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Notice

Proposed Priorities; Gaining Early Awareness and Readiness for Undergraduate Programs; College Savings Account Research Demonstration Project

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ACTION:

Notice.

Overview Information:

Catalog of Federal Domestic Assistance (CFDA) Numbers: 84.334.

Proposed Priorities: Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP)—College Savings Account Research Demonstration Project

SUMMARY:

The Assistant Secretary for Postsecondary Education proposes priorities for a research demonstration project for recipients of new GEAR UP State awards in Fiscal Year (FY) 2011 or FY 2012. Through these priorities, the Department of Education (Department) seeks to determine the effectiveness of pairing federally supported college savings accounts with GEAR UP activities as part of an overall college access and success strategy.

DATES:

We must receive your comments on or before July 2, 2012.

ADDRESSES:

Address all comments about this notice to James Davis, U.S. Department of Education, 1990 K Street NW., Room 7007, Washington, DC 20006-8513.

If you prefer to send your comments by email, use the following address: james.davis@ed.gov. You must include the term “GEAR UP Proposed Priorities” in the subject line of your electronic message.

FOR FURTHER INFORMATION CONTACT:

James Davis: (202) 502-7802; or, by email: james.davis@ed.gov.

If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Invitation to Comment: We invite you to submit comments regarding this notice. To ensure that your comments have maximum effect in developing the notice of final priorities, we urge you to identify clearly the specific proposed priority that each comment addresses.

We invite you to assist us in complying with the specific requirements of Executive Orders 12866 and 13563 and their overall requirement of reducing regulatory burden that might result from these proposed priorities. Please let us know of any further ways we could reduce potential costs or increase potential benefits while preserving the effective and efficient administration of the program.

During and after the comment period, you may inspect all public comments about this notice in room 7007, 1990 K Street NW., Washington, DC, between the hours of 8:30 a.m. and 4:00 p.m., Washington, DC time, Monday through Friday of each week except Federal holidays.

Assistance to Individuals with Disabilities in Reviewing the Rulemaking Record: On request we will provide an appropriate accommodation or auxiliary aid to an individual with a disability who needs assistance to review the comments or other documents in the public rulemaking record for this notice. If you want to schedule an appointment for this type of accommodation or auxiliary aid, please contact the person listed under FOR FURTHER INFORMATION CONTACT.

Purpose of Program: The GEAR UP program is a discretionary grant program that provides financial support for academic and related support services to eligible low-income students, including English learners and students with disabilities, to enable them to obtain a secondary school diploma and to prepare for and succeed in postsecondary education.

Program Authority: 20 U.S.C. 1070a-21-1070a-28.

Applicable Program Regulations: 34 CFR part 694.

Proposed Priorities

Background

Introduction

Research suggests that students with savings accounts may be up to seven times more likely to attend college, even when controlling for other factors (Elliot, Jung, and Friedline, 2010: http://csd.wustl.edu/Publications/Documents/WP10-01.pdf). Yet 25 percent of U.S. households (and 50 percent of Black and Hispanic households) are unbanked or underbanked, meaning that they either do not have a Federally insured deposit account or that they have an account but still rely on costly alternative financial services. Young adults are disproportionately unbanked and underbanked (www.economicinclusion.gov). At the same time, a lack of financial literacy and indicators thereof— such as overestimating the price of college, not applying for Federal student aid, and borrowing expensive private education loans before exhausting lower cost Federal student loan alternatives—are a major roadblock on the path to college access, affordability, and success for too many students and families (http://www2.ed.gov/legislation/FedRegister/announcements/2010-3/072610c.html). Partially as a result of these findings, the Secretary of Education and the Chairmen of the Federal Deposit Insurance Corporation and the National Credit Union Administration announced, in November 2010, a new interagency agreement to increase partnerships among schools, financial institutions, and other stakeholders to help students gain access to deposit accounts, learn about money, and save for college. The Department's press statement on this partnership can be found at: www.ed.gov/news/press-releases/fdic-and-ncua-chairs-join-education-secretary-announce-partnership-promote-finan, and the Secretary's recently recorded video encouraging participation at: http://www.youtube.com/watch?v=uxOoXeOkh_w. Section 404D(b)(10)(E) of the Higher Education Act of 1965, as amended (HEA), expressly authorizes GEAR UP program grantees to design projects that promote participating students' secondary school completion and enrollment in postsecondary education by means that include promotion of financial literacy and economic literacy education or counseling. The FY 2011 GEAR UP application included an invitational priority for financial access and college savings accounts. Although no favorable consideration was promised or granted in the review process to applicants that chose to address this priority, nearly two thirds of the 66 successful applicants included it in their proposals (http://www.ed.gov/news/press-releases/new-gear-grants-awarded-help-more-275000-middle-schoolers-get-pathway-success-co). In response to strong interest in this invitational priority and the Secretary's desire to expand the Nation's knowledge base on the relationship between asset-building strategies and education outcomes for students, the Department is proposing priorities for a competition through which the Department intends to award approximately $8.7 million in FY 2012 and additional FY 2013 GEAR UP funds, if necessary, for a college savings account research demonstration project.

Effectiveness of the Use of College Savings Accounts

Prior research suggests a need for improved financial literacy and asset building strategies geared toward college enrollment, but there is no conclusive evidence about the effectiveness of these strategies. Many low-income families do not understand that they may be eligible for financial aid and, therefore, do not apply (see, for example, Baum and Payea 2011).

Although knowledge about financial aid is important, it appears that low-income families may need to be educated about the importance of college savings. Even low-income families that apply for and receive financial aid for postsecondary education often face substantial out-of-pocket college costs. The average out-of-pocket cost for low-income students enrolled full-time in a public four-year institution in academic year 2007-08 was $10,400 per year (National Center for Education Statistics, December 2010).

