FSA Program Requirements

Before beginning to participate in the FSA programs, a school should familiarize itself with the administrative and other requirements that it will have to fulfill, including tracking student and program eligibility. Some of these requirements require substantial lead-time, so a school should begin planning for implementation as soon as possible. Once it begins participating in the FSA programs, a school must continue to meet certain academic, financial, and administrative standards.

Upon approval of a school’s application to participate, a member of the School Participation Division (SPD) will send an electronic notice to the CEO/president and the financial aid administrator notifying them that the school’s Program Participation Agreement (PPA) is available to print and review. The school must print two original PPA documents. The PPA must be printed in portrait orientation and not edited in any way.

The appropriate official(s) at the school must sign and date both original PPAs and upload them to the document center. Original wet signatures and electronic signatures that have been drawn with a finger or mouse, photo scanned, and placed on the signature line are acceptable. Typed signatures or Adobe certifications are not acceptable. All pages of the PPA must be returned. The SPD will return one PPA to the school, signed and dated on behalf of the Secretary.

The PPA also includes a Certification By Lower-Tier Contractor form. The school must make copies of the form and obtain the signatures of all required lower-tier contractors. The signed certification(s) are to be retained in the school’s files. A lower-tier contractor includes any contracted individuals not considered employees of the school, who participate in the school’s administration of the FSA programs (e.g., third-party servicers or loan servicers).

A school must obtain a certification from any lower-tier organization if the amount of the lower-tier transaction is $25,000 or more.

The PPA summarizes the general terms and conditions required for participation in the FSA programs, and includes any conditions specific to your school, including those related to its provisional certification (discussed later in this chapter).

The PPA identifies the school’s OPEID number, the effective date of a school’s approval, the date by which the school must reapply for participation, and the date on which the approval expires.

By signing the PPA, the president/CEO of the school is agreeing to comply with the laws, regulations, and policies governing the FSA programs.

The PPA expires on the date indicated on the PPA unless the school applies for recertification by the application deadline

A school’s PPA expires on the date that—

In the case of a previously approved additional location of the school, the school’s PPA no longer covers a location as of the date on which that location ceases to be a part of the participating school.

The PPA may be terminated by ED if the school meets any of the conditions listed above (except for the one about expiration). A school that has been terminated by the Department generally may not apply to be reinstated for 24 months.

A school may choose to end its participation at any time. To do so, the school must submit an E-App for “Voluntary Withdrawal from ALL Title IV Programs.”

When the SPD returns the school’s copy of the PPA, it will also send the school an email indicating that the approval letter and Eligibility and Certification Approval Report (ECAR) are available online.

The ECAR contains the most critical data elements that form the basis of the school’s approval and lists the levels of programs offered. The ECAR also identifies any nondegree programs, short-term programs, and additional locations that have been approved for the FSA programs, as well as those that have been recently disapproved. Both the PPA and ECAR must be kept available for review by auditors and Department officials, including individuals conducting FSA program reviews (discussed later in this chapter).

The date the PPA is signed on behalf of the Secretary is the date the school may begin FSA program participation. Partner Participation and Oversight and FSA’s regional offices are notified, as well as the school’s accreditor, that the school is approved to participate in the FSA programs.

Students use the federal school code on the FAFSA to designate the school(s) that they want to receive their FAFSA data.

To confirm that its federal school code has been posted, the school can check the online Federal School Code Search. This code is typically posted within two weeks after the PPA has been signed on behalf of the Secretary. (Schools applying for participation only in the Direct Loan (DL) program should request assignment of a federal school code when requesting the Direct Loan code from COD School Relations -- see Chapter 2.)

A school may make Pell and TEACH grant disbursements to students for the payment period in which the PPA is signed on behalf of the Secretary. Schools receiving initial certification can participate in the Campus-Based programs in the next award year that funds become available. Direct Loan program disbursements may begin in the loan period that the PPA is signed.

FSA funds can only be given to students in approved programs at approved locations. If your school wants to get approval for additional programs or locations, it must file the electronic Application for Approval to Participate in the FSA Programs (E-App) and receive approval first (in most cases). See the discussion on updating the E-App later in this chapter.

When a school is first approved to participate, the PPA includes an Initial Certification provision, which grants the school provisional approval to participate in the Title IV programs for a period not to exceed one complete award year. During the initial certification period, the school must demonstrate that it satisfies the standards of financial stability and administrative capability. New schools may also have other provisional conditions which must be met. For example, new schools are subject to a provisional condition in the PPA that prohibits the addition of new programs and locations during initial participation.

To participate in any FSA program, a school that is new to the programs must ensure that its president/CEO and a financial aid administrator completes ED’s instructor-led Fundamentals of Federal Student Aid Administration training workshop. The training provides new schools with a general overview of the FSA programs and their administration; it does not cover fiscal and accounting procedures in detail. The training requirement must be completed within 12 months before or after the execution of the Program Participation Agreement.

