Final Rule – Program Participation Agreement

PROGRAM PARTICIPATION AGREEMENT – SIGNATURE REQUIREMENTS

• 668.14 Program Participation Agreements

The Final Rule requires all institutions to have its PPA signed by an authorized representative of the institution and establishes additional requirements for proprietary and private nonprofit institutions.

(3) An institution’s program participation agreement must be signed by—

1. An authorized representative of the institution; and
2. For a proprietary or private nonprofit institution, an authorized representative of an entity with direct or indirect ownership of the institution if that entity has the power to exercise control over the institution. The Secretary considers the following as examples of circumstances in which an entity has such power:
   1. If the entity has at least 50 percent control over the institution through direct or indirect ownership, by voting rights, by its right to appoint board members to the institution or any other entity, whether by itself or in combination with other entities or natural persons with which it is affiliated or related, or pursuant to a proxy or voting or similar agreement.
   2. If the entity has the power to block significant actions.
   3. If the entity is the 100 percent direct or indirect interest holder of the institution.
   4. If the entity provides or will provide the financial statements to meet any of the requirements of 34 CFR 600.20(g) or (h) or subpart L of this part.

Fame Comment: Any direct or indirect owner or person in a controlling entity must sign the PPA and may be financially liable.

PROGRAM PARTICIPATION AGREEMENT – INFORMATION SHARING

• 668.14 Program Participation Agreements

The Final Rule expands the level of communication and information sharing to include specifically the State Attorneys General as part of the information reporting responsibilities of institutions.

(17) The Secretary, guaranty agencies, and lenders as defined in 34 CFR part 682, nationally recognized accrediting agencies, Federal agencies, State agencies recognized under 34 CFR part 603 for the approval of public postsecondary vocational education, State agencies that legally authorize institutions and branch campuses or other locations of institutions to provide postsecondary education, and State attorneys general have the authority to share with each other any information pertaining to the institution’s eligibility for or participation in the title IV, HEA programs or any information on fraud, abuse, or other violations of law.

Fame Comment: State Attorneys general has been added to the mix that must share information about institutions involved in fraud, abuse, or violation of law.

PROGRAM PARTICIPATION AGREEMENT – FSA ADMINSTRATION

• 668.14 Program Participation Agreements

The Final Rule makes clear that institutions must not, knowingly, engage individuals or third-parties who have a history of non-compliance with the Administration of the Federal Student Financial Aid (FSA) programs.

(18) It will not knowingly–

(i) Employ in a capacity that involves the administration of the title IV, HEA programs or the receipt of funds under those programs, an individual who has been:

1. 1. Convicted of, or pled nolo contendere or guilty to, a crime involving the acquisition, use, or expenditure of Federal, State, or local government funds;
   2. Administratively or judicially determined to have committed fraud or any other material violation of law involving Federal, State, or local government funds;
   3. An owner, director, officer, or employee who exercised substantial control over an institution, or a direct or indirect parent entity of an institution, that owes a liability for a violation of a title IV, HEA program requirement and is not making payments in accordance with an agreement to repay that liability; or
   4. A ten-percent-or-higher equity owner, director, officer, principal, executive, or contractor at an institution in any year in which the institution incurred a loss of Federal  funds in excess of 5 percent of the participating institution’s  annual title IV, HEA program funds;

PROGRAM PARTICIPATION AGREEMENT – FSA ADMINISTRATION

• 668.14 Program Participation Agreements

The Final Rule makes clear that institutions must not, knowingly, engage individuals or third-parties who have a history of non-compliance with the Administration of the Federal Student Financial Aid (FSA) programs.

(18) It will not knowingly–

(ii) Contract with any institution, third-party servicer, individual, agency, or organization that has, or whose owners, officers or employees have —

1. 1. Been convicted of, or pled nolo contendere or guilty to, a crime involving the acquisition, use, or expenditure of Federal, State, or local government funds;
   2. Been administratively or judicially determined to have committed fraud or any other material violation of law involving Federal, State, or local government funds;
   3. Had its participation in the title IV programs terminated, certification revoked, or application for certification or recertification for participation in the title IV programs denied;
   4. Been an owner, director, officer, or employee who exercised substantial control over an institution, or a direct or indirect parent entity of an institution, that owes a liability for a violation of a title IV, HEA program requirement and is not making payments in accordance with an agreement to repay that liability; or
   5. Been a 10 percent-or-higher equity owner, director, officer, principal, executive, or contractor affiliated with another institution in any year in which the other institution incurred a loss of Federal funds in excess of 5 percent of the participating institution’s annual title IV, HEA program funds;

Fame Comment: Be very careful who you employ or go into business with and make sure you researched where they worked, position held, if the institution closed, who was responsible for outstanding debt to ED and ownership involvement, etc.

