[Federal Register Volume 88, Number 209 (Tuesday, October 31, 2023)]
[Rules and Regulations]
[Pages 74568-74710]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22785]



[[Page 74567]]

Vol. 88

Tuesday,

No. 209

October 31, 2023

Part II





Department of Education





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34 CFR Part 668





Financial Responsibility, Administrative Capability, Certification 
Procedures, Ability To Benefit (ATB); Final Regulations

Federal Register / Vol. 88, No. 209 / Tuesday, October 31, 2023 / 
Rules and Regulations

[[Page 74568]]


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DEPARTMENT OF EDUCATION

34 CFR Part 668

[Docket ID ED-2023-OPE-0089]
RIN 1840-AD51, 1840-AD65, 1840-AD67, and 1840-AD80


Financial Responsibility, Administrative Capability, 
Certification Procedures, Ability To Benefit (ATB)

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the regulations implementing title IV of 
the Higher Education Act of 1965, as amended (HEA), related to 
financial responsibility, administrative capability, certification 
procedures, and ATB. We amend the financial responsibility regulations 
to increase the Department of Education's (Department) ability to 
identify high-risk events at institutions of higher education and 
require financial protection as needed. We amend and add administrative 
capability provisions to enhance the capacity for institutions to 
demonstrate their ability to continue to participate in the financial 
assistance programs authorized under title IV of the HEA (title IV, HEA 
programs). Additionally, we amend the certification procedures to 
create a more rigorous process for certifying institutional eligibility 
to participate in the title IV, HEA programs. Finally, we amend the ATB 
regulations related to student eligibility for non-high school 
graduates.

DATES: These regulations are effective July 1, 2024. The incorporation 
by reference of certain publications listed in the rule is approved by 
the Director of the Federal Register as of July 1, 2024.

FOR FURTHER INFORMATION CONTACT: For financial responsibility: Kevin 
Campbell. Telephone: (214) 661-9488. Email: <a href="/cdn-cgi/l/email-protection#307b5546595e1e73515d4052555c5c7055541e575f46"><span class="__cf_email__" data-cfemail="80cbe5f6e9eeaec3e1edf0e2e5ececc0e5e4aee7eff6">[email protected]</span></a>. For 
administrative capability: Andrea Drew. Telephone: (202) 987-1309. 
Email: <a href="/cdn-cgi/l/email-protection#97d6f9f3e5f2f6b9d3e5f2e0d7f2f3b9f0f8e1"><span class="__cf_email__" data-cfemail="e0a18e84928581cea4928597a08584ce878f96">[email protected]</span></a>. For certification procedures: Vanessa Gomez. 
Telephone: (202) 987-0378. Email: <a href="/cdn-cgi/l/email-protection#4c1a2d22293f3f2d620b232129360c2928622b233a"><span class="__cf_email__" data-cfemail="1046717e756363713e577f7d756a5075743e777f66">[email protected]</span></a>. For ATB: Aaron 
Washington. Telephone: (202) 987-0911. Email: <a href="/cdn-cgi/l/email-protection#edac8c9f8283c3ba8c9e8584838a998283ad8889c38a829b"><span class="__cf_email__" data-cfemail="e0a181928f8eceb7819388898e87948f8ea08584ce878f96">[email protected]</span></a>.
    If you are deaf, hard of hearing, or have a speech disability and 
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION: 

Executive Summary

Incorporation by Reference

    In Sec.  [thinsp]668.175(d)(2), we reference the following 
accounting standard: Accounting Standards Codification (ASC) 850. ASC 
850 provides for accounting and reporting issues concerning related 
party transactions and relationships. It is already approved for 
incorporation by reference in Sec.  668.23.
    This standard is available at www.fasb.org, registration required.

Purpose of This Regulatory Action

    These final regulations address four areas: financial 
responsibility, administrative capability, certification procedures, 
and ATB. The Institutional and Programmatic Eligibility Committee 
(Committee) reached consensus on ATB at its final session on March 18, 
2022.
    The financial responsibility regulations at Sec. Sec.  668.15 
668.23, 668.171, and 668.174 through 668.177 will increase our ability 
to identify high-risk events and require the financial protection we 
believe is needed to protect students and taxpayers.
    We strengthened institutional requirements in the administrative 
capability regulations at Sec.  668.16 to improve the administration of 
the title IV, HEA programs and address concerning practices that were 
previously unregulated.
    The certification procedures regulations in Sec. Sec.  668.13, 
668.14, and 668.43 will create a more rigorous process for certifying 
institutions to participate in the title IV, HEA programs. We expect 
these regulations to better protect students and taxpayers through the 
Program Participation Agreement (PPA), our written agreement with 
institutions.
    Finally, we amend the regulations for ATB at Sec. Sec.  668.156 and 
668.157 to clarify the requirements for the State process to determine 
eligibility for programs serving non-high school graduates and the 
documentation requirements for eligible career pathway programs.
Financial Responsibility
    The Department amends Sec. Sec.  668.15 and 668.23 and subpart L of 
part 668. We are removing all regulations under Sec.  668.15 and 
reserving that section. We have revised the financial responsibility 
factors applicable to institutional changes in ownership, currently in 
Sec.  668.15, and moved them to Sec.  668.176. As a result, all 
financial responsibility requirements are located in subpart L.
    The Department also amends Sec.  668.23 to update references to the 
Office of Management and Budget's (OMB) Circular A-133, Audits of 
States, Local Governments, and Non-Profit Organizations. As this 
circular is no longer used, we update the reference to 2 CFR part 200, 
subpart F. Further, we establish the submission deadline for an 
institution to submit its compliance audit and audited financial 
statements as the earlier of six months after the last day of the 
institution's fiscal year or 30 days after the date of the later 
auditor's report. This new submission deadline will not impact 
submission deadlines established by the Single Audit Act.
    Finally, we amend regulations under subpart L of part 668 to 
improve our ability to assess whether institutions are able to meet 
their financial obligations. We establish new mandatory and 
discretionary triggers that will provide the Department earlier notice 
that an institution may not be able to meet its financial 
responsibilities. We revise the regulations governing our assessment of 
financial responsibility for institutions undergoing a change in 
ownership to better align with current Departmental practices and 
consolidate all related regulations in Sec.  668.176.
Administrative Capability
    The Department amends Sec.  668.16 to improve our ability to 
evaluate the capability of institutions to participate in the title IV, 
HEA programs. The changes will benefit students by strengthening 
financial aid communications to include the institution's cost of 
attendance, the source and type of aid offered, whether aid must be 
earned or repaid, the net price, and deadlines for accepting, 
declining, or adjusting award amounts.
    The regulations also state that administrative capability means 
that an institution is providing students adequate career services and 
clinical or externship opportunities, as applicable. Under the final 
regulations, administrative capability also means that an institution 
is making timely disbursements of funds to students and that less than 
half of an institution's total title IV, HEA revenue in the most recent 
award year comes from programs that fail to meet gainful employment 
(GE) requirements under the GE program accountability framework. Being 
administratively capable also means not: engaging in aggressive 
recruitment, making misrepresentations, being subject to negative 
action by a State or Federal agency, or losing eligibility to 
participate in another Federal educational assistance program due to an 
administrative action against the institution.
    Additionally, under the final regulations, institutions must 
certify

[[Page 74569]]

when they sign the PPA that no principal or affiliate has been 
convicted of or committed fraud. Finally, institutions must have 
adequate procedures to evaluate the validity of a student's high school 
diploma and outline criteria to identify an invalid high school 
diploma.
Certification Procedures
    The Department amends Sec. Sec.  668.13 and 668.14 so that 
certification is not automatically renewed after 12 months without a 
decision from the Department and adds new events that cause an 
institution to become provisionally certified and new requirements for 
provisionally certified institutions. We also expand the entities that 
must sign a PPA to include higher level owners of institutions. 
Institutions must also certify that they meet additional requirements 
when signing the PPA, as applicable. For example, institutions must 
certify that their gainful employment programs are not longer than 100 
percent of the length required for licensure in a recognized occupation 
in either the State where the institution is located or another State 
if the institution establishes that certain criteria apply.
    Institutions must also certify that, in each State where they are 
located or where they enroll students through distance education, they 
meet applicable programmatic accreditation and licensure requirements 
and comply with all State laws related to closure. We also amend Sec.  
668.43 to clarify how provisions in the certification procedures 
section interact with existing institutional disclosure requirements 
related to informing students about the States in which a given program 
meets the educational requirements for licensure or certification.
    In addition, institutions must certify that they will not withhold 
transcripts or take other negative actions against a student due to an 
error on the school's part, and that upon a student's request, they 
will provide an official transcript that includes all the credit or 
clock hours for payment periods in which the student received title IV, 
HEA funds and for which all institutional charges were paid at the time 
the request is made. Institutions must also certify that they will not 
maintain policies and procedures that condition institutional aid or 
other student benefits in a manner that induces a student to limit the 
amount of Federal student loans that the student receives. We also add 
conditions for institutions initially certified as a nonprofit or that 
seek to become one following a change in ownership. These additional 
conditions will help address the consumer protection concerns that have 
occurred when some for-profit institutions converted to nonprofit 
status for improper benefit.
Ability To Benefit (ATB)
    In Sec. Sec.  668.2, 668.32, 668.156, and 668.157, the Department 
amends the student eligibility requirements for individuals who do not 
have a high school diploma or a recognized equivalent.
    Specifically, in these regulations, we (1) codify the definition of 
an ``eligible career pathway program,'' which largely mirrors the 
statutory definition, (2) make technical updates to the student 
eligibility regulations, (3) amend the State ATB process (``State 
process'') to allow time for participating institutions to collect 
outcomes data while establishing new safeguards, (4) establish 
documentation requirements for institutions that want to begin or 
maintain eligible career pathway programs for ATB use, and (5) 
establish that the Secretary will verify at least one career pathway 
program at each postsecondary institution intending to use ATB to 
increase regulatory compliance.

Summary of the Major Provisions of This Regulatory Action

    The final regulations make the following changes.

Financial Responsibility (Sec. Sec.  668.15, 668.23, 668.171, and 
668.174 Through 668.177)

    <bullet> Remove and reserve Sec.  668.15 and consolidate all 
financial responsibility factors, including those dealing with changes 
in ownership, under subpart L of part 668.
    <bullet> Amend Sec.  668.23 to require that audit reports are 
timely submitted, by the earlier of 30 days after the completion of the 
report or six months after the end of the institution's fiscal year.
    <bullet> Amend Sec.  668.23 to require that, for any domestic or 
foreign institution that is owned directly or indirectly by any foreign 
entity holding at least a 50 percent voting or equity interest in the 
institution, the institution must provide documentation of the entity's 
status under the law of the jurisdiction under which the entity is 
organized.
    <bullet> Amend Sec.  668.171, which requires institutions to 
demonstrate that they are able to meet their financial obligations, by 
adding events that constitute a failure to do so, including failure to 
make debt payments for more than 90 days, failure to make payroll 
obligations, or borrowing from employee retirement plans without 
authorization.
    <bullet> Amend in Sec.  668.171 the set of conditions that require 
an institution to post financial protection if certain events occur. 
These mandatory triggers are certain external events, financial 
circumstances that may not be reflected in the institution's regular 
financial statements, and financial circumstances that are not yet 
reflected in the institution's composite score.
    <bullet> Amend in Sec.  668.171 the set of conditions that may, at 
the discretion of the Department, require an institution to post 
financial protection. These discretionary triggers are external events 
or financial circumstances that may not appear in the institution's 
regular financial statements and are not yet reflected in the 
institution's calculated composite score.
    <bullet> In Sec.  668.174, clarify the language related to 
compliance audit or program review findings that lead to a liability of 
at least 5 percent of title IV, HEA volume at the institution, to more 
clearly state that the relevant reports are those issued in the two 
most recent years, rather than reviews conducted in the two most recent 
years.
    <bullet> Add a new Sec.  668.176 to consolidate the financial 
responsibility requirements for institutions undergoing a change in 
ownership in subpart L of part 668.
    <bullet> Redesignate the existing Sec.  668.176, establishing 
severability, as Sec.  668.177.

Administrative Capability (Sec.  668.16)

    <bullet> Amend Sec.  668.16(h) to require institutions to provide 
adequate financial aid counseling to enrolled students that includes 
more information about the cost of attendance, sources and amounts of 
each type of aid separated by the type of aid, the net price, and 
instructions and applicable deadlines for accepting, declining, or 
adjusting award amounts.
    <bullet> Amend Sec.  668.16(k) to require that an institution not 
have any principal or affiliate that has been subject to specified 
negative actions, including being convicted of or pleading nolo 
contendere or guilty to a crime involving governmental funds.
    <bullet> Add Sec.  668.16(n) to require that an institution has not 
been subject to a significant negative action by a State or Federal 
agency, a court, or an accrediting agency and has not lost eligibility 
to participate in another Federal educational assistance program due to 
an administrative action against the institution.
    <bullet> Amend Sec.  668.16(p) to strengthen the requirement that 
institutions must

[[Page 74570]]

develop and follow adequate procedures to evaluate the validity of a 
student's high school diploma.
    <bullet> Add Sec.  668.16(q) to require that institutions provide 
adequate career services to eligible students who receive title IV, HEA 
program assistance.
    <bullet> Add Sec.  668.16(r) to require institutions to provide 
students with geographically accessible clinical or externship 
opportunities related to and required for completion of the credential 
or licensure in a recognized occupation, within 45 days of the 
completion of other required coursework.
    <bullet> Add Sec.  668.16(s) to require institutions to disburse 
funds to students in a timely manner consistent with the students' 
needs.
    <bullet> Add Sec.  668.16(t) to require that, for institutions that 
offer GE programs, less than half of their total title IV, HEA revenue 
comes from programs that are ``failing'' under subpart S.
    <bullet> Add Sec.  668.16(u) to require that an institution does 
not engage in misrepresentations or aggressive recruitment.

Certification Procedures (Sec. Sec.  668.13, 668.14, and 668.43)

    <bullet> Amend Sec.  668.13(b)(3) to eliminate the requirement that 
the Department approve participation for an institution if the 
Department has not acted on a certification application within 12 
months.
    <bullet> Amend Sec.  668.13(c)(1) to include additional events that 
lead to provisional certification.
    <bullet> Amend Sec.  668.13(c)(2) to require provisionally 
certified schools that have major consumer protection issues to 
recertify after three years.
    <bullet> Add Sec.  668.13(e) to establish supplementary performance 
measures the Secretary may consider in determining whether to certify 
or condition the participation of the institution.
    <bullet> Amend Sec.  668.14 to establish, in new paragraph (a)(3), 
the requirement for an authorized representative of any entity with 
direct or indirect ownership of a private institution to sign a PPA.
    <bullet> Amend Sec.  668.14(b)(17) to include all Federal agencies 
and State attorneys general on the list of entities that have the 
authority to share with each other and the Department any information 
pertaining to an institution's eligibility for or participation in the 
title IV, HEA programs or any information on fraud, abuse, or other 
violations of law.
    <bullet> Amend Sec.  668.14(b)(26)(ii) to limit the number of hours 
in a GE program to the greater of the required minimum number of clock 
hours, credit hours, or the equivalent required for training in the 
recognized occupation for which the program prepares the student, as 
established by the State in which the institution is located, or the 
required minimum number of hours required for training in another 
State, if the institution provides documentation of that State meeting 
one of three qualifying requirements to use a State in which the 
institution is not located that is substantiated by the certified 
public accountant who prepares the institution's compliance audit 
report as required under Sec.  [thinsp]668.23. This provision does not 
apply to fully online programs or where the State entry level 
requirements include the completion of an associate or higher-level 
degree.
    <bullet> Add Sec.  668.14(b)(32)(i) and (ii) to require all 
programs that prepare students for occupations requiring programmatic 
accreditation or State licensure to meet those requirements.
    <bullet> Add Sec.  668.14(b)(32)(iii) to require all programs to 
comply with all State laws related to closure of postsecondary 
institutions, including record retention, teach-out plans or 
agreements, and tuition recovery funds or surety bonds.
    <bullet> Add Sec.  668.14(b)(33) to provide that an institution may 
not withhold official transcripts or take any other negative action 
against a student related to a balance owed by the student that 
resulted from an error in the institution's administration of the title 
IV, HEA programs, or any fraud or misconduct by the institution or its 
personnel.
    <bullet> Add Sec.  668.14(b)(34) to require an institution to 
provide an official transcript that includes all the credit or clock 
hours for payment periods in which a student received title IV, HEA 
funds and for which all institutional charges were paid at the time the 
request is made.
    <bullet> Add Sec.  668.14(b)(35) to prohibit institutions from 
maintaining policies and procedures to encourage, or that condition 
institutional aid or other student benefits in a manner that induces, a 
student to limit the amount of Federal student aid, including Federal 
loan funds, that the student receives, except that the institution may 
provide a scholarship on the condition that a student forego borrowing 
if the amount of the scholarship provided is equal to or greater than 
the amount of Federal loan funds that the student agrees not to borrow.
    <bullet> Amend Sec.  668.14 to establish, in new paragraph (e), a 
non-exhaustive list of conditions that the Secretary may apply to 
provisionally certified institutions.
    <bullet> Amend Sec.  668.14 to establish, in new paragraph (f), 
conditions that may apply to institutions seeking to convert from a 
for-profit institution to a nonprofit institution following a change in 
ownership.
    <bullet> Amend Sec.  668.14 to establish, in new paragraph (g), 
conditions that apply to any nonprofit institution or other institution 
seeking to convert to a nonprofit institution.
    <bullet> Amend Sec.  668.43(a)(5) to require all programs that 
prepare students for occupations requiring State licensure or 
certification to list all the States where the institution has 
determined, including as part of the institution's obligation under 
Sec.  668.14(b)(32), that the program does and does not meet such 
requirements.

