UNITED STATES DEPARTMENT OF EDUCATION

OFFICE OF POSTSECONDARY EDUCATION

Issue Paper 5: Changes of Ownership and Change in Control

Session 1: January 18-21, 2022

Issue: Changes of Ownership and Change in Control

Statutory cites: §498(i) of the Higher Education Act of 1965, as amended

Regulatory cites: 34 CFR 600.2, 600.4, 600.20, 600.21, 600.31; 668.14 (see Certification

Procedures issue paper); Subpart L (see Financial Responsibility issue paper)

Summary of issues:

In recent years, the Education Department has seen an increase in the number of institutions of higher

education (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 (GAO), 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 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 GAO termed “insider involvement” in the purchasing

nonprofit organization (i.e., someone from the former for-profit owner was involved in the nonprofit

purchaser, as well), suggesting greater risk of impermissible benefits to those insiders. Altogether, those

institutions totaled more than $2 billion in a single year (Award Year 2018-19) 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.

Proposal:

The Department proposes to ensure a clearer, more streamlined process for consideration of changes in

ownership, with more robust processes for ensuring that such changes ensure compliance with the

Higher Education Act and related regulations. To achieve these broad outcomes, the Department

specifically proposes to:

Under § 600.2 Definitions:

1. Clarify the definitions of additional location, branch campus, distance education locations, and

main campus to address existing confusion.

2. Clarify the definition of a non-profit institution by specifying non-exhaustive examples of

certain 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
Changes of Ownership and Change in Control 2

institution that enters into, or maintains, a revenue-based servicing agreement with a former

owner.

Under § 600.4 Institution of higher education:

1. Make a technical adjustment to the language that ensures regulatory text is reflective of the

statutory language in the definition of an institution by specifying that institutions include public

and other nonprofit institutions.

Under § 600.20 Notice and application procedures for establishing, reestablishing, maintaining, or

expanding institutional eligibility and certification, subsection (g), Application for provisional extension

of certification:

1. Require that institutions undergoing a change in ownership provide adequate notice to the

Secretary by submitting materials at least 90 days prior to the date of the transaction. Also

clarifies the Secretary’s authority not to approve an institution’s participation in the Federal aid

programs following a change in ownership.

2. Codifies 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, or—if two years are not available—financial surety in the amount of at least 25

percent of Title IV volume.

3. 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.

Under § 600.20 Notice and application procedures for establishing, reestablishing, maintaining, or

expanding institutional eligibility and certification, subsection (h), Terms of the extension:

1. Clarify that the Secretary is not required to rely on the same terms and conditions of the

institution’s Program Participation Agreement (PPA) prior to a change in ownership. This

would provide the Department with leeway to add additional terms and conditions to the

provisional PPA with respect to the change in ownership, regardless of the conditions that were

applied to the institution prior to the change.

2. Makes technical adjustments to the regulatory language to clarify that following a change in

ownership, an institution is placed on a temporary program participation agreement (TPPA).

This would be a non-substantive change designed to better reflect current practice.

Under 600.21 Updating application information:

1. Clarify the reporting requirements for a 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” (defined in 34 CFR 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 in ownership to a 5 percent change in ownership,

to ensure that the Department has greater visibility into voting blocs and other types of

corporate changes that may warrant greater scrutiny.

Under § 600.31 Change in ownership resulting in a change in control for private nonprofit, private forprofit and public institutions, subsection (c), Standards for identifying changes of ownership and control:
Changes of Ownership and Change in Control 3

1. Make technical changes to the definition of “ownership or ownership interest,” already

included in the regulations to ensure clearer interpretations of when a change in ownership has

and has not occurred.

2. Revise the standards for identifying changes of ownership and control for other 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.

3. Revise “excluded transactions” language to allow the Department to more easily determine

whether a particular type of transaction qualifies as excluded.

The paper also refers to changes included in the Certification Procedures issue paper related to

conditions that may be applied to institutions undergoing a change in ownership.

Proposed Regulations Redline

§ 600.2 Definitions.