PROGRAM PARTICIPATION AGREEMENT – GAINFUL EMPLOYMENT

• 668.14 Program Participation Agreements

The Final Rule limits student access and institutional administration of Title IV funds for gainful employment programs based upon program length requirements established by the state – is such requirements exist.

(26) If an educational program offered by the institution on or after July 1, 2024, is required to prepare a student for gainful employment in a recognized occupation, the institution must–

• (i) Establish the need for the training for the student to obtain employment in the recognized occupation for which the program prepares the student; and
• (ii) Demonstrate a reasonable relationship between the length of the program and the entry level requirements for the recognized occupation for which the program prepares the student by limiting the number of hours in the program to the greater of–

1. The required minimum number of clock hours, credit hours, or the equivalent required for training in the recognized occupation for which the program prepares the student, as established by the State in which the institution is located, if the State has established such a requirement or as established by any Federal agency; or

PROGRAM PARTICIPATION AGREEMENT – GAINFUL EMPLOYMENT

• 668.14 Program Participation Agreements

The Final Rule limits student access and institutional administration of Title IV funds for gainful employment programs based upon program length requirements established by the state – is such requirements exist.

Fame Comment: Refers to the new requirement limiting programs to the state licensure requirements. This is a very damaging rule for many programs. The current regulations allow the institution to use 150% of the program’s minimum state requirement for licensure (or a neighboring states hour, if many students work in that state, etc.).

Example 1: Massage therapy state requirement is 500 clock hours- currently the institution can teach that program for any number of hours between 600 clock hours and 750 clock hours. That makes the program eligible for both a prorated Pell grant and prorated direct loans. As of July 1, 2024, the program will only be eligible for students enrolled in it prior to that date.  New starts after that date may not be eligible for any Title IV funds. Direct loan programs are eligible for programs between 300 clock hours and 599 clock hours but require an audit proving that the program has a 70% completion and 70% placement rate. This will most likely apply to any program reduced to between 300 clock hours and 599 clock hours. The new program with less than 600 clock hours will no longer be eligible for even direct loans for over a year.

Example 2: A 600 clock hour program has been approved and currently taught for 900 clock hours (150% of the state licensure requirement) receiving a full academic year of Pell grant and direct loans. That program will only be approved for 600 clock hours for new starts after 7/01/2024.

Example 3: Massage 500 clock hours, was in credit hours, now must be a clock hour program.

Remember short credit hour programs that are between 300 and 599 clock hours, if currently taught as credit hour, will again be clock hour programs.

Institutional Requirement: All programs with state license requirements should be reviewed. If your current program exceeds that requirement, you will need a new accrediting approval and state license, if applicable, for the shorter program, which will have to be added to the EApp, approvals to fame, and a new program set up in fame if we are your servicer. Do not remove the longer program but add an end date after all students will be taught out.

Fame’s eligibility service can assist you with that process.

 

1. Another State’s required minimum number of clock hours, credit hours, or the equivalent required for training in the recognized occupation for which the program prepares the student, if the institution documents, with substantiation by a certified public accountant who prepares the institution’s compliance audit report as required under § 668.23 that–

• A majority of students resided in that State while enrolled in the program during the most recently completed award year;
• A majority of students who completed the program in the most recently completed award year were employed in that State; or
• The other State is part of the same metropolitan statistical area as the institution’s home State and a majority of students, upon enrollment in the program during the most recently completed award year, stated in writing that they intended to work in that other State; and

Fame Comment: Section 1), 2), and 3), allows the institutions to use the state hours requirement of neighboring states, but the proof must be documented and audited.

The Final Rule limits student access and institutional administration of Title IV funds for gainful employment programs based upon program length requirements established by the state – is such requirements exist.  The requirement however excludes programs at the associate’s degree or higher and programs offered entirely through distance education or correspondence courses.

