The NPRM is open for public comment for 30 days, with comments due on or before midnight on June 20, 2023. 

On May 19, 2023, the U.S. Department of Education published in the Federal Register a Notice of Proposed Rulemaking (NPRM) for a package of proposed rule changes addressing financial value transparency (FVT) and gainful employment (GE), financial responsibility, administrative capability, certification procedures and ability to benefit (ATB). 

As described by the Department in its press release, the proposed regulations would establish “the strongest set of safeguards ever to protect students from unaffordable debt or insufficient earnings from career training programs, along with new measures to increase transparency across all postsecondary programs,” regardless of ownership type. Potentially of immediate impact to most institutions, the proposed rule would (1) establish new FVT disclosures applicable to every Title IV-eligible educational program at all institution types and (2) reinstate expanded, tougher GE requirements applicable only to GE programs (which includes nearly all programs at proprietary institutions and only certificate programs at public and private nonprofit institutions). Both the FVT and GE regulations would utilize a debt-to-earnings (D/E) rate and an earnings premium (EP) threshold metric to measure the value of Title IV programs, but loss of Title IV eligibility would only occur for GE programs. The FVT proposal is notable in that it is the first time the Department has attempted to measure the value of educational programs at traditional (nonprofit and public) institutions.

The Department posted two fact sheets outlining the proposed changes in GE and transparency and other provisions in the package, as well as GE data sets used to model the effects of the proposed FVT and GE rules:

• GE data description (PDF)
• GE data codebook (Excel)
• GE data set (Excel)

With regard to FVT and GE, it is our strong recommendation that all institutions review the underlying data and conduct an internal analysis to determine the projected impact of the rule changes. This will inform the development of public comments.

Public Comment

The NPRM is open for public comment for 30 days, with comments due on or before midnight on June 20, 2023. All interested stakeholders are encouraged to submit comments addressing the proposed rule. Comments can be submitted through the regulations.gov portal and should include Docket ID ED-2023-OPE-0089.

Financial Value Transparency and Gainful Employment

The Department has taken a two-pronged approach to measuring the value of Title IV-eligible programs. First, all institutions offering any Title IV program would be subject to a new FVT disclosure regime that would result in posting of D/E and EP rates for all programs and certain disclosure and student acknowledgement requirements.

The GE rule uses the same D/E and EP metrics as the FVT disclosures, but includes Title IV sanctions if a GE program fails either the D/E or EP metric after one year (in the form of mandatory warnings to students in addition to the student acknowledgment) and results in loss of Title IV eligibility if a program fails to meet either the EP or D/E metric in two of three consecutive years for the same GE program.

Financial Value Transparency Framework

The proposed FVT regulations are intended to establish a framework that would increase the quality and availability of information provided to the public and directly to students about the costs, sources of financial aid and outcomes of students enrolled in Title IV-eligible educational programs. Significantly, the FVT disclosures would apply to all Title IV-eligible programs offered by all institutions (except for approved prison education programs and comprehensive transition and postsecondary programs) and use the same D/E and EP metrics as the GE framework, which are discussed in more detail under the GE discussion.

While no penalties or sanctions are contemplated with the FVT regulations, the Department would label programs failing the D/E rate as “high debt burden” and those failing the EP threshold as “low earning.” This information would be made available via a new website maintained by the Department. Where the D/E rate results in a failing program, the Department will require a student acknowledgment that the program has a high debt burden prior to enrollment and disbursement. The FVT framework would not, however, require student acknowledgements for low earnings programs based on the Department’s rationale that some students attending non-GE programs seek ends other than financial gain.

Gainful Employment Framework

The proposed GE accountability framework is substantially similar to the most recent negotiated rulemaking discussion draft and would require that covered GE programs pass both the D/E and the EP metric. In addition, the rule requires certification, reporting, disclosures, student warnings and sanctions. The new rules apply to all programs offered by proprietary institutions, as well as to most nondegree programs offered by public and private nonprofit institutions. The GE rule proposal is notable in its difference from the 2014 GE final rule (rescinded in 2019 by then-Secretary Betsy DeVos) because it adds a second required measure of whether a program prepares a student for gainful employment: the EP threshold, based solely on earnings, discussed below.

Debt-to-Earnings Rates

The proposed D/E metric is similar to the 2014 GE rule in that it requires programs to meet either an “annual debt-to-earnings rate” or a “discretionary debt-to-earnings rate.” Generally speaking, these two rates, together referred to in the NPRM as the D/E rates, measure graduate debt as a percentage of post-graduation earnings. A program would be classified as “high debt burden” if its discretionary D/E rate is greater than 20 percent and its annual D/E rate is greater than 8 percent.

The formula associated with each metric is as follows:

Annual Earnings Rate = Annual Loan Payment ÷ Annual Earnings
Discretionary Earnings Rate = Annual Loan Payment ÷ Discretionary Earnings

Under the proposed regulations, the annual D/E rate would estimate the proportion of annual earnings that students who complete the program would need to devote to annual debt payments. The discretionary D/E rate would measure the proportion of annual discretionary income—the amount of income above 150 percent of the poverty guideline for a single person in the continental United States—that students who complete the program would need to devote to annual debt payments.

