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Proposed Rule2022-15890

Institutional Eligibility, Student Assistance General Provisions, and Federal Pell Grant Program

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Published

July 28, 2022

Issuing agencies

Education Department

Abstract

The Secretary proposes to amend regulations for the Federal Pell Grant program, institutional eligibility, and student assistance general provisions. First, the Secretary proposes to establish regulations for Federal Pell Grants (Pell Grants or Pell) for Prison Education Programs (PEPs), to implement new statutory requirements to establish Pell Grant eligibility for a confined or incarcerated individual enrolled in a PEP. Second, the Secretary proposes to revise the Title IV Revenue and Non-Federal Education Assistance Funds regulations (referred to as "90/10" or the "90/10 Rule") to implement the statutory change in the American Rescue Plan Act of 2021 (ARP). The Secretary further proposes to amend which non-Federal funds can be counted when determining compliance with the 90/10 rule to align allowable non-Federal revenue more closely with statutory intent. Finally, the Secretary proposes regulations to clarify the process for consideration of changes in ownership and control, to promote compliance with the Higher Education Act of 1965, as amended (HEA), and related regulations and reduce risk for students and taxpayers, as well as institutions contemplating or undergoing such a change.

Full Text

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<title>Federal Register, Volume 87 Issue 144 (Thursday, July 28, 2022)</title>
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[Federal Register Volume 87, Number 144 (Thursday, July 28, 2022)]
[Proposed Rules]
[Pages 45432-45506]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-15890]

[[Page 45431]]

Vol. 87

Thursday,

No. 144

July 28, 2022

Part II

Department of Education

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34 CFR Parts 600, 668, and 690

Institutional Eligibility, Student Assistance General Provisions, and
Federal Pell Grant Program; Proposed Rule

Federal Register / Vol. 87 , No. 144 / Thursday, July 28, 2022 /
Proposed Rules

[[Page 45432]]

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, and 690

[Docket ID ED-2022-OPE-0062]
RIN 1840-AD54, 1840-AD55, 1840-AD66

Institutional Eligibility, Student Assistance General Provisions,
and Federal Pell Grant Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Secretary proposes to amend regulations for the Federal
Pell Grant program, institutional eligibility, and student assistance
general provisions. First, the Secretary proposes to establish
regulations for Federal Pell Grants (Pell Grants or Pell) for Prison
Education Programs (PEPs), to implement new statutory requirements to
establish Pell Grant eligibility for a confined or incarcerated
individual enrolled in a PEP. Second, the Secretary proposes to revise
the Title IV Revenue and Non-Federal Education Assistance Funds
regulations (referred to as ``90/10'' or the ``90/10 Rule'') to
implement the statutory change in the American Rescue Plan Act of 2021
(ARP). The Secretary further proposes to amend which non-Federal funds
can be counted when determining compliance with the 90/10 rule to align
allowable non-Federal revenue more closely with statutory intent.
Finally, the Secretary proposes regulations to clarify the process for
consideration of changes in ownership and control, to promote
compliance with the Higher Education Act of 1965, as amended (HEA), and
related regulations and reduce risk for students and taxpayers, as well
as institutions contemplating or undergoing such a change.

DATES: We must receive your comments on or before August 26, 2022.

ADDRESSES: Comments must be submitted via the Federal eRulemaking
Portal at <a href="http://regulations.gov">regulations.gov</a>. Information on using Regulations.gov,
including instructions for finding a rule on the site and submitting
comments, is available on the site under ``FAQ.'' If you require an
accommodation or cannot otherwise submit your comments via
<a href="http://regulations.gov">regulations.gov</a>, please contact one of the program contact persons
listed under FOR FURTHER INFORMATION CONTACT. The Department will not
accept comments submitted by fax or by email or comments submitted
after the comment period closes. To ensure that the Department does not
receive duplicate copies, please submit your comments only once.
Additionally, please include the Docket ID at the top of your comments.
The Department strongly encourages you to submit any comments or
attachments in Microsoft Word format. If you must submit a comment in
Adobe Portable Document Format (PDF), the Department strongly
encourages you to convert the PDF to ``print-to-PDF'' format, or to use
some other commonly used searchable text format. Please do not submit
the PDF in a scanned format. Using a print-to-PDF format allows the
Department to electronically search and copy certain portions of your
submissions to assist in the rulemaking process.
Privacy Note: The Department's policy is to generally make comments
received from members of the public available for public viewing at
<a href="http://www.regulations.gov">www.regulations.gov</a>. Therefore, commenters should include in their
comments only information about themselves that they wish to make
publicly available. Commenters should not include in their comments any
information that identifies other individuals or that permits readers
to identify other individuals. If, for example, your comment describes
an experience of someone other than yourself, please do not identify
that individual or include information that would allow readers to
identify that individual. The Department will not make comments that
contain personally identifiable information (PII) about someone other
than the commenter publicly available on <a href="http://www.regulations.gov">www.regulations.gov</a> for
privacy reasons. This may include comments where the commenter refers
to a third-party individual without using their name if the Department
determines that the comment provides enough detail that could allow one
or more readers to link the information to the third party. If your
comment refers to a third-party individual, to help ensure that your
comment is posted, please consider submitting your comment anonymously
to reduce the chance that information in your comment about a third
party could be linked to the third party. The Department will also not
make comments that contain threats of harm to another person or to
oneself available on <a href="http://www.regulations.gov">www.regulations.gov</a>.

FOR FURTHER INFORMATION CONTACT: For PEPs: Aaron Washington. Telephone
(202) 453-7241. Email: <a href="/cdn-cgi/l/email-protection#8acbebf8e5e4a4ddebf9e2e3e4edfee5e4caefeea4ede5fc">[email&#160;protected]</a>. For 90/10: Ashley
Clark. Telephone: (202) 453-7977. Email: <a href="/cdn-cgi/l/email-protection#7637051e1a130f58351a17041d36131258111900">[email&#160;protected]</a>. For
Change in Ownership: Brian Schelling. Telephone: (202) 453-5966. Email:
<a href="/cdn-cgi/l/email-protection#99dbebf0f8f7b7cafaf1fcf5f5f0f7fed9fcfdb7fef6ef">[email&#160;protected]</a>. You may also email your questions to
<a href="/cdn-cgi/l/email-protection#53003c233b3a327d1e303221373f361336377d343c25">[email&#160;protected]</a>, but as described above, comments must be
submitted via <a href="http://www.regulations.gov">www.regulations.gov</a>. The mailing address for all of the
contacts above is U.S. Department of Education, Office of Postsecondary
Education, 400 Maryland Avenue SW, 2nd Floor, Washington, DC 20202.
If you are deaf, hard of hearing, or have a speech disability and
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose of This Regulatory Action:

The Department convened two negotiated rulemaking committees
between October 4, 2021 and March 18, 2022 \1\ to consider proposed
regulations for the Federal Student Aid programs authorized under title
IV of the HEA (title IV, HEA programs): the Affordability and Student
Loans Committee and the Institutional and Programmatic Eligibility
Committee (see the section under Negotiated Rulemaking for more
information on the negotiated rulemaking process). Both Committees
operated by consensus, defined as no dissent by any member when votes
are taken. Consensus votes were taken issue by issue. Consensus was
reached on the topic of Pell Grants for Prison Education Programs by
the Affordability and Student Loans Committee. Consensus was also
reached on the topic of Title IV revenue and non-Federal education
assistance funds (90/10 Rule) by the Institutional and Programmatic
Eligibility Committee.
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\1\ Negotiated Rulemaking for Higher Education 2020-21.
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On July 13, 2022, the Department published in the Federal Register
(87 FR 41878) a notice of proposed rulemaking (NPRM) related to
Interest Capitalization, Public Service Loan Forgiveness (PSLF),
Borrower Defense to Repayment, Total and Permanent Disability, Pre-
dispute Arbitration and Class Action Waivers, Closed School Discharge,
and False Certification Discharge (``NPRM 1''), topics which were
considered by the Affordability and Student Loans Committee. This NPRM
addresses Prison Education Programs (PEPs), which were also considered
by the Affordability and Student Loans Committee, and the 90/10 rule
and institutional changes in ownership, which were considered by the
Institutional and Programmatic Eligibility Committee. Regulations
related to income-driven repayment will be included in a separate NPRM.

[[Page 45433]]

These proposed regulations address three topics: Pell Grants for
PEPs, the 90/10 rule, and institutional changes in ownership. The
proposed PEP regulations, on which the Affordability and Student Loans
Committee reached consensus, would implement statutory changes that
extend Pell Grant eligibility to confined or incarcerated individuals
who enroll in qualifying PEPs. The proposed 90/10 regulations, on which
the Institutional and Programmatic Eligibility Committee reached
consensus, would implement statutory changes that require proprietary
institutions to obtain at least 10 percent of their revenue from
sources other than Federal education assistance funds and would more
closely align allowable non-Federal revenue with statutory intent.
Finally, the Department proposes revisions to current regulations
related to changes in ownership to ensure a clearer and more defined
process.

Prison Education Programs

The proposed PEP regulations would provide the Department and
stakeholders, including students, correctional agencies and
institutions, postsecondary institutions, accrediting agencies, and
related organizations, with a detailed and clear framework for how to
implement section 484(t) of the HEA. The Department is proposing to
amend the regulations in Sec. Sec. 600.2, 600.10, 600.21, 668.8,
668.32, 668.43, 668 subpart P, and 690.62. A new legal provision takes
effect July 1, 2023, that addresses prison education programs (PEP).
Section 484(t) of the HEA will provide PEP requirements that include:
(1) a prohibition on proprietary institutions offering PEPs; (2) the
definitions of a ``confined or incarcerated individual'' and a ``prison
education program''; (3) the program approval process by the Bureau of
Prisons, State Department of Corrections, or other entity that is
responsible for overseeing the correctional facility (these entities
are referred to throughout this NPRM as the oversight entity); (4) a
credit transfer requirement for prison education programs; (5) a
prohibition against program offerings by institutions that are subject
to adverse actions by the Department, their accrediting agency, or the
relevant State; (6) requirements that prison education programs offer
educational programming that satisfies professional licensure or
certification, as applicable; (7) student enrollment restrictions for
programs in which there would be prohibitions on ultimate licensure or
employment; (8) the requirement that confined or incarcerated
individuals be enrolled in an eligible prison education program in
order to access a Pell Grant; and (9) various Department reporting
requirements for postsecondary institutions offering prison education
programs.
The proposed regulations would clarify and implement these
statutory requirements by setting clear standards for postsecondary
institutions offering PEPs and outlining the steps that must be taken
to develop and implement such programs in order to gain access to Pell
Grant funds and maintain that access over time. The proposed
regulations would also ensure that institutions report needed data to
the Department, which would assist in assessing program outcomes. The
proposed rule would establish important guardrails for confined or
incarcerated students and taxpayers to protect students from enrolling
in programs that would not permit them to benefit by finding employment
in the field after graduating and being released and to prevent
taxpayer funds from financing such programs. It would also outline
title IV program requirements for PEPs related to States and
accrediting agencies.
Section 484(t)(1)(B)(iii) of the HEA requires an oversight entity,
defined in the proposed regulations as a state department of
corrections or other entity responsible for overseeing correctional
facilities or the Federal Bureau of Prisons, to determine that a prison
education program that it approves is ``operating in the best
interest'' of the confined or incarcerated students under its
supervision. Congress outlined indicators of ``best interest''--both
inputs and outcomes--which are explained in the SUMMARY OF PROPOSED
CHANGES section below. Because oversight entities may not have
previously assessed some of the ``best interest'' indicators outlined
in statute, such as student earnings and job placement post-release,
the proposed regulations would provide needed clarity on how to
implement this requirement. To ensure that program assessment is
thorough and well-informed, these regulations would require oversight
entities to seek input from relevant stakeholders in making the ``best
interest'' determination.

90/10 Rule

The proposed 90/10 regulations would amend Sec. 668.28 to change
how proprietary institutions calculate and report to the Department the
percentage of their revenue that comes from Federal sources, in
accordance with section 487(a) of the HEA. Section 487(a) establishes
the requirement that proprietary institutions derive not less than 10
percent of their revenue from non-Federal sources. Section 487(d) of
the HEA: (1) defines how proprietary institutions calculate the
percentage of their revenue that is derived from non-Federal sources;
(2) sets out sanctions for proprietary institutions that fail to meet
the requirement in section 487(a); (3) requires the Secretary to
publicly disclose on the College Navigator website proprietary
institutions that fail to meet the requirement; and (4) requires that
the Secretary submit a report to Congress that contains the Federal and
non-Federal revenue amounts and percentages for each proprietary
institution.
The ARP amended these sections to require proprietary institutions
to include other sources of Federal revenue, in addition to title IV
revenue from the Department, in the calculation that proprietary
institutions make to determine if they are in compliance with the 90/10
rule. These proposed regulatory amendments would align the regulations
with this statutory change and provide periodic updates to proprietary
institutions regarding which Federal funds should be included in their
calculations.
Additionally, the proposed regulations would amend how proprietary
institutions calculate 90/10 to address the permissibility of practices
that some proprietary institutions have employed to alter their revenue
calculation or inflate their non-Federal revenue percentage. The NPRM
would create a new requirement for when proprietary institutions must
request and disburse title IV student aid funds from the Department to
ensure that proprietary institutions are not delaying disbursements to
the next fiscal year. The proposed regulations would also more closely
align allowable non-Federal revenue with statutory intent by clarifying
(1) allowable non-Federal revenue generated from programs and
activities that can count for the purposes of 90/10; (2) how schools
must apply Federal funds to student accounts and determine the funds'
inclusion in the Federal revenue percentage of 90/10; (3) which revenue
generated from institutional aid can count as non-Federal revenue for
purposes of 90/10; and (4) funds that must be excluded from the
calculation determining 90/10 compliance.
The proposed regulations would also modify the steps that
proprietary institutions must take if they fail to derive at least 10
percent of their revenue from allowable non-Federal sources by
requiring them to notify students of the failure and the students'

[[Page 45434]]

potential loss of title IV aid at that proprietary institution. The
proposed regulations would also provide the steps that proprietary
institutions that determined they met the 90/10 requirement for the
preceding fiscal year must take to notify the Secretary immediately, if
they obtain information after the reporting deadline indicating they
failed 90/10. Lastly, under the proposed regulations, a proprietary
institution would be liable for repaying all title IV funds disbursed
for the fiscal year after it became ineligible to participate in the
title IV program due to failing 90/10.

Changes in Ownership

To address the risks that some changes in ownership of
postsecondary institutions present to students and taxpayers and to
address the growing complexity of those transactions, the Department
proposes under the authority of section 498(i) of the HEA to amend
regulations covering changes in ownership in Sec. Sec. 600.2, 600.4,
600.20, 600.21, and 600.31. These changes would modify the definitions
of ``additional location,'' ``branch campus,'' ``main campus,''
``distance education'' locations, and ``nonprofit institution,'' as
well as the terms ``closely-held corporation,'' ``ownership or
ownership interest,'' ``parent,'' ``person,'' and ``other entities'' in
the context of changes in ownership that result in a change in control,
where the individual or entity with control has the power to direct the
management or policies of the institution.
Institutions would be required to provide a minimum 90-day notice
to the Department when they are to undergo a change in control, and the
Department may apply necessary terms to a proposed new temporary
provisional Program Participation Agreement (TPPPA) after the change
and until a decision on the pending application for approval of the
change is issued. The proposed regulations would also increase
transparency for changes in ownership that do not constitute a change
of control by increasing the reporting requirements to the Department
on such transactions at lower levels.

Summary of the Major Provisions of This Regulatory Action

The proposed regulations would make the following changes.
<bullet> Make updates to appropriate cross-references. Prison
Education Programs (PEP) (Sec. Sec. 600.2, 600.7, 600.10, 600.21,
668.8, 668.32, 668.43, 668.234-242, 690.62)
<bullet> Extend access to Pell Grants for confined or incarcerated
individuals in qualifying postsecondary education programs by defining
an eligible PEP based on the statutory requirements.
<bullet> Clarify that only public or private nonprofit institutions
as defined in Sec. 600.4, or vocational institutions as defined in
Sec. 600.6, may offer eligible PEPs and require that those PEPs
offered at a correctional institution be reported to the Department as
an ``additional location.''
<bullet> Amend requirements for postsecondary institutions to
obtain and maintain a waiver from the Secretary to allow students who
are confined or incarcerated to exceed 25 percent of the institution's
regular student enrollment.
<bullet> For a PEP that is designed to meet educational
requirements for a specific professional license or certification,
require disclosures to students of typical State or Federal
prohibitions on the licensure or employment of formerly incarcerated
individuals.
<bullet> Prohibit institutions from enrolling a confined or
incarcerated individual in a PEP that is designed to lead to licensure
or employment in a specific job or occupation where State or Federal
law would prohibit that individual from licensure or employment based
on the type of the criminal conviction for which the student has been
confined or incarcerated.
<bullet> Define the process and the factors that the oversight
entity would use to determine if a PEP is operating in the best
interest of the confined or incarcerated individuals over which they
have supervision, including consulting with interested third parties
and conducting periodic re-evaluations.
<bullet> Define the requirements for approval from the Secretary
and the IHE's accrediting agency for the first PEP at the institution's
first two additional locations at prison facilities.
<bullet> Require a postsecondary institution to obtain and report
to the Department the release or transfer date of all confined or
incarcerated individuals who participated in its PEP.
<bullet> Outline the process for winding down eligible programs for
confined or incarcerated individuals prior to July 1, 2023, that are
not operating at a Federal or State correctional facility and are not
approved as eligible prison education programs.
<bullet> Outline the process a postsecondary institution must
follow to reduce a Pell Grant award that exceeds the confined or
incarcerated individual's cost of attendance. Title IV Revenue and Non-
Federal Education Assistance Funds (90/10 Rule) (Sec. 668.28)
<bullet> Revise the revenue calculation methodology in the 90/10
rule by changing references to ``title IV revenue'' to ``Federal
revenue'' where appropriate to align with the statutory amendment that
revises the 90/10 revenue requirement to include all Federal revenue.
<bullet> Outline how the Department would publish, and update as
necessary, which Federal funds it expects proprietary institutions to
include in their 90/10 calculation.
<bullet> Create a new requirement for when proprietary institutions
must request and disburse title IV, HEA program funds to prevent
proprietary institutions from delaying disbursements to reduce their
Federal revenue percentage for a fiscal year in order to meet the 90/10
revenue requirement.
<bullet> Clarify the allowable revenue generated from programs and
activities that can be counted as non-Federal revenue for purposes of
the 90/10 revenue requirement to provide additional consumer
protection.
<bullet> Revise how proprietary institutions apply funds to student
accounts and determine the funds' inclusion in the 90/10 revenue
requirement calculation to incorporate statutory changes, clarify how
grants from non-Federal public agencies that include Federal funds must
be treated, and add additional consumer protection measures.
<bullet> Revise the provisions governing which revenue generated
from institutional aid can be included in the 90/10 revenue requirement
calculation to remove sections that are no longer applicable, codify
existing practices in regulation, promote consumer protection measures,
and close potential loopholes related to Income Share Agreements (ISAs)
or other alternative financing agreements issued by the institution or
a related party.
<bullet> Revise the provisions governing which funds must be
excluded from a proprietary institution's calculation of its revenue
percentage to remove regulations that no longer apply and to limit
certain types of revenues that proprietary institutions have employed
to alter their revenue calculation.
<bullet> Revise the steps that a proprietary institution must take
to better protect students and taxpayers if it does not generate 10
percent or more of its revenue from allowable non-Federal sources in a
fiscal year. The proposed regulations would also provide reporting
procedures for proprietary institutions that learn, based on
information received after the initial 45-day reporting period, that
they failed the revenue requirement for the previous fiscal year.

