January 1998

GEN-98-2

Subject: This letter clarifies several issues regarding student eligibility policy that have arisen as a result of recently enacted legislation or as a result of questions from the student aid community.

Reference: Chapter 2 of the Student Financial Aid Handbook; Chapters 3 and 5 of the 1997-98 Verification Guide.

Dear Colleague:

We have reconsidered several policy matters regarding student eligibility as a result of recently enacted legislation. In addition, we have clarified other policy matters regarding student eligibility as a result of receiving numerous questions. Therefore, we are providing the following information to members of the financial aid community.

Updating

A number of institutions have requested clarification of the Department's policy with regard to the circumstances under which a student may update his or her household size and the number of family members enrolled in postsecondary education. The Department's policy, as reflected in the verification regulations and Chapter 3 of the 1996-97 and 1997-98 Verification Guides, is that beginning with award year 1996-97, an applicant may not update that information unless the applicant is selected for verification. On the other hand, an applicant who is selected for verification, either by the Department or by the institution, must update that information as of the date the applicant is verified.

Flexible Spending Arrangements

Flexible spending arrangements (FSAs) are employee benefit programs provided by some employers under which certain expenses for the employee's dependent care and health-care costs are paid. An employee authorizes his or her employer to deduct wages on a tax-deferred basis to be placed in special accounts specifically designated for dependent care or health care reimbursement. These accounts are primarily funded through salary deductions, although some employers also make contributions. The employees' contributions to these accounts are not subject to Federal income tax, FICA, and most state and local taxes during the tax year that the contributions are made.

Various suggestions for treatment of FSA contributions under the need analysis process have been offered and considered. We are persuaded by the argument that FSAs are essentially employee benefit programs, and that the Federal need analysis should not target these contributions since it does not consider other types of employee benefits in calculating a family's ability to pay for educational expenses. Therefore, applicants are instructed not to include contributions to FSAs as untaxed income.

Application Processing for Certain Native Americans

Individuals with at least 50% Native American blood who were born in Canada have certain unique rights under the Jay Treaty of 1794, subsequent treaties, and U.S. Immigration Law. The Jay Treaty provides that Native Americans with at least 50% Native American blood who were born in Canada have the legal right to enter freely into the United States. They are not required to obtain documentation from the U.S. Immigration and Naturalization Service (INS) and are deemed "lawfully admitted for permanent residence" and, thus, eligible for Title IV student financial assistance.

Because there are very few Title IV aid applicants who are eligible under the Jay Treaty, the citizenship question on the FAFSA does not have a separate response for such students. A Native American who is eligible for Title IV aid because of the Jay Treaty should report on the FAFSA that he or she is an "eligible noncitizen" and should fill in the Alien Registration Number with "A999999999." When the application is matched by the central processor (CPS) with the INS, this response will not be confirmed. It is then the responsibility of the financial aid administrator to obtain proof that the student has 50% Native American blood and was born in Canada.

Documentation of the applicability of Jay Treaty status for an applicant can be accomplished by asking the student to provide one or more of the following documents:

• A "band card" issued by the Band Council of a Canadian Reserve, or by the Department of Indian Affairs in Ottawa;
• A birth or baptismal record;
• An affidavit from a tribal official or other person knowledgeable about the applicant's or recipient's family history;
• Identification from a recognized Native American provincial or territorial organization.

If a Canadian-born Native American with at least 50% Native American blood can provide one of the above forms of documentation, and meets other Title IV eligibility criteria, the institution, after documenting the student's file may award the student Title IV aid.

Welfare Reform Legislation

Section 484(a)(5) of the HEA recognizes as eligible for Title IV, HEA assistance a student who is "able to provide evidence from the Immigration and Naturalization Service that he or she is in the United States for other than a temporary purpose with the intention of becoming a citizen or permanent resident." The Department has published annually in Appendix A to Chapter 2 of the Student Financial Aid Handbook the various INS statuses and documentation that qualify under the "other than a temporary purpose" category.

On August 22, 1996, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104 - 193, (PRAWORA) was signed into law and became effective. Section 401 of PRAWORA excludes any alien who is not a "qualified" alien from eligibility for any Federal public benefit (a term that, as defined in the Act, includes the Title IV programs). Section 431 of PRAWORA restricts the definition of "qualified alien" to six defined categories: 1) lawfully admitted permanent residents; 2) asylees; 3) refugees; 4) aliens paroled into the United States for at least one year; 5) aliens who have been 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; and 6) aliens who have been granted conditional entry under rules in effect prior to April, 1980.

The Secretary has determined that two categories of non-citizens previously determined to be eligible under section 484(a)(5) of the HEA are no longer eligible because of sections 401 and 431 of PRAWORA. The two ineligible categories are: aliens granted family unity status and temporary residents under the Immigration Reform and Control Act of 1986. Students in these categories do not fit the definition of "qualified alien," and, thus, are no longer considered eligible noncitizens for purposes of receiving Title IV, HEA assistance. As a result of these changes, the only categories of eligible noncitizens that qualify for Title IV, HEA assistance are those in categories 1) through 6) listed in the previous paragraph.

There has been some concern about another provision of PRAWORA that placed certain restrictions on the eligibility of "qualified aliens" (which includes permanent residents) for federal "means-tested" public benefits. PRAWORA, however, excluded all programs under Title IV of the HEA from these restrictions. "Qualified aliens" (as discussed above) who meet the requirements of the HEA may continue to receive student financial assistance without regard to the restrictions on "means-tested" public benefits in PRAWORA.

