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DCLPublicationDate: 5/1/95 DCLID: GEN-95-26 AwardYear: Summary: Implementation of the 85 percent rule to determine eligibility for Title IV student assistance programs. May 1995 GEN-95-26 SUBJECT: Implementation of the 85 percent rule to determine eligibility for Title IV student assistance programs. REFERENCE: Section 481(b)(6) of the Higher Education Act of 1965, as amended (HEA). Regulatory requirements are contained in 34 CFR 600.5(a)(8), 600.5(d) through 600.5(g) and 600.40(a)(2) of the Institutional Eligibility regulations. Dear Colleague: The purpose of this letter is to provide information on the implementation of the 85 percent rule beginning July 1, 1995. The Higher Education Act of 1965, as amended (HEA), includes provisions that determine the eligibility of postsecondary educational institutions to participate in the Title IV student assistance programs. In order for a proprietary institution of higher education to participate in the Title IV, HEA Programs, it must have "at least 15 percent of its revenues from sources that are not derived from [ Title IV, HEA Program ] funds, as determined in accordance with regulations prescribed by the Secretary." Put another way, an eligible proprietary institution may not have more than 85 percent of its revenues derived from Title IV, HEA Program funds. This statutory provision has come to be known as the 85 percent rule. On April 29, 1994, the Department published final regulations in the Federal Register implementing the 85 percent rule. Those regulations took effect on July 1, 1994. However, section 510 of the Department of Education's FY 95 Appropriations Act, Public Law 103-333, precluded the Department from implementing those regulations until July 1, 1995. As of July 1, 1995, the Department will begin to implement the regulations governing the 85 percent rule, and will make those regulations applicable to institutional eligibility determinations beginning with the 1995-96 award year. Therefore, beginning with the 1995-96 award year, proprietary institutions will be subject to the regulatory provisions carrying out the 85 percent rule that are contained in 34 CFR 600.5(a)(8), 600.5(d) through 600.5(g) and 600.40(a)(2). The provisions contained in 600.5(h) will not apply since they specifically addressed institutional eligibility for the 1994-95 award year. However, the statutory delay in implementing the 85 percent rule will require special considerations for reporting and determining eligibility for the 1995-96 award year. A discussion of these considerations follows. - Under 600.5(d), a proprietary institution of higher education must determine whether it satisfied the 85 percent rule during its most recently completed fiscal year, completed prior to July 1, 1995. For example, for an institution using the calendar year as its fiscal year, its most recently completed fiscal year is the one that ended on December 31, 1994; for an institution using the award year as its fiscal year, its most recently completed fiscal year will be the one that ends on June 30, 1995. - Under 600.40(a)(2), an institution that fails to satisfy the 85 percent rule during its most recently completed fiscal year loses its eligibility on the last day of that fiscal year. However, because of the statutory delay in implementing the 85 percent rule, an institution that otherwise would have lost its eligibility prior to June 30, 1995, will be considered as losing its eligibility as of June 30, 1995. Thus, that institution will be ineligible to participate in the Title IV, HEA Programs beginning with the 1995-96 award year. - Under 600.5(f), an institution has 90 days after its most recently completed fiscal year has ended to report to the Secretary if it did not satisfy the 85 percent rule for that period. However, because of the statutory delay in implementing the 85 percent rule, an institution that otherwise would have had to notify the Department regarding its failure to satisfy the 85 percent rule prior to July 1, 1995, will have until July 10, 1995, or 90 days after the end of its fiscal year, whichever is later, to provide that notice to the Department. - Under 600.5(e), an institution that determines that it satisfied the 85 percent rule during its most recently completed fiscal year must have the auditor who prepares its audited financial statement under 34 CFR 668.15 report on the accuracy of that determination based upon performing an "agreed-upon procedures attestation engagement." That report is submitted as part of the audited financial statement. However, if an institution did not have its auditor make that report as part of the audited financial statement because of the temporary delay in implementing the 85 percent rule, the institution shall have until July 31, 1995, or 90 days after the end of its fiscal year, whichever is later, to have that report submitted. - Finally, because the Department will implement the 85 percent rule starting with the 1995-96 award year, the Department will not hold any proprietary institution of higher education liable for any Title IV, HEA Program funds it received for the 1994-95 award year solely because it failed to satisfy the 85 percent rule in that year. As noted above, if an institution determines that it failed to satisfy the 85 percent rule, it must notify the Department; if an institution determines that it satisfied the 85 percent rule, the institution's auditor must report on the accuracy of that determination and must submit that report to the Department. That notice and report shall be submitted to: U.S. Department of Education Institutional Participation Division Room 3522, R.O.B. 3 600 Independence Ave., S.W. Washington, DC 20202 (202) 401-6485 Please remember that proprietary institutions will continue to be subject to the regulatory provisions carrying out the 85 percent rule that are contained in 34 CFR 600.5(a)(8) and 600.5(d) through 600.5(g) for each fiscal year ending after June 30, 1994. For further information you may contact Cheryl Leibovitz in our Policy Development Division. Ms. Leibovitz may be reached by letter at 600 Independence Ave, SW, (ROB-3, Rm. 3053), Washington, D.C. 20202 or by FAX at (202) 205-0786. A written inquiry will enable us to respond thoroughly and promptly. Sincerely, David A. Longanecker |