[[Page 45435]]

Changes in Ownership (CIO) (Sec. Sec. 600.2, 600.4, 600.20, 600.21,
600.31)

<bullet> Clarify the definitions of ``additional location,''
``branch campus,'' ``main campus,'' ``distance education'' locations,
and ``nonprofit institution'' and, for the last term, describe
characteristics of institutions that do not generally meet the
definition of a ``nonprofit institution.''
<bullet> Require that institutions provide the Department with 90
days' notice of an impending change in ownership, ensure that
accreditation and State licensure are in effect as of the day before
the proposed change, and codify practices on submission of financial
statements and provision of financial protection.
<bullet> Explain the terms by which a TPPPA may be extended to
institutions seeking a change in ownership.
<bullet> Clarify what constitutes a change in ownership and, more
narrowly, a change in control, distinguishing between natural persons
and entities in Sec. 600.21 and the conditions under which they
constitute a change of control.
<bullet> Refine the definitions of the terms ``ownership or
ownership interest,'' ``parent,'' and ``other entities,'' as applied to
changes in ownership, and add ``trust'' to the definition of
``person.''
<bullet> Add to the list of covered transactions the acquisition of
another institution and clarify the application of the regulations in
cases of resignation or death of an owner.
Costs and Benefits: As further detailed in the Regulatory Impact
Analysis, the proposed regulations would have significant impacts on
students, borrowers, educational institutions, taxpayers, and the
Department.
Proposed PEP regulations would benefit incarcerated individuals,
taxpayers, and communities by creating higher employment and earnings,
and lower recidivism rates, for those who enroll in higher education
programs in prison, as described in the Regulatory Impact Analysis of
this proposed regulation. Institutions that offer programs in
correctional facilities and do not currently receive Pell Grants
sometimes bear some or all of the costs of that programming.
Institutions that do not currently receive Pell funds for these
programs would benefit from these revisions. Pell Grant transfers are
estimated to increase by $1.1 billion from these programs. There would
be increased costs for the Department due to various requirements in
the proposed regulations including, but not limited to: data collection
and dissemination, approval of prison education programs, and required
reporting to Congress and the public. There would be increased costs to
the oversight entity due to the required ``best interest
determination'' defined in proposed 34 CFR 668.241. There would be no
direct costs to students, completing the FAFSA[supreg] is free (though
there is some burden associated with completing the form) and Pell
Grant program does not need to be repaid.
Under the proposed 90/10 revisions, veteran borrowers and students
would benefit as proprietary institutions' incentive to aggressively
recruit GI Bill and Department of Defense (DOD) Tuition Assistance
recipients would be greatly reduced because Federal assistance for
those students was treated differently than title IV funds in the 90/10
revenue calculation. The Department is aware that some proprietary
institutions have sought to enroll additional VA or DOD recipients
because their dollars provide a larger cushion to pursue more title IV,
HEA funds, sometimes to the detriment of those veterans and service
members. The proposed regulatory changes would remove that incentive by
counting all Federal education assistance funds on the 90 side of the
90/10 calculation. These changes would produce some savings to the
taxpayer in the form of reduced expenditures of title IV, HEA aid to
institutions that are not able to adapt and would lose eligibility. As
indicated in the RIA, we estimate transfers would be reduced by -$292
million from the changes to the 90/10 provisions. The proposed
revisions would further decrease proprietary institutions' incentive to
rely on potentially costly student financing options to meet 90/10
requirements. Costs to institutions would include the need to ensure
compliance with the proposed regulations. Institutions unable to
generate sufficient non-Federal revenues through their eligible program
may have to create programs that are not title IV eligible to generate
revenue to meet 90/10 requirements.
The proposed revisions to CIO would benefit institutions and the
Department by clarifying requirements as well as providing timely
feedback for those undergoing CIO transactions. Students and borrowers
would benefit from the 90-day CIO notice requirement that ensures
students receive important information timely that would impact their
education and that they can make future educational decisions based on
that knowledge. Costs to institutions would include compliance and the
paperwork burden associated with the increased reporting and disclosure
requirements.
Invitation to Comment: We invite you to submit comments regarding
these proposed regulations. To ensure that your comments have maximum
effect in developing the final regulations, we urge you to clearly
identify the specific section or sections of the proposed regulations
that each of your comments addresses and to arrange your comments in
the same order as the proposed regulations.
We invite you to assist us in complying with the specific
requirements of Executive Orders 12866 and 13563 and their overall
requirement of reducing regulatory burden that might result from these
proposed regulations. Please let us know of any further ways we could
reduce potential costs or increase potential benefits while preserving
the effective and efficient administration of the Department's programs
and activities. The Department also welcomes comments on any
alternative approaches to the subjects addressed in the proposed
regulations.
During and after the comment period, you may inspect public
comments about these proposed regulations by accessing Regulations.gov.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of accommodation or auxiliary
aid, please contact one of the persons listed under FOR FURTHER
INFORMATION CONTACT.

Background

Prison Education Program (PEP) (Sec. Sec. 600.2, 600.7, 600.10,
600.21, 668.43, 668.234-242, 690.62)

The Pell Grant program was established in 1972. Pell Grants are
awarded to undergraduate students who document financial need and who
have not earned a bachelor's, graduate, or professional degree. A Pell
Grant does not have to be repaid, except under certain circumstances.
Pell Grant eligibility for confined or incarcerated students has
changed over time. Before 1994, individuals in correctional facilities
were able to receive Pell Grants. Thereafter, the Violent Crime Control
and Law Enforcement Act of 1994 (Pub. L. 103-322) made individuals
confined or

[[Page 45436]]

incarcerated in a Federal or State correctional facility ineligible to
receive Pell Grants. Individuals in any other type of correctional
facility, for example local jails, reformatories, work farms, and
juvenile justice facilities, remained eligible to receive Pell Grants.
A growing body of research has demonstrated the value of quality
higher education programs for confined or incarcerated individuals.
Incarcerated people who participate in postsecondary education programs
are 48 percent less likely to return to prison than those who do
not.\2\ As incarcerated people achieve higher levels of education, the
likelihood of recidivism decreases.\3\ This research also indicates
that prison education programs increase the literacy and numeracy
skills of incarcerated students and improve their employment
outcomes.\4\
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\2\ Bozick, R., Steele, J., Davis, L., and Turner, S., ``Does
Providing Inmates with Education Improve Postrelease Outcomes? A
Meta-Analysis of Correctional Education Programs in the United
States,'' Journal of Experimental Criminology 14, no. 3 (2018), 389-
428. https://www.rand.org/pubs/external_publications/
EP67650.html#:~:text=Conclusion,program%20is%20to%20reduce%20recidivi
sm.
\3\ Ibid.
\4\ Davis, L., Bozick, R., Steele, J., Saunders, J., Miles, J.,
``Evaluating the Effectiveness of Correctional Education,'' Rand
Corp. (2013), <a href="https://www.rand.org/pubs/research_reports/RR266.html">https://www.rand.org/pubs/research_reports/RR266.html</a>
(pages41-47); Ositelu, M., ``Equipping Individuals for Life Behind
Bars,'' New America (last updated Nov. 2019), <a href="https://www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/">https://www.newamerica.org/education-policy/reports/equipping-individuals-life-beyond-bars/</a> (pages 49-53); Oakford, P., Brumfield, C.,
Goldvale, C., Tatum, L., diZerega, M., and Patrick, F., ``Investing
in Futures: Economic and Fiscal Benefits of Postsecondary Education
in Prison,'' Vera Institute of Justice (Jan. 2019) (``Investing in
Futures''), <a href="https://www.vera.org/downloads/publications/investing-in-futures.pdf">https://www.vera.org/downloads/publications/investing-in-futures.pdf</a>.
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In 2015, the Department used its authority under the HEA to allow a
limited number of postsecondary institutions to seek a waiver of the
statutory restriction on Pell Grant eligibility for confined or
incarcerated students. Conducted under the Department's Experimental
Sites Initiative authority, this experimental waiver is known as the
Second Chance Pell experiment.\5\ Between 2015 and 2022, the Department
expanded the experiment twice to include additional participating
postsecondary institutions. From 2016 to 2021, over 28,000 students
enrolled in postsecondary education through Second Chance Pell, with
more than 9,000 students earning a certificate or diploma, associate
degree, or bachelor's degree.\6\
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\5\ Second Chance Pell Experiment, <a href="https://experimentalsites.ed.gov/exp/approved.html">https://experimentalsites.ed.gov/exp/approved.html</a>.
\6\ Chesnut, K., Taber, N., and Quintana, J. ``Second Chance
Pell: Five Years of Expanding Higher Education Programs in Prisons,
2016-2021.'' Vera Institute of Justice, May 2022.
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The First Step Act of 2018 (Pub. L. 115-391) sought to improve
criminal justice outcomes, as well as to reduce the size of the Federal
prison population while also creating mechanisms to maintain public
safety. It required the Federal government to develop frameworks around
recidivism reduction, including a provision about educational programs,
to offer incentives for success of confined or incarcerated
individuals, and Federal correctional reforms, among other things.
The Consolidated Appropriations Act, 2021 added section 484(t) to
the HEA to formally establish Pell Grant eligibility for confined or
incarcerated individuals, as long as they are enrolled in a PEP as
defined under the HEA. We propose regulations to implement the
statutory requirements allowing access to Federal Pell Grants for
individuals who are confined or incarcerated when enrolled in programs
that meet necessary standards.

Title IV Revenue and Non-Federal Education Assistance Funds (90/10
Rule) (Sec. 668.28)

The HEA has required that proprietary institutions derive a minimum
percentage of their revenue from non-title IV sources since the Higher
Education Amendments of 1992.\7\ Originally, proprietary institutions
were required to derive at least 15 percent of their revenue in a
fiscal year from non-title IV sources (originally referred to as the
85/15 rule to reflect that institutions could receive up to 85 percent
of funds from title IV, HEA sources and were required to receive at
least 15 percent of funds from non-title IV, HEA sources). The Higher
Education Amendments in 1998 reduced this requirement to at least 10
percent of a proprietary institution's revenue in a fiscal year that
must come from non-title IV sources (now referred to as the 90/10
rule).\8\
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\7\ Public Law 102-325.
\8\ Public Law 105-244.
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Proprietary institutions are required to report, as a footnote in
their audited financial statements, the percentage of their revenue
derived from title IV, HEA program funds for the fiscal year, the
dollar amount of the numerator and denominator of the ratio, and the
individual revenue amounts from the sources of allowable title IV and
non-title IV funds. They must also notify the Secretary within 45 days
after the end of their fiscal year if they fail to meet the 90/10
requirement for that fiscal year. When the 85/15 statutory provision
became effective in 1995, proprietary institutions became ineligible to
participate in the title IV program after failing to meet the revenue
requirement for one year. The Higher Education and Opportunity Act of
2008 (HEOA) amended this so that proprietary institutions would only
lose eligibility to participate in the title IV programs if they failed
for two consecutive fiscal years.\9\
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\9\ Public Law 110-315.
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Over the last decade, lawmakers and other stakeholders have raised
concerns that counting Federal funds provided by the Department of
Defense (DOD) and the Department of Veterans Affairs (VA) as non-title
IV revenue resulted in some proprietary institutions aggressively
marketing their programs to service members and veterans, as well as
military-connected family members.\10\ By enrolling those students,
policymakers noted the institutions would be able to offset title IV
aid with other Federal education aid without running afoul of the 90/10
rule. In other cases, proprietary institutions offered institutional
loans, opened or closed locations to reach different student
populations less dependent upon title IV funds, or engaged in other
activities that allowed them to meet the 90/10 rule. In some reported
cases, proprietary institutions using these strategies allegedly also
engaged in aggressive, abusive, or deceptive marketing practices.\11\
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\10\ See, for example, <a href="https://www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html">https://www.nytimes.com/2011/09/22/opinion/for-profit-colleges-vulnerable-gis.html</a>; <a href="https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf">https://www.help.senate.gov/imo/media/for_profit_report/PartI-PartIII-SelectedAppendixes.pdf</a>.
\11\ See, for example, <a href="https://www.chronicle.com/article/for-profit-college-marketer-settles-allegations-of-preying-on-veterans/">https://www.chronicle.com/article/for-profit-college-marketer-settles-allegations-of-preying-on-veterans/</a>;
<a href="https://www.insidehighered.com/quicktakes/2015/10/09/defense-department-puts-u-phoenix-probation">https://www.insidehighered.com/quicktakes/2015/10/09/defense-department-puts-u-phoenix-probation</a>; <a href="https://oag.ca.gov/news/press-releases/attorney-general-becerra-announces-settlement-itt-tech-lender-illegal-student">https://oag.ca.gov/news/press-releases/attorney-general-becerra-announces-settlement-itt-tech-lender-illegal-student</a>; and <a href="https://files.eric.ed.gov/fulltext/ED614219.pdf">https://files.eric.ed.gov/fulltext/ED614219.pdf</a>.
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In 2021, the ARP modified the 90/10 calculation by requiring
proprietary institutions to derive at least 10 percent of their revenue
from non-Federal sources (as opposed to non-title IV funds). The
Department's proposed regulations implement those changes and more
closely align the 90/10 calculation with the statutory intent of the
provision.

Change in Ownership (CIO) (Sec. Sec. 600.2, 600.4, 600.20, 600.21,
600.31)

In recent years the Department has seen an increase in the number
of institutions applying for changes in ownership, many of which result
in a change in the entity or persons controlling the institution and
therefore

[[Page 45437]]

the policies or management of the institution. In a few cases, those
newly in control of an institution also sought a conversion in status
from proprietary to nonprofit or public.
As reported in 2020 by the Government Accountability Office (GAO),
between January 2011 and August 2020, of 59 changes of ownership
(involving 20 separate transactions) involving a conversion from a for-
profit entity to a nonprofit entity, one entire chain that comprised 13
separate institutions was granted temporary continued access to title
IV, HEA aid, but ceased operations prior to the Department reaching a
decision on whether to approve the requested conversion to nonprofit
status.\12\ Three-fourths were sold to a nonprofit entity that had not
previously operated an institution of higher education, increasing the
risk that students may not get the educational experience for which
they are paying. One-third had what GAO termed ``insider involvement''
in the purchasing nonprofit organization (i.e., someone from the former
for-profit ownership was also involved with the nonprofit purchaser),
suggesting greater risk of impermissible benefits to those insiders.
Altogether, the 59 institutions that underwent a change in ownership
resulting in a conversion received more than $2 billion in Award Year
2018-19 in taxpayer-financed Federal student aid.
---------------------------------------------------------------------------

\12\ GAO Report, GAO-21-89, ``Higher Education: IRS and
Education Could Better Address Risks Associated with Some For-Profit
College Conversions'', Dec. 31, 2020. Accessed at <a href="https://www.gao.gov/products/gao-21-89">https://www.gao.gov/products/gao-21-89</a>.
---------------------------------------------------------------------------

Based on the GAO report and other information, the Department has
determined it is necessary to reevaluate the relevant policies to
accommodate the increased complexity of changes in ownership
arrangements and to mitigate the greater risk to students and taxpayers
when institutions fail to meet Federal requirements. These proposed
regulations would clarify the existing definition of a ``nonprofit
institution'' to ensure particularly that institutions converting from
proprietary status meet the standards to qualify as a nonprofit,
including to avoid providing net earnings of the institution to a
private entity or person; establish clearer up-front requirements for
applications for changes in ownership; and provide for greater clarity
in the procedures the Department follows in reviewing changes in
ownership for continued eligibility for title IV aid.

Public Participation

The Department has significantly engaged the public in developing
this NPRM, including through review of oral and written comments
submitted by the public during four public hearings. During each
negotiated rulemaking session, we provided opportunities for public
comment at the end of each day. Additionally, during each negotiated
rulemaking session, non-Federal negotiators obtained feedback from
their stakeholders that they shared with the negotiating committee.
On May 26, 2021, the Department published a notice in the Federal
Register (86 FR 28299) announcing our intent to establish multiple
negotiated rulemaking committees to prepare proposed regulations on the
affordability of postsecondary education, institutional accountability,
and Federal student loans.
The Department developed a list of proposed regulatory provisions
for an Affordability and Student Loans Committee (Committee 1) and an
Institutional and Programmatic Eligibility Committee (Committee 2)
based on advice and recommendations submitted by individuals and
organizations in testimony at three virtual public hearings held by the
Department on June 21 and June 23-24, 2021. An additional virtual
public hearing on the 90/10 rule was held on October 26-27, 2021.
Additionally, the Department accepted written comments on possible
regulatory provisions that were submitted directly to the Department by
interested parties and organizations. You may view the written comments
submitted in response to the May 26, 2021, Federal Register notice on
the Federal eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a>, within docket ID
ED-2021-OPE-0077. Instructions for finding comments are also available
on the site under ``FAQ.''
Transcripts of the public hearings can be accessed at <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html</a>?src=rn.

