legally authorized to provide postsecondary
education in the state in which it is located,
^!Be accredited by an agency recognized for that purpose by the
Secretary of the U.S. Department of Education (ED), and
^!Be deemed eligible and certified to participate in federal student aid
programs by ED.
The most recent reauthorization of the Higher Education Act in 1998 resulted
in several key changes to provisions affecting institutional eligibility, including:
^!The requirement that proprietary institutions derive at least 10% of
their revenues from non-Title IV sources (also known as the 90/10
rule),
^!Modification of refund policy requirements to apply only to Title IV
funds and to require pro-rata refunds for all Title IV recipients who
withdraw before the completion of 60% of the payment period or
period of enrollment, and
^!Establishment of a distance learning demonstration program.
Since the 1998 reauthorization, Congress has acted through the Higher
Education Reconciliation Act (P.L. 109-171) to make additional changes to HEA
institutional eligibility requirements, particularly as they relate to program eligibility,
distance education, and the return of Title IV funds. ED has also made regulatory
changes affecting institutional eligibility — most notably the elimination of the 12-
hour rule and clarification of incentive compensation regulations.
As the 110^th Congress considers HEA reauthorization, several issues may
become a focus of debate. These issues may include, for example, the 90/10 rule,
accreditation, institutional outcomes, transfer of credit, and distance education.
This report will be updated as warranted by major legislative action.

Contents
Overview ........................................................1
Eligibility Criteria.................................................3
Eligible Institutions............................................4
Section 101..............................................4
Section 102..............................................4
Foreign Institutions........................................5
Additional Requirements....................................6
Academic Year................................................7
12-Hour and One-Day Rules.................................7
Eligible Programs..............................................9
Reauthorization Issues.........................................10
Program Integrity Triad............................................11
State Authorization...........................................11
Accreditation ................................................12
Background Information on the Accreditation Process............12
Federal Requirements.....................................14
Other Institutional Accreditation Provisions....................16
Eligibility and Certification by ED...............................17
Financial Responsibility....................................17
Administrative Capacity...................................17
Provisional Certification...................................19
Program Review..........................................20
Corrective Actions and Sanctions............................20
Loss of Title IV Eligibility......................................21
Reauthorization Issues.........................................22
Other Related Issues...............................................23
Program Participation Agreements...............................24
Incentive Compensation....................................24
Return of Title IV Funds.......................................25
Percentage of Title IV Aid Earned............................26
Amount of Title IV Aid Earned by the Student..................27
Funds to Be Returned by the Institution.......................27
Funds to Be Returned by the Student..........................28
Post-Withdrawal Disbursement Counseling....................28
Issues for Reauthorization..................................29
Distance Education...........................................29
Definitions of Correspondence and Telecommunications Courses...30
50% Rules..............................................30
Student Eligibility for Federal Student Aid.....................31
Distance Education Eligible Program.........................32
Distance Education Demonstration Program....................32
Issues for Reauthorization..................................34

Table 1. Loss of Institutional Eligibility, by Reason: 2000-2005...........22

Institutional Eligibility for Participation in Title
IV Student Aid Programs under the Higher
Education Act: Background and
Reauthorization Issues
Overview
Title IV of the Higher Education Act (HEA) authorizes programs that provide
student financial aid to support attendance at a variety of institutions of higher
education (IHEs).¹ These institutions include public institutions, private non-profit
institutions, and private for-profit (proprietary) institutions. During the 2005-2006
academic year, a total of 6,441 institutions were classified as Title IV IHEs.² Of
these, 39.9% were proprietary (for-profit) institutions, with the rest almost equally
divided between public and private non-profit institutions. It is estimated that Title
IV federal student aid programs made over $80 billion available to students attending
IHEs during the 2005-2006 academic year.³
In order for students attending a school to receive federal Title IV assistance, the
school must:
^!Be licensed or otherwise legally authorized to provide postsecondary
education in the state in which it is located,
^!Be accredited by an agency recognized for that purpose by the
Secretary of the U.S. Department of Education (ED), and

¹ This report only considers institutional eligibility with respect to Title IV programs. For
more information about institutional eligibility for other HEA programs, see CRS Report
RL30834, K-12 Teacher Quality: Issues and Legislative Action, by Jeffrey J. Kuenzi; CRS
Report RL31647, Title III and Title V of the Higher Education Act: Background and
Reauthorization Issues, by Charmaine Mercer; and CRS Report RL31625, Foreign
Language and International Studies: Federal Aid Under Title VI of the Higher Education
Act, by Jeffrey J. Kuenzi.
² This includes institutions in the United States and outlying areas. Due to natural disaster,
22 Title IV-eligible IHEs did not respond to the data collection. These institutions are not
included in the total number of institutions. (U.S. Department of Education, National Center
for Education Statistics, 2006, Postsecondary Institutions in the United States: Fall 2005
and Degrees and Other Awards Conferred: 2004-05, NCES 2007-167, Table 1. Available
online at [http://nces.ed.gov/pubs2007/2007167.pdf].)
³ This includes federal loans, work-study, and grants. College Board, October 2006, Trends
in Student Aid: 2006, Table 1. Available online at [http://www.collegeboard.com/
prod_downloads/press/cost06/trends_aid_06.pdf].

^!Be deemed eligible and certified to participate in federal student aid
programs by ED.⁴
Of the three components of this triad — state licensing, accreditation, and
eligibility and certification — the first two were developed independently to serve
purposes related to quality assurance and consumer protection, but not necessarily
from a federal perspective. To avoid generating concerns about federal interference
in educational decision-making, the federal government (ED specifically) relies on
accrediting agencies and state licensing to determine standards of program quality.
The federal government’s only direct involvement in determining institutional
eligibility for Title IV programs is through the third arm of the triad, which focuses
on protecting the administrative capacity and fiscal integrity of its funding programs
through certification by ED.⁵
In the 1992 reauthorization of the HEA, a central goal of the Congress was to
reform the triad structure to address reported problems of fraud and abuse.⁶ Growing
default costs in the guaranteed student loan program, as well as media and other
reports of exploitation of the student aid programs, especially by proprietary
institutions, focused attention on the need to improve the triad structure used to
approve institutions for program participation. The Higher Education Amendments
of 1992 (P.L. 102-325) made numerous changes to the HEA intended to strengthen
program integrity, including revision of the definitions of eligible institutions and
inclusion of provisions to reform the process by which institutions become eligible
to participate in Title IV student aid programs. Instead of singling out the proprietary
school sector for special screening and oversight, the 1992 amendments reformed the
institutional eligibility rules for all postsecondary institutions. The amendments,
however, have had the greatest impact on proprietary schools.
The Higher Education Act Amendments of 1998 (P.L. 105-244) were signed
into law by President Clinton on October 7, 1998. Among the key provisions
affecting institutional eligibility were:
^!Modification of the requirement that proprietary institutions of
higher education derive at least 15% of their revenues from non-
Title IV sources to require proprietary institutions to derive at least

10% of their revenues from non-Title IV sources,

^!Elimination of the requirement for accrediting agencies to conduct
unannounced site visits at institutions,
^!Modification of refund policy requirements to apply only to Title IV
funds and to require pro-rata refunds for all Title IV recipients who

⁴ An IHE must also sign a Program Participation Agreement (PPA) to participate in most
Title IV programs. The PPA is discussed in a subsequent section.
⁵ While ED does not play a direct role in accrediting institutions, institutions seeking Title
IV eligibility must be accredited by an accrediting organizations recognized by ED. ED has
also established criteria that accrediting organizations must meet to be recognized for Title
IV purposes. These criteria are discussed in a subsequent section of this report.
⁶ A series of hearings on abuses in federal student aid programs were held by the Senate
from February 1990 through October 1990.

withdraw before the completion of 60% of the payment period or
period of enrollment,
^!Establishment of a distance learning demonstration program, and
^!Addition of the requirement that any IHE with a teacher preparation
program that has lost state approval or financial support because it
has been designated as low-performing by the state is no longer
eligible to accept or enroll any students in its teacher preparation
program who are receiving Title IV aid.⁷
On February 8, 2006, President George W. Bush signed the Higher Education
Reconciliation Act of 2006 (HERA), Title VIII of the Deficit Reduction Act of 2005,
into law (P.L. 109-171). The HERA made several changes to the HEA related to
institutional eligibility. These changes affected program eligibility for participation
in Title IV programs, rules governing the percentage of courses offered through
telecommunications and the percentage of students participating in courses offered
through telecommunications, and requirements for the return of Title IV funds by
IHEs and students. Each of these changes is discussed in detail in this report.
This report provides a general overview of HEA provisions that affect
institutional eligibility for participation in Title IV student aid programs and, in some
instances, discusses specific issues that may arise during the HEA reauthorization
process.⁸ It begins with a general discussion of eligibility, both at the institutional
level and program level. The discussion of institutional eligibility provides a brief
summary of several key rules that affect eligibility. The second part of the report
focuses on the program integrity triad: state authorization, accreditation, and
eligibility and certification. This is followed by an overview of three additional
issues that are closely associated with institutional eligibility: Program Participation
Agreements, return of Title IV funds policy, and distance education.
Eligibility Criteria
To participate in the federal student aid programs, institutions must meet
specific criteria, including requirements related to program offerings, student
enrollment, operations, and the length of academic programs. This section discusses
the definition of an eligible IHE for Title IV purposes, academic year requirements,
eligible program requirements, and reauthorization issues.

⁷ This provision is part of Title II; however, it essentially established a new “program
eligibility” requirement under Title IV. For more information, see CRS Report RL31254,
Pass Rates as an Accountability Measure for Teacher Education Programs, by James B.
Stedman and Bonnie F. Mangan.
⁸ This report draws, in part, on information contained in archived CRS Report 97-671,
Institutional Eligibility For Student Aid Under the Higher Education Act: Background and
Issues, by Margot A. Schenet.

