higher education may treat as direct costs:

(1) Personnel costs, both professional and clerical, regular staff and consultants, including all amounts deducted, withheld, or contributed to retirement, health, or other welfare benefit funds maintained for employees of the participating institutions;

(ii) Material costs, where materials are directly consumed or expended in carrying out the program, including the cost of supplies, mailing, and printing;

(ii) Travel expenses of institutional personnel and consultants, in accordance with institutional regulations or policies; and

(iv) Rental of, or, where economically justified, purchase of specialized program equipment which is not otherwise available at the institution.

(2) Indirect costs. A participating institution may treat as indirect costs an amount which is computed on the basis of the principles for indirect cost determination set forth in Bureau of the Budget Circular A-21 as amended.

§ 173.28 Fiscal audits.

The Department will audit the records relating to the expenditures by the State agency in order to determine whether the State agency has properly accounted for Federal funds. The State agency shall be responsible for the audit of funds expended by the institutions of higher education participating in the program.

§ 173.30 Disposition of equipment.

(a) The Federal share of the cost of any single item of equipment initially costing $100 or more in which the Federal Government has participated (whether acquired with funds derived from Federal grants or from matching funds) which ceases to be used in the community service program, or in connection with the administration of the plan under which it was purchased, or is on hand on the termination date of the community service program for which it was purchased or the program described in this part, shall be accounted for by one of the following methods:

(1) Similar program usage. An item may be used, without adjustment of accounts, in any other community service program (whether or not receiving financial assistance under this program) provided, however, that during such use no charge for depreciation, amortization or other use shall be made against any existing or future Federal grant or contract. An item may be sold and the Federal share of the net proceeds of sale credited to the institution's or State agency's account for program use.

(2) Nonprogram usage or disposition; crediting of proceeds or value. (1) If, during the period of its useful life, an item is sold or transferred for other than program use, or, if used or disposed of in any other manner, the Federal share of the proceeds or of the fair market value on the (a) date of sale, (b) date on which the item ceased to be used in the program, or (c) date of program termination, whichever first occurs, shall be credited to or paid to the United States.

(ii) The Commissioner, however, in his discretion, may waive credit or payment to the United States where equipment remains on termination of the program described in this part.

(iii) To the extent an item purchased from grant funds has been used for credit or "trade-in" on the purchase of new items of equipment, the accounting obligation shall apply to the same extent to such new items.

(b) Inventories and records are required to be kept for all items of equipment, initially costing $100 or more in which the Federal Government has participated (whether acquired with funds derived from Federal grants or from matching funds). The State educational agency shall maintain records sufficient for & determination as to

whether the use of such equipment continues to be for a purpose provided for under Title I of the Act, or, if not, records showing its disposition.

Subpart E-Payment Procedures

§ 173.31 Federal payment to a State.

(a) Payments to a State under this part may be made directly to the State agency, or, upon special request of a State agency, to one or more participating institutions of higher education.

(b) Payments will be made only after approval of the State plan and any required annual amendments thereto, and receipt of the certification required under § 173.22. Payments may be made in equal or graduated installments either in advance or by way of reimbursement on the basis of estimates contained in the State plan or amendments thereto, and any other reports required to be submitted under section 105(a) (6) of the Act or § 173.20. Necessary adjustments will be made at the time of each payment on account of overpayments or underpayments for any prior period. Attention is directed to §§173.32 and 173.36. § 173.32 Continuing authorization of

payment.

(a) Until the State agency is notified by the Commissioner that (1) a redetermination has been made of the amount to which a State is eligible or (2) a finding has been made pursuant to section 107(b) of the Act and § 173.6 that the State is no longer eligible to participate in this program, the Commissioner shall be deemed to have given implied authorization of further payments under this part.

(b) Neither the approval of the State plan, the issuance of a Letter of Credit, the approval of withdrawals thereunder, nor the making of any direct payments to the State or participating institutions shall be deemed to waive the right or duty of the Commissioner to withhold funds by reason of the failure of the State to observe any Federal requirements set out in the Act or regulations related thereto or any other relevant Federal Act or Order, either before or after such administrative action respecting payment.

(a) In order to provide a basis for reallotment by the Commissioner pursuant to section 103(b) of the Act, each State agency will submit, upon request of the Commissioner by such date(s) as the Commissioner may specify, a statement showing all estimated anticipated needs during the remainder of the current fiscal year for carrying out the State plan. The statement will contain estimates based on the estimated costs of completing community service programs already approved without expansion or other modification as well as the costs of expanding or modifying already approved community service programs and approving new community service programs which will further carry out and develop the objectives of the plan. The Commissioner may also request any additional information on such reports as he desires for the purpose of making reallotment.

