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, MORNING

January 20, 2022

On the 20th day of January, 2022, the

following meeting was held virtually, from 10:00 a.m.

to 12:30 p.m., before Jamie Young, Shorthand Reporter

in the state of New Jersey.
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P R O C E E D I N G S

MR. ROBERTS: Good morning, and 

welcome back to day three of session one of this round 

of the Department of Education's negotiated rulemaking. 

My name is Brady Roberts, part of the FMCS facilitation 

team. We are going to jump right back into discussion 

after roll call. So, let's dive right into that. If 

folks just want to turn on their camera to let folks who 

are viewing on the live stream see your face, and we can 

jump right back into discussion. So first off, 

representing accrediting agencies, we have our primary 

Ms. Jamienne Studley.

MS. STUDLEY: Good morning, and thank 

you for the opportunity to see the sunrise, something I 

rarely do.

MR. ROBERTS: Good morning, Jamie, and 

she's joined by her alternate, Dr. Laura Rasar King.

DR. KING: Good morning.

MR. ROBERTS: Morning. Representing 

consumer advocacy organizations, we have our primary Ms. 

Carolyn Fast.

MS. FAST: Good morning.

MR. ROBERTS: And her alternate Mr. 

Jaylon Herbin. We're still waiting for Jaylon to join. 

Representing civil rights organizations, we have Ms. 
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Amanda Martinez.

MS. MARTINEZ: Present here, thank 

you. Good morning.

MR. ROBERTS: Morning, Amanda. 

Representing financial aid administrators at 

postsecondary institutions, we have Samantha Veeder.

MS. VEEDER: Good morning, everyone.

MR. ROBERTS: Morning, Sam. And she's 

joined by her alternate, excuse me, I lost my place, Mr. 

David Peterson. Morning, David.

MR. PETERSON: Morning.

MR. ROBERTS: Representing four-year 

public institution. I was muted, sorry, we have Mr. 

Marvin Smith, our primary for four-year public 

institutions.

MR. SMITH: Good morning.

MR. ROBERTS: Morning. And Deborah 

Stanley his alternate.

MS. STANLEY: Morning.

MR. ROBERTS: Representing legal aid 

legal assistance organization organizations that 

represent students and/or borrowers, we have Johnson 

Tyler.

MR. TYLER: Good morning.

MR. ROBERTS: And his alternate,
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Jessica Ranucci.

MS. RANUCCI: Hi.

MR. ROBERTS: Morning. Representing 

minority serving institutions, we have our primary Dr. 

Beverly Hogan, who is not able to join us this morning, 

but we are joined by her alternate Ms. Ashley Schofield.

MS. SCHOFIELD: Good morning, 

everyone.

MR. ROBERTS: Representing private 

nonprofit institutions of higher education, we have 

Kelli Perry.

MS. PERRY: Morning.

MR. ROBERTS: And her primary, Mr. 

Emmanual Guillory. Still waiting for Emmanual to join 

us. Representing proprietary institutions of higher 

education, we have Bradley Adams.

MR. ADAMS: Good morning.

MR. ROBERTS: Morning, Brad. And his 

alternate Michael Lanouette.

DR. LANOUETTE: Good morning.

MR. ROBERTS: Morning. Representing 

state attorneys general, we have Adam Welle.

MR. WELLE: Present, good morning.

MR. ROBERTS: Morning, Adam. And his 

alternate Yael Shavit.
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MS. SHAVIT: Hi, good morning.

MR. ROBERTS: Morning. Representing 

state higher education executive officers authorizing 

agencies and/or state regulators of higher education 

and/or loan servicers, we have Debbie Cochrane.

MS. COCHRANE: Morning.

MR. ROBERTS: Morning, Debbie. And her 

alternate, Mr. David Socolow.

MR. SOCOLOW: Good morning.

MR. ROBERTS: Good morning. 

Representing students and student loan borrowers, we 

have Ernest Ezeugo.

MR. EZEUGO: Morning.

MR. ROBERTS: And his alternate,

Carney King.

MR. KING: Good morning.

MR. ROBERTS: Good morning. 

Representing two-year public institutions of higher 

education, we have Dr. Anne Kress.

DR. KRESS: Hello. Good morning.

MR. ROBERTS: Good morning. And her 

alternate, William Durden.

MR. DURDEN: Good morning, nice to be 

here.

MR. ROBERTS: Rounding out our main 
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negotiators, we have represented U.S. military service 

members veterans or groups representing them, Travis 

Horr.

MR. HORR: Good morning.

MR. ROBERTS: And his alternate Barmak 

Nassirian.

MR. NASSIRIAN: Morning.

MR. ROBERTS: Good morning. 

Negotiating on behalf of the Department of Education, we 

have Mr. Greg Martin.

MR. MARTIN: Good morning.

MR. ROBERTS: Good morning. And he is 

joined by a number of folks with the Office of General 

Counsel, I believe we are joined today by Mr. Steve 

Finley.

MR. FINLEY: Yep, good morning.

MR. ROBERTS: Morning, Steve. We are 

also joined by two expert advisors. We have for 

compliance auditor, Mr. Dave McClintock.

MR. MCCLINTOCK: Good morning. Happy 

to be here again.

MR. ROBERTS: Morning, Dave. And our 

labor economist, Dr. Adam Looney. We're still waiting 

for Professor Looney to join us, but we will announce 

him when he does. Alright. Now, Greg, I believe we are 
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still on 668.171 subparagraph B. Just as a quick 

reminder, we do ask the folks, try to hold their 

comments to three minutes per comment and try to not 

repeat what has already been said. I have from our order 

from yesterday, Kelli and Barmak had raised their hands, 

so if you'd still like to make your points, Kelli and 

Barmak, the floor is yours with Kelli being first. And 

just as a reminder, we have Yael in on behalf of state 

AGs and Ashley here on behalf of minority serving 

institutions.

MS. JEFFRIES: And Brady, and maybe I 

missed this, I just wanted to make note that Jaylon has 

joined.

MR. ROBERTS: Okay great. Good 

morning, Jaylon. Brad, I see your hand. I think you're 

on mute right now, Brad.

MR. ADAMS: Yes, sir, I was just 

falling in line behind Kelli and Barmak, so they can go 

first.

MR. ROBERTS: Oh, gotcha, Okay. And 

just as another note, we do have Jessica on behalf of 

legal aid organizations, but Kelli, do you want to pick 

us up with where we left off yesterday?

MS. PERRY: Sure. I think are we we're 

talking about B right now. I think if we're on B, I will 
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pass until we get to C.

MR. ROBERTS: Okay, understood. 

Barmak, did you want to speak to B?

MR. NASSIRIAN: I did. I am 

struggling, and this may just be my lack of 

understanding. I'm struggling with romanette two, the 

withdrawal of owners’ equity, and the exception under

capital letter A that reads “or is the equivalent of 

wages in a sole proprietorship or partnership or a 

required dividend or return of capital.” And I have two 

issues with that. One of which is, I don't know, I mean, 

almost anything could be declared to be equivalent to 

wages. So, I don't know that creating an exception that 

large is advisable. But more importantly, I don't 

understand what a required dividend is, who would 

require the payment of dividends except the controlling 

board of directors or the controlling individuals?

MR. MARTIN: I, you know, don't feel 

comfortable answering that, right at this moment, I want 

to make certain that I get you a good response on that. 

I'll take that-- we'll take that back to our team. 

Steve, do you want to address that or should we?

MR. FINLEY: I think we'll get some 

internal clarification first.

MR. ROBERTS: Thank you, and Dave, I 
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see your hand as well. Brad, is it okay if I just jump 

to him as our advisor, great, okay. Yeah, Dave, go 

ahead.

MR. MCCLINTOCK: I would just provide 

my thoughts. Oftentimes, there could be required 

dividends for pass-through entities, so the entity 

itself does not pay taxes. It passes through to the 

owners, and there's operating agreements that require 

the dividends to be paid out to cover those taxes, and 

that's how it's often been addressed in these 

regulations, I believe, but I'm sure Greg and Steve will 

have further information.

MR. ROBERTS: Okay, thank you, Brad, 

go ahead.

MR. ADAMS: Yes, good morning. Can I 

go back to the previous page, it would be one romanette 

one A regarding debts and liabilities incurred from 

settlements. I may have missed us going through that 

yesterday. I would be on page 13 of the red line at the 

very bottom. We're good? So, conceptually, I do not have 

a problem with providing the Department with material 

settlements, but my read of this is there's no 

definition of materiality. So, I just want to confirm 

with the Department, the Department expects every 

immaterial lawsuit or settlement or anyone that has a 
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settlement debt to be reported to the Department with 

[inaudible] threshold, so every trip and fall, every 

mild settlement from an employee, any severance 

agreement, and then the Department is going to take 

those dollars and recalculate the composite score every 

single time at every single institution in all sectors?

I just feel as though that seems like a very large 

administrative burden, and especially through the 

larger, private and private nonprofit and public 

institutions that have these settlements all the time. I 

just want to confirm that the Department's expectation 

that if we had 100 dollars settlement, we have to report 

that within 10 days of incurring that payment is that 

how I read this?

MR. MARTIN: Right now, there is no

minimum associated with it. Are you suggesting that 

there be a threshold?

MR. ADAMS: I do, I think that's 

administrative [inaudible] yes, yes, sir. I think that's 

an administrative [inaudible] both on the school and on 

the Department to report every single settlement, 

regardless of materiality. I would make that as a 

recommendation.

MR. MARTIN: Any comments on that?

MR. ROBERTS: And I do see, Dave, I 
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see your hand is up, but your video’s off, so you're not 

in the queue right now, but feel free to turn your 

camera on and if you want to weigh in on that.

MR. ADAMS: I thought Kelli was 

raising her hand on the video. 

MR. MCCLINTOCK: That's, I turned, 

that, I just didn't lower my hand, sorry, Brady.

MR. ROBERTS: Okay. Apologies. Kelli 

was your point to Brad's?

MS. PERRY: Oh, sorry, and maybe I'm 

not reading this the right way, but I am reading this as 

you only need to report if one of these things is 

affecting your composite score. So, if you have, there's 

a doubt or likely that as a result of these things and 

your composite score is below at this point, it says 

one, then that's when you have a report. Not that you're 

reporting every debt and liability. Is that correct?

MR. ADAMS: I'm reading it as you have 

to recalculate to see if the composite score would be 

less than one. Not that you only have to do it if you 

are less than one.

MR. MARTIN: Let me get a 

clarification on that.

MR. ROBERTS: Okay, I just want to 

note that Professor Adam Looney has joined us, one of 
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our advisors, so with that Barmak, please.

MR. NASSIRIAN: I was going to comment 

on my previous point, which I will do, but let me also 

comment on Brad's observation. You know, the definition 

of materiality, whatever it may be before accountants 

under FASB is in fact what the Department articulates 

here. Things become material insofar as participation in 

title IV is concerned based on whether an institution 

can satisfy the composite score threshold under the 

Department's regulations. And I believe it was Carolyn 

who observed that that 1.5, by the way, is the right 

threshold, something that I do agree with. So, I, you 

know, if it needs some wordsmithing great, but the 

concept is to say that if any of these events result in 

crossing the minimum threshold, that becomes actionable. 

So that's my comment on Brad's point. With regard to the 

observation on pass throughs and required payments, that 

is the way organizations get looted. The Department 

doesn't have any control over entities beyond the LLC 

participating in the program. You can only regulate that 

LLCs conduct. You know, if there's taxes due, you know, 

reach into your own pockets and pay it. If the 

participating school is going to be out of compliance, I 

would strongly recommend that language on their capital 

letter A at the end be struck.
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MR. MARTIN: Okay. We'll note that 

recommendation.

MR. ROBERTS: Alright, Carolyn, I see 

your hand next.

MS. FAST: Thank you. I echo Barmak 

concern about that language and would like a little bit 

of clarification as to its meaning as well, but I would 

like to sort of return to the point that I was speaking 

yesterday, as I think it is relevant to this provision 

as well, that this provision would only apply to a 

proprietary institution with a score below 1.5 and would 

look only at whether the event created a recalculation 

where the school's composite score dropped below one. I 

think that it would be important to extend this 

provision to all proprietary schools, not just those 

who start off with a zone score, because this seems to 

create a situation where a school could be doing 

perfectly fine, but then have an incident that would 

result in a failing score, but would not be captured by 

this trigger, which seems like a really big hole in this 

in this protection. So, I would argue that that should 

not be limited to scores below 1.5 for proprietary 

schools. I also think in returning to my comment from 

yesterday that it's a problem that there is no 

consequence for any school that where the triggering 
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event puts them from good standing into the zone rather 

than to below one. So, I understand that this is aimed 

at requiring a letter of credit, but in order narrowly, 

there would be other protections that would come into 

place for schools in the zone, such as placement in a 

provisional certification. And it seems to me that these 

triggers should mirror the traditional, you know, that 

structure so that if there was a problem that caused a 

trigger caused a significant change so that a school 

went from being in passing status to zone status, that 

there should be consequences, or rather protections, in 

place for those schools. So, I think that there needs to 

be a little bit of a modification to these provisions 

that relate to calculation of scores.

MR. MARTIN: Okay, thank you.

MR. ADAMS: I'll just add to it since 

I'm next in the queue. Anyways, I believe and correct me 

if I'm wrong, Greg, this pronouncement is not just 

proprietary schools. So, Carolyn, are you asking for a 

change to the language to only apply it to proprietary 

schools? This impacts everybody.

MS. FAST: I was looking at the 

language of perhaps I may have been looking at a 

different provision than you were looking at, but I was 

looking at the provision that has that is romanette two 
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A.

MR. ADAMS: Got it, got it, I'm sorry, 

I'm in the section before. My fault.

MS. FAST: Yeah, no, I know it's 

confusing because we're talking about two sections, 

sorry.

MR. ADAMS: On section, so on 

romanette one C above, I would like to just make a 

clarification here on the Borrower Defense. So, my 

understanding number one, is I liked that have a 

measurable concrete tool here to use at the 5 percent 

threshold, so thank you for giving us something to know 

what the number is, but my understanding that Borrower 

Defense is a two-step process. Step one is that the 

staffer decides whether or not to discharge the loan. 

And that does not mean the school is liable at that 

point. The second step is a hearing official at the 

Department that hears the case to determine whether or 

not the school is liable. So, the trigger in C here be 

based on the determination of the liability being 

incurred and not the initial step one with a staffer 

decides whether or not to discharge the loan.