Additional location: A physical facility that is geographically apartseparate from the main campus of the

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 location participates in the Title IV programs

only through the certification of the main campus and may qualify as a branch campus.

* * *

Branch campus: A physical facility that is separate fromn additional location of an institution that is

geographically apart and independent of the main campus of the institution and within the same

ownership structure of the institution, and that also. The Secretary considers a location of an institution

to be independent of the main campus if the location -

(1) Is approved by the Secretary as a branch campus; and

(2) Is independent from the main campus, meaning the location—

(1i) Is permanent in nature;

(2ii) Offers courses in educational programs leading to a degree, certificate, or other recognized

educational credential;

(3iii) Has its own faculty and administrative or supervisory organization; and

(4iv) Has its own budgetary and hiring authority.

* * *

Distance education:

(1) Education that uses one or more of the technologies listed in paragraphs (2)(i) through (iv) of this

definition to deliver instruction to students who are separated from the instructor or instructors and to
Changes of Ownership and Change in Control 4

support regular and substantive interaction between the students and the instructor or instructors,

either synchronously or asynchronously.

(2) The technologies that may be used to offer distance education include -

(i) The internet;

(ii) One-way and two-way transmissions through open broadcast, closed circuit, cable,

microwave, broadband lines, fiber optics, satellite, or wireless communications devices;

(iii) Audio conference; or

(iv) Other media used in a course in conjunction with any of the technologies listed in

paragraphs (2)(i) through (iii) of this definition.

(3) For purposes of this definition, an instructor is an individual responsible for delivering course content

and who meets the qualifications for instruction established by an institution's accrediting agency.

(4) For purposes of this definition, substantive interaction is engaging students in teaching, learning, and

assessment, consistent with the content under discussion, and also includes at least two of the following

-

(i) Providing direct instruction;

(ii) Assessing or providing feedback on a student's coursework;

(iii) Providing information or responding to questions about the content of a course or

competency;

(iv) Facilitating a group discussion regarding the content of a course or competency; or

(v) Other instructional activities approved by the institution's or program's accrediting agency.

(5) An institution ensures regular interaction between a student and an instructor or instructors by, prior

to the student's completion of a course or competency -

(i) Providing the opportunity for substantive interactions with the student on a predictable and

scheduled basis commensurate with the length of time and the amount of content in the course

or competency; and

(ii) Monitoring the student's academic engagement and success and ensuring that an instructor

is responsible for promptly and proactively engaging in substantive interaction with the student

when needed on the basis of such monitoring, or upon request by the student.

(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 administrative offices are located

and approved by its accrediting agency. is located in the State where it enrolled the largest number of 

students during the previous five fiscal year.

* * *

Formatted: Strikethrough, Highlight

Formatted: Strikethrough

Commented [B1]: Schools should not be able to select 

their state regulator by moving their office.
Changes of Ownership and Change in Control 5

Main campus: 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. 

* * *

Nonprofit institution: An institution that -

(1)

(i) 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;

(ii) Is legally authorized to operate as a nonprofit organization by each State in which it is physically

located; and

(iii) 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 (26 U.S.C. 501(c)(3)); except that

(iv) For purposes of participating in the federal student aid programs, a nonprofit institution is

generally not an institution that:

(A) 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 entity related to or affiliated with the

former owner of the institution; or

(B) Either directly or through any entity in its ownership chain, enters into, or maintains, a

revenue-based servicing agreement with a former owner of the institution or a natural person

or entity related to or affiliated with the former owner of the institution; or

(2) For a foreign institution -

* * *

§ 600.4 Institution of higher education.