Earnings Premium Measure

The proposed EP measure is designed to measure the extent to which the typical graduate of a program outearns the typical individual with only a high school diploma or equivalent in the same state the program is located. According to the Department, when the EP is positive, it indicates that graduates of the program gain financially (i.e., have higher typical earnings than they might have had they not attended college).

This measure would compare the median annual earnings of Title IV recipients who completed the program, measured three years after they complete the program, to the median earnings of high school graduates. The median earnings of high school graduates (or holders of an equivalent credential) would measure earnings of individuals who are between the ages of 25 and 34 (typically, seven to 16 years after high school graduation) and either working or unemployed, excluding individuals not in the labor force, in the state where the institution is located, or nationally if fewer than 50 percent of the students in the program are located in the state where the institution is located while enrolled. As noted, although GE programs could lose eligibility for EP threshold failures after two consecutive years, for non-GE programs the FVT framework would only disclose EP rates on the Department website for informational purposes and no student acknowledgement would be required for failing EP rates.

Student Definition

For the purposes of both the FVT metric and the GE rule, a student is defined as an individual who received (and is not simply eligible for) Title IV program funds for enrolling in the program.

Completer Lists

The Department would use administrative data reported by institutions to identify which students’ information should be included when calculating the metrics established by the FVT metric and the GE rule for each program. The Department would use this data to compile and provide to institutions a list of students who completed each program during the cohort period. Institutions would have the opportunity to review and correct completer lists. Institutions would be required to update or otherwise correct any reported data no later than 60 days after the end of an award year.

Earnings

The finalized completer lists would then be used by the Department to obtain from a “[f]ederal agency with earnings data” the median annual earnings of the students on each list, and to calculate the D/E rates and the EP measure which the Department would provide to the institution. The rule identifies the following as potential federal agencies with earnings data: the Treasury Department (including the Internal Revenue Service), the Social Security Administration, the Department of Health and Human Services and the Census Bureau.

For each completer list the Department submits to the federal agency with earnings data, the agency would return to the Department (1) the median annual earnings of the students on the list whom the federal agency with earnings data matches to earnings data, in aggregate and not in individual form, and (2) the number, but not the identities, of students on the list that the federal agency with earnings data could not match. The Department proposes to measure earnings using only the median of program completers’ earnings, rather than the maximum of the mean or median of completers’ earnings.

If the federal agency with earnings data does not provide earnings information necessary for the calculation of these metrics, the Department would not calculate the metrics and the program would not receive rates for the award year. If the federal agency is unable to match one or more of the students on the final list, the Secretary will exclude an equal number of students with the highest loan debts from the calculation.

Debt

In determining the loan debt for a student under new Section 668.403(d), the Department would include:

1. The total amount of Title IV loans disbursed to the student for enrollment in the program, less any cancellations or adjustments except for those related to false certification or borrower defense discharges and debt relief initiated by the Secretary as a result of a national emergency, and excluding Direct PLUS Loans made to parents of dependent students and Direct Unsubsidized Loans that were converted from TEACH Grants;
2. Any private education loans (as defined in Section 601.2), including such loans made by the institution that the student borrowed for enrollment in the program; and
3. The amount outstanding, as of the date the student completes the program, on any other credit (including any unpaid charges) extended by or on behalf of the institution for enrollment in any program that the student is obligated to repay after completing the program, including extensions of credit described in the definition of, and excluded from, the term “private education loan” in Section 601.2.

The Department would attribute all loan debt incurred by the student for enrollment in any undergraduate program at the institution to the highest credentialed undergraduate program subsequently completed by the student at the institution as of the end of the most recently completed award year prior to the calculation of the D/E rates―and would treat such debt, but for graduate study, in a similar manner. Loan debt would exclude any debt incurred by the student for enrollment in programs at other institutions, except that the Secretary could choose to include loan debt incurred for enrollment in programs at other institutions under common ownership or control.

Median Loan Debt and Annual Loan Payment

The Department proposes to calculate the median loan debt of the Title IV recipients who completed the program during the cohort period, based on the lesser of the loan debt incurred by each student or the total amount for tuition and fees and books, equipment and supplies for each student, less the amount of institutional grant or scholarship funds provided to that student.

For purposes of the D/E rates, the Department defines institutional grants and scholarships as financial assistance that does not have to be repaid that the institution—or its affiliate—controls or directs to reduce or offset the original amount of a student’s institutional costs.

Amortization Period

The length of the amortization period would depend upon the credential level of the program, using a 10-year repayment period for a program that leads to an undergraduate certificate, a post-baccalaureate certificate, an associate’s degree or a graduate certificate; a 15-year repayment period for a program that leads to a bachelor's or master's degree; or a 20-year repayment period for any other program.