MR. MARTIN: It's my understanding 

that it's when the, as it says here, once the claim has 

been adjudicated in favor of the barrower where such 
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that the school would now owe it. But I will clarify, I 

will clarify that.

MR. ROBERTS: Steve, I see your hand.

MR. FINLEY: Yeah, I'll clarify that. 

This issue is about determining at the stage at which 

it's appropriate to get additional financial protections 

from the school because of a of an identified increased 

risk. And so, you're right, this is at the stage where 

the loans are discharged but prior to the establishment 

of that liability against the institution. It's a tenant 

of liability at that point, that could be that the 

Department could seek to establish against the 

institution.

MR. ADAMS: My request would be way to 

apply that because we're talking about financial 

responsibility into the liabilities incurred. It was 

very similar to the comment I made yesterday on B. Just 

because a lawsuit has been initiated does not mean 

there's going to be a liability that is actually 

incurred to the school to impact the financial 

responsibility. So again, this is for all schools, too,

this is not any one sector. So, I just want to make sure 

that just because a student has a loan discharged does 

not require that the school is financially liable to 

impact their financial responsibility. That would be my 
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request to make that change.

MR. MARTIN: We'll take back that 

request. I would point out that that it's equal to or 

greater than 5 percent of the total title IV HEA program 

funds. And they think you're going back to what Steve 

said we're looking at situations here that, you know, 

put the Department at risk for loss. So, and this is 

always about, you know, identifying at what point that 

occurs and taking some action in time to actually for, 

stall that or to get the financial protection necessary, 

if that looks like that's going to occur. And we 

wouldn't be talking about one Borrower Defense claim 

here, you know, 5 percent, I think is a significant 

volume. But we'll definitely take back the comment.

MR. ROBERTS: Okay, Jamie, I see your 

hand, but I just briefly want to welcome Emmanual to our 

day today. Morning, Emmanual. But Jamie, please go 

ahead.

MS. STUDLEY: I think I'm taking us 

back briefly to capital A, the debts liabilities issue. 

I think there may be a drafting improvement because it's 

hard to read. I know this is regulatory language, but 

whether I believe it sums up that you have to know 

whether it will change your score to know whether you 

need to report those items. And some of us may not know 
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whether the school can calculate its composite score 

itself or whether the Secretary's determination might be 

different from what the school’s is. What if I had a 1.5 

or 6 score that I recalculate my liabilities to know 

that it would fall below and therefore I needed to tell 

you. Or do I need to tell you so that the Department can 

recalculate it and know if it's fallen below 1.5? I just 

think it's not something we can rewrite as a group, but 

are you asking people to make that judgment and know if 

they need to tell you or to tell you about them so the 

Department can determine if that change was made, and 

that could relate to whether you're reporting a lot of 

separate little ones, whether you'll know what the 

difference is. I think the spirit is that you do need to 

know them, they could have an effect. I agree with the 

1.5, but I plus one to Brad's point about not having 

because I thought it was report each one of these and 

the Secretary will tell you if it's caused a change 

seemed burdensome across all kinds of institutions, but 

that may not be the mechanism that's created here. So, I 

think the Department should just walk through what it 

wants in what form and in what and whether the 

institution can know that it has that obligation because 

the change has happened that would solve the 

materiality, the $100 item any school would be able to 
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say no, no go or whoa we've had many hundreds and indeed 

we have shifted.

MR. MARTIN: Yeah, I agree that the 

language is written is not clear on that in that regard. 

So, we are we are seeking clarification on that. So as 

soon as I as soon as I get that from our staff I'll 

convey that to you. But I agree that as written, it's 

not as clear as it might be. So, it does require 

clarification.

MR. ROBERTS: Steve, I see your as 

well.

MR. FINLEY: I just want to point out, 

we're certainly open to the comments. What gets reported 

is actually addressed in Section (f)(1). So, perhaps the 

comment should be addressed to that Section because that 

I think this calculation is referring to the 

Department's calculation based on what gets reported.

MR. ROBERTS: Great, Jessica, I see

your hand next.

MS. RANUCCI: Thanks, I'd like to make 

two points. First, as to previous when Carolyn and 

Barmak and others were speaking about the withdrawal of 

equity. I just want to underscore how important this is 

to students and the school situation that I described 

yesterday. The school wasn't paying its rent, wasn't 
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paying its teachers, it wasn't paying its health 

insurance premiums for its teachers, it was taking money 

from students, and guess who it was paying, its 

principal, right? The students paid out of pocket. They 

never saw that money again. The chapter seven bankruptcy 

trustee said it's gone, we can't touch it. And, so, I 

think this is really an important protection as schools 

lie down and I just want to emphasize that. And I want 

to briefly respond to Brad on B and C under romanette 

one. I think that the settlements in the Borrower 

Defense claims are material to financial responsibility 

in two respects. One, is the direct causation that you 

are identifying, which is that it could require the 

school to incur a liability that could itself affect the 

school's financial status, but there's also an indirect 

way that there's a causal link there. I think that a 

school that has a tremendous amount of Borrower Defense 

claims is that financial risk for a number of indirect 

reasons as a school against whom the Department has made 

findings that there is misrepresentation or fraud. 

That's a school that's likely to have, for example, 

state law enforcement actions that might result in a 

judgment at the school that might have bad press so that 

the enrollment drops at the school that might have 

individual private lawsuits that might result in 
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judgment. So, I think it's very reasonable for the 

Department to have financial triggers that come at an 

earlier stage of that process because we're not just 

talking about the direct impact on the bottom line, 

we're also talking about indirect impacts on the bottom 

line. And I think the same thing would be true for 

subsection B regarding federal and state settlements. 

And I think to a certain extent, A regarding other 

judgment.

MR. ADAMS: May I respond to the 

question? You know, there is a standard in accounting 

language that goes in addition to materiality. The 

likeliness to incur. There's no likeliness to incur here 

language, whether or not you'd know is likely that you 

would have a debt that might be incurred that threshold, 

an accounting is typically over a 50 percent likelihood. 

And there's just no definition here in either scenario 

of how likely is it, and how material is it to be a 

mandatory trigger? A discretionary trigger, you know, 

maybe it makes sense to move down below. But we’re 

talking about a mandatory trigger on something that may 

not be likely and may not be material.

MR. ROBERTS: Okay, thank you. Yael, 

please.

MS. SHAVIT: I agree with the comments 
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that Jessica just made, and I want to frame them a 

little bit differently. I think, Brad, you may be 

inaccurately characterizing these triggers, or at least 

speaking about them in language that suggests that 

they're punitive rather than protective. The goal here 

isn't to punish schools for any type of conduct covered 

in these provisions. It's to address what are real risks 

of financial instability. And I think that the 

triggering events have been written in a way that I 

think that captures that. But to do that well, the 

Department really can't wait until these types of 

liabilities are incurred. They need to be able to 

identify the risks, or the liabilities are incurred, 

ignoring these types of threats. In the case of an 

enforcement action by a federal or state agency, for 

example, or after successful Borrower Defense claims 

have already been adjudicated at a significant 

percentage of funding would result in basically an 

entirely deficient assessment of an institution's 

ability to meet its financial obligations. And it would, 

I would note, also prevent the Department from securing 

financial protection against losses until the point 

where the school would be considerably less likely to 

obtain [phonetic] the funds that it would need to 

provide that option.
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MR. ROBERTS: Greg, I see your hand 

up, do you want to respond?

MR. MARTIN: Yeah, I'll take that that 

comment. I wanted to respond to Jamie's previous 

question for clarification and then following up on what 

Steve said about reporting requirements. So, if you look 

in the reporting requirements under F, it does say in 

accordance with we’re not there yet, but in accordance 

with the procedures established by the Secretary, an

institution must notify the secretary of the following 

events or actions. And under romanette one, it says for 

liability incurred under C one, romanette one A of this 

section, which is what we were just discussing "no later 

than 10 days after the final written notification of the 

judge to the institution of the judgment or final 

determination.” So, it appears the way it's written, it 

would require notification, even though the actual 

triggering event is the recalculated composite score of 

less than 1.0. That the triggering event is the actual 

notification that the event would trigger, but the event 

that would require the school to notify the Department 

is the actual notification to the institution of final 

judgment or determination. So then there's nothing there 

now that would put a de minimis amount and so that 

appears to be the way it's written currently, but I know 
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that there was some objection to that, so we'll take 

that back and discuss it.

MR. ROBERTS: Alright, thank you. 

Amanda, I see your hand next, but I just want to welcome 

Johnson to the table on behalf of legal aid. So, Amanda, 

please go ahead. You're muted right now, Amanda, sorry.

MS. MARTINEZ: Sorry about that. 

Clearly not enough days or a time with technology, still 

not learning can make mishaps. But this is more so a 

question and query as I’m reading this Section. I think 

my question kind of comes from this idea of if the 

policy goal is to ensure the financial stability of 

institutions, and you're trying to insert triggers-- for 

me, I'm hoping that these triggers come at the right 

opportune time to actually catch the institutions, you 

know, like whether or not they're financially healthy or 

potentially ending up at a point that's going to end up 

in a downturn for students. So, I'm hoping that these 

the changes actually come at that right time. And I 

think figuring out that right time is probably hard to 

do. But I think these are creative ways in which you're 

trying to ensure those triggers are put in place at that 

right time. So, I'm wondering with this question of 

timeline involved so that these regulations are really 

targeting at the right time for you all to then conduct 
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action against the institution in part C, given that, 

you know, by the time Secretary has adjudicated claims, 

it seems as if it takes a long time, a lot of the burden 

is on the student to produce the evidence, and by the 

time it's actually happened that process has ended up in 

the Department's hand students have had years of, you 

know, trying to issue their claim that burden. And I'm 

just wondering do you think this trigger is really 

helpful at that point that says adjudicated claims in 

favor of borrowers, it's really taken a long time from 

what we know in the past and what we have cases 

currently to get. So, I'm wondering how useful you think 

that part of the timeline and Borrower Defense claims is 

the right time period, I just want to know what your 

internal thinking was there as a form of a triggering, 

you know, triggering tool. And then second, in that 

part, C and you state is equal to you want to make sure 

that the amount of loans discharged by that specific 

date is equal or greater than 5 percent. I'm wondering 

how you came up with the 5 percent and why you thought 

that that floor was the right amount to actually make 

use of this trigger? Based on past claims, you know, I 

just want to make sure there's use in this in this 

regulation to protect students and to make your tools 

actually work out a trigger.
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MR. MARTIN: So, I think so. Just your 

question about, you know, at what point with respect to 

lawsuits where it becomes a trigger. I think we've tried 

in constructing these regulations, these proposed rules 

to strike a balance between what's fair to institutions 

and what the Department really reasonably needs to know 

or reasonably needs to include in determining whether or 

not to seek a surety from that school. And you'll note 

that with, for instance, the Qui Tam lawsuits or those 

brought by the by the state, we have determined that 

those are usually significant enough proportions to not 

wait until the until there's been a judgment or a 

settlement. We do understand that other lawsuits there 

are, you know, there are entities sued all the time that 

there could be instances where many times the students

aren't successful. So, I mean, this was somewhat of a 

balancing act. And that's where we came down on it. 

Regarding the 5 percent, I think I might have Steve 

comment on that. I think that’s a sort of a valid 

percentage that we use in some instances. I know we use 

the 5 percent for determining when institutions have 

passed the threshold for not making timely returns of 

title IV funds for and we've used 5 percent pretty 

frequently, but I don't I don't know that I know exactly 

why 5 percent was chosen in this in this circumstance, 
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Committee Meetings - 01/20/22

except that it's we do have precedent for using for 

using 5 percent. But Steve can you address that?

MR. ROBERTS: You're muted right now, 

Steve.

MR. FINLEY: Under the Financial 

Responsibility Regulations, establishing liability and 

administrative liability greater than equalto 5 percent 

of an institution's annual funding triggers a past 

performance failure, the financial responsibility 

standards. So that's also the other reason that that's 

tied here is the financial risk of failing those 

standards triggers the need for surety.

MR. ROBERTS: Okay, Johnson, go ahead.

MR. TYLER: Hi, good morning. I just 

want to expand a little on what Amanda said. My concern 

is, you know, doing a Borrower Defense application is a 

huge amount of work and most students don't even know 

about it until the school is closed. So, if you really 

want see to have any useful application as a trigger for 

action by the Department of Education, I think you have 

to think of a different number percentage. I think 5 

percent is way too high, honestly. I mean, just think 

about if you have a very large for-profit, there's one 

that has 100,000 students in it, you would need to 

adjudicate 5,000 claims before that would happen. That's 
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Committee Meetings - 01/20/22

a lot of resources by the Department of Education, and 

that puts the burden on the students to even know about 

this and to be able to navigate all the barriers of 

filing a Borrower Defense claim. It's not an easy thing 

to do. You've got to go online. You've got to fill out a 

lot of stuff. There are a lot of questions that are 

asked. I just don't see this ever achieving the laudable 

goal that the Department of Education wants here, which 

is to use Borrower Defense to inform them. I mean, I 

think more likely, what will happen if it stays like 

this is Borrower Defense will just be informing the 

Department of ED or the States as to when to sue. And 

this will be sort of an actor always looking in the 

rearview mirror rather than something that's being used 

prospectively. And you might want to consider, honestly, 

just the filing of so many claims. I mean, I don't know 

how you would adjudicate that many involving a large 

institution in a timely manner. You have to adjudicate 

all of them, over 300,000 claims out there right now 

that still need to be adjudicated, so, or maybe it's 250 

I'm not sure what the number is, but there are a lot of 

claims that are standing there that need to be 

adjudicated.

MR. ROBERTS: Oh, sorry, go ahead, 

Greg. Sorry.
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Committee Meetings - 01/20/22

MR. MARTIN: I just want to make sure 

that what you're suggesting is that that it be based on 

just a number of filed file claims or a percentage based 

on filed claims?

MR. TYLER: It could be that, Greg, or 

it also could be, I mean, you could look and see what 

you think is a trigger that really gets everyone's 

attention and bring it down below that within the 

Department of Education. I mean, I don't think,

honestly, I’m not sure this would protect any students 

whose schools have closed recently. You know, I 

understand there’s a history of Borrower Defense being 

litigated and what the rule is and how to apply the rule 

in different administrations and so forth. But I just 

don't think you're ever going to meet that threshold of 

5 percent until, you know, every news article in the 

country is slamming the school. I think it's a very high

rate. It's an easy bar that for schools for not actually 

have to deal with. It's just there's too much burden 

here. So, either way, but I think if you look at the 5 

percent number, you would probably see that the 

Corinthians and all that would never have, I mean, 

Borrower Defense didn't exist back then. I'm not really 

sure that this would be a useful benchmark.