(b) Subsequent to the review of the above described required reports and prior to the date fixed by the Commissioner for reallotment of funds, the Commissioner will notify each State agency affected by reallotment of his determination respecting the State's allotment. The Commissioner shall thereafter either modify the amount authorized for payment to the State or if an overpayment has already been made, direct the State to return to the Commissioner whatever amount the Commissioner determines the State does not require.

§ 173.35 Interstate transfer of allot

ments.

Where two or more States agree that a portion of the Federal allotment of one State be added to and combined with that of the other State, there shall be submitted to the Commissioner, as part of both State plans or as amendments thereto, the following information:

(a) A request that a specified amount of one State's allotment be transferred

to the other State for purposes described therein;

(b) A description of the community service program(s) for which the funds will be used by the recipient State;

(c) A statement of the total amount to be expended for such program(s) and the amount of the non-Federal share thereof;

(d) A statement indicating how the requirement for matching funds and/or maintenance of effort will be assumed by either or both institutions;

(e) A statement showing how such program(s) will assist in the solution of community problems of concern to both participating States; and

(f) A certified statement from the recipient State agency that it will use the funds for the purposes identified by the State requesting such transfer.

§ 173.36 Interest on Federal funds.

In the event that any interest is earned on Federal funds, it shall be credited to the United States. The State agency shall submit as a part of each annual financial report a statement showing the amount of interest earned on Federal funds during that fiscal year. Such interest earnings will be considered in the adjustment of the next payment due. Where, however, an institution or State will not participate in the program during a subsequent period, such interest shall be refunded to the Commissioner. § 173.37 Termination of program.

Where any State desires not to participate in this program during a subsequent year, or upon termination of the program described in this part, the State shall refund to the Commissioner any overpayments which have been made either to the State agency or to a participating institution.

(a) "Act" means Title IV, Part B of the Higher Education Act of 1965 (P.L. 89-329).

(b) References to sections are to sections of this part, unless otherwise indicated.

(c) "Academic year or its equivalent," for purposes of determining the amount of loan insurance authorized pursuant to § 177.12 (a) (1) (i) and (ii), means the number of credit hours which a student must acquire during any one school year in order to secure the degree or certificate toward which he is working in the number of semesters or terms normally taken therefor at the institution where he is pursuing a course of study. Generally, the total number of credits required for a degree or certificate when divided by the number of academic years normally required to obtain the degree or certificate will provide the number of credits which may be considered an equivalent academic year.

(d) "Commissioner" means the U.S. Commissioner of Education or his desig

nee.

(e) "Eligible institution" or "institution" means an educational institution in any State which (1) admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such certificate, (2) is legally authorized within such State to provide a program of education beyond secondary education, (3) provides an educational program for which it awards a bachelor's degree or provides not less than a 2-year program which is acceptable for full credit toward such a degree, (4) is a public or other nonprofit institution, and (5) is accredited by a nationally recognized accrediting agency or association approved by the Commissioner for this purpose, or, if not so accredited, (i) is an institution with respect to which the Commissioner has determined that there is satisfactory assurance, considering the resources available to the institution, the period of time, if any, during which it has operated, the effort it is making to meet accreditation standards, and the purpose for which this determination is being made, that the institution will meet the accreditation standards of such an agency or association within a reasonable time, or (ii) is an institution whose credits are accepted on transfer by not less than three institutions which are so accredited, for credit on the same basis as if transferred from an institution so accredited. Such term also includes any public or other nonprofit collegiate or associate degree school of nursing, and any school which provides not less than a 1-year program of training to prepare students for gainful employment in a recognized occupation and which meets the provisions of subparagraphs (1), (2), (4), and (5) of this paragraph. If the Commissioner determines that a particular category of such schools does not meet the requirements of subparagraph (5) of this paragraph because there is no nationally recognized accrediting agency or association qualified to accredit schools in such category, he shall, pending the establishment of such an accrediting agency or association, appoint a committee, composed of persons specially qualified to evaluate training provided by schools in such category, which shall (a) prescribe the standards of content, scope, and quality which must be met in order to qualify schools in such

category to participate in the program pursuant to this part, and (b) determine whether particular schools not meeting the requirements of subparagraph (5) of this paragraph meet those standards. For purposes of this paragraph, the Commissioner shall publish a list of nationally recognized accrediting agencies or associations which he determines to be reliable authority as to the quality of training offered.

(f) "Collegiate school of nursing" means a department, division, or other administrative unit in a college or university which provides primarily or exclusively an accredited program of education in professional nursing and allied subjects leading to the degree of bachelor of arts, bachelor of science, bachelor of nursing, or to an equivalent degree, or to a graduate degree of nursing.

