Common Manual Updates

To assure that your Common Manual remains current, please record this document on your LPM/LPB index and retain it in Appendix E of your manual.

Expanded School Financial Responsibility Standards

The Common Manual is being revised to reflect the terms of the final regulations on school financial responsibility standards which were published in the Federal Register on November 25, 1997. Section 4.3 is being revised and restructured to include four newly created subsections that reflect these updated financial responsibility regulations. These changes are effective for schools that submit audited financial statements to the Department on or after July 1, 1998. However, schools that do not meet the composite score standard (see Composite Score below) for fiscal years that begin between July 1, 1997, and June 30, 1998, inclusive, may demonstrate that they are financially responsible by meeting the financial responsibility standards specified in §668.175(e).

Current financial responsibility policies in the Common Manual on the following topics have not changed: general criteria for determining that a school is not financially responsible, federal requirements for financial statements and audits, and the foreign school requirements. Other policies have been revised as noted below.

General School Financial Responsibility Requirements

Current Common Manual policy states that a school must meet all of the following financial responsibility criteria:

•The school must provide all services described in its official publications and statements.

•The school must provide administrative resources necessary to serve its student population and comply with regulatory requirements.

•The school must meet all of its financial obligations, including the prompt payment of refunds to borrowers and liability or debts incurred in programs administered by the Department.

•The school must be current in all of its debt payments.

In addition to these four general requirements, schools must also comply with all of the following new financial responsibility requirements:

•The school must provide all services described in its official publications and statements.

•The school must properly administer the Title IV programs in which it participates.

•The school must meet all of its financial obligations.

Current Common Manual language does not specify the administrative actions that may result if the Department determines that a school is not financially responsible. New language is being added to clarify the administrative actions that the Department may take if a school is deemed not to be financially responsible, including actions by the Department to fine the school, or to limit, suspend, or terminate the school’s participation in Title IV programs.

Specific Criteria for Determining School Financial Responsibility

Sufficient Cash Reserves Requirements

Current Common Manual policy does not specify school cash reserve requirements. The Common Manual is being revised to include new requirements regarding whether a school has sufficient cash reserves to make required refunds. A school must meet at least one of the following criteria:

•The school satisfies the financial responsibility standards for public schools.

•The school is licensed to operate in a state that has a Department-approved tuition recovery fund to which the school contributes.

•The school demonstrates that it has paid its refunds in a timely manner for both of the school’s 2 most recently completed fiscal years.

If a school fails to meet at least one of the criteria listed above, it must submit an irrevocable letter of credit that is acceptable and payable to the Department and that is equal to 25% of the total dollar amount of Title IV program refunds paid or that should have been paid by the school in the previous fiscal year.

Public Schools

Current Common Manual policy, which lists the circumstances under which a public school is not considered to be financially responsible, is being revised to reflect the new regulations, which state that a public school is considered to be financially responsible if it meets all of the following conditions:

•The school notifies the Department that it is designated as a "public institution" by a government entity that has legal authority to make that designation.

•The school provides a letter from the designating government entity confirming the school's status as a "public institution."

•The school is not in violation of any past performance requirement.

Proprietary Schools and Private Nonprofit Schools

Current Common Manual policy, which lists the circumstances under which a proprietary or private nonprofit school is considered not to be financially responsible, is being revised to reflect the following five specific factors that the Department uses to determine a school’s financial responsibility:

•The school is current in its debt obligations.

•The school=s financial statements do not contain a statement in which the auditor has expressed doubt about the continued existence of the school.

•The school has not violated a Title IV program requirement or affiliated persons do not owe a liability for Title IV program violations.

•The school has sufficient cash reserves to make required refunds (see Sufficient Cash Reserves Requirements above).

•The school’s Equity Ratio, Primary Reserve Ratio, and Net Income Ratio yield a composite score of at least 1.5 (see Composite Score below).

A proprietary school or private nonprofit school that is not considered to be financially responsible because it failed to meet any of the five standards of financial responsibility listed above may begin or continue to participate in the Title IV programs by qualifying under an alternative standard, as determined by the Department.

Composite Score

One of the new factors for determining a school’s financial responsibility is a composite score that indicates the overall financial status of a participating proprietary or private nonprofit school. The Department uses the school’s audited financial statements to calculate a composite score, which is derived from a combination of the following three ratios:

•The Primary Reserve Ratio, indicating the measure of a school’s expendable or liquid resources in relation to its overall size.

•The Equity Ratio, measuring the amount of total resources financed by an owner’s investments, contributions, or accumulated earnings.

•The Net Income Ratio, providing a direct measure of a school’s profitability and ability to operate within its means.

The three ratios are adjusted by strength factors and weighting factors and are then added together to arrive at a composite score. This process permits a meaningful comparison of the relative financial strength of schools of different sizes and types. A school’s financial responsibility is determined by this composite score. Composite scores range from –1.0 to +3.0, with a factor of –1.0 indicating relative financial weakness and a factor of +3.0 indicating financial stability. Schools that achieve a composite score of at least 1.5 are considered financially viable.