(a) An institution of higher education is a public or other private nonprofit educational institution that -

(1) Is in a State, or for purposes of the Federal Pell Grant, Federal Supplemental Educational Opportunity

Grant, Federal Work-Study, and Federal TRIO programs may also be located in the Federated States of

Micronesia or the Marshall Islands;

(2) Admits as regular students only persons who -

(i) Have a high school diploma;

(ii) Have the recognized equivalent of a high school diploma; or

(iii) Are beyond the age of compulsory school attendance in the State in which the institution is

physically located;

(3) Is legally authorized to provide an educational program beyond secondary education in the State in

which the institution is physically located in accordance with § 600.9;

Formatted: Strikethrough

Commented [B2]: As was pointed out at the table, 

“other” makes no sense here: public institutions are not a 

member of the larger class of “private nonprofit” 

institutions. Alternatively, this can be corrected by striking 

“private” before nonprofit
Changes of Ownership and Change in Control 6

(4)

(i) Provides an educational program -

(A) For which it awards an associate, baccalaureate, graduate, or professional degree;

(B) That is at least a two-academic-year program acceptable for full credit toward a

baccalaureate degree; or

(C) That is at least a one academic year training program that leads to a certificate, or other

nondegree recognized credential, and prepares students for gainful employment in a recognized

occupation; and

(ii) May provide a comprehensive transition and postsecondary program, as described in 34 CFR

part 668, subpart O; and

(5) Is -

(i) Accredited or preaccredited; or

(ii) Approved by a State agency listed in the FEDERAL REGISTER in accordance with 34 CFR part 603, if

the institution is a public postsecondary vocational educational institution that seeks to participate

only in Federal student assistance programs.

(b) An institution is physically located in a State if it has a campus or other instructional site in that State.

(c) The Secretary does not recognize the accreditation or preaccreditation of an institution unless the

institution agrees to submit any dispute involving an adverse action, such as the final denial, withdrawal,

or termination of accreditation, to arbitration before initiating any other legal action.

§ 600.20 Notice and application procedures for establishing, reestablishing, maintaining, or expanding

institutional eligibility and certification.

* * *

(g) Application for provisional extension of certification.

(1) If a private nonprofit institution, a private for-profit institution, or a public institution participating in

the title IV, HEA programs undergoes a change in ownership that results in a change of control as

described in 34 CFR 600.31, the Secretary may continue the institution's participation in those programs

on a provisional basis, if—

(i) No later than 90 days prior to the change in ownership the institution notifies the Secretary

of the change on a fully completed form designated by the Secretary and supported by the state

authorization and accrediting documents identified in paragraph (g)(2)(i) and (ii) of this section,

and supported by copies of the financial statements identified in paragraph (g)(2)(iii) and (iv) of

this section; and

(ii) 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 the change occurs.

(iii) Notwithstanding the submission of the items required by paragraphs (g)(1)(i) and (ii) of this

section, the Secretary may determine that the participation of the institution should not be

approved following the change in ownership.
Changes of Ownership and Change in Control 7

(2) For purposes of this section, a private nonprofit institution, a private for-profit institution, or a public

institution submits a materially complete application if it submits a fully completed application form

designated by the Secretary supported by -

(i) A recently updated copy of the institution's State license or equivalent document that - as of the

day before the change in ownership - authorized or will authorize the institution to provide a

program of postsecondary education in the State in which it is physically located;

(ii) A recently updated copy of the document from the institution's accrediting association that - as

of the day before the change in ownership - granted or will grant the

institution accreditation status, including approval of any non-degree programs it offers;

(iii) Audited financial statements of the institution's two most recently completed fiscal years that

are prepared and audited in accordance with the requirements of 34 CFR 668.23; and

(iv) 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 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 34 CFR 668.176; and

(v) 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.

(h) Terms of the extension.

(1) If the Secretary approves the institution's materially complete application, the Secretary provides the

institution with a temporary provisional Program Participation Agreement (TPPPA). The provisional PPA

extends the terms and conditions of the program participation agreement that were in effect for the

institution before its change of ownership.

(2) The TPPPA provisional PPA expires on the earlier of -

(i) The last day of the month following the month in which the change of ownership occurred,

unless the provisions of paragraph (h)(3) of this section apply.The date on which the Secretary

signs a new provisional program participation agreement (PPPA);

(ii) The date on which the Secretary notifies the institution that its application is denied; or

(iii) The last day of the month following the month in which the change of ownership occurred,

unless the provisions of paragraph (h)(3) of this section apply. The date on which the Secretary

co-signs a new provisional program participation agreement (PPPA).