MR. ROBERTS: Steve, do you have 
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Committee Meetings - 01/20/22

anything to add?

MR. FINLEY: And to just to add to 

what Greg said, these are mandatory triggers, right? So,

if this threshold is crossed, the institutional would be 

required to post a letter of credit. There's also a 

discretionary trigger that will be covered when we go 

further through the document that says that when the 

secretary has identified a common group of pending loan 

discharge claims, the Department could require the 

institution to post surety at that point, as well. We're 

certainly open to ideas on not just a comment saying the 

threshold should be different, but coming up with a 

suggestion of what that threshold should be and why 

would also help our discussions and deliberations on 

these issues.

MR. TYLER: I'll think about whether 

we can come up with some other threshold that might make 

sense. I take that as an invitation. Thank you. And I 

[interposing] going to come back to the scene, thank 

you.

MR. ROBERTS: Gotcha. Thank you, 

Johnson. Kelli, please.

MS. PERRY: Thank you. First, I would 

like to say that the importance of financial 

responsibility, I think, is very important from a number 
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Committee Meetings - 01/20/22

of reasons. One, students should never be in a situation 

where their school closes. And that's what we're talking 

about here. Measures of how you determine whether or not 

a school is going to close. And I think, what we think, 

what we talked about yesterday a little bit was that the 

calculation has a score in these triggers are not 

necessarily doing the job that they need to do in order 

to determine whether those schools are going to close. 

And, so, as I think about these triggers, whether they’d 

be mandatory or discretionary, the question that I would 

have is, you know, is there evidence that the Department 

can share that shows that these are the right triggers, 

whether they be mandatory or discretionary, and maybe 

they should just be triggered in general? Maybe there 

shouldn’t be two different classes of them that would 

show that the schools that have closed recently or in 

the past, but these were issues that those schools had. 

You know, this is important for students, but it’s also 

important for institutions, as well, from the 

perspective of they may be financially responsible in 

the definition of they're not going to close and they 

could potentially be getting caught up in some of these 

triggers, whether it's mandatory or not, that could be 

very costly for institutions. You know, in reading 

through this, there's, you know, and we'll get to it 
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Committee Meetings - 01/20/22

eventually. I didn't see necessarily any changes, but in 

the section, as it relates to reporting, there's this 

whole concept of a preliminary determination by the 

Department, where a school has the ability to provide 

information as it relates to any of these triggers that 

shows that they are financially responsible before that 

final determination is made. And I hope that that's 

happening in in the cases as it relates to these 

triggers. Because it's hard, I think it's hard, at least 

for me, it's hard for me to provide any real substantive 

examples or rationale for some of these, because I don't 

know if this is the reason that schools are closing. So,

I think I guess in summary, I guess my question is, is 

there any evidence that shows that these are the 

triggers that would show that the schools have closed or 

are closing?

MR. MARTIN: I don't I don't know what 

data, you know, whether we have data on this to publish 

as, you know, that could actually tie school closures to 

one of these events. These are events that that we are 

aware of through our compliance activities that have 

caused instability at institutions. And I think, you 

know, we need to bear in mind what we're trying to do 

here is to try to find ways of identifying where schools 

may be financially unstable, you know, in time to get 
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Committee Meetings - 01/20/22

some type of surety from them, you know, before a school 

would go to go under or close. I don't know that any one 

of these is, you know, certainly we see, for example, 

withdrawal of owner equity being a problem at schools 

where they are financially unstable, where that has 

caused, where they've taken money out of the school. But 

if you're asking me, do we have actual data where 

there's been a study done on that, I don't think we have 

that. But I would throw it out to the negotiators. If 

you have suggestions for other, you know, other types of 

triggers that you feel may help the Department identify 

where a school is stressed or in danger of closing, we 

would be open to hearing what those are. These are the

ones that have identified that we think would. Again, I 

don't think anything is perfect. I don't think there's 

any way we can find a mechanism to, in every case, 

identify that the school might be on the verge of 

closing or that if a school does close was the actual 

reason was, it could have been precipitating events. So,

I'm not sure that we can we can do that. What we're 

trying to do is come up with the best identifier as 

possible. We think we've done a pretty good job here. 

But again, we are open to hearing from the committee any 

other solutions or ideas you might have.

MS. PERRY: Thank you, Greg. And I 
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Committee Meetings - 01/20/22

just, you know, just to repeat what I said yesterday, I 

do think that based on that response, and the fact that 

this is not working all the time, and I’m not saying 

that it’s ever going to work all the time, because it 

won't. But the importance of really looking at the 

composite score in these triggers as it relates to 

schools that have closed in the past and why that's 

happening. And, so, I guess, you know, if I were to be 

making a recommendation, I think I would I would say 

that the triggers are important. I don't know if the 

distinction between a mandatory trigger and a 

discretionary trigger is necessary, so I would possibly 

recommend combining them just into triggers with the 

thought that they are preliminary determinations, and 

that schools do have the ability to provide data that 

that shows that they are financially responsible. 

Because not all schools are bad actors, and some of them 

do get caught up in this and end up having to pay 

substantial amounts of money for letters of credit that 

could be used elsewhere. I mean, I realize that there 

are bad actors, and I get that, and I'm hopeful that 

those will be identified, but I'm just looking at the 

other side of it where, you know, as a mandatory 

trigger, if it's a situation where, you know, definitely 

need clarification on A when it talks about debt and 
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Committee Meetings - 01/20/22

liability. Because if it is, in fact, that any debt or 

liability that you incur as a result of that needs to be 

reported to the Department, that is extremely burdensome 

and not something that institutions are going to be able 

to do. I can understand it if that is material enough to 

affect your score that you would report it to the 

Department, but every single one of those colleges and 

universities get those every day. And, just, there's no 

way that they would be able to provide that information 

to the Department on a regular basis.

MR. MARTIN: Thank you.

MR. ROBERTS: Thank you. I see Brad's 

hand next, go ahead.

MR. ADAMS: Thank you, and I agree 

with Kelli's point 100 percent. And going back to what 

Mr. Finley just mentioned, that we're talking about 

mandatory triggers that allows the Department to require 

a letter of credit. So, the way I read this is just by 

filing a lawsuit that may not result in a material, or 

likely result of a material finding, would allow the 

Department to require an institution to post a letter of 

credit. Letter credits are expensive, and frankly, they 

put small, nonprofit schools out of business relatively 

quickly. So again, posting a letter of credit is not 

something that every institution can just immediately 
36

Committee Meetings - 01/20/22

do, especially when it's a 10 percent threshold of title 

IV revenues. So, I just want to be clear that having no 

definition in here of what is material to an institution 

and then having a letter of credit having to be posted

is a big deal.

MR. ROBERTS: Thank you. I see 

Barmak's hand next.

MR. NASSIRIAN: I want to just make 

some general comments in response to Brad and Kelli's 

points. There's a great line in the Sun Also Rises, 

where one character asks the other one, how did you go 

bankrupt? And the answer is two ways: gradually and then 

suddenly. And if I were to characterize what the 

Department has done historically, and is attempting to 

do here, the composite index, the composite score is the 

Department's attempt at detecting going bankrupt 

gradually. It has done a terrible job of it, and I have 

enormous empathy for Kelli and so many nonprofit 

institutions that pose absolutely no risk, and just by 

virtue of the fixed assets they have to their students 

or to the taxpayers of this country that are then 

burdened by an artificial and rather problematic 

calculation that forces them to post letters of credit 

and makes life expensive for them. The triggers we're 

talking about here, these are frankly belated indices of 
37

Committee Meetings - 01/20/22

going bankrupt suddenly. The hill to die on for the 

nonprofits is the substance of the calculations that 

generate the composite score. All of the practices that 

are that are now proposed as triggers, all the events 

that are being proposed as triggers here, are almost 

exclusively concentrated in the most predatory segments 

of the for-profit sector. And candidly, I find them, I 

mean, posting a 10 percent letter of credit. Yeah, it's 

expensive, but guess what, 90 cents on the dollar will 

have to be covered by the taxpayers when the institution 

ends up collapsing. So, I wouldn't worry too much Kelli 

about this stuff. I do think you have legitimate concern 

with regard to the to the overarching practices that 

determine financial responsibility. But these are the, I 

mean, again, let's not make the theoretical the paradigm

here. In practice, what we've seen is that these are 

practices that prevail in the worst segment of the forprofit sector.

MR. ROBERTS: Thank you. I'm not 

seeing any other hands and recognizing we did jump 

around a little bit. Greg, do you want to do you want to 

tee up for just a quick check on the reg text as it 

exists now so we can move on?

MR. MARTIN: Well, I know we have a 

couple of outstanding questions. Hopefully, some of 
38

Committee Meetings - 01/20/22

them, at least I tried to address the philosophy behind 

what we were doing here. And again, I want to throw out 

the invitation to if you have, because we've heard a lot 

of discussion here about the extent to which these 

triggers identify at risk institutions, and obviously 

the Department doesn't have a hammerlock on knowledge of 

all of those, so if you have ideas, we like to hear 

them. What I'd like to do is walk through the remainder 

of the mandatory triggers. And then when we're done with 

that, we can have a discussion of the remainder of those 

triggers just so we can get through this subparagraph. 

If that's alright?

MR. ROBERTS: So, Aaron, would you 

like to bring up that document: issue paper number four?

MR. MARTIN: So, we're going to start 

with teach out plans.

MR. ROBERTS: And that is romanette 

three.

MR. MARTIN: Romanette three. There we 

go. So, I'll walk through these through the end of the 

of the mandatory triggers and then we can entertain 

comments and questions at that point. So again, 

continuing with the mandatory triggers, the institution 

is required to submit a teach out plan or agreement for

reason described in 602.24(c)(1) that covers the closing 
39

Committee Meetings - 01/20/22

of the institution or its branches or additional 

locations for state actions. If the institution is cited 

by a state licensing or authorizing agency for failing 

to meet state agency requirements and the agency 

provides notification that it will withdraw or terminate 

the institution's licensure or authorization if the 

institution does not take any steps to come into 

compliance. And then we moved on to romanette five for 

publicly traded institutions. Publicly traded 

institutions are subject to one or more of the following 

events, and we made a few changes there with respect to 

these are technical changes, and you can see here that 

we put in SEC actions. Actions that the Security and 

Exchange Commission might take. I made a couple of 

changes to make sure the terminology is correct, you can 

see there under exchange actions, the National 

Securities Exchange on which the institution's 

securities are listed notifies the institution it is not 

in compliance with the exchange exchange's listed 

requirements or its securities are delisted. So just 

some clarification there. And also SEC reports the 

institution failed to require a file that required an 

annual or quarterly report with the SEC within the time 

period prescribed for that report or by any extended due 

date under the applicable regulation cited there. Under 
40

Committee Meetings - 01/20/22

romanette six, on nonfederal education assistance funds. 

The most recently completed fiscal year the proprietary 

institution did not receive at least 10 percent of its 

revenue from sources other than federal educational 

assistance, as provided in 668.28 and those are the 

90/10 regulations. The surety provided under this 

requirement will remain in place until the institution 

passes the 90/10 revenue test. And this was, you might 

recall, this was once a discretionary trigger that would 

be moved onto the into the mandatory triggers. We've 

also moved the cohort default rate to mandatory trigger. 

And that remains what it was just moved to the main 

triggers part. And we have a new mandatory trigger 

related to contributions and distributions. This mirrors 

a particular kind of financial manipulation we have seen 

from proprietary institutions. In past cases, owners 

have made contributions to an institution near the end 

of one fiscal year and then withdrawn those 

contributions at the beginning of the next fiscal year 

in an effort to inflate the school's finances before the 

fiscal year ends. This trigger would apply if the 

removal of that contribution would mean the school would 

have a composite score of less than 1.0. So, you can see 

that reflected there, if the institution made a 

contribution in the last quarter of the fiscal year and 
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Committee Meetings - 01/20/22

then made a distribution during the first two quarters 

of the next year. So, put in the money and then took it 

out. The removal of such contribution up to the 

distribution results in a recalculated composite score 

of less than 1.0. And finally, here, after the end of 

the fiscal year in which the Secretary has most recently 

calculated the institution's composite score when the 

institution is subject to two or more discretionary 

triggering events as defined in paragraph D, those 

events become mandatory triggers. And this is a 

technical edit to clarify the timing of the existing 

regulatory requirement, which says that the institution 

is subject to two discretionary triggers, becomes 

subject to them automatically as a mandatory event. So 

that takes us through the end of mandatory triggers. 

I'll entertain any comments or questions now before we 

move on to paragraph D, discretionary triggering events.

MR. ROBERTS: Yeah, Greg, I see some 

hands already, and I just want to note Brad and Jamie's 

comments that as much as negotiators can, just because 

this is a lot of information, if folks can as best to 

their ability to withhold comments on later romanettes, 

so that we can progress through in roughly order as they 

appear in the document. So, with that, if folks want to 

maybe start with romanettes three and four, teach out 
42

Committee Meetings - 01/20/22

plans and state actions, I am happy to open it up. 

Aaron, would you bring down the document? Thank you. So,

with that, Jamie, please.

MS. STUDLEY: Yes. Simple suggestion 

on concern about teach out plans as a mandatory trigger. 

If an institution by choice wisely decides to close a 

branch or additional location, for example, it has to do 

a teach out plan to show how students will be served 

either by other programs of theirs or by shifting to 

other institutions. It can be completely innocent. It 

can be a very wise thing done by a thriving institution.

To make that a mandatory trigger, I think is overbroad 

and could have the kinds of effect Barmak was just 

talking about that are not related to financial health. 

It's possible that the solution is to put it into 

discretionary triggers, or to distinguish teach outs 

that are related to closing obviously belongs there. But 

closing of a branch or additional location can be a 

prudent thing done by a healthy institution. It should 

not trigger to not be a mandatory trigger.

MR. MARTIN: I do want to point out 

that so where we say that the institution is required to 

submit a teach out plan or agreement for its for reason 

listed in 34 CFR 602.24(c)(1), that covers the closing 

of any of the branches or additional locations. And just 
43

Committee Meetings - 01/20/22

to clarify-- I don't know what this addresses your 

entire comment or not, Jamie, but those conditions are 

for a private institution. The institution's auditor 

expresses doubt about the school's ability to operate as 

a going concern or indicates that an adverse opinion or 

finding of material weakness exists, or the accreditor

places the institution on probation or equivalent 

status, and or the Secretary places the institution on 

provision of program participation agreement and 

requires submission of a teach out as a condition of 

that change of status. So, it is limited to those.