Interest Rate

The amortization calculation would use an annual interest rate that is the average of the annual statutory interest rates on federal Direct Unsubsidized Loans that were in effect during a period that varies based on the credential level of the program:

• For undergraduate certificate programs, post-baccalaureate certificate programs and associate degree programs, the average interest rate would reflect the three consecutive award years, ending in the final year of the cohort period, using the federal Direct Unsubsidized Loan interest rate applicable to undergraduate students.
• For an undergraduate certificate program, if the two-year cohort period is award years 2024-2025 and 2025-2026, the interest rate would be the average of the interest rates for the years from 2023-2024 through 2025-2026.
• For graduate certificate programs and master's degree programs, the average interest rate would reflect the three consecutive award years, ending in the final year of the cohort period, using the federal Direct Unsubsidized Loan interest rate applicable to graduate students.
• For bachelor's degree programs, the average interest rate would reflect the six consecutive award years, ending in the final year of the cohort period, using the federal Direct Unsubsidized Loan interest rate applicable to undergraduate students.
• For doctoral programs and first professional degree programs, the average interest rate would reflect the six consecutive award years, ending in the final year of the cohort period, using the federal Direct Unsubsidized Loan interest rate applicable to graduate students.

Excluded Students

The Department would exclude a student from both the numerator and the denominator of the D/E rates calculation if:

1. One or more of the student’s Title IV loans are under consideration or have been approved by the Department for a discharge on the basis of the student’s total and permanent disability;
2. The student enrolled full time in any other eligible program at the institution or at another institution during the calendar year for which the Department obtains earnings information;
3. For undergraduate programs, the student completed a higher credentialed undergraduate program at the institution subsequent to completing the program, as of the end of the most recently completed award year prior to the calculation of the D/E rates;
4. For graduate programs, the student completed a higher credentialed graduate program at the institution subsequent to completing the program, as of the end of the most recently completed award year prior to the calculation of the D/E rates;
5. The student is enrolled in an approved prison education program;
6. The student is enrolled in a comprehensive transition and postsecondary program; or
7. The student died.

Further, the Department would not issue D/E rates for a program if fewer than 30 students completed the program during the two-year or four-year cohort period, or the federal agency with earnings data does not provide the median earnings for the program.

Cohort Period

A two-year cohort period would consist of the third and fourth award years prior to the year for which the most recent data are available at the time of calculation. As explained in the NPRM:

For example, given current data production schedules, the D/E rates and earnings premium measure calculated to assess financial value starting in award year 2024-2025 would be calculated in late 2024 or early in 2025. For most programs, the two-year cohort period for these metrics would be award years 2017-2018 and 2018-2019 using the amount of loans disbursed to students as of program completion in those award years and earnings data measured in calendar years 2021 for award year 2017-2018 completers and 2022 for award year 2018-2019 completers, roughly three years after program completion.

A four-year cohort period would consist of the third, fourth, fifth and sixth award years prior to the year for which the most recent earnings data are available at the time of calculation. As explained in the NPRM:

For example, for the D/E rates and the earnings threshold measure calculated to assess financial value starting in award year 2024-2025, the four-year cohort period would be award years 2015-2016, 2016-2017, 2017-2018, and 2018-2019; and earnings data would be measured using data from calendar years 2019 through 2022.

Timing

If the Department publishes the rule by November 1, 2023, the effective date would be July 1, 2024. Institutions would then be required to report program and student information to the Department by July 31, 2024. By December 31, 2024, institutions with GE programs would be required to provide transitional GE program certifications attesting that each GE program is approved by a recognized accrediting agency or is otherwise included in the institution’s accreditation by its recognized accrediting agency―or, if the institution is a public postsecondary vocational institution, the program is approved by a recognized state agency for the approval of public postsecondary vocational education. In the NPRM, the Department estimates that under the current data production schedules, the first D/E rate and EP metrics calculated for award year 2024-2025 would be calculated in late 2024 or early in 2025. As stated in the NPRM, the Department assumes that the first set of rates would be released in the 2025 award year. The Department, in the NPRM, expects that the impacts of the GE rule will reach a “steady state” by the time the third set of GE rates are issued, meaning that program impacts and improvements should be fairly settled by the third year of rates. For convenience we present the award years that would be impacted if the Department releases the first set of GE rates for award year 2024-2025.

Student Warnings and Notices

An institution would be required to provide a warning to students and prospective students for any year for which the Secretary notifies the institution that the GE program could become ineligible based on its final D/E rates or EP measure for the next award year for which those metrics are calculated. The warning would be the only substantive content contained in those written communications, and the Department would mandate the wording of that warning in a future Federal Register publication.

Program Sanctions

Under the proposed GE rule, a program would be ineligible if it fails either the D/E rates measure or the EP measure in two out of any three consecutive award years for which the program’s rates are calculated. If the program becomes ineligible under the GE framework, its participation in the Title IV program ends upon the earliest of:

1. The issuance of a new Eligibility and Certification Approval Report (ECAR) that does not include that program;
2. The completion of a termination action of program eligibility if an action is initiated under subpart G of Part 668 of the Title IV regulations; or
3. A revocation of program eligibility if the institution is provisionally certified.

The NPRM states that the current subpart G process now used for institutional termination actions will be used for program-specific termination actions (in the event an institution does not voluntarily withdraw that program). The Department would also constrain the discretion of a Department hearing official to hear any GE rule appeal, by requiring that official to terminate the eligibility of a GE program unless the official concludes that the Secretary erred in the calculation of the GE metrics.