Eligible Institutions
The HEA includes two definitions of IHEs. The first definition, contained in
Section 101, applies to institutional participation in non-Title IV programs. The
second definition, contained in Section 102, applies only to institutions participating
in Title IV programs. The use of these definitions is one legislative technique used
to screen out institutions with certain characteristics associated with fraud and abuse,
without denying eligibility to other institutions. All 6,441 institutions that were
identified as Title IV postsecondary institutions during the 2005-2006 academic year
met the Section 102 definition of an IHE.
Section 101. Section 101 recognizes IHEs as those that are legally authorized
by the state, are accredited or preaccredited by an agency or association recognized
by ED, are nonprofit institutions, award a bachelor’s degree or provide at least a two-
year program that is accepted as credit toward the completion of a bachelor’s degree,
and enroll as regular students only individuals who have graduated from a secondary
institution or hold the equivalent of a high school diploma. The statute also
recognizes institutions offering not less than a one-year program of training in
preparation for employment and institutions admitting students beyond the age of
compulsory secondary school attendance.
Section 102. Section 102 includes all institutions recognized as IHEs under
Section 101 and expands the definition of IHEs for Title IV purposes to include
proprietary institutions, postsecondary vocational institutions, and institutions outside
of the United States (i.e., foreign institutions). Proprietary institutions are defined as
those institutions that provide training in preparation for gainful employment in a
recognized occupation, are legally authorized by the state, are accredited by an
agency or association recognized by ED, and admit as regular students only
individuals who have graduated from a secondary institution or hold the equivalent
of a high school diploma, or who are past the age of compulsory attendance in the
state in which the institution is located.⁹ In addition, proprietary institutions must
have been in existence for at least two years and derive at least 10% of school
revenue from non-Title IV funds. The latter requirement is commonly referred to as¹⁰
the 90/10 rule.
Postsecondary vocational institutions must meet criteria similar to those
applicable to proprietary institutions with two exceptions. First, these institutions
must be nonprofit institutions. Second, they do not have to derive at least 10% of
their revenue from non-Title IV funds.

⁹ To be eligible to receive federal student aid, students who are beyond the age of
compulsory attendance but do not have a high school diploma must meet ability-to-benefit
requirements or meet the student eligibility criteria for home schooled students (Section

484(d)).

¹⁰ A detailed discussion of the 90/10 rule, its legislative history, and reauthorization issues
is available in CRS Report RL32182, Institutional Eligibility and the Higher Education
Act: Legislative History of the 90/10 Rule and Its Current Status, by Rebecca R. Skinner.
(Hereafter referred to as CRS Report RL32182, 90/10 Rule.)

All Title IV eligible institutions must also meet requirements with respect to the
course of study offered and student enrollment.¹¹ The first set of requirements focus
on courses offered by correspondence or telecommunications. Federal regulations
define a correspondence course as a home study course offered by an IHE in which
the IHE provides the student with instructional materials.¹² Upon completing a
section of the instructional materials, the student takes a correspondent examination
provided by the IHE and returns it to the IHE for grading. In contrast, a
telecommunications course is defined as a course that is offered via the application
of technology, including via the Internet.¹³ In general, institutions offering over 50%
of their courses by correspondence, excluding courses offered by
telecommunications, are not Title IV eligible (Section 102(a)(3)(A)). An institution
is also not considered eligible for the purposes of Title IV if 50% or more of its
students are enrolled in correspondence courses, excluding courses offered by
telecommunications (Section 102(a)(3)(B)).¹⁴ A more detailed discussion about the
50% rules and recent changes to these rules appears in the section on distance
education.
Two other requirements regarding enrollment also apply to all eligible
institutions. The institution must not have a student enrollment in which more than
25% of its students are incarcerated (Section 102(a)(3)(C)).¹⁵ Second, an institution
will not be granted eligibility for Title IV programs if more than 50% of its students
do not possess a high school diploma or its equivalent and the institution does not
provide a two-year or four-year course of study (or both) leading to an associate’s or
bachelor’s degree, respectively (Section 102(a)(3)(D)).¹⁶
Foreign Institutions. Generally, foreign institutions are eligible to
participate in the Federal Family Education Loan (FFEL) program if they meet the
same requirements as an IHE under Section 101 and have been approved by ED to

¹¹ There are exceptions to these rules, including participation in the Distance Education
Demonstration Program, discussed later in this report.
¹² 34 CFR 600.2.
¹³ If a correspondence courses also include some form of telecommunications technology,
the course is classified as correspondence or telecommunications based on the predominant
mode of instruction. For more information, see see U.S. Department of Education, Office
of Federal Student Aid, Volume 2—FSA Handbook: School Eligibility and Operations,
2006-2007, p. 2-134, available online at
[http://ifap.ed.gov/sfahandbooks/attachments/0607FSAHBkVol2Master.pdf]. (Hereafter
referred to as ED, Volume 2—FSA Handbook.)
¹⁴ The Secretary may waive this requirement for “good cause” for an IHE providing a two-
year and/or four-year course of study leading to an associate’s or bachelor’s degree,
respectively.
¹⁵ The Secretary may waive this requirement for a nonprofit institution providing a two-year
and/or four-year course of study leading to an associate’s degree, bachelor’s degree, or
postsecondary diploma.
¹⁶ The Secretary may waive this requirement if the institution has federal, state, or local
government agency contracts that result in the institution serving significant numbers of
students lacking a secondary school credential.

participate in FFEL.¹⁷ Foreign medical and veterinary institutions, however, must
meet additional requirements to participate in FFEL. Foreign medical institutions
must meet one of two sets of additional criteria (Section 102(a)(2)(A)). The first set
of criteria require that at least 60% of the students and at least 60% of the graduates
of a graduate medical school located outside of the United States must not be U.S.
citizens or permanent residents, and at least 60% of the students or graduates of a
graduate medical school located outside of the United States or Canada taking
examinations administered by the Educational Commission for Foreign Medical
Graduates must receive a passing score. Under the alternative second set of criteria,
a foreign medical school can be eligible to participate in FFEL if the institution has
a clinical training program that was approved by a state as of January 1, 1991.¹⁸ To
participate in FFEL, foreign for-profit veterinary institutions must have their students
complete their clinical training at an approved veterinary school located in the United
States.
Additional Requirements. In addition to meeting the definitions discussed
in Sections 101 and 102, institutions must comply with several additional
requirements to be eligible for Title IV programs. For example, an institution must
certify to ED that it has adopted and implemented a program to prevent the use of
illicit drugs and alcohol abuse by students. An institution failing to provide this
certification is not eligible to receive funds or any other form of financial assistance
under any federal program (Section 120). An institution must meet specific
management requirements, shall not be considered an IHE for Title IV purposes if
the institution, the institution’s owner, or the institutions’s chief executive office has
been convicted of, or pled nolo contendere or guilty to, a crime involving Title IV
funds (Section 102).¹⁹ An institution must also certify that is has established a
campus security policy and has complied with requirements for the disclosure of this
policy and campus crime statistics (Section 485(f)). There are also reporting and
dissemination requirements that institutions must meet with respect to general
institutional information (e.g., costs of attendance, available financial assistance,
description of the institution’s academic programs), athletically related student aid,
intercollegiate athletic programs,²⁰ and students’ right to be informed about the
availability of this information (Section 485). These compliance requirements are
reiterated in the Program Participation Agreement (PPA) discussed later in this
report.

¹⁷ FFEL is the only Title IV program in which foreign institutions may participate.
¹⁸ Foreign medical institutions meeting the clinical training requirement do not have to meet
the enrollment or examination passing rate requirements.
¹⁹ The Program Participation Agreement, discussed in a subsequent section, also prohibits
IHEs from hiring an individual to work with Title IV funds that has been convicted of, or
had pled nolo contendere to, a crime involving the acquisition, use, or expenditure of Title
IV funds (Section 484(a)(16)).
²⁰ Only a coeducational institution participating in Title IV programs must report on its
intercollegiate athletic program, if one exists.

Academic Year
Prior to the HERA, an academic year was required to include a minimum of 30
weeks of instructional time for undergraduate study during which a full-time student
was expected to complete at least 24 semester or trimester hours or 36 quarter hours
at an IHE measuring program length in credit hours, or at least 900 clock hours at an
IHE measuring program length in clock hours. The Secretary was permitted to
reduce the requirement of a minimum of 30 weeks of instructional time to 26 weeks
of instructional time on a case-by-case basis for IHEs providing a 2-year or 4-year
program of instruction for which it awards associate’s or bachelor’s degrees.
The HERA modified the minimum weeks of instructional time for programs
measuring program length in clock hours. While programs measuring instructional
time in credit hours must continue to provide a minimum of 30 weeks of instructional
time, programs measuring instructional time in clock hours are required to provide
a minimum of 26 weeks of instructional time. It should be noted that the provision
allowing the Secretary to waive the requirement of a minimum of 30 weeks of
instructional time at IHEs providing a 2-year or 4-year program of instruction leading
to an associate’s or bachelor’s degree was retained.
12-Hour and One-Day Rules. The Higher Education Amendments of 1992
defined the academic year that an eligible institution must provide as including both
a minimum number of credit hours for undergraduate students and a minimum length
of instructional time for all students (Section 481 (d)). According to the statute, an
academic year must contain at least 30 weeks of instructional time. This 30-week
requirement may be met through standard terms (i.e., quarters, semesters, and
trimesters), non-standard terms (i.e., the term has a beginning and end date but does
not meet the definition of a standard term), or a non-term program (i.e., the program
is not organized in terms and may or may not have preestablished beginning and end
dates).
ED addressed the implementation of the statutory requirement that the academic
year contain at least 30 weeks of instruction through regulatory action. Initially, this
involved defining what constituted a “week of instructional time.” In the April 1994
interim final regulations,²¹ for programs using standard terms or clock hours, a week
of instructional time was defined as any week that included at least one day of
“regularly scheduled instruction, examination, or preparation for examination ...”²²²³
For programs measured in credit hours without standard terms, a week of
instructional time was defined “as any week in which at least five days of regularly

²¹ U.S. Department of Education, Office of Postsecondary Education, Student Financial
Assistance and Nontraditional Educational Programs (Including the “12-Hour Rule”): A
Report to Congress, July 2001, p. 8. Available online at [http://www.ed.gov/policy/
highered/guid/12hourrulereport.html]. (Hereafter cited as ED, 12-Hour Rule.)
²² ED, 12-Hour Rule, p. 8.
²³ The phrase “without standard terms” includes non-term and nonstandard term-based
programs.

scheduled instruction, examination, or preparation for examination occurs.”²⁴ The
former was known as the “one day rule.”
The November 1994 final regulations retained the one day rule, but modified the
requirement for programs measured in credit hours without standard terms to provide
greater flexibility to these institutions. There were concerns, however, that programs
without standard terms may alter their program structures to meet the 30-week
requirement without providing an adequate level of instruction to a full-time student.
Under these circumstances, a student could be receiving more financial aid than was
merited (e.g., receiving full-time student aid when part-time student aid was
appropriate). ED was also concerned that the workload in these programs “was not
properly distributed through the period.”²⁵ Thus programs without standard terms
were required to provide 12 hours, instead of five days, of regularly scheduled
instruction, examination, or preparation for examination in order for it to be
considered a week of instructional time.²⁶ This became known as the “12-hour rule.”
Implementation of the 12-hour rule, however, resulted in several unintended
consequences.²⁷ For example, many programs offer rolling starting times and
overlapping terms, which provide students with increased flexibility and access to
higher education. These non-standard or non-term educational programs were
experiencing difficulty complying with the 12-hour rule. The 12-hour rule was also
difficult for distance education programs to implement for several reasons, including
the difficulty in determining the number of hours of instruction in which students
were participating weekly. In addition, the 12-hour rule resulted in inequities in Title
IV funding received by students completing the same amount of academic credit,
based on whether an individual student was enrolled in an institution using standard
or non-standard academic terms. In recognition of the difficulties created by the 12-
hour rule, ED revised its regulatory guidance and stated that all Title IV program
eligibility will be determined using the one-day rule regardless of whether standard
terms are used or not.²⁸ This new regulation went into effect on July 1, 2003.