MS. STUDLEY: So I should have started 

my comment by asking what 602.24(c)(1) was?

MR. MARTIN: Yeah, and I'll take the 

blame. Maybe I should have clarified that when I was 

going through it, but I but I didn't, so I'll take the 

blame for that.

MS. STUDLEY: If those are the 

conditions, then that's perfectly reasonable. I thought 

when you summarize that you were saying that it covered 

[audio]. That responds to my concern.

MR. MARTIN: Thank you.

MR. ROBERTS: Thank you. Jessica, 

please.

MS. RANUCCI: Thanks. This might un-
44

Committee Meetings - 01/20/22

respond to your concern, Jamie, but I think that the 

Department should consider some of the triggers that are 

in C two. I think these might have been a part of the 

last neg reg that I was on, I have a vague memory of 

them, but I think that some of the triggers in C two are 

things that would make sense. Like the agency acts to 

withdraw [inaudible] suspend the accreditation of the 

institution. So, I just I don't think it's necessarily 

worth us talking through each one of those, but I think 

the Department should look at C two and see if any of 

those should be considered in addition to C one.

MR. MARTIN: We will note that 

consideration in C two, thank you.

MR. ADAMS: Hello, everyone. Romanette 

four, again, this is similar to my comment on the 

previous federal lawsuit, comment is once again if 

there's an issue between a school and a state, many 

times the state works closely with the institutions on 

modern and moderate compliance challenges, and so there 

be no materiality threshold here or likely to occur 

threshold, this proposal gives state regulators federal 

power. An aggressive state regulator that wants to put 

an institution out of business that understands this 

provision would basically just be able to issue a 

compliance finding and, all of a sudden, there's a 
45

Committee Meetings - 01/20/22

mandatory trigger that require a letter of credit. So 

again, just because the state has issued some sort of 

notice should not require a potential letter of credit 

for being posted. It needs to be likely and needs to be 

[audio]. Thank you.

MR. MARTIN: I think the Department's, 

you know, when we look at this, our position is, in 

reading this, the institutions have been cited by the 

state licensing or authorizing agency for failing to 

meet state agency requirements and that agency provides 

notice it will withdraw or terminate the institution's 

licensure. I'm not saying I don't appreciate your 

comment on where you're coming from, I think that when 

you have a situation like this where notice has been 

provided that a state intends to withdraw or terminate 

the institution's licensure or authorization, that means 

at that point that that school is automatically no 

longer eligible to participate. So, I think that we have 

a huge interest in in looking at when something like 

this happens, this is a very serious, this isn’t just a 

run of the mill action by the state, this is a pretty 

serious event. So, it's something that, though I take 

your point that it might not ultimately result in that, 

there is a clear indication that that's a very good 

possibility. So, I think that we need to be proactive 
46

Committee Meetings - 01/20/22

here and in a position where we’re’ securing the 

interests of the federal government and also the 

interests of students attending that institution.

MR. ADAMS: To me, I’ll respond. So,

you know, the state attorney general is outside of 

higher education. So, things have gotten pretty 

political on other issues. And there's all kinds of 

lawsuits that have been filed with the federal 

government on various things. So, the concern here is if 

you have one state AG that gets aggressive to terminate 

an institution's license for who knows what, they could 

then be required to post a letter credit. So, again, it 

is, giving states a lot of power here under this the way 

this is written.

MR. MARTIN: I would just add, you 

know, I'm not, certainly every viewpoint here is 

welcome, I think that we're not we're not making any 

judgment here as to the motivations of an attorneys 

general. We're simply saying that if this occurs, that 

the occurrence of it, irrespective of motivation or 

anything else, is an indication that that school may 

have its licensure revoked. And that that's going to be 

a loss of eligibility that we need that we need to be 

aware of and be able to take action. So, I just want to 

clarify that, but thank you for your comment, we've 
47

Committee Meetings - 01/20/22

noted it.

MR. ROBERTS: Thank you. And thank 

you, Emmanual, for clarifying what the reference to 

romanette three was in chat but Carolyn, please go 

ahead.

MS. FAST: Thank you. First, I wanted 

to echo Greg's point that the determination by the state 

agency is going to affect whether a school can continue 

in title IV regardless. So, this is a really, I think, a 

critical kind of trigger because pretty much the school 

is going to is risking losing state authorization, 

that's an indication of an enormous risk for that the 

school is going to be become ineligible for title IV. I 

also wanted to make one further point, which is that all 

of these triggers are important and significant steps 

forward in improving the overall system of trying to 

detect financial problems before they happen. I think 

they're all useful, but in the general comment, they are 

all only as useful as protections that are going to be 

put in place once the trigger happens, which I sort of 

mentioned before. Those triggers, as I understand it, 

are set out in a different regulation, and they provide 

for the Department to require a letter of credit when 

these triggers have been triggered to move the minimum 

of 10 percent of the school's title IV for the year 
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Committee Meetings - 01/20/22

before. If I'm understanding this correctly, please 

correct me if that's not right, and my concern is that 

that is not always enough and does not look at things 

like Borrower Defense potential liabilities, which can 

span more than one year. They could span a longer period 

of time, meaning that the taxpayer the potential 

liability and cost is of the school closing [inaudible] 

is quite a bit larger than just looking at the, you 

know, a small percentage of the title IV for the year 

before. So, what I'm suggesting is that it would make 

sense to build into the requirements for a letter of 

credit that that the Department based the letter of 

credit decision not only on one year's worth of title IV 

for the previous year, but also what are the Borrower 

Defense liabilities? What are closed school discharge 

liabilities looking like? Are there other outstanding 

liabilities? Because this 10 percent of one year's title 

IV might not do it, especially when you're talking about 

a trigger of like 5 percent of Borrower Defense, you 

know that's already been adjudicated. That's all I 

wanted to say. Thank you.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay great. Barmak.

MR. NASSIRIAN: Several points. One of 

them to go back to Jamie's observation and even earlier 
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Committee Meetings - 01/20/22

than that to Kelli's concerns, it seems to me that 

posting a letter of credit is entirely unnecessary, even 

when alarming circumstances may otherwise trigger it. If 

the entity in question has sufficient net identifiable 

assets exclusive of goodwill to cover its liabilities, 

and there is no reason if a campus may be required to 

post a teach out. But if it has sufficient land and 

buildings and other assets, why force it to go out and 

post a letter of credit when you already know you have 

enough to go after should something bad happen. That 

allays some of the sort of unnecessary costs that may 

push somebody over the line. So that's one issue. I 

wanted to talk about the publicly traded language here. 

With regard to SEC actions, I really would encourage the 

Department to contemplate far less severe adverse 

actions by the SEC than revoking registration. Again, 

revoking registration is the final nail in the coffin, 

basically. But if you're tying your wagon to that horse, 

I mean, you know that by the time that happens. Odds are 

the entity’s already collapsing without much by way of 

recourse. So, I would suggest there are other adverse 

actions that may be earlier harbingers of trouble that 

may be better indices for you to act. And with regard to 

exchange action again, being delisted from an exchange 

is oftentimes sort of one of the final steps in the 
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Committee Meetings - 01/20/22

collapse of the publicly traded company. If you recall, 

ITT was trading on pink sheets before it collapsed. What 

I suggest in its place would be to require some kind of 

market capitalization threshold vis-à-vis the federal 

dollar. Frankly, the unearned tuition dollars at risk. 

That would be a better index of where an entity may be

in extreme trouble than being delisted by the exchange.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay. Debbie, please.

MS. COCHRANE: I wanted to comment on 

the state action piece in particular. And to highlight a 

couple of things that other folks have already said, it 

feels like what this provision is really getting at is 

the loss of state authorization, which would 

automatically trigger a loss of title IV eligibility,

and Barmak just described that as the final nail in the 

coffin. To pick up on something I said yesterday related 

to gainful employment rule and stability, states are the 

closest to the ground when it comes to school closures. 

States as a matter, state agencies are not looking to 

close institutions because they know exactly what that 

means for the students and for the other surrounding 

institutions. So I, you know, I do want to push back a 

little bit on the notion that Brad brought up about 

states being kind of, maybe, anxious to go there. I just 
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Committee Meetings - 01/20/22

don't see that in my experience. That said, I do think 

that there are other state agency actions that should be 

considered in here. States may have misrepresentation or 

fraud based on the severity of the findings. They may be 

able to compel refunds for students, and none of those, 

it would take a lot for those to get to the point where 

there's a real threat of loss of state authorization on 

the table. But I do think, and I completely I do agree 

with Brad that there are some state actions that are 

just not relevant for this purpose, you know, late fee 

payments or improperly formatted documents, those kind 

of things. But if the goal here is really to identify 

markers of serious problems as soon as we can, so that 

way we can take appropriate action. I think you need to 

consider a broader array of state actions here.

MR. MARTIN: Thank you.

MR. ROBERTS: Alright. Kelli, please.

MS. PERRY: My comment has to do with 

the new section contributions and distributions. Greg, 

when you introduced this, you specifically mentioned 

that this had to do with proprietary institutions. So, I 

would request that that actually be added [phonetic] in 

this. Only because I'm concerned that nonprofits and 

publics don’t get pulled into this. So, for example, I 

mean, it talks about an institution making a 
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Committee Meetings - 01/20/22

contribution and then it being dispersed, but if you 

were to apply it to a nonprofit, for example, and it's 

not the institution making a contribution, but if you 

had a donor that made a contribution or a pledge, you 

could potentially be recording that. And then, God 

forbid, this doesn't happen very often but if there was 

something that that pledge had to come off the books, 

then you potentially could read into this. I just want 

to make sure that this is not the intention of what 

you're trying to get to here, because you did explain it 

as a proprietary issue.

MR. MARTIN: I want to point out that,

when I described it, I didn't set the regulation limit.

We put the regulation in there because of practices 

we've noted at proprietary institutions where owners had 

put money in and pulled it out. So that's why we did it. 

So, you're saying you think there should be 

clarifications here for other types of institutions? I'm 

not certain.

MS. PERRY: Well, when if you're 

talking specifically about a contribution being put in 

and then pulled out, I mean, that's not something a 

nonprofit would do. But you would have a situation where 

you could potentially have a donor that would give a 

pledge or which would be a pledge, right, and for some 
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Committee Meetings - 01/20/22

reason, that has to come off the books at a later period 

of time. Or you could have a situation where you know a 

donor does make a contribution and then that that 

contribution is dispersed in the next quarter. So, I 

just I don't think that the intent of what you were 

trying to do here relates to that, but I just want to 

make sure that there's not ambiguity as it relates to 

that.

MR. MARTIN: In the instance you just 

pointed out, I don't know what the effect of that would 

be. I'll have to take that back with me.

MR. ROBERTS: Alright. And again, just 

to remind folks, if we can keep feedback in an 

approximate order, I think that's probably most helpful 

for the Department. But please, Yael.

MS. SHAVIT: Thanks. This feels now 

like ages ago, but I do need to respond to something 

Brad said. Brad [audio] referring to romanette four, I 

believe, but referenced numerous times actions by state 

attorneys general. So, I want to clarify that my 

understanding of that provision is that it doesn't 

relate to state AG actions, but to state higher 

regulatory actions. And with respect to those agencies,

I do want to emphasize that there are considerable due 

process requirements for state licenses or other actions 
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Committee Meetings - 01/20/22

like that taken. These actions were not taken 

arbitrarily. They're not taken for political reasons. 

And I think it's important to emphasize that. I do want 

to note that to the extent that Brad's comments were 

intentionally referring to actions taken by state AGs 

relevant to the discussion of romanette one. I want to 

state again, state AGs have been on the forefront of 

[inaudible] conduct by for-profit schools, and we've 

needed to take these actions, not because they're 

political, but because they're an imperative for 

protecting students where federal regulations have not 

gone far enough. Hopefully, we can help remedy that in 

this committee. But we have numerous examples of 

enforcement actions brought against schools that schools 

have drawn out for years before declaring bankruptcy at 

the moment that a judgment is affirmed. And to the 

extent that the committee needs this, or the Department 

does, I'm happy to offer those examples, but they 

certainly confirmed the necessity of mandatory triggers 

related to enforcement actions being filed by state AGs. 

Thank you.

MR. ROBERTS: Brad, please.

MR. ADAMS: Yes, if it's okay, I'll go 

to point six. But Yael is accurate, I misstated AGs on 

point four when it was about state agencies, but my 
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Committee Meetings - 01/20/22

comment around materiality of the state action with the 

state agency still stands. So, thank you for pointing 

that out. On item six, moving past four, if that's okay 

on the 90/10? Or would you like to stay through point 

four at this point, Brady?

MR. ROBERTS: Well, I'll turn to the 

committee. Does anyone have any anything they'd like to 

add on romanettes three or four? Otherwise, please Brad, 

feel free. I'm not I'm not seeing anyone immediately 

raise their hands or reacts, so go ahead.

MR. ADAMS: Okay, thank you. On point 

six, around 90/10, there's currently regulations already 

in place that include sanctions for institutions that 

fail 90/10, specifically at 668.29 paragraph C. Further, 

the failure to comply with 90/10 is a proxy, and the 

failure to make 90/10 does not necessarily mean you are 

not financially responsible. You could be having a very 

strong financial year and fail 90/10. It does not 

represent any certain measurable impact on the school's 

financial responsibility, so I believe this should be 

moved to a discretionary trigger.

MR. MARTIN: Obviously, the Department 

feels that it that it belongs as a as a mandatory 

trigger. I do take your points. The failure of 90/10, 

though it may not be indicative of a of severe financial 
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Committee Meetings - 01/20/22

problems on the part of the school, is an indication 

that the school may be in danger of losing eligibility 

due to 90/10. So that is why we've placed it in here 

because again, these are all indicators of when a school 

ceasing to operate would or it could be imminent, and so 

a failure of 90/10 is one of those circumstances, so we 

believe that that it is appropriate to have it as a 

mandatory trigger. We will take your objection to that. 

And I would ask if anybody else has opinion about that. 

It's the Department's position that it belongs as a 

mandatory trigger.

MR. ROBERTS: And then Steve, I see 

your hand up. If you want to add anything. You're muted.