Federal and State tax policies provide incentives to families to save for college; contributions to Coverdell Education Savings Accounts and State 529 Plans (qualified tuition programs created by section 529 of the tax code) are often deductible on State income taxes, returns accrued on the investments are mostly free from Federal taxes, and distributions for the beneficiaries' college costs are tax exempt. In addition, 15 States now provide seed money or matching funds for moderate- and low-income families that contribute to State 529 plans.[1] Despite these incentives, participation rates in college savings plans are relatively low, especially among middle- and lower-income families. Previous research also shows that 90 percent of families with college savings plans have college degrees and that the median income of families with these plans was $100,000 (Dynarski, 2004 and Ma, 2004). One survey found that only 36 percent of families with incomes less than $30,000 per year had college savings (Sallie Mae, 2010).

Given the low participation rates in college savings plans for low-income families, education about financial planning for college and financial incentives to encourage saving may be an important part of any college savings intervention. The Saving for Education, Entrepreneurship, and Downpayment (SEED) for Oklahoma Kids demonstration offered initial deposit and matching funds for State 529 plan accounts for a randomly selected group of infants born in Oklahoma in 2007. Their parents were more likely to open and deposit funds in State 529 plan accounts than a randomly selected control group not offered the seed and matching funds. In addition, low-income parents with greater financial literacy were more likely to open the savings accounts than those with less financial literacy (Nam, Lim, Clancy, Zager, and Sherraden, 2011; Huang, Nam, Sherraden, 2012).

While there are and have been efforts to test savings and education outcomes associated with State 529 college savings plans and other college savings accounts (Long and Bettinger, 2011; the SEED for Oklahoma Kids Demonstration), further research is necessary. The demonstration project that the Department is proposing in this notice would be the first of its kind: A rigorous, randomized, and controlled evaluation of the effect of providing students with college savings accounts in the context of comprehensive educational support services provided by GEAR UP grantees. The proposed evaluation would involve using a lottery to select one-half of the schools within each participating grant to be “treatment schools” that offer the services described in the already approved GEAR UP application in addition to GEAR UP supported savings accounts, financial incentives, and financial counseling (treatment services). The other one-half of the schools in each participating grant will be selected by lottery to be “control schools” that offer services described in the already approved GEAR UP application with no savings accounts, additional financial incentives, or additional counseling intervention. The impact of the college savings account intervention—-above and beyond usual GEAR UP services—will be measured by comparing outcomes of students enrolled in treatment and control group schools.

Under this research demonstration project, the Department is proposing two priorities.

Background

Proposed Priority 1: Funding Eligibility

Under Proposed Priority 1, the Department would limit demonstration project eligibility for funding to current State GEAR UP grantees that received new awards in FY 2011 or FY 2012, that select participating students beginning not later than seventh grade using the cohort approach (see section 404B(d)(1) of the HEA), and that have their cohort of students entering the ninth grade in the 2013-2014 academic year.

We would limit eligible State applicants to those whose current GEAR UP projects select participants using the cohort approach because we understand that these State GEAR UP grantees may readily arrange to have participating schools' or Local Educational Agencies' (LEAs') directory information provided to account administrators or trustees to assist with establishing and managing savings accounts for GEAR UP students. Conversely, we are concerned that permitting State GEAR UP grantees using a priority-student method of selecting participating GEAR UP students (see section 404D(c) of the HEA) will lead to such substantial effort and cost of providing requisite information on individual students to the account administrators or trustees as to seriously undermine the research demonstration project itself. This is because, under the Family Educational Rights and Privacy Act (FERPA) and its implementing regulations (20 U.S.C. 1232g and 34 CFR part 99), since not all students in the grade are eligible to receive GEAR UP services, LEAs and schools may not disclose their ”directory information” because the receipt of GEAR UP services is not itself “directory information.” Thus, under FERPA, the disclosure of personally identifiable information from the education records of a subgroup of students receiving GEAR UP services to the account administrator or trustee in order to assist with establishing and managing any savings account, whether funded with Federal GEAR UP funds or private funds, would require prior, written, parental consent.

Under this priority, GEAR UP State grantees that use the cohort approach and that wish to participate in this project must demonstrate their willingness, capacity, and comprehensive plan to carry out the college savings account and financial counseling intervention and participate in the rigorous evaluation, as described in this notice. Accordingly, each applicant must list in its application multiple GEAR UP high schools that serve at least 50 GEAR UP participants who will be in 9th grade during the 2013-2014 academic year, identify the names of the GEAR UP high schools expected to participate in the demonstration, and identify the number of GEAR UP participants at each school expected to be in 9th grade during the 2013-2014 academic year.

Under this proposed priority, to be eligible for funding, an applicant may not currently be implementing a systematic college savings program that provides matching funds for deposits in college savings accounts held on behalf of GEAR UP participants in high schools included in this demonstration project. We are proposing to limit eligibility in this manner because the demonstration project will not provide a valid test of the benefits of these accounts if schools assigned by lottery to the control group are already implementing college savings accounts for GEAR UP students.

We note that because of the limited funds available, it is not possible to use Federal GEAR UP dollars to provide seed funding and savings matches to all students served by GEAR UP State grants. The limited number of possible recipients of seed funding and savings matches for these savings accounts, however, allows for a control group, which is an essential feature of a rigorous study. Under the study design, created by the Department's Institute of Education Sciences, States and the Federal government will be able to rely on evidence developed to inform future policy decisions about college readiness and success, financial decision-making, and savings accounts—whether that means scaling up savings account programs or conducting further research.

The Department intends to rank eligible applicant States according to scores assigned by non-Federal reviewers using the Department's general selection criteria in 34 CFR 75.210. The number of States selected to receive awards will depend on the number of schools and students served by each State GEAR UP program in the demonstration project. Unless the need to achieve the correct sample size requires the Department to select applicants out of order, the Department intends to select States, one after another, beginning with the highest-ranked State as scored by non-Federal reviewers until there is a total across the selected States of 20,000 students who are enrolled in the 9th grade in fall 2013.