Prior to the instructor-led workshop, the school’s president/CEO and a financial aid administrator must first take the online, self-paced tutorial, FSA Coach Fundamentals, which may take up to 20 hours. After they successfully complete that, they will be able to register for one of the instructor-led workshops. The following stipulations apply to the instructor-led workshops:

A school may ask its School Participation Division for a waiver of the training requirement for the aid administrator and/or the chief executive. The Department may grant or deny the waiver, require another official to take the training, or require alternative training.

FSA funds can only be given to regular students who are enrolled in eligible programs and meet other eligibility criteria described in the law (See Student Assistance General Provisions Part 668, Subpart C). As part of its administrative requirements, your school must establish internal systems to confirm that a student is eligible for FSA funds.

In general, the student must:

Students are also required to submit a Free Application for Federal Student Aid (FAFSA) to calculate an “Expected Family Contribution” (EFC) that the school uses to determine the student’s financial need for aid.

As a part of FAFSA processing, the eligibility requirements listed above will be confirmed using data matches with the National Student Loan Data System (NSLDS) and other federal databases such as Social Security, Selective Service, and Immigration (Department of Homeland Security). If the match is unsuccessful or indicates that the student is not eligible, the school will need to resolve the possible conflict and document the student’s eligibility before providing any FSA funds to the student.

The school will also be required to verify the reported financial data and/or other data for those students selected for verification. This process is described in detail in the Application and Verification Guide (see below).

Individual FSA programs have additional eligibility requirements. For instance, a Pell Grant or FSEOG is generally only available to students who have not yet earned a baccalaureate degree, and a student must meet specific academic criteria to receive a TEACH grant. Also note that special rules apply to incarcerated students and correspondence students. These requirements are described in detail in Volume 1 of the FSA Handbook.

Once students are enrolled, other eligibility requirements come into play, such as the requirement that they maintain satisfactory academic progress in their program of study. Also, students may lose FSA eligibility if convicted for a drug offense that occurred while enrolled and receiving FSA funds.

When preparing to participate in the FSA programs, your school needs to ensure that it has adequate staff to provide services to students and meet the administrative requirements of the programs.

The number of staff that is adequate depends on the number of students aided, the number and types of programs in which the school participates, the number of applicants evaluated and processed, the amount of funds administered, and the type of financial aid delivery system the school uses.

When planning for participation, remember that your school needs to ensure coordination of information between its administrative offices. For instance, the financial aid office needs to know if a student ceases making satisfactory academic progress because the student may no longer be eligible for FSA funds.

In addition, your school’s administrative offices must be organized in such a way that there is a separation of function that ensures that no single person or office can authorize FSA awards and disburse the awarded funds. Small schools are not exempt from this requirement even though they may have limited staff. Individuals working in either authorization or disbursement may perform other functions as well, but not both authorization and disbursement. These two functions must be performed by individuals who are not members of the same family and who do not together exercise substantial control over the school. If a school performs any aspect of these functions via computer, no one person may have the ability to change data that affect both authorization and disbursement.

When filling positions, the school needs to ensure that none of the applicants have been debarred or suspended, or have previous offenses or liabilities that would affect the school’s eligibility to participate in the FSA programs. Before a school may receive FSA funding, it must certify that neither the school nor its employees have been debarred or suspended by a federal agency. (See Volume 2 of the FSA Handbook for a discussion of the school’s responsibilities.)

Schools are permitted to contract with consultants or third-party servicers to carry out some of the administrative requirements for the FSA programs. But the school ultimately is responsible for the use of FSA funds and will be held accountable if the consultant or servicer mismanages the programs or program funds.

When the school contracts with a servicer, the servicer must agree to comply with all applicable requirements, to refer any suspicion of fraudulent or criminal conduct in relation to FSA program administration to ED’s Office of Inspector General, and, if the servicer disburses funds, to confirm student eligibility and return FSA funds (if required) when a student withdraws.

If the contract is terminated, or the servicer ceases to perform any functions prescribed under the contract, the servicer must return to the school all unexpended FSA funds and records related to the servicer’s administration of the school’s participation in the FSA programs.

As when hiring individuals, a school may not contract with a third-party servicer who has been debarred or suspended, or has previous offenses or liabilities that make the servicer ineligible for FSA purposes. (See Volume 2 of the FSA Handbook for additional information.)

After a school begins participating in the FSA programs, it is responsible for following certain general requirements. These requirements are listed in Appendix B, and they are discussed in greater detail in Volume 2 of the Federal Student Aid Handbook.

Several of these requirements are of particular interest to new schools and are briefly discussed in this chapter.

Your school may lose eligibility to participate in the FSA programs if it has a cohort default rate for Direct Subsidized/Unsubsidized loans that equals or exceeds 30% for the three most recent fiscal years or if the most recent cohort default rate is greater than 40%.

Generally, a cohort default rate (CDR) is the percentage of a school’s student borrowers who enter repayment on Direct Subsidized or Unsubsidized loans during a particular fiscal year and who default before the end of the second fiscal year following the fiscal year in which they entered repayment. There are other criteria and exceptions—see the complete definition in the Cohort Default Rate Guide, which is available in the Knowledge Center.