MR. FINLEY: Thank you. An institution 

that fails 90/10 for one year may pass the next year, or 

it may not. If it doesn't, it loses eligibility. At the 

point it loses eligibility, the Department doesn't get 

letters of credit from ineligible institutions. Letters 

of credit represent surety that the Department can use 

to try to recoup some of the losses that are likely to 

be associated with an ineligible institution. So, the 

time to require the letter or credit is leading up to 

that year where an institution at least is at risk of 

losing eligibility. And that's the logic underpinning 

this.
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Committee Meetings - 01/20/22

MR. ROBERTS: Okay, Barmak.

MR. NASSIRIAN: Steve made a very 

compelling explanation, which is what I would have also 

tried to offer, not quite as well. But I want to go back 

to Kelli's point about contributions and distributions. 

I understand the concern about, you know, the sort of 

ambiguity of the term contribution. But even if you 

consider donations as contributions, certainly refund of 

donations wouldn't count as distributions. This is 

clearly related to for-profit capitalization practices. 

And if the Department wants to satisfy everybody by 

adding that in the case of for-profits, that's fine. But 

I wouldn't significantly alter this because this is one 

of the ways in which people game the system. I would 

also argue that the threshold should be 1.5 not 1.0, for 

what it's worth. Finally, and I don't know when the 

right time for this is, in this enumeration of triggers, 

there is a significant item missing, which is loss of 

eligibility for other federal programs due to 

noncompliance, particularly those programs that would 

have consequences for title IV, say, the GI Bill. So, at 

some point, I don't know if that's captured somewhere 

else or whether you need to add it. But that's a 

particularly good trigger because it tends to be smaller

amounts and can serve again as an early warning system 
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Committee Meetings - 01/20/22

for bigger trouble coming down the road. So, acting on 

those triggers may be helpful to the Department.

MR. MARTIN: Thank you.

MR. ROBERTS: Brad, please.

MR. ADAMS: Okay. So, on romanette 

eight, contributions and distributions, just want to ask 

if the Department has thought about the fact that 

privately held S corporation's taxes flow through an 

owner’s personal income tax return and not through the 

school's income statement like a C Corp? Thus, S 

corporation owners are required to pay quarterly IRS tax 

payments in order to be in compliance with the IRS law. 

So, not allowing contributions to be taken or to pay 

taxes and then being in trouble with the IRS does not 

seem appropriate. To confirm, and then I also want to 

confirm with the Department, that's question one. 

Question two is again, no threshold of materiality here. 

So, to confirm, us as school, all schools, not just 

proprietary, but all schools are required to notify the 

Department every time there is a contribution or 

distribution in quarter four or subsequently in quarter 

one or quarter two? We don't have to report anything in 

quarter three. But if we make an infusion equity 

infusion in quarter one, how do we know yet if we're 

going to make a distribution for quarter one or quarter 
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Committee Meetings - 01/20/22

two at that time? Practically speaking and this kind of 

goes back to the notification of every single lawsuit, I 

am not understanding how the Department is going to be 

able to, from a burden point of view, keep up with every 

single in and out without a materiality threshold here. 

Is the Department really going to recalculate a 

composite score every time equity infusion or equity 

distribution for 9 months out of the year occurs within 

a school? That happens thousands of times, potentially 

at some institutions.

MR. MARTIN: The provision here is 

it's necessary to stop instances of gaming that we've 

seen quite frequently with the contributions being made 

in the last quarter. And just to make certain the 

institution passes and then and then and then withdrawn 

in the next quarter. So, the reason it's here is to 

address the ongoing concern that we have over what has 

become a practice that is not at all rare. And so we 

feel the need to address that and have a mechanism in 

place to control for that. We're not we're not saying in 

these regulations that an institution cannot make a 

contribution and then remove it. The trigger is the 

removal of such contribution up to the amount for 

distribution results in recalculated composite score of 

less than 1.0. So, I would disagree that it precludes 
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Committee Meetings - 01/20/22

any types of distributions, rather contributions and 

then removals. It's to address a certain a certain 

element of a certain practice of gaming.

MR. ADAMS: And who is responsible for 

the recalculation of the composite score? Can you 

clarify that because it's not written as is. It’s only 

to cover gaming to quote you. As it is written, my read 

is any contribution or distribution made in 9 months out 

of a fiscal year has to be reviewed, and I just want to 

make sure I'm reading that correctly. So maybe I'll 

defer to Steve on this.

MR. MARTIN: Yeah, Steve has his hand 

up. I'll yield to Steve.

MR. ROBERTS: You're muted, Steve.

MR. FINLEY: Thank you. There is a 

more detailed description of what the reporting 

requirements are for this provision in section F. And 

so, I suggest taking a look at those and then we would 

welcome input on fine tuning them from everyone.

MR. ROBERTS: Barmak, go ahead. Sorry, 

sorry, Brad, go ahead.

MR. ADAMS: Section F does not specify 

thresholds, am I accurate in that it doesn't specify 

anything on the dollar amount? So, a $10 distribution or 

infusion is required to be reported. Is that correct?
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Committee Meetings - 01/20/22

MR. FINLEY: I think it's prepared in 

a different way to trigger the reporting requirements in 

certain circumstances. We welcome suggestions on ways 

that you might like to see that modified.

MR. ROBERTS: Barmak, please.

MR. NASSIRIAN: Yeah, just a quick 

point that that nothing in this reg prevents anybody 

from paying their taxes. What they can't do is they 

can't loot the company to pay their taxes. They should 

pay their taxes out of pocket like the rest of us. The 

notion that somehow it's an entitlement for a subset of 

institutions, just because of their corporate form, to 

use school resources derived from title IV to pay taxes 

is just laughable. I mean, I just feel like you owe 

taxes, pay your taxes. You just can't take the money 

from the school if it results in a deterioration of its 

financial circumstances below the threshold, which, by 

the way, is overly generous here, I again emphasize 1.5 

not 1.2. But again, it just struck me as kind of a false 

choice to say you either pay your taxes or comply with 

this reg.

MR. ADAMS: Barmak, I think that was 

directed to me? S Corp's don't work that way, sir. They 

don't. The taxes generated from income from the school 

will run through the owner's personal tax return, and 
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Committee Meetings - 01/20/22

they are required to take equity distributions to pay 

those taxes incurred from schools income. So, that is a 

factual statement that owners have.

MR. NASSIRIAN: Can they not add new 

contributions at that point to cover those taxes?

MR. ADAMS: The taxes were incurred 

because the school had a net profit. The school makes a 

million dollars that requires seven or $300,000 in taxes 

just to keep the numbers round. That $300,000 has to be 

taken out as an equity distribution unless they just 

have an extra $300,000 in a personal investment 

somewhere. But that has to come from the school as an 

equity distribution. And we do have to pay, those owners 

do have to pay quarterly estimated tax payments on that.

MR. NASSIRIAN: And if that weakens 

the institution's finances, you think the taxpayers 

should take that risk?

MR. ADAMS: No, I ask for a 

materiality threshold, sir.

MR. NASSIRIAN: $300,000 sounds pretty 

material to me on a million bucks, no?

MR. ADAMS: Well, there's $700,000 

there, hopefully remaining, right? So again, I don't 

want to debate that, but at the end of the day, a C 

Corp, the taxes are paid directly from the school. In S 
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Committee Meetings - 01/20/22

Corp, they're paid through the individual. That's the 

point of the comment.

MR. MARTIN: Well, the debate's 

interesting, but we need we do need to move on. So, I 

would say, Brad, if you want to, you know, write up 

something for us to take a look at about how you feel 

that that's that situation is problematic regarding the 

contributions and distributions. We would be glad to 

take a look at that.

MR. ROBERTS: Okay, not seeing any 

other hands on through romanette eight. Greg, do you and 

Aaron want a tee us up just for a quick check if that's 

helpful for the Department? I know there's a lot that is 

going to be invited in terms of soliciting new feedback 

and guidance. But I did want to give the committee an 

opportunity just to briefly offer their support or lack 

of support with a temperature check. I just got a 

message. Sorry. I see Jamie's hand. Emmanual, I see your 

hand as well as up and I don't have your video on right 

now so you didn't appear immediately.

MR. MARTIN: I didn't see that. I'm 

sorry.

MR. ROBERTS: No, I didn't see it, 

it's my fault. Emmanual, please go ahead.

MR. GUILLORY: I just want to make a 
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comment that we are all here to make sure as we're 

looking at financial responsibility, that institutions 

are not precipitously closing and impacting students.

And obviously, we want to take care of the bad actors 

and want to make sure that those institutions that don't 

have the best interests of students in mind no longer 

exist. But we don't want to, by default, punish the good 

actors who care about students and who want to make sure 

students have access to postsecondary education, make 

sure they have access to a quality program, make sure 

they're able to go out and get that job and achieve 

whatever their dreams are. And with that being said, as 

I look back to the 2016 rule, 2019 rule, what's being 

proposed, the Department has used the 1.0 threshold 

because even though technically if you are under 1.5, 

you are not financially responsible, that is technically 

correct. There is a zone alternative. An institution can 

be a part of between 1.0 and 1.4 and they have to do 

certain things such as heightened cash monitoring, those 

other metrics like that. But they do not have to post a 

letter of credit. If you're under 1.0, then you have to 

post a letter of credit of 10 percent of your title IV 

HEA funds. However, according to the language here, if 

you meet a mandatory trigger or discretionary trigger, 

or if you are not financially responsible and subsection 
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Committee Meetings - 01/20/22

B of the section that we're talking about, then you have 

to post a letter of credit that is no more than half or 

not less than half of your title IV funds. And so I 

believe the Department used the 1.0 composite score 

threshold because, I can't speak on behalf of the 

Department I don't work there, but I want to say the 

intent is not to close the institutions down. So, the 

Department doesn’t want to shut the doors. The 

Department, I would think, wants to get rid of the bad 

actors. And so, if we move that threshold up to 1.5, 

then you're asking an institution that has under 1.5 to 

then post letter of credit that is no less than half of 

their title IV HEA program funds when they don't have to 

do that under the regular composite score calculations. 

In addition to that, I wanted to also share that within 

the private nonprofit sector. We do have 339 

institutions, or around that number, that have under 250 

students. So let's remember that there are institutions 

out there that are really good actors that are small, 

that are tuition dependent and that could get, as my 

colleague Kelli had mentioned with clarifying some of 

the language under contribution, contributions and 

distributions. So, I know that we don't want to penalize 

institutions by literally shutting them down when we 

have these additional layers of credit being added. 
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Committee Meetings - 01/20/22

Thank you.

MR. ROBERTS: Thank you. And Jamie, 

Imthink your comment is relevant because I think what 

we're going to move on to next is this discretionary 

trigger events, so please.

MS. STUDLEY: Okay, thank you. Number 

two strikes me as interesting and dangerous. It reads, 

although I'm not the poet that Barmak is, as two rights 

do not equal wrong. I can so easily imagine two 

discretionary triggers that the Secretary and his or her 

discretion would determine were not areas of concern 

about an institution. It doesn't seem logical for them,

because of the fact that they both happen in a cycle, to 

become a mandatory trigger for risk protection. For 

example, we've seen enrollment drops in institutions 

around the country after natural disasters like 

hurricanes, fires and in our case, typhoons, and an 

institution could also have a planned closure and teach 

out that is fully intentional in a very constructive 

action in which there is no risk and no students were 

hurt. To have the combination of those become a

mandatory trigger when the Secretary is determined that 

they are each innocent, seems odd. And in those cases, a 

trigger, I understand unless a triggering event is 

resolved before a subsequent event, but you can't 
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Committee Meetings - 01/20/22

resolve the effect of the typhoon on enrollment. You can 

continue to manage the institution effectively. So, in 

the absence of those being problems, I'm puzzled. Maybe 

I should just do it as a question to the Department. 

What were you trying to accomplish with two 

discretionary triggers creating a mandatory trigger? And 

I realize that some of this language is old and maybe 

you have experience with its implementation.

MR. MARTIN: Thank you. This is not a 

new one. We did make some clarifying changes to it. You 

know, a multiple discretionary trigger is an indication 

of their being, they are discretionary triggers, but 

they are nonetheless indicative of problems. So, you 

know where more than one exists, it's our belief that 

that raises it to a different level. But we'll certainly 

take back your concerns and comments about that.

MS. STUDLEY: Yeah, I guess the 

question is should the Secretary have the discretion to 

determine whether those two, each one by itself, would 

not be a problem, but as a matter of discretion, 

determine whether it becomes a mandatory problem?

MR. MARTIN: Okay, thank you.

MR. ROBERTS: Okay. Thank you, 

everyone. Greg, is it helpful now just to briefly 

requeue the document again with the acknowledgment that 
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Committee Meetings - 01/20/22

there is a lot of back and forth. I just think it might 

be helpful so the Department.

MR. MARTIN: Yeah, Aaron, can queue it 

up.

MR. ROBERTS: Great. Thank you, Aaron. 

Alright, is everyone clear on what the Department is 

soliciting your expression of approval or lack of 

approval on this temperature check? I don't think we're 

there quite yet, unless, Greg, do you want to move to 

discretionary or do you want to take a quick check on?

MR. MARTIN: No, let's do a check on 

mandatory discretion. That's an awful lot going through, 

let's just do mandatory and then we'll move on.

MR. ROBERTS: Yeah, it's a lot. 

Alright, so if everyone wouldn't mind just a brief show 

of thumbs again. Thumbs up, is support, sideways, you 

can live with it, thumbs down, serious reservations. 

Just a quick read on where the committee is on this this 

section on mandatory triggering events. The center of 

the frame as much as possible. Alright, I’m seeing a 

number of thumbs down. We have heard folks’ objections, 

but you are welcome to come off of mute if you have 

anything new to add for the Department to consider when 

they take back this document.

MS. PERRY: I know I've said this 
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Committee Meetings - 01/20/22

already, but my only reservation, and maybe it's just 

that I didn't necessarily understand the clarification,

has to do with the debt liabilities and losses, and just 

making sure that it's not having to report every single 

one of those unless it affects the composite score.

MR. ROBERTS: Alright. Appreciate it. 

So, with that, Greg, are you ready to go and Aaron ready 

to go to the next section, which would be discretionary 

triggering events, that would be subparagraph D?