Department Notification

For each award year for which the Department calculates D/E rates and the EP measure for a program, the Department would issue a notice of determination informing the institution of:

1. The D/E rates for each program;
2. The EP measure for each program;
3. The Department’s determination of whether each program is passing or failing, and the consequences of that determination;
4. For a non-GE program, whether a student acknowledgement would be required;
5. For a GE program, whether the institution would be required to provide the required student warning; and
6. For a GE program, whether the program could become ineligible based on its final D/E rates or EP measure for the next award year for which D/E rates or the EP measure are calculated for the program.

Reporting Requirements for All Title IV Institutions

Under the proposed regulations, the Department would significantly expand reporting requirements. All Title IV institutions would be required to annually report data for students who enroll in, complete or withdraw from any Title IV-eligible program (GE or non-GE). The institutional reporting requirements would be as follows:

• For each Title IV-eligible program: Information needed to identify the program and the institution, including program name, CIP code, credential level and program length; programmatic accreditation (if applicable), program licensure information; total number of Title IV and non-Title IV students enrolled in the program; and if the program is a medical or dental program with an internship or residency.
• For each recipient of Title IV funds: The date the student initially enrolled in the program; the student’s attendance dates and status (enrolled, withdrawn or completed); the student’s enrollment status (full time, part time, etc.); total annual cost of attendance; total tuition and fees assessed for the award year; student’s residency tuition status; total allowance for books, supplies and equipment; amount of institutional grants and scholarships disbursed; amount of other state, tribal or private grants disbursed; and amount of any private education loans disbursed.
• For students who completed or withdrew from the program and ever received any Title IV assistance: The date the student completed or withdrew from the program; the total amount of private education loans the student owes for the program; the total amount of institutional debt the student owes; total tuition and fees for enrollment in the program; total allowance for books, supplies and equipment included in cost of attendance; and total amount of institutional grants and scholarships.

Financial Responsibility

The proposed financial responsibility regulations would establish additional factors that will be viewed by the Department as indicators of an institution’s lack of financial responsibility and thus enhance the Department’s ability to identify events and conditions at institutions that indicate a significant risk to their financial health. When one of the factors occurs, the Department may seek financial protection from the institution, most commonly through a letter of credit.

Financial Responsibility Triggers

The proposed regulations greatly expand the current mandatory and discretionary triggering events that would require an institution to post financial protection.

Under the specified “mandatory” triggers, where the institution is deemed not financially or administratively responsible, the Department would either automatically require the institution to obtain financial surety or require that the composite score be recalculated to determine if an institution would have to provide surety because it no longer passes. The proposed mandatory triggers, which are mostly new or significantly enhanced from existing mandatory triggers, are as follows:

• An institution with a composite score of less than 1.5 is required to pay a debt or incurs a liability from a settlement, arbitration proceeding or a final judgment in a judicial or administrative proceeding, and the debt or liability results in a recalculated composite score of less than 1.0.
• An institution is sued to impose an injunction, establish fines or penalties or obtain financial relief such as damages in an action brought on or after July 1, 2024, by a federal or state authority, or through a qui tam lawsuit in which the federal government has intervened and the suit has been pending for at least 120 days.
• The Department has initiated a recoupment action against the institution for claims adjudicated under the Borrower Defense to Repayment (BDR) rule, and including that potential liability in the composite score results in a recalculated composite score of less than 1.0.
• An institution that has submitted a change in ownership application and is required to pay a debt or incurs liabilities (from a settlement, arbitration proceeding, final judgment in a judicial proceeding or a determination arising from an administrative proceeding), at any point through the end of the second full fiscal year after the change in ownership has occurred, would be required to post financial protection in the amount specified by the Department if so directed.
• For a proprietary institution whose composite score is less than 1.5, or for any proprietary institution through the end of the first full fiscal year following a change in ownership, there is a withdrawal of owner’s equity, unless the withdrawal is a transfer to an affiliated entity within the group on whose basis the institution’s composite score was calculated, or the withdrawal is the equivalent of wages in a sole proprietorship or general partnership, or a required dividend or return of capital and, as a result, the institution’s recalculated composite score is less than 1.0.
• The institution received at least 50 percent of its Title IV funding in its most recently completed fiscal year from GE programs that are failing the GE rule.
• The institution is required to submit a teach-out plan or agreement by a state or federal agency, an accrediting agency or other oversight body.
• The institution is cited by a state licensing or authorizing agency for failing to meet that entity’s requirements and that entity provides notice that it will withdraw or terminate the institution’s licensure or authorization if the institution does not come into compliance with the requirement (currently a discretionary trigger).
• At least 50 percent of the institution is owned directly or indirectly by an entity whose securities are listed on a domestic or foreign exchange and is subject to one or more of the actions or events that are specified in the rule initiated by the U.S. Securities and Exchange Commission, or by the exchange where the entity’s securities are listed.
• A proprietary institution, for its most recently completed fiscal year, fails the 90/10 rule.
• The institution’s two most recent official cohort default rates are 30 percent or greater, unless the institution has filed a challenge, request for adjustment, or appeal and that action has reduced the rate to below 30 percent or the action remains pending (currently a discretionary trigger).
• The institution has lost eligibility to participate in another federal education assistance program due to an administrative action against the institution.
• The institution’s financial statements reflect a contribution in the last quarter of the fiscal year and then the institution made a distribution during the first or second quarter of the next fiscal year and that action results in a recalculated composite score of less than 1.0.
• The institution is subject to a default or other adverse condition under a line of credit, loan agreement, security agreement or other financing arrangement due to an action by the Department.
• The institution makes a declaration of financial exigency to a federal, state, tribal or foreign governmental agency or its accrediting agency.
• The institution, or an owner or affiliate of the institution that has the power, by contract or ownership interest, to direct or cause the direction of the management of policies of the institution, files for a state or federal receivership, or an equivalent proceeding under foreign law, or has entered against it an order appointing a receiver or appointing a person of similar status under foreign law.