Children Born Abroad to U.S. Citizen Parents

Several institutions have reported instances in which foreign-born children of U.S. citizens have not been confirmed as U.S. citizens by the data match with the Social Security Administration. If the student does not have any other proof of U.S. citizenship (passport, certificate from the State Department, etc.), he or she can obtain documentation of U.S. citizenship by either of the following procedures, whichever is applicable.

If the student's birth was registered with the American Consulate or Embassy in a foreign country before the student turned 18, the student can write to the Department of State, Passport Correspondence Branch, 1111 19th Street, Suite 510, SW, Washington, D.C. 20522-1705. The student will need to provide his or her name at birth, date and place of birth, parents' names, dates and places of parents' birth, a daytime telephone number, and a $10 check or money order payable to the Department of State. After four to eight weeks, the student should receive either Department of State Form FS-240 or Department of State Form DS-1350, either of which is acceptable for documenting U.S. citizen status.

If the student's birth was not registered and the student is now 18 years of age or older, he or she can file a self petition for "Certification of Citizenship" at a local Immigration and Naturalization Service office on INS form N-600. Proof of the parents' U.S. citizenship at the time of the child's birth must be provided. The resultant Certification of Citizenship is acceptable for documenting the student's U.S. citizen status.

Loan Limits - Graduate/Professional Preparatory Courses

In response to requests from the financial aid community, we have modified our policy regarding loan limits for FFEL and Direct Loan borrowers holding 4-year degrees who are taking coursework required for admission into graduate or professional level programs. We have revised our policy for these students so that the annual loan limits are the same as those for fifth-year undergraduates. These limits are consistent with the limits permitted for degree-holding borrowers enrolled in teacher certification programs. This modified policy is effective for loans originated or certified on or after January 16, 1997.

The statutory requirement that the coursework cover no more than a single, consecutive, twelve-month period continues to apply, as does the requirement that the school collect documentation that the coursework is required for admission into a graduate or professional program.

We understand that preparatory coursework required for admission into a graduate or professional program may be taken at a community college or at other schools that do not usually originate or certify grade-level five loans. These schools may originate or certify a loan at the fifth-year level for their students who are taking coursework required for admission into graduate or professional level programs. Under the FFEL Program, schools should coordinate with their lenders and guaranty agencies in order to prevent system edits from rejecting grade-level five certification records received from schools not normally approved to certify above grade-level two. The Direct Loan Program Loan Origination Center (LOC) is able to accept grade-level five originations from schools that do not normally originate loans above grade-level two.

Consortium Agreements - Acceptance of "D" Grades

Regulations at 34 CFR 600.9 require an eligible "home" institution to give credit to students enrolled in a program under a consortium agreement with another institution on the same basis as if the home institution had provided that program.

The 1996-97 Student Financial Aid Handbook clarified that the phrase "credit on the same basis" meant that the home institution was required to accept "D" grades earned at the "other" institution if the home institution accepted "D" grades for credit at its own campus.

We have reconsidered this policy on the acceptance of "D" grades. An eligible institution that enters into a consortium agreement with another institution for a portion of its eligible program may decline to give its students credit for courses in which those students earned a grade of "D" at the other institution. This policy is in effect even if the home institution has a policy of accepting "D" grades for credit earned at the home institution. This new policy is reflected in the 1997-98 Student Financial Aid Handbook.

Professional Judgment

Modifying Components of the EFC Formula

Institutions are reminded that the authority granted the financial aid administrator (FAA) in section 479A of the HEA to use professional judgment does not apply to general modifications to the formula(s) or tables used in the calculation of an applicant's expected family contribution (EFC). This prohibition includes the replacement or modification of values such as the income protection allowance, tax allowances, taxation rates from adjusted available income, etc. Section 479A also does not allow the FAA to make adjustments to an applicant's cost of attendance or to any of the data items used to calculate the EFC simply because the FAA believes that the values contained in the EFC tables are generally not appropriate or adequate for its Title IV applicants and their families. Individual special circumstances must exist, and be documented, before an FAA may make a professional judgment adjustment.

Income Protection Allowance

When considering whether to use professional judgment to adjust for special circumstances related to an applicant's unusual expenses, financial aid administrators should keep in mind that the income protection allowance in the need analysis formula already accounts for an amount of income that would be required to maintain a modest living standard for the family. For example, during the 1997-98 award year, the income protection allowance for a family of four with one student in college will be $18,070. Of this amount, $1,987.70 represents family expenditures for medical care. Although a family with $2,000 in annual medical expenses may understandably consider these expenses to be worthy of professional judgment consideration, the expenses have already been taken into account in the need analysis formula.

As a rule of thumb, the income protection allowance (Table C3 in the 1997-98 EFC Formula Book) comprises the following: food - 30%; housing - 22%; transportation - 9%; clothing and personal care - 16%; medical care - 11%; and other family consumption - 12%.

Additional Information

For further information on any of these issues you may contact the Department's Customer Support Inquiry Service, between the hours of 9:00 AM and 5:00 PM Eastern Time, at 1-800-433-7327. After hours calls will be accepted by an automated voice response system. Callers leaving their name and phone number will receive a return call the next business day. You may FAX your inquiry to the Customer Support Inquiry Service at any time by calling (202) 260-4199 or you may e-mail your inquiry to the following internet address: csb@sfa.ed.gov.

I hope this information is helpful to you in administering the Title IV, HEA student financial assistance programs.

Sincerely,