Negotiated Rulemaking

Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to
obtain public involvement in the development of proposed regulations
affecting programs authorized by title IV of the HEA. After obtaining
extensive input and recommendations from the public, including
individuals and representatives of groups involved in the title IV, HEA
programs, the Secretary, in most cases, must engage in the negotiated
rulemaking process before publishing proposed regulations in the
Federal Register. If negotiators reach consensus on the proposed
regulations, the Department agrees to publish without substantive
alteration a defined group of regulations on which the negotiators
reached consensus--unless the Secretary reopens the process or provides
a written explanation to the participants stating why the Secretary has
decided to depart from the agreement reached during negotiations.
Further information on the negotiated rulemaking process can be found
at: <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html</a>.
The Department held two separate negotiated rulemakings related to
this NPRM. The negotiated rulemaking session for Committee 1 consisted
of three rounds of negotiations that lasted five days each, as well as
two subcommittee meetings specific to the PEP proposed regulations that
lasted three days each. The negotiated rulemaking session for Committee
2 consisted of three rounds of negotiations, the first of which was
held over four extended days, while the latter two were five days each.
With respect to Committee 1, on August 10, 2021, the Department
published a notice in the Federal Register (86 FR 43609) announcing its
intention to establish the committee to prepare proposed regulations
for the title IV, HEA programs. The notice set forth a schedule for
Committee 1 meetings and requested nominations for individual
negotiators to serve on the negotiating committee. In the notice, we
announced the topics that Committee 1 would address. We also announced
the creation of the PEP Subcommittee (Subcommittee) and requested
nominations for individual negotiators and others with relevant
expertise to serve on the Subcommittee.
Committee 1 included the following members, representing their
respective constituencies:
<bullet> Accrediting Agencies: Heather Perfetti, Middle States
Commission on Higher Education, and Michale McComis (alternate),
Accrediting Commission of Career Schools and Colleges.
<bullet> Dependent Students: Dixie Samaniego, California State
University, and Greg Norwood (alternate), Young Invincibles.
<bullet> Departments of Corrections: Anne L. Precythe, Missouri
Department of Corrections.
<bullet> Federal Family Education Loan Lenders and/or Guaranty
Agencies: Jaye O'Connell, Vermont Student Assistance Corporation, and
Will Shaffner

[[Page 45438]]

(alternate), Higher Education Loan Authority of the State of Missouri.
<bullet> Financial Aid Administrators at Postsecondary
Institutions: Daniel Barkowitz, Valencia College, and Alyssa A. Dobson
(alternate), Slippery Rock University.
<bullet> Four-Year Public Institutions: Marjorie Dorim[eacute]-
Williams, University of Missouri, and Rachelle Feldman (alternate),
University of North Carolina at Chapel Hill.
<bullet> Independent Students: Michaela Martin, University of La
Verne, and Stanley Andrisse (alternate), Howard University.
<bullet> Individuals with Disabilities or Groups Representing Them:
Bethany Lilly, The Arc of the United States, and John Whitelaw
(alternate), Community Legal Aid Society.
<bullet> Legal Assistance Organizations that Represent Students
and/or Borrowers: Persis Yu, National Consumer Law Center, and Joshua
Rovenger (alternate), Legal Aid Society of Cleveland.
<bullet> Minority-serving Institutions: Noelia Gonzalez, California
State University.
<bullet> Private Nonprofit Institutions: Misty Sabouneh, Southern
New Hampshire University, and Terrence S. McTier, Jr. (alternate),
Washington University.
<bullet> Proprietary Institutions: Jessica Barry, The Modern
College of Design in Kettering, Ohio, and Carol Colvin (alternate),
South College.
<bullet> State Attorneys General: Joseph Sanders, Illinois Board of
Higher Education, and Eric Apar (alternate), New Jersey Department of
Consumer Affairs.
<bullet> State Higher Education Executive Officers, State
Authorizing Agencies, and/or State Regulators: David Tandberg, State
Higher Education Executive Officers Association, and Suzanne Martindale
(alternate), California Department of Financial Protection and
Innovation.
<bullet> Student Loan Borrowers: Jeri O'Bryan-Losee, United
University Professions, and Jennifer Cardenas (alternate), Young
Invincibles.
<bullet> Two-year Public Institutions: Robert Ayala, Southwest
Texas Junior College, and Christina Tangalakis (alternate), Glendale
Community College.
<bullet> U.S. Military Service Members and Veterans or Groups
Representing Them: Justin Hauschild, Student Veterans of America, and
Emily DeVito (alternate), The Veterans of Foreign Wars.
<bullet> Federal Negotiator: Jennifer M. Hong, U.S. Department of
Education.
The Department also invited nominations for two advisors. These
advisors were not voting members of Committee 1 and did not impact the
consensus vote; however, they were consulted and served as a resource.
The advisors were:
<bullet> Rajeev Darolia, University of Kentucky, for issues related
to economic and/or higher education policy analysis and data.
<bullet> Heather Jarvis, Fosterus, for issues related to qualifying
employers on the topic of Public Service Loan Forgiveness.
The Subcommittee included the following members, representing their
respective constituencies:
<bullet> Consumer Advocacy Organizations: Belinda Wheeler, Vera
Institute of Justice.
<bullet> Financial Aid Administrators: Kim Cary, Ozarks Technical
Community College.
<bullet> Formerly Incarcerated Students: Stanley Andrisse, Howard
University College of Medicine.
<bullet> Groups That Represent Incarcerated Students: Terrell
Blount, Formerly Incarcerated College Graduates Network.
<bullet> Postsecondary Institutions that are PEP Providers:
Terrence S. McTier, Jr., Washington University.
<bullet> State Correctional Education Directors: Marisa Britton-
Bostwick, Montana Department of Corrections.
<bullet> State Higher Education Executive Officers: Angie Paccione,
Colorado Department of Higher Education.
<bullet> State Departments of Corrections: Anne L. Precythe,
Director of the Missouri Department of Corrections.
<bullet> Department of Education Representative: Aaron Washington,
U.S. Department of Education.
Committee 1 met to develop proposed regulations in October,
November, and December 2021. During the second session, a Committee 1
member petitioned to add another constituency, State Departments of
Corrections, to Committee 1 and the Subcommittee. Committee 1 voted to
add that constituency to the groups represented at the Committee and
Subcommittee.
The Department tasked the Subcommittee with making recommendations
to the full Committee on issues related to PEPs. The Subcommittee met
in October and November 2021.
At its first meeting, Committee 1 reached agreement on its
protocols and proposed agenda. The protocols provided, among other
things, that Committee 1 would operate by consensus. The protocols
defined consensus as no dissent by any member of Committee 1 and noted
that consensus votes would be taken issue by issue.
Committee 1 reviewed and discussed the Department's drafts of
regulatory language and alternative language and suggestions proposed
by negotiators and Subcommittee members. Two members of the
Subcommittee briefed the committee on the Subcommittee's work and
provided extensive written materials for Committee 1's consideration.
At the final meeting on December 10, 2021, Committee 1 reached
consensus on the Department's proposed regulations regarding PEPs.
Committee 1 also reached consensus on three other issues that are not
included in this publication: total and permanent disability discharge;
elimination of interest capitalization for non-statutory capitalization
events; and false certification discharge. For more information on the
negotiated rulemaking sessions, including the work of the Subcommittee,
please visit: <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html</a>.
With respect to Committee 2, on December 8, 2021, the Department
published a notice in the Federal Register (86 FR 69607) announcing its
intention to establish a second Committee, the Institutional and
Programmatic Eligibility Committee, to prepare proposed regulations for
the title IV, HEA programs. The notice set forth a schedule for
Committee 2 meetings and requested nominations for individual
negotiators to serve on the negotiating Committee. In the notice, the
Department announced the topics that Committee 2 would address.
Committee 2 included the following members, representing their
respective constituencies:
<bullet> Accrediting Agencies: Jamienne S. Studley, WASC Senior
College and University Commission (WSCUC), and Laura Rasar King
(alternate), Council on Education for Public Health.
<bullet> Civil Rights Organizations: Amanda Martinez, UnidosUS.
<bullet> Consumer Advocacy Organizations: Carolyn Fast, The Century
Foundation, and Jaylon Herbin (alternate), Center for Responsible
Lending.
<bullet> Financial Aid Administrators at Postsecondary
Institutions: Samantha Veeder, University of Rochester, and David
Peterson (alternate), University of Cincinnati.
<bullet> Four-Year Public Institutions of Higher Education: Marvin
Smith, University of California, Los Angeles, and Deborah Stanley
(alternate), Bowie State University.
<bullet> Legal Assistance Organizations that Represent Students
and/or Borrowers: Johnson Tyler, Brooklyn Legal Services, and Jessica
Ranucci (alternate), New York Legal Assistance Group.
<bullet> Minority-Serving Institutions: Beverly Hogan, Tougaloo
College

[[Page 45439]]

(retired), and Ashley Schofield (alternate), Claflin University.
<bullet> Private, Nonprofit Institutions of Higher Education: Kelli
Perry, Rensselaer Polytechnic Institute, and Emmanual A. Guillory
(alternate), National Association of Independent Colleges and
Universities (NAICU).
<bullet> Proprietary Institutions of Higher Education: Bradley
Adams, South College, and Michael Lanouette (alternate), Aviation
Institute of Maintenance/Centura College/Tidewater Tech.
<bullet> State Attorneys General: Adam Welle, Minnesota Attorney
General's Office, and Yael Shavit (alternate), Office of the
Massachusetts Attorney General.
<bullet> State Higher Education Executive Officers, State
Authorizing Agencies, and/or State Regulators of Institutions of Higher
Education and/or Loan Servicers: Debbie Cochrane, California Bureau of
Private Postsecondary Education, and David Socolow (alternate), New
Jersey's Higher Education Student Assistance Authority (HESAA).
<bullet> Students and Student Loan Borrowers: Ernest Ezeugo, Young
Invincibles, and Carney King (alternate), California State Senate.
<bullet> Two-Year Public Institutions of Higher Education: Anne
Kress, Northern Virginia Community College, and William S. Durden
(alternate), Washington State Board for Community and Technical
Colleges.
<bullet> U.S. Military Service Members, Veterans, or Groups
Representing them: Travis Horr, Iraq and Afghanistan Veterans of
America, and Barmak Nassirian (alternate), Veterans Education Success.
<bullet> Federal Negotiator: Gregory Martin, U.S. Department of
Education.
The Department also invited nominations for two advisors. These
advisors were not voting members of the Committee; however, they were
consulted and served as a resource. The advisors were:
<bullet> David McClintock, McClintock & Associates, P.C. for issues
with auditing institutions that participate in the title IV, HEA
programs.
<bullet> Adam Looney, David Eccles School of Business at the
University of Utah, for issues related to economics, as well as
research, accountability, and/or analysis of higher education data.
At its first meeting, Committee 2 reached agreement on its
protocols and proposed agenda. The protocols provided, among other
things, that Committee 2 would operate by consensus. The protocols
defined consensus as no dissent by any member of Committee 2 and noted
that consensus votes would be taken issue by issue. During its first
week of sessions, Committee 2 was petitioned to add, and reached
consensus on adding, a member from another constituency group, Civil
Rights Organizations.
Committee 2 reviewed and discussed the Department's drafts of
regulatory language and the alternative language and suggestions
proposed by Committee 2 members. At the final meeting on March 18,
2022, Committee 2 reached consensus on the Department's proposed
regulations regarding the 90/10 rule, but did not reach consensus on
the proposed regulations for changes in ownership. For more information
on the negotiated rulemaking sessions please visit <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html</a>.

Summary of Proposed Changes

The proposed regulations would make the following changes to
current regulations.
Pell Grants for Prison Education Programs (PEP) ((34 CFR 600.2, 600.7,
600.10, 600.21, 668.43, 668.234-242, 690.62) (Sections 102(a)(3),
401(b)(3), 484(t), 485(a)(1)(G), 498(k)of the HEA))
<bullet> Amend in Sec. 600.2 the definition of ``additional
location'' so that prison education programs offered at correctional
facilities are properly reported to the Department.
<bullet> Amend in Sec. 600.7 the requirements for an institution
to obtain and maintain a waiver from the Secretary to allow students
who are confined or incarcerated to exceed 25 percent of regular
student enrollment. We also propose to consider the financial
responsibility and administrative capability of postsecondary
institutions in determining whether to grant a waiver.
<bullet> Amend Sec. 600.10 to require that institutions seek
approval from the Secretary prior to offering the first PEP at the
first two additional locations at correctional facilities.
<bullet> Amend Sec. 600.21 to require that institutions report the
addition of any subsequent new PEP to the Secretary within 10 days of
the program's establishment.
<bullet> Amend Sec. 668.43 to require disclosure of typical State
or Federal prohibitions on the licensure or employment of formerly
confined or incarcerated individuals for a PEP that is designed to meet
educational requirements for a specific professional license or
certification.
<bullet> Create Sec. 668.234, which would describe a scope and
purpose for the new subpart P.
<bullet> Create Sec. 668.235, which would define ``advisory
committee'', ``feedback process'', ``oversight entity'', and ``relevant
stakeholders''.
<bullet> Create Sec. 668.236, which would define and set forth the
requirements for an ``eligible prison education program.''
<bullet> Create Sec. 668.237, which would prescribe program
evaluation and review requirements for the institution's accrediting
agency or State approval agency.
<bullet> Create Sec. 668.238, which would require the Secretary's
approval of an institution's first PEP at the first two additional
locations for purposes of participation in title IV programs.
Applications for approval of subsequent PEPs would be subject to fewer
requirements.
<bullet> Create Sec. 668.239, which would require a postsecondary
institution that offers an eligible prison education program to submit
required reports to the Secretary and establish an agreement with the
oversight entity to report information to the Secretary about the
transfer and release of confined or incarcerated individuals enrolled
in eligible prison education programs.
<bullet> Create Sec. 668.240, which would set forth the
Secretary's authority to limit or terminate approval of an
institution's eligible PEP.
<bullet> Create Sec. 668.241, which would define the ``best
interest'' program assessment that must be conducted by the oversight
entity at least two years after the postsecondary institution has
continuously provided a PEP and the documentation requirements for such
assessment.
After the initial ``best interest'' determination, subsequent
assessments would be conducted not less than 120 calendar days prior to
the expiration of each institution's Program Participation Agreement
(PPA).
<bullet> Create Sec. 668.242, which would prescribe the process
for the winddown of eligible programs operating at a facility that is
not a Federal or State correctional facility if those programs are not
approved as eligible prison education programs.
<bullet> Amend Sec. 690.62 to codify a statutory requirement that
the Pell Grant award not exceed cost of attendance.
Title IV Revenue and Non-Federal Education Assistance Funds (90/10
Rule) ((34 CFR 668.28) (Sections 487(a) and 487(d) of the HEA))
<bullet> Amend the heading of Sec. 668.28 and references
throughout the section to

[[Page 45440]]

change ``non-title IV revenue'' to ``non-Federal funds.''
<bullet> Modify Sec. 668.28(a)(1) to provide for periodic
publication of information identifying the sources of Federal funds
proprietary institutions must include in their 90/10 calculation and
clarify how the Department will alert them when new Federal funds must
be counted in the calculation in subsequent years.
<bullet> Amend Sec. 668.28(a)(2) to create a disbursement rule
that outlines how proprietary institutions calculate the percentage of
their revenue that is Federal revenue and creates an end-of-fiscal-year
deadline for proprietary institutions to request and disburse title IV
funds to students.
<bullet> Amend Sec. 668.28(a)(3) to reflect which non-Federal
revenue generated from programs and activities proprietary institutions
may count in the calculation.
<bullet> Amend Sec. 668.28(a)(4) to describe how proprietary
institutions apply Federal funds to student accounts and determine the
funds' inclusion in their revenue calculation.
<bullet> Amend Sec. 668.28(a)(5) to specify what revenue generated
from institutional activities proprietary institutions may count as
non-Federal revenue.
<bullet> Remove outdated provisions in Sec. 668.28(a)(6) that no
longer impact the non-Federal revenue calculation.
<bullet> Redesignate Sec. 668.28(a)(7) as Sec. 668.28(a)(6) and
amend the types of funds that proprietary institutions may not include
in their revenue calculation.
<bullet> Amend Sec. 668.28(c) to establish disclosures for
proprietary institutions that fail to derive at least 10 percent of
their fiscal-year revenues from allowable non-Federal funds, clarify
reporting requirements, and clarify liabilities for institutions that
lose access to title IV, HEA funds due to failing 90/10 for two
consecutive years. Changes in Ownership (CIO) ((Sec. Sec. 600.2,
600.4, 600.20, 600.21, 600.31) (Sections 101, 102, 103, 410, 498 of the
HEA)).
<bullet> Add a definition of ``main campus'' in Sec. 600.2 to
clarify a commonly used term that is currently undefined.
<bullet> Amend the definitions of ``additional location'' and
``branch campus'' in Sec. 600.2 to emphasize that they are physical
locations within the ownership structure of the institution. These
amendments would further clarify that an additional location
participates in the title IV, HEA programs through the certification of
the main campus, and a branch campus must be designated as such by the
Department.
<bullet> To codify current practice, add under the definition of
``distance education'' in Sec. 600.2 that, for institutions offering
both on-campus instruction and distance education, the distance
education programs are associated with the main campus where one or
more approved educational programs are offered. For institutions
offering only distance education, the location of the institution is
where its administrative offices are located and approved by its
accrediting agency.
<bullet> Clarify the definition of ``nonprofit institution'' in
Sec. 600.2 to reflect that no part of its net earnings may benefit a
natural person or private entity. We would also specify that, in
general, a nonprofit institution is not an obligor on a debt to a
former owner or affiliated person or entity and does not enter into a
revenue-sharing or other kind of agreement involving payment to a
former owner or affiliated person or entity.
<bullet> Add under Sec. 600.20(g) the requirement for institutions
to notify the Department at least 90 days in advance of any proposed
change in ownership, which includes any modification to such a change.
<bullet> Add a new Sec. 600.20(g)(2) to provide that, even with
the submission of the proposed CIO, the Department may determine that
the institution's participation in the title IV, HEA programs should
not continue after the change in ownership.
<bullet> Amend Sec. 600.20(g)(3) to add the requirement, discussed
in current paragraph (g)(2), that a complete application must include
documentation that the institution's accreditation and State
authorization remained in effect as of the day before the change in
ownership and add provisions explaining when the Secretary may require
an institution to provide financial protection, and in what amounts, as
part of the change in ownership application.
<bullet> Add Sec. 600.20(g)(4), which requires institutions to
notify enrolled and prospective students at least 90 days prior to the
proposed change in ownership.
<bullet> Establish in Sec. 600.20(h) the terms of the extension of
a TPPPA and clarify when the TPPPA expires.
<bullet> Clarify Sec. 600.21 to specify when institutions are
required to report to the Department changes in ownership and/or
changes in control and clarify the terminology for owners who are
natural persons versus entities.
<bullet> Specify in Sec. 600.31(c) when ``other entities'' undergo
a change in control, such as when a person or combination of persons
acquires or loses 50 percent of voting interests in the entity or
otherwise acquires or loses 50 percent control, or when an entity with
members loses them or an entity without members acquires them. The
paragraph would provide what qualifies to meet the 50 percent
thresholds and under what other conditions a person or persons may be
deemed to have actual control of the entity, including based on
ownership by a combination of persons, each of whom has less than a 50
percent interest in the entity.
<bullet> Amend Sec. 600.31(d) to add that a change of control may
include the acquisition of an institution to become an additional
location of another institution unless the acquired institution closed
or ceased to provide educational instruction.
<bullet> Clarify the terminology in Sec. 600.31(e) related to the
death or resignation of an individual owner.

Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect. The Department made small, technical, non-substantive updates
to the PEP amendatory consensus language to conform with proper
formatting, capitalization, and cross-reference standards.