(iii) Notwithstanding paragraph (a)(26)(ii) of this section, the program length limitation does not apply for occupations where the State entry level requirements include the completion of an associate or higher-level degree; or where the program is delivered entirely through distance education or correspondence courses

PROGRAM PARTICIPATION AGREEMENT – DISTANCE EDUCATION

• 668.14 Program Participation Agreements

(32) In each State in which: the institution is located; students enrolled by the institution in distance education or correspondence courses are located, as determined at the time of initial enrollment in accordance with 34 CFR 600.9(c)(2); or for the purposes of paragraphs (b)(32)(i) and (ii) of this section, each student who enrolls in a program on or after July 1, 2024,and attests that they intend to seek employment, the institution must determine that each program eligible for title IV, HEA

program funds—

1. 1. Is programmatically accredited if the State or a Federal agency requires such accreditation, including as a condition for employment in the occupation for which the program prepares the student, or is programmatically pre-accredited when  programmatic pre-accreditation is sufficient according to the State or Federal agency;
   2. Satisfies the applicable educational requirements for professional licensure or certification requirements in the State so that a student who enrolls in the program, and seeks employment in that State after completing the program, qualifies to take any licensure or certification exam that is needed for the student to practice or find employment in an occupation that the program prepares students to enter; and
   3. Complies with all State laws related to closure, including record retention, teach-out plans or agreements, and tuition recovery funds or surety bonds;(iii) Notwithstanding paragraph (a)(26)(ii) of this section, the program length limitation does not apply for occupations where the State entry level requirements include the completion of an associate or higher-level degree; or where the program is delivered entirely through distance education or correspondence courses.

Fame Comment: This ensures that once the student completes the distance education program requirements, they will be qualified to get a job in that field in their home state and take the state license exam in that state. Also, if clinical or other externships are required, they could also complete that part of the training. The institution must ensure that the state requirements for record retention, closure, teach-out plans, and program length for an entry-level position are in place as required by the state where the student resides.

PROGRAM PARTICIPATION AGREEMENT – TRANSCRIPTS

• 668.14 Program Participation Agreements

The Final Rule provides two specific additions related to student transcripts.  The first prohibits institutions of higher education from withholding transcripts to obtain outstanding payment obligations of a student.  The second requires the institution to provide a detailed transcript upon request.

(33) It will not withhold official transcripts or take any other negative action against a student related to a balance owed by the student that resulted from an error in the institution’s administration of the title IV, HEA programs, or any fraud or misconduct by the institution or its personnel;

(34) Upon request by a student, the institution will provide an official transcript that includes all the credit or clock hours for payment periods—

• (i) In which the student received title IV, HEA funds; and
• (ii) For which all institutional charges were paid or included in an agreement to pay at the time the request is made;

Fame Comment: This requires institutions to provide official educational transcripts, even if the student still has a financial obligation to the institution, if any of the classes in a payment period were paid for by federal financial aid.

 

PROGRAM PARTICIPATION AGREEMENT – RESPONSIBLE STUDENT BORROWING

• 668.14 Program Participation Agreements

The Final Rule provides directives on financial literacy.

(35) It will not maintain policies and procedures to encourage, or that condition institutional aid or other student benefits in a manner that induces, a student to limit the amount of Federal student aid, including Federal loan funds, that the student receives, except that the institution may provide a scholarship on the condition that a student forego borrowing if the amount of the scholarship provided is equal to or greater than the amount of Federal loan funds that the student agrees not to borrow.

Fame Comment: This appears to indicate that you don’t have to process a federal Title IV loan if the institution offers the student an equal amount in scholarship money and the scholarship amount is equal to or greater than the amount the student agrees not to borrow. We are still waiting for clarification from ED on this topic.

PROGRAM PARTICIPATION AGREEMENT – ADDITIONAL REQUIREMENTS

• 668.14 Program Participation Agreements

The Final Rule provides the Secretary, at her or his discretion, with the authority to require additional requirements of provisionally certified institutions.

(e) If an institution is provisionally certified, the Secretary may apply such conditions as are determined to be necessary or appropriate to the institution, including, but not limited to–

• For an institution that the Secretary determines may be at risk of closure—
  1. Submission of an acceptable teach-out plan or agreement to the Department, the State, and the institution’s recognized accrediting agency; and
  2. Submission to the Department of an acceptable records retention plan that addresses title IV, HEA records, including but not limited to student transcripts, and evidence that the plan has been implemented;

Fame Comment: The institution must have a teach-out plan approved by the accrediting agency and a records retention plan, which includes more than just transcripts, in case of closure. They must prove the plan has been implemented.