The Department releases draft default rates in February to allow schools an opportunity to review and correct the data that will be used to calculate their official cohort default rates. In the early fall of each year, the Department issues the official cohort default rates. Under certain conditions, a school may be able to submit an appeal if it is subject to a loss of eligibility. See the Cohort Default Rate Guide for more information.

We encourage schools to take an active role in monitoring their default rates and taking preventive measures to reduce the potential for default. Thorough loan counseling is essential to make sure that students only borrow what they need for educational expenses, understand the responsibility to repay the loan, and know their repayment options. In addition, many schools have found it helpful to stay in touch with their student borrowers during repayment, to identify borrowers who are in delinquency, and to remind borrowers of their repayment options, including forbearance and deferment.

A proprietary institution may derive no more than 90% of its revenues from the FSA programs. The calculation rules (what can be counted in overall revenues versus revenues from FSA programs) are described in Volume 2 of the FSA Handbook.

If a school fails to satisfy the 90/10 Rule for one year, its participation status becomes provisional for two fiscal years. However, if the school does not satisfy the 90/10 Rule for 2 consecutive fiscal years, it loses its eligibility to participate in the FSA programs for at least 2 fiscal years. Schools have 45 days after their most recently completed fiscal year has ended to report to the Department if they did not satisfy the 90/10 Rule for the fiscal year.

The Department calculates financial ratios (primary reserve, equity, and net income) for proprietary and private non-profit schools based on their annual audited financial statements. The ratios are then used to derive a composite score for the school.

A proprietary or private non-profit school must maintain a composite score of 1.5 to be considered financially responsible. A school with a composite score below 1.5 may participate under an alternative standard if financial responsibility which includes additional Department oversight and may require the school to post a letter of credit.

In addition, a school must maintain sufficient cash reserves to return FSA funds when a student withdraws, and it must be current in its debt payments.

A school generally must have an independent auditor conduct an annual audit of its compliance with the laws and regulations that apply to the Title IV programs the school participates in (compliance audit), and an audit of the school’s financial statements (financial statement audit).

Financial statement and compliance audits conducted to satisfy the annual audit requirement at proprietary schools must be done in accordance with the Guide for Audits Of Proprietary Schools and for Compliance Attestation Engagements of Third-Party Servicers Administering Title IV Programs (Audit Guide) prepared by the Department’s Office of Inspector General (OIG). Public colleges, state and local universities, and non-profit schools must have their audits conducted in accordance with 2 CFR Part 200 Subpart F—Audit Requirements. Auditors are required by those regulations to use the Compliance Supplement that the Office of Management and Budget updates annually. However, 2 CFR Part 200 Subpart F does allow a compliance audit using the Audit Guide under limited circumstances.

All audits must be based on the school’s fiscal year. Student financial assistance audits conducted under the Audit Guide must be submitted to the Department no later than six months after the close of the school’s fiscal year, while 2 CFR Subpart F audits must be submitted no later than nine months after the close of the fiscal year. All audits are submitted to the Department through the eZ-Audit website which is the same site used to submit the financial statements required for initial eligibility.

The Department conducts program reviews by the SPDs to confirm that schools meet FSA requirements for institutional eligibility, financial responsibility, and administrative capability. Program reviews do not occur on a regular schedule. In selecting schools for review, the Department gives priority to those that meet criteria specified in the law.

Less frequently and as the occasion warrants it, the Department’s Office of the Inspector General conducts reviews of institutions (these are not the same as your required annual compliance audit) that are similar to program reviews.

Schools participating in the FSA programs must cooperate with program reviews and audits conducted by representatives of the Department and the Office of the Inspector General.

The ECAR that the Department sends to the school identifies the educational programs and locations that are eligible. (The eligibility of a school and its programs does not automatically include separate locations and extensions.) If a school wishes to extend its eligibility to include a location at which at least 50% of an education program is offered, or to provide aid to students in an educational program that is not listed on the ECAR, the school must ensure that it applies and receives approval for any new educational program or location.

For a school that is new to the FSA programs, new additional locations will not generally be allowed during the initial provisional certification period. Applications for adding additional locations are usually not considered until the school has submitted a compliance audit covering a full year of participation, and that audit has been reviewed by the Department.

Generally, schools in their initial period of participation may not award FSA funds to a student in an educational program that is not included in the school’s approval documents. During the initial period of participation in the FSA programs for the school, the Department will not approve additional educational programs that would expand the school’s eligibility.

An exception would be considered if the school demonstrates that the program has been legally authorized and continuously provided for at least two years prior to the date of the request. “Continuously provided” includes the requirement that there have been students enrolled and attending the program for the entire two-year period, with no gaps other than for normal, scheduled vacation breaks and holiday periods, or for a period when the school temporarily closed due to a natural disaster that directly affected the school or its students.

A school is required to report changes to certain information on its application within 10 calendar days, as listed in the chart on the following pages. If a change occurs in an E App item not listed on the following pages, the school must update the information when it applies for recertification.

When a school submits an E-App to report a change, if further action is needed, the Department will tell the school how to proceed, including what materials and what additional completed sections of the E-App need to be submitted. If you have questions about changes and procedures, you should contact the School Participation Division for your state.