Prison Education Programs

Sec. 600.2 Definitions

Additional Location
Statute: Section 410 of the General Education Provisions Act (20
U.S.C. 1221e-3) provides the Secretary with authority to make,
promulgate, issue, rescind, and amend rules and regulations governing
the manner of operations of, and governing the applicable programs
administered by, the Department. Furthermore, under section 414 of the
Department of Education Organization Act (20 U.S.C. 3474), the
Secretary is authorized to prescribe such rules and regulations as the
Secretary determines necessary or appropriate to administer and manage
the functions of the Secretary or the Department. These authorities,
together with the provisions in the HEA, thus include promulgating
regulations that, in this case amend the definition of ``additional
location''. Finally, section 498(k) of the HEA refers to additional
locations.
Current Regulations: The current definition of an ``additional
location'' in Sec. 600.2 is a ``facility that is geographically apart
from the main campus of the institution and at which the institution
offers at least 50 percent

[[Page 45441]]

of a program and may qualify as a branch campus.''
Proposed Regulations: The proposed regulation would treat a
Federal, State, or local penitentiary, prison, jail, reformatory, work
farm, juvenile justice facility or other similar correctional
institution as an ``additional location'' for purposes of Sec. 600.2,
even if a student receives instruction primarily through distance
education or correspondence courses at that location.
Reasons: Section 484(t)(5) requires institutions offering one or
more PEPs to file annual reports with the Department and requires the
Department to annually report to Congress. Among other items, annual
reports include the names and types of institutions, Pell Grant
expenditures, demographics of enrolled students, and mode of
instruction (such as distance education). In the course of
administering the Second Chance Pell experiment (described in the
Background section), the Department became aware that some
postsecondary institutions were not reporting to the Department certain
educational programming they were providing in Federal or State
correctional facilities. This is because the current definition of an
``additional location'' is phrased in terms of a location that is
``geographically apart from the main campus of the institution'' and
``may qualify as a branch campus,'' which institutions were
interpreting such as to exclude non-traditional locations where
distance education programs are offered. To ensure adequate data
collection and accurate reports, it is imperative that institutional
reports to the Department include all correctional facilities where
IHEs offer PEPs. The proposed amendment to the definition of
``additional location'' also would ensure proper reporting under the
proposed addition to Sec. 600.21(a)(14) regarding updates to an
institution's PPA (see the discussion of Sec. 600.21 for more
information).
Including PEPs as additional locations would also provide related
benefits to students and taxpayers, as it would ensure greater
oversight of the PEP, including oversight of the academic quality of
the program by the accrediting agency, and would provide potential
financial aid benefits in the event the IHE ceases to provide
educational offerings at the correctional facility. The additional
oversight that would be conducted for additional locations would help
to protect the integrity of taxpayer-financed title IV, HEA dollars, by
ensuring that such locations are not eligible for Federal aid unless
and until they have met other conditions. Under Sec. 602.22, for
example, which governs accrediting agencies, the establishment of
additional locations is considered to be a ``substantive change,''
triggering an agency's obligation to assess whether such change
adversely affects the institution's ability to meet accreditation
standards. In most cases, an agency's review of a new location must
include an assessment of the institution's fiscal and administrative
capabilities, academic controls, faculty, facilities, resources,
support systems, and financial stability. In addition, as discussed
further below, proposed Sec. 668.237 would require an accrediting
agency to conduct a site visit no later than one year after the
institution has initiated a PEP at its first two additional locations
at correctional facilities. The Department believes that these
additional steps would help to ensure education quality, oversight of
the programming at the facility, and minimum standards for the services
provided to students.
Additionally, under section 437(b)(3) of the HEA, a student whose
institution closes may be eligible for restoration of their Pell Grant
lifetime eligibility used (Pell LEU) for the period of a student's
attendance at the institution, providing a benefit to affected
students. Similar to the Department's interpretation of this statute
for other program types, the Department has interpreted the statute to
mean that, if a postsecondary institution closes, all students enrolled
in an impacted PEP may be eligible for Pell LEU restoration. By
requiring PEPs to be reported as additional locations, the Department
could ensure that confined or incarcerated individuals enrolled in
those programs are protected in the event the institution ceases to
operate in the correctional facility by restoring their lifetime Pell
Grant eligibility.
Confined or Incarcerated Individual
Statute: As amended by the Consolidated Appropriations Act, 2021,
section 484(t)(1)(A) of the HEA defines a ``confined or incarcerated
individual'' for purposes of title IV programs as ``an individual who
is serving a criminal sentence in a Federal, State, or local penal
institution, prison, jail, reformatory, work farm, or other similar
correctional institution,'' and excludes ``an individual who is in a
halfway house or home detention or is sentenced to serve only
weekends.'' Individuals falling within the definition are eligible for
Pell Grants if they attend an eligible PEP, which, among other
requirements, must be operated in a State or Federal correctional
facility.\13\
---------------------------------------------------------------------------

\13\ See section 484(t)(1)(B) of the HEA.
---------------------------------------------------------------------------

Current Regulations: The current regulations in Sec. 600.2 use the
phrase ``incarcerated student,'' which is defined as ``a student who is
serving a criminal sentence in a Federal, State, or local penitentiary,
prison, jail, reformatory, work farm, juvenile justice facility, or
other similar correctional institution. A student is not considered
incarcerated if that student is in a half-way house or home detention
or is sentenced to serve only weekends. For purposes of Pell Grant
eligibility under Sec. 668.32(c)(2)(ii), a student who is incarcerated
in a juvenile justice facility, or in a local or county facility, is
not considered to be incarcerated in a Federal or State penal
institution, regardless of which governmental entity operates or has
jurisdiction over the facility, including the Federal Government or a
State, but is considered incarcerated for the purposes of determining
costs of attendance under section 472 of the HEA in determining
eligibility for and the amount of the Pell Grant.''
Proposed Regulations: We propose to update the defined term to
``confined or incarcerated individual'' and to define the phrase as
``an individual who is serving a criminal sentence in a Federal, State,
or local penitentiary, prison, jail, reformatory, work farm, juvenile
justice facility, or other similar correctional institution. An
individual would not be considered incarcerated if that individual is
subject to or serving an involuntary civil commitment, in a half-way
house or home detention, or is sentenced to serve only weekends.''
Reasons: We propose to change the term from ``incarcerated
student'' to ``confined or incarcerated individual'' to reflect the
statute as amended more accurately. We also propose to specifically
include ``juvenile justice facilities'' in the list of eligible
locations where a criminal sentence is served, to ensure that programs
offered there would be subject to the same high program standards as
programs in other State and Federal correctional facilities. The
statute refers to ``other similar correctional facilit[ies],'' which
reasonably includes juvenile justice facilities in this context.
Students meeting the definition of a confined or incarcerated
individual would not be eligible for Direct Loan funds.
Currently, an individual who is incarcerated in any Federal or
State correctional facility, or who is subject to an involuntary civil
commitment upon completion of a period of incarceration for a forcible
or nonforcible sexual offense (as determined in accordance with the
Federal Bureau of Investigation's Uniform Crime Reporting

[[Page 45442]]

Program), is not eligible to receive a Pell Grant. Recent amendments
removed the Pell Grant prohibition for involuntarily civilly committed
individuals from Section 401 of the HEA. Based on Congress' change to
the relevant statutory language and consistent with a rulemaking
subcommittee member's recommendation, we propose clarifying that
individuals subject to or serving an involuntary civil commitment are
not considered to be incarcerated. As discussed during the rulemaking
subcommittee meetings, the statute's exclusion of those subjected to
involuntary civil commitment from the definition of ``confined or
incarcerated individual'' makes clear they are not prohibited from
receiving a Pell Grant on that basis, nor do they need to be enrolled
in a PEP in order to qualify.
Sec. 600.7 Conditions of institutional ineligibility.
Statute: Section 102(a)(3) of the HEA states that an institution
will not meet the definition of an institution of higher education for
title IV purposes if more than 25 percent of its regular enrolled
students are incarcerated. The Secretary may waive this limitation for
a nonprofit institution that provides a two- or four-year program of
instruction (or both) for which the institution awards a bachelor's
degree, associate degree, or postsecondary diploma.
Current Regulations: The current regulations at Sec. 600.7(a)(iii)
restate the statutory requirement that a postsecondary institution is
ineligible to participate in the title IV, HEA programs if more than 25
percent of its enrolled regular students are incarcerated. Section
600.7(c) permits nonprofit (including public) postsecondary
institutions to seek a waiver of the 25 percent enrollment limitation.
The waiver is automatic upon request if the postsecondary institution
consists solely of four-year or two-year education programs for which
it awards a bachelor's degree, associate degree, or postsecondary
diploma.
Under Sec. 600.7(c)(3)(ii), nonprofit institutions whose offerings
are not limited to four-year and two-year programs but that award the
degrees identified above are subject to two different waiver
determinations: (1) the waiver is automatic upon request for its two-
and four-year programs, but (2) for any other program, the waiver is
only available if the incarcerated regular students enrolled in such
programs have a completion rate of 50 percent or greater. The formula
for calculating the completion rate is set forth in Sec. 600.7(e)(2).
Under Sec. 600.7(g), the institution must substantiate the completion
rate calculation by having the certified public accountant who prepares
its audited financial statements verify the calculation's accuracy.
Under Sec. 600.7(f), the institution maintains the waiver
indefinitely if it satisfies the waiver requirements each award year.
If the institution fails to satisfy waiver requirements for an award
year, it becomes ineligible to participate in title IV programs on June
30 of that award year.
Proposed Regulations: The proposed regulations would enhance the
Secretary's ability to monitor PEP enrollment, while allowing eligible
institutions with demonstrated program success to expand the number of
incarcerated students they serve. Specifically:
<bullet> We propose to add a condition to Sec. 600.7(c)(1) that
the Secretary will not approve an enrollment cap waiver for a
postsecondary institution's PEP until the oversight entity is able to
make the ``best interest determination'' described in Sec. 668.241,
which would be at least two years after the postsecondary institution
has continuously provided a PEP.
<bullet> In proposed Sec. 600.7(c)(1)(i), the Secretary would not
grant the waiver to a non-degree program at a nonprofit institution
unless it meets the current requirement of maintaining a completion
rate for its enrolled incarcerated students of at least 50 percent.
<bullet> We propose to add Sec. 600.7(c)(1)(ii)(A) and (B) to
require that all postsecondary institutions operating a PEP, regardless
of program length, satisfy two conditions to obtain and maintain an
enrollment cap waiver for incarcerated students. Under the proposed
regulations, an institution would be required to: (1) comply with all
requirements under proposed part 668 subpart P (Prison Education
Programs), and (2) demonstrate they are administratively capable as
defined in Sec. 668.16 and financially responsible under part 668
subpart L. Administrative capability requires the institution to show
it is capable of adequately administering the title IV programs,
including for PEPs. Financial responsibility requires the institution
to demonstrate that it provides the services described in its official
publications and statements, meets all of its financial obligations,
and provides the administrative resources necessary to comply with
title IV, HEA program requirements.
<bullet> We propose to update paragraphs Sec. 600.7(c)(1) and (2)
by clarifying that the Secretary has the discretion to deny an
enrollment cap waiver request if the application fails to meet the
aforementioned standards, noting instead that the Secretary ``may''
waive the enrollment cap prohibition. This is a change from the current
regulations that make the waivers automatic for four-year and two-year
programs. The proposed provisions more closely reflect the statute,
which states that the Secretary ``may'' approve the waiver.
<bullet> Based in part on the recommendation of a rulemaking
subcommittee member, we propose to add paragraph (c)(4) to Sec. 600.7,
which would set program enrollment limitations on incarcerated students
even after a waiver is approved. In paragraph (c)(4)(i)(A), once a
postsecondary institution is granted a waiver, for the next five years,
up to 50 percent of the institution's regular enrolled students could
be incarcerated students. Paragraph (c)(4)(i)(B) would permit that
percentage to increase to 75 percent for the five years thereafter.
Paragraph (c)(4)(ii) would exempt from these limits a public
institution that is chartered for the explicit purpose of educating
confined or incarcerated students, as determined by the Secretary. All
students in such a PEP must be located in the State in which the
postsecondary institution is chartered to serve.
<bullet> Proposed Sec. 600.7(c)(5) would allow the Secretary to
limit or terminate a postsecondary institution's waiver if it no longer
meets the requirements established under paragraph (c)(1).
<bullet> Finally, proposed Sec. 600.7(c)(6) provides that
revocation of an institution's enrollment cap waiver would render an
institution ineligible to participate in title IV, HEA programs,
commencing at the end of the award year in which the waiver was revoked
so students will not immediately lose eligibility for title IV aid.
Paragraph (c)(6)(i) would allow a postsecondary institution to retain
its eligibility for title IV aid if it demonstrates that it meets all
requirements prior to losing eligibility, including reducing its
enrollment of confined or incarcerated students to no more than 25
percent of its regular enrolled students, as required of eligible
institutions by the statute, and ceasing to enroll new incarcerated
students upon the loss of the waiver.
Reasons: A rulemaking subcommittee member stated that unlimited
expansion of incarcerated student enrollment, spurred on by increased
access to Pell Grant funds, could potentially compromise the quality of
prison education programming. The Department shares the concern that if
institutions become too reliant on enrolling incarcerated students,
institutions may not have sufficient

[[Page 45443]]

incentive to ensure those students are served well; students who enroll
in prison education programs have fewer options and thus more limited
ability to walk away from programs. The Department proposes
strengthening the waiver application process to ensure postsecondary
institutions are serving their incarcerated students well and are
capable of meeting other Department requirements for the operations and
finances of the institution. This would help to prevent circumstances
in which institutions not serving incarcerated students well are
permitted to enroll such students in very large numbers, potentially
harming such students with educational programming that does not meet
the requirements of the waiver. We also propose to set the maximum
enrollment of confined or incarcerated students depending on the amount
of time the institution has offered a PEP, allowing institutions to
move from 25 percent of enrollment by incarcerated students, to 50
percent, to 75 percent, over a number of years, to guard against growth
of prison education programming that outpaces an institution's ability
to support those programs. The Department also believes this additional
built-in time would help assure the Department and an institution's
accreditors that such programming is appropriate and acceptable and
would protect students and taxpayers.
Sec. 600.10 Date, extent, duration, and consequence of
eligibility.
Statute: Section 484(t) of the HEA authorizes Pell Grant
eligibility for confined or incarcerated individuals who enroll in an
eligible PEP.
Current Regulations: None.
Proposed Regulations: The Department proposes in Sec. 600.10 to
require an institution to obtain approval from the Secretary to offer
the institution's eligible PEPs at its first two additional locations
at correctional facilities. Such locations would include a Federal,
State, or local penitentiary, prison, jail, reformatory, work farm,
juvenile justice facility, or other similar correctional institution.
While an institution's first additional location may have multiple
PEPs, this approval process would only apply to the first program at
each of the first two locations. The application requirements for the
first two locations are prescribed in proposed Sec. 668.238(b).
Reasons: The Department already requires institutions to seek
approval from the Secretary before offering certain eligible programs
in 600.10(c), including direct assessment programs and comprehensive
transition and postsecondary programs, and if otherwise required for
the institution's participation in the title IV programs. In these
cases, where experience is more limited, the Department believes it is
particularly important to ensure an institution satisfies regulatory
requirements to offer those programs in advance and is persuaded that
this prior approval better protects students and taxpayers. Approval of
an institution's initial prison education programming would serve a
similar purpose. According to research, quality prison education
programming may reduce the likelihood of recidivism, lower
unemployment, and increase social mobility for formerly confined or
incarcerated individuals.\14\ After the approval of the first PEP at
each of the first two additional locations, and provided enrollment of
incarcerated students does not exceed the presumptive cap of 25
percent, the Department believes (in part based on its experience in
reviewing other new programs, such as direct assessment programs, being
offered for the first several times) the postsecondary institution
would have demonstrated the capacity and capability to effectively
maintain or expand the number of eligible PEP(s) it offers. If the
postsecondary institution sought to expand the incarcerated student
enrollment cap of 25 percent, it would be required to use the
procedures outlined in Sec. 600.7.
---------------------------------------------------------------------------

\14\ <a href="https://www.americanprogress.org/article/education-opportunities-prison-key-reducing-crime/">https://www.americanprogress.org/article/education-opportunities-prison-key-reducing-crime/</a> crime/. <a href="https://www.justice.gov/opa/pr/justice-and-education-departments-announce-new-research-showing-prison-education-reduces">https://www.justice.gov/opa/pr/justice-and-education-departments-announce-new-research-showing-prison-education-reduces</a>. <a href="https://www.rand.org/pubs/research_reports/RR266.html">https://www.rand.org/pubs/research_reports/RR266.html</a>.<a href="https://www.vera.org/blog/back-to-school-a-common-sense-strategy-to-lower-recidivism">https://www.vera.org/blog/back-to-school-a-common-sense-strategy-to-lower-recidivism</a>.
---------------------------------------------------------------------------

Sec. 600.21 Updating application information.
Statute: Section 484(t)(5) of the HEA requires institutions with a
PEP to submit annual reports to the Department and requires annual
reports from the Department to Congress.
Current Regulations: Sections 600.21(a)(1)-(13) require an
institution to update its PPA no later than 10 days after any of the
specified events occurs, such as adding a second or subsequent direct
assessment program.
Proposed Regulations: The Department proposes to add a new
reporting requirement to Sec. 600.21 that would require an institution
to also update its PPA no later than 10 days after it establishes or
adds an eligible PEP at an additional location as defined under Sec.
600.2, at a Federal, State, or local penitentiary, prison, jail,
reformatory, work farm, juvenile justice facility, or other similar
correctional institution that was not previously included in the
institution's eligibility determination under Sec. 600.10.
Reasons: The Department proposes to increase by one the existing
specified events requiring an updated report. Among the items required
in the Department's annual reports to Congress by section 484(t)(5) of
the HEA are the names and types of postsecondary institutions offering
PEPs in which confined or incarcerated individuals are enrolled and
receiving Pell Grants. For the Department to provide accurate reports
to Congress, postsecondary institutions must notify the Department when
they add eligible PEPs.
Further, requiring prompt notice of the addition of an eligible PEP
would allow the Department to monitor trends in eligible PEPs in real
time and more precisely target oversight as the programs progress. This
approach mirrors our oversight of direct assessment programs (Sec.
668.10), for example, where institutions must notify us of each
additional program.
Sec. 668.8 Eligible program.
Statute: Section 484(t)(1)(b) of the HEA establishes PEPs as
eligible programs under title IV of the HEA.
Current Regulations: None related to prison education programs.
Current regulations under Sec. 668.8 establish various requirements
for eligible programs, including requirements for program length, the
number of credit hours in a program for title IV, HEA purposes, and use
of distance education.
Proposed Regulations: We propose to update Sec. 668.8(n) to
include prison education programs as named ``eligible programs'' for
title IV aid.
Reasons: This is a technical update to ensure the regulations would
reflect statutory language authorizing PEPs as programs eligible for
Federal student aid.
Sec. 668.11 Severability.
Statute: None.
Current Regulations: None.
Proposed Regulations: We would redesignate Sec. 668.11 as Sec.
668.12 and add a severability provision in proposed Sec. 668.11, to be
included in subpart A, which would make clear that, if any part of the
proposed regulations is held invalid by a court, the remainder would
still be in effect.
Reasons: Each of the proposed provisions discussed in this NPRM
serves one or more important, related but distinct purposes. Each of
the requirements provides value to students, prospective students,
their families, to the public, taxpayers, and the Government, and to
institutions separate from, and in addition to, the

