As you may already know, Title IV eligibility means an institution is eligible to take part in Title IV government programs and receive Title IV funding. Title IV approval affects your school’s ability to get financial aid, so you need to know everything you can. Let’s start with the basics.
The Higher Education Act (or HEA) was signed by President Lyndon B. Johnson in 1965 allowing certain schools to get more financial resources. Section four of the HEA, often referred to as Title IV, authorized students to receive financial aid so they could graduate and reach the workforce. The HEA had requirements for schools to pass, and amendments were later added.
Most schools can become Title IV eligible if they pass initial requirements, such as being licensed and accredited to provide education, only accepting students with a secondary level diploma, and passing regular financial audits. For-profit or vocational schools must also have offered a program for two or more years. These basic standards show schools are competent to receive funding.
Title IV eligibility thus proves to students that a school can give them a good education for their money, especially when students need Federal Direct Student Loans, Pell Grants, Federal Supplemental Educational Grants, and Federal Work-Study programs. Title IV schools are placed on a federal code list, which today is used to help students fill out their FAFSA.
It is very important for your institution to remain in good standing with ED, but most importantly to be able to continue offering Title IV to your students. Here are seven tips for maintaining eligibility:
1) Keep ECAR Contacts Up To Date
The US Department of Education requires a document known as an ECAR which details the programs and locations approved to receive government funding. If there are ever any temporary closures due to natural disasters or other regional or national emergencies, ED needs contact information so they can communicate with school staff.
Your responsibility is to keep that contact information up to date, including names, positions, email addresses, and phone numbers. This should also include your personal contact information and ways to contact the institution.
2) Update ECAR Documentation
ECAR must be updated with new programs, additional campuses or locations, changes to hour credits, or the number of weeks for program instruction. All of these impact the way financial awards are calculated, so this information must be correct.
Remember that any location where more than 50% of a program is conducted must be approved and listed on the ECAR. If you use a 3rd party servicer their information will need to be maintained and updated as well.
3) Recertify PPA Documentation
The Program Participation Agreement (or PPA) details when your Title IV eligibility expires, as well as many conditions of responsibility, including restrictions which may be the result of changes of ownership, audit findings, or weak financial statements.
Last-minute applications for PPA recertification risk not being completed timely which could lead to temporary loss of Title IV eligibility. FAME can assist with this process.
4) Continually Monitor 90/10
Under 90/10, private career schools (for profit technical and trade schools) must derive at least 10% of their revenue from another source other than Title IV funds. Therefore, it is imperative that the 90/10 requirement is monitored frequently throughout the fiscal year.
Institutions often offer short-term self-pay programs or industry contracts, cash payments, or depend on some type of clinic revenue to meet the required 10%, As you can imagine, this has become more difficult and important post-Covid.
After not meeting the 90/10 requirement once, the school is required to provide a letter of credit and is placed on provisional certification. Provisional certification limits growth and adding programs. Schools lose their Title IV status completely after not meeting the 90/10 requirement for two consecutive years.
5) Maintain Financial Responsibility Ratios
The HEA also requires for-profit and non-profit institutions to submit annual records to the Department of Education with audited financial responsibility statements of the school’s basic financial health. One important part of the statements is a composite of three financial ratios, namely the Equity Ratio, Net Income Ratio, and Primary Reserve Ratio.
The composite score grades the school on a scale from -1.0 to +3.0, with scores around +1.5 or higher being considered financially responsible and scores above +2.0 being excellent. Schools with a score below +1.5 often get more oversight and may face cash monitoring. A score below +1.0 requires provisional certification and a letter of credit to remain eligible for Title IV.
In August 2017, the Government Accountability Office recommended that ED post the financial composite score for most institutions in their system. These reports are updated annually for complete transparency of financial health.
6) Prevent Any Repeat Audit Findings
Based on past financial audit results, do your best to make changes and form corrective action plans so the same problems don’t come up again in your next audit. Schools with repeat issues can be placed on Heightened Cash Monitoring status, known as HCM1 or HCM2.
- HCM1 schools are under extra oversight of their cash management. Any time the school makes disbursements to students from their funds and submits disbursement records to the Common Origination and Disbursement system, they can draw down FSA funds in the same way as a school on the Advance Payment Method.
- HCM2 schools can no longer receive funds by the Advance Payment Method. When such schools make disbursements to students from their own funds, the school must submit a Reimbursement Payment Request to the Department of Education.
Schools can also be placed on HCM status if they have accreditation issues, weak financial statements, have outstanding liabilities, or concerning findings from an audit or program review, causing concerns about the administrative capability or financial responsibility of the school.
7) Work With FAME On Your Eligibility
FAME can assist you with the paperwork and policies and procedures to ensure that your application is complete and contains all of the required documents for initial eligibility, change of ownership, adding additional locations or programs, and recertification. FAME will walk you through the complex steps with regular assistance and consultations.
FAME has 40+ years of providing expert financial aid services along with software and student information systems. If you would like to learn more about how FAME can help with eligibility, please contact us.
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