²⁴ ED, 12-Hour Rule, p. 8.
²⁵ Ibid., p. 9.
²⁶ Instructional time was defined to include internships, cooperative education programs,
independent study, and other forms of regularly scheduled instruction. Previous regulations
had already clarified that homework could not be counted toward the instructional time
requirement. In addition, in order for preparation for examination to be counted as
instructional time, the preparation had to occur after the last day of scheduled classes for a
given payment period.
²⁷ Federal Register, Nov. 1, 2002, vol. 67, no. 212. Available online at [http://www.ed.gov/
legislation/FedRegister/finrule/2002-4/110102a.html]. (Hereafter cited as Federal Register,
Nov. 2002.) See also Federal Register, Aug. 8, 2002, vol. 67, no. 153. Available online at
[ ht t p: / / www.ed.gov/ l e gi sl at i on/ FedRegi s t e r / pr opr ul e/ 2002-3/ 080802a.ht ml ] .
²⁸ Federal Register, Nov. 2002.

Eligible Programs
In order to qualify as an eligible institution for the purpose of Title IV, a school
must offer at least one eligible program.²⁹ The IHE must ensure that a program
qualifies as a Title IV eligible program prior to awarding Title IV funds to students
in that program. IHEs are also responsible for ensuring that individual Title IV
eligible programs are included on the institution’s accreditation notice, and that the
institution is authorized by the state to provide the programs.
There are several provisions that specify the criteria for program eligibility.
These program definitions classify a school as an IHE, proprietary institution of
higher education, or postsecondary vocational institution.
A school is considered an IHE if it:
^!offers a program leading to an associate’s, bachelor’s, professional,
or graduate degree, or
^!offers a program of two or more academic years that is acceptable
for full credit toward a bachelor’s degree, or
^!offers a training program of at least one academic year leading to a
certificate, degree, or other recognized credential and prepares
students for gainful employment in a recognized occupation.
There are three types of programs that classify a school as a proprietary
institution or postsecondary vocational education institution.³⁰ Each program type
requires a specific number of weeks of instruction and must prepare students for
gainful employment in a recognized occupation.
^!The first type of eligible program must provide undergraduate
instruction for at least 600 clock hours, 16 semester or trimester
hours, or 24 quarter hours offered during a minimum of 15 weeks of
instruction. The program may admit students who have not
completed the equivalent of an associate’s degree as students.
^!The second type of eligible program must be a graduate or
professional program or must admit only students who have
completed the equivalent of an associate’s degree as students. It
must provide at least 300 clock hours, 8 semester hours, or 12
quarter hours of instruction offered during a minimum of 10 weeks
of instruction.

²⁹ Not all programs at an institution must meet the eligible program requirements, but at least
one program must meet these requirements. Students in non-eligible programs may not
receive Title IV funds.
³⁰ While a distinction between institutions of higher education, proprietary institutions of
higher education, and postsecondary vocational education institutions can be made based
on program type, all three types of institutions are considered institutions of higher
education for the purpose of Title IV eligibility.

^!The third type of eligible program, known as a short-term program,³¹
must provide at least 300 but less than 600 hours of undergraduate
instruction during a minimum of 10 weeks of instruction.³² The
program must admit at least some students who have not completed
an associate’s degree or its equivalent as students.
Short-term programs must also meet several additional criteria in order to be
considered eligible. First, the program must have verified student completion and job
placement rates of at least 70%. Second, the program may not be more than 50%
longer than the minimum training period required by the state or federal agency, if
any, for the occupation for which the program prepares students. Last, the program
must have been in existence for at least one year.
The HERA expanded the definition of an eligible program to include
instructional programs that use the direct assessment of student learning or recognize
the direct assessment of student learning by others rather than measuring student
learning in credit hours or clock hours.³³ The assessment used to determine student
learning must be consistent with the institution’s or program’s accreditation. The
Secretary of Education (Secretary) is required to determine whether a program that
proposes to use direct assessment rather than credit hours or clock hours to measure
student learning qualifies as an eligible program.
Finally, the HERA added a definition of an eligible program offered through
distance education. This new definition is discussed in the distance education section
of this report.
Reauthorization Issues
There are several issues related to institutional eligibility that may be considered
by Congress. Examples of these issues are summarized below:
^!Definition of an institution of higher education: Congress may
consider whether it is necessary to have separate definitions of an
IHE for Title IV and non-Title IV purposes. One issue that may be
focused on in this debate is whether Congress wants to allow
proprietary institutions to participate in other titles of the HEA.
Under current law, their participation in limited to Title IV.

³¹ Short-term programs are only eligible for the Federal Family Education Loans (FFEL)
Direct Loans (DL) programs. For more information, see ED, Volume 2—FSA Handbook,
p2-2.
³² These programs are eligible only to participate in FFEL and DL. P.2-2
³³ ED has stated that direct assessment programs are not programs that grant students credit
for “life experience.” For more information, see U.S. Department of Education, Office of
Federal Student Aid (April 2006), Dear Partner Letter: Changes Made by the Higher
Education Reconciliation Act of 2005 (HERA) to Student and Institutional Eligibility, and
the Student Assistance General Provisions, under the Federal Student Aid Programs (GEN-
06-05), available online at [http://ifap.ed.gov/dpcletters/GEN0605.html]. (Hereafter referred
to as ED, Changes Made by HERA.)

^!Regular students: Under the Section 101 definition of an IHE, IHEs
may only admit students who have a high school diploma or its
equivalent or are beyond the age of compulsory attendance as regular
students. Congress may consider extending the definition of a
regular student to include students who are dually enrolled in high
school and college courses and students who were home schooled.
^!90/10 rule: As previously discussed, the 90/10 currently applies only
to proprietary institutions. Congress may consider eliminating the

90/10 requirement or applying the 90/10 requirement to all IHEs.

Congress may also consider continuing to apply the 90/10 rule only
to proprietary institutions but eliminating the 90/10 rule as a
requirement for institutional eligibility, so that proprietary
institutions that violate the rule do not necessarily lose their Title IV
eligibility.³⁴
^!College costs and prices: Congress may require IHEs to provide
additional information about their costs and prices to aid consumers
in selecting an IHE to attend. Congress may also consider offering
incentives to IHEs that are able to reduce their costs and pass these
savings on to students, or may consider penalizing or publicly
identifying IHEs whose prices are rising faster than a particular
benchmark (e.g., the Consumer Price Index-All Urban Consumers).
Program Integrity Triad
Part H of Title IV specifies the roles and responsibilities for the three aspects of
the program integrity triad: state authorization, accreditation by an accrediting
organization recognized by the Secretary of Education, and eligibility and
certification by ED. The triad is intended to provide balance in assuring the
eligibility of institutions for Title IV. The state role is primarily one of consumer
protection, while the accrediting agencies are intended to function as a quality
assurance mechanism. These two legs of the triad were developed independently of
the federal government. The federal government has historically relied on them to
avoid generating concerns about federal interference in educational decision-making.
ED is responsible for oversight of compliance, the third leg of the triad; that is,
protecting the administrative and fiscal integrity of the federal student aid programs.
State Authorization
The state role in the triad is to provide legal authority for postsecondary
institutions to operate in the state in which they are located. The state provides legal
authorization to an institution through a charter, license, or other written document
issued by the appropriate state agency or state official. For example, the document
may be provided by a licensing board or a state educational agency. An institution
is required to provide ED with evidence that it has received the authority to operate
in a particular state when it applies to participate in the federal student aid programs.

³⁴ For more information, see CRS Report RL32182, 90/10 Rule.

The state agencies responsible for providing legal authorizations for institutions
to operate in the state are also required to carry out three additional functions:
^!Upon request, the agencies must provide the Secretary with
information about the licensing and authorization process used by
the state,
^!Notify the Secretary when the state revokes the authority of an
institution of higher education to operate, and
^!Notify the Secretary if the agency has credible evidence that an
institution has committed fraud in administering its Title IV
programs or has substantially violated a Title IV provision (Section

495).

Accreditation³⁵
Accreditation by an agency or association recognized by ED is the second
component of the triad for institutional eligibility. Accrediting agencies are private
organizations set up to review the qualifications of member institutions based on self-
initiated quality guidelines and self-improvement efforts. Institutional and program
accreditation was included in the triad as a quality control mechanism.
Background Information on the Accreditation Process. Accreditation
has always been and continues to be a voluntary process. It started in the late 1800s
with the formation of associations to distinguish institutions of higher education that
merited the designation of college or university from those that did not but called
themselves colleges. Beginning in 1952 the federal government began to formally
recognize accrediting agencies.³⁶ Accreditation was subsequently linked to
institutional eligibility for Title IV aid as an indicator of the institution’s educational
quality.

³⁵ For more information about key reauthorization issues and relevant legislative activity
regarding accreditation, see CRS Report RL32989, Accreditation and the Reauthorization
of the Higher Education Act, by Rebecca R. Skinner and Jody Feder. (Hereafter referred
to as CRS Report RL32989, Accreditation.) Additional information about potential^st
reauthorization issues can also be found in House Hearing, Subcommittee on 21 Century
Competitiveness, Assuring Quality and Accountability in Postsecondary Education:
Assessing the Role of Accreditation, Oct. 1, 2002. (Hereafter cited as House, Accreditation
Hearing.)
³⁶ Federal recognition of accrediting agencies was initiated in 1952, shortly after the passage
of the GI Bill for Korean War veterans, to assess higher education quality and link it to the
federal student financial assistance program. Rather than creating its own system of quality
assurance, the federal government opted to rely on existing accrediting agencies. A
recognition process was established in the Office of the U.S. Commissioner of Education
to produce a list of federally recognized accrediting agencies and associations. (Testimony
provided by Dr. Judith Eaton, President, Council for Higher Education Accreditation, House
Accreditation Hearing, p. 48.)

