Committee Meetings - 01/20/22 

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 DEPARTMENT OF EDUCATION

 OFFICE OF POSTSECONDARY EDUCATION

 INSTITUTIONAL AND PROGRAMMATIC 

ELIGIBILITY COMMITTEE

 SESSION 1, DAY 3, AFTERNOON

January 20, 2022

On the 20th day of January, 2022, the

following meeting was held virtually, from 1:00 p.m.

to 4:30 p.m., before Jamie Young, Shorthand Reporter in

the state of New Jersey.
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Committee Meetings - 01/20/22

P R O C E E D I N G S

MS. JEFFRIES: Thank you. Welcome back 

everyone from lunch, I hope you got a chance to stretch 

your legs and at least get some nourishment as it is a 

short lunch break that we're taking. I'm Cindy Jeffries. 

I will be your facilitator this afternoon. Just a couple 

quick announcements. We will have public comment this 

afternoon from 4-4:30. And if you are someone who has 

received a time slot, please make sure that when you log 

into the session that you log in under the name that you 

registered with, would be helpful. And comments should 

be surrounding the topics before the committee today so 

that it's most helpful for them, that would be 

wonderful, of any of the topics for this, this 

negotiated rulemaking. For the committee, just a quick 

reminder that if you are swapping off with alternate and 

primaries, please send us a quick note of that so that 

we can announce it so the public is aware of that swap 

out. With that, the agenda this afternoon is to as 

quickly as possible, finish up this preliminary 

discussion on financial responsibilities so that we can 

then move into the, I'm sorry, the change of ownership 

and control and having completing preliminary 

discussions on that and ending today with the start of 

certification procedures. So I know it's a robust 
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agenda, but is our hope and intent to at least get 

through all preliminary discussions on all of the topics 

and issues by the end of this week so that everyone can 

prepare for the second session in February. So with 

that, I'd like to open up the discussion, pick back up 

where you left off and I believe Kelli you were up.

MS. PERRY: Alright, thank you. Two 

things. One, in the F I, Roman Numeral I, just my same 

concern as it relates to the liabilities as opposed to 

if it's liabilities only resulting from a change in

composite score or if it's all liabilities. So I just 

put that on the table. My second one has to do and 

there's no changes to this section, but it's in 

reporting, (f)(ix)(3). If we potentially have an 

opportunity here and I'm hopeful that the Department 

will take this into consideration. So this section, in 

essence, talks about what I would consider an appeal 

process. Right, it talks about a preliminary 

determination and then giving institutions the 

opportunity to provide certain things to demonstrate 

that they are still financially responsible, as it 

relates specifically to the triggers. So I would ask the 

Department if they would consider, and we can we can 

craft some language, putting the composite score within 

this section as well as far as having a preliminary 
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determination based on that composite score with the 

option or the ability to provide additional conditions 

or circumstances, or even to review the calculation of 

the score with the Department, before that mandatory 

letter of credit or declaring an institution not 

financially responsible is issued. We talked about an 

appeal process in the last negotiation that we did this, 

it didn't make it into here. I do think that there's an 

opportunity to insert it into this part. Specifically, 

one of my concerns is is, as it relates to definitions 

of long term debt, which I talked about yesterday, we 

have not seen any of the scores or the results of 

institutions submitting their scores for the first time 

because of the delays or the pushback and when those 

were required based on the pandemic and such. So I'm 

concerned that there might be institutions that based on 

those long term debt rules, may potentially fall into 

the zone or fail, because debt has now been excluded, 

even though it was just simply a refinancing. So I offer 

that up for consideration.

MR. MARTIN: Thank you.

MS. JEFFRIES: Thank you, Kelli. 

Barmak, you're next.

MR. NASSIRIAN: The question I was 

going to pose, it's kind of challenging because there 
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there's a real sense in which it may belong in 

administrative capability, but but we're talking about 

it here. The consequence of failure to make these very 

critical reportings is that the Department may take some 

action against the institution. And the problem here is 

that at the end of the day, you know, people run 

institutions. You need to expose individuals to 

consequences if you want to change corporate behavior. 

And I'm just wondering whether the Department can 

contemplate something a little more consequential than 

simply suggesting that that failure to make the 

reporting could could have consequences for the 

institution only. There is language in administrative 

capability in the statute that, first of all, clearly 

delineates between nonprofits and for-profits. Then the 

focus tends to be on the for-profits and ownership 

interest or individuals exerting substantial control on 

for-profit entities. And it strikes me as wise for that 

authority to be exercised under the broad authority that

the statute gives the Secretary for financialresponsibility purposes to ensure that individuals in 

substantial control of for-profit entities face 

consequences when they fail to make the necessary 

reports.

MR. MARTIN: Well, I'll take that back 
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as a suggestion, if you have specific language you want 

to share, feel free to do that.

MS. JEFFRIES: Thank you. Okay. I 

don't see any other hands Greg on the Section 668.171 

paragraphs (e) and (f) (1) (i through ix) . How would 

you like to proceed, do you want a temperature check on 

those or do you want to go a little further?

MR. MARTIN: Yeah, let's do a 

temperature check because I would like to keep it by by 

paragraph if I can before we move on.

MS. JEFFRIES: Sure. Alright. So we 

will do a temperature check on Section 668.171 

paragraphs (e) and (f) (1) (i through ix). So if I could 

please see your thumbs nice and high. Okay. There is one 

thumbs down. Anything you want to add Brad, as a 

concern? We can't hear you.

MR. ADAMS: Sorry, I was, had my mic 

muted, I added my one concern right before lunch, and so 

that was it.

MS. JEFFRIES: Alright, great. Thank 

you. So Greg, and Aaron is sharing, Aaron Washington, is 

sharing with us, I believe still this afternoon. So if 

you want to queue up the document? Greg, do you want to 

take us through the next section?

MR. MARTIN: Yes, so the next- (g) is 
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included, though there are no changes to paragraph (g). 

So we're going to move on to paragraph (h). Before I do 

that, I wanted to just briefly, I promised Amanda a

response to her question regarding the discretionary 

trigger related to to annual dropout rates for the 

institution. And her question was, does the Department 

have any, I think, particular formula by which we 

calculate that? And is there any threshold that we use? 

The answer to both of those questions is no. And 

(inaudible), for those reasons, we've not yet invoked 

that particular discretionary trigger. So we do welcome 

any suggestions from the committee as to what might be 

an appropriate methodology for that. We have a 

methodology and an added capability for initial 

institutions. There's an IPEDS methodology, does not 

apply to either of those or any other. But if there are 

suggestions, I'm willing to entertain those in writing 

since we've moved on from that section, but I did want 

to answer that question. Okay, we're ready to move on to 

paragraph (h), which is audit opinions and disclosures. 

And we have suggested language here that clarifies the 

requirements around the institution's ability to 

continue operations, so I made a few a few clarifying 

changes here. Even if the institution satisfies all the 

general standards of financial responsibility in 
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paragraph (b)B, the Secretary does not consider the 

institution to be financially responsible if the 

institutions audited financial statements, the opinion 

expressed by the auditor was adverse, qualified or 

disclaimed opinion, or, this is the addition, the 

institution was required to include a disclosure in the 

notes to the financial statements that contains 

information about the institution's ability to continue 

operations unless the Secretary determines that a 

qualified or disclaimed opinion does not have a 

significant bearing on the institution's financial 

condition, or that the institution's ability to continue 

operations has been alleviated. So just a couple of 

wordsmithing changes there, but they are present so I 

wanted to go over them. And that is all section 171. So 

I don't think we need to take a check here. I will ask 

if there are any comments or questions before we move on 

to sections 174 and 175.

MS. JEFFRIES: Barmak.

MR. NASSIRIAN: I apologize, but you 

kind of jumped over (g) so quickly that I didn't get a

chance to interject. I just have a question here. With 

the advent of new arrangements under which public 

institutions enter into arrangements that purport to be 

ownership arrangements with nonprofit, or with for-
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profits, does this necessarily satisfy the Secretary?

For example, where the entity being acquired purported 

to be a public institution solely on the basis of the 

fact that the that parent company that the parent 

entity, a public state university, was behind it? Do we 

not need some language here to ensure that public 

transcends just a letter from somebody saying we backed 

the liabilities? We have yet to name the school if you 

want to, but-. 

MR. MARTIN: I appreciate you're not 

naming the actual school. I think we should try to avoid 

names wherever possible. We do propose some changes to 

what is considered to be not-for-profit under change of 

ownership when we get to that particular paper. So I 

would ask that we hold comments related to that until we 

review those sections when we get to that particular 

paper. Steve do you have anything you want to add to 

that?

MS. JEFFRIES: Steve, you're on mute.

MR. FINLEY: I think we should welcome 

comments as to whether we need to make changes in the 

language in the regulations here as well.

MR. MARTIN: Yeah, I am certainly open 

to that.

MR. NASSIRIAN: Yeah, this is my 
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concern again. The conversation becomes difficult when 

you can't name names, but it's critical that that the 

arrangement specifically that (g)(1)(i)(b) should 

transcend the parties to the transaction. It shouldn't 

be so easy for the two parties to a transaction to 

basically cloak behind the suggestion of state backing 

unless the state itself provides that assurance. Do you 

see my point that we have had cases where the state is 

not actually on record, saying this acquisition is 

backed by my full faith and credit, but an entity that 

the state has backed has provided a letter and I feel 

like the Department, needs stronger assurances that any 

acquired entity is indeed fully backed by the full faith 

and credit of the state that backs the parent entity.

MR. MARTIN: So Barmak, you don't 

believe that the current languagethatsays provides a 

letter from an official of that state or government 

entity is sufficient?

MR. NASSIRIAN: It's the or other 

government entity, if the or, I would exclude the parent 

entity from being that other governmental entity. In 

other words, Public University A acquires for-profit 

entity B without the state fully endorsing it and all 

you have in your hands to treat the new Entity B as a 

public institution is a letter from the CEO who 
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negotiated that deal on behalf of Public University A. I 

feel like you need to have the state back that. 

MR. MARTIN: So you want a 

clarification that government or other government entity 

does not include officials of any school involved in the 

acquisition or something to that effect?

MR. NASSIRIAN: Yes.

MR. MARTIN: Okay, I see what you're 

saying. I'll note that.

MR. NASSIRIAN: Thank you.

MS. JEFFRIES: Great. Thank you.

MR. MARTIN: Okay.

MS. JEFFRIES: Sorry. Jessica.

MS. RANUCCI: Thanks. I just had a 

quick question on (h). Sorry, and you don't need to 

respond right now, but is there a meaningful difference 

between (h) being (h) versus being a mandatory trigger? 

And if there isn't, maybe it should just be a mandatory 

trigger. And if there is, I guess I'm curious why, but 

you don't have the answer right now.

MR. MARTIN: Okay.

MS. JEFFRIES: Okay. Thank you, 

Jessica. Kelli.

MS. PERRY: Just a question on (h) as 

well, and maybe David can weigh in if necessary. I'm, 
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this is not a big deal, but why the change from as a 

going concern to operations? Because this is referring 

to audit opinions and disclosures, which from an 

accounting perspective, it's referred to as going 

concern footnote. Again, not a huge deal. I'm just 

curious as to why the change.

MS. JEFFRIES: Steve, you have a 

response to that? 

MR. FINLEY: Sure. Yeah, this is 

tracking a change that was made in the accounting 

reporting standards for going concern findings. So the 

language has slightly broadened and it shifts for some 

responsibilities on the auditor's expression of an 

opinion about management's assertions. And we're just 

capturing what we think is the change that was made and

make sure it appears in (h).

MS. JEFFRIES: Okay, thank you, Steve. 

Alright, I don't see any more hands on that and the 

Department has indicated they don't feel they need a 

temperature check on that. So Greg, are you ready to 

move into 668.174, Past Performance?

MR. MARTIN: Yes. Why don't we move to 

that?

MS. JEFFRIES: Hey, Aaron, can you cue 

that up?
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MR. MARTIN: There isn't a lot here in 

174 that we've changed, except you will note in (a)(2) 

and this has to do with slightly restructuring the 

sentence to clarify the programreview findings must have 

been for the current fiscal year or for the past two 

fiscal years, rather than having a report issued in 

those years. This is a technical change to conform with 

how we already read the language. It will look at 

findings, where those findings resulted in the institution's being required 

to repay an amount greater than 5 percent of the funds that the institution received under the 

title IV, HEA programs during the year covered by that audit or program review. Those findings 

may be in its two most recent compliance audits or in a 

report issued by the Secretary for its current fiscal 

year or either of its preceding two fiscal years. So the 

finding keys to the years and we're not keying the 

report, that's the only that's the only difference here. 

So, not a big one, but I'll certainly open it up for 

discussion if anybody has any anybody to say about that 

or has questions.

MS. JEFFRIES: Aaron, can you drop the 

screen for a minute? Thank you. Barmak, you have a 

comment?

MR. NASSIRIAN: Yeah, I'm assuming 

that the language here is incomplete, right? I mean, 

there are other provisions in this section.
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MR. MARTIN: That's correct. We don't,

as a rule, include the entire section unless it's 

necessary to do so.

MR. NASSIRIAN: So the past 

performance of individuals who who exercise substantial 

control is still on the books.

MR. MARTIN: Yes.

MR. NASSIRIAN: And tracks this in a 

parallel to institutional.

MR. MARTIN: Yes. If anything that we 

have rescinded, you would see red lines. 

MR. NASSIRIAN: Okay, so a couple of 

thoughts here, it seems to me. First of all, I'm 

delighted to hear that that that individuals would still 

be on the hook because again, you need to change the 

behavior of individuals to change institutional conduct. 

And it seems to me that you again, this is one of those 

triggers that may be placed way too late in the 

downward spiral of those actors against whom you would 

be well advised to act much earlier. So I would strongly 

suggest broadening the definition of problematic past 

behavior. You know, one of the problems we saw back in 

the 80s, which seems to be a recurring issue with the 

oversight practices at the Department, is that people 

engage in practices that end up costing taxpayers and 
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students enormous sums of money and then create huge 

wastes of time. And then they simply regroup under a new 

banner and do it again and again. And it seems to me 

that, for example, individuals associated with sizable 

collapses, that past performance has to constrain their 

ability to participate in the management of other 

entities. You know, again, Borrower Defense issues

creating the kinds of bad outcomes that the Department 

would be well advised to to prevent repeating in the 

hands of same individuals under a new corporate banner.

MS. JEFFRIES: Okay. Thank you, 

Barmak. I don't see any other hands on this. But before 

I ask you what you want to do, Greg, I want to note that 

David Socolow is now at the table representing state 

agencies instead of Debbie Cochrane. So Greg, where 

would you like to go from here? Do you want a 

temperature check?

MR. MARTIN: I don't think we need a 

temperature check. I mean, we gave an opportunity for 

comment. Barmak made a comment. It's been noted, and the 

change itself here is pretty much just a clarification.

So I don't think it's anything we have to change. It 

also is codifying current practice, so I don't think 

it's anything we need to take a take a temperature check 

for. I'd like to move on to 175.
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MS. JEFFRIES: Okay. 

MR. MARTIN: Alternative standards and 

requirements. So, our first change. Just look at what's 

general here, an institution that is not financially 

responsible under the general standards and provisions 

in 668.171 may begin or continue to participate in the 

Title IV HEA programs by qualifying under an alternate 

standard set forth in this section. So the first change 

we just made some a few clerical changes here, but in 

(c) we have clarified in this section that institutions 

must have remedied any failures to meet their financial 

obligations in order to use an existing financial 

protection alternative that allows the school to be 

considered financially responsible if it provides surety 

of at least half the school's prior year Title IV 

volume. So, that's in (c), financial protection 

alternative for participating institutions, that is a 

participating institution that is not financially 

responsible either because it does not satisfy one or 

more of the standards of financial responsibility under 

668.171 (b), (c) or (d), or because of an audit opinion 

or going concern disclosure, qualifies as a financially 

responsible institution by submitting an irrevocable 

letter of credit that is acceptable and payable to the 

Secretary, or providing other surety described in 
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paragraph (h)(2) romanette (i) of this section for an 

amount to be determined by the Secretary. Not less than 

one-half of the Title IV HEA program funds received by 

the institution during its most recently completed 

fiscal year, except that this requirement does not apply 

to public institutions. And we know here that for 

purposes of the failure under 668.171 (b), the 

institution must also remedy the issues that gave rise 

to the failure. And moving on from that. We've, nothing 

under (d), (e), (f), and I'm sorry, we have changes 

under (f). So we're going to go to provisional 

certification alternative. And we note here that the 

Secretary may permit an institution that is not 

financially responsible to participate in the Title IV 

programs under provisional certification for no more 

than three consecutive years if the following standards 

are met and we'll go down to, and again, , Steve did an 

excellent job of describing this in his comments before 

lunch. So looking at (f)(2), under this alternative, the 

institution must provide the Secretary an irrevocable 

letter of credit acceptable and payable to the 

Secretary. It will provide other financial protection 

described in paragraph (h) of this section for an amount 

determined by the Secretary to be not less than 10 

percent of Title IV HEA program funds received by the 
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institution during its most recently completed fiscal 

year. Except this does not apply to public institutions 

the Secretary has determined are backed by full faith 

and credit of the state, and again, we've inserted 

“remedy the issue that gave rise to the failure.” So 

that is the change there. And the language mirrors the 

language we just described about the financial 

protection alternative. It clarifies institutions must 

have remedied the failures to meet their financial 

obligations in order to continue participating in the 

Title IV programs while not financially responsible. So, 

that is the entirety of what is proposed in Section 175, 

so I'll take any comments on that before we move on to 

change of ownership.

MS. JEFFRIES: Thank you, Greg. 

Carolyn.

MS. FAST: Yes, I generally am 

supportive of these changes, but I do have a question or 

and/or suggestion, in the section that deals with 

alternate means of of of maintaining eligibility while 

having failed this financial responsibility, there's a 

provision that says that this kind of alternative 

standard is only available for no more than three 

consecutive years. However, Barmak and others have 

raised the issue that schools have remained for longer 
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than three years in eligible status when showing 

significant financial problems. And I'm not sure. I 

guess my question is, how is that possible? Are there 

loopholes or other considerations that we need to be 

thinking about here? Or is the issue that is it 

consecutive year as being the issue? Because I know that 

there are a lot of examples of schools that have sort of 

limped along prior to their collapse for quite some 

time, longer than three years. And I'm not sure if it's 

because they somehow managed to bump up into financial 

responsibility for one year and then back down again, or 

whether the Department somehow permitted them to 

continue. And perhaps you could shed some light on this, 

but it seems to me there may need to be some further 

modification to ensure that schools are not continuing 

to limp along on the edge of death for years and years.