The following chart contains the ratios, strength factors, and weighting factors for calculating a school’s composite score.

Calculating the Composite Score for
Proprietary Schools and Private Nonprofit Schools

The following steps illustrate how the Department calculates a school’s composite score.

Step 1: From the school’s financial statement information, calculate three financial ratios.

Step 2: Use the three ratios from step 1 to determine the appropriate strength factor scores.

Step 3: Multiply each of the three strength factor scores from step 2 by the appropriate weighting factor.

Step 4: Add the three weighted strength factor scores from step 3 to obtain the composite score.

[§668 Appendix F and Appendix G]

Demonstration of Timely Refunds

The Common Manual currently states that a school must meet all of its financial obligations, including timely payment of refunds to borrowers. New regulations in §668.173(b) published in the Federal Register on November 25, 1997, further define how a school demonstrates that it makes the required refunds in a timely manner.

The Common Manual will be updated to include information that the determination of whether a school’s refunds have been made timely is based on the findings of the auditor who conducted the school’s compliance audits for the school’s two most recently completed fiscal years or the Department, state, or guarantor that conducted a review of the school covering those fiscal years. Refunds are considered timely only if both of the following conditions are met:

•  The reviewing entity did not find in the sample of student records audited for either fiscal year that the school made late refunds to 5% or more of Title IV recipients who received or should have received a refund, or did not find that the school made more than one late refund in that sample.

•  The reviewing entity did not note for either fiscal year a material weakness or a reportable condition in the school’s report on internal controls related to refunds.

This change is effective for guarantor review of a school’s compliance with federal financial responsibility standards on or after July 1, 1998. Subsection 4.7.C. of the Common Manual will be revised to reflect this change.

Student Status Confirmation Report (SSCR) Requirements Updated

The Common Manual has been revised to incorporate the Department of Education’s implementation of student status confirmation reports (SSCR) through the National Student Loan Data System (NSLDS). Schools that have received a letter from the Department confirming successful submission of an SSCR roster file to NSLDS are exempt from the requirement to provide SSCRs directly to guarantors. Schools that have not received a letter from the Department confirming successful submission of an SSCR roster file to NSLDS must respond both to SSCR roster files received from NSLDS and SSCRs received from guarantors until otherwise notified by the Department. Questions concerning the proper completion and submission of an SSCR provided by a guarantor should be directed to the guarantor that prepared the SSCR.

NSLDS generates an SSCR for each school up to six times per year on a schedule chosen by the school. The Department recommends that schools schedule SSCR cycles every other month during the academic year to eliminate the need for ad hoc reporting (i.e., specific reporting outside a school’s normal cycle) of enrollment information. NSLDS transmits an SSCR electronically to the school or the school’s designated servicer at the beginning of each month as designated by the school. Each SSCR must be updated and transmitted electronically to NSLDS within 30 days of the date NSLDS transmits the SSCR to the school or the school’s designated servicer. Questions on the proper completion and submission of SSCR data to NSLDS should be directed to the NSLDS Customer Service Center at (800) 999-8219.

The Common Manual will also be revised to clarify the following points:

•When reporting changes to the student’s name, date of birth, social security number, permanent address, or anticipated graduation date, only the change to the student’s permanent address requires an effective date of the change.

•A student’s enrollment status should be verified through his or her expected graduation (completion date), rather than through the end of the current academic period (such as a semester end date).

•If a student drops to less than half-time enrollment, withdraws, or graduates and later reenrolls (on at least a half-time basis) at the same school after the school has reported the student’s drop, withdrawal, or graduation on the SSCR, the school should promptly report the student’s reenrollment to the NSLDS to ensure that the student is included on the school’s future SSCRs.

•If the student was enrolled previously at the school, but is not currently enrolled, the school should provide the borrower’s last date of at least half-time attendance. The school should not report the student as never attended or no record found.

•When reporting a student’s status as no record found, the school must verify that it has no information for the student (i.e., the student never registered nor enrolled and the school never certified a FFELP loan application).

•A school must report any changes to the student’s date of birth.

•A school is not required to report information concerning a student who has transferred to another school on the NSLDS SSCR roster file.

•When reporting the enrollment status effective date for a student who has graduated, the school should use the date the student completed course requirements—not the date of the graduation ceremony.

Subsection 4.8.A. of the Common Manual will be revised to reflect these changes, effective for SSCR roster files received by a school from the Department on or after March 1, 1997. Subsection 4.8.A. will refer schools with questions regarding SSCR processing to the NSLDS Customer Service Center. In addition, a new section, appendix D.5, will be created for NSLDS Customer Service Center contact information. Subsection 4.8.D. will be deleted and replaced with the NSLDS student status confirmation reporting requirements now found in subsection 4.8.A.