There are currently three types of accrediting organizations:
^!Regional accrediting organizations. These eight commissions
operate in six regions of the U.S.³⁷ They accredit 2,986 colleges and³⁸
universities. Accreditation status is granted to the whole
institution. It does not guarantee the quality of individual programs
or the students who graduate from those programs. At least 97% of
the institutions accredited by regional accrediting organizations are³⁹
degree-granting, nonprofit institutions. Regional accrediting
organizations may also accredit proprietary institutions regardless of
whether they are degree-granting institutions.
^!National accrediting organizations. These entities operate across
the U.S., also accrediting whole institutions. According to
information provided by the Council for Higher Education
Accreditation (CHEA), there are two types of national accrediting
organizations—faith-based and private career. The four faith-based
accreditors review religiously-affiliated or doctrinally-based
institutions.⁴⁰ There are 412 faith-based accredited institutions, all
of which are degree-granting and non-profit. The seven private
career accreditors accredit a substantially larger number of
institutions.⁴¹ Of the 3,416 institutions accredited by private career
accreditors, about 75% are non-degree-granting and about 90% are
proprietary institutions. Many are single-purpose institutions (e.g.,
focused on business and technology).
^!Specialized or programmatic accrediting organizations. These
entities also operate nationwide. They review programs and single-
purpose institutions (e.g., engineering and technology). In many
instances, particular programs (e.g., law) are accredited by a
specialized accrediting organization, while the institution at which
that program is offered is accredited by a regional or national

³⁷ There is no overlap among the regions accredited by these commissions. Two regions,
New England and the West, each have two accrediting organizations. For New England,
one accrediting agency organization accredits institutions of higher education, while the
other accredits technical and career institutions. In the West, one accrediting agency
accredits community and junior colleges, while the other accredits senior colleges and
universities. For more information, see [http://www.chea.org/Directories/regional.asp].
³⁸ Council on Higher Education Accreditation (April 2006), Fact Sheet #1: Profile of
Accreditation. Available at [http://www.chea.org/pdf/fact_sheet_1_profile.pdf]. (Hereafter
cited as CHEA, Fact Sheet #1.)
³⁹ CHEA, Fact Sheet #1.
⁴⁰ For more information on the faith-based accreditors, see
[ h t t p : / / www.chea.or g/ pdf / CHEA_USDE_Al l Accr e d.pdf ] .
⁴¹ For more information on the private career accreditors, see
[ h t t p : / / www.chea.or g/ pdf / CHEA_USDE_Al l Accr e d.pdf ] .

accrediting organization. There are 18,152 programs that hold this
type of accreditation.⁴²
The accreditation process begins with institutional self-assessment. The results
of this analysis are reviewed by faculty and administrative peers. Generally, an
outside team composed of peers and members of the public conducts a site visit at
the institution. Based on the results of the self-assessment, peer review, and findings
from the site visit, the accreditation commission determines whether accreditation
should be awarded to a new institution, renewed for an existing institution, denied,
or put on provisional or probational status. Reevaluation occurs regularly, generally
on a cycle ranging from every few years to every 10 years.⁴³
Federal Requirements. In order for a postsecondary institution to acquire
institutional eligibility for the purposes of Title IV, it must be accredited⁴⁴ by an
agency or association recognized by ED as a reliable authority for assessing the
quality of education or training provided by that institution. Accrediting
organizations must meet a specific set of criteria prior to receiving recognition from
ED. Once granted, recognition is established for up to five years. The accrediting
organization must then be reapproved for inclusion on the list of recognized
accrediting entities.
According to Section 496, the accrediting agency or association must be a state,
regional, or national agency or association that demonstrates the ability and
experience to serve as an accrediting agency or association. These agencies or
associations must then meet one of the following specific criteria:
^!In order to participate in Title IV programs, the agency or
association must have a voluntary membership of IHEs and have the
accreditation of these institutions as one of its primary purposes or,
for the purposes of participation in other ED or other federal
programs, the agency must have a voluntary membership and have
as its primary purpose accrediting IHEs or programs.
^!It must be a state agency approved by the Secretary as an accrediting
agency or association on or before October 1, 1991.
^!For the purposes of determining eligibility for Title IV programs, the
agency or association must either conduct accreditation through a
voluntary membership organization of individuals participating in a
profession, or the agency or association must have as its primary

⁴² CHEA, Fact Sheet #1.
⁴³ For general information about accreditation, see materials available at
[http://www.chea.org] and [http://www.ed.gov/admins/finaid/accred/index.html].
Information about federal recognition of accrediting agencies is available at
[http://www.ed.gov/admins/finaid/accred/index.html]. Specific information about the
activities of the National Advisory Committee on Institutional Quality and Integrity,
established to advise ED on matters related to accreditation, can be found at
[http://www.ed.gov/about/bdscomm/list/naciqi.html ].
⁴⁴ Institutions meeting the definition of an IHE as discussed in Section 101 may be
accredited or preaccredited.

purpose to accredit programs within institutions that have already
been accredited by another agency or association recognized by the
Secretary.
Accrediting agencies or associations meeting the first or third criterion must also
be administratively and financially separate and independent⁴⁵ from any associated
or affiliated trade organization or membership organization. For accrediting
organizations meeting the third criterion, if the agency or association was recognized
by the Secretary on or before October 1, 1991, the Secretary may waive the
requirement that the agency or association be administratively and financially
separate and independent if it can be shown that existing relationships with
associated or affiliated trade organizations or membership organizations have not
compromised the independence of the accreditation process.
Regardless of the type of accrediting association or agency, the organization
must consistently apply and enforce standards that ensure that the education
programs, training, or courses of study offered by an IHE are of sufficient quality to
meet the stated objectives for which the programs, training, or courses are offered.
The standards used by the accrediting agency or association must assess student
achievement, in relation to the institution’s mission, including, as applicable, course
completion, passage of state licensing examinations, and job placement rates. The
accrediting organization must also consider the institution’s curricula, faculty,
facilities, fiscal and administrative capacity, student support services, recruiting and
admissions practices, measures of program length, objectives of the credentials
offered, and student complaints received directly by the agency or association or
those that are available to the agency or association. The institution’s record of
compliance with the institutional requirements of Title IV must also be examined
with respect to the most recent student loan default rate data provided by ED, the
results of financial or compliance audits, program reviews, and other information
provided to the agency or association by ED.
There are additional requirements that accrediting agencies and associations
must meet that focus on operating procedures, including reviewing newly established
branch campuses at accredited institutions and publicly disclosing when an institution
is considered for accreditation or reaccreditation. Accrediting agencies and
associations must also perform regular on-site inspections that focus on educational
quality and program effectiveness.⁴⁶

⁴⁵ Section 496 (b) defines “separate and independent” to mean that (1) members of the
postsecondary education governing body of the accrediting agency or association are not
selected or elected by the board or chief executive officer of any related, associated, or
affiliated trade associations or membership organizations; (2) the board must have at least
one public member for every six board members; (3) dues paid to the accrediting agency or
association must be separate payments from any dues paid to any related, associated, or
affiliated trade associations or membership organizations; and (4) the accrediting agency or
association develops and determines its own budget without consulting any other entity or
organization.
⁴⁶ Prior to the 1998 HEA amendments, accrediting agencies were required to make
(continued...)

Section 496 also prescribes the procedures for ED’s recognition of accrediting
agencies, including requirements to conduct an independent evaluation, solicit third
party information, make records of the decision process available, and publish
reasons for denial of recognition. The Secretary is also specifically prohibited from
basing recognition decisions on anything other than the statutory criteria, while
accrediting agencies are expressly permitted to have criteria in addition to those
needed for recognition.
The Secretary is advised on issues regarding accreditation by the National
Advisory Committee on Institutional Quality and Integrity (NACIQI) authorized by
Section 114 of the HEA. The 15 members of this advisory committee are appointed
for 3 year terms by the Secretary. The Secretary is required to appoint individuals
who are representatives of or knowledgeable about postsecondary education training,
and the committee must include representatives from all sectors and types of IHEs.
NACIQI is charged with assessing the process of eligibility and certification for Title
IV purposes and providing recommendations for improving the process. The
committee is also responsible for advising the Secretary with respect to the standards
accrediting organizations must meet for Title IV purposes, the recognition of specific
accrediting organizations, and the relationship between accreditation and the
certification and eligibility of IHEs and state licensing responsibilities for Title IV
purposes.
Other Institutional Accreditation Provisions. Generally institutions are
accredited by only one accrediting agency or association. If an institution wants to
change accrediting agencies, it must submit all documentation related to the prior
accreditation to ED. These documents should demonstrate reasonable cause for
making the change. Otherwise, ED will no longer consider the institution eligible for
Title IV funds. Institutions seeking dual accreditation must also submit to each
accrediting agency and ED the reasons for dual accreditation and demonstrate
reasonable cause for holding dual accreditation. Dually accredited institutions must
choose one accrediting agency for the purposes of Title IV eligibility. These rules
were added to prevent abuses by institutions changing accrediting agencies or having
dual accreditation as a means to avoid loss of eligibility for Title IV purposes.
Institutions that have had their accreditation withdrawn, revoked, or terminated
for cause during the preceding 24 months are not eligible to be certified (or
recertified) as an IHE or to participate in any programs authorized by the HEA,
unless the accrediting agency rescinds the withdrawal, revocation, or termination.
The same rules apply if an institution voluntarily withdraws from accreditation under
a show cause or suspension order. However, a special rule (Section 496 (k)) allows
the Secretary to continue the eligibility of a religious institution whose loss of
accreditation (voluntary or otherwise) is related to its religious mission and not to the
accreditation standards required by the HEA.

⁴⁶ (...continued)
unannounced visits to institutions. Unannounced visits are no longer required.