MS. JEFFRIES: Thanks, Carolyn. Steve, 

youMR. MARTIN: I was going to say, Steve 

is a lot more familiar with that than am I, so I'm going 

to let Steve address that.

MS. JEFFRIES: Thanks, Greg.

MR. FINLEY: So the short answer is 

you can participate for no more than three years under 

provisional certification. At the end of that period, 
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the institution can be certified again and it can be 

provisionally certified again, even if that's for lack 

of financial responsibility. So that's how you address 

the seeming contradiction of there's a three-year limit, 

but you'll see institutions that participate year after 

year after year. And in part, that was because when the 

financial responsibility regulations were first put in 

place in the mid-nineties, there were institutions that 

demonstrated they had very good operating histories. But 

they were very poor and they were honest enough to say, 

we're never going to meet your financial responsibility 

standards, but you can judge us by years of operation 

that we've met our obligations under the programs. And 

so the Department backed away from an original proposal 

that would have said after three years, you had to be 

financially responsible in order to continue.

MS. JEFFRIES: Okay. Thank you, Steve. 

Okay, Greg, I'm going to, oh, Barmak. 

MR. NASSIRIAN: Yeah, I think that's, 

look, I absolutely understand the need for the 

Secretary to have some discretion here. In fact, I 

wouldn't even object to the idea of a 10 percent 

threshold for letters of credit under the section as 

inadequate as that strikes me at. The problem is that 

this same leniency that was justified, and perhaps was 
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justifiable in certain cases, ended up being the path of 

least resistance for outright fraud that has cost the 

taxpayers and students hundreds of millions of dollars. 

And I don't know whether this is something we need to 

address in regulations. It's more administrative 

practice. I have a question, has the, draw the line low, 

but then make case by case judgments, both with regard 

to renewals of the three-year cycle as well as with the 

dollar amount of any letter of credit. And don't let 

what are intended to be minimum thresholds in the reg 

become the de facto ceilings on your administrative 

expectations. I think there have been too many. Has the 

Department really asked anybody that went on there for 

more than 10, 10 cents on the dollar? Do we know that? 

Do we know if ITT or Corinthian had letters of credit in 

excess of 10 percent? That's the question.

MS. JEFFRIES: Yep. Thanks, Barmak. 

Steve. Do you want to address that? 

MR. FINLEY: I'll just say there are 

institutions that have been required to post more than 

the minimums. There was a long-standing dispute with 

Corinthian about its financial responsibility, 

structuring whether it met the requirements, I believe. 

But there are certainly other large institutions that 

have had letters of credit larger than the minimums, 
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even at the time that they closed.

MS. JEFFRIES: Okay. Thank you. Steve. 

I see one last hand up. Carolyn and then I'd like to

wrap up this section and move on to the next. Carolyn.

MS. FAST: I just have one further 

thought about the the provision. With three three 

consecutive years, it seems like it might be against the 

spirit of the regulation to continue to re-up 

provisional status after three years perpetually. And I 

would suggest language that makes it clear that that 

that cannot happen in perpetuity, that's not the 

intention of the strike. Or at least it seems to me that 

is an end that would not be a great way to protect 

borrowers or taxpayers either, so I would suggest some 

kind of limitation on the number of years that a school 

can remain in provisional certification status. 

MS. JEFFRIES: Thank you, Carolyn. I'm 

certain the Department captured that, but in addition to 

that, if you have text you would like to submit on that, 

please feel free to do so. So with that, Greg, how do we 

stand? You want a temperature check on Section 175?

MR. MARTIN: Let's do that quickly. 

I'm trying to get one for each major paragraph in which 

there were changes, so let's go ahead.

MS. JEFFRIES: Alright. So could we 
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see a show of thumbs on 668.175, alternative standards 

and requirements? Oh, there you are. Thank you. I'm not 

seeing any thumbs down, so we can move on to 668.176, 

change in ownership.

MR. MARTIN: Thank you, Cindy. Excuse 

me. So we're going to be move into 668.176. Just as a 

refresher, and we discussed this earlier when we looked 

at 668.15. But this this is the section where we have 

incorporated the language from 668.15 that was related 

to the financial responsibility of institutions 

undergoing a change of ownership. So those relevant 

parts of 668.15 have been moved over here with some 

clarifications to reflect Department practice and 

reviewing financial responsibility for changes in 

ownership. This is a rather dense section, as you can 

see, it's all new, so all of it is all of this red line 

text. We will go through it. Obviously, (a) is just the 

purpose. I'll go through (b) to see. I would like to 

keep our comments fairly general in the interest of the 

time. We have limited time and a lot to get to, but we 

certainly want to capture any comments or opinions you 

might have about this, suggestions for improvement and I 

encourage you to do as many of those as possible in 

writing, so that we can capture them. I certainly don’t 

want to preclude conversation or if you have a major 
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point you want to make. But I would I would ask that we 

refrain from minor points of clarification, if we can, 

in the interest of getting through financial 

responsibility today. So again, these are changes that 

we are incorporating what was in 668.15. Purpose here, 

to continue participation in a Title IV HEA program 

during and following a change of ownership, the 

institution must meet the financial responsibility 

requirements of this section. And first, we discuss a 

materially complete application, to meet the 

requirements of a materially complete application as 

required in 600.20 (g)(2) romanette (iii) and (iv), an 

institution undergoing a change of ownership and control 

as provided in 600.31 must submit audited financial 

statements for its two most recently completed fiscal 

years at the level of the change in ownership or the 

level of financial statement required by statements 

required by the Secretary that are prepared and audited 

in accordance with the requirements in 668.23(d). The 

institution must submit audited financial statements of 

the institution's new owners’ two most recently 

completed fiscal years that are prepared and audited in 

accordance with the requirements of 668.23 at the 

highest level of unfractured ownership or at the level 

required by the Secretary. If the institution's new 
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owner does not have two years of acceptable audited 

financial statements, the institution must provide 

financial protection in the form of a letter of credit 

or cash to the Secretary in the amount of 25 percent of 

the Title IV HEA program funds received by the 

institution during its most recently completed fiscal 

year, or if the institution's new owner has one year of 

acceptable financial statements, the institution must 

provide financial protection in the form of a letter of 

credit to the Secretary in the amount of 10 percent of 

the Title IV HEA program funds received by the 

institution during its most recently completed fiscal 

year. I just want to clarify here when we say the 

institution must, we are referring here to the the new 

owner's institution, not the existing, not the 

institution being acquired. So we do need to make a 

clarification there which we will do. But I wanted to 

point that out before we move through this. So the 

institution must meet the financial responsibility 

requirements in general. The Secretary considers the 

institution to be financially responsible only if. for a 

for-profit institution, has not had an operating loss. 

Has not had operating losses in either or both of its 

two latest fiscal years that in some result in a 

decrease in tangible net worth in excess of 10 percent 
26

Committee Meetings - 01/20/22

of the institution's tangible net worth at the beginning 

of the year of the two-year period. The Secretary may 

calculate an operating loss for an institution by 

excluding prior period adjustment and cumulative effect 

of changes in accounting principles. For purposes of 

this section, the calculation of tangible net worth must 

exclude all related party accounts receivable, other 

assets and all assets defined as intangible in 

accordance with the composite score. Second it has, for 

its two most recent fiscal years, had a positive, 

tangible net worth in applying this standard. A 

positive, tangible net worth which occurs when the 

institution's tangible assets exceed its liabilities. 

The calculation of tangible net worth excludes all 

related party receivables and other assets and assets 

all assets rather classified as intangible in accordance 

with the composite score or has a passing composite 

score and meets the other financial requirements of 34 

CFR 668 subpart L for its most recently completed years. 

I want to stop here for a moment and and draw everyone's 

attention to the way the regulation is written here, 

that what we just discussed in 668.176 (b)(3). Where we 

have in (3)(i) rather where we have in (3)(i)(A) where 

we say that it's these the first two or the third, and 

whether the Department would entertain comments as to 
27

Committee Meetings - 01/20/22

whether or not it should remain or leaving it to be any 

one of these or whether all three should be required. So 

I'll open the floor for comments about everything we've 

discussed thus far and ask for specific comments related 

to 668.176(b)(3)(i)(A).

MS. JEFFRIES: Okay. Greg, Steve has 

his hand up.

MR. FINLEY: Yeah, I just I want to 

add to what Greg was saying in his explanation. So this 

is the Department's long-promised move to take elements 

that had been in 668.15, update them to incorporate 

concepts related to the composite score analysis and 

then move them into subpart L of the financial 

responsibility regs. So that's what you see playing out 

here, where especially in this section where we've 

identified three conditions that the the new ownership 

and the institution must meet. You'll see that we've got 

concepts that weren't in 668.15, but they now include 

references to adjustments that are routinely made under 

the composite score. And that would be to remove related 

party transactions and intangibles from the analysis as 

well and and including a reference to the composite 

score calculation itself.

MS. JEFFRIES: Thank you, Steve. 

Barmak, before I get to you, I want to mention that 
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Committee Meetings - 01/20/22

Johnson Tyler has come to the table for legal aid in 

place of Jessica Ranucci. So with that, Barmak.

MR. NASSIRIAN: So two comments, one 

general and then second, one more specific about the 

section. In the abstract, I don't have an issue with 

what the Department has put on the table here, but the 

analysis strikes me as a very static one. You know, 

instead of analyzing the change in ownership in motion 

and understanding that there is a dynamic process by 

which the nature of the acquiring entity may not fully 

reflect its superficial markings is important. It's 

insufficient to take a snapshot of their past conduct 

and then assume straight line future behavior on that 

basis, because by the very act of the acquisition, they 

may well be in the process of morphing into something 

quite other than what they've been. So I do think that 

that the best way probably to get at that would be to, 

this is kind of a blunt instrument, but I think it works 

would be to essentially prohibit the completely debt 

financed acquisitions, essentially leveraged buyouts and 

arrangements by which the acquisition is really masking 

a revenue sharing arrangement. It's called an 

acquisition, but it's not an acquisition, it's really a 

contract for revenue sharing because there are 

significant financial constraints imposed on the 
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Committee Meetings - 01/20/22

acquiring entity in the guise of a transfer of 

ownership. I think that would address that dynamic 

issue. The more specific comment I want to make is that 

this language basically lets the publics off the hook. 

Because of the inadequacy, again, the language would 

have been quite adequate in the olden days where we kind 

of knew what a public entity is, but now that we have 

these public entities acquiring various other 

subsidiaries, some of them quite problematic forprofits, it seems to me that you need a whole lot more 

to ensure that an acquisition by a public entity doesn't 

end up being nothing but a rescaling of practices that 

would otherwise be subject to much different oversight 

by the Department.

MS. JEFFRIES: Thank you, Barmak. I 

would encourage you to put any or all of that into the 

chat or if you have text to submit it. Greg, I don't see 

any other hands, so I think we can, Brad. 

MR. ADAMS: You know, this is 

obviously a lot. I respect that we're still reviewing it 

and may have changes prior to the week two session. I 

did just want to clarify two things because it was the 

suggestion for change and I think the wording in (b)(3)

that is it going to be the acquiring institution must be 

one, two or three, not the combined entity?
30

Committee Meetings - 01/20/22

MR. MARTIN: Yes, it's the acquiring 

institution. 

MR. ADAMS: Alright, so it will insert 

the word acquiring. Thank you. And then the other thing 

I just want to clarify , when we're talking about the 

timeframe of the materially complete application, I just 

want to make sure that we understand that the change of 

ownership that materially improve the institution's 

financial conditions, we want this to occur if it saves 

students and save jobs, again, I understand the intent 

here, we'll get back to you on comments, but the main 

comment is we want good students and good people to 

emerge when it makes sense.

MS. JEFFRIES: Thank you, Brad. Okay, 

I don't see any other hands, Greg.

MR. MARTIN: Okay, so we're going to 

move. So we're talking about, you know, meeting the 

financial responsibility requirements in general and we 

just discussed what they are for a for-profit 

institution in 668.176(b)(3)(A) and then (B) is for 

nonprofit institutions, nonprofit accounting has had at 

the end of its two most recent fiscal years a positive 

positive net assets without donor restrictions. 

Secretary will exclude all related party receivables, 

either assets from net assets without donor restrictions 
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Committee Meetings - 01/20/22

and all assets classified as intangibles in accordance 

with the composite score. Has not had an excess of 

current fund expenditures over current fund revenues 

over both of its two latest fiscal years that result in 

the decrease exceeding 10 percent in either the net 

assets without donor restrictions from the start to the 

end of the two-year period, or the net assets without 

donor restrictions in either one of the two years. The 

Secretary may exclude from that changes in fund balances 

for the operating loss calculation, prior period 

adjustments and the cumulative effect of changes in 

accounting principle. In calculating the net assets 

without donor restrictions, the Secretary will exclude 

all related party accounts receivables, other assets and 

all assets classified as intangible, with the composite 

score in accordance with the composite score rather 

and/or has had a passing composite score that meets the 

other financial requirements of 34 CFR 668 subpart L for 

its most recently completed fiscal year. And again, we 

would be asking for any comments on whether currently, 

as written, it would be one two or three, or whether it 

should be one, two and three. And finally, or for a 

public institution has its liabilities backed by the 

full faith and credit of the state or by an equivalent 

government entity or for for-profit or nonprofit 
32

Committee Meetings - 01/20/22

institution that is not financially responsible under 

paragraph (b)(3)(i) of this section, provide financial 

protection in the form of a letter of credit or cash in

an amount that is not less than 10 percent of the prior 

year Title IV funding or an amount determined by the 

Secretary and must follow the zone requirements of 

175(d). So I'll stop there and entertain any comments on 

the requirements for a nonprofit institution.

MS. JEFFRIES: Okay, thank you, Greg. 

Kelli.

MS. PERRY: I guess just a clarifying 

question, and I don't know if it's the same or 

different, but when you say the institution must and 

we're providing financial statements and recalculating 

scores, are you looking from a not-for-profit 

perspective? Are you looking for the combination of the 

new entity? Because when I when I think about not-forprofits and I think about change of ownership, the 

biggest thing that comes to mind is the combination of 

two, right? So you have two not-for-profit institutions 

and they're going to combine. I think that's what we've 

seen in some cases in that area. So is the calculation 

that we're doing here as it relates to this, the then 

consolidated institution, which would be the two 

nonprofits together or just simply the one that acquired 
33

Committee Meetings - 01/20/22

the other non-profit?

MR. MARTIN: As it's written, I 

believe that what's in (b)(3) and that includes both 

(A) and (B) for not-for-profit and for-profit is 

applicable to the acquiring entity. But Steve, do you 

want to clarify that? I believe that's what we 

discussed, but I want to make certain of that.

MR. FINLEY: That's how it's 

described. But I think this initial evaluation is going 

to be on the two years of audits that are provided by 

the acquiring entity and not the newly merged entity 

that would be created after the acquisition.

MS. PERRY: Okay, so assuming that the 

entity that's doing the acquiring is financially 

responsible, then that's fine.

MR. FINLEY: They should meet this 

standard, right.

MS. PERRY: Okay. And then for your 

question as it relates to and/or, I think or would be 

appropriate.

MS. JEFFRIES: Thank you, Kelli. 

Johnson.

MR. TYLER: Good afternoon, so this is 

more of a question than a statement, because, Greg, you 

keep asking should there be an and or and or, so I'm 
34

Committee Meetings - 01/20/22

wondering whether the acquiring entities usually are 

passing the composite score and are the other things 

kind of superfluous? Why do you keep asking about this? 

I have no background in the finances of colleges in this 

sort of thing, but I'm curious what your thinking is.

MR. MARTIN: We're trying to get a 

feel for the way it's written so they have to with the 

or they have to admit one of the three would be 

acceptable. [Inaudible] tell you that you know, meet the 

financial responsibility requirements in general, the 

Secretary considers the institution to be financially 

responsible if it is so when you look at one, two or 

three, there's the option of meeting one, two, or three 

or if it reads and, then it would be a requirement to 

meet all three of those. So we just proposed that as a 

directed question.

MR. TYLER: Can I just ask one followup, which is, did the GAO do a whole study of the 

transformation of for-profits and nonprofits? Were these 

sorts of accountability issues raised by by them? And 

did they make some recommendations about greater 

financial oversight and in terms of the change in 

ownership related to this provision?

MR. MARTIN: I'm not aware of that, 

I'm not overly familiar with that GAO report. I don't 
35

Committee Meetings - 01/20/22

know if Steve is. If so, he can comment. If not, we'll 

have to take that back. But I don't want to speculate on 

that.

MR. TYLER: Thank you.

MS. JEFFRIES: Thank you, Johnson. 

Barmak.

MR. NASSIRIAN: I just want to get 

some clarification in my head. How am I to understand 

that that the Department does not subject the new entity 

itself, that emerges as a result of the acquisition to 

any of these tests? Because you can have you know an 

entity that has a passing composite score, debt financed 

a purchase in a way that would put it below that that 

number, I assume below whatever threshold you pick, no?

MS. JEFFRIES: Okay, Greg, I see Steve 

has his hand up. Do you want to defer to him?

MR. MARTIN: Yeah, sure. Go ahead, 

Steve.

MR. FINLEY: So there's two things, 

right? There's two years of audits from the acquiring 

entity and those are examined and the audited same-day 

balance sheet is examined. So, those are all taken into 

consideration, but probably the better or best measure 

of the new entity is going to be the audited financial 

statements of the fiscal year for that combined entity, 
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Committee Meetings - 01/20/22

and you're not going to see that for a year, probably, 

right, a year plus six months if it's a six-month 

submission period. So [interposing] the transaction, 

you've got the audited same-day balance sheet and you've 

got the history of the acquiring institution and those 

are examples.

MR. NASSIRIAN: Is the Department 

indifferent to the terms of the acquisition itself if 

it's entirely debt financed, particularly if it's debt 

financed by the entity being acquired?

MR. FINLEY: I think we would welcome 

suggestions on that, I know it is a factor that is 

considered.

MR. NASSIRIAN: I mean, that just 

blows my mind because you know, I'd be worried, even if 

it's a third-party financier, debt financing an 

acquisition to an otherwise passing impoverished but but 

passing nonprofit. Now we can have a separate 

conversation about the shenanigans with the publics 

[phonetic], but particularly when it's sort of like the 

nonprofit equivalent of a leveraged buyout where you're 

essentially being extended credit for money you don't 

really have to theoretically purchase an entity for 

hundreds of millions of dollars in some cases, as you 

know,
37

Committee Meetings - 01/20/22

MR. FINLEY: Basically seller financed

transactions, right? 