Proposed Priority 2: College Savings Accounts Research and Demonstration Project

The lynchpin of this priority is the premise that the combination of supported personal savings accounts and associated financial incentives and counseling will have a positive effect on a variety of measures of college readiness and financial well-being, such as the amount of savings available to support postsecondary education, attitudes about the ability to attend and afford college, academic readiness as measured by participation and performance in college-preparatory courses, postsecondary education enrollment, financial literacy and decision-making, and student borrowing and work decisions.

This proposed priority thus has two main components. The first describes the requirements for establishing, operating, and having students participate in college savings accounts and financial counseling. The second describes the research evaluation that will be conducted to assess the effect of providing these college savings accounts and related financial counseling to students and their parents.

College Savings Accounts and Financial Counseling

Under this demonstration project, approximately 10,000 low-income students served by selected GEAR UP State grants would receive approximately $200 in seed funding that would be placed into personal savings accounts held for these students in trust, pending their graduation from high school and enrollment in a college or university. Matching funds would also be available to encourage students, their families, their parents' employers, community-based organizations, religious organizations, and others to contribute further to students' accounts.

More specifically, a successful applicant would use GEAR UP funds awarded under this competition to provide $200 as an initial deposit in each GEAR UP student's account as well as match contributions for each student up to $10 every month for a maximum of four years. Thus, a student who receives the maximum match would finish high school with at least $1,160 in a personal college savings account—the $200 Federal seed, plus $480 in personal contributions, plus $480 in Federal matching funds. A successful applicant also would be required to maximize the benefit of the matching funds by providing periodic opportunities for the student to make “catch-up” deposits. To protect the integrity of the evaluation, a successful applicant would not be permitted to provide additional seed or matching funding to students participating in the GEAR UP college savings research demonstration project.

An applicant would be required to limit student eligibility to receive college savings accounts, financial incentives to encourage saving, and financial counseling (which would be above and beyond any counseling provided to all GEAR UP students) to only those students enrolled in the 9th grade in one of the randomly selected treatment high schools (as described in the Research Evaluation section of this priority) in the fall of 2013. Any Federal GEAR UP funds that remain in the student's account six years after the student's scheduled completion of secondary school must be returned to the Department.

Each successful applicant would be required to maintain all Federal GEAR UP funds in a single “notional” account that permits returning unused Federal GEAR UP funds to the Department as described in the Proposed Priority 2: College Savings Accounts Research Demonstration Project section of this notice, separate from any non-Federal funds, and to keep track of the amount of Federal GEAR UP seed and matching funds and accrued interest earned by each student. The non-Federal funds would be maintained separately by the account administrator, as described below. While Federal and non-Federal funds would be in separate accounts, each student with these accounts would be able to experience them as having a single account in that the student would see the account balance as reflecting both the total amount of Federal funds earned as well as any non-Federal funds in the account.

Each successful applicant would be required to designate a savings account trustee to manage the account funds and a savings account administrator to hold the account funds. Applicants that do not identify the savings account trustee and savings account administrator must identify the process by which these entities would be selected. The savings account trustee would oversee the accounts held by the savings account administrator and approve withdrawals and other account activities, such as transfers of non-Federal funds to other persons, if permitted. Notwithstanding any existing title IV regulation, qualified withdrawals of Federal and non-Federal funds would not count toward Federal student aid eligibility. The trustee would need to be a State agency, such as a State Department of Treasury, Office of the Governor, Lieutenant Governor, or Comptroller, a tax-exempt non-profit organization or foundation, or for-profit organization or business with demonstrated expertise and experience in successfully managing financial services. The purpose of requiring the participation of the trustee would be to ensure that Federal funds are only spent on qualified educational expenses, as that term is used in section 404E of the HEA upon a student's enrollment in an institution of higher education eligible to participate in student financial assistance under Title IV of the HEA.

The savings account administrator would be required to hold account funds, accept deposits, and issue qualified withdrawals. The account administrator would need to be a Federally or State regulated financial institution, such as an investment firm that manages a State's 529 plan or a Federally insured bank or credit union that partners with the State to administer proposed GEAR UP savings accounts.

The savings account trustee and savings account administrator would need to be separate and distinct entities, not part of the same organization, with the exception that both trustee and administrator could be part of or affiliated with the State government but in different agencies.

During the grant project period, modest administrative fees, not to exceed one percent of account balances, could be paid to the savings account trustee and administrator with Federal GEAR UP funds to cover expenses related to the GEAR UP college savings account demonstration project.

If awarded a grant, the applicant would be required to develop rules on when withdrawals would and would not be permissible (i.e., rules on qualified withdrawals) and on transfers of non-Federal funds to other persons. For example, a State could prohibit withdrawals of non-Federal, individual contributions for what the applicant determines to be a non-qualified expense unless the account holder reaches a specified age. Alternatively, a State could offer a savings plan with existing disbursement rules, such as 529 plans or Coverdell plans, or it could determine its own rules in consultation with the account administrator and account trustee. Since, as described in the College Savings Accounts and Financial Counseling section of this notice (paragraph (d) Withdrawal and Transfer of Federal Funds), withdrawals for non-qualified uses would forfeit the associated Federal match, the applicant also would need to establish for the account trustee the conditions under which funds can be withdrawn for qualified uses, transferred to other persons such as siblings, or accessed at a particular age. The rules developed by a successful applicant would have to require at least that the account trustee oversee all qualified withdrawals and transfers.

States would also need to provide participating students and families in the schools whose students are selected for savings accounts and related financial counseling (the “treatment schools”; see the following subsection Research evaluation) with general and targeted savings account and related financial counseling designed to help them understand the benefits of saving for college, encourage them to save, increase their understanding of relevant mathematical and financial concepts, and prepare them to make sound financial decisions. To ensure GEAR UP or school staff are sufficiently prepared to provide this counseling, the applicant would need to agree to identify highly qualified individuals to provide the counseling and require counselors to participate in Department-provided professional development for GEAR UP or school staff.