Specified “discretionary” triggers that would provide the Department flexibility on whether to require a letter of credit based on the financial impact the triggering event has on the institution. The proposed discretionary triggers are as follows:

• The institution’s accrediting agency or a federal, state, local or tribal authority places the institution on probation, issues a show-cause order, or places the institution in a comparable status that poses an equivalent or greater risk to its accreditation, authorization or eligibility.
• The institution is subject to a default or other condition under a line of credit, loan agreement, security agreement or other financing arrangement (unless due to an action by the Department, which is a mandatory trigger) and a monetary or nonmonetary default or delinquency or other event occurs that allows the creditor to require or impose an increase in collateral, a change in contractual obligations, an increase in interest rates or payments, or other sanctions, penalties or fees.
• The institution or any entity included in the financial statements submitted in the current or prior fiscal year as part of a change of ownership or to meet the institution’s financial responsibly requirements:
  • Has a creditor that takes action to terminate, withdraw, limit or suspend a loan agreement or other financing arrangement or calls due a balance on a line of credit with an outstanding balance;
  • Enters into a line of credit, loan agreement, security agreement or other financing arrangement whereby the institution or entity may be subject to a default or other adverse condition as a result of any action taken by the Department (except where it would result in a mandatory trigger); or
  • Has a monetary judgment entered against it that is subject to appeal or under appeal.

• The institution displays a significant fluctuation in consecutive award years, or a period of award years, in the amount of Direct Loan or Pell Grant funds received by the institution that cannot be accounted for by changes in those Title IV programs.
• The institution has high annual dropout rates as calculated by the Department.
• An institution that is required to provide additional financial reporting to the Department due to a failure to meet financial responsibility standards has any of these indicators:
  • Negative cash flows;
  • Failure of other liquidation ratios;
  • Cash flows that significantly miss projections;
  • Significant increased withdrawal rates; or
  • Other indicators of a material change in the institution’s financial condition.

• The institution has pending BDR claims and the Department has formed a group process to consider claims and, if approved, those claims could be subject to recoupment.
• The institution discontinues academic programs that enroll more than 25 percent of students at the institution, closes more than 50 percent of its locations, or closes locations that enroll more than 25 percent of its students.
• The institution is cited by a state licensing or authorizing agency “for failing to meet requirements.”
• The institution has one or more programs that has lost eligibility to participate in another federal educational assistance program due to an administrative action.
• At least 50 percent of the institution is owned directly or indirectly by an entity whose securities are listed on a domestic or foreign exchange and the entity discloses in a public filing that it is under investigation for possible violations of state, federal or foreign law.
• The institution is cited by another federal agency and faces loss of education assistance funds if it does not comply with the agency’s requirements.

The Department specifically invites comments as to whether an investigation as described in Section 668.171(f)(1)(iii) warrants inclusion in the final regulations as either a mandatory or discretionary financial trigger and what actions associated with the investigation would have to occur to initiate the financial trigger.

The Department in the NPRM indicates that for discretionary triggers, it would conduct a “case-by-case review and analysis” of the factors or events applicable to an institution to determine whether one or more of those factors or events has an adverse financial impact, and consequences of, that determination.

Other Significant Financial Responsibility Changes

In addition to the creation of more robust financial responsibility triggers, the Department proposed to add several other provisions from a financial disclosure perspective.

First, the rules would add to the list of items that indicate a lack of financial responsibility (1) a failure to make debt payments for more than 90 days, (2) a failure to make payroll obligations or (3) borrowing from employee retirement plans without authorization.

The proposed rules would also require that financial statements submitted to the Department match the fiscal year end of the entity's annual return(s) filed with the IRS.

Further, the new rules would require institutions to include a detailed description of related entities. Such information must include a description of the related entity including the nature and amount of any transactions between the related party and the institution, financial or otherwise, regardless of when they occurred.

Finally, institutions would also be required to disclose in a footnote to its financial statement audit the dollar amounts it has spent in the preceding fiscal year on recruiting activities, advertising and other pre-enrollment expenditures.

Administrative Capability

Proposed changes to the administrative capability regulations, which apply to all institutions, would expand the requirements for institutions to demonstrate that they are administratively capable of providing the education they promise and of properly managing Title IV program funds. The changes also provide the Department with more tools and explicit authority to make an administrative capability finding based on a broader set of issues than it has used historically. Such findings could lead to limitations, suspensions, terminations or other actions including placing the institution on a provisional Program Participation Agreement (PPA) or heightened cash monitoring (HCM2).

The Department’s proposed changes with respect to administrative capability are focused on ensuring that institutions (1) have sufficient resources needed to successfully serve students, (2) do not employ principals, affiliates or other individuals who exercise substantial control over the institution who have a record of misusing Title IV program funds, and (3) possess sufficient institutional controls.