MR. NASSIRIAN: Yeah, I mean, that 

should be very, I mean, alarm bells should go off all 

over the Department. I'm really stunned that the 

Department is willing to tolerate that even for one year 

in the interest of of getting an audited statement 

because, you know, on the front end that this thing is a 

very dangerous financial transaction where a non-profit 

is basically handing over future revenues in the form of 

debt payment to somebody who is now in a stronger 

position because they used to be an equity owner and now 

they're a creditor.

MS. JEFFRIES: Alright, thank you. 

Barmak. In the interest of moving us along, I'm going to 

turn to advisor Dave McClintock, I think he has 

something he wants to weigh in here. And then we're 

going to move on. 

MR. MCCLINTOCK: Yeah, I just I think 

I have a clarification question for the timing of what's 

being outlined here. So, this is part of the application 

process for the change of ownership, is that a correct 

statement?

MR. FINLEY: No.

MR. MCCLINTOCK: This is the first 
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Committee Meetings - 01/20/22

year after the change of ownership?

MR. FINLEY: What what you're seeing 

is there's a requirement in the regulations the 

Department be notified of a change of ownership no later 

than 10 days after the transaction occurs, and there's a 

materially complete application for approval of the 

change of ownership that comes in as part of that 

notification. And then there is a supplement to that 

application that comes in with the state and accrediting 

proof within 60 days of that. So we're talking about the 

evaluation that takes place based on this material that 

comes in following the change of ownership.

MR. MCCLINTOCK: But before the 

opening balance sheet would be submitted because you 

have until the [inaudible]?

MR. FINLEY: Well, that should come in 

as part of the 60 day timeframe.

MR. MCCLINTOCK: Right, okay. And then 

maybe this is the same clarification before under (b)(1) 

here, an institution undergoing a change of ownership 

that would be the acquiring institution, right? Not the 

institution being acquired.

MR. FINLEY: Right. 

MR. MCCLINTOCK: Is that right? Okay, 

thank you.
39

Committee Meetings - 01/20/22

MS. JEFFRIES: Alright. Thank you. So, 

Greg. You want to move us along here?

MR. MARTIN: Let's go on to, we'll 

finish, we'll finish 668.176(c), and then we can do a 

temperature check after the end of (c) when we will have 

completed 176. Okay, so, moving on to the terms of the 

extension to meet the requirements for a temporary 

provisional program participation agreement following a 

change of ownership, as described in 600.20(h)(3)(i). 

The institution provides the Secretary with a same-day 

balance sheet for a proprietary institution or a 

statement of financial position for a nonprofit 

institution that shows the financial position of the 

institution under its new owner as of the day after the 

change of ownership at the level required by the 

Secretary. The same day balance sheet or statement of 

financial position must be prepared in accordance with 

GAAP published by the Financial Accounting Standards 

Boards and audited in accordance with GAGAS published by 

the U.S. General Accounting Office as part of the sameday financial statement, the institution must include a 

disclosure that includes all related party transactions 

and such details as would enable the Secretary to 

identify the related party. Such information may 

include, but is not limited to, the name, location and 
40

Committee Meetings - 01/20/22

description of the related entity, including the nature 

and amount of any transaction between the related party 

and the institution, financial or otherwise, regardless 

of when it occurred and such financial statement must be 

a consolidated same-day financial statement at the level 

of the highest unfractured ownership or at the level 

determined by the Secretary for an ownership of less 

than 100 percent. Same-day financial statement must 

demonstrate an acid test ratio of at least one to one. 

The acid test ratio must be calculated by adding cash 

equivalents to current accounts receivable and dividing 

the sum by total current liabilities. The calculation of 

the acid test ratio must exclude all related party 

receivables, other assets and all assets classified as 

intangibles in accordance with the composite score. 

A proprietary institution's 

submission must demonstrate a positive, tangible net 

worth the day after the change in ownership. A positive, 

tangible net worth occurs when the financial statement 

statement's tangible assets exceeds liabilities. The 

calculation of tangible net worth must exclude all 

related party accounts receivables or other assets and 

all assets classified as intangible in accordance with 

the composite score. And a nonprofit institution's 

submissions must have a positive net assets without 
41

Committee Meetings - 01/20/22

donor restrictions the day after the change in 

ownership. The calculation of net asset without donor 

restrictions must exclude all related party accounts 

receivable, other assets and all assets classified as 

intangible in accordance with the composite score. If an 

institution fails to meet the standards of paragraphs 

(c) (2), (3), or (4) of this section, the institution 

must provide financial protection in the form of a 

letter of credit or cash to the Secretary in the amount 

of at least 25 percent of Title IV HEA program funds 

received by the institution during its most recently 

completed fiscal year, or an amount determined by the 

Secretary, and must follow the zone requirements of 

175(d) . A public institution must have its liabilities 

backed by the full faith and credit of the state or by 

an equivalent governmental entity, or must follow the 

requirements of this section for a nonprofit or 

proprietary institution. And that concludes all the text 

for 668.176, so we'll open the floor for any comments or 

discussion before we move on to 167.

MS. JEFFRIES: I just want to remind 

everyone, the Department has requested that you keep 

your comments and questions to major points so that we 

can get through this. We still have several things to do 
42

Committee Meetings - 01/20/22

yet this afternoon. So, Barmak.

MR. NASSIRIAN: Two questions or 

observations, one, that I certainly understand the 

notion of a positive net worth without donor 

restrictions. It is not difficult to envision a way of 

gaming this through a kind of a phantom sale of an 

entity to an acquiring institution, say, for a dollar 

that would have barely any effect on the net worth of 

the acquiring entity, just a dollar, but then have 

significant restrictions that encumber future revenues 

because the sale quote unquote, was in fact a revenue 

sharing agreement disguised as a sale. So I feel like 

some language may need to be added there. Donor 

restriction just hearkens to the standard legitimate 

nonprofit practice of soliciting donations from 

philanthropy and otherwise, and you know, somebody into, 

I don't know, ancient archeology and restricts the 

donation to those purposes. That's not what we're 

talking about here. We're talking about revenue sharing 

agreements that are disguised as as transfers of 

control. So that's one thing. The other question I had 

for you has to do with this. And we talked, we touched 

on this elsewhere. This notion of full faith of credit 

of a state or by an equivalent government entity, which 

shall exclude the acquiring entity itself being the 
43

Committee Meetings - 01/20/22

guarantor. But what is this thing about follow the 

requirements for a nonprofit or proprietary institution? 

I understand what you're trying to do here again, not 

citing previous examples, but that's pretty, that's 

pretty loosey goosey. I think you really need to tighten 

up the definition of public, not only in terms of 

finances, but also full applicability of all relevant 

state laws to the to the entity core [phonetic] public. 

So, and I will try to produce some language for you 

between the sessions, but I just wanted to flag that.

MS. JEFFRIES: Thank you, Barmak.

MR. MARTIN: Thank you, Barmak.

MS. JEFFRIES: Kelli.

MS. PERRY: Three questions or 

comments. First, this concept of same-day financial 

statements, again, is it the acquiring institution or 

is it the combined institution?

MR. MARTIN: I believe it's the 

acquiring, isn't it, Steve, is how it's written?

MR. FINLEY: The same day balance 

sheet post transaction, there should only be, you know, 

the acquired institution and the entity acquiring it at 

that point.

MS. PERRY: Okay. Second thing is in 

(c)(2), not for-profits, typically do not categorize or 
44

Committee Meetings - 01/20/22

define things as current accounts receivable or current 

liabilities. So it may just be something to consider 

based on definition. And then the third thing, (c)(4), 

where it talks about the fact that the submission they 

there must be positive net assets without donor 

restriction. That kind of goes back to the concept that 

you had asked about, is it an and/or an or as it relates 

to positive net assets or current fund, in essence, 

positive operations versus passing composite score. You 

could have situations where not-for-profits may not have 

positive net assets without donor restriction as it 

relates to movements that they had to make as it relates 

to [inaudible] in different states, however, they do 

have passing composite scores. So in the first area that 

we talked about, we're saying it's an or, but then in 

this section, we're saying that that same-day balance 

sheet has to have positive, unrestricted or well, sorry 

without donor restrictions net assets. That may not 

always be the case.

MS. JEFFRIES: Okay. Thank you, Kelli. 

If you want to put those questions in the chat so that 

the Department can look into that for you, I would 

appreciate it. Greg, we have no further hands up. So are 

you ready for the temperature check on 668.176 in its 

entirety?
45

Committee Meetings - 01/20/22

MR. MARTIN: Yeah. Before we do that, 

I just want to point out that I'll move on to 177. This 

is severability. This is an existing section. It just 

used to be 176 and we moved the appropriate language, 

applicable language for change of ownership out of 

668.15 and moved it into 176, we moved severability to 

177. So that's all that's there. I just wanted to point 

that out. We can go ahead with a temperature check at 

which point we'll be done with financial responsibility.

MS. JEFFRIES: Okay, so if I could see 

a show of your thumbs nice and high on the 668.176 

change of ownership. Okay, Samantha, I can't see. Oh, 

okay. Alright, I'm not seeing any thumbs down on this so 

we can move on. That brings us to getting, starting and 

hopefully completing change of ownership and starting 

yet this afternoon, certification procedures. But the 

Department needs a quick break here to transition from 

OGC, their OGC people. So why don't we go ahead, what is 

it, 2:09? Why don't we say? 2:15 we'll be back here, and 

we'll call that good for our break this afternoon. Okay? 

So if we could stop theMS. JEFFRIES: Welcome back. I want to 

take note that Donna Mangold is now at the table for 

OGC. So with that, Greg, I'm going to turn it over to 
46

Committee Meetings - 01/20/22

you to walk us through issue paper five, changes of 

ownership and changing control.

MR. MARTIN: Thank you, Cindy, and 

we'll get started with the issue paper on changes of 

ownership and change in control, and you see the 

applicable statutory citation and regulatory citation 

there as well. We'll go into the summary of the issues. 

We do point out that some of the changes related to 

changes in ownership are or are not included in this 

document. We have the financial standards we just went 

over. So I think they're probably all very fresh in our 

memories at this point. So a summary of the issues. In 

recent years, the Department has seen an increase in the 

number of institutions applying for changes in 

ownership, many of which result in a change in control. 

And some of which also seek a conversion from 

proprietary to nonprofit or public status. These 

arrangements are often high-risk, as reported by the 

Government Accountability Office of 59 changes of 

ownership from a for-profit entity to a nonprofit entity 

between January 2011 and August 2020, involving 20 

separate transactions, one entire chain, including 13 

separate institutions closed prior to the Department 

reaching a decision on whether to approve the requested 

conversion to nonprofit status. Three-fourths were sold 
47

Committee Meetings - 01/20/22

to a for-profit entity that had not previously operated 

an institution of higher education, increasing the risk 

that students may not get the educational experience for 

which they are paying. One-third had what the GAO termed 

insider involvement in purchasing the nonprofit 

organization, that is , someone from the former forprofit owner was involved in the nonprofit purchase as 

well, suggesting greater risk of impermissible benefits 

to those insiders. Altogether, those institutions 

totaled more than $2 billion in a single year. That's 

award year '18-'19 in taxpayer financed federal student 

aid. The Department has determined in light of the clear 

added risk that changes in ownership present that it is 

necessary to reevaluate the policies and procedures to 

accommodate growing numbers of changes in ownership, 

growing complexity of ownership arrangements and 

increased risk to students and to taxpayers if federal 

requirements for institutions are not appropriately met. 

So moving to what we're proposing, the Department 

proposes to ensure a clearer, more streamlined process 

for consideration of changes in ownership with more 

robust procedures for ensuring that such changes ensure 

compliance with the Higher Education Act and regulation 

and related regulations. To achieve these broad 

outcomes, the Department specifically proposes the 
48

Committee Meetings - 01/20/22

following. Under 600.2, to clarify the definitions of an 

additional location, branch campus, distance education 

locations, and main campus to address existing 

confusion. To clarify the definition of a nonprofit 

institution by specifying non-exhaustive examples of 

certain types of arrangements that are generally not 

considered to meet that definition. To include an 

institution that holds related party financing from a 

former owner of the institution or an institution that 

enters into or maintains a revenue-based servicing 

agreement with a former owner. Under 600.4, institution 

of higher education proposed to make a technical 

adjustment to the language that ensures regulatory text 

is reflective of the statutory language and the 

definition of an institution by specifying that 

institutions include public and other not-for-profit 

institutions. Under 600.20, notice and application 

procedures for establishing, reestablishing, maintaining 

or expanding institutional eligibility and 

certification. Paragaph (g), application for provisional 

extension of certification. We propose to require that 

institutions undergoing a change of ownership provide 

adequate notice to the Secretary by submitting materials 

at least 90 days prior to the date of the transaction. 

We would also clarify the Secretary's authority not to 
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Committee Meetings - 01/20/22

approve the institution's participation in the federal 

aid programs following the change of ownership. We 

propose to codify existing practice related to the 

submission of a new owner's audited financial 

statements. This provision clarifies existing practice 

of requiring two years of audited financial statements. 

If two years is not available, financial surety in the 

amount of at least 25 percent of Title IV volume, and 

provides that the Secretary may require additional 

financial surety as needed in the amount of at least 10 

percent of prior year Title IV volume. Moving on to 

proposed changes to 600.20, notice of application 

procedures for establishing, reestablishing, maintaining 

or expanding institutional eligibility certification, 

paragraph (h), terms of extension. We propose to clarify 

that the Secretary is not required to rely on the same 

terms and conditions of the institution's PPA prior to 

the change of ownership. This would provide the 

Department with leeway to add additional terms and 

conditions to the provisional PPA with respect to the 

change of ownership, regardless of the conditions that 

were applied to the institution prior to that change.

We'd also make technical adjustments to the regulatory 

language to clarify that following a change in 

ownership, an institution is placed on a temporary 
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Committee Meetings - 01/20/22

program participation agreement, (TPPA). This would be a 

nonsubstantive change designed to better reflect current 

practice. Under 600.21, updating application 

information, we would clarify the reporting requirements 

for change in ownership to better reflect the many types 

of changes in people or entities that may occur, and 

that must be reported to the Department, including 

clarifying when a person, as defined in 600.31, refers 

to a natural person or an entity. As part of these 

changes, the Department proposes to increase reporting 

generally by moving from reporting at a 25 percent 

change of ownership to a 5 percent change in ownership 

to ensure the Department has greater visibility into 

voting blocs, rather in other types of corporate changes 

that may warrant scrutiny. And under 600.31, change in 

ownership resulting from resulting in a change of in 

control for private, nonprofit, private and private, 

for-profit and public institutions, paragraph (c) , 

standards for identifying changes of ownership and 

control. We propose to make technical changes to the 

definition of ownership or ownership interest already 

included in the regulations to ensure clear 

interpretations of when a change in ownership has and 

has not occurred. We propose to revise the standards for 

identifying changes of ownership and control for other 
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Committee Meetings - 01/20/22

entities. Many of the reported changes in ownership of 

at least 25 percent do not result in a change in 

control. The Department proposes to instead focus on 

changes that are historically more closely aligned with 

changes in control to include changes of at least 50 

percent in control or voting interest, changes in a 

general partner or managing member, and the addition or 

removal of any person that provides the financial 

statements to satisfy financial responsibility 

requirements in the regulations. And finally, to revise 

excluded transactions language to allow the Department 

to more easily determine whether a particular type of 

transaction qualifies as excluded. This paper also 

refers to changes made in the certification procedures 

issue paper related to conditions that may be applied to 

institutions undergoing a change of ownership. So let's 

start with the actual text, and we're looking at 

proposed regulations red line for 600.2 and the 

definitions. So our first change here is a clarification 

of additional location. And you can see the the 

clarifying text that has been added. A physical facility 

that is separate from the main campus of an institution 

and within the same ownership structure of the 

institution at which the institution offers at least 50 

percent of an educational program. An additional 
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Committee Meetings - 01/20/22

location participates in the Title IV programs only 

through the certification of the main campus. We've 

clarified the definition of a branch campus, a physical 

facility that is separate from the main campus of the 

institution is approved by the Secretary as a branch 

campus and is independent from the main campus, meaning 

the location is permanent in nature, offers courses in 

educational programs leading to a degree certificate or 

other recognized educational credential, has its own 

faculty and administrative or supervisory organization, 

and has its own budgetary hiring and hiring authority. 

Another definition that we are looking at here is 

distance education, and I do want to note that these 

changes, while not specific to changes in ownership, add 

clarity to the definitions of an additional location or 

branch campus. Specifically, we have added language 

clarifying an additional location participates in Title 

IV programs only through the certification of its 

associated main campus. Under distance education, if we 

look at that, we see in (6), for an institution that 

offers on campus programs and distance education 

programs, the distance education programs are associated 

with the main campus of the institution. For an 

institution that only offers distance education 

programs, the institution is located where its 
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Committee Meetings - 01/20/22

administrative offices are located and approved by its 

accrediting agency. This is not explicitly related to 

changes in ownership, but the language clarifies that 

distance education programs are associated with the main 

campus, if the school offers both online and groundbased programs, if it is only online programs, then 

again, the institution is located where its 

administrative offices are located. And we have a 

definition of main campus that we've added here to align 

with changes that were included above. The main campus 

is defined as its location is certified by the 

Department and the accreditor of the college as a main 

campus. So looking at the actual language, the primary 

physical facility at which the institution offers 

eligible programs within the same ownership structure of 

the institution and certified as the main campus by the 

Department and the institution's accrediting agency. 

Also we made some revisions to the definition of a 

nonprofit institution to clarify in a nonexhaustive list 

what does not constitute a nonprofit institution. This 

will mainly address problems the Department has seen in 

which for-profit institutions seek to convert to 

nonprofit status, but failed to comply with the 

statutory restriction that profits cannot inure to any 

individual. This change clarifies that the Department 
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Committee Meetings - 01/20/22

will not consider an institution to be a nonprofit for 

the purpose of the Title IV programs if it maintains 

related party financing with a former owner of the 

institution or affiliate of the former owner that is 

described in (1)(iv)(A) or it maintains a revenue-based 

servicing agreement with the former owner of the 

institution or an affiliate of the owner that is 

described in (B). And we see that reflected in (1)(i)e, 

a nonprofit institution is owned and operated by one or 

more nonprofit corporations or associations, and the 

Secretary has determined that no part of the net 

earnings of which benefits any private shareholder or 

individual. And then in (iii) we see is determined by 

the U.S. Internal Revenue Service to be an organization 

to which contributions are tax deductible in accordance 

with Section 501(c)(3) of the Internal Revenue Code 

except that for purposes of participating in the federal 

student aid programs, a nonprofit institution is 

generally not an institution that is an obligor either 

directly or through any entity in its ownership chain on 

a debt owed to a former owner of the institution or a 

natural person, or an entity related to or affiliated 

with the former owner of the institution, or either 

directly through any entity in its ownership chain 

enters into or maintains a revenue-based servicing 
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Committee Meetings - 01/20/22

agreement with a former owner of the institution or a 

natural person or entity related to or affiliated with a 

former owner of the institution. And we'll stop there. 