Ability-To-Benefit (Sec. Sec.  668.2, 668.32, 668.156, and 668.157)

    <bullet> Amend Sec.  668.2 to codify the definition of ``eligible 
career pathway program.''
    <bullet> Amend Sec.  668.32 to differentiate between the title IV, 
HEA aid eligibility of non-high school graduates who enrolled in an 
eligible program prior to July 1, 2012, and those who enrolled after 
July 1, 2012.
    <bullet> Amend Sec.  668.156 to separate the State process into an 
initial two-year period and a subsequent period for which the State may 
be approved for up to five years.
    <bullet> Amend Sec.  668.156 to require, with respect to the State 
process, that: (1) The application contain a certification that each 
eligible career pathway program intended for use through the State 
process meets the definition of an ``eligible career pathway program.'' 
(2) The application describes the criteria used to determine student 
eligibility for participation in the State process. (3) The withdrawal 
rate for a postsecondary institution listed for the first time on a 
State's application does not exceed 33 percent. (4) Upon initial 
application the State will enroll no more than the greater of 25 
students or one percent of enrollment of each participating 
institution.
    <bullet> Amend Sec.  668.156 to remove the support services 
requirements from the State process, including orientation, assessment 
of a student's existing capabilities, tutoring, assistance in 
developing educational goals, counseling, and follow up by teachers and 
counselors, which duplicate the requirements in the definition of 
``eligible career pathway program.''
    <bullet> Amend the monitoring requirement in Sec.  668.156 to 
provide a participating institution that has failed to achieve the 85 
percent success rate up to three years to achieve compliance.

[[Page 74571]]

    <bullet> Amend Sec.  668.156 to require that the State prohibit an 
institution from participating in the State process for at least five 
years if the State terminates its participation.
    <bullet> Amend Sec.  668.156 to: clarify that the State is not 
subject to the success rate requirement at the time of the initial 
application but is subject to the requirement for the subsequent 
period; reduce the required success rate from 95 percent to 85 percent; 
require the success rate to be calculated for each participating 
institution; and amend the comparison groups to include the concept of 
``eligible career pathway programs.''
    <bullet> Amend Sec.  668.156 to require that States report 
information on race, gender, age, economic circumstances, education 
attainment, and such other information that the Secretary specifies in 
a notice published in the Federal Register.
    <bullet> Amend Sec.  668.156, with respect to the Secretary's 
ability to revise or terminate a State's participation in the State 
process, by providing that the Secretary may (1) approve a State 
process once for a two-year period if the State is not in compliance 
with the regulations, and (2) lower the success rate to 75 percent if 
50 percent of the participating institutions across the State do not 
meet the 85 percent success rate.
    <bullet> Add a new Sec.  668.157 to clarify the documentation 
requirements for eligible career pathway programs.

Costs and Benefits

    As further detailed in the Regulatory Impact Analysis (RIA), this 
final rule provides significant benefits for the Department and 
students and some lesser benefits for institutions of higher education. 
It will create costs for institutions and some smaller costs for the 
Department and students.
    Benefits for the Department include significantly stronger 
oversight tools that could help reduce the costs of discharges 
associated with closed schools or borrower defense to repayment. The 
Department will also benefit from funding fewer postsecondary credits 
that cannot be applied toward students' educational goals.
    Benefits for students include: a greater likelihood that 
institutions will act more responsibly and not close or will conduct 
orderly closures when they occur; improved access to transcripts; 
greater assurances that their programs will prepare them for licensure 
or certification; and better information about their financial aid 
packages.
    Benefits for institutions include a more even playing field for 
institutions that do not engage in risky behavior, which may assist 
with student recruitment.
    Institutions will largely bear the costs of these regulations. The 
most significant cost will be to provide additional financial 
protection, especially if the Department collects on that protection. 
Institutions not currently in compliance with these rules will also 
have costs to come into compliance. This could include verifying that 
their online programs meet educational requirements for State licensure 
or certification, financial aid communications are clear, and they 
offer sufficient career services.
    The Department will also have increased oversight costs. There may 
also be a decrease in transfers between the Federal Government and 
students because their prospective career pathway program may have lost 
or been denied title IV, HEA program eligibility based on the new 
documentation standards.
    Public comments: On May 19, 2023, the Secretary published a notice 
of proposed rulemaking (NPRM) for these regulations in the Federal 
Register.\1\ These final regulations contain changes from the NPRM, 
which we explain in the Analysis of Comments and Changes section of 
this document. The NPRM included proposed regulations on five topics: 
financial value transparency and gainful employment (GE), financial 
responsibility, administrative capability, certification procedures, 
and ATB. The Department has already published a final rule for 
financial value transparency and GE. This final rule contains the 
remaining four topics.
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    \1\ 88 FR 32300.
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    In response to our invitation in the NPRM, 7,583 parties submitted 
comments. We discuss substantive issues under the sections of the 
proposed regulations to which they pertain. Generally, we do not 
address technical or other minor changes (such as renumbering 
paragraphs or correcting typographical errors) or recommendations that 
are out of the scope of this regulatory action or that would require 
statutory changes. We also do not address comments related to GE and 
financial value transparency (Sec. Sec.  600.10, 600.21, 668.43, and 
668.98 and subparts Q and S of part 668), which were included in the 
NPRM but are not included in this final rule. Comments and responses 
related to those topics are in the final rule published in the Federal 
Register on October 10, 2023 (88 FR 70004).

Analysis of Public Comment and Changes

    Analysis of the comments and of any changes in the regulations 
since publication of the NPRM follows.
Public Comment Period
    Comments: Several commenters asked the Department to extend the 
public comment period and argued that 30 days was insufficient time to 
properly analyze the NPRM. Commenters asked for between 15 and 60 
additional days, for a total comment period between 45 and 90 days. 
These commenters pointed out that the length of the proposed rule 
required more time to review it if they were to provide an informed 
comment. The commenters also observed that Executive Orders 12866 and 
13563 cite 60 days as the recommended length for public comment.
    Discussion: The Department believes the public comment period was 
sufficient for commenters to review and provide meaningful feedback on 
the NPRM. In response to the NPRM we received comments from more than 
7,500 individuals and entities, including many detailed and lengthy 
comments. Those comments have helped the Department identify many areas 
for improvements and clarification that result in an improved final 
rule.
    Moreover, the negotiated rulemaking process provided significantly 
more opportunity for public engagement and feedback than notice-and-
comment rulemaking without multiple negotiation sessions. The 
Department began the rulemaking process by inviting public input 
through a series of public hearings in June 2021. We received more than 
5,300 public comments as part of the public hearing process. After the 
hearings, the Department sought non-Federal negotiators for the 
negotiated rulemaking committee who represented constituencies that 
would be affected by our rules. As part of these non-Federal 
negotiators' work on the rulemaking committee, the Department asked 
that they reach out to the broader constituencies for feedback during 
the negotiation process. During each of the three negotiated rulemaking 
sessions, we provided opportunities for the public to comment, 
including after seeing draft regulatory text, which was available prior 
to the second and third sessions. The Department and the non-Federal 
negotiators considered those comments to inform further discussion at 
the negotiating sessions, and we used the information to create our 
proposed rule. Additionally, the proposed regulations for ATB were the 
regulations

[[Page 74572]]

agreed to by consensus on March 18, 2022, providing the public with 
additional time to review the Department's proposed regulations. The 
Executive orders recommend an appropriate time for public comment, but 
they do not require more than 30 days, nor do they consider the 
Department's process for regulating under the HEA.
    Changes: None.
General Opposition
    Comments: Some commenters said we should withdraw the entire NPRM.
    Discussion: We disagree with the commenters. As we discuss in 
further detail in the sections related to the specific provisions, we 
believe these regulations are important for many reasons, including to 
protect students and taxpayers from institutions at risk of closure and 
other instances where there are financial risks to students and 
taxpayers.
    Comments: A few commenters expressed concern that the proposed 
rules would create additional delays in Federal Student Aid's program 
review and institutional eligibility actions. They noted that the 
proposed rules added additional duties and review for the Department's 
School Eligibility and Oversight Service Group within Federal Student 
Aid (FSA), but there is not a prospect for additional funding necessary 
to expand the team and streamline the operations of the review process 
to offset the additional labor.
    Discussion: We appreciate the commenters' concern. However, the 
Department believes that the changes in these final regulations are 
critical to ensure that the Department can act as a proper steward of 
Federal funds. Budgetary resources for the Department are a function of 
the annual appropriations process. The Department makes requests for 
additional resources through the normal budget process and has 
accounted for these changes in its most recent requests.
    Changes: None.
    Comments: Some commenters worried that the cost of the regulations 
would result in a need for additional staffing and resources for 
schools which would mean an increase in the cost of the degree for 
students.
    Discussion: The regulatory impact analysis (RIA) of this final rule 
discusses the costs and benefits of these changes. The Department feels 
that any additional costs to institutions are justified by the 
benefits, particularly for increased protection of taxpayer funds and 
reduced number of students exposed to sudden closures or who are 
experiencing negative outcomes. The Department also provides estimates 
of the additional paperwork costs from some provisions of these rules 
in the RIA.
    Changes: None.
General Support
    Comments: A few commenters pointed out that the proposed rules will 
strengthen our higher education system. They said these rules will also 
safeguard taxpayer money that goes into the title IV, HEA programs by 
ensuring those Federal dollars only go to schools that demonstrate 
positive outcomes for their students.
    A few additional commenters applauded the Department for writing an 
NPRM that will significantly improve the outcomes for veterans and 
military-connected students.
    Discussion: We thank the commenters for their support.
    Changes: None.
Legal Authority
    Comments: Several commenters stated broadly that the NPRM failed to 
address the ``major questions doctrine'' and, relatedly, did not 
establish clear congressional authority for the proposed rules. Most of 
those commenters focused on the GE rules, particularly the GE 
accountability framework in subpart S.\2\
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    \2\ The Department addresses comments on the major questions 
doctrine related to its proposed GE regulations in a separate GE 
final rule published in the Federal Register on October 10, 2023 (88 
FR 70004). By this cross-reference, we adopt that discussion here.
---------------------------------------------------------------------------

    Discussion: We disagree with the commenters. For these rules, 
commenters did not attempt to establish the extraordinary circumstances 
under which courts have used the major questions doctrine to raise 
doubts about agency statutory authority. Commenters did not, for 
example, explain how any one of the regulations constitutes agency 
action of such exceptional economic and political significance that the 
doctrine should apply. Although these final rules are significant to 
implementing the title IV, HEA programs, none of them is a topic of 
widespread controversy or transforms the field of higher education. Nor 
did commenters show that these rules are beyond the Department's 
expertise, or that the relevant statutory provisions are somehow 
ancillary to the statutory scheme. The statutory bases for these final 
rules are not subtle. As we discuss elsewhere, title IV of the HEA is 
quite clear that, to participate in the relevant student aid programs 
and among other demands, institutions must complete a certification 
process, must meet certain standards of administrative capability, and 
must meet certain standards of financial responsibility; the ATB rules 
likewise are grounded in the HEA provisions on that subject.\3\
---------------------------------------------------------------------------

    \3\ See, e.g., 20 U.S.C. 1091(d); 20 U.S.C 1094; 20 U.S.C. 
1099c.
---------------------------------------------------------------------------

    Furthermore, the statutes plainly authorize the Secretary to adopt 
regulations pertaining to those provisions, and these rules build on 
the Department's experience and previous initiatives in these 
fields.\4\ Some commenters do disagree with various details in these 
rules, and any set of final rules will add something to preexisting 
regulations. But the presence of commenter disagreement over new rules 
is insufficient to trigger the major questions doctrine.
---------------------------------------------------------------------------

    \4\ We address the specific provisions of the rule elsewhere in 
this document. To the extent that other commenters suggest that they 
may combine all rules in a rulemaking proceeding, or combine rules 
of their choosing, and then base a major questions determination on 
a holistic evaluation of that package, we disagree. The Department 
is unaware of any authority for that position, which would treat the 
major questions doctrine regarding statutory authority for a given 
agency action in this manner. Among other problems, that position 
offers no apparent method for selecting the appropriate bundle of 
rules or for analyzing agency statutory authority at an 
undifferentiated, wholesale level.
---------------------------------------------------------------------------

    Changes: None.
Negotiated Rulemaking
    Comments: Several commenters expressed a concern about the lack of 
representation from the beauty and wellness industry during the 
negotiated rulemaking process which raises doubts about the adequate 
consideration of industry-specific interests and concerns. They stated 
that the proposed regulations could be potentially debilitating for the 
beauty and wellness industry.
    Similarly, a few commenters argued that the negotiated rulemaking 
committee was not representative of all the stakeholders who would be 
impacted by the proposed rule, and it therefore violated both the 
Administrative Procedure Act (APA) and the Negotiated Rulemaking Act of 
1996. Specifically, several commenters pointed to the fact that there 
were no representatives from cosmetology schools or small proprietary 
schools.
    Discussion: The negotiated rulemaking committee that the Department 
convened represented a broad range of constituencies, including 
proprietary institutions, which encompasses most cosmetology 
institutions. Negotiators were expected to consult with members of 
their constituency to represent the views of a range of the 
stakeholders they represent. The Department's regulations must