Eligibility and Certification by ED
ED is responsible for the eligibility and certification portion of the triad. In this
capacity, ED is responsible for verifying the institution’s legal authority to operate
in a state and its accreditation status, and evaluating its administrative capability and
financial responsibility. ED has developed an Application for Approval to Participate
in Federal Student Financial Aid Programs (E-App) that all institutions must
complete in order to be eligible to participate in Title IV programs.⁴⁷ Through the
application, ED requests information and documentation related to educational
programs, telecommunications and correspondence courses, changes in ownership
or structure, third-party servicers that perform functions related to the federal student
aid programs, administrative capability, and financial responsibility. Eligibility to
participate in Title IV programs is authorized for up to six years.⁴⁸
Financial Responsibility. Regarding financial responsibility, ED determines
whether the institution is able to provide the services described in its publications,
has the administrative resources needed to comply with the Title IV requirements,
and has the ability to meet all of its financial obligations. In addition, if an institution
fails to meet specific financial ratios (e.g., equity ratio) established by ED regarding⁴⁹
financial responsibility, ED may use additional criteria to determine whether an
institution is financially responsible, including third-party financial guarantees,
evidence that the institution’s liabilities are backed by the state or other government
entity, or a financial statement audited by an independent certified public accountant
indicating that the institution has sufficient resources to prevent its closure. The
Secretary may waive the specific ratio requirements for two-year or four-year IHE’s
providing an associate’s or bachelor’s degree if there is no reasonable doubt about
the institution’s solvency and ability to provide high quality educational services, the
institution is up-to-date on its current liability payments, and it has substantial equity
in school-occupied facilities. Institutions must also maintain sufficient cash reserves
to ensure repayment of any required Title IV funds. The level of required reserves
is specified by ED. In addition, ED may require that financial guarantees be provided
by the institution or the owners of the institution in order to protect the financial
interests of the United States.
Administrative Capacity. Section 498(d) specifies that ED is authorized to
establish procedures and requirements with respect to the administrative capacity of
IHEs. Administrative capability refers to the institution’s ability to provide the
education described in its public documents (e.g., marketing brochures) and to
properly manage Title IV programs. More specifically, according to the regulations
established by ED, administrative capability focuses on required electronic processes,

⁴⁷ For more information, see ED, Volume 2—FSA Handbook, p. 2-14.
⁴⁸ The Secretary must notify each IHE that its eligibility is expiring no later than six months
prior to the expiration date.
⁴⁹ In evaluating the institution’s financial responsibility, ED calculates a composite score
based on the institution’s Equity, Primary Reserve, and Net Income ratios. (34 CFR

668.172)

requirements for the financial aid office, student academic progress, student financial
aid history, default rates, withdrawal rates, and debarment and suspension.⁵⁰
There are several requirements institutions must meet in demonstrating
administrative capability. For example, institutions must be able to use the federal
student aid program electronic processes. The school financial aid office must have
a staff member to administer the Title IV programs and coordinate Title IV aid with
other aid received by students. This individual must have adequate staff support.⁵¹
A system must be developed to identify and resolve discrepancies in Title IV
information received by various school offices. In addition, the school must refer any
cases of student fraud or criminal misconduct in applying for Title IV aid to the
Office of Inspector General in ED. Financial aid counseling must be provided to all
enrolled and prospective students and their families. Last, the administrative
procedures for Title IV programs must include an adequate internal system of checks
and balances.⁵²
The institution must ensure that Title IV recipients are making satisfactory
academic progress and establish a maximum timeframe in which a student must
complete his/her educational program.⁵³ The institution must also consider a
student’s financial aid history when making award decisions. An institution seeking
to participate in Title IV programs for the first time must have an undergraduate
withdrawal rate for regular students of no more than 33% for the institution’s latest
completed award year.
ED requires that institutions certify that neither the institution nor its employees
with management or supervisory responsibilities that involve federal funds has not
been debarred or suspended by a federal agency. IHEs have a fiduciary responsibility

⁵⁰ 34 CFR 668.16
⁵¹ The regulations do not specify a specific number of professional, paraprofessional, or
clerical personnel. Rather, staffing decisions must be made based on a number of factors,
such as the number of students aided, number of applicants evaluated and processed, and
the amount of funds administered. ED retains the right to determine whether a school has
an adequate number of staff members. For more information, see 34 CFR 668.16 or ED,
Volume 2—FSA Handbook, p. 2-174.
⁵² For example, the functions of authorizing payments and disbursing funds may not be
handled by the same person.
⁵³ For undergraduate programs, the completion timeframe must be no longer than 150% of
the published length of the program. The 150% restriction does not apply to graduate
programs, but a maximum timeframe should be developed for these programs by the
institution. The school must also include other elements in its standards of satisfactory
academic progress including measurement in established increments, the minimum amount
of work that must be completed at the end of each increment, and consistent application of
the standards to all students. Students failing to meet satisfactory academic progress
requirements are not eligible to receive Title IV student aid. For more information about
student eligibility for aid, see U.S. Department of Education, Office of Federal Student Aid,
Volume 1—FSA Handbook: Student Eligibility 2006-2007, available online at
[http://ifap.ed.gov/sfahandbooks/attachments/0607FSAHBkVol1.pdf]. (Hereafter referred
to as ED, Volume 1—FSA Handbook.)

to safeguard Title IV funds and ensure that they are used to benefit the intended
students.⁵⁴
Cohort Default Rates. An institution may be deemed not administratively
capable based on cohort default rates for specific Title IV programs, including FFEL,
Direct Loans (DL), and Perkins loans.⁵⁵ An institution’s cohort default rate is
calculated as the number of borrowers last attending that institution entering
repayment in a given fiscal year who default by the end of the succeeding year⁵⁶
divided by the total number of borrowers entering repayment in a given year. For
institutions with fewer than 30 borrowers entering repayment, the default rate is
aggregated over the most recent three-year period.
A school will be found not administratively capable if:
^!The cohort default rates for FFEL or DL equal or exceed 25% for
one or more of the three most recent fiscal years, or
^!The most recent cohort default rate for FFEL or DL exceeds 40%, or
^!The cohort default rate on Perkins loans made to students for⁵⁷
attendance at the school exceeds 15%.
ED may grant provisional certification to an institution that would be deemed
administratively capable except for having high cohort default rates. Provisional
certification may be granted for up to three years.
Provisional Certification. An institution may be awarded provisional
certification of eligibility for up to one award year if the IHE is seeking initial
certification. It may also receive provisional certification for up to three years if ED
is determining the institution’s administrative capacity and financial responsibility
for the first time, the institution has experienced a partial or total change in
ownership, or ED has determined that the administrative or financial condition of the
institution may hinder the institution’s ability to meet its financial responsibilities.
In addition, if ED withdraws the recognition of an accrediting agency, an institution
which had been relying on that agency for its accreditation and otherwise meets all

⁵⁴ For more information, see ED, Volume 1—FSA Handbook, p. 2-185.
⁵⁵ The use of cohort default rates to assess administrative capability is separate from the use
of cohort default rates to determine whether an institution is eligible to participate in a
specific Title IV program. For more information about cohort default rates and specific
Title IV programs, see CRS Report RL33674, The Administration of Federal Student Loan
Programs: Background and Provisions, by Adam Stoll.
⁵⁶ The following FFELs are included in the cohort default rate calculation: subsidized and
unsubsidized Federal Stafford Loans and Federal Supplemental Loans for Students. It
should be noted that no Federal Supplemental Loans for Students have been awarded since
July 1, 1994, but under certain circumstances they could still be included in a current cohort
default rate calculation. The following DLs are included in the cohort default rate
calculation: Federal Direct Subsidized Stafford/Ford Loans and Federal Direct
Unsubsidized Stafford/Ford Loans.
⁵⁷ For more information about cohort default rates as they apply to administrative capability,
see ED, Volume 2—FSA Handbook, p. 2-183; and 34 CFR 668.187.

requirements for Title IV eligibility may continue to participate in Title IV programs
for up to 18 months from the date recognition was withdrawn. The institution will
lose its Title IV eligibility after 18 months if it has not been accredited (or
preaccredited, if applicable) by another accrediting organization recognized by the
Secretary.
Program Review. Prior to granting Title IV eligibility to or recertifying an
institution, ED staff may conduct a site visit at that institution. ED also has the
authority to conduct program reviews on a systematic basis at all IHEs participating
in Title IV programs. Priority for the reviews is given to institutions with a cohort
default rate for the FFEL program that exceeds 25% or to institutions in the highest
25% of such institutions, followed by institutions with a default rate in dollar volume
for the FFEL program which places the institutions in the highest 25% of such
institutions. Priority is also given to institutions with significant fluctuation in
Federal Stafford Loan or Federal Direct Stafford/Ford loan volume or Federal Pell
Grant award volume, institutions reported by the state or accrediting agency to have
deficiencies or financial aid problems, and institutions with high annual dropout
rates. If through the program review process ED determines that an IHE is not
financially responsible or lacks the administrative capacity to participate in the
federal student aid programs, the IHE may be placed on provisional certification, take
other corrective actions, or impose sanctions.
Corrective Actions and Sanctions. Sanctions issued by ED may include
emergency actions, fines, limitations, suspensions, and terminations.⁵⁸ An IHE will
be sanctioned if it violates statutory or regulatory requirements governing the federal
student aid programs, its PPA, or any agreement the IHE has made under the law or
regulations. An IHE will also be sanctioned if it substantially misrepresents the
nature of its programs, its financial charges, or the employability of its graduates. ED
may also sanction a third-party service provider that performs activities related to the
federal student aid programs.
Once a violation has been identified, ED may take formal or informal actions.
If an IHE has violated the federal student aid program regulations, ED may allow the
program to respond to the problem and provide information for how it will correct
it. If this informal approach does not work or if an IHE has repeatedly violated
statutory or regulatory requirements, ED may take additional action.
ED may take emergency action to withhold federal student aid funds from an
IHE or its students if ED receives reliable information that the IHE is violating
statutory or regulatory provisions, special arrangements, agreements, or limitations.
An emergency action suspends an IHE’s participation in all federal student aid
programs, prohibits the IHE from disbursing federal student aid funds, and prohibits
the IHE from certifying FFEL applications. Emergency action may only be taken if
ED determines that the IHE is misusing federal funds, immediate action is required
to stop the misuse of funds, and the potential loss of funds outweighs the importance
of using established procedures for limitation, suspension, or termination (discussed

⁵⁸ For additional information on corrective actions and sanctions, see ED, Volume 2—FSA
Handbook, p. 2-222.

below). Emergency actions are limited to 30 days in duration, unless ED initiates
either limitation, suspension, or termination proceedings during those 30 days. If ED
initiates one of these additional proceedings, the emergency action is extended until
the proceeding is complete. An IHE is given an opportunity to show cause that an
emergency action is unwarranted.
ED has established several formal procedures for addressing violations of
statutory or regulatory requirements, including fines, limitations, and suspensions.
ED may also fine an IHE up to $27,500 for each violation of statutory or regulatory
provisions. The size of the fine is determined by ED, taking into consideration the
school’s size and the seriousness of the violation. ED may also place an IHE under
a limitation, during which the IHE agrees to abide by certain conditions or
restrictions as it administers the federal student aid programs. A limitation lasts for
at least 12 months, but while the limitation is in effect and upheld by an IHE, the IHE
may continue to participate in the federal student aid programs. If a program
violation occurs and ED wants to suspend an IHEs participation in the federal student
aid programs temporarily while the violation is corrected, ED may revoke an IHEs
ability to participate in the federal student aid programs for up to 60 days. Each of
these actions may require an IHE to take corrective action, such as repaying illegally
used funds to ED.
The last type of action ED may take is the termination of an IHE’s participation
in the federal student aid programs. Generally, an IHE may not apply to be reinstated
for 18 months.⁵⁹ An IHE must apply to be reinstated and must show that it has
corrected all the violations upon which its termination was based, including the
repayment of any Title IV funds. ED may approve the request, approve the request
subject to limitations, or deny the request.
Loss of Title IV Eligibility
Institutions lose their eligibility to participate in Title IV programs for one of
four main reasons:
^!School closure,
^!Eligibility to participate expired and school did not renew eligibility,
^!Voluntary withdrawal, or
^!Failure to meet requirements (e.g., accreditation, financial
responsibility, administrative capability).⁶⁰
Table 1 details the loss of Title IV institutional eligibility from January 1, 2000
through December 31, 2005. During this time period, 530 institutions lost their

