Changes of Ownership and Changes in Control 1

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

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

-
Changes of Ownership and Changes in Control 2

(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) Except for an additional location at a correctional institution as described in the definition of an

additional location in this section, fFor 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.

* * *

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) When the Secretary makes the determination regarding net earnings, the Secretary considers

the entirety of the relationship between the institution, nonprofit entities in its ownership

structure, and other parties. By way of example, fFor 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
Changes of Ownership and Changes in Control 3

former owner of the institution unless such debts are associated with the sale of an asset that 

was sold at or below fair market value and the interest and fees on such debt is at or below 

the prevailing market rate as determined by an independent appraiser; 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 unless such 

arrangements are at or below fair market value as determined by an independent appraiser;

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;

(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,
Changes of Ownership and Changes in Control 4

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 proposed 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) If the proposed ownership structure reported to the Secretary under paragraph (g)(1)(i) of

this section changes, any changes must be reported to the Secretary promptly, and the change

in ownership cannot occur earlier than 90 days following the date the change is reported to the

Secretary; and

(iii) 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.

(2iii) Notwithstanding the submission of the items required by paragraphs (g)(1)(i) -and (iii) of this

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

approvedcontinued following the change in ownership.

(32) 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 protection 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 protection 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. If any entity in the new ownership structure holds a 50 percent or

greater direct or indirect voting or equity interest in another institution or institutions, the financial

protection may also include the prior year volume of Title IV aid, or a larger amount as determined
Changes of Ownership and Changes in Control 5

by the Secretary, for all institutions under such common ownership.

(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

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)(i) Changes in ownership. An eligible institution must report 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.

(ii) Changes in control. 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 -
Changes of Ownership and Changes in Control 6

(iA) 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);

(iiB) 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);

(iiiC) 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

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

officer, or chief financial officer, director, or other 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

(vE) 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

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
Changes of Ownership and Changes in Control 7

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.

(4) Voluntary Application Fee. An institution may voluntarily remit a fee to the Secretary for expedited 

consideration of a preacquisition review application and a materially complete application required under 

paragraph (2). The fee shall be equal to 0.1 percent of the title IV, HEA program funds for the previous 

institutional fiscal year for the institution being acquired, or $50,000, whichever is less. If an institution

submits a fee, the Secretary must--

(i) Render a decision approving or denying the preacquisition review application and the materially 

complete application required under paragraph (2) within 90 days of receiving such applications;

or

(ii)Refund the fee to the institution, unless there is good cause for an extension of the review period,

and the Secretary sends a letter to the institution explaining why good cause exists. In no event 

may the Secretary extend either the review period on preacquisition review or the materially 

complete application required under paragraph (2) by more than 30 days, without refunding the 

fee. 

(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

(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);
Changes of Ownership and Changes in Control 8

(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

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 -–
Changes of Ownership and Changes in Control 9

(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) Notwithstanding its voting interests, a A person becomes the sole member or

shareholder of a limited liability company or other entity which has a acquires or ceases

to hold a 100 percent or equivalent direct or indirect interest in the institution;

(H) Notwithstanding its voting interests, a person is replaced as the sole member or

shareholder of a limited liability company or other entity which has a 100 percent or

equivalent direct or indirect interest in the institution; or or

(IH) The addition or removal of any person that provides or will provide the financial

statements to meet any of the requirements of § 600.20(g), (h) or Subpart L of 34 CFR

part 668, subpart L.

(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 (whether or not

the agreement is set forth in a written document), 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
Changes of Ownership and Changes in Control 10

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 -

(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
Changes of Ownership and Changes in Control 11

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.