[[Page 74573]]

consider the effects on institutions and recipients of title IV, HEA 
aid, as well as other members of the regulatory triad (States and 
accreditation agencies) with whom we interact on these issues. We have 
no authority to regulate private employers and do not believe that 
would have been appropriate to include representation from the beauty 
and wellness industry on this negotiated rulemaking committee. In 
response to commenters that claimed that the Department violated the 
APA and the Negotiated Rulemaking Act of 1996, the Department notes 
that the HEA is the applicable law governing our negotiated rulemaking 
process. As such, under the HEA we are not required to include 
representatives from every conceivable type of trade school.
    Changes: None.
    Comments: Several commenters stated that the regulation did not 
include State authorization experts and argued that the issue of State 
authorization was embedded within the Certification Procedures 
discussion. They felt that the State authorization reciprocity should 
have been discussed as its own section in the negotiated rulemaking 
process. Some commenters were concerned about the language that was 
used in the NPRM. They urged the Department to delay any regulatory 
changes related to State authorization so that revisions could be 
addressed in the next round of negotiated rulemaking.
    Discussion: The Department disagrees with the commenters. The 
provisions in question are not a negotiation around the regulatory 
sections that include State authorization or distance education. We did 
not regulate the conditions, structure, or other elements of State 
reciprocity agreements or the organizations that operate them, nor did 
we set requirements that States must follow to oversee institutions 
enrolling students in a State where they have no physical presence. 
Rather, we addressed two narrow issues related to frequently observed 
problems and are requiring institutions to address them.
    One issue of concern for the Department is the continued challenge 
of sudden closures that leave students without a plan for how to 
continue their education. To that end, we are requiring institutions to 
certify that they are complying with State laws specific to issues 
related to closure: teach-out requirements, record retention policies, 
and tuition recovery funds or surety bonds, as applicable. The extent 
to which States have these laws, what they require, and to whom they 
apply them to is up to the States.
    A second area of concern is that students are using Federal money 
to pay for credits that they cannot use because the program lacks 
necessary State approval for licensure or certification. To that end, 
we are requiring that, for each academic program that an institution 
offers that is designed to meet educational requirements for a specific 
professional license or certification that is required for employment 
in an occupation, institutions must provide a list of all States where 
it has determined that the program does and does not meet such 
requirements.
    The Department will consider broader issues related to distance 
education and State authorization in future rulemaking efforts, during 
which we will consider the need for representation such as what the 
commenters requested.
    Changes: None.
    Comments: Several commenters expressed concern that the negotiated 
rulemaking session was conducted remotely, despite a lack of public 
health justifications for this style of session.
    Discussion: The HEA does not require that negotiated rulemaking 
sessions be held in person, and we have received compliments on our use 
of technology and the efficiency of the virtual sessions. The sessions 
encompassed all necessary components of negotiated rulemaking. We 
considered different perspectives and received comparable or more input 
than during in-person sessions. The virtual sessions were much more 
accessible to people with disabilities and people who could not afford 
to or were unable to travel. The virtual sessions have also allowed a 
far greater number of members from the public to participate than would 
be possible if they had to travel to a physical location. Interested 
parties can more easily follow the sessions online as each speaker 
occupies their own space on the screen compared to a static image of a 
table. We display documents discussed on the screen and make them 
available on our website.
    Changes: None.
    Comments: A few commenters pointed out that the negotiated 
rulemaking process did not allow sufficient time for research, impact 
analysis, and thoughtful discussion. The commenters stated that one 
contributing factor was the NPRM combining negotiations for GE with six 
other major topics, which they deemed to be too much.
    Discussion: The Department conducted 3 negotiated rulemaking 
sessions over a total of 14 days. We believe that was sufficient time 
for robust and thoughtful discussion. This was the fourth time we 
negotiated the topic of GE and the third for financial responsibility 
triggers in the last few years, so two of these issues were already 
known to the higher education community.
    Changes: None.
    Comments: One commenter argued that the NPRM rule should be 
rescinded in favor of a more open and transparent rulemaking process 
that includes all key stakeholders.
    Discussion: The Department feels that the rulemaking process was 
quite open and transparent. It involved many key stakeholders and 
allowed room for public comment during multiple steps in the process.
    Changes: None.
Need for Regulation
    Comments: One commenter pointed out that oversight is important to 
protect student interests, but it is equally important to strike a 
balance with giving autonomy to schools and institutions. They stated 
that too much oversight can hurt an institution's ability to respond to 
the needs of the labor market.
    Discussion: The Department agrees that it is important to strike a 
balance between oversight and giving autonomy to schools. However, the 
Department feels that this NPRM protects students, which is a 
worthwhile component of oversight.
    Changes: None.
Impact on Students
    Comments: Several commenters stated that they believe this 
regulation will impact students at career schools who are likely to be 
from underserved communities.
    Discussion: The Department believes that the NPRM regulations will 
help protect all individuals including students at career colleges. 
Most provisions of this final rule do not distinguish between private 
for-profit and private nonprofit institutions. Several provisions do 
not distinguish between institution types at all.
    Changes: None.
    Comments: Among the many commenters who suggested the Department 
move the discussion of State consumer laws and licensure and 
certification requirements to the next round of rulemaking, two of them 
suggested a few topics to include in the future rulemaking. 
Specifically, these commenters encouraged the Department to include the 
issue of professionals obtaining their original license due to severe 
shortages of qualified and licensed professionals in service 
professions and mobility and regional workforce concerns. These 
commenters contended that the next round of rulemaking could include 
discussion of

[[Page 74574]]

paths to State licensure that would include licensure compacts, State 
license portability, universal licensing, licensure by reciprocity or 
endorsement, and specialized or programmatic accreditation and its 
impact on meeting State licensure requirements. According to these 
commenters, institutions require the flexibility to properly educate 
students about these expanding licensure pathways, and regulators 
should collaborate with the different licensing boards to learn the 
various processes for professions.
    Discussion: The Department has already held public hearings on 
other topics for negotiated rulemaking, which include distance 
education. We can consider these ideas during that regulatory process.
    Changes: None.

Financial Responsibility (Sec. Sec.  668.15 and 668.23 and Subpart L 
(Sec. Sec.  668.171, 668.174, 668.175, 668.176, and 668.177)) (Section 
498(c) of the HEA)

General Support

    Comments: Several commenters expressed support for the Department's 
proposal to establish more safeguards in the audit submission and 
financial responsibility standards. These commenters asserted that the 
proposed regulations would provide the necessary accountability in the 
system to ensure the Department becomes aware of institutions suffering 
from financial situations that may inhibit their ability to maintain 
financial stability and to adequately administer the Federal student 
aid programs.
    One commenter stated that the proposed regulations would strengthen 
the Department's ability to monitor institutions and protect students 
against precipitous school closures. Another commenter opined that the 
proposal would implement much stronger taxpayer protections, which are 
needed to prevent losses from high-risk institutions that suddenly 
close and incur liabilities they cannot, or will not, repay.
    One commenter supported the enhanced list of financial 
responsibility triggering events and associated reporting requirements. 
That commenter believed the changes will help protect student veterans, 
military-connected students, and their family members from high-risk 
institutions.
    Discussion: We thank these commenters for their support.
    Changes: None.

General Opposition

    Comments: Many commenters opposed the overall financial 
responsibility regulations stating that the entire framework is unclear 
and should be simplified. Some of those commenters went so far as to 
say that institutions would need to retain legal counsel to understand 
the financial responsibility requirements. Those commenters also opined 
that the entire set of financial responsibility regulations is 
unworkable, and compliance would be difficult or even impossible. Along 
similar lines, many commenters criticized the financial responsibility 
regulatory package due to what they believe to be an unbearable burden 
to postsecondary institutions. One commenter suggested that the 
Department would be better served by pursuing a more discretionary 
approach to determining institutions' financial responsibility by 
evaluating the unique circumstances faced by any one institution. Other 
commenters pointed out that the burden on the Department, as it sought 
to ensure compliance with the financial responsibility regulations, 
would be such that the Department would not be able to fulfill its 
compliance obligation. Other commenters believed that this increased 
Department oversight would yield no positive impact on the financial 
health of participating institutions and that the cost incurred by the 
Department would waste taxpayer funds.
    Discussion: We disagree with the commenters. We believe the 
financial responsibility regulations are important so that the 
Department can act to minimize the impact of an institution's financial 
decline or sudden closure, which protects students and taxpayers. We 
further believe that the mandatory and discretionary triggers are very 
clear in describing what action or event has to happen for the trigger 
to activate. We explain the reasons for the triggers' necessity in 
greater detail in response to more specific comments.
    Changes: None.
    Comments: Several commenters recommended that we delay 
implementation or withdraw the proposed financial responsibility 
regulations.
    Discussion: We disagree with these commenters. The financial 
responsibility regulations are a critical set of changes that enable 
the Department to more closely monitor institutions who may be moving 
toward a level of financial instability or precipitous closure. We have 
seen numerous examples of institutional closures that harmed students, 
their families, and taxpayers. In many of those instances, we were 
hampered in our efforts to obtain information and financial protection 
from the impacted institution in a timely manner which would have 
softened the impact on students. The inability to act also has 
financial consequences for the Department and taxpayers, as we are 
often unable to offset the cost of loan discharges for closed schools 
or borrower defense.
    Changes: None.
    Comments: Individual commenters expressed a variety of concerns 
with the financial responsibility regulatory package. One commenter 
criticized the regulations as an attempt by the Department to secure 
the maximum number of letters of credit from institutions rather than 
an attempt to increase awareness of potential financial instability. 
Another lamented that the regulations did not address the financial 
scoring formula, which the commenter saw as flawed. One commenter 
criticized the general financial responsibility process since there is 
not a mechanism for an institution to provide a response before the 
Department determines that an institution is not financially 
responsible.
    Discussion: The Department's goal is to obtain the amount of 
financial protection necessary to safeguard taxpayer investments and 
discourage risky behavior, not simply maximize letters of credit from 
institutions. We seek to have the tools necessary to identify at the 
earliest point that is reasonably possible when an institution is 
financially unstable or moving toward closure. Our interest is in 
protecting the impacted students and the taxpayers who fund the title 
IV, HEA programs.
    Regarding the decision not to address the rules governing how to 
calculate the composite score, this issue was not included in the 
topics that were negotiated and therefore is not included in these 
regulations.
    We disagree with the commenter who contended there was no mechanism 
for an institution to respond to the Department prior to a 
determination that the institution was not financially responsible. The 
Department believes that the provisions in Sec.  668.171(f)(3) strike 
the balance between giving an institution an opportunity to provide 
additional information to the Department without creating a process 
where risky institutions avoid providing financial protection due to 
extended discussions. First, Sec.  668.171(f)(3)(i)(A) allows the 
institution to show that the discretionary trigger related to creditor 
events need not apply if it has been waived by the creditor. Section 
668.171(f)(3)(i)(B) allows the institution to show that when it reports 
the triggering event, it has been resolved.

[[Page 74575]]

Coupled with changes discussed later that give institutions 21 days to 
report triggering events instead of 10 days, we believe this will give 
institutions a larger window to show that the triggering event is no 
longer a concern. Finally, Sec.  668.171(f)(3)(i)(C) notes that the 
institution can provide additional information for the discretionary 
triggers to determine if they represent a significant negative 
financial event. As discussed later in this final rule, we changed this 
language to only reference discretionary triggers.
    The result of this language is that institutions will have an 
opportunity to show that the trigger is resolved and for discretionary 
triggers to provide more information to show why the situation is not 
of sufficient concern to merit financial protection. For mandatory 
triggers, institutions will have the opportunity to share additional 
information when they provide notification that the trigger occurred in 
order for the Department to determine if the triggering event has been 
resolved.
    The Department believes this situation gives institutions the 
ability to swiftly raise concerns about triggers but allows the 
Department to act quickly if the situation warrants it. This is 
particularly important as several of the triggering conditions could 
indicate a fast and significant degradation of a school's financial 
situation, such as the declaration of receivership. Preserving the 
Department's ability to act rapidly is, therefore, critical to 
protecting taxpayers from potential losses.
    Changes: None.
    Comments: One commenter said the Department should maintain 
important provisions required by statute which would not be reflected 
if Sec.  668.15 is removed and reserved.
    Discussion: The Department disagrees with the commenter. This 
change was an effort to streamline the text and amended Sec.  
[thinsp]668.14(b)(5) will now refer to all factors of financial 
responsibility in an expanded subpart L.
    Changes: None.
Legal Authority
    Comments: Several commenters expressed that the Department does not 
have statutory authority to enact these regulations. Commenters cited 
20 U.S.C. 1099c(c) (HEA section 498(c)) to support their position that 
the Department, in determining an institution's financial 
responsibility, is limited to the methods prescribed in the HEA. 
Commenters also asserted that the Department does not have authority 
under 20 U.S.C. 1099c(c) (HEA section 498(c)) or its regulations (Sec.  
668.171(f)) to establish triggers.
    Discussion: We disagree with the commenters. HEA section 498(c)(1) 
provides the authority for the Secretary to establish standards for 
financial responsibility. HEA section 498(c)(3) authorizes the 
Secretary to determine an institution to be financially responsible in 
certain situations if the institution has met standards of financial 
responsibility, prescribed by the Secretary by regulation, that 
indicate a level of financial strength not less than those required in 
paragraph (2) of the same section. It is this provision of the statute 
that directs the Secretary to ensure through regulation that an 
institution is financially responsible to protect the students 
attending the institution and the taxpayers who have made the funding 
possible for the title IV, HEA programs. Additionally, 20 U.S.C. 
1099c(c)(1)(C) provides that an institution is financially responsible 
if it is able to meet all of its financial obligations. The mandatory 
triggers we have laid out are all situations that represent 
considerable risk to an institution's operations that might not be 
reported to the Department in an annual audit for over a year. These 
risks require financial protections and constructive engagement with an 
institution about plans to address and mitigate that risk. The same 
could potentially be true of discretionary triggers, which is why they 
are reviewed on a case-by-case basis. The triggers, in fact, fill an 
important gap that exists in the current financial responsibility 
regulations, which are heavily reliant upon the composite score to 
assess an institution's financial health. While the score provides 
useful information, it also inherently lags. New composite scores are 
only produced after a fiscal year ends and the audit finishes, and the 
due dates are six months (proprietary) or nine months (non-profit) 
after the end of the institution's fiscal year. That means the annual 
composite score is not adequate to provide a real-time analysis of an 
institution's health. The triggers, meanwhile, provide a more immediate 
way to assess whether something has occurred that could threaten an 
institution's financial viability without waiting for the next 
composite score calculation when it may be too late to seek financial 
protection.
    Furthermore, HEA section 487(c)(1)(B) \5\ authorizes the Secretary 
to issue necessary regulations to provide reasonable standards of 
financial responsibility for the administration of title IV, HEA 
programs in matters not governed by specific program provisions. The 
provision in the HEA also recognizes the Secretary's authority to set 
financial responsibility standards that include ``any matter the 
Secretary deems necessary to the sound administration of the financial 
aid programs, such as the pertinent actions of any owner, shareholder, 
or person exercising control over an eligible institution.'' As 
discussed above, these triggers are providing clarity to institutions 
about how the Department will assess whether an institution is meeting 
the requirements spelled out in 20 U.S.C. 1099c(c)(1). This provides 
protection to the Federal Government against unpaid financial 
liabilities. These triggers are not addressing matters that are 
governed by existing statutory program provisions, which is how we 
interpret the language in 20 U.S.C. 1094(c)(1)(B). For instance, the 
matter addressed by the program provisions for the 90/10 rule is the 
maximum share of revenue a proprietary institution may receive from 
Federal educational assistance programs. The matter addressed by cohort 
default rates is the percentage of borrowers who default on their 
loans. The matter addressed by institutional refunds in 20 U.S.C. 1091 
is how an institution calculates amounts to be returned. None of those 
program provisions address the overall threat to an institution's 
financial health and the prospect that it cannot fulfill the provisions 
in 20 U.S.C. 1099c(c)(1) due to the program non-compliance. The program 
provisions referenced in in 20 U.S.C. 1094(c)(1)(B) do not limit the 
Department from addressing risks to the overall financial health of the 
institution that are not directly dealt with in the statutory program 
requirements.
---------------------------------------------------------------------------

    \5\ 20 U.S.C. 1094(c)(1)(B).
---------------------------------------------------------------------------

    By contrast, we view the language in 20 U.S.C. 1094(c)(1)(B) as 
preventing the Department from creating provisions that duplicate or 
contradict statutory program provisions. This would include changes 
such as establishing a maximum threshold for the share of revenue 
coming from Federal educational assistance programs that is lower than 
the 90/10 test, or a cohort default rate threshold that is below the 30 
percent one established in the HEA.
    Changes: None.
    Comments: Commenters argued that the concept of a trigger that 
immediately results in the request for financial protection is 
contradicted by 20 U.S.C. 1099c(c)(3), which lays out four conditions 
in which an institution may still show that it is financially 
responsible even if it does not meet the requirements in subsection 
(c)(1) of that same section. They argued that at the very least an 
institution that shows it meets one of the criteria in 20 U.S.C.