Highlights of proposed changes that could trigger a finding of a lack of administrative capability include the following:

Financial Aid Counseling and Communications

The proposed rule would enhance the requirements for financial aid counseling and financial aid communications that include the institution’s cost of attendance, the sources and types of aid offered, whether it must be earned or repaid, the net price, and deadlines for accepting, declining or adjusting award amounts. The Department indicates that the updated requirements align with the current College Financing Plan but do not explicitly mandate the use of that specific format.

Career Services and Externships

Institutions would be required to provide students with adequate career services and clinical or externship opportunities, as applicable, to enable students to gain licensure and employment in the occupation for which they are prepared. Institutions must have adequate career service staff and established partnerships with recruiters and employers. With respect to clinical and externship opportunities where required for completion of the program, the proposed rule would require that accessible opportunities be provided to students within 45 days of completing other required coursework.

Timely Disbursements

Institutions would be required to disburse funds to students in a timely manner to enable students to cover institutional costs. The institution would not satisfy this requirement if (1) the Secretary is aware of multiple verified and relevant student complaints, (2) the institution has high rates of withdrawal attributable to delays in disbursement, (3) the institution has delayed disbursements until after the withdrawal date requirements in Section 668.22(b) and (c), or (4) the institution has delayed disbursements with the effect of ensuring it passes the 90/10 ratio.

GE Rule Compliance

An institution that offers GE programs would not be administratively capable if it derives more than half of its total Title IV funds in the most recent fiscal year from failing GE programs, or if it enrolls more than half of its students who receive Title IV aid in failing GE programs. Determining that institutions are not administratively capable would allow the Department to take additional proactive monitoring steps for institutions that could be at risk of seeing significant shares of their enrollment or revenues associated with ineligible programs in the following year. This could include placing the institution on a provisional PPA or HCM2.

Aggressive or Deceptive Recruiting Practices

The Department also proposes to add aggressive and deceptive recruitment tactics or conduct as activities that constitute substantial misrepresentation by an eligible institution.

Negative Actions by Other Agencies

Institutions would be required to confirm that they have not been subject to a significant negative action or finding by a state or federal agency, a court or an accrediting agency where the basis of the action or finding is repeated or unresolved—such as noncompliance with a prior enforcement order or supervisory directive—and to further require that the institution has not lost eligibility to participate in another federal educational assistance program due to an administrative action against the institution. This would mean, for example, that an institution that loses Department of Veterans Affairs funding by action of that agency would have a Title IV administrative capability issue.

Past Performance Requirements

Institutions would be required to certify when they sign their PPA that no principal or affiliate has been convicted of or pled nolo contendere or guilty to a crime related to the acquisition, use or expenditure of government funds or has been determined to have committed fraud or any other material violation of law involving those funds.

High School Diploma Verification

The Department proposes new procedures to verify the validity of a student’s high school diploma. The Department also proposes criteria to help institutions with identifying a high school diploma that is not valid.

Certification Procedures

The Department proposes a more rigorous process for certifying institutions to participate in the Title IV programs, both initially and on an ongoing basis. The purpose of the proposed changes is to increase the Department’s oversight of institutions at critical time periods: initial certification, during provisional certification, after a change of ownership, at recertification and when there is a risk of closure. The Department seeks to improve its oversight of institutions that may evidence administrative or financial issues that either require the Department to conduct additional monitoring or seek additional financial protection, or that may disqualify participation in Title IV programs.

First, the Department expands the situations under which it may provisionally certify an institution. The Secretary may provisionally certify an institution if:

• The institution seeks initial participation in a Title IV program;
• The institution is an eligible institution that has undergone a change in ownership that results in a change in control according to the provisions of 34 C.F.R part 600;
• The institution is a participating institution that is applying for a renewal of certification:
  • That the Secretary determines has jeopardized its ability to perform its financial responsibilities by not meeting the factors of financial responsibility under subpart L or the standards of administrative capability under Section 668.16;
  • Whose participation has been limited or suspended under subpart G; or
  • That voluntarily enters into provisional certification;
• The institution seeks to be reinstated to participate in a Title IV program after a prior period of participation in that program ended;
• The institution is a participating institution that was accredited or preaccredited by a nationally recognized accrediting agency on the day before the Secretary withdrew the Secretary’s recognition of that agency according to the provisions contained in 34 C.F.R. part 602;
• The Secretary has determined that the institution is at risk of closure; or
• The institution is under the provisions of subpart L (financial responsibility).

An institution’s certification becomes provisional upon notification from the Secretary if:

• The institution triggers one of the financial responsibility events under Section 668.171(c) or (d) and, as a result, the Secretary requires the institution to post financial protection; or
• Any owner or interest holder of the institution with control over that institution, as defined in 34 C.F.R. § 600.31, also owns another institution with fines or liabilities owed to the Department and is not making payments in accordance with an agreement to repay that liability.

A proprietary institution’s certification automatically becomes provisional at the start of a fiscal year if it did not derive at least 10 percent of its revenue for its preceding fiscal year from sources other than federal educational assistance funds, as required under Section 668.14(b)(16).