(3) If the provisional 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 information required under 34 CFR 668.176.

(i) A “same day” balance sheet showing the financial position of the institution, as of the date of

the ownership change, that is prepared in accordance with Generally Accepted Accounting

Principles (GAAP) published by the Financial Accounting Standards Board and audited in

Formatted: Highlight

Commented [B3]: Not only are these surety amounts 

arbitrary, they have consistently proven inadequate to 

protect the taxpayers and students in every case of school 

collapse to date. I suggest making this consistent with my 

proposed language in 668.176(b)(2)(ii):

“in an amount that, in the Secretary’s sole judgment, would 

hold students and the Secretary harmless from losses due to 

sudden closure when added to the institution’s tangible net 

assets less total debts and liabilities”

Formatted: Highlight
Changes of Ownership and Change in Control 8

accordance with Generally Accepted Government Auditing Standards (GAGAS) published by the

U.S. General Accounting Office;

(ii) If not already provided, approval of the change of ownership from the State in which the

institution is located by the agency that authorizes the institution to legally

provide postsecondary education in that State;

(iii) If not already provided, approval of the change of ownership from the institution's

accrediting agency; and

(iv) A default management plan unless the institution is exempt from providing that plan

under 34 CFR 668.14(b)(15).

§ 600.21 Updating application information.

(a) Reporting requirements. Except as 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 change in the following:

* * *

(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 person -

(i) The natural person acquires,Holds alone or together with another member or members of his

or hertheir family, at least a 25 percent “ownership or voting interest” in the institution (direct

or indirect) as defined in § 600.31(b);

(ii) 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 (director or indirect) as defined in §

600.31(b);

(iii) The natural person or entity acquiresRepresents or holds, either alone or together with

another natural person or entity, 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), as defined in § 600.31(b); or

(ivii) The natural person becomesIs a general partner, managing member, the chief executive

officer, or chief financial officer, director, or officer of the institution or of an entity which has

at least a 25 percentownership or controlling interest in the institution (direct or indirect) as 

defined in § 600.31(b);or

(v) 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).

* * *

(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 control as described in § 600.31 and

Formatted: Highlight

Commented [B4]: ADDED positions
Changes of Ownership and Change in Control 9

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).

(15) In addition to the reporting required by paragraphs (a)(6), (a)(14) and (b) of this section, any change

in the ownership of the institution 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) of the institution. 

§ 600.31 Change in ownership resulting in a change in control for private nonprofit, private for-profit

and public institutions.

(a)

(1) Except as provided in paragraph (a)(2) of this section, a private nonprofit, private for-profit, or public

institution that undergoes a change in ownership that results in a change in control ceases to qualify as

an eligible institution upon the change in ownership and control. A change of ownership that results in a

change in control includes any change by which a person who has or thereby acquires an ownership

interest in the entity that owns the institution or the parent of that entity, acquires or loses the ability to

control the institution.

(2) If a private nonprofit, private for-profit, or public institution has undergone a change in ownership

that results in a change in control, the Secretary may, under the provisions of § 600.20(g) and (h),

continue the institution's participation in the title IV, HEA programs on a provisional basis, provided that

the institution submits, under the provisions of § 600.20(g), a materially complete application -

(i) No later than 10 business days after the change occurs; or

(ii) For an institution owned by a publicly-traded corporation, no later than 10 business days after

the institution knew, or should have known of the change based upon SEC filings, that the change

occurred.

(3) In order to reestablish eligibility and to resume participation in the title IV, HEA programs, the

institution must demonstrate to the Secretary that after the change in ownership and control -

(i) The institution satisfies all the applicable requirements contained in §§ 600.4, 600.5, and 600.6,

except that if the institution is a proprietary institution of higher education or postsecondary

vocational institution, it need not have been in existence for two years before seeking eligibility;

and

(ii) The institution qualifies to be certified to participate under 34 CFR part 668, subpart B.