[[Page 74576]]

1099c(c)(3) should not be subject to a trigger.
    Discussion: The Department believes the structure of the triggers 
in this final rule comports with the requirements in 20 U.S.C. 
1099c(c)(3). For one, institutions that are subject to a trigger still 
have the option under 20 U.S.C. 1099c(c)(3)(A) to demonstrate that they 
meet the financial responsibility standards by providing a larger 
letter of credit. Those that provide such a letter of credit would not 
be subject to the trigger but instead would have to provide a larger 
amount of financial protection to mitigate the risks associated with 
the reported activity. Second, as discussed elsewhere in this final 
rule, we are not applying the financial protection requirements 
stemming from a trigger for institutions that have full faith and 
credit backing as described in 20 U.S.C. 1099c(c)(3)(B). Third, the 
provision in 20 U.S.C. 1099c(c)(3)(C) is one of the issues the 
Department is seeking to address. The triggers allow us to capture 
situations that occur in between the submission of such financial 
statements. The Department does not believe it is acceptable to wait 
the potentially extended period in between an event that could put an 
institution out of business and the submission of another round of 
financial statements. For instance, if an institution enters 
receivership two months after the submission of its financial 
statements, then it could be a year or more before the Department 
receives financial statements that would meet the requirements of this 
paragraph. Other reporting directly addresses instances where funds may 
have been temporarily held by an entity to bolster its composite ratio 
for the annual financial statement audit but subsequently removed. 
Similarly, an institution that is at risk of losing access to financial 
aid due to high default rates or a high 90/10 ratio or that has 
significant revenue tied to failing GE programs could lose eligibility 
for those programs before it submits another financial statement. These 
time lags are also why the Department believes it is appropriate to 
maintain the financial protection from a trigger for at least two 
years, so it is possible to ensure we receive updated financial 
statements to assess the institution's situation. The reporting 
includes significant financial events that may happen during the two-
year window following a change in ownership for an institution where 
additional financial protections can mitigate risks from unforeseen 
events during that period. The reporting provisions and accompanying 
requirements also constitute an alternative standard of financial 
responsibility under 20 U.S.C. 1099(c)(2)(D) that considers information 
that will in most cases be reported more promptly than available under 
the financial statement audits that are submitted at least half a year 
after the end of the fiscal year being used for the institution.
    Changes: None.
    Comments: Several commenters argued that HEA section 487 (20 U.S.C. 
1094(c)(1)(B)), must be considered alongside section 498 of the HEA and 
that this former section prohibits the use of triggers. Paragraph (c) 
of that section states ``[n]otwithstanding any other provisions of this 
subchapter, the Secretary shall prescribe such regulations as may be 
necessary to provide for . . . ``(B) in matters not governed by 
specific program provisions, the establishment of reasonable standards 
of financial responsibility and appropriate institutional capability 
for the administration by an eligible institution of a program of 
student financial aid under this subchapter, including any matter the 
Secretary deems necessary to the sound administration of the financial 
aid programs.'' The commenters argued that there are specific program 
provisions for the elements of the composite score, cash reserves, 
institutional refunds and return of title IV funds, borrower defense 
claims, change in ownership, gainful employment, teach-out plans, State 
actions/citations, the 90/10 rule, the cohort default rate, 
fluctuations in title IV volume, high annual dropout rates, 
discontinuation of programs, closure of programs, and program 
eligibility. Commenters argued that because there are existing program 
provisions for those items, the Department may not prescribe 
regulations establishing reasonable standards of financial 
responsibility based upon whether institutions meet those program 
requirements. In a footnote to this comment, the commenters also noted 
that ``a more logical reading'' of what the term ``specific program 
provision'' means would only affect institutional refunds and return of 
title IV funds, teach-outs, State actions, accrediting agency actions, 
and gainful employment.
    Discussion: As discussed above, we disagree with the commenters' 
interpretation of the interplay with section 487 and section 498 and 
have explained how the Department views those two items interacting.
    The commenters seem to argue that any matter touched on in the HEA 
is precluded from use in any other form as a financial responsibility 
trigger. But this reading is so broad as to be non-sensical, and 
inconsistent with the statutory text itself. As discussed above, 
section 487 specifically ensures that the Department does not impose 
financial responsibility provisions that are inconsistent with or 
contradict statutory program provisions. Other program provisions that 
are not inconsistent with the financial responsibility triggers in the 
Department's regulations are not implicated.
    But even under the commenters' line of argumentation, the items 
they claim are existing program requirements that prevent the use of a 
mandatory trigger are not in fact program requirements that govern the 
matter addressed by the trigger. The triggers relate to how the 
Department can assess the requirements that exist in 20 U.S.C. 
1099c(c)(1). That section mentions the need for the Secretary to 
determine if the institution has the financial responsibility based 
upon the institution's ability to do three things. First, to provide 
the services described in its official publications and statements. 
Second, to provide the administrative resources necessary to comply 
with the requirements of title IV of the HEA. And third, for the 
institution to ``meet all of its financial obligations, including (but 
not limited to) refunds of institutional charges and repayments to the 
Secretary for liabilities and debts incurred in programs administered 
by the Secretary.'' The triggers are thus not regulating on those 
specific program provisions; rather, we are including them as the 
Department considers the holistic picture of an institution's financial 
health and compliance with financial responsibility requirements.
    Several examples under the commenters' initial interpretation of 
section 487 show that even what they identify as program requirements 
is incorrect. For instance, the commenters cite 20 U.S.C. 1094(a)(21) 
as proof there are program requirements for State citations or actions 
as well as accrediting agency actions. That paragraph says institutions 
will meet requirements related to accrediting agencies or associations 
and that the institution has authority to operate within a State. Those 
are basic elements of institutional eligibility and participation. 
However, that does not prohibit the Department from considering the 
impact of accreditor or State agency actions on the participating 
institution's financial health. For example, a program that represented 
a

[[Page 74577]]

substantial portion of an institution's enrollment could lose State 
authorization and the related loss of Federal student aid revenue could 
imperil the institution's overall financial strength. Similarly, facing 
actions from accrediting agencies also could threaten an agency's 
financial health, as they would lose access to eligibility for the 
title IV, HEA programs and risk having their degrees viewed as 
illegitimate, making it harder to attract students. The citation 
provided for teach-outs is 20 U.S.C. 1094(f), which applies to a very 
specific circumstance where the Secretary must seek a teach-out upon 
initiation of an emergency action or a limitation, suspension, or 
termination action. That is a much narrower situation than the 
reporting trigger for the teach-out provision in this final rule and 
encompasses teach-outs that could also be sought by States or 
accreditation agencies. Those matters are not governed by the provision 
cited by the commenters. The commenters point to 20 U.S.C. 1099c-1 for 
fluctuations in title IV volume and high annual dropout rates, where 
the HEA lists indicators the Department should use to prioritize 
program reviews. Identifying items that may warrant program reviews is 
distinct from establishing financial protection triggers for those 
items. It is not the same thing as a program requirement.
    Accepting some of the program specific rules cited by the commenter 
would create paradoxes. For example, commenters point to Sec.  668.172 
to say there are already program requirements for equity, primary 
reserve ratio, and income ratios. But those are regulations established 
by the Department to determine if an institution has a failing 
composite score, which is only one part of determining financial 
responsibility under section 498(c) of the HEA.
    The commenters' argument based upon what they identify as ``a more 
logical reading'' that limits their critique to institutional refunds 
and return of title IV funds, teach-outs, State actions, accrediting 
agency actions, and gainful employment is also flawed. We have already 
discussed the citation related to teach-out plans, State actions, and 
accrediting agency actions so we turn to the other triggers mentioned. 
The commenters cite 20 U.S.C. 1091b and 1094(a)(24) as program 
provisions that prevent the presence of triggers related to 
institutional refunds and return of title IV funds. The former 
establishes requirements for how institutions are to calculate refunds 
and return of title IV, while the latter is a program participation 
requirement saying that the institution will abide by the refunds 
requirements in 20 U.S.C. 1091b. Neither of those is a program 
requirement in the manner that the trigger is operating. The 
Department's concern with the trigger is that failure to pay refunds is 
a sign that the institution may not meet the standards of 20 U.S.C. 
1099c(c)(1)(C), related to meeting all of its obligations, which 
includes an explicit mention of refunds. The trigger is thus directly 
connected to the Department's way of assessing if an institution meets 
that statutory requirement.
    The commenters cite 20 U.S.C. 1094(a)(24) as the program 
requirement related to the 90/10 rule. That is the section that spells 
out the 90/10 rule's requirements. But this financial responsibility 
trigger does not address how schools must calculate their Federal and 
non-Federal revenue. Instead, this rule addresses the potential effects 
of failing this provision on the financial health of the institution.
    The commenters cite Sec.  668.14(b)(26) as the program requirement 
that prevents a trigger related to gainful employment. Those provisions 
are related to limiting the maximum length of such a program and 
establishing the need for the training. As with the statutory 
requirements discussed above, the regulatory requirements relating to 
gainful employment set forth conditions of participation. They do not 
address the potential financial risk--the risk of closure--if the 
regulatory requirements are not met. The trigger is intended to address 
the financial risk. Though not cited by commenters, the same would be 
true of the gainful employment program accountability framework in part 
668, subpart S. Those items are concerned with whether programs are 
able to maintain access to title IV, HEA programs. The purpose of the 
trigger is to provide a way to for the Department to assess whether the 
institution is at risk of not being able to meet the requirements of 20 
U.S.C. 1099c(c)(1).
    Changes: None.
    Comments: Commenters argued that because 20 U.S.C. 1094(c)(1)(B) 
says the Secretary should establish reasonable standards of financial 
responsibility that means any financial responsibility requirements 
must meet the ``substantial evidence'' standard under the 
Administrative Procedure Act (APA). The commenter reached this 
conclusion by pointing to Dickinson v. Zurko, 527 U.S. 150, 162 (1999) 
to argue that the best corollary to a reasonableness standard in 
administrative law is the concept of ``substantial evidence'' because 
that is considered to be a degree of evidence that a reasonable person 
would accept as adequate. The commenter argued the substantial evidence 
standard is a higher bar than arbitrary and capricious. Commenters then 
proceeded to assert that many elements of the financial responsibility 
requirements are unreasonable, such as the triggers related to 
lawsuits, changes in ownership, Securities and Exchange Commission 
(SEC) events, and creditor events. Commenters also used the word 
unreasonable to describe the reporting requirements associated with the 
triggers, though this framing appeared to use the word differently as a 
stand in for excessive in terms of the amount of burden.
    Discussion: The Department disagrees with the commenters' legal 
arguments. The ``substantial evidence'' standard of the APA applies 
only to record-based factual findings resulting from formal rulemaking 
under sections 556 and 557. Dickinson v. Zurko, 527 U.S. 150, 164 
(1999). For informal rulemakings, which the Department conducted here, 
the arbitrary and capricious standard of review applies when 
determining whether the resulting regulation is lawful. There is no 
evidentiary threshold with respect to what regulations the Department 
may propose during the negotiated rulemaking process and publication of 
the proposed and final regulations. We also disagree with the argument 
that triggers such as lawsuits, changes in ownership, SEC events, and 
creditor events are unreasonable either in the manner of the legal 
standard the commenters argued or as excessive. We therefore disagree 
with the argument that the triggers are unreasonable based on the 
comments about there being a legal standard of reasonableness. Nor do 
we think those triggers are unreasonable in terms of being excessive. 
The triggers laid out here are all areas that indicate substantial risk 
to an institution's financial health. They are easily ascertainable and 
the events that do not require a recalculation of the composite score 
are not particularly common. We thus believe they are appropriate 
triggers to adopt.
    Changes: None.
    Comments: One commenter argued that the Department's regulatory 
language around letters of credit amounts resulted in requesting 
insufficient levels of financial protection. They argued that Sec.  
668.175(b) is contrary to the statutory requirements, because it says 
that an institution must provide financial protection equal to at least 
50 percent of title IV, HEA funds received in a year, whereas section 
498(c)(3)(A) of the HEA says that the Secretary must receive one-half 
of the annual financial liabilities

[[Page 74578]]

from the institution. The commenter argued that the amount of liability 
could be much greater than the amount of aid received, meaning that the 
amount of financial protection received by calculating based on title 
IV, HEA aid received would be insufficient.
    The same commenter similarly argued that the Department has not 
sufficiently explained why 10 percent is the appropriate minimum amount 
for financial protection instead of using a higher amount to cover 
potential losses.
    Discussion: We disagree with the commenter. The 50 percent and 10 
percent figures are minimum amounts. The Department always has the 
ability to request a higher amount if we believe that is necessary. 
However, we believe setting minimum amounts based upon annual title IV, 
HEA volume creates a simple and straightforward way for the Department 
to determine the amount and the institution to know the minimum amount 
of financial protection that might be needed. Setting the amount of 
financial protection based on ``annual potential liabilities'' is 
difficult because the Department may not be able to predict future 
liabilities at the time financial protection is required. The 
Department believes that using annual title IV, HEA funding, as it has 
historically done, provides a more straightforward formula for setting 
the amount of financial protection. With respect to the 10 percent 
amount, we similarly note that the Department can and does request 
higher amounts when we believe it is warranted. As we noted in the 2016 
final rule that also addressed financial triggers (81 FR 75926), the 10 
percent minimum is rooted in the 1994 regulations regarding provisional 
certification of institutions that did not meet generally applicable 
financial responsibility standards (34 CFR 668.13(d)(1)(ii) (1994)).
    Changes: None.
    Comments: Commenters argued that the language in Sec.  668.171(b) 
appears to create a new form of financial responsibility standards that 
are distinct from the statutory framework and are unclear how they 
would be applied.
    Discussion: The provisions in Sec.  668.171(b)(3) lay out the 
situations in which an institution is not able to meet its financial 
obligations. These lay out additional detail for how the Department 
implements the statutory requirement in 20 U.S.C. 1099c(c)(1)(C) that 
says one factor the Secretary uses when determining if an institution 
is financially responsible is its ability to meet all of its financial 
obligations. The items in Sec.  668.171(b)(3) are all key indicators of 
an institution that is not meeting its financial obligations. These are 
all critical types of financial obligations where the Department is 
concerned that past instances of these situations are strongly 
associated with massive financial challenges.
    We also disagree that the standards of these provisions are 
unclear. All the items in paragraphs (b)(3)(i) through (v) are laid out 
clearly. The only one that has perhaps the most area of variability is 
paragraph (b)(3)(i), where the Department would not consider a single 
incorrect refund as evidence of a lack of financial responsibility but 
would instead be considering patterns of this behavior. Paragraph 
(b)(3)(vi), meanwhile, is a reference to the triggers in Sec.  
668.171(c) and (d), which we describe in detail throughout this final 
rule as connecting to concerns about financial responsibility.
    Changes: None.
    Comments: Commenters argued that the potential for stacking letters 
of credit from triggering conditions violates section 498(e) of the 
HEA, which only requires financial guarantees sufficient to protect 
against the potential liability.
    Discussion: We disagree with the commenters. We view each of these 
triggers as representing risks to an institution through different 
channels. As we note elsewhere in this final rule, if multiple triggers 
occur as a result of the same underlying event, we could consider that 
situation and choose to request a lower level of financial protection. 
However, an institution that is truly facing multiple independent 
triggers is going to be in precarious financial shape. For instance, an 
institution that has entered into a receivership, declared financial 
exigency, and is being required to make a significant debt payment that 
results in a failed composite score recalculation is exhibiting 
multiple warning signs that it could be headed toward a closure. In 
such situations, the institution could incur liabilities equal to or 
even more than 30 percent of one year of title IV, HEA volume just from 
closed school discharges. In other situations, it is possible that the 
associated liabilities could easily exceed a single year of title IV, 
HEA funds received. For example, an institution that is now subject to 
a recoupment action under borrower defense because it engaged in 
substantial misrepresentations for a decade could be looking at a 
liability that is equal to what they received for years.
    Changes: None.