Lastly, section 404C(b) of the HEA requires that unless the State has received a waiver under section 404C(b)(2), a State receiving a GEAR UP program award must provide not less than 50 percent of the costs of each year's project from State, local, institutional or private funds. See also 34 C.F.R. § 694.7 through § 694.9. For purposes of this non-Federal match requirement, the Department proposes to treat grants awarded under this research demonstration project as supplementing a State's regular GEAR UP award, albeit for a defined purpose.

Research Evaluation

The proposed evaluation would require 10,000 students to receive the services described in the already approved, regular State GEAR UP application as well as GEAR UP supported savings accounts, financial incentives, and financial counseling (treatment services). An additional 10,000 students will serve as a control group and receive services described in the already approved, regular State GEAR UP application with no savings accounts, additional financial incentives, or additional counseling intervention. While, for purposes of the evaluation methodology, each of the participating schools would need to serve at least 50 GEAR UP participants who will be in 9th grade during the 2013-2014 academic year, the goal is to attain a sample of approximately 100 schools, each serving an average of 200 students enrolled in 9th grade. Thus, under this proposed priority, each applicant would need to agree to the random assignment by the evaluation contractor of one-half of the high schools to receive treatment services (treatment schools) and one-half to be in the control group (control schools).

In addition to any other GEAR UP services offered by these schools, treatment schools must offer to GEAR UP participants who are in the 9th grade in the 2013-14 academic year the college savings account and counseling intervention described in the College Savings Account and Financial Counseling section of this priority. States receiving grants under this competition must continue to offer the matching funds and counseling to GEAR UP students in treatment schools through the students' expected dates of high school graduation in spring 2017. The remainder of the identified high schools will be control schools that will not offer the college savings accounts and counseling intervention but will continue to offer regular GEAR UP services.

The evaluation will examine the effect of the college savings account and counseling intervention on student and family behaviors and their attitudes associated with attending college. The evaluation will also provide descriptive information on the implementation of the college savings account and counseling intervention. To ensure that the evaluation contractor has the information needed to conduct this examination, this priority would require applicants and those local educational agency and school officials submitting letters of support, as described below, to agree to participate in the data collection conducted by the Department's evaluator, which will include, among other items, surveys of State project directors and staff regarding implementation of the project and surveys of students and parents about their participation in GEAR UP program activities in general and other college savings programs. The Department's evaluator also will collect certain information about students in the treatment schools and control schools and data on the college savings accounts established under this project.

An applicant is also required to distribute letters to parents or guardians notifying them about plans for administration of the student survey by the evaluator and the release of designated “directory information” from the education records of the student to the savings account administrator, the savings account trustee, or both, as needed to establish and manage the college savings accounts, along with a form that allows parents or guardians to opt out of participation in the savings accounts. (The Department will provide a sample parent/guardian letter and opt out form.)

The LEAs in the applications must take steps to allow for student information to be shared in compliance with Federal law with the savings account administrator, the savings account trustee, or both, as needed to establish and manage the college savings accounts. Under the provisions of FERPA and its implementing regulations, each of the LEAs in the application or schools therein must have provided public notice that the district or school has designated as “directory information” under FERPA the student's name, grade level, address, and date of birth. The purpose of requiring that this information be designated as “directory information” under FERPA is to allow both college savings accounts—the “notional” account that contains the Federal GEAR UP funds and the account that contains family or other private savings—to be established, if possible, through disclosure of this information to the savings account administrator, the savings account trustee, or both. We do not believe that a school or LEA would need to disclose students' Social Security numbers or other personally identifiable information from the students' education records that has not been designated as directory information to establish college savings accounts; however, we recognize that at some point students or their parents may be required to provide a Social Security Number or other Taxpayer Identification Number to the account administrator and/or trustee for tax purposes, that having such a requirement may depend on the type of account opened and whether the funds in that account are Federal or private, and that, under FERPA, a school or LEA may not disclose a Social Security Number to the account administrator and/or trustee without prior, written, parental consent. We invite comments from the public on this topic.

We also request public comment on the merits and drawbacks of different types of college savings accounts that States would employ to implement the College Savings Accounts and Financial Counseling section of this notice. In particular:

Should the notice of final priorities for this program require a certain type of account for all students across all participating GEAR UP programs?

Is there any arrangement under which college savings accounts that involve only Federal funds and college savings accounts that would also involve private funds may be established without need for a parent's or child's Social Security Number or other Taxpayer Identification Number?

When finalizing this requirement, we will take into consideration the public comments we receive on these issues.

In addition, in accordance with FERPA, if any parents or guardians of a student have opted out of the disclosure of this “directory information,” the school or LEA will not provide “directory information” on that student to the savings account administrator or the savings account trustee and that student will not have a savings account with GEAR UP seed money opened in his or her name, unless the parent or guardian of that student provides consent under 34 CFR 99.30.

To ensure there is adequate support for the applicant's participation in this research demonstration project, we are also proposing that a State include in its application—

  • Letters from both the relevant State Educational Agency (SEA), or other State agency that is the GEAR UP grantee, and participating LEAs agreeing to provide the relevant data to the Department's evaluator, including rosters of students and their administrative records for students in both the treatment group and the control group in order to permit an evaluation of this Federally-supported education program;
  • A letter from the principal of each high school identified in the application agreeing to participate in all aspects of the evaluation and grant; and
  • A letter from the superintendent of each LEA overseeing the schools in the evaluation, agreeing to (1) cooperate in all aspects of the evaluation, including random assignment of schools, allowing the GEAR UP program to offer the college savings account and counseling intervention, and (2) ensure that the LEA or schools in the LEA have publically designated as “directory information” student's names, addresses, grade levels, and dates of birth so that this information can be provided, assuming that the parents and guardians have not opted out of the disclosure of their child's “directory information,” to the savings account administrator, the savings account trustee, or both to assist with establishing and managing the college savings accounts for students in the treatment schools that are in the 9th grade in 2013-2014 academic year.