⁵⁹ An IHE that has substantially misrepresented the nature of its programs, its financial
charges, or the employability of its graduates may not be reinstated in the federal student aid
programs for at least three months.
⁶⁰ Following the establishment of the aforementioned cohort default rates by the 1992 HEA
amendments, many IHEs lost their Title IV eligibility due to violations of the cohort default
rate. ED did not include violating cohort default rate requirements as a separate reason for
loss of eligibility as discussed on Table 1.

eligibility to participate in Title IV programs. The most common reason for loss of
eligibility was closure (31% of institutions), followed by loss of accreditation (20%
of institutions).
Table 1. Loss of Institutional Eligibility, by Reason: 2000-2005
^R^e^as^on^{for l}^o^s^s^of
^eligibility²⁰⁰⁰²⁰⁰¹²⁰⁰²²⁰⁰³²⁰⁰⁴²⁰⁰⁵^T^o^tal
^C^l^os^ed⁴²⁴³²⁸²²²²⁶¹⁶³
^V^o^l^uⁿ^t^ary^wⁱ^t^h^draw^al¹³²⁷¹¹¹⁹¹⁴¹²⁹⁶
^L^o^s^s^of^{accreditation}²⁰¹⁸¹⁹²¹¹²¹⁵¹⁰⁵
^Ex^pⁱ^r^e^d^elig^ib^ility⁰²²¹⁴⁰⁶²⁴
^D^o^e^s^no^t^m^e^e^t^fi^na^ncⁱ^a^l
^r^e^sp^oⁿ^sib^ility⁴⁵³²²²¹⁸
^Doesⁿ^o^{t m}^eet
^ad^mⁱⁿⁱ^str^a^tiv^{e cap}^ab^ility⁶⁵⁷²⁴²²⁶
^B^aⁿ^k^r^u^p^t^c^y¹⁰⁰⁰⁰⁰¹
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Reauthorization Issues
There are several issues related to institutional eligibility that may be considered
by Congress. Examples of these issues are summarized below:
^!Transfer of credit: Many postsecondary education students attend
more than one IHE in pursuit of a postsecondary education
credential. A recent GAO study found that institutions to which
students try to transfer base their decisions on which credits to

accept on the type of accreditation held by the sending institution,
whether academic transfer agreements have been established with
the sending institution, and the comparability of coursework.⁶¹ The
study also found that many institutions that are accredited by
regional accrediting agencies would not accept credits earned at
nationally accredited institutions.⁶² Congress may consider
legislation related to the creation of articulation agreements. It may
also consider requiring IHEs to publicly release their transfer of
credit policies and requiring that IHEs do not deny the transfer of
credit solely on the accreditation held by the sending institution.
Congress may also require accrediting organizations to ensure that
IHEs are in compliance with any transfer of credit policies included
in statutory language.⁶³
^!Accountability: There is increased interest in knowing whether the
federal investment in postsecondary education, primarily through the
Title IV programs, and whether the investment made by students and
their families in postsecondary education is a worthwhile
investment. That is, there is interest in knowing the outcomes of the
educational process, such as student learning, job placement rates,
graduation rates, and graduate school attendance. As such, Congress
may require accrediting organizations to focus more of their
attention on the outcomes of the education process rather than
focusing on the inputs (e.g., faculty, curricula) of the academic
process.⁶⁴
Other Related Issues
There are several other issues that affect institutional eligibility for Title IV
federal student aid programs. This section focuses on three specific issues–Program
Participation Agreements (PPA), the return of Title IV funds, and distance education.
Failure to meet the requirements associated with each of these areas may result in a
loss of Title IV eligibility.

⁶¹ Government Accountability Office, October 2005, Transfer Students: Postsecondary
Institutions Could Promote More Consistent Consideration of Coursework by Not Basing
Determinations on Accreditation, GAO-06-22. Available online at [http://www.gao.gov/cgi-
bi n/ ge t r pt ? GAO-06-22] .
⁶² It should be noted that most proprietary (for-profit) institutions are nationally accredited
institutions. Examples of regionally accredited institutions include the University of
Maryland, a four-year public institution; Williams College, a four-year private non-profit
institution; and Montgomery College, a two-year public college.
⁶³ For more information, see CRS Report RL32989, Accreditation.
⁶⁴ For more information, see CRS Report RL32989, Accreditation.

Program Participation Agreements
IHEs are required to enter into a Program Participation Agreement with ED in
order to participate in most programs authorized under Title IV.⁶⁵ By signing the
PPA, the institution agrees to comply with the laws, regulations, and policies
governing the Title IV programs.⁶⁶ In order to aid the institution in administering
federal student aid programs in the appropriate manner, the PPA provides critical
information about the institution’s participation in the programs. It includes the
effective date of the institution’s approval for participation, the date by which the
institution must reapply for participation, the expiration date of its current approval,
and the Title IV programs in which the institution is eligible to participate. The PPA
also states the general terms and conditions for institutional participation in the FSA
programs and contains information from the General Provisions Regulations (34 CFR
Part 668) by which the institution is bound.
The PPA also reiterates provisions discussed earlier in this report as additional
requirements for institutional eligibility, including certifying the institution has a drug
and alcohol abuse program, certifying the institution has established a campus
security program, reporting general institutional information, and providing data on
student athletes. By signing the PPA, the institution also agrees to make a good faith
effort to register students to vote unless the institution is located in a state that has
implemented the motor vehicle-voter registration provision of the National Voter
Registration Act.⁶⁷ Institutions are also required to provide a GED preparatory
program to its students if it admits students without a high school diploma or its
recognized equivalent. The institution is also required to comply with the civil rights
and privacy requirements contained in federal regulations that apply to all students.
Incentive Compensation. One of the provisions of the PPA specifically
prohibits the payment of commissions, bonuses, or other incentive payments to⁶⁸
individuals based on their success in enrolling students or obtaining financial aid.
The provision was added during the 1992 reauthorization to eliminate abuses at trade
institutions that were enrolling unqualified applicants in order to receive Title IV
funds. Through the negotiated rulemaking process, however, ED developed new⁶⁹

regulations for incentive compensation that took effect July 1, 2003.
⁶⁵ Statutory provisions require an IHE to enter into a PPA to participate in any Title IV
program with the exception of the Leveraging Educational Assistance Partnership (LEAP)
program (Section 487(a)).
⁶⁶ Detailed information about the statutes and regulations contained in the PPA can be found
in HEA Section 487 and 34 CFR 668.
⁶⁷ For more information on the National Voter Registration Act, see 42 U.S.C. 1973gg-5(a),
(b).
⁶⁸ Section 487(a)(20).
⁶⁹ Federal Register, Nov. 1, 2002, available at [http://www.ed.gov/
legi slation/FedRegister/finrule/2002-4/110102a.pdf].

ED has created 12 “safe harbors” that IHEs can use to avoid statutory
prohibitions against incentive compensation for recruiters and other individuals.⁷⁰
Without these safe harbors, ED determined that a strict interpretation of the statutory
requirement would prohibit almost every compensation arrangement related to a
student’s admission to a postsecondary institution, including common business
practices. ED has interpreted the requirement as functioning as a safeguard against
institutions providing incentives to staff to enroll unqualified students.
Of the 12 safe harbors, one focuses on whether a particular compensation
payment is considered an incentive payment. It describes the conditions under which
compensation may be paid by an IHE without it being considered an incentive
payment. The remaining 11 safe harbors address the conditions under which an
incentive payment may be made based upon student enrollments. Examples of these
safe harbors include allowing IHEs to provide incentive payments to recruiters who
enroll students in non-Title IV eligible programs, providing compensation for
Internet-based recruitment and admission activities, and providing compensation
through a profit-sharing or bonus plan.
Return of Title IV Funds
During the 1992 reauthorization, a new federal requirement for program
participation was added with respect to the return of Title IV funds. The intent was
to eliminate incentives for institutions to enroll students and receive Title IV funds
without suffering any negative financial consequences if students dropped out. The
initial legislation established a refund policy that affected all funding (e.g., federal
funding, state funding, scholarships, grants, parental support) provided on behalf of
first-time students who were receiving Title IV funds. According to the return of
funds policy, funds were required to be returned to the federal government prior to
returning funds to any other source.
This policy was substantially changed during the 1998 reauthorization. The
return of Title IV funds policy currently applies to all students receiving Title IV
funds who withdraw from school, but only applies to Title IV funding. The policy
was further revised by the HERA.⁷¹
The return policy is a statutory schedule used to determine how much Title IV
aid a student has earned at the time of his/her withdrawal from school. The schedule
requires a pro-rata calculation of the amount of aid earned through the 60% point in

⁷⁰ For more information about ED, Volume 2—FSA Handbook, p. 2-33.
⁷¹ Changes to the return of Title IV aid policy made by HERA apply to withdrawals made
on or after July 1, 2006.

each payment period or period of enrollment.⁷² After the 60% point, a student has
earned 100% of Title IV funds for that period.
ED has developed a specific process that institutions use to determine the
amount of Title IV funds earned by a student and the amount of Title IV aid, if any,
that needs to be returned to ED or disbursed to the student. The process is briefly
discussed in this section.⁷³
Percentage of Title IV Aid Earned. Institutions initially determine how
much Title IV aid was received by the student.⁷⁴ IHEs then calculate the percentage
of Title IV aid earned by the student, by determining the date of the student’s
withdrawal.⁷⁵ This is determined differently depending on whether the institution is⁷⁶
required to take attendance. At institutions required to take attendance, the
student’s withdrawal date is determined based on attendance records. At institutions
not required to take attendance, different procedures exist to determine the student’s
date of withdrawal depending upon whether the student provided official notification
of his/her withdrawal. The withdrawal date is used to determine the point at which
the student withdrew, so that the percentage of the period of enrollment or payment
period completed can then be calculated. The calculation of the percentage of the
period of enrollment or payment period completed differs depending of whether the
student withdrew from a program using credit-hours or clock-hours.