Compliance Audits and Audited Financial Statements (Sec.  668.23)

    Comments: A few commenters opposed the Department's proposal in 
Sec.  [thinsp]668.23(a)(4) that the submission deadline for compliance 
audits and audited financial statements be modified to the earlier of 
six months after the institution's fiscal year end or 30 days after the 
completion of the audit. These commenters pointed out that this change 
would increase the burden on schools and auditors.
    Some of the commenters believed that the benefit of early 
identification of financial concerns would be far offset with the 
administrative burden and possible missed deadlines that many schools 
would encounter.
    A few commenters expressed opposition to the modified deadline, 
saying it was unfair to proprietary institutions as the modified 
requirement has no impact on institutions subject to the Single Audit 
Act.
    Some commenters opined that the deadline of 30 days after the 
completion of the audit was not a clearly defined date. The reason 
cited by the commenters was that accounting firms differ on how they 
define completion of the audit. This would result in different 
deadlines being established depending on what firm calculated the date. 
The commenters also stated that the review and finalization of a final 
audit report by the accounting firm occurs after the audit work has 
been completed thereby using part of the institution's period for 
submission. The commenters believed that the 30-day deadline had too 
many variables outside of the audited institution's control to be able 
to submit a timely audit to the Department.
    One commenter expressed the opinion that the issue was more about 
how quickly the Department processes the audits it receives and 
suggested that a collaborative relationship between the Department and 
institutions would be a better way to achieve the desired outcome 
rather than a more restrictive deadline.
    Discussion: The Department declines to adopt the changes suggested 
by the commenters. This provision aligns the treatment of audit 
submission deadlines for all institutions regardless of whether they 
are public, private nonprofit, or proprietary. In particular, public 
and private nonprofit institutions have already been complying with 
this requirement under deadlines that exist for institutions subject to 
the Single Audit Act. Under 2 CFR 200.512(a)(1), audits must be 
submitted at the earlier of 30 calendar days after receipt of the audit 
report, or nine months after the end of the audit period (plus 
extension). This provision thus creates equitable treatment across 
institution types. When there are separate auditor signature dates on 
the audited financial

[[Page 74579]]

statements and the compliance audit, the relevant date is the later of 
those two dates.
    Providing 30 days for the submission of these statements is 
sufficient time. At this point, the auditor is doing limited further 
work on the audit. This change gives institutions approximately 30 days 
to complete the simple task of uploading the finished document. That 
can easily be completed in this window.
    Overall, the Department maintains the importance of this provision. 
Having up-to-date financial information is critical for properly 
enforcing financial responsibility requirements needed to conduct 
proper oversight of institutions participating in the title IV, HEA 
programs. Allowing institutions to wait months after an audit is 
completed to submit it would delay the Department learning critical 
information, particularly if an institution is exhibiting signs of 
financial distress. This provision does not change the overall 
deadlines that affect the latest point an audit can be submitted. It 
simply ensures that audits must be sent to the Department shortly after 
completion.
    Changes: None.
    Comments: Several commenters objected to the proposed requirement 
in Sec.  668.23(d)(1) that an institution's fiscal year, used for its 
compliance audit and audited financial statements, match the year used 
for its U.S. Internal Revenue Service (IRS) tax returns. One of those 
commenters expressed the concern that the IRS does not permit changes 
in tax years or will only permit such a change after a long approval 
process. Another of those commenters stated that it was common for one 
entity to have a particular fiscal year for tax purposes and a 
corporate parent may have a different tax fiscal year. Another 
commenter suggested that this change was an attempt to force all 
institutions to use a December 31 fiscal year end date.
    Discussion: Requiring the institution to match its fiscal year to 
its owner's tax year (the entity at which the institution submits its 
audited financial statements) allows the Department to conduct 
consistent oversight. Some of the Department's requirements (for 
financial protection or following changes of ownership, for example) 
are based on one or two complete years of audited financial statements. 
Requiring the institution's fiscal year end to match the owner's tax 
filing deadline prevents institutions from manipulating the required 
timelines, and it relieves the Department from having to make case by 
case determinations. The practice of determining if the use of 
different fiscal years for Departmental and IRS purposes is done for 
manipulative reasons also takes time and resources from the 
Department's ability to review other institutions. We believe that the 
occurrence is common enough to warrant this change. This rule is not 
dictating to institutions which date they must use but is just 
requiring institutions to be consistent and align the end dates for 
fiscal and tax years. This rule applies to fiscal years that begin 
after the effective date of these regulations and we believe that 
institutions will have sufficient time to comply.
    Changes: None.
    Comments: Several commenters objected to the proposal in Sec.  
[thinsp]668.23(d)(1) to require the reporting of all related-party 
transactions. One of those commenters believed that with no limitation 
on the size of the transactions to be reported, such a provision would 
be problematic because accounting processes would have to change to 
capture and report such de minimis expenses as lunches for board 
members. The commenter went on to suggest that the Department use the 
publicly available IRS form 990 that nonprofits must already complete 
annually to address this concern, rather than creating a regulatory 
requirement. Another commenter inquired as to how a related party 
disclosure, required in the annual audited financial statements, would 
be reported if no transactions occurred during the current year. The 
commenter stated that related parties may exist due to ownership 
affiliations while no transactions between the companies may be 
occurring in the current year. The commenter wondered if such a 
relationship still needed to be disclosed. One of these commenters 
objected to requiring auditors to disclose related parties since that 
is not required in generally accepted accounting principles (GAAP) and 
goes beyond the level of assurance provided by audited financial 
statements.
    Discussion: The requirement that an institution must report its 
related party disclosures is not a new proposal in this regulation. 
Rather, the NPRM clarified that the items currently listed as possible 
to include when disclosing related party transactions must be included. 
That means including identifying information about the related party 
and the nature and amount of any transactions. The existing reference 
to related entities in Sec.  668.23(d)(1) requires the institution to 
submit a detailed description of related entities based on the 
definition of a related entity set forth in Accounting Standards 
Codification (ASC) 850. However, the disclosures under the existing 
regulations require a broader set of disclosures than those in ASC 850. 
Those broader disclosure requirements include the identification of all 
related parties and a level of detail that would enable the Secretary 
to readily identify the related party, such as the name, location and a 
description of the related entity, the nature and amount of any 
transactions between the related party and the institution, financial 
or otherwise, regardless of when they occurred and regardless of 
amount. To the commenter concerned with disclosing de minimis 
transactions, such as meals for a board member, we do not intend to 
require reporting on such transactions. Routine items such as meals 
provided to all board members during a working lunch would not be a 
related party transaction since the meals would be incidental to 
supporting a board meeting. Transactions with individual board members 
for other services provided to the institution or a related entity 
would be reportable. We agree with the commenter that the existing 
regulatory text was unclear about what an institution should do if they 
do not have any related party transactions for that year. To clarify 
this issue, we have added an additional sentence to the end of 
paragraph (d)(1) noting ``If there are no related party transactions 
during the audited fiscal year or related party outstanding balances 
reported in the financial statements, then management must add a note 
to the financial statements to disclose this fact.''
    We are adding this provision as well as adopting the changes 
already mentioned in the NPRM because it is critical that the 
Department receive accurate and identifiable information about related 
party transactions, including by an affirmative confirmation when no 
related party transactions exist. These transactions are relevant to 
whether audited financial statements should be submitted on a 
consolidated or combined basis. Related party transactions may also 
require adjustments to the calculation of an institution's composite 
score. In addition, when a school is participating as a nonprofit 
institution, or seeks to participate as a nonprofit institution, 
related party disclosures help the Department identify financial 
relationships that could be an impediment to nonprofit status for title 
IV, HEA purposes.
    The Department does not believe the information provided on a Form 
990 is sufficient for this purpose. In fact, we have seen situations 
where the

[[Page 74580]]

Department uncovered related party transactions existed, but they had 
not been reported on the entity's 990s.
    If no transactions occurred during the year, and no current 
receivable or liability is included in the financial statements then 
institutions would not need to include anything related to this 
relationship in the financial statements for that year.
    Changes: We have added a requirement in Sec.  668.23(d)(1) for 
management to add a note to the financial statements if there are no 
related party transactions for this year.
    Comments: A few commenters expressed that changes to Sec.  
668.23(d)(1) say that financial statements must now be ``acceptable'' 
and sought clarification on what the Department means by acceptable.
    Two commenters sought assurance that financial statements completed 
in accordance with GAAP and generally accepted government auditing 
standards (GAGAS) were acceptable and that there was not some 
additional requirement.
    Another commenter suggested that we remove any requirement beyond 
GAAP and GAGAS from these final regulations and negotiate it 
separately.
    Discussion: To adequately evaluate the financial position of an 
institution, not only must the financial statements meet the 
requirements of GAAP and GAGAS, but they must be at the level of the 
correct entity and show actual operations to be acceptable. As already 
discussed, the Department strongly believes the triggers and other 
provisions in these final regulations related to financial 
responsibility that go beyond GAAP and GAGAS are necessary to carry out 
the statutory requirement that institutions are financially responsible 
and do not have to be negotiated separately. These provisions were 
negotiated, albeit without consensus, in the negotiated rulemaking 
process leading to the proposal of these regulations.
    Changes: None.
    Comments: One commenter stated that the NPRM violates the OMB 
Memorandum M-17-12 which discourages making personally identifiable 
information (PII) publicly available. The commenter referred in part to 
the requirement that institutions disclose related party transactions 
under Sec.  668.23(d)(1).
    Discussion: The Department disagrees. The requirement to disclose 
related party transactions is already in existing regulations. No 
provision of these final regulations involves releasing PII nor 
requiring institutions to disclose PII to parties other than the 
Department.
    Changes: None.
    Comments: Many commenters supported the Department's proposed 
requirement in Sec.  [thinsp]668.23(d)(5) that institutions disclose 
amounts spent on recruiting, advertising, and pre-enrollment 
activities. Relatedly, other commenters said the Department should 
require institutions to disclose in their financial statements the 
amounts spent on instruction and instructional activities at the 
program level. One of those commenters further believed that the 
disclosure should include amounts spent by the institution on academic 
support and support services.
    Many other commenters, however, objected to this proposal. Several 
commenters said these items are not linked to the institution's actual 
financial stability. Many of the commenters stated that the Department 
did not define these terms and sought clarification on exactly what 
activities would be included in recruiting, advertising, and pre-
enrollment activities. Commenters also raised concerns about auditors 
attesting to these items for the year prior to the one being audited.
    Discussion: We appreciate the commenters' input. After careful 
consideration of the comments received, we removed the provision in 
Sec.  668.23(d)(5) that required a footnote in an institution's audited 
financial statements that stated the amounts spent on recruiting 
activities, advertising, and other pre-enrollment expenditures. We also 
removed the cross-reference to this audited financial statement 
requirement in the certification requirements in proposed Sec.  
668.13(e)(iv). However, we will retain the language in proposed Sec.  
668.13(e)(iv), now renumbered as Sec.  668.13(e)(2) in the final rule, 
stating that the Department may consider these items in its 
determination whether to certify, or condition the participation of, an 
institution. We discuss the reason for continuing to include that 
provision in greater detail in that section of the preamble to this 
final rule.
    The Department is removing the provision in Sec.  668.23 because we 
are persuaded by the concerns raised by commenters about the lack of 
clear standards for what auditors would need to attest to as well as 
the timing of the periods covered by audits versus this requirement. 
Moreover, the requirement in Sec.  668.23 was added to provide a data 
source for the supplementary performance measures in Sec.  668.13(e), 
which are designed to lay out indicators the Department could consider 
on a case-by-case basis. Since that issue would be considered for 
individual institutions, the Department believes it would be better to 
request these data when deemed necessary for a given institution rather 
than requiring all institutions to disclose them.
    The Department declines to adopt the additional disclosures on 
amounts spent on instruction for similar reasons. We believe this issue 
is better considered on a case-by-case basis in Sec.  668.13(e) as 
concerns about excessive spending on marketing or recruitment compared 
to instruction have in the past been limited to a minority of 
institutions.
    Changes: We have omitted proposed Sec.  668.23(d)(5) as well as the 
reference to that proposed paragraph in proposed Sec.  668.13(e)(iv), 
now renumbered as Sec.  668.13(e)(2) in the final rule.
    Comments: One commenter objected to the Department's requirements 
that financial statements be audited using GAAP and GAGAS. The 
commenter pointed out that a number of institutions have one or more 
upper-level foreign owners who may have financial statements prepared 
in accordance with International Financial Reporting Standards (IFRS) 
and are audited in accordance with the European Union (EU) Audit 
Regulations. As an example, the commenter stated that the SEC has 
accepted from foreign private issuers audited financial statements 
prepared in accordance with IFRS without reconciliation to U.S. GAAP. 
The commenter questioned the Department's authority for requiring 
upper-level owners' financial statements be prepared in accordance with 
GAAP/GAGAS and requested that we provide in the final rule that we 
permit IFRS/EU standards with respect to financial statements of upper-
level foreign owners.
    Discussion: The Department's regulations maintain different 
financial statement requirements for foreign and domestic institutions. 
For foreign institutions, we spell out when financial statements may be 
prepared and audited under different standards in Sec.  668.23(h). 
However, for domestic U.S. institutions we believe GAAP or GAGAS is 
appropriate for ensuring we are reviewing all domestic institutions 
consistently. The Department's longstanding policy is not to accept 
IFRS/EU standards for domestic U.S. institutions, and we think the loss 
of comparability that would occur from starting to do so would make it 
hard to apply the financial responsibility requirements consistently.
    Changes: None.

[[Page 74581]]

Financial Responsibility--General Requirements (Sec.  668.171(b))

    Comments: One commenter opined that the requirements proposed in 
paragraph (b) appeared to occupy a category of financial responsibility 
separate from the other requirements proposed in Sec.  668.171. The 
commenter said there was little explanation of how the general 
requirements in paragraph (b) would be applied to institutions and what 
the consequences for noncompliance would be.
    Discussion: The consequences for non-compliance under Sec.  
668.171(b) are the same as any other failure of the financial 
responsibility standards, including the composite score. That is how 
this provision has always been applied. Institutions would be given the 
options as outlined under Sec.  668.175.
    Changes: None.
    Comments: One commenter expressed support for the provision in 
Sec.  668.171(b)(3)(i) that an institution is not financially 
responsible if it has failed to pay title IV, HEA credit balances to 
students who are owed those funds. Another commenter, however, 
requested the Department to confirm that minor infractions of the 
credit balance rule would not result in an institution being deemed 
financially irresponsible. The commenter pointed that student credit 
balance deficiencies has been a top program review and audit finding 
for some years. The commenter believed that this finding alone did not 
and should not subject institutions with this finding as automatically 
not financially responsible. The commenter concluded with supporting 
language for this provision when it is determined that an institution 
is withholding title IV, HEA credit balances to utilize those funds for 
purposes other than paying them to the students owed those funds.
    Discussion: An institution's failure to pay necessary refunds or 
credit balances of title IV, HEA funds to students has been a strong 
sign in the past of institutional financial distress. The Department 
has seen institutions hold onto these funds to keep themselves in 
better financial shape, even as it harms students. As it reviews 
instances that fall under this category the Department will consider if 
it is an isolated instance or evidence of a larger pattern and consider 
that in making determinations of financial responsibility.
    Changes: None.
    Comments: Several commenters took issue with the provision stating 
that an institution is not financially responsible if it fails to make 
debt payments for 90 days. These commenters were concerned that in some 
instances delayed payments were the result of external factors and did 
not indicate that the institution was financially irresponsible. The 
commenters stated that the proposed regulation lacks clarity and does 
not distinguish between intentional non-payment and instances where the 
delay is linked to some administrative or logistical challenge. For 
example, commenters believed that in certain cases, delayed debt 
payments could arise from factors beyond an institution's control, such 
as delays in invoice processing or delivery, and this could place an 
institution in the status of being not financially responsible.
    On a similar note, one commenter raised a concern over the 
provision whereby an institution would be financially irresponsible if 
it failed to satisfy its payroll obligations in accordance with its 
published payroll schedule. The commenter suggests that the Department 
add language to the final regulation establishing a grace period of 10 
calendar days so that if an institution resolved its payroll 
obligations during the grace period, it would remain financially 
responsible.
    Discussion: Since participating institutions typically have title 
IV, HEA funding as their primary revenue source, ``external factors'' 
should not negatively impact the institution or owner entity's 
obligation to make a required debt payment within 90 days. As to the 
other comment, the failure to satisfy payroll obligations in accordance 
with a published schedule is an early and very significant indicator of 
financial instability. To that end, we do not believe a 10-day grace 
period as suggested by the commenter would be appropriate as that could 
simply result in the institution moving money across accounts to hide 
issues.
    Changes: None.
    Comments: Many commenters requested clarification on whether there 
was a materiality threshold for any provision in Sec.  668.171 and what 
we meant when we used the term ``material'' in the proposed regulatory 
text.
    Discussion: It would be inappropriate to adopt a materiality 
standard for Sec.  668.171. A materiality threshold commonly depends 
upon determinations made by auditors, often in response to information 
provided by management. Adopting a materiality standard would move the 
discretion away from the Department to the auditor and the 
institution's management. Doing so would undercut our ability to 
quickly seek financial protection when needed. However, we agree with 
the commenters that use of the word material in the NPRM implies a 
materiality threshold is in place when it is not. Therefore, we will 
replace ``material'' with ``significant'' in describing ``adverse 
effect'' or ``change in the financial condition'' in Sec.  668.171. A 
significant adverse effect is an event or events impacting the 
financial stability of an institution that the Department has 
determined poses a risk to the title IV, HEA programs.
    Changes: We have replaced ``material'' with ``significant'' in 
Sec. Sec.  668.171(b), (d), and (f) and 668.175(f), where we refer to 
adverse effects or changes in financial condition.