Moreover, while we intend, if possible, that the provision of school or LEA directory information to the account administrator, trustee, or both would be sufficient to establish the student savings accounts, we understand that different schools and LEAs may define directory information differently and have differing policies for its disclosure. Therefore, the LEA superintendent's letter of support would also need to include—

  • An assurance that the LEA has in place, or will have in place by July 1, 2013, directory information policies that allow for student information, including the student's name, grade level, address, and date of birth, to be shared in compliance with Federal law with the savings account administrator, the savings account trustee, or both, as needed to assist with establishing and managing the college savings accounts.

Proposed Priorities

Under 34 CFR 75.105(c), the Secretary proposes the following priorities for a research demonstration project to determine the effectiveness of implementing college savings accounts and providing financial counseling in conjunction with other GEAR UP activities as part of an overall college access and success strategy. These proposed priorities are as follows:

Proposed Priority 1: Funding Eligibility

To meet this priority, an applicant must—

(a) Have received a new GEAR UP State grant in FY 2011 or FY 2012 that supports activities in multiple high schools, each of which must serve at least 50 GEAR UP participants who will be in 9th grade during the 2013-2014 academic year;

(b) Use the cohort approach (see section 404B(d)(1) of the HEA) to select participating GEAR UP students; and

(c) Identify in its application the names of the GEAR UP high schools expected to participate in the demonstration and the number of GEAR UP participants expected to be in 9th grade during the 2013-2014 academic year at each GEAR UP school identified.

Proposed Priority 2: College Savings Accounts Research Demonstration Project

To meet this priority, and as described in the College Savings Accounts and Financial Counseling section of this priority, an applicant must submit in its application a comprehensive plan for providing (1) students in the GEAR UP high schools identified by the applicant with safe and affordable deposit accounts at federally insured banks, credit unions, or other institutions that offer safe and affordable financial services consistent with provisions of this Priority, and (2) financial incentives to encourage saving and related financial counseling to students and parents.

An applicant also must agree in its application to participate in an evaluation of this college savings account demonstration project that will examine the effect of college savings accounts and counseling on student and family behaviors and attitudes associated with college enrollment, as described in the Research Evaluation section of this priority. The Department's Institute of Education Sciences (IES) in partnership with the Office of Postsecondary Education (OPE) will oversee the evaluation, which will be conducted by an IES evaluation contractor.

I. College Savings Accounts and Financial Counseling

The applicant must describe in its application its plan for implementing college savings accounts and financial counseling, including how it will, preferably at the time of application, but no later than in time to have all savings accounts operational before the start of the 2013-2014 school year—

(a) Student Savings Accounts

(1) In partnership with a financial institution, provide students with an account that allows saving in an interest-bearing, Federally insured deposit account, U.S. Government Treasury securities, or a fully guaranteed savings option within a 529 College Savings plan. Accounts may also present students and families with investment options that present risks in exchange for the potential for larger returns but that are in no way guaranteed.

(2) Ensure that Federal funds are maintained in a single “notional” account that is in fact separate from any non-Federal funds, tracks the amount of Federal GEAR UP seed and matching funds and accrued interest earned by each student, permits each student to see both the Federal funds and associated interest earned as well as any non-Federal funds in a single account statement, and is invested only in federally insured vehicles or U.S. Treasury securities;

(3) Ensure that the non-Federal investments are in U.S. Government Treasury securities or a low- or no-fee age-based fund unless the parents or student choose otherwise;

(4) Open savings accounts for students in automatic or nearly automatic fashion and describe how the savings account enrollment approach entails or approximates an automatic enrollment framework. Automatic enrollment means parents and students are not required to opt into the account, but may opt out of it. If parents and students take no action, the account is opened. Action is required to decline participation.

Note:

Applicants are also encouraged to propose automatic savings options, such as automatic payroll deductions by parents of participating students.

(5) Ensure that individual deposits could be made easily and at no cost by the student, the student's parents, or others on the student's behalf; that deposits would be able to be made online, including on mobile devices, in person at convenient locations, and by mail; and that account information would be viewable online, including on mobile devices; and

(6) Ensure that funds are held in the name of the account trustee described in paragraph (k) of part I of this priority with the participating students named as beneficiaries.

(b) Federal Seed and Matching

Provide for Federal seed and matching of Federal funds in student savings accounts for students in participating treatment high schools as follows:

(1) Within two weeks of the beginning of students' 9th grade school year in the fall of 2013, seed each student's account with $200 in Federal GEAR UP funding.

(2) Each month, for every contribution up to $10 beyond the initial seed amount the student or family deposits into the student's account, deposit an additional equal size contribution up to $10 of Federal GEAR UP funding into the account, for a maximum of $120 in Federal matching funds each year for a maximum of four years.

(3) Notwithstanding the monthly cap on contributions referenced in paragraph two above, once per quarter during each calendar year during the project period, on a date approved by the Department, offer students and parents a two-week catch-up period if the student has not earned the maximum monthly match for that year and encourage students and families to make contributions at least sufficient to earn up to the maximum Federal match.

(4) Ensure that if, at the end of each calendar year, the student has not exhausted the Federal match, any unearned matching funds would no longer be available to that student or to the applicant and would be returned to the Department.

(c) Non-Federal Seed and Matching

Not provide additional seed or matching funding from GEAR UP or non-GEAR UP resources to participating students.

(d) Withdrawal and Transfer of Federal Funds

Provide for the withdrawal and transfer of Federal GEAR UP funds as follows:

(1) The applicant must ensure that withdrawals of Federal GEAR UP funds are made only upon approval of the savings account trustee and are only made from the account to eligible students, or to an institution of higher education on behalf of a student upon that student's enrollment in an HEA title IV-eligible institution of higher education for the purposes of paying for tuition, fees, course materials, living expenses, and other covered educational expenses as defined in the HEA.