(g) "Associate degree school of nursing" means a department, division, or other administrative unit in a junior college, community college, college, or university which provides primarily or exclusively an accredited 2-year program of education in professional nursing and allied subjects leading to an associate degree in nursing or to an equivalent degree.

(h) "Accredited" when applied to any program of nursing education means a program accredited by a recognized body or bodies approved for such purpose by the Commissioner.

(i) "Eligible lender" means an eligible institution as defined in paragraph (e) of this section, an agency or instrumentality of a State, or a financial or credit institution (including banks, credit unions and insurance companies) which is subject to examination and supervision by an agency of the United States or any State.

(j) "Nonprofit" as applied to an agency, organization, or institution means an agency, organization, or institution owned and operated by one or more nonprofit corporations or associations no part of the net earnings of which inures or may lawfully inure, to the benefit of any private shareholder or individual.

(k) "Full-time student" means a stuIdent who is enrolled in, and is carrying a sufficient number of credit hours or their equivalent to secure the degree or certificate toward which he is working in no more than the number of semesters

or terms normally taken therefor at the institution in which he is enrolled. This term includes any student who is pursuing any combination of courses, research or special studies (whether or not for credit) which the institution considers full-time study.

(1) "Half-time student" means a student who is carrying at least one-half the normal full-time academic workload as determined by the institution in which he is enrolled.

(m) "Guarantee agency" means the State agency or private nonprofit institution or organization administering a student loan insurance program.

(n) "Holder" means only an eligible lender or an assignee who meets the qualifications of an eligible lender but in no event includes the guarantee agency with respect to loans insured by it.

(o) "Default" means the failure to make an installment payment when due, or to comply with other terms of the note or other written evidence of agreement, which persists (e.g., is not cured either by payment or other appropriate arrangements) in the case of a loan repayable in monthly installments for 120 days, or in the case of a loan repayable in less frequent installments for 180 days.

(p) "State student loan insurance program" means a program under which a State agency is authorized to insure loans, and to enter into agreements with the Commissioner, and which extends to one or more categories of students who are residents of the State.

§ 177.2 Student eligibility for interest benefits.

(a) A student (1) who has received a loan from an eligible lender under a student loan insurance program meeting the requirements of § 177.12 or § 177.13, under a direct State student loan program meeting the requirements of § 177.14, or under the Federal loan insurance program, (2) who is enrolled or has been accepted for enrollment as at least a halftime student in an eligible institution, (3) whose adjusted family income is less than $15,000, and (4) who is a national of the United States or is in the United States for other than a temporary purpose and intends to become a permanent resident thereof, is eligible for payment on his behalf of a portion of the interest determined under § 177.15(a).

(b) To have interest payments made on his behalf, a student shall submit to

the lender a statement in such form as the Commissioner may prescribe, which shall include:

(1) A certification by an eligible institution that he is enrolled at the institution or has been accepted for enrollment;

(2) An assurance by the student that the loan on which interest payments are to be made has not been and will not be used for any purpose other than for the costs of education for the academic year covered by the application;

(3) Information necessary to determine, pursuant to § 177.3, whether his adjusted family income is less than $15,000; and

(4) Information concerning other loans made to him which are covered under this part or 45 CFR Part 178.

(c) The lender, acting in good faith, may in the absence of information to the contrary rely upon statements submitted by the borrower and his family pursuant to paragraph (b) of this section.

[31 F.R. 6109, Apr. 21, 1966, as amended at 31 F.R. 14836, Nov. 23, 1966]

§ 177.3 Adjusted family income.

(a) Computation. In general, adjusted family income will be computed by adding 90 percent of the adjusted gross incomes (as defined in sec. 62 of the Internal Revenue Code, or in the case of residents of Puerto Rico, as defined in sec. 22(n) of the Commonwealth Tax Act of 1954) of the student borrower, his spouse, and his parents for the tax year immediately preceding the execution of the note or written agreement evidencing the loan, and deducting from such sum an amount equal to the amount allowable on account of exemptions for such individuals for such year (pursuant to sec. 151 of the Internal Revenue Code or, in the case of residents of Puerto Rico, pursuant to sec. 25 of the Commonwealth Tax Act of 1954).

(b) Computation of income from foreign sources. In cases where any of the income of the borrower, his spouse or his parents is not subject to taxation under the Internal Revenue Code or the Commonwealth Tax Act of 1954 due to the fact that such individual is (1) residing abroad, or (2) a nonresident alien, such income shall be included in the borrower's adjusted family income. Income described in clause (1) shall be treated as if subject to taxation under the Internal Revenue Code and computed (together with any income which is subject