[[Page 45444]]

value provided by the other requirements. To best serve these purposes,
we would include this administrative provision in the regulations to
make clear that the regulations are designed to operate independently
of each other and to convey the Department's intent that the potential
invalidity of one provision should not affect the remainder.
Sec. 668.32 Student eligibility--general.
Statute: Section 484(t)(3) of the HEA establishes Pell Grant
eligibility for confined or incarcerated individuals who are enrolled
in an eligible PEP.
Current Regulations: Under Sec. 668.32, an individual incarcerated
in a Federal or State penal institution is not eligible for a Pell
Grant.
Proposed Regulations: We propose to update the regulations to
reflect that a confined or incarcerated individual would be eligible
for a Pell Grant if enrolled in an eligible PEP.
Reasons: This is a technical update to conform with recent
amendments made to the statute.
Sec. 668.43 Institutional information.
Statute: Section 485(a)(1)(G) of the HEA requires a postsecondary
institution to make certain information readily available to enrolled
and prospective students, including information that accurately
describes the institution's academic program.
Current Regulations: The current regulations at Sec.
668.43(a)(5)(v) require an institution to disclose whether an academic
program would fulfill educational requirements for licensure or
certification if the program is designed to meet, or advertised as
meeting, such requirements. For each State, institutions are required
to disclose whether the program does or does not meet such
requirements, or whether the institution has not made such a
determination.
Proposed Regulations: We propose to add Sec. 668.43(a)(5)(vi),
which would apply if an eligible PEP were designed to meet educational
requirements for a specific professional license or certification that
is required for employment in an occupation (as described in proposed
Sec. 668.236(g) and (h)). In that case, the postsecondary institution
would provide information regarding whether that occupation typically
involves State or Federal prohibitions on the licensure or employment
of formerly confined or incarcerated individuals. The institution would
provide this information for any State for which the institution has
made a determination about such State prohibitions, other than the
State in which the correctional facility is located or the State where
most students are likely to return in the case of a Federal
correctional facility where the institution would already be required
to meet such requirements under proposed Sec. 668.236(g) and (h).
Reasons: The proposed disclosure would provide students with
information that institutions and oversight entities already would have
to collect and report to the Department under other existing and
proposed provisions. Section 484(t)(1)(B)(vi) of the HEA already
requires (and proposed Sec. 668.236(g) would require) that an eligible
PEP satisfy any applicable educational requirements for professional
licensure or certification, including licensure or certification
examinations needed to practice or find employment in the sectors or
occupations for which the program prepares the individual. This
requirement would apply in the State in which the correctional facility
is located or, in the case of a Federal correctional facility, in the
State in which most of the individuals confined or incarcerated in such
facility will reside upon release. Similarly, section 484(t)(1)(B)(vii)
already requires (and proposed Sec. 668.236(h) would require) that an
eligible PEP not offer education that is designed to lead to licensure
or employment for a specific job or occupation in the State if such job
or occupation typically involves prohibitions on the licensure or
employment of formerly confined or incarcerated individuals in the
State in which the correctional facility is located, or, in the case of
a Federal correctional facility, in the State in which most of the
individuals confined or incarcerated in such facility will reside upon
release.
Disclosure of this information to confined or incarcerated students
is critical. According to one analysis of collateral consequences of
incarceration, ``The American Bar Association's inventory of penalties
against those with a record has documented 27,254 state occupational
licensing restrictions.'' \15\ In Minnesota, for example, rules bar
participation by incarcerated students in careers ranging from dental
assistant to server in a restaurant, based on the type of offense.\16\
This issue is further complicated by the diversity of offenses among
the State or Federal prison population, which means some inmates
serving time for the same offense may benefit from a particular PEP,
but others may not, depending on applicable State educational
requirements. By ensuring that institutions provide clear and timely
information on licensure restrictions to students, they would be able
to make more informed decisions about whether to enroll in a particular
PEP. This is especially important because PEPs would use up some
portion of students' lifetime Pell Grant eligibility; if confined or
incarcerated individuals enroll in programs that do not meet their
needs, they would have less remaining Pell Grant eligibility for
another PEP or another postsecondary education program they may wish to
enroll in upon release from a correctional facility.
---------------------------------------------------------------------------

\15\ Stephen Slivinski, ``Turning Shackles into Bootstraps--Why
Occupational Licensing Reform is the Missing Piece of Criminal
Justice Reform'', Center for the Study of Economic Liberty at
Arizona State University. (2016), <a href="https://csel.asu.edu/sites/default/files/2019-09/csel-policy-report-2016-01-turning-shackles-into-bootstraps.pdf">https://csel.asu.edu/sites/default/files/2019-09/csel-policy-report-2016-01-turning-shackles-into-bootstraps.pdf</a>.
\16\ <a href="https://careerwise.minnstate.edu/exoffenders/find-job/jobs-criminal-record.html">https://careerwise.minnstate.edu/exoffenders/find-job/jobs-criminal-record.html</a>.
---------------------------------------------------------------------------

The Department does not propose to require such disclosures for the
State in which the correctional facility is located or the State where
most students are likely to return, because the program approval
process under proposed Sec. 668.236(g) and (h) already ensures the
program satisfies educational standards for licensure or employment in
those locations. With respect to other States' educational requirements
for licensure or employment, institutions would have to provide
information to confined or incarcerated individuals only for States for
which the institution has made a determination about State prohibitions
on the licensure or certification of formerly confined or incarcerated
individuals, in recognition that institutions may not be aware of the
licensure requirements in every State, particularly where they are not
otherwise enrolling students.
Sec. 668.234 Scope and purpose.
Statute: Section 484(t) of the HEA authorizes Pell Grant
eligibility for confined or incarcerated individuals who enroll in a
PEP.
Current Regulations: None.
Proposed Regulations: We propose a new subpart P to part 668 that
sets forth the mechanics and requirements for PEPs. The scope and
purpose in Sec. 668.234 for proposed subpart P confirms that a
confined or incarcerated individual is eligible to receive a Pell Grant
if that individual enrolls in an eligible PEP. We also propose to
clarify that eligible PEPs are subject to proposed subpart P and all
other regulations that otherwise apply to title IV programs.
Reasons: Given the Department's enhanced statutory obligation to
monitor PEPs in the context of administering Pell Grant funds, the
Department proposes to create a new subpart P to part 668. The subpart

[[Page 45445]]

would provide detail and clarity around the establishment and
maintenance of PEPs, as well as applicable operational details and
reporting in a single new subpart, which would aid institutions and
oversight entities in implementing such programs and confined and
incarcerated students in obtaining available benefits.
Sec. 668.235 Definitions.
Statute: There are no statutory definitions of ``advisory
committee,'' ``feedback process,'' ``oversight entity,'' or ``relevant
stakeholders.''
Current Regulations: None.
Proposed Regulations: In Sec. 668.235, the Department proposes to
define several terms that have specific application in the PEP context.
The proposed ``advisory committee'' would be a group established by the
oversight entity that provides nonbinding feedback regarding the
approval and operation of a PEP within the oversight entity's
jurisdiction. We propose to define ``feedback process'' as the process
developed by the oversight entity to gather nonbinding input from
relevant stakeholders regarding the approval and operation of PEPs.
Although the solicitation of input from relevant stakeholders would be
required, use of an advisory committee as part of that process would be
optional. We propose to define ``oversight entity'' as the Federal
Bureau of Prisons or the appropriate State department of corrections or
other entity that is responsible for overseeing correctional
facilities. Finally, we propose to define ``relevant stakeholders'' as
individuals and organizations that provide input to the oversight
entity as part of a feedback process regarding approval and operation
of PEPs. These stakeholders would include, at minimum, representatives
of incarcerated students, organizations representing confined or
incarcerated individuals, State higher education executive offices, and
accrediting agencies, and may include additional stakeholders as
determined by the oversight entity.
Reasons: By statute, an oversight entity is required to determine
whether its PEP is operating in the best interest of the students that
it oversees (see Sec. 668.241). Without this determination, a
postsecondary institution would not be eligible to award a Pell Grant
to a confined or incarcerated individual at a correctional facility.
We propose the term ``oversight entity'' to capture in concept the
longer phrase in section 484(t) of the HEA (``the appropriate State
department of corrections or other entity that is responsible for
overseeing correctional facilities, or . . . the Bureau of Prisons'').
During Subcommittee meetings, members urged the Department to
mandate a feedback process from relevant stakeholders with expertise in
prison education and from confined or incarcerated or formerly confined
or incarcerated individuals, to assist the oversight entity in making
the best interest determination. One Subcommittee member recommended
requiring the oversight entity to engage with a formal advisory
committee. While section 484(t)(1)(A)(ii) and (iii) of the HEA vests
sole authority over the best interest determination in the oversight
entity, the Department and Subcommittee members agreed that input from
relevant stakeholders through a feedback process would be a valuable
addition to the best interest determination, and the full Committee
ultimately reached consensus on this issue. Such feedback would be
nonbinding and need not come from a formal advisory committee. The
Department was concerned that a formal advisory committee process could
introduce delays in the approval of PEPs, particularly because the
Federal Bureau of Prisons is subject to certain Federal requirements
regarding advisory processes when informal feedback could provide
similar value to the oversight entity. For these reasons, the
Department recommended that an advisory committee be an optional
component of the feedback process.
Sec. 668.236 Eligible prison education program.
Statute: Section 484(t) of the HEA authorizes Pell Grants for
confined or incarcerated individuals enrolled in an eligible PEP.
Current Regulations: None.
Proposed Regulations: We propose new Sec. 668.236, which would
establish eligibility, operational, and monitoring requirements for
PEPs. Paragraph (a) would limit the ability to offer PEPs to public or
private nonprofit institutions of higher education or postsecondary
vocational institutions, consistent with the statute. Paragraph (b)
would require that the PEP be offered by a postsecondary institution
that has been approved to operate in a correctional facility by the
oversight entity. Section 484(t)(1)(B)(iii) of the HEA requires the
oversight entity to determine that each PEP is operating in the best
interest of students (see Sec. 668.241); in paragraph (c), the
Department proposes that the oversight entity make this determination
after a two-year period of initial approval. Paragraph (d) would
require that credits earned while enrolled in an eligible PEP transfer
to at least one public, private nonprofit, or vocational institution in
the State in which the facility is located or, for Federal facilities,
the State in which most of the individuals confined or incarcerated in
such facility will reside upon release as determined by the
postsecondary institution with input from the oversight entity.
Paragraph (e) is from section 484(t)(1)(B)(v) of the HEA and would
prohibit an institution from offering a PEP if it has been subject to
certain adverse actions by its accrediting agency or association in the
last five years; those adverse actions are defined to include any
suspension, emergency action, or termination of programs by the
Department, any final adverse action by the institution's accrediting
agency or association (as defined in Sec. 602.3), or any action by the
State to revoke a license or other authority to operate. Paragraph (f)
would impose limits on an institution's ability to offer a PEP if it is
subject to a current adverse action. Paragraph (g) would require an
eligible PEP to satisfy any applicable educational requirements for
professional licensure or certification, including licensure or
certification examinations needed to practice or find employment in the
sectors or occupations for which the program prepares the individual,
in the State in which the correctional facility is located or, for a
Federal facility, in the State in which most of the individuals will
reside upon release. Paragraph (h) would prohibit the eligible PEP from
offering education that is designed to lead to licensure or employment
for a specific job or occupation in the State, or allowing students to
enroll in such programs, if such job or occupation typically involves
prohibitions on the licensure or employment of formerly confined or
incarcerated individuals in the State in which the correctional
facility is located, or, in the case of a Federal correctional
facility, in the State in which most of the individuals confined or
incarcerated in such facility will reside upon release. For both
paragraphs (g) and (h), the institution would be required to make this
determination not less than annually, based on information provided by
the oversight entity. The prohibition would not extend to local laws;
screening requirements for good moral character or similar provisions;
State or Federal laws that have been repealed, even if the repeal has
not yet taken effect or if the repeal occurs between assessments of the
institution of higher education by the oversight entity; or other
restrictions as determined by the Secretary.

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Reasons: As noted above, many of the PEP requirements are drawn
directly from statute. The Department proposes clarifying and
operational regulations to support the effective implementation of the
statute. For example, while the statute requires the oversight entity
to make a ``best interest'' determination, the statute is silent as to
when that determination must be made. The Department proposes to give
the oversight entity two years to make that determination to allow the
oversight entity time to collect the necessary data and make an
informed decision. With respect to the statutory requirement, captured
in proposed paragraph (d), that a PEP in a Federal facility offer
transferability of credit to at least one institution of higher
education in the State in which most of the students will reside upon
release, clarity is needed as to who determines the appropriate State.
A Subcommittee member recommended, and the full Committee 1 agreed,
that the postsecondary institution should determine which State this
should be, based on information provided by the oversight entity. This
is because the postsecondary institution would have the most expertise
on its student population. The same is true for the requirements in
proposed paragraphs (g) and (h), which require institutions offering
programs in Federal facilities to determine whether such programs
satisfy educational, licensure and employment requirements in the State
in which most of the students will reside upon release. Postsecondary
institutions, with input from the oversight entity, would be in the
best position to know about, and adapt their programming to, the
educational, licensure, and employment requirements of various States.
The Department proposes to require institutional decisions under
paragraphs (g) and (h) be made not less than annually, to ensure
educational programming remains current with frequently changing
licensure requirements.
The statute dictates, and the proposed regulations would codify in
paragraph (e), that the postsecondary institution offering the eligible
PEP has not been subject to various adverse actions by the Department,
the accrediting agency, or the State within the last five years. With
respect to accrediting agency action, we propose to draw on a familiar
definition of ``adverse action'' in Sec. 602.3, which includes the
denial, withdrawal, suspension, revocation, or termination of
accreditation or pre-accreditation, or any comparable accrediting
action an agency may take against an institution or program.
Additionally, paragraph (f) would make clear that an institution may
not begin offering a new PEP if the institution's accrediting agency
initiates such adverse action and must submit a teach-out plan to the
accrediting agency after an adverse action is initiated for any PEPs it
already operates. Until a significant action like the ones contained in
Sec. 602.3 is resolved, it would not be in any stakeholder's best
interest for that institution to start a new PEP until the adverse
action has been rescinded or otherwise resolved. If the action is not
rescinded, for example, the school could ultimately face a loss of
accreditation, in which case the PEP would lose eligibility for title
IV aid, students may not be able to complete their programs, and
taxpayers may be forced to bear the costs of restoring Pell Grant
eligibility for the students. The required submission of a teach-out
plan in these cases would provide additional protections for students
to ensure equitable treatment of confined or incarcerated individuals
if the program closes.
Paragraph (h), which outlines prohibitions on enrollment, is based
on the statutory requirement in section 484(t)(1)(B)(vii) of the HEA.
As noted above, the postsecondary institution would make the
determination as to which State most students would reside in upon
release. Proposed paragraphs (h)(1) and (2) would add necessary
guardrails for confined or incarcerated students. A postsecondary
institution should not enroll a student in an eligible PEP if, based on
their conviction, the institution knows prior to enrollment that the
confined or incarcerated individual would not be able to obtain
licensure or employment in the field for which the education is
intended to prepare them and in the State the individual is likely to
live in upon release. In the interest of ensuring that access to
postsecondary education is not overly restricted for confined or
incarcerated individuals, however, the Department in proposed paragraph
(h)(3) clarifies that not all restrictive provisions would bar
enrollment and lists the types of restrictions that would be exempt
from the enrollment prohibition (local laws, for example).
Sec. 668.237 Accreditation requirements.
Statute: Section 484(t) of the HEA authorizes Pell Grants for
confined or incarcerated individuals enrolled in an eligible PEP.
Current Regulations: None.
Proposed Regulations: We propose in Sec. 668.237 that an eligible
PEP must meet the requirements of the institution's accrediting agency
or State approval agency. We further propose that, in order for any PEP
to qualify as an eligible program, the accrediting agency would need to
undertake the following four measures: (1) evaluate at least the first
two additional locations and PEPs being offered there to ensure the
institution's ability to offer and implement the program based on the
agency's accreditation standards, and include it in the institution's
grant of accreditation or pre-accreditation; (2) evaluate the
institution's first additional PEP offered using a new mode of delivery
to ensure the institution's ability to offer and implement the program
based on the agency's standards, and include it in the institution's
grant of accreditation or pre-accreditation; (3) perform a site visit
as soon as practicable but no later than one year after initiating the
PEPs at the first two additional locations; and (4) review and approve
the methodology for how the institution, in collaboration with the
oversight entity, made the determination that the PEP meets the same
standards as substantially similar non-PEP programs at the institution.
Reasons: The requirement that the first PEP at the first two
additional locations be evaluated by the institution's accrediting
agency or State approval agency mirrors the Department's approval
requirement in proposed Sec. 600.10. After the first two programs at
the first two additional locations, an institution's subsequent PEPs
are generally not required to be evaluated by the accrediting agency or
State approval agency unless the accrediting agency or State approval
agency itself has a requirement that all PEPs are evaluated, or the
institution changes the method of delivery. A Subcommittee member
recommended that the Department require that a change in the method of
delivery be evaluated by the accrediting agency or State approval
agency. The Department agreed with this suggestion, at least with
respect to the first such program offered through a different mode of
delivery (such as the first distance education program). This would
allow the Department and accrediting agency to maintain oversight of
PEP program quality in the face of a potentially significant change in
the operations of the program, regardless of whether the institution
already underwent approval at its first two additional locations.
An accrediting agency would be required to perform a site visit at
the first two additional locations offering PEPs, or upon a change in
the modality of the program, due to the unique nature of an eligible
PEP. It is important to