(2) An account trustee may not withdraw Federal GEAR UP funds for non-qualified purposes and may not transfer them to other individuals. If this rule is broken, the Department may require the applicant to terminate its relationship with the trustee and select a different entity to serve as savings account trustee. The initial trustee may be subject to penalties for misuse of Federal funds.

(e) Withdrawal and Transfer of Non-Federal Funds

Establish rules for the withdrawal and transfer of non-Federal funds, which must include a requirement that any withdrawal or transfer of non-Federal funds must be overseen by the account trustee. A withdrawal of non-Federal funds from the savings account for non-qualified purposes will result in a removal of Federal matching funds that have been contributed on behalf of the student if the amount of non-Federal funds remaining in the account after the non-qualified withdrawal is less than the total amount of Federal matching funds contributed (not including the $200 Federal seed).

For example, if student and parent contributions total $140, Federal GEAR UP matches total $120, and the student withdraws $50 in non-Federal funds for non-qualified purposes, then $30 in Federal GEAR UP matching funds earned up until that point would be removed from the account because the amount of non-Federal funds remaining in the account after the non-qualified withdrawal—$90—is $30 less than the amount of Federal matching funds contributed. The Federal matching funds could be earned back in catch-up periods during that same year. The $200 seed money provided with Federal GEAR UP funds will not be removed from the account.

(f) Student Eligibility

Establish student eligibility to receive Federal GEAR UP funds as seed and match for GEAR UP student savings accounts as follows:

(1) Students must be enrolled in the 9th grade in one of the randomly selected treatment high schools (as described in the Research Evaluation section of this priority) in the fall of 2013.

(2) If a student does not use funds in the student's account within six years of his or her scheduled completion of secondary school, the undisbursed Federal GEAR UP funds must be returned to the Department.

(3) Students who transfer from a GEAR UP high school to a non-GEAR UP high school during the project period will continue to remain eligible for the matching funds from the grantee.

(g) Financial Counseling

Provide general and targeted (that is, specific to each individual's account and financial circumstances) savings account and financial counseling to students in the treatment group and to their parents. Counseling should encourage regular saving and prepare students and their families to make informed financial decisions about college and other matters. Counseling must include at least 12 hours per year of counseling for students and at least biannual counseling meetings for parents, which must include a review of the contributions to the account and any interest accrued. The counseling must be in addition to, and may not serve as, the financial aid, financial literacy, or college savings counseling already provided as part of regular GEAR UP services.

(h) Staff Professional Development and Coordination With the Department

(1) Agree to participate in Department-provided professional development for the GEAR UP or school staff who will deliver the financial planning and counseling described in paragraph (g) of part I of this priority.

(2) Ensure that the project director of the project participates in a meeting in Washington, DC, in the fall of 2012 to discuss the logistical and administrative issues in setting up the college savings accounts.

(i) Site Coordination

Designate a site coordinator for each GEAR UP high school that participates in the demonstration and describe the role of the coordinator and to whom he or she will be accountable. The site coordinators in schools that are randomly selected to provide college savings accounts and financial counseling (treatment schools) have responsibility, exercised consistent with the State's plan and approved project application, for ensuring that their schools meet all requirements for participating in the college savings demonstration project. Coordinators must, for example, ensure that college savings accounts are opened and seeded within two weeks of the start of 9th grade, that related financial counseling and coaching are provided to participating students and parents, and that schools cooperate with data collection for the evaluation. (See the Research Evaluation section of this priority for further information on selection of the treatment schools). Site coordinators in schools that are not participating in the college savings account and counseling intervention (control schools) must ensure that their schools cooperate with the data collection for the evaluation.

(j) Savings Account Administrator

Select a savings account administrator to hold the account funds, accept deposits, and issue qualified withdrawals. The applicant must identify the account administrator in the application or describe the process by which the account administrator will be selected.

The account administrator must be able to fulfill its role until all Federal funds have been disbursed or returned to the Department. During the grant project period, modest administrative fees, not to exceed one percent of account balances, could be paid to the savings account administrator with Federal GEAR UP funds to cover expenses related to the GEAR UP college savings account demonstration project.

(k) Savings Account Trustee

Select a savings account trustee to manage the account funds and approve withdrawals and other account activities. The account trustee must have demonstrated experience in successfully managing financial services. The applicant must identify the account trustee in the application or describe the process by which the account trustee will be selected.

The account trustee must be able to fulfill its role until all Federal funds have been disbursed or returned to the Department. The account trustee may not be a student's parent or other individual, and must be separate and distinct from the account administrator. The trustee must be a State agency, such as a State Department of Treasury, Office of the Governor, Lieutenant Governor, or Comptroller, a tax-exempt non-profit organization or foundation, or for-profit organization or business with demonstrated expertise and experience in successfully managing financial services. During the grant project period, modest administrative fees, not to exceed one percent of account balances, could be paid to the savings account trustee with Federal GEAR UP funds to cover expenses related to the GEAR UP college savings account demonstration project.

(l) Grantee Coordinator

Specify a person or persons at the State and LEA level who will administer and coordinate all components of the demonstration, including provision of services provided by the GEAR UP high schools, monitoring the rules established for and activities carried out by the savings account administrators and trustees including distribution of letters, notifying parents or guardians about the administration of the student survey by the evaluator and about the release of designated “directory information” from the education records of the student to the savings account administrator, the savings account trustee, or both, as needed to assist with establishing and managing the college savings accounts, and distributing forms enabling parents or guardians to opt out of participation in the research demonstration project. (The Department will provide a sample parent/guardian letter and opt out form.) The grantee coordinator must also include aggregate information about the college savings account demonstration project in the grantee's annual performance report to the Department, including the number of accounts opened and the total amount of Federal GEAR UP matching funds deposited on behalf of students. The grantee coordinator must also respond to the evaluators' annual request for information on individual student accounts, including the timing and amounts of disbursements of seed and matching funds, and the student's name, address, and date of birth.