Financial Responsibility--Triggering Events (Sec.  668.171(c) and (d))

    Comments: Several commenters supported the Department's proposed 
financial triggers, believing that they allow us to swiftly act to 
protect students when a postsecondary institution's financial stability 
is called into question. Another commenter expressed that taxpayers 
would be better protected by the proposed financial triggers in that 
liabilities arising from school closures would be partially or wholly 
offset with the financial protection obtained due to the financial 
trigger regulations.
    Discussion: We thank the commenters for their support.
    Changes: None.
    Comments: Many commenters objected to the proposed financial 
triggers for a variety of reasons. Several of those comments raised the 
objection that the financial triggers, as proposed, exceed the 
Department's statutory authority to ensure an institution participating 
in the Federal student aid programs is financially responsible.
    Discussion: We disagree with the commenters and explain our 
rationale in greater detail in response to summaries of more specific 
comments. But overall, we believe the financial responsibility 
regulations are a proper exercise of the Department's authority under 
the HEA to protect taxpayers from potential losses from closures or 
other actions that create a liability owed to the Department.
    Changes: None.
    Comments: Many commenters objected to the mandatory financial 
triggers due to their belief that the triggers exceed the authority 
granted the Department by statute. Some of these commenters cited 20 
U.S.C. 1099c(c) (HEA section 498(c)) to support their position that the 
Department is limited to the prescribed methods in determining an 
institution's financial responsibility. Commenters also stated that the 
proposed trigger events are not

[[Page 74582]]

related to financial responsibility. Several commenters also argued 
that mandatory triggers go against Congress's directions that the 
Secretary determine an institution is not financially responsible.
    Discussion: As discussed previously, HEA section 498(c)(1) provides 
the Department with the authority to establish standards for financial 
responsibility, and that authority goes beyond ``ratios'' in section 
498(c)(2) of the HEA. Our determination that an institution is or is 
not financially responsible is not solely about composite scores. That 
is only one component of it. Another important factor in our 
determination is whether an institution participating in the title IV, 
HEA programs is financially unstable beyond, and since, what its most 
recent composite score revealed. HEA section 498(c)(3) authorizes the 
Secretary to determine an institution to be financially responsible in 
certain situations if the institution has met standards of financial 
responsibility, prescribed by the Secretary by regulation, that 
indicate a level of financial strength not less than those required in 
paragraph (2) of the same section. It is this provision of the statute 
that directs the Secretary to ensure through regulation that an 
institution is financially responsible sufficient to protect the 
students attending the institution and the taxpayers who have made the 
funding possible for the title IV, HEA programs. The financial triggers 
are examples of just such requirements.
    Financial instability may be caused by an event that occurs after 
the most recent composite score, and the purpose of the triggers is to 
identify those events which might impact the viability of the 
institution. For example, an event that could lead to closure or 
serious financial instability may not have occurred during the fiscal 
year upon which the most recent composite score is based. The inability 
of the composite score to be predictive in this regard also results 
from the fact that the due date for audited financial statements is up 
to 6 or 9 months, depending on the type of institution, after the close 
of the fiscal year.
    Overall, we believe all the mandatory triggers have a clear nexus 
to financial risk. The financial triggers represent several 
circumstances of obvious concern. There are some, such as 90/10, cohort 
default rates (CDR), and gainful employment, where the institution 
could be at imminent risk of loss of title IV, HEA funds from 
compliance factors administered by the Department. While that does not 
guarantee a closure, loss of title IV, HEA funding often does relate to 
closure. The declaration of financial exigency and receivership are 
also signs of significant financial distress and possible closure. 
Lawsuits and debt payments involve composite score recalculations that 
could cause an institution to subsequently fail the composite score. 
The State actions and teach-out requirements are again proof that there 
are imminent concerns about financial impairment if not outright 
closure. Finally, there are several triggers that are designed to 
support the integrity of the Department's financial responsibility 
composite score methodology, such as triggers related to financial 
contributions followed by a financial distribution as well as creditor 
events.
    We also note that each of these triggers operate independently of 
each other. They have their own reporting requirements, and it is 
possible for an institution to activate a single trigger without 
activating others. As a result, they each provide a unique and separate 
value in assessing financial health. This is even the case when the 
single underlying event activates multiple triggers. In such 
situations, the event is activating triggers for different reasons.
    Changes: None.
    Comments: Many commenters said the Department should adopt a 
materiality threshold in the triggering conditions. One commenter used 
an example of a triggering event representing $1 requiring the 
imposition of a financial protection instrument and felt that result 
was unreasonable.
    Several of the commenters felt the lack of a materiality threshold 
would result in determinations that an institution was not financially 
responsible when the causal factor was not one that had a material 
adverse effect on the institution's ability to meet its financial 
obligations. The commenters further stated that the Department should 
be required to use clear criteria to determine that an institution's 
action or event would, in fact, negatively impact the institution's 
ability to meet its financial obligations.
    Commenters similarly argued that the lack of a materiality 
requirement was unreasonable. This was incorporated in a larger 
argument about how a reasonableness standard is akin to the concept of 
substantial evidence under the APA.
    Discussion: We disagree with commenters that it would be 
appropriate to adopt a materiality standard for the triggering events 
for several reasons. A materiality threshold commonly depends upon 
determinations made by auditors, often in response to information 
provided by management. The goal of the triggers is to identify 
situations that occur between financial audits that could represent a 
significant adverse financial effect on an institution. Adopting a 
materiality standard would move the discretion away from the Department 
to the auditor and the institution's management. Doing so would 
undercut our ability to quickly step in and seek financial protection 
when needed. While commenters have presented hypothetical examples of 
an unidentified triggering event tied to $1, they have not outlined a 
concrete example of how that would occur. While it is possible that 
settlements or judgments could result in $1 payments, those triggers 
involve a recalculation of the composite score, and it is unlikely that 
$1 would cause a score to fail. However, as discussed previously, we 
will replace ``material'' with ``significant'' in describing adverse 
effect and the financial condition of an institution. We crafted the 
mandatory triggers to identify situations that would represent 
significant financial threats to an institution's overall health, while 
the discretionary triggers leave room for us to consider whether the 
situation poses a significant adverse financial effect. While 
Departmental consideration is not a materiality threshold, which was 
suggested by some commenters, it does provide institutions an 
opportunity in Sec.  668.171(f) to explain why they think the 
discretionary trigger should not result in a request for financial 
protection. One example of such an explanation might be that the 
financial impact upon the institution is negligible or nonexistent. We 
believe that process addresses the commenters' concerns.
    Each of the mandatory triggers has a clear connection to 
significant financial concerns. The triggers related to receivership 
and financial exigency capture situations where an institution has 
declared that it is at risk of being unable to afford its financial 
obligations. The GE, 90/10, and CDR triggers indicate situations where 
an institution might lose some or all access to title IV, HEA funds in 
a year.
    The triggers for SEC actions and teach-out plans represent 
situations where there are serious concerns about either an 
institution's financial health or it is at risk of losing its public 
listing, which is often a sign of weak finances.
    The triggers around distributions followed by a contribution and 
creditor conditions address a different type of financial risk. In 
those situations, we are concerned an institution is manipulating its 
composite score to hide what might otherwise be a failure. We treat the 
distribution following the

[[Page 74583]]

contribution as a failure because we do not have an accurate picture of 
an institution's finances and this information will allow us to assess 
the effects of these transactions on an institution's financial health. 
For the creditor actions, we take the fact that they are worried enough 
about the institution to insert such a condition as evidence that the 
Department should also be concerned about institutional financial 
health.
    Finally, the triggers related to legal and administrative actions 
allow us to recalculate the composite score to determine if the 
monetary consequences of the actions negatively impacted the 
institution. This recognizes that there could be gradations within 
those events that have greater or less financial implications.
    As discussed later in the mandatory triggers section, we have also 
altered some mandatory triggers to make them more clearly connected to 
financial concerns or shifted them to discretionary triggers if we are 
concerned that they may not result in a significant adverse financial 
effect. We believe the result is that the mandatory triggers capture 
the most concerning financial events, and the discretionary triggers 
result in a request for protection if they show a negative effect. That 
will address concerns about institutions being subject to letters of 
credit for immaterial events.
    We also object to the commenters' argument that the lack of a 
materiality threshold is unreasonable. We have addressed the arguments 
about reasonableness and substantial evidence in the legal authority 
section of this preamble related to financial responsibility. In terms 
of unreasonableness as a general concept, as explained above, we 
believe the mandatory triggers all represent either common sense areas 
that can indicate an institution is facing significant financial 
problems or more complicated ways that an institution is trying to 
manipulate its results. The greater variability in the discretionary 
triggers is why they involve a case-by-case determination. But we 
believe the items identified for discretionary triggers represent 
obvious and sensible indications that an institution could be seeing 
negative effects on its finances, which leads to relevant questions 
about how large the negative effect might be.
    Changes: As discussed previously, we have changed ``material'' to 
``significant'' in Sec. Sec.  668.171(b), (d), and (f) and 668.175(f) 
where we refer to adverse effects or changes in financial condition.
    Comments: Many commenters said the Department must provide a 
process by which institutions would have the opportunity to provide 
input for the Department to evaluate before making any determination 
affecting the institution's financial responsibility status. Some of 
those commenters included said the ``automatic'' aspect of the 
financial triggers was inconsistent with the statutory requirements in 
HEA section 498(c)(3). Several of these commenters elaborated on their 
concerns by noting that the lack of any interim decision and challenge 
process means institutions will be required to immediately provide 
financial protection until the institution continues to pursue 
dismissal of the cause of the trigger even though the Department may 
make a final determination that financial protection is not necessary. 
They contended that some of the mandatory financial triggers were not 
automatically reflective of an institution's financial stability but if 
it found itself in violation of one or more of the mandatory triggers 
would automatically be deemed to be not financially responsible. The 
commenters asserted that the following triggers did not reflect 
financial instability: (1) A suit by a Federal or State agency, or a 
qui tam lawsuit in which the Federal Government has intervened; (2) The 
institution received at least 50 percent of its title IV, HEA funding 
in its most recently completed fiscal year from GE programs that are 
failing the GE program accountability framework: (3) Failing the 
threshold for non-Federal educational assistance funds; and (4) High 
CDRs.
    Discussion: Section 498(c)(1) of the HEA provides the authority for 
the Secretary to establish standards for financial responsibility, and 
it is not limited by the reference to ``ratios'' in section 498(c)(2). 
Our determination that an institution is or is not financially 
responsible is not solely about a formula with a composite score. That 
is only one piece of it. Another important piece factoring into our 
determination is whether an institution participating in the title IV, 
HEA programs is financially unstable beyond, and since, what its most 
recent composite score revealed. Financial instability may be caused by 
an event that occurs after the most recent composite score, and the 
purpose of the triggers is to identify those events which might impact 
the viability of the institution. The Department believes that the 
provisions in Sec.  668.171(f)(3) strike the balance between giving an 
institution an opportunity to provide additional information to the 
Department without creating a process where risky institutions avoid 
providing financial protection due to extended discussions. First, 
Sec.  668.171(f)(3)(i)(A) allows the institution to show that the 
discretionary trigger related to creditor events need not apply if it 
has been waived by the creditor. Section 668.171(f)(3)(i)(B) allows the 
institution to show that when it reports the triggering event, it has 
been resolved. Coupled with changes discussed later that give 
institutions 21 days to report triggering events instead of 10 days, we 
believe this will give institutions a larger window to show that the 
triggering event is no longer a concern. Finally, Sec.  
668.171(f)(3)(i)(C) notes that the institution can provide additional 
information for the discretionary triggers to determine if they 
represent a significant negative financial event. As discussed later in 
this final rule, we changed this language to only reference 
discretionary triggers.
    The result of this language is that institutions will have an 
opportunity to show that the trigger had been quickly resolved and for 
discretionary triggers provide more information to show why the 
situation is not of sufficient concern to merit financial protection. 
For mandatory triggers, institutions will have the opportunity to share 
additional information when they provide notification that the trigger 
occurred in order for the Department to determine if the triggering 
event has been resolved.
    The Department believes this situation gives institutions the 
ability to swiftly raise concerns about triggers but allow the 
Department to act quickly if the situation warrants it. This is 
particularly important as several of the triggering conditions could 
indicate a fast and significant degradation of a school's financial 
situation, such as the declaration of receivership. Preserving the 
Department's ability to act rapidly is, therefore, critical to 
protecting taxpayers from potential losses.
    Changes: We changed Sec.  668.171(f)(3)(i)(C) to clarify that the 
provisions contained therein apply to the discretionary triggers 
contained in Sec.  668.171(d) and not the mandatory triggers contained 
in Sec.  668.171(c).
    Comments: Several commenters said the financial triggers do not 
appear to result from complete and careful Departmental analysis and 
expressed concerns about unintended consequences as a result of the 
financial triggers. Some commenters thought that an unintended 
consequence would be that some institutions would be thrust into a 
status of financial instability, including possible closure, due to the 
burden of complying with these