Those are the changes to the definitions, and we will 

open the floor for any comments or questions related to 

the definitions.

MS. JEFFRIES: Kelli.

MS. PERRY: Just a quick question on 

the first part of the definitions as it relates to 

branch campus and these changes. Do you anticipate these 

changes that anyone would have to go back and have a 

branch campus approved or do these do these changes, 

would the branch campuses fall within this, I guess?

MR. MARTIN: I'm sorry you're asking 

whether or not whether we wouldMS. PERRY: We've added to, under 

branch campus you've now added is approved by the 

Secretary as a branch campus. Are the changes you're 

making to this definition something that institutions 

would then have to go back and reevaluate to see if they 

have to have a branch campus approved or in most cases 

would they are to be approved based on the old language?

MR. MARTIN: I'll defer to Donna on 

that, but I think that currently I don't think we 

require every school to go back and resubmit. I think 
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Committee Meetings - 01/20/22

this would certainly be looked at, is always, generally 

looked at in a recertification process, but I'll defer 

to Donna on that.

MS. MANGOLD: Yeah, I don't think that 

there's any intention to to resubmit, and I don't think 

that this also really reflects a change. It certainly 

just makes it more specific. But these are the concepts 

that we've been looking at anyway.

MR. MARTIN: Thank you, Donna.

MS. JEFFRIES: Okay, thank you. Yael.

MS. SHAVIT: Thank you. My comment 

relates to the definition of nonprofit corporations and 

is based on experience that our office has had with 

these types of transactions. I'm hoping to make a couple 

of suggestions that would just clarify the definition in 

a couple of instances, I think probably aligned with 

your intention. So first of all, I would add explicitly 

the requirement that the nonprofit, a nonprofit 

corporation is organized for charitable purposes. 

Second, I would explicitly add that a nonprofit 

organization must comply with all state and federal 

transparency and accountability requirements associated 

with being a charitable organization. And then my my 

last comment is in addition to the list of exclusions 

for the purposes of participating in the Federal Student 
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Committee Meetings - 01/20/22

Loan program that it not include that a nonprofit 

organization not be one where there was a transfer of 

ownership from a for-profit, where the new entity 

continues to have significant contractual or lose 

significant contractual obligations with the previous 

entity or any of its owners. So I'll tell you that the 

context in which I see this. I have seen this regularly 

in a problematic fashion with long-term leases. And so I 

think it bears excluding those types of contractual 

relationships as well.

MR. MARTIN: Yael, do you want to 

provide any language related to that or just make theMS. SHAVIT: I'm happy to work on 

language to recommend.

MR. MARTIN: Yes. If you have 

anything, please share with us.

MS. JEFFRIES: Thank you. Carolyn.

MS. FAST: Thank you. Yes, I wanted to 

say that I agree with Yael's comments completely, and I 

have a couple of additional thoughts about the 

definition of nonprofit. I think that is really crucial 

to this, this regulation, and I think it's a really good 

thing that the Department is looking at this issue and 

trying to resolve it. I think it's a very significant. I 

agree with Yael that there could be some changes to the 
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Committee Meetings - 01/20/22

section to make the definition of nonprofit work a 

little bit better here to accomplish what the goal of 

the regulation is. Most importantly, probably, is that I 

think that when it's listing the kinds of things that 

are generally not considered a nonprofit or that would 

sort of disqualify it from eligibility, that it has to 

make clear that this is a nonexhaustive list. The issue 

paper does say that this is supposed to be a 

nonexhaustive list, but the language of the statute is, 

sorry, the regulation language is not explicit in that, 

so that would be my first suggestion is to add on 

something that explicitly makes it clear that this is 

not an exhaustive list. And then aside from that, I have 

a few suggestions that I think we would want to include 

to make sure that, as Yael said, this is when there is 

continuing financial contractual relationship that's 

captured and that can happen in various different ways. 

So, for example, in (iv)(B), it talks about a servicing 

agreement, and I would suggest to broaden this so it's 

not just limited to servicing agreements, but other 

agreements in which payments from the institution to a 

former owner are based on revenues of the institution or 

otherwise comprise a substantial portion of net revenues 

of the institution and be happy to provide some 

suggested language. And I can work with Yael or others 
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Committee Meetings - 01/20/22

who are interested in this section.

MR. MARTIN: Thanks. We'd be 

interested in seeing any language you you come up with, 

either in conjunction with somebody else or on your own.

MS. JEFFRIES: Okay. Thank you. Anne.

DR. KRESS: So I just wanted to lift a 

question that Jamie had in the chat that I had as well, 

which is in your comments, Greg, you mentioned that 

section six in the definition of distance education is 

not directly related to change in ownership. So what is 

the value of this addition? And is there a motivation on 

the part of the Department and including this? Is there 

rationale or some challenges you've seen in the past 

that would motivate you to put that in this particular 

document?

MR. MARTIN: Oh, you're talking about 

six, right?

DR. KRESS: Correct. 

MR. MARTIN: Yeah, for an institution 

that offers on-campus programs and distance education, 

the distance education programs. Okay. I think this goes 

beyond a change in ownership. But I think that it's 

certainly making it clear that increasingly you have a 

lot of schools that are only distance, that the location 

of that institution is that it's going to be the 
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Committee Meetings - 01/20/22

administrative offices and where that location is as 

approved by the Department and its accrediting agency 

can come into play with any acquisition, we wanted to 

make that clear. Beyond that, Donna, do you have any 

thoughts on that as it relates specifically to change in

ownership?

MS. MANGOLD: No, not specifically to 

changes of ownership, it's just this we because some of 

the other parts in these definitional changes related 

specifically to changes of ownership, I think that's why 

this one got included in this section. It is 

particularly important to us for purposes of closures if 

a main campus closes and then there is an online 

program. You know, how do we deal with those things in

the context of closure? So it has other implications, 

not just changes of ownership.

DR. KRESS: So if I could ask a quick 

follow up, so are you using this to try to determine 

where the physical location of the ownership is for that 

institution?

MS. MANGOLD: No. 

DR. KRESS: No? 

MS. MANGOLD: No. Because the physical 

ownership, it's typically ownership is an entity. And so 

that entity is organized under state laws somewhere. So 
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Committee Meetings - 01/20/22

and then it has its principal place of business 

somewhere. So that's what we're looking for in terms of 

entity ownership. This is more specific to the 

institution itself. And when these changes were being 

drafted, this one seemed to be an appropriate thing to 

put into a definitional change. And we put them in with 

changes of ownership for convenience. Because most of 

the other changes in this section do deal with changes 

of ownership.

MS. JEFFRIES: Thank you. Johnson.

MR. TYLER: Hi, I'd like to just 

applaud the Department of Education for putting together 

what clearly you're attempting to remedy a lot of 

problems we're seeing out here. The specific point I 

want to talk to has to do with the definition of 

nonprofit institution in 600.2 specifically in (1)(iv), 

which has what is not a nonprofit, it talks about 

essentially the original owner making money off of this, 

but a lot of these owners turned their entities into 

corporations. There's one owner of a school who told his 

shareholders the 80,000 students who enrolled were 

creating a profit of 34 percent of their operating costs 

are there, they're making a profit of 34 percent off of 

them. So I think the structure is a lot more complicated 

than certainly what someone who's like myself is not 
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Committee Meetings - 01/20/22

involved in finance in terms of these arrangements. I 

think you would want to expand this to make sure that 

the former owner is not just an individual, but a 

shareholder in corporations that are running the other 

entity that may be contracting with the new nonprofit.

MS. JEFFRIES: Okay. Thank you, 

Johnson. Brad.

MR. ADAMS: Yes, I'd like to just add 

to Anne's comment that many institutions offer distance 

education programs, so this is [audio] institutions 

offer distance education programs managed out of 

additional locations and approved by states other than 

the state where the main campus is located. Is the 

Department indicating or requiring now a change that all 

distance education must be approved and offered from the 

main campus, even though that may not be the way the 

institution is currently organized?

MR. MARTIN: Let me take that back 

again. We'll get a response for you.

MR. ADAMS: If the answer is yes, I 

just wanted to add what administrative burden that might 

be to go back to accreditors and states for additional 

approvals. Anne brought up a great point on that, and I 

just think it's not the way things are working today, so 

I just need to understand it.
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Committee Meetings - 01/20/22

MS. JEFFRIES: Okay, thanks, Brad. 

Greg said he'd look at that and get back to you. Barmak.

MR. NASSIRIAN: Yeah, two points. The 

first one relates to what Brad just mentioned. I don't 

see why the Department would leave out state 

authorization from this definition, state authorization 

is a much more foundational, formative step in an 

institution becoming an institution before it even gets 

accredited. So I would suggest you want to approve by 

its accrediting agency and authorized by its respective 

state that, you can take that back. I see how it 

complicates things, even though I think most states now 

have reciprocity agreements that should take care of the 

issue of location of additional locations offering 

distance ed. The second question I had, I like a lot of 

what I see here, but I'm a little confused and it may 

become more clear as the conversation goes on. What does 

it mean that the Department does not view somebody as 

generally as a nonprofit? Does that mean that if there 

were to be an acquisition of a for-profit or a 

nonprofit, that the Department would reject that 

application? Would it mean that that that the two 

entities could through some sort of legal mechanism, 

become one, but would then continue to participate in 

Title IV in their original form? What does that mean 
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Committee Meetings - 01/20/22

that the Department doesn't consider somebody that may 

have nonprofit status under IRS rules from being 

considered nonprofit for purposes of Title IV? Do they 

continue to participate separately?

MR. MARTIN: I'm going to refer to 

Donna on that one.

MS. MANGOLD: They can participate as 

a proprietary. If we don't approve them for non- profit, 

they would participate as a proprietary.

MR. NASSIRIAN: Would that take care 

of all of our concerns? Because as you well know, while 

some of some of the motivations behind problematic 

acquisitions may be evasion of certain specific rules 

that apply to for-profits, the main motivation, I would 

argue, is the rescaling of a toxic asset under the guise 

of new ownership. So I don't know that allowing it to 

participate. I mean, if you detect somebody is actually 

doing something that is evasive, that has a purpose of 

evasion at its core, simply treating, allowing it to go 

through but continue to participate under different 

regulations may not be an adequate response to that.

MS. JEFFRIES: Donna, do you have 

anything you want to add?

MS. MANGOLD: Yeah, the issue there is 

that our regulations allow schools to change ownership. 
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Committee Meetings - 01/20/22

We don't preclude the change of ownership. So in the 

context of a change of ownership that is also a request 

to convert to nonprofit status, we're looking at two 

things. We're looking at the change of ownership and 

we're looking at the request to convert to nonprofit 

status. So we go through a really holistic, thorough 

examination of both of those aspects. But so long as the 

school meets the financial responsibility regulationsand

the administrative capability regulations.We look at 

those things to determine whether they can continue to 

participate. If we have situations that are toxic and we 

look at whether their conditions that can ameliorate it. 

But we dolook at things in both aspects. So I used a 

little shorthand in responding to your question when I 

said they can participate as proprietary, that would be 

where they would be left in the proprietary status. But 

if there are suggestions for other things to be looked 

at in terms of whether the Secretary should deny a 

change of ownership as opposed to just the conversion, 

send them to us.

MS. JEFFRIES: Thank you. I want to 

make note for the record, that Debbie Cochrane is 

returning, rejoining the table for state agencies. With 

that, Debbie you're up next.

MS. COCHRANE: Thank you very much. So 
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Committee Meetings - 01/20/22

I also share some of the concerns I think that Barmak 

was getting at with respect to state authorization and 

would like to get a little clarity on in terms of some 

of these definitional changes, whether the Department 

sees those as having a material impact on institutions, 

main campuses or branch campuses needing state 

authorization for Title IV, and then secondarily on the 

definition of nonprofit issue that question. This is 

something that California has been kind of working 

through pursuant to some state laws recently. And I 

think this is a strong start to be looking at some of 

these issues. I think that the notion that an 

institution that did not meet these definitions would 

then be considered a proprietary institution, which I 

think is what I just heard isn't necessarily clear in 

the language. And I think some of these definitional 

changes, they do kind of create these odd situations 

where you have an institution that is considered a 

nonprofit pursuant to the IRS, but it doesn't meet this 

definition of a nonprofit, what is that institution at 

its core? How do we discuss it? So one way of getting 

around that might be to think about what are the 

protections or provisions that are pursuant that are 

available or applicable to different types of 

institutions. So if there are particular perceived 
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Committee Meetings - 01/20/22

benefits of being a nonprofit institution, you know, an 

institution that's Title IV participating would only 

qualify for those benefits if they meet the definitions. 

Just a thought.

MS. JEFFRIES: Thanks for that, 

Debbie. Brad. 

MR. ADAMS: Yes, on nonprofit item 

four, I understand the Department's intent and several 

of you know discussions being brought up by this 

committee on swinging the pendulum back on these 

nonprofit transactions that have occurred over the past 

10 years. With that regard the revised definition of 

what is not a nonprofit is still missing any kind of 

materiality threshold. Many, many nonprofit institutions 

of higher education enter into contracts and 

partnerships with for-profit companies to provide a wide 

range of services. For example, rent, construction, 

marketing, hiring a commercial realtor. You know, the 

fact that a former owner or affiliate may have a small 

stake in a for-profit company makes the institution a 

nonprofit may be problematic. For example, if the former 

owner owns a single share of stock of a publicly traded 

OPM, and the OPM has a relationship with the school that 

was sold, does that qualify as an ownership stake? My 

opinion there should be some sort of materiality 
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Committee Meetings - 01/20/22

threshold, a minor obligation of servicing arrangements 

should not impact a nonprofit status that's been 

approved by the IRS. Second question, would this be 

applied retroactively, or applied just going forward?

MS. JEFFRIES: I'd like to encourage 

you to put ideas of text on the thresholds, please 

submit them so that the Department can consider them. 

Jamie.

MS. STUDLEY: I wonder if the 

Department has in mind or thinks it would be helpful to 

have any definitions or guidance about what revenue 

sharing agreements and servicing are so that it captures 

what you mean, but is not confusing. I don't know that 

there are everyday versions of those as somebody who's 

worked [inaudible]. For example, would performance 

bonuses for exceptional performance above and beyond 

contract terms be covered? And then going back to the 

exchange between Barmak and Donna, Donna's comment was 

very clear if the institution were a separate 

institution, how these would apply to its not getting 

the Department's treatment as a nonprofit under the 

Department's rules. But is it possible for there to be a 

genuine merger into a nonprofit that met all the tests? 

Or would that carry the same constraint? And you don't 

have to answer it now, that's maybe a relatively 
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Committee Meetings - 01/20/22

technical question. But in general, the direction of the 

Department being very clear about what its expectations 

are seems like a positive step.

MS. JEFFRIES: Thank you, Jamie. 

Donna, I see you're off mute, did you have something you 

wanted to add or? 

MS. MANGOLD: No, I thought there was 

going to be questions, so I was just getting ready.

MS. STUDLEY: Well [interposing] it 

was a question about whether there are definitions or 

what happens if there's a true merger as opposed to a 

remaining institution that has that kind of agreement?

MS. MANGOLD: Jamie, I think that 

those things as they are now, it's you know the devil's 

in the detail of a true merger and you know what kind of 

entanglements remain. And you know, we are looking at 

these things. We continue to look at them very, very 

carefully. And so it does [inaudible] necessarily 

follow? It depends. I guess it's if there are these 

things that would fall into those categories we need, we 

would be looking at them. But then what happens if there 

truly is a merger? Have those problematic areas been 

resolved? So it's really fact intensive, very fact 

intensive.

MS. STUDLEY: So, right. So case by 
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Committee Meetings - 01/20/22

case and you would look at those factors?

MS. MANGOLD: Yeah.

MS. STUDLEY: In the event of a merger 

into something that had previously been approved as a 

nonprofit? Okay.

MS. JEFFRIES: Thank you. I know that 

there have been a number of questions posed in this 

excellent discussion on definitions, and I know a number 

of those are in the chat. To the extent that the 

Department is able to answer the questions at the 

moment, they will indicate so. Otherwise, those 

questions are extracted from the chat and they obtain 

your answers and come back to you. So I just wanted to 

clarify that. Alright? Carolyn, you are up next.

MS. FAST: Thanks. Two, two quick 

points. One is that I recognize this is really a useful 

discussion and raises a lot of good questions for me and 

I know it could be, this could be a little bit outside 

of the scope of this, but it occurs to me that one 

reason that schools do this in a sense, proprietary 

schools may do this not only to not be subject to 

particular standards, but also to market themselves as a 

nonprofit, which they may find as advantageous sort of 

like for reputational reasons. And I wonder whether 

there should be some clarity that the Department would 
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Committee Meetings - 01/20/22

give to schools that do not meet the nonprofit 

definition for how they can talk about themselves in 

marketing? And perhaps they should be limited to make 

sure that there's no confusion there. If they're not a

nonprofit for purposes of Title IV, they shouldn't be 

able to tell people that they're a nonprofit and that 

people should go there.

MS. MANGOLD: We actually do that.

MS. FAST: That's excellent, I'm glad 

to hear that. And I don't know if it's something that 

needs to be explicit in the reg, but that might be 

helpful as well.

MS. JEFFRIES: Thanks, Carolyn. Okay, 

Greg, I'm seeing no further hands on section 600.2, 

definitions. You want a temperature check? Oh, Amanda's 

got her hand up now.

MS. AMANDA MARTINEZ: It's more of a 

just a question. I was going to write it in the chat, 

but I'll just make it go. It'll go faster if I just 

speak it out loud. For the definition for 600.2 for 

definition of additional location, I'm not sure if the 

Education Department cross-reference this new definition 

to how it would impact a line or match with ongoing 

negotiations or past regs, or, I mean, new regs related 

to prison education programs, but just wanted to 
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Committee Meetings - 01/20/22

highlight you know prison education programs might be 

impacted by this additional location definition. So just 

wanted to, hopefully there was some like alignment 

internally when thinking about this and how it might 

impact those programs, since there's changes to them 

with access to federal aid. That's all.