(m) Directory Information Policies

Include only districts or schools that will have directory information policies in place prior to July 1, 2013, that allow for student information to be shared in compliance with Federal law with the savings account administrator, the savings account trustee, or both, as needed to establish and manage the college savings accounts. Under the provisions of FERPA and its implementing regulations (20 U.S.C. 1232g and 34 CFR part 99), each of the LEAs or schools in the application must have provided public notice that the district or schools have designated as “directory information” under FERPA the student's name, address, grade level, and date of birth. In addition, in accordance with FERPA, if any parents or guardians of a student has opted out of the disclosure of this “directory information,” the school or LEA will not provide the “directory information” for that student to the savings account administrator, the savings account trustee, or both, as needed to assist with establishing the college savings accounts, and savings accounts with GEAR UP seed money will not be opened in his or her name, unless the parent or guardian of that student provides consent under 34 CFR 99.30.

(n) Grantee Non-Federal Match Requirement

Meet the statutory non-Federal match requirement (see section 404C(b) of the HEA.)

Note:

A State grantee would meet the statutory match requirement tied to these additional research demonstration project funds through any “over-matched” non-Federal funds it already is committed to providing under its regular GEAR UP application. A State that would need to provide other non-Federal funds in order to meet the statutory match requirement tied to GEAR UP funds provided for research demonstration project would need to include with its application a budget of how it proposed to do so. Contributions of students, families, parents' employers, community-based organizations, religious organizations, and others to student savings account could be treated as a matching contribution, but, if during any project year these private contributions to savings account were less than anticipated, a State would have to ensure by the end of each project year that it had met the annual matching requirement through other non-Federal contributions to this project or the regular GEAR UP activities.

(o) Budget

Provide a budget and budget narrative with projected charges of Federal GEAR UP funds and any non-Federal matching contributions, that describes the expected costs of implementing the proposed project, including provision of payment to the account administrator, the account trustee, or both of reasonable costs for managing the savings accounts according to requirements of this section.

II. Research Evaluation

The applicant must describe in its application its agreement to the following:

(a) Random Assignment of Schools. An applicant must—

(1) Agree to a random assignment by the evaluation contractor of one-half of the high schools identified in its application to for their students to receive treatment services (treatment schools). In addition to any GEAR UP services offered at these schools, GEAR UP projects must offer, at these treatment schools, the college savings account and financial counseling intervention in accordance with priority 1 (Funding Eligibility). The students in the remainder of the high schools (control schools) will not receive the college savings account and financial counseling intervention but will continue to receive regular GEAR UP services.

(2) Agree not to offer a program that provides seed or matching funds for college savings accounts in the control schools for the duration of the GEAR UP grant.

(b) Data Collection. (1) The applicant and the LEA(s) and GEAR UP high schools that would like to implement college savings accounts (some of which will become control schools) must agree to participate in the data collection conducted by the Department's evaluator, which will include the following:

(i) Two surveys of GEAR UP project directors at the SEA or LEA level and site coordinators at each school about the implementation of the college savings account and counseling intervention, including the extent to which the college savings account counseling was provided in the treatment schools and counseling and other services were provided under the GEAR UP grant in both treatment and control schools;

(ii) Two surveys of GEAR UP students about their participation in GEAR UP program activities and other college access programs; their expectations about college enrollment and costs; their knowledge about college savings and financial aid; their financial literacy; their plans for enrollment in college-preparatory courses; and their financial behaviors, including the extent to which they are saving for college;

(iii) Two surveys of parents of students participating in the GEAR UP program, in a form that will be comprehensible to parents of English language learners, about their participation in GEAR UP program activities and other college access programs; their expectations about their child's college enrollment and costs; their knowledge about college savings and financial aid; their financial literacy; and their financial decisions, including the extent to which they are saving for college;

(iv) For treatment schools, data on the extent to which their staff attend the required professional development;

(v) For both treatment and control schools, rosters of all GEAR UP participants who are in the 9th grade in fall 2013, including the names of the students, and other identifying information (such as their dates of birth, zip codes, or district or school identification numbers) that will enable the Department's evaluator to request the administrative records from the State or LEA about the appropriate students;

(vi) Access to the appropriate State or LEA school administrative records, which will be used to measure student characteristics and achievement prior to the 9th grade, student attendance, course taking patterns, and credits in grades 9-12 for students in the treatment and control schools;

(viii) From the grantee, annual information on individual student accounts, including the timing and amounts of disbursements of seed and matching funds, and the student's name, address, and date of birth.

(c) Letters of Support. Each applicant must include in its application the following:

(1) Letters of support from the relevant LEAs. Unless the SEA agrees in the application to provide this same data on its own, these letters of support also must contain the LEA's agreement to provide the relevant school records data to the evaluation contractor, including the following school records data for GEAR UP participants who are enrolled in the 9th grade in the treatment schools and control schools in the fall 2013, regardless of whether the student has continued to be enrolled in his or her original high school:

(i) Scores on State or district-administrated assessments of reading and math for the 7th and 8th grades and high school years;

(ii) High school attendance;

(iii) High school courses in which the student was enrolled and grades and credits received for those courses;

(iv) Demographic information such as gender, race/ethnicity, parents' educational attainment, English proficiency, and the extent to which a language other than English is spoken at home;

(v) Whether the student is certified as eligible for free or reduced price lunch through the National School Lunch Program; and

(vi) Whether the student has an individualized education program.

(2) A letter from the principal of each high school identified in the application agreeing to participate in all aspects of the evaluation and grant, including:

(i) Random assignment of the high school;

(ii) If randomly selected to implement the intervention, allowing the GEAR UP program to offer the college savings account and counseling intervention to eligible GEAR UP participants at the principal's high school; and

(iii) Regardless of whether a school is in the treatment or control group, provision to the evaluation contractor of rosters of GEAR UP participants who are in the 9th grade in fall 2013, including identifying information (such as student names, dates of birth, zip codes, or district or school identification numbers) that will enable the contractor to request the administrative records from the State or LEA about the appropriate students.