Noncitizen Eligibility Requirements Modified

Previous Common Manual policy has been revised to reflect new requirements in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (effective August 22, 1996) and recent guidance from the Department of Education published in DCL GEN-98-2 regarding Title IV eligibility for noncitizens.

The new language revises the eligibility criteria for FFELP borrowers to include noncitizens with a Departure Record (I-94) from the U.S. Immigration and Naturalization Service (INS) indicating one of the following statuses:

•  Alien paroled into the U.S. for at least one year.

•  Alien granted a stay of deportation (pursuant to 8 U.S.C. section 1253(h)) due to fear of persecution on account of race, religion, or political opinion.

•  Conditional Entrant (valid if I-94 was issued before April 1, 1980).

The changes indicate the elimination of eligibility for certain categories of noncitizens previously determined to be eligible: Temporary Resident, Indefinite Parolee, Humanitarian Parolee, and Cuban-Haitian Entrant.

The list of acceptable documentation for determining U.S. citizenship status has been expanded to include a U.S. passport.

In addition, the Common Manual has been updated to add reference to primary and secondary confirmation received from the INS, and to remove the term "verification" which had been used incorrectly to describe the receipt and use of information from the INS. The language has also been expanded to clarify that a school may deliver funds to an otherwise eligible student pending INS response to secondary confirmation, provided at least 15 business days have elapsed since the documentation was submitted to INS by the school. Schools are reminded that they must reconcile any other inconsistent data before releasing FFELP funds.

Finally, language has been added to the Common Manual to specify that citizens of the Federated States of Micronesia, the Republic of the Marshall Islands, and Palau are not eligible for FFELP funds at any participating school, but may be eligible for other types of Title IV aid.

Subsection 5.2.C. of the Common Manual will be revised to incorporate these changes, effective for loan applications certified by the school on or after August 22, 1996.

Financial Aid Data for Transfer Students and NSLDS

Current Common Manual policy will be revised to address the implementation of the National Student Loan Data System (NSLDS) for obtaining Financial Aid Transcript (FAT) data for transfer students.

For each transfer student applying for Title IV aid, a school must obtain and evaluate FAT data from NSLDS for each school the student attended previously. The NSLDS information will assist the school in making the eligibility determinations described in section 5.2 of the Common Manual. A school may sometimes find it necessary to request a paper FAT from a school the student attended previously (e.g., for a midyear transfer student). A school is required to complete and return paper FATs when requested to do so by another school.

A school may certify or decline to certify a Stafford or PLUS loan application and promissory note, but may not release the proceeds of any Stafford or PLUS loan before receiving and evaluating data from NSLDS or a paper FAT, as applicable. Exceptions to this rule are noted in Common Manual subsection 6.3.E.

Subsection 5.2.D. of the Common Manual will be updated to reflect this change, effective for FAT data requested by schools for the 1996–97 award year and thereafter.

Loan Limits for Preparatory Coursework

The Common Manual will be revised to include information on the loan limits applicable for students taking preparatory coursework necessary to enroll in undergraduate, graduate, or professional programs. The following criteria for determining annual loan limits for students taking preparatory coursework will be added to subsection 5.7.H. of the manual:

•  A student who is taking preparatory coursework that the school has determined and documented to be necessary for the student to enroll in an undergraduate program may borrow at the first-year undergraduate loan level. If a student meets all other eligibility criteria, he or she may borrow up to $2,625 in base Stafford loan funds and up to $4,000 in additional unsubsidized Stafford loan funds. A student is eligible for loans for one period of 12 consecutive months beginning on the first day of the loan period for which the student is enrolled.

•  A student who is taking preparatory coursework that the school has determined and documented to be necessary for the student to enroll in a graduate or professional program may borrow at the fifth-year undergraduate loan level. If the student meets all other eligibility criteria, he or she may borrow up to $5,500 in base Stafford loan funds and up to $5,000 in additional unsubsidized Stafford loan funds. Preparatory coursework required for admission into a graduate or professional program may be taken at a school that is not generally permitted to certify loans at the fifth-year undergraduate loan level. A school may certify loans at the fifth-year level for these students. A student is eligible for loans for one period of 12 consecutive months beginning on the first day of the loan period for which the student is enrolled.

Subsection 5.7.H. will be revised to incorporate these changes, which are effective for loan applications certified by the school on or after January 16, 1997.

Borrower Address Skip Tracing Activities Corrected

Subsection of 8.1.I. of the Common Manual will be updated to correct an omission in the list of contacts the lender must make during borrower address skip tracing. A lender’s address skip tracing efforts must include, but are not limited to, sending a letter to or making a diligent effort (consisting of one successful contact or two unsuccessful attempts) to contact by telephone each comaker, endorser, relative, reference, individual, and entity (any prior holders of the loan, the school’s alumni or financial aid office, etc.) identified in the borrower’s file and other normal skip tracing activities that the lender would conduct in pursuit of information on any other loan in its consumer loan portfolio. This correction is effective retroactive to the effective date of the Common Manual.