MR. MARTIN: Yeah. Yes. Just to 

reiterate, we're going to look at discretionary 

triggering events. There are a number of them. And what 

I propose to do is to go through them all. As I said, 

there are quite a number of them, but in the interest of 

time, I'll go through them all and then we'll have an 

opportunity to comment on them or for any questions, any 

other type of discussion. I would like to go back to 

something Brady suggested that when we do that, we try 

to go through it in order and the order that they appear 

in the proposed regulatory text. That way we can keep 

some order and it's, I think, a lot easier for the 

people at the Department who are taking notes on all 

this to keep that straight. And if you have comments 

about something later on, you know, make a note of those 

and make those comments when we get down to that, when 
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Committee Meetings - 01/20/22

the discussion moves to that section. So, with that, 

I'll start and go through these. So, looking at the 

discretionary triggers. We see the first change here is 

the accrediting agency actions. We're revising an 

existing discretionary trigger for accrediting agency 

actions. While probation actions would technically be 

covered by the teach out agreement and the mandatory 

triggers, we include both probation and show cause or 

equivalent actions because not all agencies use 

consistent terminology. So, the institution was placed 

on probation or issued a show cause order or placed on 

an accreditation status that poses an equivalent or 

greater risk to its accreditation by its accrediting 

agency for failing to meet one or more of the agency's 

standards. Moving down to two. It is a violation of a 

loan agreement. And this is maintaining an existing 

discretionary trigger related to violations of loan 

agreements, so I won't go into that one. You'll note 

that the state authorization and 90/10 triggers have 

been moved to mandatory triggers, so they are removed 

from the text related to discretionary triggers. 

Fluctuations of title IV volume, and there's a 

significant fluctuation between consecutive award years 

or a period of award years in the amount of direct loan 

or federal Pell Grant funds, or a combination of those 
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Committee Meetings - 01/20/22

funds, received by the institution that cannot be 

accounted for by changes in those programs. And this is 

a discretionary trigger that's been added back 

previously included in the 2016 Borrower Defense rules 

related to fluctuations. We feel these fluctuations may 

be indicative of significant enrollment declines, which 

have often preceded college closures or may be 

associated with aggressive recruiting practices that 

would manifest themselves in great increases in numbers. 

The next one is four, which is high dropout rates. High 

annual dropout rates is calculated by the Secretary. We 

have maintained a discretionary trigger on high annual 

dropout rates, an element included in the HEA related to 

selection of institutions for program reviews. We often 

see precipitously high withdrawal rates from schools 

that are on the verge of closing. Five is interim 

reporting. This is a new discretionary trigger which

allows the Department to seek financial protection on 

the basis of additional and interim financial reporting, 

which schools may be required to do if they are in 

certain statuses with the Department and have concerns 

about the school's financial circumstances or compliance 

with financial responsibility rules. So, for an 

institution required to provide additional financial 

reporting to the Department due to a failure to meet the 
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Committee Meetings - 01/20/22

financial responsibility standards in subpart L, or due 

to a change in ownership, there are negative cash flows, 

failure or of other liquidation ratios, cash flows that 

significantly missed the projections submitted to the 

Department, or withdraw rates that increase 

significantly. Moving on to six. The Secretary has 

pending claims for borrower relief discharge under 

685.206 and has formed a group a process to consider 

those claims under 685.402. And this is a restored and 

revised discretionary trigger related to a large number 

of outstanding Borrower Defense claims. This revision 

means that Secretary may utilize this claim when he has 

opted to form a group process to consider Borrower 

Defense claims, indicative of a sufficient number of 

claims. The group process was negotiated in the 

Department's rulemaking that wrapped up last year, and 

the details will be forthcoming in the in the NPRM. An 

institution discontinues a significant share of its 

academic programs. And finally, or the institution 

closes most of its locations or obtains approval from 

the Department to close most of it most or all of its 

ground-based locations while maintaining its online 

operations. We’ve added this discretionary trigger for 

discontinuation of a significant share of academic 

programs, which may occur prior to the closure. And the 
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Committee Meetings - 01/20/22

second element there relates to closure of ground-based 

locations while still maintaining an electronic or an 

online process. And again, these actions may precede the 

closure of large chain institutions, so we’re concerned 

about the instances where that occurs, and the 

Department would utilize both claims on a discretionary 

basis. So that is those are all the elements of 

discretionary trigger. So, at this point, we'll open up 

the floor for discussion or questions. Thank you.

MR. ROBERTS: Yeah. And Aaron, if you 

wouldn't mind bringing down the document. And Brad, I 

appreciate your suggestion for the mandatory triggers. 

If folks want to maybe focus on one and two right now. 

And feel free to post in chat just so I can remember, I 

have a comment on four or five or something like that. 

Just keep us roughly in order. But with that, Jamie.

MS. STUDLEY: Thank you, Mr. Roberts. 

Accrediting agencies, I believe that the first item is a 

wise change. This moves from show cause as the baseline 

for an accreditor action that would be a discretionary 

trigger to an earlier in the process or a more it less 

even less rigorous than show cause by moving one step 

forward toward probation or equivalent action. We think 

that makes sense. Accrediting agencies have the job of 

looking forward. Financial responsibility and composite 
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scores audits and ratios are by definition, historic. 

Accreditors take very seriously our responsibility for 

looking at financial sustainability, looking forward and 

at risk and student protections, and we can look at 

things like governance and board expertise, financial 

plans, plans for debt, realistic enrollment projections 

or unrealistic enrollment projections, history and 

trends for the institution and what's happened to other 

institutions that we think, may help us understand what 

the trajectory of an institution might be. Accreditors 

have been adding new financial tools and frequency. 

WASC, for example, takes an annual look at financial 

issues for all of our accredited institutions. But the 

combination of what the Secretary can do on the 

financial responsibility scores, plus the ability to 

take into account on a discretionary level probation and 

other sanctions makes sense, as the Department is so 

actively seeking ways to get out ahead of and predict 

when financial risk exists.

MR. MARTIN: Thank you.

MR. ROBERTS: Alright, thank you. 

Jessica, please.

MS. RANUCCI: Thanks, Jamie. I just 

wanted to make a point that's largely in line with that, 

but just at one level up, which is, I think that, these 
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discretionary triggering events are very important. I'm 

very glad that the Department has given more of them, 

and I just want to point out two things. One is 

discretionary is discretionary. Obviously, the 

Department at any time, if these become nonsensical, can 

decide not to use them as a triggering event, right? So,

the Department is just giving itself discretion to move 

against, I think we're calling bad actors, your school's 

likely to precipitously close. Including in 

circumstances that we might see in the future, that 

would be covered under here. And I would note also that 

the subsection B itself that we skipped over that and 

just went into the subsections has some limiting 

language there so that it looks to me as if the 

Department has to make a finding that the event is 

likely to have a material adverse effect on the initial 

condition. I think again, that should assuage some of 

these are the discretion is cabined, then it would be 

applied in ways that make sense. And I think, Jamie, I 

haven't read this before you made your last point, but 

that might go to your last point about the combination 

of discretionary factors. And if something similar to 

that would be able to written into the combination of 

two discretionary equals and mandatory, then I think 

that might exclude the situation that you're talking 
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about. So, there might be an easy fix there for the 

Department.

MR. ROBERTS: Jamie, I see your hand's 

up, is it a holdover from your prior comment? Okay. 

Okay, not seeing anything else on one and two. Any 

comments from the committee on fluctuations in title IV 

volume or biannual dropout rates. Marvin, please.

MR. SMITH: Yeah, I think Emmanual was 

first.

MR. ROBERTS: Oh, was he? I apologize 

Emmanual, please.

MR. GUILLORY: Thanks, Marvin. I was 

just going to say a concern here is the two mandatory or 

two discretionary triggers equaling the mandatory 

trigger. I do appreciate the language that says likely 

to have a material adverse effect on the financial 

condition. However, if the Department hasn't had the 

opportunity to determine whether or not it actually has 

that, and an institution happens to fall into two of the 

discretionary triggers, then it's automatically 

mandatory. And then they may have to post a letter of 

credit that at least half of their title IV HEA funds. 

And I think that’s problematic. So, hopefully the 

Department can just explain a little bit more of when 

they make that determination and how that then equates 
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with the two discretionary equals mandatory. And another 

thing I'd like to highlight, and what we're going to get 

to this later, is in section 668.175 subsection C. 

There's a language that arguably contradicts the two 

discretionary triggers equals one mandatory because of 

this language here in the section , it does say that one 

of any of the following in the mandatory trigger section 

in discretionary trigger section will then mean it is 

not financially responsible. So, I want to highlight 

that, but I know we'll talk about that later. Thanks.

MR. ROBERTS: And Steve, I see your 

hand if you want a response.

MR. FINLEY: No, I was just going to 

ask Emmanual for some clarification. Where are you 

seeing the reference to the mandatory 50 percent? 

Because I just want to make sure we're not talking 

apples and oranges here? Failing financial 

responsibility triggers usually just triggers a letter 

of credit of at least 10 percent. And there is a 

provision that says you can post a 50 percent letter of 

credit or higher to demonstrate that you are financially 

responsible. But that's usually a separate issue.

MR. GUILLORY: Yes, Steve. That's a 

great question. It's on page 21, section 668.175 

subsection C, financial protection alternative for 
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participating institutions. It reads that a 

participating institution that is not financially 

responsible because it does not satisfy one or more of 

the standards of financial responsibility. And it lists 

section 668.171, B, C, or D. So that is literally the 

mandatory triggering section or the discretionary 

triggering section or the section before that, that just 

explains financial responsibility, it says that that 

institution then would have to submit an irrevocable 

letter of credit that is acceptable and payable to the 

Secretary for an amount determined by the Secretary that 

is not less than one half of title IV HEA program.

MR. FINLEY: Right. So this is an area 

where we can clarify this issue. 175 institutions that 

meet the standards in 175 are financially responsible. 

Failing the financial responsibility triggers and 

participating with a letter of credit of at least 10 

percent with provisional certification is the option 

available for institutions that fail the financial 

responsibility standards. So, everything we’re talking 

about this morning is a letter of credit at least of at 

least 10 percent, right? If you meet 175, you are 

financially responsible, you can qualify to be fully 

certified, and you're posting a letter of a credit of at 

least 50 percent.
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Committee Meetings - 01/20/22

MR. GUILLORY: Exactly. So, in order 

to be financially responsible, if you do not satisfy one 

or more of the standards that includes mandatory 

standards or discretionary standards, then you have to 

post a letter of credit to be considered.

MR. FINLEY: And that's been that way 

for years. That's nothing new.

MR. GUILLORY: So, I'm bringing that 

up with the committee because as we're talking about 

mandatory triggers, which is not, so mandatory triggers 

and discretionary triggers came up in 2016 Obama 

regulations. Before that, there were no triggers. So 

that's why people were so upset in 2016 because of the 

idea of triggers, and it was new to people. But now this 

has been on the books for quite some time. So, with this 

language here and talking about triggers and the fact 

that two discretionary would equal one mandatory, and if 

that is the case, in order for an institution to then be 

considered financially responsible, they have to post a 

letter of credit because of those triggers and meeting 

them of at least 50 percent. That is concerning. 

MR. FINLEY: Or they can, I just want 

to make sure we all understand. They may also 

participate as an institution that's provisionally 

certified with a much smaller letter of credit. So, this 
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doesn't mean this is the only option available to them. 

And that's what I was afraid some people were 

understanding earlier based on your remarks.

MR. GUILLORY: Okay, can you just 

correct me if I'm wrong though, the provisional 

certification piece is only if they fall below 1.0 of 

the composite score set alone.

MR. FINLEY: No. If you hit a trigger, 

you can be provisionally certified and provide a letter 

of credit of at least 10 percent, as well. You fall in 

the category of an institution that's not financially 

responsible.

MR. GUILLORY: But that's only if you 

recalculate the composite scores below 1.0.

MR. FINLEY: No.

MR. GUILLORY: Okay.

MR. FINLEY: You can have an 

institution that hits a trigger like past performance, 

which has nothing to do with the composite score. It's a 

mandatory failure of the financial responsibility 

standards. And that one cannot be cured by posting a 50 

percent letter of credit because it's a mandatory 

failure. But all these other things we're talking about 

could be cured by posting a 50 percent letter of credit, 

but the institution will have the option to be 
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provisionally certified with a letter of credit of at 

least 10 percent. So, it's not the cliff effect you're 

describing unless it's very important that the 

institution want to be financially responsible. And, you 

know, meet that separate criteria. And if that was 

confusing, I apologize, but I hope it was clarifying the 

issue.

MR. GUILLORY: Thank you.

MR. ROBERTS: Okay, thank you. Marvin, 

now I see your hand, please.

MR. SMITH: Yeah, I was just curious 

about fluctuations in title IV volume, and do 

fluctuations mean increases or decreases? And is there a 

percent you have in mind or a dollar amount you have in 

mind, or are you trying to be deliberately vague about 

that? And then I wonder if changes in enrollment could 

impact fluctuations, and whether you should be specific 

on that in that statement. But it just that paragraph 

confuses me.

MR. MARTIN: Well, it's an 

acknowledgment of the reality that large fluctuations 

from year to year in in the amount of loans and title IV 

volume in general can be indicative of there being 

problems at the institution. And, you know, so either 

significant enrollment declines or increases. We keep it 
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to title IV because that's principally what we're what 

we're interested in is, you know, the administration of 

the title IV programs and title IV volumes. So we keep

to that. But yes, I think that certainly an increase or 

decrease, and we'd be looking to either one could 

certainly tie to increases in enrollment or decreases in 

enrollment, but we have we have kept it to volume. We 

don't give any specific percentage increase or decrease 

that would cause us to invoke this this trigger. If 

there is any interest in the floor on far from the floor 

of proposing something or suggesting that we should have 

something else here, we would be willing to entertain 

that. However, we do feel that we need to have this 

discretion to look at where these large fluctuations 

occur. And then, you know, because they don't just occur 

in a vacuum, there's generally something behind a large 

fluctuation in volume like this.

MR. ROBERTS: Barmak, please.

MR. NASSIRIAN: With regard to 

fluctuations, you know, some of these enrollment changes 

may be attributable to external causes, the macro 

economy, pandemic, et cetera, et cetera. So, you may 

want to you may want to sort of limit it to anomalous

fluctuations or fluctuations that may be attributable to 

external factors but that have a material adverse effect 
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on the finances of the institution for what that's 

worth. I actually had a question with regard to the 

letters of credit, and it's a sort of somewhat 

hypothetical because obviously you have to assume that 

the composite score is actually adequate that it's 

sufficiently predictive of stability or lack thereof as 

to serve the purpose for which it was devised. The 

question becomes why you would create a path of least 

resistance for an otherwise unqualified entity to come 

into the casino with 50 cents on the dollar and be fully 

certified or worse yet, allow an otherwise on ineligible 

unqualified entity to come in with 10 cents on the 

dollar? It just strikes me as really, really risky. It's 

unbelievable to me. And more importantly, I would point 

out that there seems to be no adjustment over time. 