⁷² For programs that have terms and are measured in credit hours, the payment period is
identical to the term. For programs that measure progress in credit hours without terms or
in clock hours, the payment period is defined by completed credit hours or clock hours. A
period of enrollment is defined as the academic period established by the school for which
institutional charges are generally assessed. If a student withdraws from a standard term-
based educational program, a school must use the payment period for the return of Title IV
funds calculation. If a student withdraws from a nonstandard term-based or non-term-based
educational program, the institution may use the payment period or period of enrollment for
the return of Title IV funds calculation. The same basis (e.g., payment period or enrollment
period) must be used for all students within a program who have withdrawn.
⁷³ For detailed information about the return of Title IV funds policy, see U.S. Department
of Education, Office of Federal Student Aid, Volume 5 — FSA Handbook: Overawards,
Overpayments, and Withdrawal Calculations, 2006-2007, available online at
[http://www.ifap.ed.gov/sfahandbooks/0405FSAHBVOL5Overawards.html]. (Hereafter
cited as ED, Volume 5 — FSA Handbook).
⁷⁴ This calculation also includes a calculation of how much aid could have been disbursed
if the student is eligible for a late disbursement. For more information on late
disbursements, see U.S. Department of Education, Office of Federal Student Aid, Volume
4 — FSA Handbook: Processing Aid and Managing FSA Funds, 2006-2007, available online
at [http://ifap.ed.gov/sfahandbooks/attachments/0607FSAHBkVol4Master.pdf].
⁷⁵ It should be noted that prior to the HERA, students were permitted to take a leave of
absence of up to 180 days in any 12-month period in accordance with the IHE’s formal
policy regarding leaves of absence. The HERA modified the leave of absence provision to
permit students to take one or more leaves of absence for not more than a total of 180 days
within a 12-month period.
⁷⁶ Some institutions are required to take attendance by outside agencies, such as the school’s
accrediting or state licensing agency.

Credit Hour Programs. If a student withdraws from a credit-hour program,
the percentage of Title IV aid earned is equal to the percentage of the enrollment or
payment period completed. The percentage of the period completed is determined
by dividing the number of calendar days in the payment or enrollment period that the
student completed by the total number of calendar days in the payment or enrollment
period. If the student completed over 60% of the payment or enrollment period,
he/she has earned 100% of his/her Title IV aid and no repayment of funds by the
school or student is required. If the student withdrew at or prior to the 60% point in
the payment or enrollment period, the percentage of Title IV aid earned is pro-rated.
For example, if the student withdrew at the 50% point, he/she has earned 50% of
his/her Title IV aid.
Clock Hour Programs. The percentage of Title IV aid earned by a student
who withdrew from a clock-hour program is based on the percentage of scheduled
hours the student completed prior to withdrawing. A student who withdraws after
the point at which he/she was scheduled to complete 60% of the scheduled hours in
the payment period or period of enrollment has earned 100% of his/her aid. The
percentage of payment period of period of enrollment completed is calculated by
dividing the total number of clock hours scheduled to be completed as of the date the
student withdrew by the total number of hours included in the payment period or
period of enrollment.
Amount of Title IV Aid Earned by the Student. The percentage of Title
IV aid earned is then multiplied by the sum of the Title IV aid disbursed plus the
Title IV aid that could have been disbursed to the student or on the student’s behalf
to determine the amount of Title IV aid earned by the student. If the student received
less Title IV aid than the amount earned, the institution may make a post-withdrawal
disbursement. If the student received more Title IV aid than the amount earned, the
school, the student, or both must return the unearned funds. The amount of aid that
must be returned is based only on the amount of aid that was disbursed.
Funds to Be Returned by the Institution. If it is determined that funds
must be returned, the institution first calculates how much it must return. The school
must return the lesser of: (1) the amount of Title IV funds awarded to the student that
the student did not earn, or (2) the amount of institutional charges incurred by the
student for the payment or enrollment period multiplied by the percentage of
unearned funds. Funds are then returned to the Title IV programs up to the net

amount distributed.⁷⁷ The IHE has up to 45 days after the date it determines a student
has withdrawn to return its portion of the unearned funds.⁷⁸
Funds to Be Returned by the Student. The student is responsible for all
unearned Title IV funds that the school is not required to return. The initial amount
owed by the student is the balance of unearned funds after the school returns its
portion of unearned funds. This is referred to as the initial amount due because a
student does not have to make grant repayments in full, so it is possible that the
student may be responsible for returning a smaller amount of funds than initially
calculated. The initial Title IV grant overpayment is reduced by 50%. The amount
owed by the student is then recalculated, and the student repays the required funds.
This last provision in the calculation of Title IV funds to be returned regarding
the reduction of the grant amount had been somewhat controversial. The statute had
been interpreted to mean that the 50% reduction in grant funds referred to 50% of the
amount due for grant repayment rather than 50% of the total grant. For example,
assume a student had received only a $1,650 Pell Grant, but has $825 in unearned
Title IV aid. Also assume the institution had to return $250, leaving $575 as the
initial amount to be repaid by the student. The $575 would have been multiplied by

50%, reducing the amount owed to $287.50.

The HERA clarified the interpretation of this provision. Section 484B(b)(2) was
amended to limit the amount of a grant overpayment to be repaid by a student to the
amount by which the original grant overpayment exceeds 50% of the total Title IV
grant funds received by the student. Thus, in the previous example, instead of
multiplying $575 by 50%, the total grant amount of $1,650 would be multiplied by
50% to determine the amount of grant aid that would not have to be repaid. The
result of this calculation is $825. Since the amount by which any grant repayment
would be reduced ($825) is greater than the amount owed ($575), the student would
not have to repay any of the Pell Grant.⁷⁹ This statutory change provides a greater
benefit to the student.
Post-Withdrawal Disbursement Counseling. In some cases, students
who have withdrawn from an IHE may have earned more Title IV aid than they
actually received. Prior to the HERA, if a student earned more grant or loan aid than
he/she received, an IHE was required to make (or offer) a post-withdrawal

⁷⁷ Based on changes made by the HERA, only Pell Grant, Federal Supplemental Educational
Opportunity Grant (FSEOG), FFEL, Direct Loan, Perkins Loan, Academic Competitiveness,
and Science and Mathematics Access to Retain Talent (SMART) funds must be returned.
The return of Title IV funds policy no longer applies to Leveraging Educational Assistance
Partnership (LEAP), Special Leveraging Educational Assistance Partnership (SLEAP),
Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP), and
Student Support Services (SSS) funds. (For more information, see ED, Changes Made by
HERA.)
⁷⁸ Prior to the HERA, IHEs had to return funds within 30 days after the date it was
determined that a student had withdrawn.
⁷⁹ A student would also not have to repay a grant overpayment if the amount owed by the
student was $50 or less.

disbursement to the student within 30 days of the date the IHE determined the student
withdrew.⁸⁰
The HERA added additional requirements that IHEs must follow in making this
disbursement. Prior to making a post-withdrawal disbursement of loan funds to a
student who had withdrawn, the IHE must contact the student, explain the repayment
obligations associated with accepting the funds, and confirm that the loan funds are
still needed by the student.⁸¹ The result of this contact and the final determination
regarding the post-withdrawal disbursement must be documented in the student’s
file.
Issues for Reauthorization. With the war in Iraq, the issue of how to
handle federal aid provided to student reservists called to active duty has become a
more prominent issue. Based on the return of Title IV funds policy, if these students
officially withdraw from their IHE, the IHE must make a return of Title IV funds
calculation. According to current ED guidance,⁸² the IHE must return any funds that⁸³
it owes to ED but students should not be notified if they owe funds. If, on the other
hand, the student reservist takes a leave of absence to serve, the total leave of absence
is currently capped at 180 days in a 12-month period, raising questions about how to
handle extended periods of absence. Based on ED regulations,⁸⁴ a student who takes
a leave of absence for military duty must be able to resume his/her studies at the point
at which those studies were interrupted. The student cannot be obligated to pay
additional institutional charges to complete the coursework. Students who withdraw
are not afforded the same protections by statutory language or regulations. ED,
however, has encouraged institutions to provide students with a full refund of
institutional charges or provide a credit for students to resume attendance at a later⁸⁵
time. ED has also encouraged institutions to develop flexible re-enrollment options
for students affected by the military mobilization.
Distance Education
Distance education refers to instructional modes where there is a separation in
time and/or place between the instructor and the student. The term “distance
education” refers to both correspondence courses and telecommunications courses

⁸⁰ For more information on post-withdrawal disbursements, see ED, Volume 5 — FSA
Handbook.
⁸¹ IHEs are also required to provide exit counseling to students receive Title IV student loans
that are changing their attendance status to less than half time (34 CFR 685.304(b) and 34
CFR 682.604(g)).
⁸² U.S. Department of Education, Office of Postsecondary Education, Dear Colleague
Letter: Administrative relief for students and borrowers affected by military mobilizations,
posted on Mar. 25, 2003. Available at [http://www.ifap.ed.gov/dpcletters/G03347.html].
(Hereafter cited as ED, Dear Colleague Letter.)
⁸³ Overpayments to students should, however, be referred to ED for tracking and verification
purposes. (ED, Dear Colleague Letter.)
⁸⁴ ED, Volume 5 — FSA Handbook.
⁸⁵ ED, Dear Colleague Letter.

offered by television, audio or computer transmission, or over the Internet.⁸⁶
Historically, distance education courses have been used as a means to increase
student access to postsecondary education by providing alternatives to the traditional
mode of on-campus instruction. Recently, there has been substantial growth in the
number and types of courses being offered by institutions due to the availability of
new technology, such as the Internet.
Title IV program requirements, especially those related to the disbursement of
funds, are based on student participation in term-based on-campus instruction.
Existing requirements may restrict funding to students participating in distance
education and may not be easily applied to distance education programs.⁸⁷ This issue
was partially addressed by the Higher Education Amendments of 1998 with the
creation of the Distance Education Demonstration Program discussed below.
Definitions of Correspondence and Telecommunications Courses.
As previously discussed, the regulations governing the administration of Title IV
programs provide specific definitions for correspondence and telecommunications
courses.⁸⁸ A correspondence course is a home study course offered by an institution.
The institution provides the student with instructional materials, including
examinations. Upon the completion of a section of the instructional materials, the
student takes the corresponding examinations and returns the examinations to the
institution for grading. A telecommunications course is a course that is offered via
the application of technology. This includes courses offered by television, audio or
computer transmission, or over the Internet. If a correspondence course also includes
telecommunications technology, the course is classified based on the predominant
mode of instruction.
50% Rules. During the 1992 reauthorization, to combat cases of fraud and
abuse in institutions that primarily delivered instruction through print-based media,
Congress established several requirements that are collectively known as the 50%
rules. These requirements affected both institutional eligibility and student eligibility
for Title IV aid, and were substantially revised by the HERA. The 1992 requirements
are summarized below:
^!If the sum of the telecommunications courses and correspondence
courses equals or exceeds 50% of the total number of courses
offered during that award year, telecommunications courses are
considered correspondence courses.
^!An institution loses its Title IV eligibility if more than 50% of its
courses are offered by correspondence (Section 102 (a)(3)(A)).⁸⁹

⁸⁶ It should be noted that under the HEA the term “distance education” is used only in
conjunction with the Distance Education Demonstration Program. Title IV law and
regulations use the terms “correspondence” and “telecommunications.”
⁸⁷ ED, Volume 2 — FSA Handbook, p. 2-133.
⁸⁸ 34 CFR 600.2.
⁸⁹ This limitation does not apply to an institution that mainly provides vocational adult
(continued...)