(3) Letter from the superintendent of each LEA overseeing the schools in the evaluation, agreeing to all aspects of the evaluation and grant, including—

(i) Random assignment of the high schools;

(ii) If randomly selected to implement the intervention, an agreement allowing the State GEAR UP program to offer the college savings account and financial counseling to eligible GEAR UP participants consistent with the priorities and requirements in this notice; and

(iii) Regardless of whether the schools are in the treatment or control group, an agreement to provide to the evaluation contractor rosters of GEAR UP participants who are in the 9th grade in fall 2013, including identifying information (such as student names, dates of birth, zip codes, or district or school identification numbers) that will enable the contractor to request the administrative records from the State or LEA about the appropriate students.

(iv) An agreement to have district or school directory information policies in place prior to July 1, 2013 that allow for student information to be shared in compliance with Federal law with the savings account administrator, the savings account trustee, or both, as needed to establish and manage the college savings accounts. Under the provisions of the FERPA and its implementing regulations, each of the LEAs in the application or schools therein must have provided public notice that the district or school has designated as “directory information” under FERPA the student's name, grade level, address, and date of birth. In addition, in accordance with FERPA, if any parents or guardians of a student has opted out of the disclosure of this student directory information, the school or LEA will not provide “directory information” on that student to the savings account administrator or the savings account trustee and savings accounts with GEAR UP seed money will not be opened in his or her name, unless the parent or guardian of that student provides consent under 34 CFR 99.30.

Types of Priorities:

When inviting applications for a competition using one or more priorities, we designate the type of each priority as absolute, competitive preference, or invitational through a notice in the Federal Register. The effect of each type of priority follows:

Absolute priority: Under an absolute priority, we consider only applications that meet the priority (34 CFR 75.105(c)(3)).

Competitive preference priority: Under a competitive preference priority, we give competitive preference to an application by (1) awarding additional points, depending on the extent to which the application meets the priority (34 CFR 75.105(c)(2)(i)); or (2) selecting an application that meets the priority over an application of comparable merit that does not meet the priority (34 CFR 75.105(c)(2)(ii)).

Invitational priority: Under an invitational priority, we are particularly interested in applications that meet the priority. However, we do not give an application that meets the priority a preference over other applications (34 CFR 75.105(c)(1)).

Final Priorities:

We will announce the final priorities in a notice in the Federal Register. We will determine the final priorities after considering responses to this notice and other information available to the Department. This notice does not preclude us from proposing additional priorities subject to meeting applicable rulemaking requirements.

Note:

This notice does not solicit applications. In any year in which we choose to use one or more of these priorities, we invite applications through a notice in the Federal Register.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must determine whether this regulatory action is “significant” and therefore subject to the requirements of the Executive order and subject to review by Office of Management and Budget (OMB). Section 3(f) of Executive Order 12866 defines a “significant regulatory action” as an action likely to result in a rule that may—

(1) Have an annual effect on the economy of $100 million or more, or adversely affect a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments, or communities in a material way (also referred to as an “economically significant” rule);

(2) Create serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

This proposed regulatory action is not a significant regulatory action subject to review by OMB under section 3(f) of Executive Order 12866.

We have also reviewed these priorities under Executive Order 13563, which supplements and explicitly reaffirms the principles, structures, and definitions governing regulatory review established in Executive Order 12866. To the extent permitted by law, Executive Order 13563 requires that an agency—

(1) Propose or adopt regulations only on a reasoned determination that their benefits justify their costs (recognizing that some benefits and costs are difficult to quantify);

(2) Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives and taking into account—among other things and to the extent practicable—the costs of cumulative regulations;

(3) In choosing among alternative regulatory approaches, select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);

(4) To the extent feasible, specify performance objectives, rather than the behavior or manner of compliance a regulated entity must adopt; and

(5) Identify and assess available alternatives to direct regulation, including economic incentives—such as user fees or marketable permits—to encourage the desired behavior, or provide information that enables the public to make choices.

Executive Order 13563 also requires an agency “to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” The Office of Information and Regulatory Affairs of OMB has emphasized that these techniques may include “identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes.”

We are issuing these proposed priorities only on a reasoned determination that the benefits justify the costs. In choosing among alternative regulatory approaches, we selected those approaches that maximize net benefits. The Department believes that this proposed regulatory action is consistent with the principles in Executive Order 13563.

We also have determined that this regulatory action would not unduly interfere with State, local, and tribal governments in the exercise of their governmental functions.

In accordance with both Executive orders, the Department has assessed the potential costs and benefits of this regulatory action. The potential costs associated with this proposed regulatory action are those resulting from statutory requirements and those we have determined as necessary for administering this program effectively and efficiently. The potential benefits are those resulting from the provision of college savings accounts, financial incentives, and financial counseling to 10,000 GEAR UP students and parents, and the evidence gained about the effect of providing these in the context of GEAR UP support services.

Intergovernmental Review: This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive Order is to foster an intergovernmental partnership and a strengthened federalism. The Executive Order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance.

This document provides early notification of our specific plans and actions for this program.

Accessible Format: Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or compact disc) on request to the program contact person listed under FOR FURTHER INFORMATION CONTACT.

Electronic Access to This Document: The official version of this document is the document published in the Federal Register. Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available via the Federal Digital System at: www.gpo.gov/fdsys. At this site you can view this document, as well as all other documents of this Department published in the Federal Register, in text or Adobe Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site. You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

Dated: May 25, 2012.

Eduardo M. Ochoa,

Assistant Secretary for Postsecondary Education.

Footnotes

1.  Information obtained in January 2012 from www.savingsforcollege.com, using options “compare by features, program match on contributions.”

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[FR Doc. 2012-13232 Filed 5-31-12; 8:45 am]

BILLING CODE 4000-01-P