[Inaudible] was on provisional for a full decade I 

understand on the basis of a 10 percent letter of credit

from a decade earlier. I mean, that's just it. I just 

need some explanation of why it is, we talk about 

standards of financial responsibility. To put it very 

plainly, I suspect, and it's too bad that Congress tends 

to invent terms. But financial responsibility has to 

have a meaning. And I suspect the plain English meaning 

of it is credit worthiness for the totality of the 

liabilities, including unearned tuition, not just 
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federal tuition, just unearned tuition on the books. So 

again, assuming that the composite score, which I know 

it doesn't quite do this, but if the composite score 

were to be deemed an adequate predictive tool, why would 

the Department satisfy itself with 50 cents on the 

dollar for a full satisfaction and 10 cents on the 

dollar for provisional satisfaction of financial 

responsibility?

MR. MARTIN: I'll take that, and then 

I'll turn it over to Steve if he has anything else to 

add. I would point out that these are long established 

thresholds that we don't propose to change in these 

regulations, which in and of itself doesn't, you know, 

is not necessarily indicative of anything. But they are 

established. I just disagree with the assertion that a 

50 percent letter of credit is not a, you know, is not, 

oh, you can say 50 cents on the dollar, but it's a major 

thing for an institution to get 50 percent of its 

volume. That's quite a lot. I don't work in that 

division where they do that. But Steve is probably more 

aware of how many institutions actually go that route as 

opposed to seeking the other the other means available 

to schools, which is the 10 percent letter of credit and 

provisional certification, as Steve just described. But 

I think with the latter, that is with the provisional 
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certification, we do have quite a lot of leverage on the 

school. Once it's provisionally certified, we can 

decline to fully certify it again. So, I think that 

there is a quite a lot of protection there. And then 

with a 50 percent letter of credit, I do believe that's 

a significant letter of credit, but I'll turn it over to 

Steve if he wants to make any further clarifications 

regarding that.

MR. FINLEY: I won't add a lot, except 

to say that I appreciate the question being asked 

periodically because it's important, and I think it's 

important to understand that a letter of credit is 

different than an assurance that an institution has the 

resources that could be accessed if needed to pay 

liabilities, right? A letter of credit is funds on hand 

available on demand to the Secretary to satisfy 

liabilities arising under the title IV programs. And the 

smaller letter of credit, as Greg noted, is in 

conjunction with the provisional certification, which 

also greatly increases the Department's ability to 

remove a bad actor by revoking its approval instead of 

terminating its approval through a more formalized 

administrative hearing procedure. Why is a 50 percent 

letter of credit enough? And this was the amount that 

was determined in the past as being acceptable, and as 
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Greg notes, very few institutions actually choose this 

option compared to providing the smaller letter of 

credit in conjunction with the provisional 

certification. But I think it's kind of like a great 

bedrock question to ask about this whole structure for 

financial responsibility and how the Department tries to 

mitigate the financial risks.

MR. ROBERTS: Okay, thank you. Brad, 

please.

MR. ADAMS: Thank you. I agree with 

several of the comments in the chat, and I'll be brief 

because I made the same comments in the administrative 

capability section. But the vagueness in the fact that 

you can't measure several of these statements, how any 

school can operate under these thresholds, when two of 

them require a letter of credit to be posted. Just a 

couple of them here: fluctuations in title IV what is a 

significant fluctuation? The definition of that high 

dropout rates: what can we specify is a high dropout 

rate? Do they vary by segment in our industry? You know, 

discontinuation of a significant share of academic 

programs. What is significant: is that greater than 50 

percent, what is the definition there? Pending Borrower 

Defense claims. Like I mentioned earlier, if it's 

pending, there's no actual liability that's been 
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Committee Meetings - 01/20/22

incurred. So, we'll propose language. I did have a 

broader question for the Department when we're talking 

about what is in mandatory and what is in discretionary. 

87an you discuss why we move triggers between the two,

and two years after the current triggers and regulations 

took effect? Is there any data to support that the 

triggers we put in place two years ago didn't work that 

we need to make these moves? But what is the data behind 

what makes it mandatory and what makes two discretionary 

and how do they fall in each bucket?

MR. ROBERTS: Greg, any immediate 

response?

MR. MARTIN: Well, there's no doubt 

about the fact that, you know, when we look at which are 

mandatory and which are discretionary. There's some 

element of policy discretion there, you know, based upon 

what the Department's scene out there, what we what we 

feel is necessary to safeguard the interests of the

programs, taxpayers and students. I don't know that we 

have, you know, was there actual statistical data on 

which all of us was based? No, but certainly the 

experience of people who are involved in financial 

oversight of institutions that are out there in

compliance is extremely valid. And I would point out,

and I would reiterate, that with all of these that the 
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position the Department's in, we have billions of 

dollars of risk with these programs and we are held 

accountable for instances where we did not properly, or 

it's been suggested, that we didn't do enough to 

determine when an institution was going to close. These 

disclosures put thousands of students out of their 

education, on the streets, so to speak, and create a 

great deal of disruption, and require us to, in many 

cases, discharge millions of dollars of loans. So, I 

think that Department has a compelling interest in 

having, and again, not to suggest all these are perfect, 

but to have triggers that can help us to get some surety 

in advance. Obviously, has been pointed out, it doesn't 

it doesn't cover all of our losses or all student 

losses. But, I think these are reasonable. We could 

argue all day over what constitutes significant or what 

constitutes high. And it's true that there is a certain 

level of discretion involved here, especially with 

discretionary triggers. We do say, as has been pointed 

out, that we look for these to have a materially adverse 

effect on the financial condition of the institution and 

that that, too, is subject to discretion. But I don't 

think that we can remove all of that discretion from 

these regulations. We're open for any suggestions from 

anyone from the table has about it. But you know, a lot 
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of this is just protections we feel we need to safeguard 

these programs.

MR. ROBERTS: Thank you. So, Sam, I 

see your hand, and then I'll invite any feedback for the 

Department on items five and six. So, Sam, go ahead.

MS. VEEDER: Thank you. I also want to 

address that point about fluctuations in title IV 

income. It's still unclear to me whether that includes 

both increases and decreases. Also want to say I'm not 

inclined to put restrictions in to make a strict 

definition for that or dropout rates. I appreciate the 

discretion that the Department needs to look at these 

factors in combination with each other. But then I worry 

now with two discretionary triggering a mandatory, this 

trip up a good actor as an example. I many, many, almost 

30 years ago, worked at an institution that was all 

female when I started working there and made a decision 

to go coed. Very small institution, still open and 

viable, you know, by all definitions, a good actor and 

respected regional institution. But it increased 

significantly title IV when that enrollment increased by 

adding male students. And, so, are increases a trigger 

here on title IV, and is there an opportunity to explain 

what that was for? Because I could see how it's unclear 

to me if an increase is detrimental to the Department 
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when it's advantageous to the institution. Probably so 

for bad actors, but not for good actors.

MR. MARTIN: Yes. To answer your 

question, it is both fluctuations involving both 

increases and decreases, and the Department is not 

suggesting that every fluctuation is a problem. We're 

simply saying it may be indicative of a problem. So, we 

take your point, and we look typically this would be 

looked at, well, you know, if it was a huge fluctuation 

when we might, we would look at it over the course of 

years. Obviously, when the Department compliance 

officials are looking at these fluctuations, they would 

be in contact with the institution and looking at the 

institution's explanation for why those fluctuations 

occurred. So, it wouldn't be done in a vacuum. We 

wouldn't just look and go, oh, there's a fluctuation. 

We're going to go out and require a letter of credit.

MR. ROBERTS: Alright, thank you. 

Jamie, please.

MS. STUDLEY: Since I was part of 

asking those questions about the definitions, I think 

Sam made a lot of my points about not wanting to take 

away the secretary's ability. This is discretionary by 

the Secretary to say and the Department that we see a 

potentially troubling dropout withdrawal or enrollment 
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fluctuation. So, on my part, it’s not an effort to tie 

the Secretary down, but if it is something that should 

be watched by multiple reviewers, like states and 

accreditors, it might be useful to know how the 

Secretary uses that or looks at it. Is it truly a very 

individualized situation that's fairly extreme? Or if 

there are charts or definitions that are used to get at 

that, might there be value in sharing those or pointing 

those out? But I think the fact that an institution has

the opportunity to say yes, we had a substantial 

decrease, but we believe it was temporary crisis, or it 

is true that upward fluctuations can can be troubling 

for a number of regulatory reasons. The institution has 

to have the capacity to support it, it has to fit with 

what they're doing, it has to be well planned and 

realistically priced in order to maintain a stable 

institution. So, I think it’s appropriate that it go 

both ways. So, I don't think it's a problem, but it 

could be an opportunity for interchange or alerting 

others of us to what might be problematic. And 

institutions to know what they might need to respond to 

if the Secretary triggers a question or concern.

MR. MARTIN: Thank you. Thank you.

MR. ROBERTS: Great. Thanks, Jamie. 

Any other comments on discretionary triggers anything on 
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seven or eight or anything that has not been mentioned 

yet? We welcome folks to hop in. Otherwise, Greg and 

Aaron. Oh, seeing Amanda, yeah, please go ahead.

MS. MARTINEZ: I know there was 

questions in the chat, but I just kind of want to have 

an out loud conversation and just have it in the record, 

just so for those in the public who can't really see the 

chat. In the discretionary section four item four, high 

annual dropout rates, I'm wondering, this stipulates 

that it's high annual dropout rates are calculated by 

the Secretary. I'm just wondering how does the Secretary 

calculate this, like what systems does it use to 

calculate? And how does it define dropout rates? What is 

their definition? Is that retention rates? Does that 

include withdrawal rates, how broadly defined do you 

make that definition of dropout rates? What is high? Is 

there a threshold for that? I know there's different 

questions in the chat related to this specific item, but 

I just wanted to see if there was a quick response just 

so that if we can provide additional recommendations 

here or help with providing a definition that's clear 

and potentially more suggestions on how to expand this 

part so that it actually targets, it's a trigger, 

especially for triggering or finding out if there are 

higher dropout rates, for instance, disaggregated by 
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Committee Meetings - 01/20/22

race and ethnicity, or even for Pell Grant recipients or 

First-Generation students. I think that's another that 

would be a suggestion here that we can write on and 

submit. But just on the former questions, wondering if 

there's a quick response there on definitions?

MR. MARTIN: I'm not aware of the so 

if what you're asking is where this has been made an 

issue, what was the calculation used? I don't know. 

Steve, do you know which calculation formula was used 

for that? I can go back and find out for you, it's a 

good question. I don't think we have any prescribed 

threshold for it, but as far aswhat formula we used to 

do the calculation, I'm not aware of the top of my head. 

I'll have to inquire about that.

MS. MARTINEZ: No problem. Thanks, 

Greg. But hopefully you'd or the Education Department 

would be would say that you're inviting us to help also 

maybe expand this part.

MR. MARTIN: We welcome we certainly 

welcome any suggestions to us.

MS. STUDLEY: Okay, great. I just 

wanted to hear that.

MR. MARTIN: Yeah. Yes, we do.

MR. ROBERTS: Always an invitation, 

always. Jessica, please.
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Committee Meetings - 01/20/22

MS. RANUCCI: Thanks. This is just a 

minor point on number six, related to what Johnson was 

talking about this morning. I think that there I really 

think the Department [inaudible] strongly think about 

adding a number of Borrower Defense claims as a 

mandatory trigger. But if it doesn't, I think it should 

consider adding that as a discretionary trigger in 

addition to what is here and number six. They're 

similar, right, because obviously the Secretary would 

decide to do a group discharge if there has been a set 

of claims, but I don't think that the Secretary should 

have the discretion to make that a mandatory trigger 

only if the Secretary has also used his discretion to 

make it a group discharge, there might be circumstances 

or a group process. There might be circumstances where 

one, but not the other, makes sense. And, so, it would 

just make if the Department again, I think you should 

please consider doing mandatory. But if you don't, I 

think that numbers should be there and include a number 

of claims, maybe by enrollment, it probably doesn't make 

sense to do by loan volume since there's no dollar 

figure yet, but whatever makes sense.

MR. MARTIN: Okay, thank you.

MR. ROBERTS: Thank you. Yael, please.

MS. SHAVIT: Yeah, I'd like to follow 
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up on that point. I agree, I think it adds to levels of 

discretion unnecessarily, right? So, the formation of a 

group process is discretionary, though I recognize if 

the proposed language about state AG requests makes it

into a final rule that there's a presumption that a 

group will be formed. But that aside, it seems like 

given our history of how long it's taken, the Department 

consider group claims submitted by state AGs, where 

we've laid out in painstaking detail similarities 

between students. Just taking that history for what it's 

worth, the Department may spend some amount of time 

considering whether or not to form a group or the bounds 

by which it will decide which borrowers are in which 

group that may be affected by considerations that 

shouldn't affect whether or not the Department can 

consider a volume of Borrower Defense claim as a 

discretionary trigger. I'm thinking as well in the 

context of receiving requests from state AGs that 

outline a significant volume of claims in the period of 

time between the Department receiving such information 

from the state and actually going ahead and forming a 

group under that under that section. So, I agree with 

Jessica. I think there should be some language added to 

allow the Department to consider a number of claims, 

even in the context of a group not having been formally 
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formed yet.

MR. MARTIN: So just make sure what's 

being asked here, so currently it says the Secretary is 

pending claims for discharge and has formed the group 

process. So, you're suggesting even where, let's say a 

group wasn't formed, that there was a certain number of 

claims?

MS. SHAVIT: Potentially. I mean, just 

to give an example, a group might be might be formed for 

specific cohorts, right? You might pick specific 

programs at an institution for specific years where the 

claims are similar, right? But you might also still have 

received many claims from borrowers across programs for 

different cohort years. I imagine that the Department's 

consideration about how to form a group may require 

decisions and time that don't impact the question of 

whether or not the presence of a large volume of 

Borrower Defense claims is a problem that should be 

taken into consideration as a discretionary trigger, 

right? You might ultimately form multiple groups for the 

same institution. In cases of misconduct that spans 

across different programs in different cohorts. So yes, 

it's to give the sort of follow along with the goal of 

giving the Department discretion to consider things that 

are relevant here I think the Department has a little 
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bit more discretion in this area.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay, great, thank you. 