(b) Definitions. The following definitions apply to terms used in this section:

Closely-held corporation. Closely-held corporation (including the term “close corporation”) means -

(1) A corporation that qualifies under the law of the State of its incorporation or organization as

a statutory closeclosely-held corporation; or

(2) If the State of incorporation or organization has no definition of closely-held corporationstatutory

close corporation provision, a corporation the stock of which -

(i) Is held by no more than 30 persons; and
Changes of Ownership and Change in Control 10

(ii) Has not been and is not planned to be publicly offered.

Control. Control (including the terms controlling, controlled by and under common control with) means

the possession, direct or indirect, of the power to direct or cause the direction of the management and

policies of a person, whether through the ownership of voting securities, by contract, or otherwise.

Ownership or ownership interest.

(1) Ownership or ownership interest means a legal or beneficial interest in an institution or its corporate

parent, or a right to share in the profits derived from the operation of an institution or its corporate

parent.

(2) For purposes of determining whether a change in ownership has occurred, changes in the ownership

of the following are not included - Ownership or ownership interest does not include an ownership

interest held by -

(i) A mutual fund that is regularly and publicly traded;

(ii) A U.S. institutional investor, as defined in 17 CFR 240.15a-6(b)(7);

(iii) A profit-sharing plan of the institution or its corporate parent, provided that all full-time

permanent employees of the institution or its corporate parent are included in the plan; or

(iv) An employee stock ownership plan (ESOP).

Parent. The parent or parent entity is the entity that controls the specified entity directly or indirectly

through one or more intermediaries.

Person. Person includes a legal entity or a natural person.

Wholly-owned subsidiary. A wholly-owned subsidiary is one substantially all of whose outstanding voting

securities are owned by its parent together with the parent's other wholly-owned subsidiaries.

(c) Standards for identifying changes of ownership and control -

(1) Closely-held corporation. A change in ownership and control occurs when -

(i) A person acquires more than 50 percent of the total outstanding voting stock of the

corporation;

(ii) A person who holds an ownership interest in the corporation acquires control of more than

50 percent of the outstanding voting stock of the corporation; or

(iii) A person who holds or controls 50 percent or more of the total outstanding stock of the

corporation ceases to hold or control that proportion of the stock of the corporation.

(2) Publicly traded corporations required to be registered with the Securities and Exchange

Commission (SEC). A change in ownership and control occurs when -

(i) A person acquires such ownership and control of the corporation so that the corporation is

required to file a Form 8K with the SEC notifying that agency of the change in control; or

(ii) (A) A person who is a controlling shareholder of the corporation ceases to be a controlling

shareholder. A controlling shareholder is a shareholder who holds or controls through agreement

both 25 percent or more of the total outstanding voting stock of the corporation and more shares

of voting stock than any other shareholder. A controlling shareholder for this purpose does not
Changes of Ownership and Change in Control 11

include a shareholder whose sole stock ownership is held as a U.S. institutional investor, as defined

in 17 CFR 240.15a-6(b)(7), held in mutual funds, held through a profit-sharing plan, or held in an

Employee Stock Ownership Plan (ESOP).

(B) When a change of ownership occurs as a result of paragraph (c)(2)(ii)(A) of this section, the

institution may submit its most recent quarterly financial statement as filed with the SEC, along

with copies of all other SEC filings made after the close of the fiscal year for which a compliance

audit has been submitted to the Department of Education, instead of the “same day” balance

sheet.

(C) If a publicly-traded institution is provisionally certified due to a change in ownership

under paragraph (c)(2)(ii) of this section, and that institution experiences another change of

ownership under paragraph (c)(2)(ii) of this section, an approval of the subsequent change in

ownership does not extend the original expiration date for the provisional certification provided

that any current controlling shareholder was listed on the change of ownership application for

which the original provisional approval was granted.

(3) Other entities.