For an institution that is provisionally certified, the Secretary may apply such conditions as are determined to be necessary or appropriate to the institution, including, but not limited to:

• For an institution that the Secretary determines may be at risk of closure:
  • Submission of an acceptable teachout plan or agreement to the Department, the state, and the institution’s recognized accrediting agency; and
  • Submission to the Department of an acceptable records retention plan that addresses Title IV records, including but not limited to student transcripts, and evidence that the plan has been implemented;
• For an institution that that Secretary determines may be at risk of closure, that is teaching out or closing, or that is not financially responsible or administratively capable, the release of holds on student transcripts;
• Restrictions or limitations on the addition of new programs or locations;
• Restrictions on the rate of growth, new enrollment of students or Title IV volume in one or more programs;
• Restrictions on the institution providing a teach-out on behalf of another institution;
• Restrictions on the acquisition of another participating institution, which may include, in addition to any other required financial protection, the posting of financial protection in an amount determined by the Secretary but not less than 10 percent of the acquired institution’s Title IV volume for the prior fiscal year;
• Additional reporting requirements, which may include, but are not limited to, cash balances, an actual and protected cash flow statement, student rosters, student complaints and interim unaudited financial statements;
• Limitations on the institution entering into a written arrangement with another eligible institution or an ineligible institution or organization for that other eligible institution or ineligible institution or organization to provide between 25 and 50 percent of the institution’s educational program under Section 668.5(a) or (c); and
• For an institution alleged or found to have engaged in misrepresentations to students, engaged in aggressive recruiting practices or violated incentive compensation rules, requirements to hire a monitor and to submit marketing and other recruiting materials (e.g., call scripts) for the review and approval of the Secretary.

Second, the PPA certifications required under 668.14 are amended by:

• Eliminating the current requirement that the Department approve Title IV participation if it has not acted on a certification application within 12 months. This is to allow the Department to take additional time with its initial and ongoing certification reviews;
• Requiring entities with direct or indirect ownership of a proprietary or nonprofit institution, if that entity has the power to control the institution, to sign the institution’s PPA. This expands on guidance issued by the Department last year to seek these signatures on a case-by-case basis;
• Amendment of the past performance requirements to also prohibit institutions from knowingly employing in a capacity that involves the administration of Title IV funds any individual who has:
  • Been an owner, director, officer or employee who exercised substantial control over an institution, or a direct or indirect parent entity of an institution, that owes a Title IV liability that is not being repaid; or
  • Been a 10 percent or higher equity owner, director, principal, executive or contractor at an institution in any year in which the institution incurred a loss of federal funds in excess of 5 percent of the institution’s annual Title IV funds;
• Amendment of the past performance requirements to also prohibit institutions from contracting with any institution, third-party servicer, individual, agency or organization that has, or whose owners, officers or employees have:

  • Had its PPA terminated or revoked, or application for certification or recertification denied;

  • Been an owner, director, officer or employee who exercised substantial control over an institution, or a direct or indirect parent entity of an institution, that owes a Title IV liability that is not being repaid; or

  • Been a 10 percent or higher equity owner, director, officer, principal, executive or contractor affiliated with another institution in any year in which the other institution incurred a loss of federal funds in excess of 5 percent of the institution’s Title IV funds;

• If an educational program offered by the institution is required to prepare a student for gainful employment in a recognized occupation, requiring the institution to:
  • Establish the need for the training for the student to obtain employment in the recognized occupation for which the program prepares the student; and
  • Demonstrate a reasonable relationship between the length of the program and entry level requirements for the recognized occupation for which the program prepares the student by limiting the number of hours in the program to the greater of (A) the required minimum number of clock hours, credit hours, or the equivalent required for training in the recognized occupation for which the program prepares the student, as established by the state in which the institution is located, if the state has established such a requirement, or as established by any federal agency or the institution’s accrediting agency; or (B) another state’s required minimum number of clock hours, credit hours, or the equivalent required for training in the recognized occupation for which the program prepares the student, if certain criteria is met;
• The exception to scenario (A) above would only be applicable if the institution documents, with substantiation by a certified public accountant who prepares the institution’s compliance audit report as required under Section 668.23 that:
  • A majority of students resided in that state while enrolled in the program during the most recently completed award year;
  • A majority of students who completed the program in the most recently completed award year were employed in that state; or
  • The other state is part of the same metropolitan statistical area as the institution’s home state and a majority of students, upon enrollment in the program during the most recently completed award year, stated in writing that they intended to work in that other state;
• Requiring that in each state in which the institution is located or in which students enrolled by the institution are located, as determined at the time of initial enrollment in accordance with 34 C.F.R. § 600.9(c)(2), the institution determine that each program eligible for Title IV funds:
  • Is programmatically accredited if the state or a federal agency requires such accreditation, including as a condition for employment in the occupation for which the program prepares the student, or is programmatically pre-accredited when programmatic pre-accreditation is sufficient according to the state or federal agency;
  • Satisfies the applicable educational prerequisites for professional licensure or certification requirements in the state so that a student who completes the program and seeks employment in that state qualifies to take any licensure or certification exam that is needed for the student to practice or find employment in an occupation that the program prepares students to enter; and
  • Complies with all state consumer protection laws related to closure, recruitment and misrepresentations, including both generally applicable state laws and those specific to educational institutions. Note: this proposed requirement has raised concerns that the language is likely to lead to confusion and may impact the intent and value of reciprocity for SARA member states and institutions;
• Prohibiting an institution from withholding transcripts or taking any other negative action against a student related to a balance owed by the student that resulted from an error in the institution’s administration of the Title IV programs, any fraud or misconduct by the institution or its personnel, or returns of Title IV funds required under Section 668.22 unless the balance owed was the result of fraud on the part of the student; and
• Prohibiting an institution from maintaining policies and procedures to encourage a student, or condition institutional aid or other student benefits in a manner that induces them, to limit the amount of federal student aid, including federal loan funds, that the student receives, except that the institution may provide a scholarship on the condition that a student forego borrowing if the amount of the scholarship provided is equal to or greater than the amount of federal loan funds that the student agrees not to borrow.