MS. JEFFRIES: Thanks, Amanda. Greg, I 

see you're off mute, did you have something?

MR. MARTIN: Yeah, I think it 

generally does align. I'm trying to think back to prison 

education and I don't see anything that would be at odds 

with what we discussed there, but I thank you for 

bringing it up. But we will look into whether there's 

any inconsistency there.

MS. JEFFRIES: Alright. Thanks. So 

Greg, do you want a temperature check on 600.2 

definitions?

MR. MARTIN: Yes. Why don't we do 

that? Then we'll move on to 600.4. Thank you. 

MS. JEFFRIES: Okay, so if I could 

please see your thumbs nice and high, I would appreciate 

it. I am seeing one thumbs down. Brad, anything that you 

need to add that you haven't stated?

MR. ADAMS: Nothing additional that I 

haven't already stated.
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Committee Meetings - 01/20/22

MS. JEFFRIES: Okay, great, thank you. 

Alright, Greg, so that brings us to 600.4, institutions 

of higher education, is that correct?

MR. MARTIN: That's correct.

MS. JEFFRIES: Okay.

MR. MARTIN: We don't have a great 

number of changes here, in fact, we just have one. 

You'll note one change here. We have proposed to add the 

word other to the definition of an institution of higher 

education. This conforms the regulations to the 

definition in the Higher Education Act. It also confirms 

that public and nonprofit institutions are both subject 

to the restriction that says profits may not [inaudible] 

to an individual in either case. So that's in 600.4(a) 

just with the institution of higher education is public, 

is a public or other private nonprofit educational 

institution. And that is the only change that we made 

for 600.4.

MS. JEFFRIES: Okay. Any comments on 

that of major concerns? Jamie. Jamie, you're on mute.

MS. STUDLEY: The word other is very 

confusing to say public or other private. I'm sure your 

purpose is well-intentioned, but I feel it feels like 

it's in the wrong place or something. Maybe it's not the 

moment to figure it out, but.
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Committee Meetings - 01/20/22

MS. JEFFRIES: Okay, thank you. Greg, 

did you want to say something?

MR. MARTIN: I'll take that back. 

Yeah. I see what you're saying. You think the wording 

isMS. STUDLEY: Well, it's [inaudible]. 

How can it be a public or other private because publics 

are by definition not private. It's purely grammatical.

MR. MARTIN: Right.

MS. STUDLEY: If I'm the only one who 

doesn't get it I will defer toMR. MARTIN: No, I see what you, 

Jamie. I see what you're saying.

MS. JEFFRIES: Okay. Alright. So he's 

going to look into that. Greg, with that, what do you 

want to do with this section?

MR. MARTIN: I don't think we need a 

temperature check here, it was just a pretty much of a 

pro forma change, though the grammatical aspects of it 

notwithstanding.

MS. JEFFRIES: So how about moving to 

600.20?

MR. MARTIN: Yes, let's do that. Okay, 

we're looking at 600.20, notice and application 

procedures for establishing, reestablishing, maintaining 
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Committee Meetings - 01/20/22

or expanding institutional eligibility and 

certification. So the change that we we're making here 

requires institutions that are undergoing a change of 

ownership to notify the Department and submit a complete 

application at least 90 days prior to the transaction. 

Often, the Department has received materials at the last 

minute without adequate time to review the materials or 

transactions have changed significantly from the version 

submitted to the Department to how the transaction was 

actually completed. This will ensure adequate time to 

assess the change in ownership and determine what 

financial protections or other provisions may apply to 

the school following the change. So let's go through 

that here. Under the application for provisional 

extension of certification, if a private nonprofit 

institution, a private for-profit institution or a 

public institution participating in the HEA Title IV 

programs undergoes a change of ownership that results in 

a change of control, as described in 600.31, the 

Secretary may continue the institution's participation 

in those programs on a provisional basis. If no later 

than 90 days prior to the change in ownership, the 

institution notifies the Secretary of the change when a 

fully completed form designated by the Secretary and 

supported by the state authorization and accrediting 
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Committee Meetings - 01/20/22

documents identified in paragraph (g)(2)(i) and (ii) of 

the section and supported by copies of the financial 

statements identified in (g)(2)(iii) and (iv) of this 

section, and the institution under the new ownership 

submits a materially complete application that is 

received by the Secretary no later than 10 business days 

after the day that change occurs, and notwithstanding 

the submission of the items required in (g)(1)(i)and

(ii) of the section, the Secretary may determine that 

participation of the institution should not be approved 

following the change of ownership. Moving on to (g)(2), 

the purposes of this section, a private nonprofit 

institution, a private for-profit institution or public 

institution submits a materially complete application, 

if it submits a fully completed application form 

designated by the Secretary, and we've made changes here 

to some of some of the text to a recently updated copy 

of the institution state licensure, the remainder of 

that language remains the same, a recently updated copy 

of the document from an institution's accrediting 

association. Under romanette four, we have audited 

financial statements of the institution’s new owner's 

two most recently completed fiscal years that are 

prepared and audited in accordance with the requirements 

of 34 CFR 668.23 or equivalent information for that 
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Committee Meetings - 01/20/22

owner that is acceptable to the Secretary. Or if at 

least two years of audited financial statements are not 

available, financial surety in the amount of at least 25 

percent of the institution's prior year volume of Title 

IV aid as required in 668.176 and, if deemed necessary 

by the Secretary, financial surety in the amount of at 

least an additional 10 percent of the institution's 

prior year volume of Title IV aid or a larger amount as 

determined by the Secretary. And just to clarify here, 

this language codifies existing policy, which requires 

two years of audited financial statements from the new 

owner of an institution or, if not available, financial 

protection in the form of new owner LOC of at least 25 

percent of the prior year volume. And this conforms to 

the existing policy, and we're also clarifying the 

Department's authority to require additional financial 

protection separate from the new owner LOC, if required. 

This would be financial protection to reflect the added 

risk of the institution following the change of 

ownership. The LOC may be required by the Secretary and 

may total at least 10 percent of the prior Title IV 

volume. So, I'll open the floor to any discussions on 

that.

MS. JEFFRIES: Brad.

MR. ADAMS: Yes. This is just a 
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general comment. You know, I think the most important 

item in the change of control process is clarity and 

predictability. In order to plan accordingly and ensure 

transactions are successful, parties need to understand 

what the Department is going to evaluate the thresholds 

that must be met and the consequences if they're not 

met. We're generally supportive of efforts to achieve 

these goals. Second, the parties need the Department to 

be able to process pre-acquisition reviews as 

efficiently and timely as possible. The Department 

lately has been taking a long time, 6 to 12 months, to 

conduct these reviews. Does the Department have the 

authority to charge institution fees to get 

comprehensive reviews conducted on a more expedited 

timeframe? I think institutions would consider paying 

reasonable processing fees if the Department in exchange 

would commit to a complete and comprehensive preacquisition review in a quicker, certain time period. 

And then question two, is the mandatory preclosing 

filing proposed in 600.20(g)(1)(i) a pre-acquisition 

review, or does this serve a different purpose? If so, 

does it fit into the pre-acquisition review process?

MR. MARTIN: Do you want to address 

that, Donna?

MS. MANGOLD: I'll address the last 
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question, which is what function does romanette i serve? 

The purpose for that is oftentimes schools go through 

with changes of ownership and or go through with 

transactions that they believe are either excluded or 

don't constitute a change of control. And then we're 

caught in a situation where they notify us of a change 

and haven't met the requirements of materially complete 

application in 10 business days. So this kind of change 

would need to be reported to us 90 days in advance. The 

other issue is that oftentimes these require a new owner 

letter of credit, and we're finding situations where 

schools change ownership, a new owner letter of credit 

is required and either the school or its council doesn't 

realize that. And so this gives a chance to get ahead of 

fire drill situations where schools actually could lose 

eligibility because if a school changes ownership, it 

loses eligibility under 600.31. It can continue 

participating if it complies with G. And then later on, 

we'll get to H. But there are situations where schools 

are not prepared to comply with G, and therefore they 

lose eligibility. This is what we're trying to avoid, 

we're trying to get ahead of it. So this is not married 

to a pre-acquisition review.

MR. ADAMS: Okay, it's not tied in the 

pre-acquisition review. Thank you. And then on the 
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processing fees, have you had a chance to think about 

whether or not the Department has that ability to charge 

fees in exchange for more timely reviews?

MS. MANGOLD: That is something that 

we have begun to look into and we would be happy to 

entertain any ideas that any of you would have about 

what might be appropriate there.

MS. JEFFRIES: Okay. Barmak.

MR. NASSIRIAN: A couple of questions, 

one of which has to do with whether 90 days is adequate 

notice, given some of the complexities here. The 

Department, for example, gives itself, I think, 180 days 

to review Borrower Defense applications. These 

transactions are probably vastly more complicated than 

and consequential than Borrower Defense applications. So 

whether 90 days is enough, I don't know. I just want to 

make sure that it is. It sounds to me like the 

Department is facing a too big to fail phenomenon where 

you know it's confronted by facts on the ground that it 

has to accommodate because the deed is done and the 

Department is placed in this impossible conundrum of 

either cutting off the school and creating disruptions 

or taking the blame for them. So you may want to give 

yourself more latitude on that front, and I'm concerned 

with this notion of 10 business days after substantial 
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Committee Meetings - 01/20/22

changes may occur. I mean, you know, it could be done 10 

days before the acquisition. The terms of the deal could 

be significantly different from the terms you reviewed 

and the acquisition could go through nevertheless. It 

seems to me like there ought to be a reset if there is a 

significant enough change that would alter the criteria 

on the basis of which you may have reviewed an entity. 

And then with regard to letters of credit, is the dollar 

amount of the letter of credit tied to the acquiring 

entities prior year? Because the thing of course we are 

all worried about is the tiny little fish illegitimately 

swallowing a big fish. It's a tiny, little fake 

nonprofit, acquiring a very large for-profit business to 

evade bad publicity or reputational damage or 

regulation. So tying it to the prior years, I hope it's 

the combined Title IV funds for the two institutions, 

not just the acquiring institution, because the 

acquiring institution could be an impoverished little 

college that has really no legitimate way of acquiring 

the bigger entity on the up and up.

MS. JEFFRIES: Quick announcements. 

Emmanual is coming to the table as well as Jaylon 

Herbin, so welcome. Jamie. You're on mute, Jamie.

MS. STUDLEY: I thought Emmanual was 

ahead of me, but your call. 
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MS. JEFFRIES: Well, yeah, he's just 

joining now, so he'll get in queue. 

MS. STUDLEY: It would help me and 

maybe others if Donna could explain the relationship of 

the at least 90 days in advance notification of a change 

in ownership that's planned and to romanette two, the 

accrediting associations copy of the document about 

accreditation. Are you asking at what, and I realize 

only a little of this is new, but the 90 days is a 

change. What is it that you are expecting from the 

accrediting agency at that point that the transaction is 

approved by us or that this institution is accredited 

now and then separately, that the transaction will be 

reviewed? Why do those two relate? 

MS. MANGOLD: Okay. Romanette one, the 

90-day requirement is not a review of the transaction. 

It simply, think of it as an early alert. Many schools 

give us lots of heads ups. They say, we're going to do 

this. These are the new owners. They want some sort of a 

pre-acquisition review. We send out an exhaustive 

document request letter, they comply, we review. It's a 

very complex process. This is a heads up. We're going to 

change ownership. There will be a form to give us sort 

of basic information because what we're trying to avoid 

there is a situation where you need a new owner, LOC 
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potentially, and you've changed your, you've gone 

through your transaction and you're prepared to get a 

new owner LOC. And then the requirement for the 

accrediting agency, Jamie, is it marries the G 

requirements, which are not the approval of the change 

of ownership, but simply that you are accredited and you 

have state authorization, so that we know you at least 

meet the initial requirements that you're going to have 

to meet 10 business days after you change.

MS. STUDLEY: So you would know the 

accreditation status, and that would also give you a 

chance if there were a concern or a sanction to get a 

fresh indication of that while you're looking at the 

heads up.

MS. MANGOLD: Yeah.

MS. STUDLEY: Okay.

MS. MANGOLD: But this is basicallyan

early alert, we're going to do this because we find out 

about things after it happened and then it's trouble.

MS. JEFFRIES: Thank you, Jamie and 

Donna. Jaylon.

MR. HERBIN: Thank you. So my question 

really is, Donna just alluded to that this is sort of 

like a warning pretty much for the institution to get to 

Department of Education. But going back to Barmak's 
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Committee Meetings - 01/20/22

question, I still don't believe 90 days is enough time. 

If you think about the student protection, what takes 

place when they're trying to protect the students during 

the change in ownership before and after? So what 

happens if you know something falls through the cracks 

and they don't meet that requirement or the change of 

ownership, then how are the students going to be 

protected by the Department of Education during this 

time? And so I think I would like to keep that as a 

focal point as well.

MS. JEFFRIES: Great. Thank you. Brad.

MR. ADAMS: Thank you. Just going back 

to romanette one here, which looks like now may mandate 

pre-acquisition reviews. I know in the past preacquisition reviews have always been advisable, 

generally recommended for all the reasons Donna Mangold 

just suggested. But based on Section 498 of the HEA, 

where is the authority to mandate a pre-acquisition 

review in all situations?

MS. MANGOLD: It reallyMR. ADAMS: The risk of not submitting 

a materially complete change of ownership application 

within 10 days is on the institution. We support the 

Department making the risk of failing to do a preacquisition review better known to all institutions, 
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Committee Meetings - 01/20/22

particularly private nonprofits that may not be familiar 

with those requirements.

MS. MANGOLD: This is not a mandatory 

pre-acquisition review. It's just not. We want to make 

sure you are accredited. We want to make sure you have 

state authorization and we want to make sure that we 

know enough about this transaction to let you know if 

you need a letter of credit. You know, the alternative 

is we end eligibility for schools who walk into a trap 

in terms of not having proper advice, just not knowing 

and they change ownership and 10 days goes by and they 

cannot meet those requirements. So this is not a 

mandatory pre-acquisition review. At least that's 

certainly not the intent of this.

MR. ADAMS: Thank you.

MS. JEFFRIES: Thank you. I want to 

make note that Kelli Perry is back at the table for 

private nonprofits. Welcome back, Kelli. Greg, I'm not 

seeing, oh, Brad's got his hand up again.

MR. ADAMS: Yes, ma'am. Sorry, I 

didn't intend to go back to back, but I did want to 

[inaudible[ romanette i believe it is, although it's 

marked out, the additional 10 percent financial surety. 

The question to the Department would be, what criteria 

would the Secretary use to determine if a financial 
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Committee Meetings - 01/20/22

security or letter of credit that is larger than an 

additional 10 percent of Title IV is needed? It seems to 

be intentionally open-ended to give the Department 

maximum flexibility. And could it be capped at 75 

percent to 100 percent? You know, I'd like to have the 

Department have some justification bullets as to actions 

that would impose a surety above 10 percent, to give 

the institution an opportunity to respond before it 

becomes effective.

MR. MARTIN: Thank you.

MS. JEFFRIES: Alright. Thanks, Brad. 

Alright, I'm not seeing any more hands, Greg. Did you 

want a temperature check on 600.20(g)?

MR. MARTIN: Yeah, let's take a 

temperature check on (g).

MS. JEFFRIES: Okay. Alright. So 

600.20, could we, on paragraph(g), if we could see your 

thumbs, please? Okay, I see one thumbs down, anything to 

be added? Okay. Alright, Greg, you want to move on to 

SectionMR. MARTIN: (h).

MS. JEFFRIES: (h).

MR. MARTIN: So moving on to 

paragraph (h), terms of exclusion. And the first change 

there is in (h)(1). If the Secretary approves the 
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institution's materially complete application, the 

Secretary provides the institution with a temporary 

provisional program participation agreement, or TPPPA. 

The change there conforms the references to the PPA to 

instead refer to the temporary provisional PPA, which is 

what the Department currently offers to institutions 

following a change of ownership. So this recognizes 

current practice. The next change there is in (h)(2), 

the TPPPA expires on the earlier of the last day of the 

month following the month in which the change of 

ownership occurred unless the provisions of paragraph 

(h)(3) of the section apply, the date on which the 

Secretary notifies the institution that its application 

is denied, or the date on which the Secretary cosigned a 

new provisional participation agreement or PPA. And this 

language simply flips the order of one and three to 

reflect the chronology of these events. Moving on to 

(h)(3). The TPPPA will expire under the provisions of 

paragraph (h)(2)(iii) of this section. The Secretary 

extends the provisional TPPPA on a month-to-month basis 

after the expiration date described in paragraph 

(h)(2)(iii) of this section, if prior to that expiration 

date, the institution provides the Secretary with the 

financial aid information required in 34 CFR 668.176. 

That's in the financial responsibility section we just 
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Committee Meetings - 01/20/22

reviewed. And because of that cross reference, the text 

in romanette is no longer deemed necessary, and those 

are the changes for (h)and the entirety of 600.20. So 

we'll open the floor for discussion on that before we 

move to 600.21.

MS. JEFFRIES: Okay, thanks, Greg. 

Carolyn.

MS. FAST: Just wanted to offer some 

support for the change that the Department is making to 

omit language that would have required the Department to 

apply the same terms and conditions to a provisional 

PPA. That doesn't make sense. The change makes sense, 

and we are supportive of it to permit the Department to 

impose conditions where it's necessary to protect 

taxpayers.

MS. JEFFRIES: Thank you, Carolyn. 

Kelli.

MS. PERRY: In three, should the 

reference to paragraph (h)(2)(iii) be (i) because you 

made the switch? Or is that still appropriate the way 

that that reads?

MS. MANGOLD: You are correct. We'll 

make a note of that.

MR. MARTIN: We need to change that.

MS. JEFFRIES: Thank you, Kelli. Anne.
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Committee Meetings - 01/20/22

DR. KRESS: Just another sort of 

language question. In two three, it goes back to saying 

provisional rather than temporary provisional. So should 

it say until another temporary provisional is assigned?

Or what's the distinction between temporary and 

temporary provisional if it's really supposed to be two 

different things?

MR. MARTIN: Can you address that, 

Donna? 

MS. MANGOLD: Sure. When the 

institution changes ownership after, assuming they 

comply with the 10-day requirement of a materially 

complete application, we can issue them, we typically 

issue a temporary provisional program participation 

agreement. Then as long as they meet (h), the agreement

continues month to month. When we actually approve the

change of ownership and impose any conditions, we then 

issue a provisional program participation agreement. 