^!An institution loses its Title IV eligibility if 50% or more of its
students are enrolled in correspondence courses (Section 102
(a)(3)(B)).⁹⁰
The first 50% rule discussed above had implications for an institution’s
eligibility to participate in Title IV programs. If the sum of an institution’s
telecommunications courses and correspondence courses equaled or exceeded 50%
of all courses offered by an institution, all telecommunications courses were
considered correspondence courses. The HERA eliminated the requirement that
courses offered by telecommunications be considered correspondence courses.
Based on the second 50% rule, if an institution offered more than 50% of its
courses by correspondence then it would lose its eligibility to participate in Title IV
programs. While this requirement continues to apply to institutions offering courses
by correspondence, courses offered by telecommunications were specifically
excluded from this requirement by the HERA.⁹¹
Under the third 50% rule, an institution would lose its Title IV eligibility if 50%
or more of its students were enrolled in correspondence courses. As with the second
50% rule, this rule continues to apply to student enrollment in correspondence
courses, but courses offered by telecommunications were specifically excluded from
this requirement by the HERA.⁹²
Student Eligibility for Federal Student Aid. The previous distinction
between correspondence courses and telecommunications courses, and the 50% rule
that resulted in telecommunications courses being considered correspondence
courses, directly affected student eligibility for Title IV funds. For example, prior to
the HERA, students enrolled in telecommunications courses were eligible to receive
Title IV funds if they were enrolled in a degree program or a certificate program that
was at least one year long. For certificate programs of less than one year,
telecommunications students were considered correspondence students and,
therefore, were not eligible to receive Title IV funds as correspondence students had
to be enrolled in a degree-granting program to receive Title IV aid.

⁸⁹ (...continued)
education or job training.
⁹⁰ This limitation may be waived for a two-year or four-year institution offering associate’s
degrees or bachelor’s degrees, respectively, if the students participating in the
correspondence courses do not receive more than 5% of the Title IV funds received by all
students in the school.
⁹¹ This rule also does not apply to “a technical institute or vocational school used exclusively
or principally for the provision of vocational education to individuals who have completed
or left high school and who are available for study in preparation for entering the labor
market” (P.L. 101-392, Section 521(4)(C)).
⁹² It should also be noted that the third requirement regarding the percentage of students
enrolled in correspondence courses may be waived for a school offering a two-year
associate’s degree or four-year bachelor’s degree if the school demonstrates to ED that in
that award year, the students enrolled in its correspondence courses received no more than

5% of the total Title IV funds received by students for that award year.

As previously discussed, the HERA eliminated the rule that required
telecommunications courses to be considered correspondence courses and, as part of
this change, eliminated the requirement that a telecommunications course had to be
part of a program of study of one year or longer.⁹³ Thus, students enrolled in distance
education courses, rather than correspondence courses, are eligible to receive Title
IV aid if they are enrolled in degree-granting programs or certificate programs of any
length, provided the program meets the program eligibility requirements for distance
education programs. Students enrolled in correspondence courses, however, are only
eligible for Title IV aid if they are enrolled in a degree-granting program.⁹⁴
Another distinction between students enrolled in distance education courses and
correspondence courses also remains. A student enrolled solely in correspondence
courses cannot be considered more than a half-time student for the purposes of Title
IV aid regardless of the number of credits the student is taking.⁹⁵ Students enrolled
solely in telecommunications courses, however, can be considered full-time students
for the purposes of Title IV aid.
Distance Education Eligible Program. As previously mentioned, the
HERA added a definition of a distance education eligible program for Title IV
purposes. An otherwise eligible program (see previous discussion of program
eligibility) that is offered in whole or in part through telecommunications is eligible
for the purposes of Title IV if the program is offered by an institution, other than a
foreign institution, that has been determined to have the capability to effectively
deliver distance education programs by an accrediting agency recognized by the⁹⁶
Secretary. The accrediting agency must have the evaluation of distance education
programs within its scope of recognition. Currently, the Secretary recognizes 19
accrediting agencies as having the evaluation of distance education programs within
their scope of recognition.⁹⁷
Distance Education Demonstration Program. During the 1998 HEA
reauthorization, Congress recognized that with changes in technology, IHEs are
increasingly offering courses via distance education. A demonstration program was
established to: (1) examine the quality and viability of expanding distance education
programs, the support of which was limited under the HEA prior to HERA; (2)
provide increased student access to postsecondary education through distance
education; and (3) determine the most effective ways to deliver distance education,
statutory and regulatory modifications needed to increase access to distance

⁹³ Section 484(l)
⁹⁴ Section 484(k)
⁹⁵ ED, Volume 2—FSA Handbook, p. 2-142.
⁹⁶ This provision only applies to programs for which over 50% of the program is offered via
distance education. For more information, see U.S. Department of Education, Office of
Federal Student Aid (September 2006), Dear Partner Letter: Institutional Accreditation for
Distance Education (GEN-06-17), available online at
[http://ifap.ed.gov/dpcletters/attachments/GEN0617Attach.pdf].
⁹⁷ For more information, see
[ ht t p: / / www.ed.gov/ a dmi ns/ f i nai d/ a ccr ed/ accr edi t a t i on_pg11.ht ml #Di s t a nce] .

education programs, and the appropriate level of Title IV aid that should be made
available to distance education students.
Several program requirements for institutions participating in Title IV programs
were waived for the demonstration program. For example, the 50% rules that applied
to the percentage of correspondence courses offered by the institution and the
percentage of students enrolled in correspondence courses were waived for many
program participants. In addition, under certain circumstances, the provision that
defines a telecommunications course as a correspondence course was also waived.
Other institutions received waivers of the definition of a full-time student to allow
correspondence students to be considered full-time students.
An initial group of 15 participants were selected to participate in the program
beginning July 1, 1999.⁹⁸ Nine participants were invited to join the program at the
beginning of its third year. Five additional participants joined the program in
December 2003. There are currently 24 participants in the program–nine proprietary
institutions, seven private non-profit institutions, four public universities, three
consortia, and one public system.⁹⁹ Generally, institutions were considered eligible
to apply for the program if they were located in the United States and participated in
Title IV programs or provided a two-year or four-year program leading to an
associate’s degree or bachelor’s degree, respectively, but were ineligible to
participate in Title IV programs because of limitations on the number of
correspondence courses or the number of students participating in correspondence
courses.¹⁰⁰
In April 2005, ED submitted a third report to Congress on the demonstration
program.¹⁰¹ Enrollment in distance education programs offered by the eight program
participants that reported data for eight years indicated that enrollment had increased
from 7,930 in 1998-1999 to 63,350 in 2003-2004–nearly a 700% increase in
enrollment. Among the seven institutions in the second cohort of participants that
provided data for all four years of their participation, enrollment grew by 400%. The
greatest growth occurred at institutions primarily serving adult students. Students
served by institutions participating in the DEDP tend to be female, enrolled part-time,
and older than traditional college age.
ED concluded that granting waivers to program participants, including waivers
of the 50% rules, had not led to increases in fraud and abuse. They determined that

⁹⁸ U.S. Department of Education, Office of Postsecondary Education, Distance Education
Demonstration Program: Background. Available at [http://www.ed.gov/programs/
disted/index.html ].
⁹⁹ In addition, four participants have voluntarily left the program, and one participant was
removed for improperly administering Title IV programs. (U.S. Department of Education.
(2005). Third Report to Congress on the Distance Education Demonstration Program.
Available online at [http://www.ed.gov/programs/disted]. Hereafter referred to as ED, Third
Report on the DEDP.)
¹⁰⁰ Western Governors University was explicitly included in the legislation as being eligible
to apply for participation.
¹⁰¹ ED, Third Report on the DEDP.

the administrative capability and financial viability of an institution posed a greater
risk to the integrity of federal student aid programs than the mode through which an
institution provided instruction. ED also found that while distance education may
enable institutions to be innovative with respect to student access and flexibility, this
innovation may be hampered by the administrative requirements of Title IV student
financial aid programs. For example, some DEDP participants have experienced
difficulties administering federal student aid programs for non-traditional academic
structures, as the federal student aid system was developed in an environment in
which most institutions enrolled traditional students, offered programs on a semester
or quarter basis, and students took summers off.
Issues for Reauthorization. While HERA made changes to the 50% rules
and program eligibility requirements, additional issues related to distance education
may be discussed during HEA reauthorization. Examples of these topics are outlined¹⁰²
below.
^!Given the tremendous growth in distance education programs,
Congress may consider whether accrediting agencies should be
required to have specific standards for evaluating the quality and
quantity of distance education programs in order to be recognized as
an accrediting agency by ED, or whether accrediting organizations
should review distance education similarly as they review traditional
education programs. In addition, Congress may consider adding
safeguards to ensure that a student who registers for a distance
education course is the same student who completes the coursework
and receives the credit.
^!The Congress may consider adding a specific definition of a
telecommunications course to replace the existing definition of
telecommunications included in Section 484(l)(4). ED has
suggested that the definition should “specify that there be regular¹⁰³
and substantive interaction between students and the instructor.”
The current definition does not address this interaction.
^!An increasing number of institutions are offering multiple start dates
for courses, shorter courses, and overlapping terms. This makes
student aid calculation and disbursement complicated. The
Congress may consider switching to an alternative model for aid
calculation and disbursement based on an individual student’s
program of instruction, which could potentially alleviate some of¹⁰⁴

this difficulty.
¹⁰² See for example H.R. 609 and S. 1614, the primary vehicles for HEA reauthorization in
the 109^th Congress. Both bills proposed several changes related to distance education. Also
see the reports on the DEDP submitted to Congress by ED for additional proposed changes
related to distance education.
¹⁰³ ED, Third Report on the DEDP, p. iii.
¹⁰⁴ This issue may already be addressed, in part with regard to FFEL and DL loans, by
allowing IHEs to use either the Scheduled Academic Year (SAY), a traditional academic
year, or the Borrower-Based Academic Year (BBAY), which can be adjusted to match a
(continued...)

¹⁰⁴ (...continued)
student’s attendance and program progression, to monitor annual loan limits. For more
information, see U.S. Department of Education, Office of Federal Student Aid, Volume
3—FSA Handbook: Calculating Awards and Packaging, 2006-2007, p. 3-66, available
online at [http://ifap.ed.gov/sfahandbooks/attachments/0607Vol3MasterNew.pdf].