(i) The term “other entities” means any entity which is not closely held nor required to be

registered with the SEC, and includes includes limited liability companies, limited liability

partnerships, limited partnerships, and similar types of legal entities. A change in ownership and

control of an entity that is neither closely-held nor required to be registered with the SEC occurs

when -–

(ii) The Secretary deems the following changes to constitute a change in ownership resulting in a

change of control of such an entity:

(A) A person (or combination of persons) acquires at least 50 percent of the total

outstanding voting interests in the entity, or otherwise acquires 50 percent control;

(B) A person (or combination of persons) who holds less than a 50 percent voting

interest in an entity acquires at least 50 percent of the outstanding voting interests in

the entity, or otherwise acquires 50 percent control;

(C) A person (or combination of persons) who holds at least 50 percent of 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;

(D) A partner in a general partnership acquires or ceases to own at least 50 percent of

the voting interests in the general partnership, or otherwise acquires or ceases to hold

50 percent control;

(E) Any change of a general partner of a limited partnership (or similar entity) if that

general partner also holds an equity interest;

(F) Any change in a managing member of a limited liability company (or similar entity) if

that managing member also holds an equity interest;

(G) A person acquires or ceases to hold a 100 percent or equivalent direct or indirect

interest in the institution; or
Changes of Ownership and Change in Control 12

(H) 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) or Subpart L of

part 668.

(iii) The Secretary deems the following interests to satisfy the 50 percent thresholds described

above:

(A) A combination of persons, although each with less than 50 percent voting or

controlling interest in an entity, hold a combined voting interest of at least 50 percent as

a result of proxy agreements, voting agreements or other agreements, or by operation

of State law;

(B) A combination of persons, although each with less than 50 percent voting or

controlling interest in an entity, hold a 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

(C) A combination of individuals who are family members as defined in § 600.21,

although each with less than 50 percent voting or controlling interest in an entity, hold a

combined voting or controlling interest of at least 50 percent.

(D) Notwithstanding the foregoing-

(1) If a person who alone or in combination with other persons (as described in

paragraphs (c)(3)(i)-(iii) of this 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.

(2) Any person who alone or in combination with other persons has the right to

appoint a majority of any class of board members of an entity or an institution is

deemed to have control.

(i) A person who has or acquires an ownership interest acquires both control of at least 25 percent

of the total of outstanding voting stock of the corporation and control of the corporation; or

(ii) A person who holds both ownership or control of at least 25 percent of the total outstanding

voting stock of the corporation and control of the corporation, ceases to own or control that

proportion of the stock of the corporation, or to control the corporation.

(4) General partnership or sole proprietorship. A change in ownership and control occurs when a person

who has or acquires an ownership interest acquires or loses control as described in this section.

(5) Wholly owned subsidiary. An entity that is a wholly owned subsidiary changes ownership and

control when its parent entity changes ownership and control as described in this section.

(6) Nonprofit institution. A nonprofit institution changes ownership and control when a change takes

place that is described in paragraph (d) of this section.

(7) Public institution. The Secretary does not consider that a public institution undergoes a change in

ownership that results in a change of control if there is a change in governance and the institution after

the change remains a public institution, provided -
Changes of Ownership and Change in Control 13

(i) The new governing authority is in the same State as included in the institution's program

participation agreement; and

(ii) The new governing authority has acknowledged the public institution's continued

responsibilities under its program participation agreement.

(d) Covered transactions. For the purposes of this section, a change in ownership of an institution that

results in a change of control may include, but is not limited to -

(1) The sale of the institution;

(2) The transfer of the controlling interest of stock of the institution or its parent corporation;

(3) The merger of two or more eligible institutions;

(4) The division of one institution into two or more institutions;

(5) The transfer of the liabilities of an institution to its parent corporation;

(6) A transfer of assets that comprise a substantial portion of the educational business of the institution,

except where the transfer consists exclusively in the granting of a security interest in those assets; or

(7) A change in status as a for-profit, nonprofit, or public institution.

(e) Excluded transactions. A change in ownership and control reported under § 600.21 and otherwise

subject to this section does not include a transfer of ownership and control of all or part of an owner's

equity or partnership interest in an institution, the institution's parent corporation, or other legal entity

that has signed the institution's Program Participation Agreement -

(1) From an owner to a “family member” of that owner as defined in § 600.21(f); or

(2) Upon the retirement or death of the owner; or

(3) 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 person with a 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.