Those provisional PPAs, following a change of ownership, 

are governed by 668.13. So the regulations, as currently 

written, refer to both of both kinds of participation 

agreements as provisional program participation 

agreements. But the piece of paper that schools actually 

get following a change of ownership and that continues 

them in participation until we actually approve or 
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Committee Meetings - 01/20/22

disapprove, is a temporary provisional program 

participation agreement. So that distinction there, 

using temporary and then not using temporary is correct 

and intentional.

DR. KRESS: Okay.

MS. JEFFRIES: I'm sorry. Greg, I 

don't see any further hands. Do you want a temperature 

check on (h)? Oh, Barmak. Barmak's hand's up now. 

Barmak.

MR. NASSIRIAN: Sorry, I did it. I did 

it behind your back, Cindy. Tried to get one past the 

goalie. So I just want to point out that part of the 

challenge here is that the Department is attempting to 

sort of like landing a 747 and a Cessna 152 at the same 

airport. I think 90 days may be perfectly reasonable for 

pre-acquisition review. The Department may be able to 

very quickly take care of it and be done. I worry that 

that that could be entirely inadequate for purposes of 

satisfying a proper review of complex ownership changes-

-the ones that we should all worry about that as a 

consequence of which they could comply with the 90-day 

provision of information. Things could change very 

substantially in the interim. They can even comply with 

that, and we would end up with this month-to-month TPPA 

for a fairly extensive period of time before the 
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Committee Meetings - 01/20/22

Department could really decide that the acquisition 

should not be approved if continued participation should 

not have and would not have been approved had it had 

enough time to review the terms of any arrangement. So I 

don't know what the solution is, but it seems to me that 

we're sort of writing one size fits all here that you 

may want to mandate a longer period of notice or 

additional conditions associated with more significant 

dollar amounts at risk.

MS. JEFFRIES: Thank you, Barmak. 

Greg, are we okay to do the temperature check on 

600.2(h)?

MR. MARTIN: Yes.

MS. JEFFRIES: Okay, let's see your 

thumbs, please, on 600.20(h). Ashley, I can't see yours. 

Oh, there you are. Alright, it looks like there are no 

thumbs down, so that's a good thing, so we're going to 

now move into 600.21. I want to note to the committee 

that we have approximately one-half hour before public 

comment. And I would encourage you to get through the 

rest of this issue paper, 600.21 and 31 because you are 

going to have a full agenda tomorrow between 

certification procedures and 90/10. So with that, Greg, 

you want to move us into 600.21?

MR. MARTIN: Sure. So we're looking at 
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updating application information here, reporting 

requirements, except that's provided in paragraph (b) of 

this section, an eligible institution must report to the 

Secretary in a manner prescribed by the Secretary no 

later than 10 days after the change occurs of any of the 

following. And then we move down to where the changes 

are here. We have throughout the section added language 

to clarify when a person refers to a natural person 

versus a legal entity. Since both are currently included 

in the definition of a person in the regulations in 34 

CFR 600.31. So starting with (a)(6), a natural person or 

legal entity's ability to affect substantially the 

actions of the institution if that natural person or 

legal entity did not previously have this ability. The 

Secretary considers a natural person or legal entity to 

have this ability if the natural person acquires alone 

or together with another member or members of his or her 

of their family, at least a 25 percent ownership or 

voting interest in the institution, direct or indirect, 

as defined in 600.31(b), the entity acquires alone or 

together with an affiliated natural person or entity, at 

least a 25 percent ownership or controlling interest in 

the institution, direct or indirect, as defined in 

600.31(b), the natural person or entity acquires either 

alone or together with another natural person or entity 
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under a voting trust, power of attorney, proxy, or 

similar agreement at least a 25 percent ownership or 

controlling interest in the institution, direct or 

indirect. Or the natural person becomes a general 

partner, managing member. chief executive officer, or 

chief financial officer of the institution or of an 

entity which has at least a 25 percent ownership or 

controlling interest in the institution, direct or 

indirect, as defined in 600.31(b) or the entity becomes 

a general partner or managing member of an entity which 

has at least a 25 percent ownership or controlling 

interest in the institution, direct or indirect, as 

defined in 600.31(b). Then we move on to changes in 

(a)(14). In addition to the reporting required by 

paragraphs (a)(6) and (b) of this section, any change in 

the ownership of the institution that does not result in 

a change of ownership as described in 600.31 and subject 

to the requirements of 600.20(g) and (h), including the 

addition or elimination of any entities in the ownership 

structure, a change of entity from one type of business 

structure to another, and any excluded transactions 

under 600.31(e) and this provision adds that the 

institutions must report any change in ownership that 

does not result in a change in control, such as changes 

in the ownership structure or the entities involved or 
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Committee Meetings - 01/20/22

excluded transactions. Then in (a)(15), in addition to 

the reporting required by paragraphs (a)(6),(a)(14) and 

(b) of this section, any changes in the ownership of the 

institution, any change in the ownership of the 

institution, rather, that does not result in a change of 

control, as described in 600.31 and subject to the 

requirements of 600.20(g) and (h), whereby a natural 

person or entity acquires at least a 5 percent ownership 

interest, direct or indirect in the institution. And 

this provision lowers the threshold for reporting new 

acquisitions in ownership from 25 percent to 5 percent 

ownership interest in the institution. This allows for 

greater Department insight into the changes in ownership 

that may be occurring and will allow the Department to 

assess whether changes in combination or rather changes 

in combinations of owners may constitute a change in 

control. So we'll leave it there and open the floor for 

comments.

MS. JEFFRIES: Anyone care to comment? 

Barmak.

MR. NASSIRIAN: So a couple of 

thoughts. One of which again, I understand the 25 

percent threshold in the case of small businesses. It is 

entirely inadequate for purposes of understanding who 

controls a publicly traded corporation. A beneficial 
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Committee Meetings - 01/20/22

ownership is threshold under SEC rules that is set at 5 

percent. Insiders are defined as folks who own 10 

percent of shares, so you may want to separate that 

because that's a fairly high threshold for the vast 

majority of corporations. There are very few publicly 

traded corporations in this space where any one entity 

owns 25 percent of the shares. What is lacking here, 

just again addressing past abuses, is creditors. What do 

you do when somebody has extended so much credit to an 

entity that without necessarily being on the board or 

being an officer or director of the entity, they can 

basically call the shots as privileged creditors of that 

entity. It seems to me like you need to do something 

with regard to that and also ensuring that you don't end 

up with fractured ownership where friends and family 

together, each of them below the threshold, but together 

actually exceed the threshold.

MR. MARTIN: Thank you, Barmak.

MS. JEFFRIES: Thanks, Barmak. 

Johnson.

MR. TYLER: Yeah, I would just like to 

add, I once had to study a case involving a for-profit 

in our city in New York and basically four people in the 

company sold a lot of stock to investors and then sold 

it like three days later and made a huge profit. The 
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Committee Meetings - 01/20/22

case ended up in federal court, that's how I learned 

about it. So I want to echo what Barmak said that there 

are a lot of people involved and more than simply family 

members who may be the shareholders here who need to be 

scrutinized. So I appreciate the goal here. I feel like 

you need lawyers who specialize in this sort of insider 

dealing to really understand all the permutations of it 

to make sure we're covering everyone.

MS. JEFFRIES: Thank you, Johnson. 

Greg, did you have something to say? Okay. 

MR. MARTIN: Oh, no.

MS. JEFFRIES: Alright, great. Anyone 

else? If not, I think we can move to temperature check 

on 600.21. Can I please see your thumbs? Amanda, I can't 

see yours. Thank you. Alright, there are no thumbs down. 

Thank you. Thanks, Greg, you want to move us into 

600.31?

MR. MARTIN: Sure. So we're moving on 

to 600.31, change in ownership, resulting in a change of 

control for private, nonprofit, private for-profit and 

public institutions. So our first change here comes 

under (b) definitions, the following definitions apply 

to terms used in this section. And see here under a 

closely held corporation, including the term close 

Corporation, means a corporation that qualifies under 
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Committee Meetings - 01/20/22

the law of the state of its incorporation or 

organization as a statutory close corporation or if the 

state of incorporation or organization has no close 

corporation provision, a corporation, the stock of which 

is held by no more than 30 persons and has been and is 

not planned to be publicly offered. We move down to a 

change in in two. We proposed this change simply to 

clarify the language, rather an interpretation of 

determining whether changes in ownership have occurred. 

This clarifies that changes at the top of the entity 

constitute a change in ownership. For purposes of 

determining whether a change in ownership has occurred, 

changes in ownership of the following are not included, 

so just changing what's in two and retaining what is 

what is below that. And we clarify here the language 

determining, again, whether those changes have occurred 

and clarifying the changes at the top may constitute a 

change in ownership rather than acquiring one of these

examples. Moving on. There are changes in other 

entities. Three other entities, the Department has 

proposed changes in this section to what we consider a 

change in ownership to also result in a change of 

control, while the current threshold is 25 percent, the 

Department's experience is that most changes in control 

occur at or above 50 percent. Accordingly, we have 
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deemed a change in ownership to result in a change of 

control, if the change is at least 50 percent control 

interest in the institution. Coupled with the above 

reporting requirements that have lowered the reporting 

threshold from 25 percent to 5 percent ownership 

interest. We believe this will allow the Department to 

focus its resources on institutions that require the 

greatest attention. Without sacrificing a review of 

institutions that fall below that level. So we'll look 

at the actual changes there in three. The term other 

entities means an entity which is not closely held or 

required to be registered with the SEC and includes 

limited liability companies, limited liability 

partnerships, limited partnerships and similar types of 

entities. The Secretary deems the following changes to 

constitute a change in ownership, resulting in a change 

of control of such an entity, a person or combination of 

persons requires at least 50 percent of the total 

outstanding voting interests in the entity or otherwise 

acquires a 50 percent control. A person or combination 

of persons who holds less than 50 percent voting 

interest in the entity acquires at least 50 percent of 

the outstanding voting interest in the entity or 

otherwise acquires 50 percent control. A person or 

combination of persons who holds at least 50 percent of 
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the voting interests in the entity ceases to hold at 

least 50 percent voting interest in the entity or 

otherwise ceases to hold 50 percent control. A partner 

in a general partnership requires or ceases to own at 

least 50 percent of voting interest in the general 

partnership or otherwise acquires or ceases to hold 50 

percent control. Any change of a general partner of a 

limited partnership or similar entity if that general 

partner also holds an equity interest. Any change in a 

managing member of a limited liability company or 

similar entity if that managing member also loses an 

equity interest, a person acquires or ceases to hold 100 

percent or equivalent direct or indirect interest in the 

institution or the addition or removal of any person 

that provides or will provide the financial statements 

to meet any of the requirements of 34 CFR 600.20(g)(h), 

subpart L of 668. And the Secretary deems the following 

interests to satisfy the 50 percent threshold described 

above, and this section further clarifies that control 

does not need to be through a single individual or 

entity, but can occur in certain combinations of 

individuals. So looking at this. The combination of 

persons, although each with less than 50 percent voting 

or controlling interest in the entity, hold a combined 

voting interest of at least 50 percent as a result of 
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proxy agreements, voting agreements or other agreements, 

or by operation of state law. A combination of persons, 

although each with less than 50 percent voting or 

controlling interest in an entity holding combined 

voting or controlling interest of at least 50 percent as 

a result of common management and control of that 

entity, either directly or indirectly, or a combination 

of individuals or family members, as defined in 600.21, 

although each with less than 50 percent voting or 

controlling interest in an entity holds a combined 

voting or controlling interest of at least 50 percent. 

And notwithstanding the foregoing, if a person alone or 

in combination with other persons, as described in 

paragraph (c)(3)(i) through (iii) of the section has 

less than a 50 percent voting or controlling interest in 

an entity, the Secretary may determine that the person, 

either alone or in combination with other persons, has 

actual control over that entity and is subject to the 

requirements of this section. Any person alone or in 

combination with other persons has the right to appoint 

a majority of any class or board members or an entity or 

an institution is deemed to have control. This language 

adds that the Secretary may deem change in control to 

occur below 50 percent if he or she determines that 

another individual with less than a 50 percent interest 
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in the institution does have control over the 

institution or an individual or combination of 

individuals has the right to appoint most of the board 

members of the institution and has control of the 

institution. See language eliminated below that. We have 

eliminated this language because we do not believe it 

necessary, given the changes above. The additions 

reflect these situations. And that covers it for (c), so 

I'll open the floor for discussion or comments related 

to paragraph (c).

MS. JEFFRIES: Okay. Brad. 

MR. ADAMS: Yes. So this comment's in 

other entities, romanette two, just want to state for 

the record, that this, I'm not a corporate lawyer and 

these are some complex things here. So we're still 

thinking about this and if I have any language changes, 

we'll send them to you. I did want to ask Donna, the 

Department on (c)(3)(ii)(G), I thought I remember there 

being a threshold in the past, around 100 percent owner 

not, maybe it was 5 percent, maybe 25, I'm forgetting, 

but not requiring a change of ownership. Is there any 

thought around (G)? Is it if a person goes from 100 

percent owner to 99 percent under, that's a 

notification. Am I reading that correctly?

MR. MARTIN: I'll let Donna respond to 
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that.

MS. MANGOLD: Let me take a look. 

Maybe we need to look at the language. We're really 

focusing on someone who, an entity, a person who 

acquires 100 percent interests. For example, like a sole 

member of an entity or then relinquishes that, a lot of 

these provisions here are to sort of avoid some of the 

debate back and forth as to control, not control that 

these are presumptions about control. But no, we're not 

talking about 100 to 97. So we probably have to take a 

look at the language.

MR. ADAMS: I read it anything other 

than 100 required notification. Thank you.

MS. MANGOLD: It's not in the 

notification provision. Right now, we're actually in 

what is a change of ownership resulting in the change of 

control. So that's what we're talking about here.

MS. JEFFRIES: Okay, Greg, I don't 

see, oh Barmak.

MR. NASSIRIAN: Making sure you're 

paying attention, Cindy. So honestly, my eyes glazed 

over when I saw this language and I don't know that I 

know. I think I know less now than I did before this 

explanation. I'm struggling to understand where in this 

section we define which specific combination of natural 
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persons. We are talking about when there is a shift 

above that threshold of 50 percent. Because I mean, 

ownership can change, and there is always a subgroup of 

the of the 100 percent of equity in any corporation, 

some subgroup will own half of it. Is it any random 

pair, in other words, is the combination of any random 

grouping? Are we attempting to identify a group that 

have a business affiliation with each other, who then 

together cross that threshold?

MS. MANGOLD: That's correct. And the 

other thing-. 

MR. NASSIRIAN: Where does it define 

what that relationship is?

MS. MANGOLD: Well, we say it pretty 

broadly. We talk about voting agreements, we talk about 

family relationships, we talk about proxies. And you 

know, it would be a person or combination. Let me take a 

look again. Over in (3), where we, in (ii) we talk about 

a combination. And then in (iii) , we try to explain 

what a combination might look like. And so it would be 

proxy agreements, voting agreements, other agreements so 

that it's not just random groups of people that you have 

50 percent leaving at some point. That 50 percent would 

have had to be in control, and now they are no longer in 

control.
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MR. NASSIRIAN: So if there is a 

gentleman's nod to work together without signing an 

actual agreement, are we letting them off the hook?

MS. MANGOLD: We have to do these 

things based on documents and evidence. And in terms of 

the amount of time it takes us to do this, the amount of 

resources it takes to do it. Getting behind a 

gentleman's nod would be tough. You know, sometimes we 

can find out because we do our research of other 

relationships. You know, there may not be a signed 

paper, but we know people have been in business before. 

So we ask a lot of questions. And this, you know, every 

gentleman's nod, person’s nod, we may not catch. We 

probably won't catch most of them. But, you know, to the 

extent that we know of schools and we know people who 

have been involved in schools before and we know those 

relationships we can look at, we will be look at those 

things.

MR. NASSIRIAN: I appreciate that 

answer, and I understand it, certainly, but I would 

encourage the Department to think creatively about 

putting some catchall somewhere at least post facto 

because I understand you can't go investigating 

everybody on the front end to see who knows who. But 

there ought to be something post facto that that allows 
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the Department to constructively suggest that people 

were acting in concert with each other despite the 

absence of any written agreement. And the reason is that 

in the worst possible cases, fraudsters generally don't 

execute formal contracts with each other, and that's the 

danger we're attempting to fend off here, at least again 

on the back end.

MS. JEFFRIES: Thank you, Barmak. 

Brad, your next. Emmanual Guillory is coming to the 

table with a question. And then after those two, I think 

I'm going to ask Greg to walk through the very last 

change for this, and I would like to get to a 

temperature check on this document to complete this 

issue for today, clearing your path for tomorrow. Okay?

MR. MARTIN: Thank you.

MS. JEFFRIES: Brad.

MR. ADAMS: Thank you, Cindy. Just 

another quick clarifying question for Donna. Do the 

standards that we're talking about here apply equally to 

private nonprofits and controlling organizations? For

example, would a religious order or nonprofit foundation 

that operates a college be subject to the same test?

MS. MANGOLD: There is no distinction 

here to the to the status of proprietary or nonprofit.

MS. JEFFRIES: Thank you. Emmanual.
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MR. GUILLORY: I had a quick question 

as it relates to nonprofit governance and our board 

structure, and so it kind of builds on what Barmak was 

asking. It comes down to the combination of persons, and 

so I appreciate the answer that you gave on page 12 and 

kind of pointed us to in (iii) and how you're defining,

in some ways, the combination of persons. But at the 

same time, like on a on a board of 12 people per say, I 

guess that combination of persons would be, we don't 

know the the exact number. It would have to just kind of 

correlate to what you have outlined here, which could be 

the result of proxy agreements, voting agreements, other 

agreements or the result of common management and 

control of that entity. I just think for us, we just 

want to be able to understand a little bit better. And 

then the other thing on page 12 is in (h). Could that be 

a CFO being removed from an institution? Does that 

qualify since you have here the additional removal of 

any person that provides or will provide the financial 

statements to meet any other requirements? So I guess 

some clarification [inaudible].

MS. MANGOLD: And you know, part of 

this is that we don't have the entire regulation printed 

out here. So in 600.31, thedefinition of the word person 

means both a natural person and the legal entity. So 
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this regulation, 31 is a little bit different that's why 

we had to specify it in 21, this does not mean the 

additional removal of a CFO. This means the addition or 

removal of the entity at which level the financial 

statements are provided. The level that the entity that 

provides the financial statements. And then as to your 

other question about changes in board membership, we're 

not talking about changes in board membership because 

those don't constitute a change of ownership, the 

threshold here is a change of ownership that results in 

a change of control. So movements among boards, whether 

they stay the same or whether there is movement is not 

what we're looking at here.