[[Page 74584]]

financial responsibility regulations when they would not have been so 
categorized under existing rules. Some of those comments opined that 
the triggers would especially impact private nonprofit and private for-
profit institutions. Another commenter maintained that the Department 
performed no analysis to identify unintended consequences of these 
regulations. Another commenter was concerned that the Department did 
not share its analysis on the necessity of these regulatory changes and 
additions. Commenters called upon the Department to provide the data 
used to determine that the existence of these proposed financial 
triggers would put an institution at a higher risk of closure as stated 
in the NPRM.
    Discussion: The Department disagrees with the commenters. 
Institutions act in a fiduciary capacity on behalf of the Department 
when they administer the title IV, HEA programs, and they must meet the 
Department's financial responsibility requirements to perform that 
role. As discussed in the sections of this document related to the 
mandatory and discretionary triggers, based on the Department's 
experience, we have concluded that the mandatory triggering events 
represent situations of significant financial concern, including the 
potential for either immediate closure, loss of access to aid after 
another year of performance results on certain measures, or other 
sufficient warning signs. Seeking financial protection in these 
situations represents the Department exercising its proper 
responsibility for overseeing taxpayer investments in the title IV, HEA 
programs. Mandatory triggers represent events where there are negative 
financial effects to an institution's financial health and therefore 
warrant financial protection while further review of an institution's 
financial condition can take place. Moreover, discretionary triggers 
will only result in Department requests for financial protection after 
a determination by the Department that they represent a significant 
negative financial effect. As such, we are not persuaded that the 
triggers will cause the kinds of unintended consequences discussed by 
commenters. The point of exercising the triggers is to protect 
taxpayers and ensure that the institutions that students choose to 
attend are financially responsible. As discussed in the RIA, we 
recognize that seeking financial protection creates costs for 
institutions, but we believe those costs are necessary and justified. 
As further discussed in the RIA, we provided information on the scope 
of effect for every trigger where we currently collect the data and 
addressed which elements related to costs we are and are not able to 
model. Insofar as commenters suggest that the Department must have 
perfect data and certainty as to consequences before adopting these 
protective measures, we disagree. At the same time, having reviewed 
commenters' predictions regarding unintended consequences, we cannot 
conclude that those predictions are supported by reasonable judgments 
and available evidence.
    We also disagree with the commenters who argue that the Department 
should not pursue financial responsibility due to concerns about 
closure. Section 498(c) of the HEA \6\ outlines financial 
responsibility standards, and the language around the Secretary's 
determination in section 498(c)(3)(C) requires an institution prove 
that it has sufficient resources to ensure against the precipitous 
closure of the institution and to provide the services it has promised 
its students. Furthermore, the Department has an obligation to 
safeguard taxpayers' investments including by efforts to minimize costs 
to taxpayers from student loan discharges and from having to seek 
repayment from the institutions that generated those costs. 
Historically, the Department has struggled to secure funds from 
institutions before they closed, which has left many discharges 
unreimbursed. For instance, FSA data show that closures of for-profit 
institutions that occurred between January 2, 2014, to June 30, 2021, 
resulted in $550 million in closed school discharges. This figure 
excludes the additional $1.1 billion in closed school discharges 
related to ITT Technical Institute that was announced in August 2021. 
Of that $550 million amount, the Department recouped just over $10.4 
million from institutions.\7\ The Department also included data in the 
NPRM that are repeated in the RIA of this final rule showing that from 
2013 to 2022 the Department assessed $1.6 billion in liabilities 
against institutions. During that same period, the Department collected 
just $344 million from institutions. These amounts do not include any 
unestablished liabilities, such as those from closed school discharges 
that are not established against an institution. The approach in these 
rules will generate more financial protection upfront to increase the 
likelihood that the Department is reimbursed for liabilities assessed 
against institutions.
---------------------------------------------------------------------------

    \6\ 20 U.S.C. 1099c(c).
    \7\ The budgetary cost of these discharges is not the same as 
the amount forgiven.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters raised concerns about the financial 
triggers generally saying they were broad, unclear, required 
definitions, and were subjective. The broadness, in the view of the 
commenters, allowed for an institution violating numerous triggering 
events simultaneously leading to the imposition of multiple instruments 
of financial protection, e.g., letters of credit. Another commenter 
criticized the financial triggers due to a belief that the triggers 
delegated the role of determining an institution's financial 
responsibility to third parties, including States.
    Discussion: We disagree with the commenters. The mandatory triggers 
all represent clear situations that an institution will be able to know 
if they have met a triggering condition. The discretionary triggers are 
intentionally crafted to be broader so that they provide flexibility 
for consideration with input from the institution to determine whether 
the situation does in fact represent a significant negative financial 
situation for the school. For instance, that is why there is not a 
single standard for withdrawal rates or change in title IV, HEA volume. 
When these discretionary triggers may apply, the institution will have 
an opportunity to discuss why they think the triggering event should 
not merit financial protection.
    We also disagree that the triggers are delegating oversight to the 
States or other third parties. Successful oversight of postsecondary 
institutions requires coordination among the States and accreditation 
agencies that make up other components of the regulatory triad. The 
triggers that relate to their actions ensure that the Department is 
able to respond swiftly to actions by other regulators, because those 
actions could either cause, or be predictive of, financial risk.
    Changes: None.
    Comments: A few commenters opined that the proposed financial 
triggers have no bearing on financial responsibility. They stated that 
the entire concept of a trigger granted the Department the authority to 
require unreasonable, even impossible, financial restrictions be placed 
on an institution.
    Discussion: We disagree with the commenters. All mandatory triggers 
have explicit linkages to financial concerns. The discretionary 
triggers are structured so that they could in certain situations have 
financial implications, which is why we would review them on a case-by-
case basis to determine

[[Page 74585]]

whether to seek financial protection or not. Below we discuss each 
trigger in turn and how they connect to financial responsibility.
    Legal and administrative actions are intrinsically related to an 
institution's financial health. These represent situations that can be 
a sudden financial impairment to an institution or change its financial 
position significantly. An institution with a low composite score that 
has to pay an additional debt or liability from a legal or 
administrative action may not be able to afford those added expenses. 
Costs from judgments or lawsuits may be significant and may place 
institutions in an impaired financial condition. As could the act of 
seeking repayment of borrower defense to repayment discharges, given 
that most approvals to date have been in the tens of millions of 
dollars. We are also concerned about how added costs from a final 
monetary judgment or award, or from a monetary settlement which results 
from a legal proceeding, including from a lawsuit, arbitration, or 
mediation, might make a change in ownership financially riskier than it 
seemed at first.
    The withdrawal of owner's equity and the distribution following a 
contribution both are potentially destabilizing transactions initiated 
by a school's owner when they pay themselves. The withdrawal of equity 
causes a score recalculation, whereas the concern with a distribution 
following a contribution is a school attempting to manipulate its 
composite score.
    The revisions to teach-out plans will capture situations where 
there are concerns about an institution's finances meriting a teach-out 
plan for the entire institution. That suggests a risk of closure and 
the need to plan for it. Just as we want to make sure schools plan for 
students, we must also plan for the possibility of taxpayer 
liabilities.
    The triggers for publicly listed entities represent situations 
where they could lose access to public markets by having their stocks 
being delisted, having their registration being revoked, or being taken 
to court. All those situations could place the institution at risk of 
losing the benefits that come from being publicly traded and make it 
much harder for them to raise the funds necessary to stay in business. 
This is even the case for failing to provide quarterly or annual 
reporting, including considering an extended deadline. This is not a 
common occurrence for large and healthy companies and research shows 
that shareholders punish this occurrence significantly.\8\ Shareholders 
react negatively when publicly traded companies miss filing deadlines 
for quarterly and annual reports. The Department should react 
negatively in this circumstance too, given that participating 
institutions act in the nature of a fiduciary in administering the 
title IV, HEA programs. The provisions related to foreign exchanges are 
similar.
---------------------------------------------------------------------------

    \8\ clsbluesky.law.columbia.edu/2017/11/27/how-missing-sec-filing-deadlines-affects-a-companys-stock-value.
---------------------------------------------------------------------------

    The triggers related to a school failing 90/10, having high CDRs, 
or at least 50 percent of an institution's title IV, HEA volume coming 
from failing GE programs represent situations where an institution will 
lose access to title IV, HEA assistance the next time we generate those 
numbers unless they can improve. While institutions can and do survive 
without access to those funds, many institutions do close when they 
lose access to such aid. Protecting taxpayers when there is a 
possibility of aid loss is thus the responsible course of action.
    The declaration of financial exigency and receivership are 
inherently worrisome financial situations. They are strong statements 
that an institution will not be able to continue in its current state 
and will need significant changes. These two are reasonable situations 
to be worried about that directly connect to finances.
    Finally, the trigger related to creditor events ensures that 
institutions cannot leverage their financial agreements to try and 
dissuade the Department from its financial monitoring. We are concerned 
about past situations where institutions have conditions in their 
agreements with creditors that make debts fully payable if the 
Department were to take steps like require a letter of credit of a 
certain size or place the institution on heightened cash monitoring 2. 
We are concerned that the presence of such conditions is designed to 
place private creditors ahead of the Department and to also dissuade us 
from engaging in proper oversight and monitoring. The Department is 
thus treating the presence of those types of conditions as if they will 
occur and signal from the private market that there are financial 
concerns. We are thus seeking financial protection when such creditor 
conditions are present to ensure that we have the funds we need to 
safeguard taxpayers' investments.
    We do not discuss the discretionary triggers in the same level of 
detail because as we have noted these all have the requirement that 
they show a significant financial effect.
    Changes: None.
    Comments: A few commenters raised concerns about the language in 
Sec.  668.171(c) noting that the Department would request separate 
financial protection for each trigger if an institution ends up with 
multiple trigger events. Commenters questioned why this was necessary 
since the Department already has authority under the regulations to 
require letters of credit for institutions that fail the general 
standards of financial responsibility or that have a failing composite 
financial ratio score. These commenters thought that in those 
circumstances the Department has the ability to set the financial 
protection amount to be greater than the minimum levels established in 
the regulations. Some commenters suggested that the proposal to seek 
multiple financial protection requests would limit the Department's 
discretion to determine the amount of financial protection needed to 
deal with one or more triggering events without regard to whether 
asking for multiple instances of financial protection would overstate 
the amount of financial protection warranted for many situations. One 
commenter reviewed prior letters of credit required by the Department 
and noted that there were very few instances where the Department 
required institutions to provide letters of credit in amounts greater 
than 50 percent of an institution's annual Federal student aid funding 
and expressed concern about the significant financial burdens could be 
imposed on institutions requiring to provide much larger letters of 
credit under the proposed regulations.
    Commenters also raised concerns about the possibility that multiple 
triggering events could be the result of one underlying action and that 
such situations should be viewed as only a single request for financial 
protection.
    Discussion: The Department acknowledges that the current 
regulations do not place limits on the amounts of financial protection 
that may be required. The revised regulation will provide more 
notifications to the Department about significant developments relevant 
to an institution's financial responsibility since the period covered 
by the last annual audited financial statement submitted to the 
Department. These notifications will in many instances require the 
institution to provide financial protections or increase financial 
protections already in place.
    With regard to the frequency with which the Department requests 
financial

[[Page 74586]]

protection in excess of 50 percent of an institution's annual title IV, 
HEA funding, we note that is an option for institutions that are not 
financially responsible to continue participating in the Federal 
student aid programs without becoming provisionally certified. We also 
remind commenters that part of the impetus for this final rule is the 
Department is concerned about having insufficient amounts of financial 
protection to offset liabilities incurred. With regard to the comments 
about one event causing multiple triggers, the Department's intent is 
not to make multiple financial protection requests for triggering 
events that all stem from the same event. We would thus review the 
triggering events when they occur to determine whether they are all 
tied to one event.
    Changes: None.
    Comments: Many commenters pointed out that in the 2019 Borrower 
Defense Regulations,\9\ the Department stated that financial triggers 
that are speculative, abstract, and unquantifiable, are not reliable 
indicators of an institution's financial condition. Some of those 
commenters called upon the Department to eliminate any proposed 
financial trigger from the final rule that was speculative, abstract, 
or unquantifiable.
---------------------------------------------------------------------------

    \9\ 84 FR 49861.
---------------------------------------------------------------------------

    Discussion: The Department addressed these concerns from the 
commenters in the NPRM.\10\ As we noted there, since the elimination of 
those mandatory triggers we have repeatedly encountered institutions 
that appear to be at significant risk of closure where we lacked the 
ability to obtain financial protection due to the more limited nature 
of triggers that are still in regulation. We also noted that the items 
that were proposed as mandatory triggers were situations that were 
clear to identify and represent significant financial risk. We have 
further refined that standard in this final rule by converting several 
mandatory triggers into discretionary ones. We also disagree with the 
implication by the commenters that triggers must be quantifiable so 
that they fit within the construct of the composite score. The 
composite score is not designed to be the only way to judge an 
institution's financial responsibility. It is one measure that captures 
some issues. But the presence of the triggers, as well as other items 
in Sec.  668.171(b) that speak to issues like missing payroll 
obligations or failing to pay refunds, show there are other critical 
indicators of financial responsibility that the Department should 
consider while performing its statutorily mandated function to oversee 
the Federal student financial aid programs.
---------------------------------------------------------------------------

    \10\ 88 FR 32300.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters suggested that all mandatory financial 
triggers be made discretionary and that a specific determination be 
made by the Department with an explanation of how the triggering event 
has a material impact on the financial responsibility of the 
institution.
    Discussion: The Department disagrees with the commenters. As 
discussed, the mandatory triggers are situations that we believe 
represent the most significant threats to an institution's financial 
circumstances. As such, we believe it is prudent as part of overseeing 
the Federal student financial aid programs to seek additional 
protection when those events occur. As already noted above, we do not 
think it would be appropriate to adopt a materiality standard for these 
triggers and believe they represent significant negative financial 
situations.
    Changes: None.
    Comments: Some commenters raised questions around the requirements 
for financial protection, e.g., letters of credit, remaining in place 
for two full fiscal years. For example, one commenter requested 
clarification on whether this would be applicable in a situation where 
the institution has resolved the action or event that associated with 
the financial trigger. Another commenter stated that the Department 
should have the discretion to continue requiring financial protection 
even if the triggering event has been resolved because the existence of 
a triggering event that results in the Department requesting financial 
protection could also highlight other areas of concern.
    Discussion: Under final Sec.  668.171(c), the Department will 
consider whether the financial protection can be released after two 
fiscal years' worth of audited financial statements following the 
notice of the requirement for financial protection. The Department's 
goal with the two fiscal year requirement is to give us enough time to 
have confidence that the institution has demonstrated that the event 
has ceased or been resolved. We believe two years is more appropriate 
than only requiring it for a year because that allows us to reduce the 
likelihood that the events recur. For instance, an institution may have 
failing 90/10 rates for a year, pass for a year, and then fail again. 
Or a school could be asked to submit a teach-out agreement, then 
improve its finances and suddenly see them deteriorate again. 
Maintaining financial protection for two years strikes the balance 
between determining if the triggering event has been truly corrected 
with not keeping financial protection for unnecessarily long periods.
    It is possible that financial protection will need to continue 
after the two years. That would be the case if the triggering event has 
still not been resolved.
    To the commenter requesting the Department to require financial 
protection beyond the two-year requirement after a triggering event has 
been resolved, we do not believe we can do that based on the potential 
for a triggering event. If the Department identifies another triggering 
event, we would still be able to require financial protection related 
to that event.