[[Page 45447]]

ensure that programming can be delivered to a confined or incarcerated
individual, which may require different capabilities on the part of an
institution of higher education, and that the programming would provide
a quality education. A site visit would further ensure that the
accrediting agency has adequate opportunity to evaluate the realities
of the program on the ground and ensure that its initial assessment was
appropriate. Under Sec. 602.3(b), site visits required under
circumstances other than PEP evaluation must take place within six
months. The Department recognizes that this may not be practicable due
to the logistics of performing a site visit in a correctional facility;
therefore, we propose in Sec. 668.237(b)(3) to provide an extension to
one full year for the site visit to be conducted.
Finally, a Committee 1 member recommended that the accrediting
agency or State approval agency review and approve the methodology for
how the institution, in collaboration with the oversight entity, made
the determination that the PEP meets the same standards as
substantially similar programs that are not PEPs at the institution.
The Department agreed with this recommendation and adopted it in
paragraph (b)(4). This would provide an additional backstop for the
``best interest determination'' requirements in proposed Sec. 668.241,
some of which would require the oversight entity to ensure that the
services provided to confined or incarcerated individuals are the same
or substantially similar to services provided to other students who are
not confined or incarcerated. Promoting and requiring collaboration
between the institution and oversight entity would ensure confined or
incarcerated individuals get the services afforded to all other
students at the institution, resulting in more equitable access to
postsecondary educational opportunities. It would also provide an
additional guardrail of accreditor evaluation and approval.
Sec. 668.238 Application requirements.
Statute: Section 484(t) of the HEA authorizes Pell Grants for
confined or incarcerated individuals enrolled in an eligible PEP.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 668.238(a) reiterates that the
postsecondary institution would need to seek approval for the first PEP
at the first two additional locations as required under Sec. 600.10.
Paragraph (b) spells out the application requirements for such PEPs.
For all other PEPs not subject to initial approval by the Secretary,
postsecondary institutions would simply be required to submit the
documentation outlined in Sec. 668.238(c). PEPs at any location,
including the first two additional locations, would be required to
adhere to enrollment caps described in Sec. 600.7 and reporting
requirements in Sec. 600.21. Under Sec. 600.20(c)(1), if a
postsecondary institution is provisionally certified to participate in
the title IV programs or that has been notified it must apply for
approval of new programs or locations, the institution cannot add an
additional location or educational program, including a PEP, without
prior approval from the Secretary. The same requirements apply to any
postsecondary institution that receives title IV, HEA program funds
under the reimbursement or cash monitoring payment method, that
acquires the assets of another institution that provided educational
programs at that location during the preceding year and participated in
the title IV, HEA programs during that year, or that would be subject
to a loss of eligibility if it adds that location.
Proposed Sec. 668.238(b) outlines the components of the PEP
application, which would include: (1) A description of the educational
program, including the educational credential offered (degree level or
certificate) and the field of study; (2) Documentation from the
institution's accrediting agency or State approval agency indicating
that the agency has evaluated the institution's offering of one or more
PEPs and has included the program(s) in the institution's grant of
accreditation and approval documentation from the accrediting agency or
State approval agency; (3) The name of the correctional facility and
documentation from the oversight entity that the PEP has been approved
to operate in the correctional facility; (4) Documentation detailing
the methodology including thresholds, benchmarks, standards, metrics,
data, or other information the oversight entity used in making its
determination that the program is operating in the best interest of
students for all indictors under Sec. 668.241, and how such
information was collected; (5) Information about the types of services
offered to admitted students, including orientation, tutoring, and
academic and reentry counseling. If reentry counseling is provided by a
community-based organization that has partnered with the eligible PEP,
institution, or correctional facility to provide reentry services, then
the application would be required to include information about the
types of services offered by the community-based organization; (6)
Affirmative acknowledgement that the Secretary can limit or terminate
approval of an institution to provide a PEP as described in Sec.
668.237; (7) Affirmative agreement to submit the report to the
Secretary as described in Sec. 668.239; (8) Documentation that the
institution has entered into an agreement with the oversight entity to
obtain data about transfer and release dates of confined or
incarcerated individuals, which would be reported to the Department;
and (9) Such other information as the Secretary deems necessary.
Paragraph (c) would require that, for all PEPs that do not require
the Secretary's approval, the postsecondary institution must submit
documentation that it has not been subject to any adverse actions by
its accrediting agency or any action by the State to revoke a license
to operate. The postsecondary institution also would be required to
submit documentation that it has entered into an agreement with the
oversight entity to obtain data on the transfer and release dates of
the confined or incarcerated individuals enrolled in its PEP(s).
Reasons: The Department seeks to ensure that postsecondary
institutions that offer eligible PEPs would be able to comply with the
various statutory and regulatory requirements laid out in proposed
subpart P. Because there likely will not be as many program options for
confined or incarcerated individuals, and because, for some
institutions, offering programming within the context of correctional
facilities will be new, the more extensive up-front review proposed in
Sec. 668.238 would allow us to ensure that the first programs offered
at the first two additional locations will meet applicable standards.
Subsequently, except where the postsecondary institution changes the
method of delivery, the institution would only need to submit
documentation from the accrediting agency or State approval agency at
the State showing that the institution was not subject to various
adverse actions (as described in the proposed regulations section) and
provide an agreement with the oversight entity to obtain transfer and
release data. The latter would be necessary to allow the Department to
calculate and provide information to the oversight entity for use in
its best interest determination (see Sec. 668.241).
We intend to propose a template to assist postsecondary
institutions in submitting applications to the Department. Use of the
template would be voluntary and non-binding, but submission of the
template would fulfill the requirements of the regulation.

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Sec. 668.239 Reporting requirements.
Statute: Section 484(t)(5) of the HEA requires that the Secretary
submit an annual report to Congress regarding PEPs and make that report
publicly available on the Department's website.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 668.239 would require a
postsecondary institution to submit reports as required by a notice the
Secretary publishes in the Federal Register. As in Sec. 668.238,
proposed Sec. 668.239 reiterates that the institution would report
information required by the Secretary regarding transfer and release
dates of confined or incarcerated individuals, through an agreement
with the oversight entity.
Reasons: Section 484(t)(4) and (5) requires postsecondary
institutions and the Secretary to report various information regarding
PEPs. In order to fulfill statutory mandates, the Secretary may need to
collect additional information not identified in the statute. Rather
than dictate these data items through regulation, the Department
proposes to notify institutions of data requirements through notices in
the Federal Register, which would allow the Department to periodically
add, subtract, or modify requests for certain information. Our
experience with the Second Chance Pell experiment has been that
revisions to data collection requirements may be necessary to ensure
the collection of current and accurate data reflective of the
experiences of incarcerated students, to obtain valuable new types of
data that may become available due to statutory or regulatory changes
or changes in recordkeeping practices at prison facilities or
postsecondary institutions, and to address challenges related to data-
sharing or burden that were unanticipated or that have evolved since
establishing the data requirements.
Institutions would be required to enter into an agreement with the
oversight entity to report the transfer or release date of PEP students
so the Department can calculate and provide information to the
oversight entity for use in its best interest determination (see Sec.
668.241). A data-sharing agreement with the oversight entity would
allow the institution, and thus the Department, to calculate data such
as labor market outcomes only for students who are released from the
facility and to avoid measuring those who are still incarcerated in
such measures.
Sec. 668.240 Limit of termination of approval.
Statute: Section 484(t) of the HEA authorizes Pell Grant
eligibility for confined or incarcerated individuals enrolled in an
eligible PEP.
Current Regulations: None.
Proposed Regulations: The proposed regulations would allow the
Secretary to limit or terminate approval of an institution to provide
an eligible PEP if the Secretary determines that the institution
violated any terms of proposed subpart P or determines that the
information the institution submitted to the Secretary, accrediting
agency, State agency, or oversight entity in support of its PEP
application was materially inaccurate.
If the Secretary initiates a limitation or termination action with
respect to an institution's PEP approval, the regulations would also
require the postsecondary institution to submit a teach-out plan as
defined under 34 CFR 600.2 and, if practicable, a teach-out
agreement(s) to the institution's accrediting agency. A teach-out plan
is a written plan developed by an institution that provides for the
equitable treatment of students if an institution, or an institutional
location that provides 100 percent of at least one program, ceases to
operate, or plans to cease operations, before all enrolled students
have completed their program of study. A teach-out agreement is a
written agreement between institutions that provides for the equitable
treatment of students and a reasonable opportunity for students to
complete their program of study if an institution, or an institutional
location that provides 100 percent of at least one program offered,
ceases to operate, or plans to cease operations, before all enrolled
students have completed their program of study.
Reasons: It is necessary for the Secretary to establish in
regulation the ability to remove programs that violate the terms of the
regulations if the basis for approval was materially inaccurate. A
Subcommittee member recommended that the Department add a teach-out
plan requirement and, if practicable, a teach-out agreement(s) for an
initiated limitation or termination action, to ensure proper planning
in the event of a program closure. Confined or incarcerated individuals
should be treated equitably and be provided a reasonable opportunity to
complete their programs through a teach-out in the event that such
programs lose eligibility for the title IV, HEA programs. Teach-out
plans typically include such information as how students should request
official transcripts, alternative options for program completion, and
may include how students may continue their education after being
released from the facility; these elements are critical for students to
have access to in the event their programs close.
Sec. 668.241 Best interest determination.
Statute: Section 484(t) of the HEA authorizes Pell Grant
eligibility for confined or incarcerated individuals enrolled in an
eligible PEP.
Current Regulations: None.
Proposed Regulations: We propose that an oversight entity's
determination that a PEP is operating in the best interest of students
must include an assessment of all of the following:
<bullet> Whether the rate of confined or incarcerated individuals
continuing their education post-release, as determined by the
percentage of students who reenroll in higher education reported by the
Department, meets thresholds established by the oversight entity with
input from relevant stakeholders.
<bullet> Whether job placement rates in the relevant field for such
individuals meet any applicable standards required by the agency that
accredits the institution or program or a State in which the
institution is authorized. If no job placement rate standard applies to
a PEP offered by the institution, the oversight entity would need to
define, and the institution would need to report, a job placement rate
with input from relevant stakeholders.
<bullet> Whether the earnings for such individuals, or the median
earnings for graduates of the same or similar programs at the
institution, as measured by the Department, exceed those of a typical
high school graduate in the State.
<bullet> Whether the experience, credentials, and rates of turnover
or departure of PEP instructors are substantially similar to other
programs at the institution, accounting for the unique constraints of
PEPs.
<bullet> Whether the transferability of credits for courses
available to confined or incarcerated individuals and the applicability
of such credits toward related degree or certificate programs is
substantially similar to those at other similar programs at the
institution, accounting for constraints of PEPs.
<bullet> Whether the PEP's offering of relevant academic and
career-advising services to individuals while they are confined or
incarcerated, in advance of reentry, and upon release, is substantially
similar to offerings to a student who is not a confined or incarcerated
individual and who is enrolled in, and may be preparing to transfer
from, the same institution, accounting for constraints of PEP.

[[Page 45449]]

<bullet> Whether the institution ensures that all formerly
incarcerated students are able to fully transfer their credits and
continue their programs at any location of the institution that offers
a comparable program, including by the same mode of instruction,
barring exceptional circumstances relating to the student's conviction.
We also propose several other assessment items that are important
to assessing program quality, but that would be optional for the
oversight entity:
<bullet> Whether the rates of recidivism, which do not include any
recidivism by the student within a reasonable number of years of
release and which only include new felony convictions as defined by
United States Sentencing Guideline Sec. 4A1.1(a) as ``each sentence of
imprisonment exceeding one year and one month,'' meet thresholds set by
the oversight entity.
<bullet> Whether the rates of completion reported by the
Department, which do not include any students who were transferred
across facilities and which account for the status of part-time
students, meet thresholds set by the oversight entity with input from
relevant stakeholders.
<bullet> Other indicators pertinent to program success as
determined by the oversight entity.
In addition, we propose the following:
<bullet> The oversight entity would make the best interest
determination through a feedback process that considers input from
relevant stakeholders and considers approval of the eligible PEP given
the totality of the circumstances.
<bullet> If the oversight entity does not find a program to be
operating in the best interest of students, it would allow for the
program to re-apply within a reasonable timeframe.
<bullet> The oversight entity initially could approve a PEP without
the required assessments under this section for two years. After the
two years of initial approval under Sec. 668.236, the oversight entity
would need to determine that the PEP is operating in the best interest
of students pursuant to Sec. 668.241.
<bullet> After the oversight entity's initial best interest
determination, the institution would be required to obtain subsequent
final evaluations of each eligible PEP from the responsible oversight
entity not less than 120 calendar days prior to the expiration of each
of the institution's PPAs, except that the oversight entity could make
a determination between subsequent evaluations based on its regular
monitoring and evaluation of program outcomes. Each subsequent
evaluation would include the entire period following the prior
determination, a review of the best interest factors for all students
enrolled in the program, and input from relevant stakeholders through
the oversight entity's feedback process. Subsequent evaluations would
be submitted to the Secretary no later than 30 days after the
evaluation is completed.
<bullet> Finally, we propose that postsecondary institutions would
obtain and maintain documentation of the methodology by which the
oversight entity made each best interest determination, including the
initial approval determination, for as long as the program is active
or, if the program is discontinued, for three years following the date
of discontinuance.
Reasons: The authorizing statute requires the Federal Bureau of
Prisons, a State Department of Corrections, or other entity responsible
for oversight of the correctional facility (referred to as the
``oversight entity'' throughout the preamble) to determine whether a
PEP is operating in the best interest of the students in its
correctional facility. PEPs are unlike most other postsecondary
institutions and programs, where oversight is managed by the
Department, the State, and the institution's accrediting agency, not an
external entity such as a correctional agency. Providing a regulatory
framework for making the determination about the best interests of
students would ensure that the oversight entities, which are generally
new to this role, have adequate direction as to how to implement the
statute, a concern raised by several Subcommittee members. Without
adequate direction, oversight entities may fall short, and students may
be left without the critical protection that Congress envisioned to
ensure that students with fewer educational options--who cannot easily
elect to attend another institution--have access to programs operating
in their best interest.
In paragraph (a)(1), the Department would make clear that the
oversight entity must assess all of the indicators listed in that
section, although the final determination that the program is operating
in the best interest of students would be made based on the totality of
the circumstances of the program. That is, while each indicator would
be assessed, falling short on one or more indicators would not
automatically require the oversight entity to determine the PEP is
ineligible to operate at a correctional facility. Proposed Sec.
668.238 would require an oversight entity to provide documentation for
all of the indicators under Sec. 668.241, detailing its methodology in
reaching a determination that the program is operating in the best
interest of students. The Department would monitor and enforce the
overarching requirement that a PEP operate in the best interest of
confined or incarcerated individuals. Toward that end, we would retain
the authority to terminate approval of the eligible PEP under proposed
Sec. 668.240 if it is determined that the institution violated any
terms of subpart P or that the information the institution submitted to
the Secretary, accrediting agency, State agency, or oversight entity in
support of its application was materially inaccurate.
As required by the statute, paragraph (a)(1)(i) would require an
oversight entity to evaluate continuing education post-release. The
Department's proposed regulation would codify this indicator with
greater specificity and require the oversight entity to establish a
threshold for this metric with input from relevant stakeholders (as
discussed in Sec. 668.235). Establishing a threshold for this measure
upfront would help ensure the oversight entity has adequate processes
in place to make fair, informed, and consistent decisions about whether
PEPs are operating in the best interests of students and would provide
insights to the Department and the public about the processes those
oversight entities are employing. In the interest of reducing the data
collection burden on institutions and oversight entities, we would
provide data on post-release continuation of education by confined or
incarcerated individuals to institutions and oversight entities. We
would also publish aggregate data on post-release education
continuation in our annual report.
The second ``best interest'' determination factor, in paragraph
(a)(1)(ii), would require the oversight entity to consider a job
placement rate measure. This factor is also named in the statute. While
the Department does not currently have an established measure for job
placement rates, we are aware that some accrediting agencies or States
may have policies and procedures regarding the calculation of job
placement rates, and oversight entities could use those existing
calculations where applicable. If no applicable requirements exist,
however, then the oversight entity would need to establish a job
placement rate definition with input from relevant stakeholders, and
the institution would report using that definition.
Paragraph (a)(1)(iii) would require the oversight entity to
consider data regarding whether the median post-release earnings of
graduates of the eligible PEPs are higher than those of a

[[Page 45450]]

typical high school graduate in the State, if available. This is
consistent with the statutory provision that oversight entities may
consider the earnings of formerly confined or incarcerated individuals
from the PEP. It also would help ensure that the typical confined or
incarcerated individual is financially better off after having
completed the PEP than someone with a high school diploma or its
equivalent who did not attend such a program. Subcommittee members
raised concerns that such data would not be readily available.
Accordingly, if the oversight entity does not have data, the Department
would provide median earnings for graduates of the same or similar
programs in order to conduct the proper assessment. Such data are
generally already made available through the College Scorecard, and the
Department is committed to continuing to produce and improve upon those
data.
Proposed paragraphs (a)(1)(iv), (v), and (vi) outline additional
indicators that the oversight entity would be required to assess
related to the faculty, credit transfer, and advising and support
services for incarcerated students in the PEP. All are listed in the
statute. Specifically, we propose to require that the oversight entity
assess whether the experience, credentials, and turnover rates of
instructors (paragraph (a)(1)(iv)), credit transfer (paragraph
(a)(1)(v)), and academic and career advising services (paragraph
(a)(1)(vi)) for the confined or incarcerated individuals in the PEP are
substantially similar to other students at the institution. A
Subcommittee member was concerned that the unique constraints of PEPs
may make it challenging to offer ``substantially similar'' experiences
to PEP students; for example, instructor turnover may be higher in a
correctional facility setting due to background check requirements. The
Department agreed and incorporated that concept into the proposed
regulations by noting that each of these provisions should account
``for the unique geographic and other constraints of prison education
programs.'' As discussed above in connection with proposed Sec.
668.237, the institution's accrediting agency would review and approve
the institution's methodology for making its ``substantially similar''
determinations, which the institution would be required to develop in
collaboration with the oversight entity.
Paragraph (a)(1)(vii) was added based on a recommendation from a
Subcommittee member. There was concern expressed during the
Subcommittee meetings that institutions may enroll confined or
incarcerated individuals into an eligible PEP, but later deny their
eligibility to enroll in an on-campus program post-release, leaving at
least some students potentially unable to complete their educational
programs. The Department agreed that this presents an academic and
equity concern and proposes to require that the oversight entity assess
whether formerly incarcerated students are able to fully transfer their
credits and continue their programs at any location of the institution
that offered the PEP, including by the same mode of instruction, taking
into account any exceptional circumstances related to the student's
conviction, which are typically outside the institution's control. For
example, exceptional circumstances might exist if, as a part of the
terms of the individual's release from a correctional facility, the
formerly confined or incarcerated individual is not permitted to be
within a certain distance of an individual or group of individuals who
are likely to be on the campus where the student wishes to enroll. In
such circumstances, the Department would encourage institutions to work
to identify alternative opportunities for re-enrollment for the
student.
The proposed regulations also would provide three optional ``best
interest'' factors in paragraphs (a)(2)(i), (ii) and (iii) that the
oversight entity may choose to assess in the course of determining
whether the program operates in the best interests of students, namely
the recidivism rates of formerly confined or incarcerated individuals
who attended the PEP; other indicators related to program success that
the oversight entity identifies; and completion rates reported by the
Department to the oversight entity. The recidivism rate assessment in
paragraph (a)(2)(i) is listed in the statute but drew sharp criticism
from the Subcommittee as being challenging to measure and less directly
related to program quality. The Department accordingly proposes
parameters for the consideration of recidivism rates if the oversight
entity opts to review that metric. Specifically, the Department
proposes to exclude recidivism after ``a reasonable number of years of
release,'' and to include only new felony convictions that, as defined
by the U.S. Sentencing Guideline Sec. 4A1.1(a), exceed a sentence of
one year and one month. Since felony definitions and sentence lengths
vary from State to State, we believe that aligning reporting to the
U.S. Sentencing Guidelines will ensure more consistent treatment. These
protections would also minimize the impact of more minor convictions or
sentences, or technical violations such as probation revocations, and
ensure greater uniformity in how recidivism is measured, if the
oversight entity opts to measure it.
Under proposed paragraph (a)(2)(ii), the oversight entity may opt
to assess completion rates as part of the best interest determination.
Completion rates are used by many entities in higher education,
including for consumer information purposes under the HEA; by States
and accrediting agencies in assessing college outcomes; and by
institutions themselves in identifying gaps in performance and
opportunities for continuous improvement. We provide this information
to the public through the College Scorecard, to members of an
accreditation advisory committee, and in many other contexts to support
practitioners' and policymakers' efforts to understand and improve
institutional outcomes. The Federal government also invests billions
each year in programs designed to increase postsecondary completion
rates. Some subcommittee members were concerned with adding any metrics
not explicitly mentioned in the statute as a required consideration for
the oversight entity; and noted potential challenges with ensuring
completion for incarcerated students who, for instance, are transferred
across prison facilities and unable to continue their program. Thus,
while the Department continues to feel strongly that this measure would
add value to the oversight entity's assessment of prison education
programs, we agreed to make it an optional, rather than a required,
consideration for the purposes of reaching consensus. With this
inclusion, the Department would analyze completion rates of eligible
PEPs and provide that information to Congress and the public as
required in section 484(t)(5)(A)(viii), which requires the Department
to report on the impact of expanding Pell Grant eligibility to confined
or incarcerated individuals and which specifically requires reporting
on academic outcomes such as credential and degree completion.
In proposed paragraph (a)(2)(iii), the Department would permit
oversight entities to identify and consider other measures of program
success in the best interest determination, beyond those specified in
the statute and regulations. We believe that a collateral benefit of
the stakeholder feedback processes that are required of oversight
entities may be the suggestion of additional metrics, particularly
those important to