MR. GUILLORY: Okay, thank you.

MS. JEFFRIES: Thank you. Okay, Greg, 

can you walk the committee through that very last 

change?

MR. MARTIN: Certainly, I'd be glad 

to. So we're looking at (d), Covered transactions. I'm 

sorry, there are no changes there. We're moving on to 

(e), Excluded transactions. We aremaking the point here 

in (e)(3) that we've revised this language to provide 

clarity to the field and to the Department, while 

retirement can sometimes be difficult for the Department 

to assess, resignation and transfer is a more 
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straightforward concept to implement. We do not believe 

this makes any substantive change to the meaning of this 

language, so I'll just read it here. So it's upon the 

resignation from the operation of the institution by an 

individual owner who has been involved in the management 

of the institution for at least two years preceding the 

transfer, and who has established and retained the 

ownership interest for at least two years prior to the 

transfer to another individual owner with direct or 

indirect ownership interest in the institution who has 

been involved in the management of the institution for 

at least two years preceding the transfer, and who has 

established and retained the ownership interest for at 

least two years prior to the transfer.

MS. JEFFRIES: Okay. So with that, any 

comments on that? Can we stop sharing? Thanks. Barmak.

MR. NASSIRIAN: Yeah, under covered 

transactions, you may want to take another look at the 

most current practices that ought to be alarming to all 

of us, so I would I would consider something along the 

lines, it's not, transfer of assets is one thing, but 

transfer a significant or commitment of significant 

future revenues should be another covered transaction 

that, for all intents and purposes, could in fact be 

equivalent to a change of ownership. If you're 
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encumbering, you know, 50 percent of your future 

revenues pursuant to an agreement with an outside party, 

you may well have handed control of the institution to 

that party. It's not just transfer of assets.

MS. JEFFRIES: Thank you, Barmak. I 

want to note that Kelli Perry has rejoined the table. 

Greg, did you have something, are you good?

MR. MARTIN: No, I'm good.

MS. JEFFRIES: Okay, Jamie.

MS. STUDLEY: Yes. Can you explain the 

relevance of the two-year issue in number three?

MR. MARTIN: I'll turn that one to 

Donna if she canMS. STUDLEY: She gets all the hard 

ones, always.

MR. MARTIN: Oh yeah, she does. When 

it comes to this topic, yes.

MS. JEFFRIES: I do want to remind 

you, we're two minutes from public comment.

MS. MANGOLD: Two minutes, two years. 

Jamie, that was in the original language. It had to do 

with the retirement of a person. And you can see in the 

text that hasn't been changed, it talks about two years 

of the person who had been involved. So is your question 

whether we wanted to make sure that there was at least 
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some investment in management of the person who's 

transferring stock? So for that reason, we put it at two 

years, maybe it's five years, maybe it's 10 years, it 

was just matching the language as to the person who 

would be acquiring the stock or the interest. So if 

there are suggestions for maybe making that period 

different, we'd be open to look at that.

MS. STUDLEY: I'll do it in writing.

MS. JEFFRIES: Great. Thank you. 

Alright. With that, I would like to see your show of 

thumbs on a temperature check on 600.31, the entire 

document. Alright, I'm not seeing any thumbs down. Great 

job today, committee.

MR. MARTIN: Thank you, everyone.

MS. JEFFRIES: Alright, with that, 

Brady, can you start letting in our public commenters, 

please?

MR. ROBERTS: Yes, ma'am. I just 

admitted our first speaker, who is Mr. Sean Braunstein, 

who's a veteran representing themselves.

MS. JEFFRIES: Hi, Mr. Braunstein. You 

will have three minutes to speak and that three minutes 

will start when you start speaking. Welcome.

MR. BRAUNSTEIN: Thank you. Good 

afternoon, my name is Shawn Braunstein. I'm an Army 
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veteran and recipient of educational benefits that I 

earned while serving our country on active duty. I'm 

here to tell my story in the hope that you can you 

ensure that other veterans and students do not 

experience what happened to me at Hesser College. After 

I left service, I was immediately bombarded with 

advertisements, mail and phone calls from colleges. I 

wanted to use my GI Bill benefits to pursue a career in 

the medical fields. One of the schools was Hesser 

College, which was owned by Kaplan. This school 

interests me because it was nearby, offered a medical 

assisting program and promise me that I could use my GI 

Bill benefits for my education. They recruited me hard 

by continuing to call me until I agreed to meet with 

them. When I met with them, I didn't even fill out an 

application. They admitted me on the spot. The 

admissions rep told me that classes would start the 

following week, and if I didn't sign up that day, they 

would fill up and I would miss out. The rep also 

guaranteed that based on my experience and my new degree 

that I would earn, that I would get a job after 

graduation. Facing life as a civilian with a mountain of 

medical issues, including a traumatic brain injury I 

sustained, I felt lost in a world of unknowns. I felt a 

lot of pressure to start right away and was promised 
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that the school had high quality programs that will lead 

to great jobs for veterans like me. Most importantly to 

me, the admission rep promised that the GI Bill would 

cover everything. I believed what they told me, so I 

signed up that day. Then the problems started. The 

financial aid office told me that the GI Bill took too 

long to come in, and I would have to take out loans to 

cover tuition or risk being dropped from all classes. 

They also told me that my benefits did not cover all the 

tuition and books and extra loans were required. That 

didn't make sense, but I trusted them. I wasn't learning 

much, and when they made promises to me to accept 

credits and work experience I had earned, but then 

didn't deliver it, I switched my degree major to 

criminal justice. I worked hard and graduated with my 

bachelor's degree, but could not find a job in criminal 

justice. The school never provided job placement 

services, resume critiquing and despite promising a 

guaranteed job after graduation, I again was lost. But 

at that point I had $50,000 in student loan debt despite 

being told that the GI Bill would cover everything, my 

degree from Hesser was completely worthless and the 

loans dragged me down for years. I even went into 

default at one point because I didn't have a job and 

could not afford the payments. Years later and a ball of 
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red tape, I was able to have my loans canceled through 

total and permanent discharge disability. This 

discharge that was given to me actually hurt me, and as 

it counted as significant income on my taxes and 

eliminated a tax refund that I desperately needed and 

counted on. To add insult to injury, while reviewing the 

documents and preparing for my testimony today, I 

discovered not only did the school receive my GI Bill 

benefits for my attendance, but they double dipped by 

receiving and keeping additional federal dollars and the 

student loans I was forced to take out. I'm here today 

to ask you to protect all students and veterans from 

targeting their GI Bill benefits and to stop schools 

from offering programs that leave students with nothing 

but a mountain of debt and a worthless degree. Thank you 

for your time.

MS. JEFFRIES: Sean, I want to thank 

you very much for your comment and thank you for your 

service.

MR. BRAUNSTEIN: Thank you, sure.

MS. JEFFRIES: Okay, Brady, who do we 

have next?

MR. ROBERTS: I'm admitting Giulio, 

the owner of Paul Mitchell Cosmetology School. And if 

you wouldn't mind muting your live stream, I think 
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that's probably the background noise that we're getting.

MS. JEFFRIES: No, not your microphone 

for this meeting, the live stream that you have going in 

the background needs to be muted. If you're live 

streaming, the mute, where did he go? Can I get someone? 

Can you? Okay. Can you unmute yourself, please? 

MR. VEGLIO: There we go. Sorry about 

that.

MS. JEFFRIES: Okay, appreciate it. 

You will have three minutes to speak and that begins 

when you start speaking, and welcome.

MR. VEGLIO: Okay, thank you. Well, 

good afternoon. My name is Giulio Veglio, and I'm a 

graduate from public high school with a learning 

disability that made everything about learning hard and 

challenging. I failed at traditional college and ended 

up pursuing a career in beauty school. The hands-on 

education was a perfect fit for my style of learning, 

and the small, positive vocational program became a 

catalyst for my life. Today, I am proud to be a 

cosmetology alumnus, a highly accomplished world 

travelled hairstylist and privileged owner of 

cosmetology schools. To clarify my position, I am for 

regulations to make sure we use taxpayer funded programs 

wisely. So let's make rules that tighten the loopholes, 
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but let's make sure the rules are smart and simple. On 

gainful employment, if the goal of the Department is to 

make sure the tuition charged by the schools or the debt 

acquired by the student has a justified outcome in terms 

of salary, great, set the parameters in definite terms. 

Every year, the Department should use the national 

medium published by the Bureau of Labor and cap the 

tuition amount to a one-year salary potential of the 

student by the SOC code. Simple and straight [phonetic], 

if my certificate or degree pays an annual medium of 

32,000 dollars, then the tuition for the entire program 

of the study leading to that should not exceed what I 

make in a year. Tuition then justifies the established 

outcome. If I go to a college and pay $160,000 in 

tuition but have an annual earning potential of only 

$45,000, should the college charge me $160,000? 

Absolutely not. In that case, I should not pay more than 

$45,000, a fair and justified tuition amount. Keep 

metrics simple. Use standard, published and annual 

learning potentials, put guardrails to ensure schools 

don't charge tuition that students have no capability of 

paying back. If the mission of the Department of 

Education is to provide equal access to education, have 

an educated and productive workforce, then let's not 

limit the work of the sector does to raise the bar in 
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vocational education. Thank you for your time.

MS. JEFFRIES: Thank you. Okay, Brady, 

who do we have next? 

MR. ROBERTS: Cindy, I'm admitting. 

Dr. Jay Seller, who's here representing themselves.

MS. JEFFRIES: Good afternoon, Dr. 

Seller, you, welcome to the public comment. You will 

have three minutes to speak, commencing at the onset of 

your talk.

DR. SELLER: Good afternoon, everyone. 

My name is Dr. Jay Seller, and I want to thank you for 

allowing me to be here today. I want to take this 

opportunity to share my point of view on higher 

education and more specifically, my experience attending 

a for-profit University. After completing two years of 

undergraduate work in Minnesota, I transferred to the 

University of Colorado to continue my undergraduate 

education, seeking a bachelor's degree in business 

administration. I quickly learned that CU would not 

accept all of my undergraduate transfer credits, even 

though the coursework was in my major, my intended 

major. This was a major setback to my graduation 

timetable and considerable financial burden. I searched 

for an alternative institution that would recognize my 

coursework and maintain my graduation timetable. I 
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discovered the University of Phoenix and what they had 

to offer. I was persistent and I persevered. The 

University of Phoenix seamlessly transferred my credits 

and I was able to begin my program immediately. I 

graduated with a bachelor's degree in business 

administration and management, and I graduated with no 

debt. I attended classes three nights a week for two 

years to complete my degree with the University of 

Phoenix, all while working full-time. I've been very 

successfully employed for the last 40 years with 

academic institutions and more recently as an executive 

director for a nonprofit in the California health 

sector. I absolutely loved my experience at Phoenix. It 

only encouraged my passion to get more education, and 

thus I have my master's and my Ph.D.. The idea that 

institutions need to prepare students for gainful 

employment and a recognized occupation needs to be more 

clearly defined and it needs to consider all types of 

students from various backgrounds. I've attended both 

for-profit and nonprofit schools and believe that 

Phoenix provides a rigorous degree program, a 

challenging course load and is overly dedicated to 

helping to prepare their students for the job field. I 

appreciate your time today and work that you're doing on 

these uncertain times, but feel free to reach out to me 
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at any time. I'm happy to share more about my life 

experiences, thanks to the University of Phoenix.

MS. JEFFRIES: Thank you, Dr. Sellers. 

Brady, who do we have coming in next?

MR. ROBERTS: I am admitting Luis 

Vazquez Contes, who is the national commander of the

American GI Forum.

MS. JEFFRIES: We're not seeing him.

MR. ROBERTS: Let me, he might have 

logged in twice. Give me one second.

MS. JEFFRIES: Okay, maybe. They're 

both. Looks like somebody is coming. Hello, is this some 

Luis Vazquez Contes?

MR. VAZQUEZ CONTES: Yes, ma'am.

MS. JEFFRIES: Well, good afternoon, 

you, welcome to public comment. You will have three 

minutes to speak and that three minute time period 

starts whenever you begin to speak. So whenever you're 

ready.

MR. VAZQUEZ CONTES: Well, good 

afternoon to the leader and staff members of the 

Department of Education. My name is Luis Vazquez Contes, 

and I have served and honored in many capacities through 

American GI Forum, which today I am the national 

commander. The American GI Form was founded after World 
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War II in 1948, when many Hispanic service members 

returned home to find that many opportunities were not 

there for them. Our model since the beginning has been 

education is our freedom and our future and should be 

everybody’s business. So you can see why this topic is 

so important to us. This past fall, we testified to the 

Department of the importance of the veteran community 

during the process. So today we are here again to call

for closing the 90/10 loophole appropriately. It's a 

good law. And many veteran organizations found it very 

hard to stop this loophole. In coordination with the 

Congress, the White House and many others, it was 

important forthe long-term effort. We were very 

concerned of any effort to undermine this law. Our 

members deserved the best education they can get, and we 

can start with the country for the better on this. 

Unfortunate Veterans Service members and their families

will target and some school for another two years 

because closing the loophole does not apply right away 

to them. Because this delay already billion, we opposed 

to any attempt to undercut the implementation of this 

law. I want the committee to take that serious. Delayed 

implementation for two years means they are a 

[inaudible] bill to the process [inaudible] school can 

adjust it if they need to. For many, [inaudible] that 
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Higher Education will present opportunity improved the 

veteran’s life and the life offamily members. Education 

is the top reason why many people join the military 

service, they serve the country, they get a chance to go 

to school and it's a big accomplishment. I was one of 

them. Unfortunately, many people would like to take 

advantage of veterans and the GI Bill. This is not what 

we want. We hope that you do the right thing for them. I 

have said before, but I feel it's important that I will 

say it again. [Audio] When you hear loud and clear from 

me and [inaudible]. The veterans deserve the best 

education the GI Bill benefits can give. They should 

receive a full value or nothing less to earn their right 

by serving our country. [Audio] we have studied this 

issue with great care. We remain committed to do the 

right thing for veterans, and I hope you do so too. 

Thank you for the time today, and we look forward to 

supporting this process however we can. I'm very 

appreciative of your time.

MS. JEFFRIES: Thank you very much for 

your comments and for your service.

MR. VAZQUEZ CONTES: Thank you.

MS. JEFFRIES: Brady, who do we have 

next? 

MR. ROBERTS: Cindy, I just admitted 
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Chassy Blumer, who is representing themselves. Looks 

like we're just waiting for them to turn on their audio. 

She's connected.

MS. JEFFRIES: Yup. Thanks. Good 

afternoon, Chassy. I hope the afternoon has found you 

well. Welcome to public comment. You will have three 

minutes to speak and whenever you're ready, your three 

minutes will begin.

MS. BLUMER: Okay, thank you so much. 

I will be looking down because I wanted to write what I 

said, but I'm [inaudible] apologize for my lack of eye 

contact.

MS. JEFFRIES: No problem.

MS. BLUMER: Thank you. Hello. My name 

is Chassy Blumer. I requested to speak today in hopes 

that sharing my story will provide understanding and 

what it's like to be an adult student. I grew up on 

welfare to a single mother with a mental illness. I was 

constantly put down by my mother and my peers, told I 

wasn't good enough and would end up like my mother. I 

grew up seeing the welfare system through the eyes of 

the child, which means waiting in long lines at the 

welfare office and on Medi-Cal, which includes doctors 

offices that don't take appointments, which meant 

sitting on a dirty floor with sick people who were all 
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waiting to be seen and taking their turn as well. This 

all taught me that I needed to get to work as soon as 

possible. After high school, I started college with a 

lot of help from the government, and had I known what I 

know now, I would have stayed, but I didn't know what I 

had. I was a kid trying to navigate the fact that I 

needed money as soon as possible. I no longer had 

welfare. I didn't have family support and I didn't have 

a clue where to start. Being a female, I couldn't just 

put on work boots and go work in the oil fields fulltime. I often worked two jobs at a time just to make 

enough money to help support myself. I wasn't asking for 

handouts or welfare. I was working every single day. 

Fast forward, I finally get a full-time job working for 

State Farm here in California. There I was told once 

again that if I wanted to make more money and promote, I 

needed a degree. It didn't matter that I was doing the 

job well and fixing errors of those promoted ahead of 

me. I didn't have a degree, and that's where I was 

stopped dead in my tracks. I made the choice to give 

myself opportunities while working full-time and being a 

single mother and then a wife. I went to school fulltime on top of my work and home responsibilities. The 

University of Phoenix made me feel great and told me 

that they would help me get a job with a company that 
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would make the loans worth it and easily payable. I was 

told those loans were affordable and would take into 

account my personal life basic bills, mortgage, car, 

food, health insurance, nothing more. My husband has an 

MBA and earned his BS and MBA from University of 

Phoenix, so I felt this school would be the best option 

for me because I have someone at home to help me 

navigate the online school and allow me to continue 

working. So I began busting my tail, earning my 

associates and bachelors, even taking some classes and 

tests to accelerate my degree. I took minimal breaks 

only to have my son and get married. I didn't delay. I 

worked extremely hard for work and lack of sleep, but I 

did it. October 31, 2017 [audio]. Oh, thank you. What 

happens next is not what I just told. My loans and my 

husband's loans were not considered against the other. 

Our mortgage was not considered against our loans. Our 

student loans don't care that our spouse has a loan. Our 

student loans don't care that we have a mortgage and 

kids. They care about our gross income, which is what 

most would consider an amount to be proud of. Our 

success is surface owing. The government has shown that 

the best way is to work the system, which is just to 

qualify for free and not to try to promote your work. 

Don't get married, qualify for low income housing, 
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welfare and Medi-Cal is the only way to go if going to 

get out of college without an excruciating amount of 

debt. Otherwise you'll drop. Your drive of sense of 

responsibility and accomplishment.

MR. ROBERTS: That's three minutes. I 

apologize.

MS. BLUMER: Okay, no worries. I 

tried. Thank you.

MS. JEFFRIES: No, you did a great 

job, Chassy. Thank you very much.

MS. BLUMER: Thank you for your time. 

I appreciate it.

MS. JEFFRIES: Okay, Brady, who's 

next?

MR. ROBERTS: I just admitted Ronald 

Michel, who is representing themselves.

MR. MICHEL: Can you hear me?

MS. JEFFRIES: I can hear you, I can't 

see you, but that's okay if youMR. MICHEL: Would you like me to, I 

don't know how toMS. JEFFRIES: That's fine. That's 

fine. It's totally up to you, Ronald, if you want to 

turn your camera on or not, as long as the committee can 

hear you, that's what's important, okay? 
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Committee Meetings - 01/20/22

MR. MICHEL: Alright.