• For an institution that the Secretary determines may be at risk of closure, that is teaching out or closing, or that is not financially responsible or administratively capable, the release of holds on student transcripts;

(e) If an institution is provisionally certified, the Secretary may apply such conditions as are determined to be necessary or appropriate to the institution, including, but not limited to–

• Restrictions or limitations on the addition of new programs or locations;
• Restrictions on the rate of growth, new enrollment of students, or title IV, HEA volume in one or more programs;
• Restrictions on the institution providing a teach-out on behalf of another institution;
• Restrictions on the acquisition of another participating institution, which may include, in addition to any other required financial protection, the posting of financial protection in an amount determined by the Secretary but not less than 10 percent of the acquired institution’s title IV, HEA volume for the prior fiscal year;
• Additional reporting requirements, which may include, but are not limited to, cash balances, an actual and protected cash flow statement, student rosters, student complaints, and interim unaudited financial statements;
• Limitations on the institution entering into a written arrangement with another eligible institution or an ineligible institution or organization for that other eligible institution or ineligible institution or organization to provide between 25 and 50 percent of the institution’s educational program under § 668.5(a) or (c); and
• For an institution found to have engaged in substantial misrepresentations to students, engaged in aggressive recruiting practices, or violated incentive compensation rules, requirements to hire a monitor and to submit marketing and other recruiting materials (e.g., call scripts) for the review and approval of the Secretary; and
• Reporting to the Department, no later than 21 days after an institution receives from any local, State, Tribal, Federal, or foreign government or government entity a civil investigative demand, a subpoena, a request for documents or information, or other formal inquiry that is related to the marketing or recruitment of prospective students, the awarding of Federal financial aid for enrollment at the school, or the provision of educational services for which Federal aid is provided.

Fame Comment: Most of the provisional requirements are currently in place. The biggest change is number 10, which requires the institution to report to ED within 21 days any request for information from any local, State, Tribal, Federal, or foreign government any demand, subpoena, request for documents or information or other inquiry related to marketing or recruitment of students, financial aid.

The Final Rule sets specific timelines for the release of a for-profit institution from key regulatory requirements in the event that the institution seeks to convert to nonprofit status.

(f) If a proprietary institution seeks to convert to nonprofit status following a change in ownership, the following conditions will apply to the institution following the change in ownership, in addition to any other conditions that the Secretary may deem appropriate:

• The institution must continue to meet the requirements under §668.28(a) until the Department has accepted, reviewed, and approved the institution’s financial statements and compliance audits that cover two complete consecutive fiscal years in which the institution meets the requirements of paragraph (b)(16) of this section under its new ownership, or until the Department approves the institution’s request to convert to nonprofit status, whichever is later.
• The institution must continue to meet the gainful employment requirements of subpart S of this part until the Department has accepted, reviewed, and approved the institution’s financial statements and compliance audits that cover two complete consecutive fiscal years under its new ownership, or until the Department approves the institution’s request to convert to nonprofit status, whichever is later.

Fame Comment: This section explains the extra hoops the institution has to go through to switch from for profit to nonprofit status.  The school is still considered for profit for over 2 years of audits after converting or until ED decides to recognize them as nonprofit. The institution cannot advertise it is nonprofit until recognition from ED.

 

(f) If a proprietary institution seeks to convert to nonprofit status following a change in ownership, the following conditions will apply to the institution following the change in ownership, in addition to any other conditions that the Secretary may deem appropriate:

• The institution must submit regular and timely reports on agreements entered into with a former owner of the institution or a natural person or entity related to or affiliated with the former owner of the institution, so long as the institution participates as a nonprofit institution.
• The institution may not advertise that it operates as a nonprofit institution for the purposes of title IV, HEA until the Department approves the institution’s request to convert to nonprofit status.

Fame Comment: If a change of ownership occurs and the institution converts to nonprofit status, regular reports of any agreements with the former owner must be submitted if the institution continues in Title IV as a not-for-profit institution. It continues as a for profit institution until the new status is recognized by ED.

 

About the Authors:

Materials and content originate from the Department of Education posting, with insights and summaries provided by Tom Netting and Sally Samuels.

Sally Samuels, Director of Compliance, Fame

Sally is one of the country’s leading authorities on Federal financial aid administration with more than 43 years of “in the trenches” experience. As a respected Industry leader, she is frequently called upon to speak at School, Accrediting, Regional and State conferences as well as to act as school liaison during program reviews and compliance audits.

 

Having processed, reviewed and taught financial aid for over 40 years Sally brings real life experiences, observations and illustrations to her audience adding a touch of humor to regulatory compliance. Her style makes the sometime complex topics easy to understand and audiences always come away with practical knowledge that they can apply to their everyday situations. Sally has been published many times in various Higher Education periodicals providing her expertise and insight on administering Federal funding based on compliance with the Federal statutes.

 

 

Tom Netting, President/CEO, TEN Government Strategies, Co-Executive Director, CSPEN

Having spent all of his professional career devoted to higher education policy oversight and implementation, Tom Netting has an extensive knowledge of the laws and regulations governing all aspects of higher education. His considerable background and experience have afforded him the opportunity to view the development and implementation of federal higher education and workforce development policy in their entirety – including issues related to higher education and workforce development, health care, veteran affairs policies and the procurement of federal appropriations.