[[Page 45451]]

incarcerated students and their advocates.
Paragraph (b), which would require the oversight entity to solicit
feedback and explain how to make the best interest determination, is
already described in this section of the preamble and in Sec. 668.235.
As previously stated, these proposed ``best interest'' factors would be
part of a holistic assessment of the institution's ability to operate
in the best interests of students and would not be pure eligibility
requirements.
A Subcommittee member recommended that the regulations establish an
appeal process for programs that the oversight entity determines are
not operating in the best interest of students. While the Department
does not believe it is appropriate to prescribe a specific appeal
process for use by external agencies, we incorporated the suggestion by
proposing in paragraph (c) that oversight entities permit institutions
that were not found to be operating in the best interests of students
to reapply within a reasonable timeframe.
The oversight entity would always have to approve the operation of
an eligible PEP at a correctional facility that it oversees. However,
in paragraph (d), we propose to provide two years before the oversight
entity would need to make a formal ``best interest determination.''
As discussed in Sec. 668.236, it would take time for the
postsecondary institution, the Department, and the oversight entity to
collect the necessary data to make an informed decision based on the
indicators. The two-year timeframe would ensure students receive the
protections of the best interest framework in a timely manner, while
recognizing the need for some time to gather the necessary information
to meet the statutory requirement for a data-informed decision by the
oversight entity.
In paragraph (e), the Department proposes that any reassessment of
an eligible PEP by the oversight entity be conducted at least 120 days
prior the expiration of the institution's PPA to ensure the assessment
is complete and available by the time we review the institution's
application for recertification. Reassessment is important to ensure
that eligible PEPs continue to operate in the best interests of
confined or incarcerated individuals. This timeframe would ensure that
institutions' determination dates are staggered, based to an extent on
the risk of the institution (since higher-risk institutions will have
shorter recertification timelines than lower-risk institutions), and
that determinations are available to the Department when the agency is
making its own assessment of the institution for title IV purposes.
The records retention described in paragraph (f) is necessary for
oversight and review purposes.
Sec. 668.242 Transition to a prison education program.
Statute: Section 484(t) of the HEA authorizes Pell Grant for
confined or incarcerated individuals enrolled in an eligible PEP.
Current Regulations: None.
Proposed Regulations: The Department proposes that, for
institutions operating eligible PEPs in a correctional facility that is
not a Federal or State correctional facility, a confined or
incarcerated student who otherwise meets the eligibility requirements
to receive a Pell Grant and is enrolled in an eligible program that
does not meet the requirements under subpart P would continue to
receive a Pell Grant until the earlier of July 1, 2029; the date the
student reaches the maximum timeframe for program completion as defined
under Sec. 668.34; or the date the student exhausts Pell Grant
eligibility as defined under Sec. 690.6(e).
We propose that an institution cannot enroll a confined or
incarcerated student on or after July 1, 2023, who was not enrolled in
an eligible program prior to July 1, 2023, unless the institution first
converts the eligible program into an eligible PEP as defined in Sec.
668.236.
Reasons: This proposed regulation does not apply to the Second
Chance Pell experiment under the Experimental Sites Initiative, for
which an end date has not yet been determined. The Department will
release subregulatory guidance for institutions participating in the
Second Chance Pell Experiment.
Instead, this section of the proposed regulations is focused on
incarcerated students enrolled in educational programming in
correctional facilities that is not currently subject to the
prohibition on Federal Pell Grants. As previously noted, the statute
and regulations currently prohibit students confined or incarcerated in
a State or Federal correctional facility from access to Pell Grants
(outside of the Second Chance Pell experiment). Programs operating in
correctional facilities other than State or Federal correctional
facilities are currently eligible, however. For example, currently, a
proprietary institution may be operating an eligible program in a local
jail or juvenile justice facility, and students may be accessing Pell
Grants for that program. On July 1, 2023, the statute will require all
confined or incarcerated individuals pursuing postsecondary education
to enroll in an eligible PEP at a public, private nonprofit, or
vocational institution to access Pell Grants; at that time, therefore,
an individual enrolled in any program at a proprietary institution
would be ineligible for a Pell Grant.
The Department does not want to interrupt a student's enrollment in
a program; therefore, we propose limited flexibility, discussed in the
proposed regulations section, to allow current students to finish their
programs if those programs do not align with final PEP regulations that
may be in effect on July 1, 2023 (or before that time if the
regulations are implemented early). Under the proposed regulations, any
such flexibility would end on July 1, 2029, which would be the final
date a confined or incarcerated individual would be able to receive a
Pell Grant in a program that is not an eligible PEP. This provides six
years from the effective date of the authorizing statute for current
students to either finish their programs or enroll in an eligible PEP,
similar to the maximum timeframe to complete a four-year program as
defined in Sec. 668.34(b).
Sec. 690.62 Calculation of a Federal Pell Grant.
Statute: The Consolidated Appropriations Act, 2021 amended section
401(b)(3) of the HEA to require that no Pell Grant exceed the cost of
attendance (as defined in section 472 of the HEA) at the postsecondary
institution at which that student is in attendance. If, with respect to
any student, it is determined that the amount of a Pell Grant for that
student exceeds the cost of attendance for that year, the amount of the
Pell Grant must be reduced until the Pell Grant does not exceed the
cost of attendance at such postsecondary institution.
Current Regulations: None.
Proposed Regulations: We propose to add paragraph (b)(1)(i) to
Sec. 690.62 to codify in regulation that a Pell Grant cannot exceed
the cost of attendance. In proposed Sec. 690.62(b)(1)(ii), we propose
that the postsecondary institution must reduce the Pell Grant award if
the amount exceeds cost of attendance so that it does not result in a
credit balance as defined under Sec. 668.164(h).
The Department is aware that confined or incarcerated individuals
may receive other financial assistance in addition to a Pell Grant. In
Sec. 690.62(b)(2)(i), we propose that, if the Pell Grant exceeds the
student's cost of attendance when combined with other financial
assistance, the financial assistance other than the Pell Grant must be
reduced by the amount by which the total financial assistance

[[Page 45452]]

exceeds the student's cost of attendance. Finally, we propose Sec.
690.62(b)(2)(ii) to require that the Pell Grant be reduced to not
exceed the cost of attendance if the confined or incarcerated
individual's other financial assistance cannot be reduced.
Below are examples of how the calculation of a student's Pell Grant
awards and lifetime eligibility is affected by the proposed
regulations. The Pell amounts in the examples are based on the 2021-
2022 Federal Pell Grant Payment and Disbursement Schedule.
Jerry, Sam, Amy, Paul, and Eliza are enrolled at the University of
ABC in an eligible PEP in General Studies that leads to an associate
degree. The eligible PEP is a standard term program with one fall and
one spring payment period. Their COA for the program is $6,495.
A. Jerry attends the institution as a full-time student for the
full award year. Jerry has an expected family contribution (EFC) of $0.
Jerry's Pell Grant scheduled award is $6,495 (maximum award for the
2021-22 award year). Jerry also gets a Veteran's Administration (VA)
education and training benefit of $5,495 that, by law, cannot be
reduced. Jerry's total award is now $11,990 for the year.
Under current Sec. 690.63(b), if Jerry were not incarcerated, he
would receive $3,247.50 for the fall payment period and $3,247.50 for
the spring payment period (totaling $6,495). However, under proposed
Sec. 690.62(b)(2)(ii), the University of ABC would reduce Jerry's
$6,495 Pell award to $1,000 so that the combination of the student's
Pell Grant and VA education and training benefit does not exceed
Jerry's COA. The University of ABC would determine this by subtracting
$11,990-$6,495 (Jerry's COA) which is $5,495 above Jerry's COA. Then
University of ABC would subtract the amount above Jerry's Pell award
from Jerry's original award ($6,495-$5,495), leaving $1,000 in Pell.
The University of ABC would pay Jerry $500 for the fall payment period
and $500 for the spring payment period. Jerry begins attendance in all
coursework and maintains full-time enrollment status for the entire
award year. Jerry's lifetime eligibility used (LEU)--defined in Sec.
690.6(e)--increases by ($1,000/$6,495) = 15.3964 percent.
B. Sam also attends as a full-time student for the full award year.
Sam has an EFC of 0. Sam's Pell Grant scheduled award is $6,495
(maximum award for the 2021-22 award year). Sam receives no other
financial assistance. Sam receives $3,247.50 for the fall payment
period and $3,247.50 for the spring payment period. Sam begins
attendance in all coursework and maintains full time status for the
entire award year. Sam's LEU increases by ($6,495/$6,495) = 100 percent
for the year.
C. Amy attends the institution as a half-time student for the full
award year. Amy has an EFC of $3,000. Amy's Pell Grant award is $1,773
because Amy's enrollment status is half-time. Amy's maximum Pell award
(the scheduled award) would be $3,545 if she attended full-time for the
full year. Amy qualifies for an institutional scholarship from
University of ABC for $5,000.
Per the proposed Sec. 690.62(b)(2)(i), the University of ABC
decides to reduce Amy's institutional scholarship by $278 so that the
combination of the student's Pell Grant and scholarship does not exceed
Amy's COA. Because Amy's Pell Grant award was not reduced, Amy would
receive $886.50 for the fall payment period and $886.50 for the spring
payment period.
Amy begins attendance in all coursework and maintains half-time
enrollment status for the entire award year. Amy's LEU would increase
by ($1,773/$3,545) = 50.0141 percent. This is because Amy's scheduled
award (the amount Amy would have received if Amy attended full-time for
the full year) is $3,545.
D. Paul attends as a three-quarter-time student for the full award
year. Paul has an EFC of $2,000.
Paul's Pell award is $3,409 for the year because his enrollment is
three-quarter time. Paul's maximum Pell award (the scheduled award)
would be $4,545 if he attended full-time for the full year. Paul also
receives a State grant for $4,000. State law does not permit the State
to reduce Paul's grant. This brings Paul's total aid to $7,409 for the
year.
Paul would receive $1,704.50 for the fall payment period and
$1,704.50 for the spring payment period. However, per the proposed
Sec. 690.62(b)(2)(ii), the University of ABC would reduce Paul's Pell
award by $914 so that the combined amount of the Pell Grant and State
grant would not exceed Paul's COA. The University of ABC would
determine this by subtracting $7,409-$6,495 (Paul's COA), which is $914
above Paul's COA. Then University of ABC would subtract the amount
above Paul's Pell Grant award from Paul's original award ($3,409-$914)
leaving Paul $2,495 in Pell funds. The University of ABC would pay Paul
$1,247.50 for the fall payment period and $1,247.50 for the spring
payment period.
Paul begins attendance in all coursework and maintains three
quarter enrollment status for the entire award year. Paul's LEU would
increase by ($2,495/$4,545) = 54.8954 percent.
E. Eliza plans to attend as a half-time student in the fall payment
period and full-time in the spring payment period. Eliza has an EFC of
$500.
Eliza's Pell Grant disbursement amount for the fall payment period
is $1,511.50 and $3,022.50 for the spring payment period. This is
because Eliza attended half-time for the fall and full-time for the
spring. Eliza's maximum Pell award (the Scheduled Award) would be
$6,045 if she attended full-time for the full year. Eliza also receives
a scholarship of $3,000 from an outside provider toward Eliza's
educational expenses that cannot be reduced. This brings Eliza's total
aid to $7,534 for the year.
Per the proposed Sec. 690.62(b)(2)(ii), the University of ABC
would reduce Eliza's Pell Grant award by $1,039 so that the combined
amount of Pell Grant and other scholarship assistance would not exceed
Eliza's COA. The University of ABC would determine this by subtracting
$7,534-$6,495 (Eliza's COA), which is $1,039 above Eliza's COA. Then
University of ABC would subtract the amount above from Eliza's total
award for the year ($4,534-$1,039), leaving Eliza $3,495 in Pell funds.
The University of ABC would pay Eliza $992 for the fall payment period
and $2,503 for the spring payment period. Eliza's LEU would increase by
($3,495/$6,045) = 57.8163 percent.
Reasons: This is a technical update to ensure that the amount of
Pell Grant funds that a confined or incarcerated student receives,
combined with other types of educational assistance, would not exceed
that student's educational expenses for tuition, fees, books, and
supplies, which are the only items that may be included in such a
student's cost of attendance under section 472 of the HEA.
Sec. 690.68 Severability.
Statute: None.
Current Regulations: None.
Proposed Regulations: Proposed Sec. 690.68 would make clear that,
if any part of the proposed regulations is held invalid by a court, the
remainder would still be in effect.
Reasons: Each of the proposed provisions discussed in this NPRM
serves one or more important, related, but distinct, purposes. Each of
the requirements provides value to students, prospective students, and
their families, to the public, taxpayers, and the Government, and to
institutions separate from, and in addition to, the value provided by
the other requirements. To best serve these purposes, we would include
this administrative provision in the regulations to make clear that the

[[Page 45453]]

regulations are designed to operate independently of each other and to
convey the Department's intent that the potential invalidity of one
provision should not affect the remainder of the provisions.

90/10 Rule (34 CFR 668.28)

Sec. 668.28 Definition of the revenue requirement for proprietary
institutions of higher education.
Statute: Section 487(a)(24) of the HEA, as amended by the ARP,
states that proprietary institutions must derive at least 10 percent of
their revenue from non-Federal sources, and section 487(d) provides
details on how proprietary institutions must calculate the percentage
of their revenue from non-Federal sources.
Current Regulations: The current regulations provide that a
proprietary institution must derive at least 10 percent of its revenue
from sources other than title IV, HEA program funds.
Proposed Regulations: Proposed Sec. 668.28(a)(1) would change the
terminology from non-title IV revenue to non-Federal revenue and title
IV funds to Federal funds.
Reasons: This proposed change in the regulatory language would
reflect the change in the statutory language to ``non-Federal''
sources.
Sec. 668.28(a)(1) Calculating the revenue percentage.
Statute: Section 487(a)(24) of the HEA states that proprietary
institutions must derive no less than 10 percent of their revenue from
non-Federal sources as calculated according to section 487(d) of the
HEA. Prior to passage of the ARP, the HEA only used title IV revenue
from the Department when calculating compliance with the 90/10 rule.
The ARP amended these sections to require proprietary institutions to
include other sources of Federal revenue, in addition to title IV
revenue from the Department, in the calculation that proprietary
institutions make to determine if they are in compliance with the 90/10
rule.
Current Regulations: Current Sec. 668.28(a)(1) provides that
proprietary institutions must determine if they meet the requirement in
Sec. 668.14(b)(16) that at least 10 percent of their revenue is
derived from non-title IV sources by using the formula laid out in
Appendix C of subpart B.
Proposed Regulations: The Department proposes to add language to
Sec. 668.28(a)(1) detailing how proprietary institutions would
calculate the revenue percentage. Paragraph (a)(1)(i) would provide
that proprietary institutions with fiscal years beginning on or after
January 1, 2023, must count title IV, HEA program funds and any other
education assistance funds provided by a Federal agency directly to an
institution or a student during that fiscal year, including the Federal
portion of any grant funds provided or administered by a non-Federal
agency, to cover tuition, fees, and other institutional charges as
Federal revenue in the revenue calculation. It would also exclude from
the revenue percentage calculation Federal funds for that fiscal year
that are non-title IV Federal funds that go directly to a student and
are specifically designated by the Federal agency providing those funds
to cover expenses other than tuition, fees, and other institutional
charges. Additionally, it would provide that the Secretary will
identify the agency and Federal assistance funds that must be included
in the revenue calculation in a Federal Register notice that will be
updated as needed. Section 668.28(a)(1)(ii) proposes that Federal funds
subject to the 90 percent limitation be limited to title IV, HEA
program funds for any fiscal years beginning prior to January 1, 2023.
Finally, we propose to update Appendix C to reflect the other changes
proposed to the 90/10 calculation as additional guidance to accountants
and auditors.
Reasons: The Department proposes to differentiate requirements for
calculating the revenue percentage for fiscal years beginning before
January 1, 2023, and those occurring on or after that date to
grandfather in existing calculations in compliance with the ARP
modifications to the HEA. The ARP specifies that the earliest the
modification to the revenue requirement for proprietary institutions
could apply to would be for institutions' fiscal years beginning on or
after January 1, 2023.
Similarly, the Department proposes to include any Federal funds
distributed directly to a student or proprietary institution to cover
the cost of tuition, fees, and other institutional charges in the
calculation of Federal funds in fiscal years beginning on or after
January 1, 2023. This proposed change would implement the new statutory
language in section 487(a)(24) of the HEA, which provides that the
revenue percentage must count Federal funds that are disbursed or
delivered to or on behalf of a student to be used to attend such
institution. The Department proposes to only count Federal education
assistance funds that are designated by a Federal agency to be used to
pay tuition, fees, and other institutional charges as Federal revenue
to reflect the statutory language related to funds that are ``used to
attend the institution.''
During the negotiated rulemaking sessions, some non-Federal
negotiators raised the concern that it would be difficult for
proprietary institutions to include Federal funds that go directly to
students, as the institutions may not be aware of what funds to include
in the revenue calculation. Nonetheless, most non-Federal negotiators
agreed that proprietary institutions should include these funds in the
calculation. In the proposed regulations, the Department expects that
proprietary institutions would report any Federal revenue that they are
aware of in their 90/10 calculation, unless those funds were provided
to a student who did not pay any institutional charges. To address the
concern that proprietary institutions may not be aware of all sources
of Federal revenue, the Department proposes to publish in the Federal
Register a list of Federal education assistance programs that
proprietary institutions must include as Federal revenue, and
proprietary institutions would be considered to be aware of any Federal
funds included on this list when determining the Federal sources of
revenue they receive. The Department expects that proprietary
institutions would make a good-faith effort to collect information
about Federal funds distributed to students in instances where agencies
do not provide this information or make it readily available to
institutions. The Department would publish subsequent Federal Register
notices if it identified additional Federal education assistance
programs to add to the list in subsequent years or if it needs to
remove defunct programs. During negotiations, some non-Federal
negotiators advocated for the Department to publish a list of programs
to the Federal Register annually to ensure that the list was kept up-
to-date. However, the Department has observed that, generally, the
sources of Federal funds for proprietary institutions do not vary much
from year to year. Thus, the Department believes it would be more
appropriate to publish one list and update as necessary.
One negotiator raised a concern about how proprietary institutions
would count funds from programs that the Secretary added to the notice
midway through a proprietary institution's fiscal year. To be
responsive to this concern, proprietary institutions would only need to
include revenues from new Federal sources when those funds paid for
institutional costs for the fiscal year starting after the Federal
program has been identified on the published list.
Sec. 668.28(a)(2) Disbursement rule.
Statute: Section 487(d) of the HEA provides that proprietary
institutions must perform the 90/10 revenue calculation using cash
basis accounting,