MS. JEFFRIES: So welcome to public 

comment. You will have three minutes to address the 

committee and that three minutes begins whenever you're 

ready to start speaking.

MR. MICHEL: I'm ready immediately, 

and I definitely appreciate the moments. My daughter was 

a Brooks Institute student from 2004 to 2007. We were 

told that Brooks was alleged to be a very highly 

regarded photography institute and that instruction was 

wonderful. She entered Brooks and graduated after three 

years. Prior to this entry, we met with Brooks's 

financial advisors and loans were offered, but only the 

smaller loans would be offered to the students. The 

Parent PLUS Loans needed to be held by the parents, to 

get the children, to get my daughter into the school. 

There was no way that she could afford to go to the 

school without the Parent PLUS Loans, and so we entered 

into that agreement with Brooks. We were told that 

Brooks indicated that many jobs would be afforded to 

these students upon their graduation and that Brooks had 

a 90 to 93 percent placement rate after their 

graduation. We were not told that at that time that 

Brooks was owned by a for-profit company, Career 

Education Corporation. We understood that Brooks was an 
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Committee Meetings - 01/20/22

educational institute with the children's best interests 

at heart. Interest rates, we thought, were very high. I 

think they were set at 7-1/2 percent. We borrowed over 

three years, we borrowed about 72,000 dollars and we 

were told that a forbearance would allow the student to 

graduate and get out into the world for a year and to 

get a job that would assist in paying back these loans. 

But there were no jobs. Brooks lied to us where they 

gave us false information with regards to the actual 

jobs that were going to be available. We chose to defer 

and go into the forbearance period. Again, we were not 

told by Brooks and we were not told by any of the 

lending institutions that that the interest would accrue 

and compound, and that 72,000 dollars grew to over 

135,000 thousand dollars in just a very short period of 

time. Again, this took us completely by surprise. I paid 

over $80,000 back on this loan. I borrowed, I think I 

was advised that the origination loan was $72,000. I've 

paid over $80,000 back and I still owe 130,000 dollars. 

I think that I, I place a lot of the problems at 

Brooks's feet, but I know that the Department of 

Education, I think that they let us down also with no 

due diligence with regards to the for-profit companies

and for-profit institutions. I'm 71 years old and my 

wife and I are retired. I was advised many years later 
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Committee Meetings - 01/20/22

that many of these loans are being repaid by seniors and 

that many of these seniors are retired.

MR. ROBERTS: That's three minutes, 

I'm sorry.

MR. MICHEL: Is that, it goes quick. 

Okay, wellMS. JEFFRIES: It sure does, thank you 

very much for your comments today.

MR. MICHEL: Thank you.

MS. JEFFRIES: Alright, Brady, who do 

we have next?

MR. ROBERTS: I'm admitting Kristin 

Anderson, who is representing themselves.

MS. JEFFRIES: Good afternoon, 

Kristin. [Inaudible] for audio. Good afternoon, Kristin, 

can you hear me?

MS. ANDERSON: Yes, I can.

MS. JEFFRIES: Okay, wonderful. 

Welcome to the public comment section today. You will 

have three minutes to speak and that three minutes 

begins whenever you're ready to start talking.

MS. ANDERSON: Okay, thanks very much. 

I hope the information is helpful. My name's Kristin. 

I'm going to speak to you about [audio] seeking gainful 

employment. I'm a first generation college graduate. I 
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graduated in 2008, but the story goes like this. In 

1994, I was 26 years old. Our kids were three and four 

years old, so I have that. I enrolled in community 

college. Then I set out to find some work. I got a call 

from a company. The company promised me a paralegal job 

for one year of training. I almost left, but I accepted. 

I accepted the enrollment work full-time, attended fulltime school. My husband cared for the kids while he 

worked from home. I completed the program with perfect 

attendance. It was a one-year program, 1994 to 1995. I 

started to get duplicate bills. They were always in two 

envelopes. Calling the lender didn't help. In the end, 

the final bill turned out to be $13,700. That's $10,700 

for the award year, 1994 to 1995 with a $3,000 Pell 

Grant. I appeared before a federal magistrate in 1996 

asking for forgiveness. She requested I go ahead and pay 

that, it wasn't very much money. After the program, I 

had no units. The program doesn't award credit hours. My 

earnings for 1998 was 3,000 dollars for a going rate of 

five dollars per hour, which was a decrease in the 

income I was making as a temporary hire. In the 

meantime, unable to pay for child care, transportation 

costs and student loan bills, my husband and I went 

bankrupt in 2003. I believe I was lied to and tricked, 

and in the end, I'm not a paralegal. Paralegal requires 
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Committee Meetings - 01/20/22

an AA degree. There's no way to benefit from the 

program. I paid 18,000 dollars, so the Department 

doesn't have a lender record of this before 2011. We're 

continuing to pay on that. So this is the collection of 

a debt for award year 1994 to 1995. The loan became 26 

years old this year. I became gainfully employed in 

2008. I went to the community college in my local 

community and immediately the next year, 2009, I made, 

excuse me, 37,000 dollars. So there was definitely a 

benefit. So the program was a proprietor for a forprofit corporation operating a subsidiary that 

administered the program that I attended. I do see the 

information on the NSLDS. The OPEID program is listed in 

the NSLDS. The school I attended is not listed on the 

[inaudible]. When completing the education requirements, 

federal jobs have education requirements. A degree must 

be accredited. [Audio] Thank you. That's 30 seconds. So 

I've made, I've paid 18K so far, 126 payments reported 

since 2011, 137 payments, a total count on my credit 

report for the life of the loan. That's it for me. Thank 

you.

MR. ROBERTS: Cindy, I think you're 

muted, but I'm now admitting Tristen Bonacci, who's 

speaking on behalf of the University of Phoenix.

MS. JEFFRIES: Okay. Good afternoon, 
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Tristen, can you hear me?

MS. BONACCI: Yes, I can, hi.

MS. JEFFRIES: Okay. You have three 

minutes to speak and that begins whenever you're ready.

MS. BONACCI: Okay, great. So my name 

is Tristen Bonacci. Thank you for the opportunity to 

share today. I graduated in 2004 from the University of 

Phoenix with my master's in teaching and education. And 

at the time I was based in Colorado, I now teach in New 

Mexico. The reason I chose University of Phoenix was 

because at the time I was newly divorced, I needed to 

support myself and I needed to work and get a career. 

But I couldn't do that at a normal school because I had 

to work. So I was able to go to two lengthy evening 

classes per week and then work my way through. So I 

graduated in 2004. So I've used this education as a 

teacher now for 19 years, and I apply those skills every 

day. So as you guys are continuing to debate and 

implement regulations that affect higher education, I 

would like you guys to consider students like myself 

that are nontraditional learners and that nontraditional 

higher education represents a lot of students in the 

United States right now. My question is that why doesn't 

the Department of Education have a seat at the table for 

people like me who are really concerned with 
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undergraduates who are nontraditional students going 

there, but there's so many people who are needing to go 

back to school and change careers like that. So I'm 

hoping that you can appoint someone like myself to 

represent older working adults who are nontraditional 

students. I know that without this education, working as 

a teacher with just the undergraduate degree, there's no 

way I could support myself. So I had to go back to 

school. I had to do something to figure this out, so I 

hope that you could listen to this experience that we 

can create equal opportunity and access for all 

students, regardless of their background or their status 

as a traditional student or not. Thank you.

MS. JEFFRIES: Thank you, Tristen. 

Brady, who do we have next?

MR. ROBERTS: Alright, our final 

speaker for today is Mr. David Reyes Bautista, who is a 

veteran representing themselves. [Inaudible] 

MR. ROBERTS: Would you mind pausing, 

if you're watching the live stream, I think we're 

getting a bit of an echo.

MR. REYES BAUTISTA: Okay. 

[Inaudible]. 

MS. JEFFRIES: If you could just, 

David, just mute your live stream.
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Committee Meetings - 01/20/22

MR. REYES BAUTISTA: Okay.

MS. JEFFRIES: And then you won't get 

the feedback. Now, no, don't move yourself here. No, 

don't mute yourself here. Do you have that live stream 

playing in the background?

MR. REYES BAUTISTA: No.

MS. JEFFRIES: Okay, [Inaudible] 

Alright, we're all set, David. You have three minutes. 

And welcome this afternoon. We appreciate you coming in. 

You have three minutes and that three minutes, David, 

will start whenever you're ready.

MR. REYES BAUTISTA: Roger that. Thank 

you. Good afternoon. My name is David Reyes Bautista and 

I am a Marine Corps veteran, and I'm here to tell you my 

story in hopes that you make sure that others do not 

experience what happened to me at Wyo Tech. I attended 

Wyo Tech auto mechanic school in Long Beach between 2011 

and 2012. I learned about them through a TV show that 

featured veterans wearing their uniforms and who landed 

really good auto mechanic jobs. The advertisements 

depicted state of the art equipment and teachers who 

were industry experts. But in reality, Wyo Tech 

provided unserviceable tools. Teachers were not 

interested in teaching and only cared about collecting 

paychecks. At some point, some were even clearly drunk 
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Committee Meetings - 01/20/22

in the classroom. [Inaudible] recruiters promised me 

that my GI Bill would cover the full cost of my 

education. This was a big factor in my decision to 

enroll because there's no way I could come up with the 

money and you know fall on any shortfalls. Shortly 

before I graduated, though, I was told I was [inaudible] 

off and I was told that I had to take oot student loans 

in order to finish my schooling because I was then told 

that my GI Bill only covered 70 percent of the cost and 

that I had to make a choice in either take these loans 

or get kicked out of school. Which I made, I had made 

the conscious choice to take the loans. My education 

counselor who was aware of my difficulties in my 

personal life, asked me what my kids would think if I 

didn't finish school. She said if I would be a failure 

if I didn't sign the loan documents. Wyo Tech also 

failed to deliver the career services promised. 

[Inaudible] told me the school would help me with the 

resume writing and the job search, but the careers 

service staff at Wyo Tech did nothing except tell me to 

bring my resume to businesses. I did that. There were 

several businesses that would laugh me to the door and 

say that would be basically a $30,000 piece of worthless 

paper. I was unable to find work at that time and had 

trouble since. Since graduating, I have $3,400 in 
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Committee Meetings - 01/20/22

student loans and I struggle to make payments for years. 

It wasn't until a decade after I graduated that I 

learned about the Borrower Defense and got my loans 

discharged. I shouldn't have had to go through that. I 

should never have been allowed to go through what I’ve

gone through and have them not do what they promised. My 

experiences are not unique because many other veterans' 

lives were ruined by [audio] profits for schools like 

Wyo Tech. I don't have my GI bill left, even though my 

loans were forgiven, my bill, I still can't take the 

opportunity to better myself. You know, I had kids that 

love me and they support me, but they see me struggling 

with this because I shouldn't have gone through what I 

went through and not be able to at least get my GI bill 

back knowing that they took my life's troubles and used 

it to their advantage to coax me into taking the loans 

and doing what I did and come to find out, nothing 

mattered. It's still tough right now, still. And I've 

had trouble since.

MS. JEFFRIES: Alright. Thank you, 

David, for sharing with the committee and thank you for 

your service.

MR. REYES BAUTISTA: Thank you again. 

Thank you for your time. I really appreciate you guys.

MS. JEFFRIES: Okay. Okay, that 
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Committee Meetings - 01/20/22

concludes all the public commenters today, and we are at 

a little bit over 4:33. I just want to take a quick 

opportunity to thank this committee for their very hard 

work today. I do appreciate it. We will see you all in 

the morning.
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Committee Meetings - 01/20/22

Appendix

Department of Education, Office of Postsecondary Education

Zoom Chat Transcript

Institutional and Programmatic Eligibility Committee 

Session 1, Day 3, Afternoon, January 20, 2021

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

For the record. My last no vote was in reference to 

the lawsuits being reported within 10 days had no 

materiality threshold. The 10 day reporting timeframe if 

we agree on materiality of the lawsuits was not an issue 

with me.

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

We will provide language for consideration of adding 

an appeals process for failing composite scores for 

inclusion in (f)(3). There is currently language for 

considerations of the triggers but not the composite 

calculation.

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Barmak, that makes sense; the entity itself should 

be explicitly excluded from being the “other government 

entity”

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

+1 to Barmak's comment

From Dave McClintock (Advisor) auditor to Everyone:

+1 Steve's explanation that wording change to (h) in 

line with changes to accounting standards

From Debbie Cochrane (P), State agencies to Everyone:
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Committee Meetings - 01/20/22

David Socolow will be coming to the table to represent 

state agencies.

From David Socolow to Everyone:

+1 to Barmak's point about holding individuals 

personally accountable. This should mirror the SarbanesOxley requirements for corporate CEOs and CFOs to 

personally certify the accuracy of the information 

contained in financial reports, confirm that controls and 

procedures were in place to assess and verify that 

accuracy, and personally confirm that they are in 

compliance with SEC regs, with personal liability for fines 

and prison terms.

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

In 668.175(c) you may want to consider changing the 

going concern disclosure language to match the language in 

(h) audit opinions and disclosures

From Yael Shavit (A) -- State AGs to Everyone:

+1

From Jessica Ranucci (A)- Legal Aid to Everyone:

Johnson is going to come to the table for legal aid.

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Is the proposed change by the department to the 

wording in 3 saying the new combined institution must 

referencing must meet the three financial conditions 

together?

From Amanda Martinez (P), Civil Rights to Everyone:

A suggestion for improvement in 668.176 (b)(3)(i): 

include an "and" instead of "or."

From Amanda Martinez (P), Civil Rights to Everyone:
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Committee Meetings - 01/20/22

for subpart (A)

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

668.176 b 1 comment that would be nice to clarify with 

Steve:

The audited financial statements required for a 

materially complete application should be the two most 

recent fiscal years for which audits are available, which 

had been Department practice for decades, and not require 

the literal two most recent years if the most recent fiscal 

year audit is not yet available (which the Department has 

recently mandated). The latter will create significant 

problems for institutions that, for any number of sensible 

accounting reasons, seek to consummate a merger on the 

first day of a new fiscal year, and essentially require 

those transactions to be delayed, which may create 

unwarranted instability. That is particularly true in the 

nonprofit merger context where institutions generally seek 

to combine on a fiscal year cut-over rather than during the 

fiscal year.

From Jamie Studley (P) Accrediting agencies to Everyone:

In determining if each category offers 3 alternative 

ways to establish financial responsibility, or 1+2 OR 3, 

what was ED's proposal/recommendation ?

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Is C missing the term balance sheet to align to points 

to A &B?

From Jamie Studley (P) Accrediting agencies to Everyone:

what are the DE clarifications in 6 meant to improve, 

allow or fix?

From Anne Kress (P) Comm Colleges to Everyone:

+1 to @Jamie’s question, especially as statement was 
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Committee Meetings - 01/20/22

that this is not directly related to change of ownership

From Sam (P) Fin Aid Admin to Everyone:

or grandfathered into their currently approved status

From Yael Shavit (A) -- State AGs to Everyone:

+1 that "non-exhaustive" should be stated explicitly

From Yael Shavit (A) -- State AGs to Everyone:

Carolyn, happy to work with you on this.

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

+1 to Anne's question

From Debbie Cochrane (P), State agencies to Everyone:

FYI I am rejoining the table for state agencies.

From Johnson Tyler, Brooklyn Legal Services to Everyone:

In response to Barmak's question, Grand Canyon 

University was approved as non-profit by US Treasury/IRS 

but is still being treated by US DOE as a for-profit.

From Debbie Cochrane (P), State agencies to Everyone:

Could I please get a response to my clarifying 

question around state authorization and whether the 

Department sees any of these changes as impacting 

institutions' need to be authorized by the states in which 

they are operating?

From Barmak Nassirian (A) Servicemembers & Vets to 

Everyone:

Re Brad's point: Ownership of shares in publicly 

traded entities that a school may have a revenue-sharing 

agreement can be handled with "beneficial ownership" (5%) 

and "insider" (10%) definitions of the SEC
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Committee Meetings - 01/20/22

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Good point Barmak

From Jamie Studley (P) Accrediting agencies to Everyone:

is Barmak's Q about state auth already covered by 

existing 600.4(a)(3) or is more needed?

From Jamie Studley (P) Accrediting agencies to Everyone:

that word "other" is very confusing

From Emmanual Guillory (A)-PNPs to Everyone:

+1 Jaime

From Emmanual Guillory (A)-PNPs to Everyone:

i have a question here

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

Emmanual Guillory will be coming to the table 

temporarily to ask a question.

From Jamie Studley (P) Accrediting agencies to Everyone:

To ED re fees for reviews: FDA may offer an agency 

example--it charges fees for new drug application reviews 

with a fee structure

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:

Jaylon Herbin is joining the table.

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

I will be returning to the table. Emmanual's question 

was answered.

From Anne Kress (P) Comm Colleges to Everyone:
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Committee Meetings - 01/20/22

Should 2.iii say “temporary provisional ...” rather than 

“provisional”?

From Anne Kress (P) Comm Colleges to Everyone:

If not, why not?

From Jamie Studley (P) Accrediting agencies to Everyone:

re Barmak's last comment -- perhaps the 90 days more 

like the air traffic controller determining which runway 

the plane should be on, so that it allow it to account for 

degree of complexity

From Jamie Studley (P) Accrediting agencies to Everyone:

+ 1 to Barmak asking whether 25 v 5% threshold might 

be different depending on situation and nature (e.g.

publicly traded),

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Submitting a question for the record on a previous 

discussion. Under 600.20(g)(i), Donna said that this is not 

a mandatory pre-acquisition review requirement. So is this 

new requirement under 600.20(g)(i) separate from preacquisition review? If the purpose of this requirement is 

to put an institution on notice that it needs to post a 

LOC, that seems very similar to the current expediated preacquisition review at the Department. Would this new 

process have to be completed before the optional preacquisition review process, which is already taking 6-12 

months in advance?

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

Emmanual Guillory will be coming to the table 

temporarily to ask a question.

From Barmak Nassirian (A) Servicemembers & Vets to 

Everyone:
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Committee Meetings - 01/20/22

like the Dream Center?

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

I thought board members have voting rights?

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

I will be returning to the table.

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

I will defer to Emmanual on the change of Board 

members that having voting rights would cause a change of 

control. Accreditors have a different set of rules on 

change of control

From Emmanual Guillory (A)-PNPs to Everyone:

board members do have voting rights but no board 

member has a majority of the vote

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Thanks for clarifying Emmanual

From Brad Adams (P - Proprietary Institutions) to 

Everyone:

Jamie your hand is raised and you are off mute