Greg, if you and Aaron want to tee up the discretionary 

triggers, we can get a quick read on where the committee 

is on this again with the ever present invitation for 

more dialog and modifications that the Department can 

consider. So, we're looking at subparagraph (c)(1) 

through, I believe, eight. Alright.

MR. MARTIN: These are all in the D, 

paragraph D.

MR. ROBERTS: Oh yeah, correct, sorry 

not C, D. So, with that Aaron if wouldn't mind bringing 

down the document. Thank you. And again, if I could see 

everyone's thumbs nice and high. Alright. I see at least 

one thumb down. Again, invite folks to come off with me 

if there's anything new that they want to add to this 

piece. Alright thanks, appreciate it. Okay, great. Thank 

you for that discussion. And Greg, I'll turn it back 

over to you. The following sections are there is 

modifications, but it's kind of spread out. So, I'll 

leave it up to you what you want to tee up for 

discussion.

MR. MARTIN: Well, you know, let's 

just go through these, there aren't that many here in 
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these sections, the first we'll first look at E, which 

is recalculating the composite score. This is not new. 

We just changed we just are updating a cross reference 

there. So, we have not added anything to E under 

recalculation of composite scores. We can move down to 

F, which is reporting requirements. So, we can take a 

look at one, in accordance with procedures established 

by the Secretary, an institution must notify the 

Secretary of the following actions or events. And you 

see romanette one and then romanette two has been added 

for a lawsuit under paragraph ©(1) romanette one B of 

this section, no later than 10 days after the 

institution is served with the complaint and 10 days 

after the suit has been pending for 120 days. And these 

reporting just a little bit of background here,’we've 

established several new or revised reporting 

requirements to align with the changes in the triggering 

events, including both discretionary and mandatory. And 

these include reporting on federal, state or Qui Tam 

lawsuits, contributions and distributions made to and 

from a school. Updated language related to actions 

against publicly traded institutions. Updated language 

related to state and accredited actions which are now 

combined as reporting requirement in romanette six and 

discontinuation of academic programs. So, we can move on 
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as we're working through the reporting requirements here 

down to romanette four which is what you see added 

there. For a contribution and distribution under 

paragraph (c)(1) romanette eight not later than 10 days 

following each transaction. So again, this keys back to 

the to the triggering events. And under romanette five 

for provisions related to a publicly traded institution 

under paragraph C romanette five of this section no 

later than 10 days after the date that the SEC issues in 

order suspending or revoking the registration of the 

institution's securities pursuant to the Exchange Act, 

noted there or suspends trading of the institution's 

securities on any national securities exchange. And then 

we moved to B where we have some revisions there. The 

National Securities Exchange on which the institution's 

securities are listed, notifies the institution of 

noncompliance with the rules of the relevant securities 

exchange delist the securities or the institution 

voluntarily delist its securities. And then we have 

added here for a state or agency action under the 

applicable citations of this section. Ten days after the 

date on which the institution is notified by the state 

or accrediting agency of the action. And we have added 

under nine, romanette nine, for the discontinuation of 

academic programs provision in paragraph (d)(7), no 
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later than 10 days after the discontinuation of the 

programs in the institution's fiscal year, affecting at 

least 25 percent of the students. And then I think that 

that is about it until we get to D, public institution. 

So, we can stop there. We have a few minutes if we can 

open up discussion and we have, what Brady, four 

minutes?

MR. ROBERTS: That’s correct, yes. So,

I see Brad, and Brad I think we have time for your 

comment and then maybe one more a response and then we 

will head to our lunch. So, Aaron, if you wouldn't mind 

bringing down the document? Brad, please go ahead.

MR. ADAMS: Okay, last comment before 

lunch. At the very top, I guess this would be one double 

I, the lawsuit notification 10 days after the 

institution has served. I just want to confirm again, I 

think I know the answer, but just to confirm, that if a 

student slips on ice outside their dorm room and sues 

within 10 days, every single time that happens, we are 

going to be notifying the Department regardless what it 

was or the materiality or anything else? Every single 

lawsuit in ten days is being served going to the 

Department?

MR. MARTIN: Well, I'll put 

disclaimers, the words are yours. But I think that, as I 
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would say this as currently written, is there de minimis 

amount that under which it would not have to be reported 

right now? No, but we'll certainly take that back and 

look at it.

MR. ADAMS: Yeah, it's not only de 

minimis, it's also within the settlement agreement with 

the employee. I mean, does Department want to know that 

every single time? I guess there's also the, I guess, 

the merit of the case as well, is there are any.

MR. MARTIN: So, you would be 

suggesting that you what you would like to see here if 

it would be a de minimis amount and have settlements 

with employees?

MR. ADAMS: I'll come up with 

language, Greg. [Inaudible] debate here, but yeah.

MR. MARTIN: Well, yeah, whatever you 

come up with, we'll certainly be willing to take a look 

at.

MR. ROBERTS: Yeah, I think I saw a 

hand, but it went down and recognizing, oh, Steve, 

please.

MR. FINLEY: By George, I was muted. I 

think this section is tied to the Qui Tam lawsuits. So,

I don't know that this would be, I think this is 

distinct from the other litigation that Brad may have 
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been mentioning just then. But it's a point that we can 

all clarify.

MR. ADAMS: Maybe then it's single I 

I'm trying to clarify then instead of double I. Again, I 

have to go reference, but.

MR. MARTIN: In any event, we'll get 

we'll make sure we have clarification on that.

MR. ROBERTS: Okay, great. So, I'm not 

seeing any additional hands, I loath to rush us to, oh, 

Kelli please. I spoke way too soon.

MS. PERRY: I didn't raise my hand 

because it's going to take me longer than 30 seconds to 

explain what I'm thinking, so I was hoping I could do it 

when we come back from lunch.

MR. ROBERTS: Oh, I gotcha. Alright. 

So we'll hold off on any checks on romanettes, what is 

it, one through nine. And I guess with that, we can take 

a break for lunch, and I'll see everyone back here at 

1:00. Thank you so much for this morning's discussion.

MR. MARTIN: Thank you, everybody.
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Appendix

Department of Education, Office of Postsecondary Education 

Zoom Chat Transcript 

Institutional and Programmatic Eligibility Committee 

Session 1, Day 3, Morning, January 20, 2021 

From Ernest Ezeugo to Everyone: 

I can see you. 

From Jessica Ranucci (A)- Legal Aid to Everyone: 

I am continuing on behalf of legal aids for financial 

responsibility. 

From Johnson (P) Legal Aid to Everyone: 

Jessica is representing the legal aid community 

From Travis (P) Servicemembers & veterans to Everyone: 

Barmak is continuing for servicemembers and veterans 

From Jamie Studley (P) Accrediting 

agencies to Everyone: 

+1 to Brad, some level would be prudent. 

From Anne Kress (P) Comm Colleges to Everyone: 

+1 @Brad, this makes sense, there should be a 

threshold of materiality. 
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From Jamie Studley (P) Accrediting 

agencies to Everyone:

RE liability and settlements: it seems it ay be one 

report a

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

I suggest that there is a materiality threshold to 1 

in A to reporting any and all settlements and to confirm if 

the department will recalculate the composite score every 

time.

From Emmanual Guillory (A)-PNPs to Everyone:

Hello everyone! I am here. Had some trouble with the 

link this morning.

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

Carolyn's point is quite right: (ii)(A) should apply 

to all prop schools regardless of score

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Request to change C to when the liability is incurred 

and not when the claim is made.

From Anne Kress (P) Comm Colleges to Everyone:
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Committee Meetings - 01/20/22

+1 @Jamie

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

+1 on Jamie's point: ED needs to articulate what realtime reporting institutions must provide in cases of 

adverse events listed here

From Ernest Ezeugo to Everyone:

+1 Jessica

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

+1 Yael

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 to Yael

From Sam (P) Fin Aid Admin to Everyone:

+1 Yael

From Jessica Ranucci (A)- Legal Aid to Everyone:

Johnson is going to substitute in for me for a few 

minutes.

From Debbie Cochrane (P), State agencies to Everyone:
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+1 Yael

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

To syncopate a point that Carolyn made earlier re 

(ii)(A), all for-profit schools should be subject to this: 

any school whose score would drop below the minimum 

threshold (which should always be the passing score of 1.5) 

as a result of withdrawal of owners' equity should be 

restricted from internal practices that would allow 

insiders to loot the corporate entity and hand empty 

coffers back to the taxpayers

From Ernest Ezeugo to Everyone:

+1 Johnson's concerns

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:

+1 Johnson's concerns about BD claims

From Jaylon Herbin (A) Consumer Advocates Civil Rights 

& to Everyone:

+1 Johnson's concerns

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

+1 on Johnson's point
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From Yael Shavit (A) -- State AGs to Everyone:

+1 on Johnson's point

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Johnson—this goes to the heart of the regulatory 

goal of setting triggers and putting in place meaningful 

and impactful ones

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Kelli Does the dept have evidence that these 

triggers worked? Provided timely and effective notice that 

protected students?

From Yael Shavit (A) -- State AGs to Everyone:

+1 Barmak

From Jamie Studley (P) Accrediting 

agencies to Everyone:

Materiality in a sense is answered by the test itself 

-- does the debt or liability put the institution below 

1.5?

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 Barmak

From Brad Adams (P - Proprietary 

Institutions) to Everyone:
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Committee Meetings - 01/20/22

can we take comments on this by letter or maybe two 

letters at a time? this is a lot of information to cover 

all at once.

From Jamie Studley (P) Accrediting 

agencies to Everyone:

+1 to Brad's suggestion to go item by item so we don't 

jump around

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Jamie's comment

From Kelli Perry (P) - Private, Nonprofit Institutions of 

Higher Ed to Everyone:

+1 to Jamie's comment

From Jamie Studley (P) Accrediting 

agencies to Everyone:

The Dept is fully entitled to respect in this way the 

determination by its triad partner, a state, at a level 

serious enough to withdraw licensure

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 to Jamie

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:
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Committee Meetings - 01/20/22

+1 to Jamie

From Emmanual Guillory (A)-PNPs to Everyone:

34 CFR 602.24(c)(1) refers to a teach out plan and not 

a teach out agreement. The 2016 regulations also use the 

term "plan" regarding this section as well.

From Emmanual Guillory (A)-PNPs to Everyone:

Also, for further clarification, the letter credit 

amount for institutions that are not financially 

responsible due to "one or more of the standards of 

financial responsibility under Section 668.171(b),(c), or 

(d), or because of an audit opinion or going concern 

disclosure described under Section 668.171(h)" is one-half 

of the title IV, HEA program funds and not 10 percent.

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Barmak's first point

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:

+1 to Debbie's point that broader array of state 

actions should be considered

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

I agree Debbie on that the significance of the state 

action should be considered.
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Committee Meetings - 01/20/22

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

contributions and distributions refer to LLC 

capitalization

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Kelli is correct

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

it reads as she stated

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Are we moving past IV now?

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Yael is accurate. I misstated AGs when point IV was 

about state agencies. The comment around materiality of 

the state action being considered stands

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:

+1 to Barmak's comment about 

contributions/distributions trigger
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Committee Meetings - 01/20/22

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Barmak unfortunately that is not the way S corps work

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

Emmaunual has his hand up

From Jamie Studley (P) Accrediting 

agencies to Everyone:

again, the materiality question is addressed because 

the test is whether it drops the school's score below

From Jamie Studley (P) Accrediting 

agencies to Everyone:

my comment is about (2) -- two triggers -- not sure if 

you're at that one yet, or just wrapping through (viii)

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

I am still not clear who recalculates the composite 

score. The school, the auditor, the department?

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Emmanual's comment
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Committee Meetings - 01/20/22

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Jamie.

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Emmanual's comment

From Jamie Studley (P) Accrediting 

agencies to Everyone:

good thought, Jessica, about seeing if it's possible 

to align the material adverse effect language in (d) 

discretionary with (2) above about two discretionary 

events.

From Sam (P) Fin Aid Admin to Everyone:

+1 Marvin, and same concept related to defining (or 

remaining vague) about "high" dropout rates

From Jamie Studley (P) Accrediting 

agencies to Everyone:

Are there definitions of significant fluctuations or 

high annual dropout rates, since those are not new?

From Debbie Cochrane (P), State agencies to Everyone:
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Committee Meetings - 01/20/22

Agree with Jamie's question about how dropout is 

defined. Also wondering if these are calculations ED makes 

public and/or share with triad partners.

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

+1 to Jamie's comment in the chat

From Amanda Martinez (P), Civil Rights to Everyone:

+ 1 Jamie's question and is drop out defined 

differently than withdrawal rates

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

these LOC provisions may be customary and traditional, 

but the sad fact is that they have not worked to protect 

students and taxpayers. LOCs are expensive to obtain: 

that's a feature, not a flaw. The 10% LOC has become the de 

facto path of least resistance for fraud.

From Brad Adams (P - Proprietary 

Institutions) to Everyone:

I would like to request that the department provide 

data that supports how the previous closed schools would of 

been caught by these triggers and how we landed on what is 

a mandatory trigger vs a discretionary trigger.

From Sam (P) Fin Aid Admin to Everyone:
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Committee Meetings - 01/20/22

+1 Jamie - and it is possible that the 

enrollment/Title IV funds increase is a result of predatory 

recruitment practices.... but not always so

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

I would second Brad's data request, not because lack 

of predictive efficacy would invalidate these fairly 

reasonable safeguards, but because such a lack of efficacy 

would point to the need for additional predictors of 

institutional collapse

From Barmak Nassirian (A) Servicemembers & 

Vets to Everyone:

+1 on Jessica's point re # of BD claims

From Carolyn Fast (P) Consumer Advocates/Civil Rights 

Organizations to Everyone:

+1 to Jessica

From Jamie Studley (P) Accrediting 

agencies to Everyone:

Thanks, Sam. Agreed

From Johnson (P) Legal Aid to Everyone:

+1 to Yael and Jessica on volume of borrower defense 

claims causing discretionary trigger.
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From Jamie Studley (P) Accrediting 

agencies to Everyone:

can you explain (ii) -- why? and why the second 

notification?

From Jamie Studley (P) Accrediting 

agencies to Everyone:

is (ii) qui tam cases?

From Johnson (P) Legal Aid to Everyone:

I think this section refers back to the earlier 

section on AG, Qui Tam, fed suits.