[[Page 45454]]

with the exception of certain institutional loans issued between 2008
and 2012 as described in section 487(d)(1)(D)(i) of the HEA.
Current Regulations: Current Sec. 668.28(a)(2) is titled ``Cash
basis accounting'' and mandates that proprietary institutions use cash
basis accounting to calculate their 90/10 percentage, with the
exception of certain institutional loans issued between 2008 and 2012
as described in Sec. 668.28(a)(5)(i).
Proposed Regulations: Proposed Sec. 668.28(a)(2) would maintain
existing regulations regarding proprietary institutions' use of cash
basis accounting to calculate their revenue percentage and would also
specify that proprietary institutions must include Federal funds used
to pay tuition, fees, and other institutional charges that were
provided either directly to the institution or paid by a student who
received Federal funds.
The Department also proposes to add regulatory language creating a
disbursement rule and change the name of the section to ``Disbursement
rule.'' The disbursement rule would create a deadline for title IV, HEA
program disbursements for a proprietary institution's 90/10
calculation. Specifically, the proposed regulations would require
proprietary institutions requesting title IV, HEA funds using the
advanced payment method (Sec. 668.162(b)(2)) or the heightened cash
monitoring method (Sec. 668.162(d)(1)) to request and disburse any
funds to an eligible student before the end of the proprietary
institution's fiscal year. In the proposed regulations, proprietary
institutions requesting title IV, HEA program funds under the
reimbursement or heightened cash monitoring methods in Sec. 668.162(c)
or (d)(2) would be required to make timely disbursements pursuant to
Sec. 668.164 to student accounts before the end of their fiscal years
and report the funds that were disbursed to the student accounts as
Federal funds in the 90/10 calculations.
Reasons: The Department proposes to maintain the current
requirement that proprietary institutions use cash-basis accounting to
match statutory requirements. The Department also proposes that
proprietary institutions consistently and accurately count the amount
of Federal funds they receive in a fiscal year through a requirement
recognizing the timely disbursements to student accounts as the payment
of title IV funds, even when it is the institution advancing those
funds to later be reimbursed by the Department. The intent, in part, is
to clearly outline how proprietary institutions would implement the
changes to the Federal revenue calculation. We believe this additional
clarity would be needed given that calculating the Federal revenue
portion of the 90/10 calculation would require the inclusion of more
sources of Federal funds than proprietary institutions may be
accustomed to tracking in their financial accounting systems.
Additionally, the Department proposes to define title IV, HEA
program funds and Federal funds that count as Federal revenue in the
90/10 calculation as funds ``used to pay tuition, fees, and other
institutional charges.'' Some non-Federal negotiators suggested that
the Department include Federal funds for housing, while other non-
Federal negotiators supported defining Federal funds as we have
proposed. The Department proposes to use this definition to align with
the statutory language that Federal funds ``will be used to pay the
student's tuition, fees, or other institutional charges.'' \17\ We
propose to clarify here that, to the extent another Federal agency has
designated payments to a student for housing and the student is not
paying the institution for housing, those funds would not count as
payments to an institution.
---------------------------------------------------------------------------

\17\ Public Law 89-329.
---------------------------------------------------------------------------

Finally, the Department proposes to require proprietary
institutions to make timely disbursements of title IV, HEA program
funds to eligible students by the end of the fiscal year to prevent
proprietary institutions from delaying disbursements to the next fiscal
year as a means of reducing the Federal funds that would be included in
the 90/10 calculation for the earlier fiscal year. Per the HEA,
proprietary institutions must use cash basis accounting to calculate
90/10. Because this form of accounting counts revenues when the
institution actually receives the funds, proprietary institutions can
reduce their Federal revenue percentages for one fiscal year by
delaying the requests and disbursements of title IV, HEA program funds
to students until after the start of the next fiscal year. Through
reviews of some 90/10 calculations and audit workpapers, the Department
has found that some proprietary institutions have delayed disbursements
at the end of one fiscal year until the next as a way to avoid failing
90/10 for a second consecutive year, which failure could result in
losing title IV, HEA program eligibility. Under this maneuver, the
delayed disbursements were instead counted in the next fiscal year,
where the proprietary institution might fail the 90/10 requirement but
remained eligible due to the passing 90/10 score for the intervening
fiscal year. To preserve the statutory intent of the 90/10 rule, the
Department believes that it is necessary to create guardrails
preventing proprietary institutions from gaming the revenue
calculation.
Proprietary institutions currently have the discretion to set up
disbursement timelines that are consistent with regulatory
requirements. These proposed regulations are not intended to--and would
not--limit a proprietary institution's flexibility in this area.\18\
One negotiator raised the concern that the end of a fiscal year could
coincide with the beginning of a semester or term, creating a situation
in which it is impossible for a proprietary institution to disburse all
funds before the end of the fiscal year. The Department does not intend
for these proposed regulations to change proprietary institutions'
timely disbursement policies in this situation. In these instances, the
Department would evaluate whether a proprietary institution made timely
disbursements and consider whether the proprietary institution deviated
from its standing disbursement policies or created disbursement
policies for the purpose of impacting the 90/10 revenue calculation.
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\18\ 34 CFR 668.164.
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Sec. 668.28(a)(3) Revenue generated from programs and activities.
Statute: Section 487(d) of the HEA provides that proprietary
institutions may count in their 90/10 calculation funds generated from
activities conducted by the institution that are necessary for the
education and training of the institution's students as non-Federal
revenue.
Current Regulations: Current Sec. 668.28(a)(3) provides that
institutions must count as non-Federal revenue funds generated from:
(1) tuition, fees, and other institutional charges for students
enrolled in eligible programs; (2) activities conducted by the
institution that are necessary for the education and training of its
students; and (3) funds paid by a student, or on behalf of a student by
a party other than the institution, for an ineligible program as long
as the program meets certain criteria.
Proposed Regulations: The regulations in proposed Sec.
668.28(a)(3) would add a requirement that activities conducted by the
institution necessary for the education and training of its students
must be related directly to services performed by students for the
revenue to be counted in 90/10. Additionally, the proposed regulations
would modify the criteria for revenue

[[Page 45455]]

generated from programs ineligible for title IV, HEA program funds
required to be included as non-Federal revenues. Specifically, the
proposed regulations would add a requirement that these funds be paid
by a student or on behalf of a student by a party unrelated to the
institution, an institution's owners, or affiliates. Additionally, for
a proprietary institution to count revenue generated from an ineligible
program, the proposed regulations would require that the ineligible
program: (1) not include any courses offered in a program eligible for
title IV, HEA program funds; (2) be provided by the institution and
taught by one of its instructors of an eligible program; and (3) be
located at its main campus, one of its approved additional locations, a
location approved by the appropriate State agency or accrediting
agency, or an employer facility. Furthermore, the proposed regulations
would provide that the proprietary institution may not count revenue
generated from an ineligible program where it only ``provides
facilities or test preparation courses, acts as a proctor, or oversees
a course of self-study.'' Finally, the proposed regulations would no
longer include funds generated from an ineligible program that simply
prepares students to take an examination for an industry-recognized
credential or certification issued by an independent third party as
allowable non-Federal revenue; such programs must provide the industry-
recognized credential or certification in order to be included as
revenue.
Reasons: The Department proposes to require funds generated from
activities conducted by the institution that are necessary for the
education and training of its students to also be related directly to
services performed by students in order to be counted as non-Federal
funds in the 90/10 calculation. The Department understands that certain
programs require students to undertake specific activities to complete
their program, such as providing hair-styling services for a
cosmetology program, and those activities may generate allowable non-
Federal funds. However, the Department wants to ensure that the revenue
generated from these activities would be directly related to the
services the students perform and that proprietary institutions are not
including revenues from tangential activities indirectly related to the
services the students provide, such as the proceeds from the sale of
beauty products to customers receiving services from students in a
cosmetology program.
Further, the Department also believes it is necessary to provide
additional guardrails for which funds generated from ineligible title
IV, HEA programs can count as non-Federal aid for the purposes of 90/
10, as proposed in Sec. 668.28(a)(3)(iii). Title IV, HEA eligible
programs have built-in consumer protection mechanisms, including
accreditation by an accrediting agency and State authorizing agency.
Ineligible programs do not have any of these protections and may not
have any guarantee of value for the student. Given the other proposed
changes to the 90/10 calculation, the Department is concerned that
proprietary institutions may have an increased incentive to create
ineligible programs, with little oversight and that may not serve
students well, to generate non-Federal revenue for 90/10. By
establishing minimum benchmarks for the revenue from non-eligible
programs that institutions may include in the calculation, the
Department wishes to discourage such activity.
As a guardrail, the proposed Sec. 668.28(a)(3)(iii) would clarify
that for a proprietary institution to count the funds as non-Federal
revenue in 90/10, funds paid on behalf of a student must come from a
source unrelated to the institution, its owners, or affiliates. Funds
coming from the institution, its owners, or its affiliates are not
sources ''other than the institution.'' \19\ For this reason, the
Department proposes to clarify that funds from these sources do not
count as non-Federal revenue for purposes of 90/10.
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\19\ Public Law 89-329, as amended.
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As an additional guardrail, proposed Sec. 668.28(a)(3)(iii) would
allow proprietary institutions to count funds as non-Federal revenue
only for programs that: (1) do not include any courses offered in an
eligible program that is provided by the institution; (2) are taught by
one of its instructors of an eligible program; and (3) are located at
its main campus, one of its approved additional locations, a location
approved by the State agency or accrediting agency, or at an employer
facility. As mentioned, the Department is interested in ensuring that
proprietary institutions are not creating programs that are not aligned
with the institution or programs the proprietary institution offers and
that have little to no oversight to boost its non-Federal revenue in
its 90/10 calculation. The Department worked with negotiators to
develop consensus language in proposed Sec. 668.28(a)(3)(iii) that
allows proprietary institutions flexibility to offer programs more
likely to provide value to students due to built-in consumer protection
mechanisms--such as those that have been approved by an accreditor or
the relevant State agency, those leading to an industry-recognized
credential or certification, or those needed for students to maintain
or meet additional State licensing requirements--while limiting non-
Federal funds included in the 90/10 calculation that are generated from
programs with little oversight or consumer protection mechanisms.
The guardrails in Sec. 668.28(a)(3)(iii) were created based on
negotiations with non-Federal negotiators and are intended to provide
proprietary institutions with the flexibility to count funds from
ineligible programs that help students, such as those provided
specifically for employees at an employer facility, while balancing
protections for students against incentivizing proprietary institutions
from creating programs with little oversight to generate non-Federal
funds. However, the Department continues to have concerns that allowing
institutions to count funds from these programs may serve as an
incentive for proprietary institutions to create and market ineligible
programs--which lack oversight or consumer protections or may be
unrelated to preparing students for gainful employment--to increase the
amount of non-Federal funds institutions receive for gainful employment
programs in a fiscal year. The Department seeks feedback about how to
provide flexibility to proprietary institutions to offer ineligible
programs that provide value to students while ensuring that revenues
from those programs is related to the institution's eligible programs
that are subject to the 90/10 revenue requirement. The Department also
seeks feedback on appropriate mechanisms to ensure that these
opportunities to generate non-Federal funds are adequately monitored to
identify institutions that may be passing the 90/10 requirements as a
result of such programs.
Additionally, proposed Sec. 668.28(a)(3)(iii) would disallow
revenue from ineligible programs where the proprietary institution
primarily provides facilities for test preparation courses, acts as a
proctor, or oversees a course of self-study or prepares students to
take an examination for an industry-recognized credential or
certification issued by an independent third party. The Department does
not believe that the institution providing facilities, acting as a
proctor, or overseeing a course of self-study represents the
proprietary institution providing training or education. Additionally,
the Department proposes to disallow revenue from programs where the
proprietary institution prepares students

[[Page 45456]]

to take an examination for an industry-recognized credential or
certification issued by an independent third party because the
Department does not believe that these programs represent new education
and training, but rather review material. Further, the Department
believes that high-quality programs of study generally prepare students
to take an examination for the relevant credential or certification. It
therefore does not want to inadvertently incent institutions to lower
the quality of these programs by the institution requiring students to
take an additional test preparation course in addition to the original
program of study to be able to pass the exam for a relevant
certification or credential in order to increase its non-Federal
revenue.
Sec. 668.28(a)(4) Application of funds.
Statute: Section 487(d)(1)(C) of the HEA, as amended, provides that
proprietary institutions will presume that any Federal education
assistance funds that are disbursed or delivered to, or on behalf of, a
student will be used to pay the student's tuition, fees, or other
institutional charges. It provides exceptions in instances where a
student's charges are satisfied by other payments, including: (1) grant
funds provided by non-Federal public agencies or private sources
independent of the institution; (2) funds provided under a contractual
arrangement with a Federal, State, or local government agency to
provide job training to low-income individuals; (3) funds used by a
student that come from a savings plan for education expenses that
qualify for special tax treatment under the Internal Revenue Code of
1986; or (4) institutional scholarships from outside sources.
Current Regulations: Current Sec. 668.28(a)(4) provides that a
proprietary institution must presume that any title IV, HEA program
funds it disburses, or delivers to or on behalf of a student, will be
used to pay the student's tuition, fees, or institutional charges,
except to the extent that those charges are covered by: (1) grant funds
provided by non-Federal public agencies or private sources independent
of the institution; (2) funds provided under a contractual arrangement
with a Federal, State, or local government agency for the purpose of
providing job training to low-income individuals; (3) funds used by a
student from a savings plan for education expenses established by or on
behalf of the student if the plan qualifies for special tax treatment
under the Internal Revenue Code of 1986; or (4) institutional
scholarships that meet specific requirements and are counted as revenue
generated from institutional aid for the purposes of the 90/10
calculation.
Proposed Regulations: Proposed Sec. 668.28(a)(4) would maintain
the presumption that Federal funds the institution disburses, or
delivers to a student, will be used to pay the student's tuition, fees,
or institutional charges. The proposal would also add a requirement
that the presumption applies if the institution determines Federal
funds were provided to a student and the student makes a payment to the
proprietary institution within the same fiscal year to pay tuition,
fees, and other institutional charges.
Proposed Sec. 668.28(a)(4)(i) and (ii) would modify the treatment
of other Federal and non-Federal funds used to pay a student's tuition,
fees, or other charges to: (1) clarify that grant funds from non-
Federal public agencies can be counted as satisfying a student's
tuition, fees, or institutional charges as long as those grant funds do
not include Federal or institutional funds. If a portion of those grant
funds are Federal, the proposal would allow the non-Federal portion of
the grant to be counted as satisfying a student's tuition, fees, or
institutional charges as long as the Federal portion is included as
Federal funds under this section; (2) clarify that private sources must
be unrelated to the institution, its owners, or affiliates; and (3)
clarify that any contractual arrangement to provide job training must
be between the proprietary institution and a Federal, State, or local
government agency.
Reasons: In Sec. 668.28(a)(4), the Department proposes to require
proprietary institutions to presume that any Federal funds disbursed to
a student by the proprietary institution, or Federal funds the
institution determines were provided to a student by another Federal
source, will be used to pay the student's tuition, fees, or other
institutional charges as long as the institution receives a payment
from the student during the same fiscal year. Proposed Sec.
668.28(a)(4) aligns with amendments to the statutory requirements
implemented in the ARP. If a student receives funds from a Federal
source but does not make a payment to the proprietary institution, then
the Department does not believe it would be reasonable for the
institution to presume that these Federal funds paid for tuition, fees,
or other institutional charges since the institution did not receive
any payments from said student. Thus, the Department proposes to
clarify that the proprietary institution makes the presumption that the
Federal funds the student received in the same fiscal year were used to
make any payments received from a student during the year only if the
institution received a payment from the student.
The Department proposes to clarify in Sec. 668.28(a)(4)(i)(A) that
the Federal portion of grants provided by non-Federal public agencies
cannot be counted as a non-Federal payment of a student's tuition,
fees, and other institutional charges. However, the non-Federal portion
of the grant may be counted in these instances provided that the
Federal portion of the grant is counted as Federal revenue. Without
this clarification, a proprietary institution could use Federal funds
from such a grant to reduce the amount of Federal funds from another
source included in a proprietary institution's 90/10 calculation, which
would not align with the statutory intent. During negotiations, most
non-Federal negotiators supported this inclusion and stated that non-
Federal public agencies are required to strictly track how Federal
funds are spent in accordance with Federal funding requirements. Thus,
the Department believes that proprietary institutions could work with
the non-Federal agency to obtain the Federal/non-Federal breakdown of
grant funds.\20\ In the limited instances where a proprietary
institution cannot determine the breakdown of grant funds, the
Department proposes that no amount of the funds may be included as
paying the student's institutional charges. The Department believes
that it is necessary to exclude the entirety of the grants in these
situations to prevent the Federal portion of the combined grants from
being treated as non-Federal funds in a proprietary institution's 90/10
calculation. The Department also believes, in most instances, a
proprietary institution would be able to determine the portion of
Federal funds included in these grants and allocate them properly by
source.
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\20\ OMB Circular A-87, revised May 10, 2004: <a href="https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A87/a87_2004.pdf">https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A87/a87_2004.pdf</a>.
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The Department also proposes to clarify in Sec. 668.28(a)(4)(i)(B)
that grant funds from private sources used to satisfy a student's
tuition, fees, and other institutional charges to reduce the amount of
Federal funds counted in the 90/10 calculation must come from a source
unrelated to the institution, its owners, or affiliates. The Department
interprets ``independent of the institution'' \21\ to also be
independent of an institution's owners and affiliates,

[[Page 45457]]

and thus this proposal would clarify the Department's standing
expectation.
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\21\ Public Law 89-329, as amended.
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The Department's proposed change in Sec. 668.28(a)(4)(ii), which
addresses funds provided through contractual arrangements for job
training between an institution and a Federal, State, or local
government agency, is not believed to change the meaning of the current
regulations in this area. The Department is simply proposing to add the
words ``the institution and'' before the reference to the applicable
government agency, which will clarify that the proprietary institution
is the entity entering into an agreement with a Federal, State, or
local government agency, already the implied meaning of the
regulations.
Sec. 668.28(a)(5) Revenue generated from institutional aid.
Statute: Section 487(d)(1)(D) of the HEA outlines allowable
institutional revenue that can be counted as non-Federal revenue in the
90/10 calculation.
Current Regulations: Current Sec. 668.28(a)(5) provides that a
proprietary institution must include certain institutional aid as
revenue: (1) the net present value of loans made to students on or
after July 1, 2008, and prior to July 1, 2012, as long as the loans are
bona fide, issued at intervals related to the institution's enrollment
periods, are subject to regular repayment and collections, and are
separate from enrollment contracts; (2) payments that the proprietary
institution received for loans made to students before July 1, 2008,
and after July 1, 2012; and (3) the amount disbursed to students for
scholarships made to students on the basis of academic achievement or
financial need as long as the scholarships are disbursed from an
established restricted account and represent designated funds from an
outside source or income earned on those funds.
Proposed Regulations: Proposed Sec. 668.28(a)(5) would:
(1) Change ``must'' to ``may'' include institutional aid as
allowable non-Federal revenue in a proprietary institution's 90/10
calculation;
(2) Consolidate, simplify, and codify accounting practices in the
regulations to provide that allowable revenue from institutional loans
be treated as the amount of principal payments made on those loans, as
long as those loans meet the same criteria as the current regulations;
(3) Create clear guidelines for allowing

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