In determining whether to certify, or condition the participation of, an institution under Sections 668.13 and 668.14, the Secretary may consider the following, among other information at the program or institutional level:

• Withdrawal rate: The percentage of students who withdrew from the institution within 100 percent or 150 percent of the published length of the program.
• Debt-to-earnings rates: The D/E rates under Section 668.403, if applicable.
• Earnings premium measure: The earnings premium measure under Section 668.404, if applicable.
• Educational and pre-enrollment expenditures: The amounts the institution spent on instruction and instructional activities, academic support and support services, and the amounts spent on recruiting activities, advertising and other pre-enrollment expenditures, as provided through a disclosure in the audited financial statements required under Section 668.23(d).
• Licensure pass rate: If a program is designed to meet educational requirements for a specific professional license or certification that is required for employment in an occupation, and the institution is required by an accrediting agency or state to report passage rates for the licensure exam for the program, such passage rates.

Third, if a proprietary institution seeks to convert to nonprofit status following a change in ownership, the following conditions will apply to the institution following the change in ownership, in addition to any other conditions that the Secretary may deem appropriate:

• The institution must continue to meet the 90/10 revenue requirements until the Department has accepted, reviewed and approved the institution’s financial statements and compliance audits that cover two complete consecutive fiscal years in which the institution meets the requirements of Section 668.14(b)(16) under its new ownership, or until the Department approves the institution’s request to convert to nonprofit status, whichever is later.
• The institution must continue to meet the gainful employment requirements of subpart S until the Department has accepted, reviewed and approved the institution’s financial statements and compliance audits that cover two complete consecutive fiscal years under its new ownership, or until the Department approves the institution’s request to convert to nonprofit status, whichever is later.
• The institution must submit regular and timely reports on agreements entered into with a former owner of the institution or a natural person or entity related to or affiliated with the former owner of the institution, so long as the institution participates as a nonprofit institution.
• The institution may not advertise that it operates as a nonprofit institution for the purposes of Title IV until the Department approves the institution’s request to convert to nonprofit status.

Fourth, if an institution is initially certified as a nonprofit institution, or if it has undergone a change of ownership and seeks to convert to nonprofit status, the following conditions will apply to the institution upon initial certification or following the change in ownership, in addition to any other conditions that the Secretary may deem appropriate:

• The institution must submit reports on accreditor and state authorization agency actions and any new servicing agreements within 10 business days of receipt of the notice of the action or of entering into the agreement, as applicable, until the Department has accepted, reviewed and approved the institution’s financial statements and compliance audits that cover two complete consecutive fiscal years following initial certification, or two complete fiscal years after a change in ownership, or until the Department approves the institution’s request to convert to nonprofit status, whichever is later.
• The institution must submit a report and copy of the communications from the Internal Revenue Service or any state or foreign country related to tax-exempt or nonprofit status within 10 business days of receipt so long as the institution participates as a nonprofit institution.

Ability to Benefit

The proposed ATB rule changes reflect the consensus language agreed upon in the rulemaking negotiations. The Higher Education Act establishes several ATB options that a student without a high school diploma may pursue in order to gain eligibility to access federal financial aid, including participating in a state process approved by the Department. ATB students, unless grandfathered under a limited provision, are required to enroll in an eligible career pathway program to access federal student aid. With these changes, the Department hopes to encourage more states to seek approval for ATB pathways through the state option.

The proposed ATB regulations would establish safeguards to ensure state processes are adequate. For institutions offering, or who seek to offer, eligible career pathway programs outside of a state process, it is important to note that the regulations establish new documentation requirements to demonstrate compliance and would establish a new verification process to ensure regulatory compliance of all eligible career pathway programs. The regulations also incorporate the eligible career pathway program definition contained in the Higher Education Act and referenced in the Department’s prior career pathway guidance.

Institutions currently offering one or more eligible career pathway programs should prepare for the new compliance and review regulations. In addition, because the proposal does not speak specifically to whether current eligible career pathway programs may continue to be offered pending Department review, institutions offering these programs now may want to offer comment asking the Department to clarify that current programs may continue to be offered during the period prior to the Department establishing a formal review process.

For More Information

If you have any questions about this Alert, please contact Katherine D. Brodie, Edward Cramp, Kristina Gill, Anthony J. Guida Jr., Jennifer D. DeMay, any of the attorneys in our Higher Education Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.