Financial Responsibility--Mandatory Triggering Events (Sec.  
668.171(c))

General

    Comments: Several commenters strongly recommended that some or all 
of the mandatory financial triggers be eliminated from the final rule 
and short of that, some or all should be made discretionary. While some 
commenters addressed this critique to all of the mandatory triggers, 
some limited their recommendation to the following proposed financial 
triggers: (1) the trigger concerning lawsuits in proposed Sec.  
668.171(c)(2)(i)(B), (2) the trigger addressing change in ownership in 
proposed Sec.  668.171(c)(2)(i)(D), (3) the trigger applicable to GE 
programs in proposed Sec.  668.171(c)(2)(iii), (4) the trigger dealing 
with teach-out plans in proposed Sec.  668.171(c)(2)(iv), (5) the 
triggering event describing State actions in proposed Sec.  
668.171(c)(2)(v), and (6) the trigger concerning publicly listed 
entities in proposed Sec.  668.171(c)(2)(vi).
    Discussion: We disagree with the commenters, in part. As discussed 
in greater detail under the subheading that applies to that trigger, we 
have elected to make State actions a discretionary trigger and clarify 
that teach-outs must be related to the whole institution and for 
financial reasons. We also have determined that an institution that 
loses eligibility to participate in another Federal educational 
assistance program will not be subject to a mandatory trigger. Instead, 
the discretionary trigger addressing a program that loses eligibility 
to participate in another Federal educational assistance program will 
be expanded to include when the institution, itself, loses that 
eligibility. We believe that making this a discretionary trigger will 
remove the burden of a mandatory trigger when the

[[Page 74587]]

loss to the institution is minimal and gives the Department the ability 
to make a determination if the loss of another Federal educational 
program will have a financial impact on the institution. We elected to 
move the State action and loss of eligibility provisions due to 
concerns about the varied effect of events that would cause those 
triggers. Some of those events were presented by commenters and 
included examples of a State taking a minor action for collection of a 
small sum of money or to rectify a minor health related infraction. 
Regarding the loss of another Federal educational program, examples 
were provided by commenters where a school may lose eligibility for a 
program with no enrollees or a very small number of enrollees and the 
loss of that program had little or no negative impact on the financial 
condition of the institution. Meanwhile, we think the narrower focus of 
the revised teach-out trigger will capture the most serious situations. 
We will also have the change in ownership trigger require a 
recalculation of the composite score that results in a failure. This 
aligns Sec.  668.171(c)(2)(i)(D) with the triggers in Sec.  
668.171(c)(2)(i)(A) and (C).
    We, however, disagree with the other changes recommended by 
commenters. As also discussed in greater detail throughout this 
section, we are concerned that institutions that have half their 
revenue in failing GE programs could face significant financial 
challenges if they lose half or more of their title IV, HEA revenue. 
The lawsuit trigger represents serious legal actions taken by 
government actors, which are not common and can result in very serious 
judgments against institutions. Similarly, the triggers related to 
publicly traded entities represent situations where those companies can 
face the possible loss of access to financial markets or other forms of 
serious financial consequences that could be a sign of a lack of 
stability. We believe those items are all serious enough to merit 
keeping them as mandatory triggers.
    Changes: We have removed the mandatory triggers that were proposed 
in Sec.  668.171(c)(2)(v) and (ix) and have moved the provision in 
proposed Sec.  668.171(c)(2)(v) to the discretionary trigger in Sec.  
668.171(d)(9) and have moved the provision in proposed Sec.  
668.171(c)(2)(ix) to the discretionary trigger in Sec.  668.171(d)(10). 
We reserved Sec.  668.171(c)(2)(v) and (ix). We have narrowed the scope 
of the teach-out trigger in Sec.  668.171(c)(2)(iv) and we will 
recalculate the composite score for the trigger under Sec.  
668.171(c)(2)(i)(D) related to institutions that have undergone a 
recent change in ownership and have monetary obligations arising from 
certain legal and administrative actions.
    Comments: Many commenters expressed the view that some of the 
mandatory triggers were duplicative of other areas which the Department 
monitors for compliance. Some examples put forth by the commenters to 
justify their view included the financial triggers concerning GE 
programs, high CDRs, and the 90/10 rule. The commenters believed that 
the imposition of a potentially debilitating mandatory letter of credit 
in these situations, without a determination by the Department that the 
institution is unable to rectify the triggering event, or that the 
triggering event will have an immediate impact on the institution's 
financial responsibility, could cause a precipitous financial crisis at 
the institution when one would have otherwise not been present.
    Discussion: The Department disagrees with the commenters. The goal 
of the mandatory triggers is to identify situations where the 
institution is facing a significant negative threat to its financial 
health, which puts the institution at an elevated risk of closure or a 
higher likelihood of generating liabilities such as through approved 
borrower defense to repayment claims. To that end, the examples 
highlighted by commenters show that the Department is aligning its 
financial accountability policies with other oversight and monitoring. 
For instance, an institution with high CDRs, failing 90/10 results, or 
at least half of its title IV, HEA funds coming from failing GE 
programs is a year away from losing access, in whole or in part, to the 
Federal student aid programs. While institutions can and do stay in 
business after leaving the Federal student aid programs, losing access 
to such a large stream of revenue represents an inarguable major 
financial risk to the institution. Ensuring that taxpayers are 
protected when the Department knows such a risk could occur is prudent 
oversight.
    The Department also disagrees with the commenters about the effects 
of seeking financial protection. The Department's job is to safeguard 
taxpayer funds, minimize losses for discharges such as those tied to 
closed schools, and protect students. These triggering situations 
indicate events where the warning signs are significant enough that 
they immediately impact the institution's financial responsibility, 
regardless of any mitigating circumstances. In these situations, the 
Department must immediately exercise greater oversight to ensure it is 
carrying out its mission.
    Changes: None.
    Comments: One commenter recommended that the Department align 
financial trigger reporting with accreditors which, in the commenter's 
opinion, were monitoring the same financial factors for accreditation 
purposes.
    Discussion: The Department disagrees with the commenter. 
Postsecondary oversight is predicated on the idea of the regulatory 
triad of States, accreditation agencies, and the Federal Government. 
Having complementary but distinct efforts is useful for ensuring that 
each party is holding up its part of that accountability relationship. 
To that end, it is important for the Department to have its own set of 
financial standards that are particularly concerned with the title IV, 
HEA programs. Accreditors, by contrast, can and do have varying 
standards for financial oversight that reflect what each deems 
important. We do not think ceding that financial oversight work to 
accreditors would be appropriate, nor would it be allowed under the 
HEA.
    Changes: None.
    Comments: One commenter pointed out that some mandatory triggers 
are applicable only to institutions with a composite score of less than 
1.5 while others are applicable to all institutions. The commenter 
recommended that all of the mandatory triggers only be applicable to 
institutions with a composite score of less than 1.5.
    Discussion: We disagree with the commenter. Composite scores are 
only one element of financial responsibility analysis. In this 
situation we are concerned that events occur after the composite scores 
are calculated and, therefore, they need to be considered immediately 
so we can obtain financial protection when necessary. Moreover, there 
are many triggering situations where the threat to the institution is 
so great that the last completed composite score is not appropriate to 
consider for the trigger. For instance, if an institution has a 
composite score of 3.0, the highest available, but still declares 
financial exigency or is poised to lose access to aid unless it 
improves its CDRs, the Department should step in and act in response to 
those warning signs.
    Changes: None.

Legal and Administrative Actions (Sec.  668.171(c)(2)(i))

    Comments: Section 668.171(c)(2)(i) specifies four mandatory 
triggers related to legal and administrative actions, designated as 
paragraphs (c)(2)(i)(A) through (D). For the purpose of this

[[Page 74588]]

discussion, we refer to the four separate financial triggers by those 
letters. A few commenters objected to paragraphs (c)(2)(i)(A) and (B), 
both of which address possible legal proceedings. The commenters 
suggested that these two triggers discouraged institutions from 
reaching settlements with the parties, be they private or governmental, 
because such a settlement may be a financial trigger, itself. The 
commenters opined that discouraging parties from resolving legal issues 
with an agreed upon settlement was bad public policy.
    Discussion: We disagree with the commenters. The mere presence of a 
settlement does not result in a trigger. Rather, a settlement that 
results in a recalculated composite score that is less than 1.0 results 
in a trigger. Moreover, settlements arise as an alternative to 
litigating a case, which has the risk of ending in a judgment against 
the institution, which would also be captured as a trigger if a 
recalculation produces a composite score of less than 1.0. Settlements 
are generally designed to benefit both parties and avoid further 
litigation, which carries its own costs and risks, including the 
possibility of judgments against the institution that are larger than 
amounts paid in the settlement. Accordingly, we see no reason to think 
this trigger discourages institutions working to resolve litigation in 
the manner that works best for them.
    We note that the reference to debts, liabilities, and losses may 
have contributed to some confusion about what causes the triggers 
described in this section. Accordingly, we have changed the heading of 
this paragraph to ``Legal and administrative actions'' which more 
accurately describes the actions described. We have also modified the 
regulatory text in paragraphs (c)(2)(i)(A) and (D) to describe more 
accurately the actions and resulting monetary judgments or awards, or 
monetary settlements which result from a legal proceeding that will 
result in a financial trigger. Those changes are explained in detail 
below.
    Changes: We have changed the heading of Sec.  668.171(c)(2)(i) to 
``Legal and administrative actions.'' We have changed the text in Sec.  
668.171(c)(2)(i)(A) to more accurately state the types of monetary 
actions that are linked to this financial trigger. They are when an 
institution has entered against it a final monetary judgment or award 
or enters into a monetary settlement which results from a legal 
proceeding, including from a lawsuit, arbitration, or mediation, 
whether or not the judgment, award or settlement has been paid. In 
addition, we have modified paragraph (c)(2)(i)(D) of this section which 
describes a financial trigger applicable to institutions that have 
recently undergone a change in ownership. The revised language more 
accurately describes the monetary actions that will lead to the 
financial trigger and those actions are when the institution has 
entered against it a final monetary judgment or award or enters into a 
monetary settlement which results from a legal proceeding, including 
from a lawsuit, arbitration, or mediation whether or not the obligation 
has been paid.
    Comments: A few commenters argued that paragraphs (c)(2)(i)(A), 
(B), and (D) gave too much leverage to claimants and government 
agencies in that they could use the threat of a financial trigger being 
imposed as part of resolving their grievance with the institution.
    Discussion: We disagree with the commenters. With respect to the 
provisions in paragraphs (c)(2)(i)(A) and (D), these are elements that 
result in the composite score being recalculated and which has to 
result in a failure. The events that are described in paragraphs 
(c)(2)(i)(A) and (D) result from an actual adjudication of a monetary 
judgment or award, or the institution's agreement to be bound by a 
monetary settlement. That means there has been some process in which an 
institution would have had an opportunity to defend themselves and they 
are still being asked to pay some kind of amount. With a settlement, 
that represents a negotiated situation in which an institution has 
decided it is in its benefit to reach that agreement.
    With respect to the government enforcement actions in paragraph 
(c)(2)(i)(B), the provision does not, as commenters claim, create risks 
of regulators wielding baseless and frivolous enforcement actions to 
extort participating institutions. The risks commenters invoke more 
accurately describe the incentives of lawsuits by private litigants--
which are not covered--rather than government enforcement actions. 
Unlike private litigants, government enforcement actions are tools for 
enforcing laws and regulations. They lack the incentives associated 
with lawsuits that can result in private financial gain. Likewise, the 
government can employ investigative tools of compulsory process to 
gather evidence and has options outside of civil discovery for 
obtaining relevant information. Similarly, government regulators' 
decisions to pursue enforcement are ordinarily informed by 
considerations in statute, rules, or agency guidance and based on the 
probability of ultimate success and efforts at resolution without 
litigation.\11\ Those considerations and the practicalities of 
allocating limited resources make commenters' fears unlikely. Indeed, 
neither commenters' submissions nor the Department's experience suggest 
any examples of frivolous enforcement actions against title IV, HEA 
participants. And in the unlikely event of one, the provision's 
triggers may be avoided through filing a motion to dismiss--which 
provides ample opportunity to filter out actions that are frivolous or 
facially deficient. Contrary to commenters' speculative fears, the 
presence of this trigger ensures the Department is acting when there 
are warning signs about potential negative effects to the financial 
health of institutions.
---------------------------------------------------------------------------

    \11\ See, e.g., 15 U.S.C. 53(a) (enforcement actions predicated 
on Federal Trade Commission having a ``reason to believe'' there is 
an existing or impending violation of relevant law and that the 
remedy sought ``would be in the interest of the public''); U.S. 
Dep't of Just., Just. Manual sec. 9-27.220 (2018) (Federal 
prosecutions informed by a determination that the conduct violates 
Federal law, that admissible evidence that is probably ``sufficient 
to obtain and sustain a conviction,'' that action is in the public 
interest, and that there alternatives remedies are inadequate); E.O. 
12988, 61 FR 4729 (Feb. 5, 1996) (civil litigation must be preceded 
by pre-suit notice, settlement efforts, and attempts at alternative 
dispute resolution in order to, among other factors, limit suits to 
``only meritorious civil claims'').
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters took issue with the provision in 
paragraph (c)(2)(i)(B) that includes as a trigger a qui tam lawsuit, in 
which the Federal Government has intervened, and which has been pending 
for 120 days, that would constitute a mandatory trigger. They opined 
that the mere filing of a qui tam lawsuit, regardless of government 
intervention, should not be a financial trigger. Those commenters went 
on to object to the 120-day period proposed in the regulation that says 
that the mandatory trigger applies if there has been no motion to 
dismiss within 120 days of government intervention or if there was such 
a motion and it was denied. The commenters stated that 120 days was 
insufficient in addressing the deprivation of the institution's due 
process and believed that motions to dismiss at such early stages of a 
lawsuit are limited to the face of the pleadings without consideration 
of the factual merits of the claims. They believed the trigger would be 
activated without due regard to the merits of the claims or the 
institution's defenses to those claims.
    Discussion: The commenters misinterpret the standards by which a 
qui tam lawsuit would become a triggering condition under this 
paragraph. The mere filing of a qui tam

[[Page 74589]]

does not result in a trigger. It is only if the government intervenes 
that a qui tam could be considered under paragraph (c)(2)(i)(B). 
According to the U.S. Department of Justice, such interventions only 
occur in about one-quarter of qui tam cases,\12\ and intervention 
decisions are informed by an express determination of the case's 
merits.\13\ These are not steps that are taken lightly or that occur 
commonly in the postsecondary education space. Indeed, actions 
involving institutions of higher education represent only a small 
fraction of qui tam lawsuits, most of which relate to programs like 
those administered by the U.S. Department of Health and Human Services 
(HHS). Statistics from the U.S. Department of Justice show that 61 
percent of the 15,246 qui tam lawsuits brought from 1987 to 2022 were 
related to HHS.\14\ Another 12 percent were related to the U.S. 
Department of Defense.
---------------------------------------------------------------------------

    \12\ www.justice.gov/sites/default/files/usao-edpa/legacy/2012/06/13/internetWhistleblower%20update.pdf.
    \13\ See U.S. Dep't of Just., Just. Manual sec. 4-4.110 (2018).
    \14\ www.justice.gov/d9/press-releases/attachments/2023/02/07/fy2022_statistics_0.pdf.
---------------------------------------------------------------------------

    The Department believes the 120 days are appropriate because it 
gives sufficient time for a defendant to file a motion to dismiss. At 
the same time, this captures potential lawsuits early enough in 
progress that the Department would not be seeking financial protection 
at the same time an institution has lost a case, which could be the 
case if we were to instead consider timing related to motions for 
summary judgment.
    The Department does, however, recognize that the phrasing of the 
trigger related to lawsuits in the NPRM was confusing as it was not 
fully clear how the 120-day requirements applied to different types of 
lawsuits. Accordingly, we have clarified in the regulatory text that 
the trigger applies to lawsuits that have been pending for 120 days or 
qui tam lawsuits that have been pending for 120 days since U.S. 
intervention and there has been no motion to dismiss filed or such a 
motion was filed and denied within 120 days. This update clarifies that 
this trigger is predicated on the decision by a governmental official 
with regulatory or law enforcement authority that the school committed 
the conduct alleged in circumstances warranting an enforcement action 
and the case having proceeded past the motion-to-dismiss stage. We have 
also indicated that this would cover motions to dismiss or equivalent 
motions under State law, such as demurrers.
    Changes: We have changed the text in Sec.  668.171(c)(2)(i)(B) to 
more clearly convey how the 120-day requirements work for lawsuits as 
described above.
    Comments: One commenter sought clarification regarding the 
financial trigger in paragraph (c)(2)(i)(B) that states that an 
institution that is sued by a Federal or State authority to impose an 
injunction, establish fines or penalties, or to obtain financial relief 
such as damages would have the mandatory trigger implemented. The 
commenter inquired if more than one entity is suing the institution for 
the same act or event, would that generate one requirement for 
financial protection or multiple requirements due to there being 
multiple agencies involved in the proceedings. The commenter supported 
treating such a circumstance as a single event with a single 
requirement for financial protection.
    Discussion: As discussed earlier, the Department will review the 
triggering conditions to determine if what appears to be multiple 
triggering situations is attributed to a single instance, such as 
multiple States suing one institution. We will consider whether to 
treat multiple triggering situations as a single requirement for 
financial protection on a case-by-case basis as we examine the specific 
facts.
    Changes: None.
    Comments: One commenter recommended that the trigger described in 
paragraph (c)(2)(i)(B) be modified to be based on summary judgment. The 
commenter urged the Department to modify the trigger so that it is 
premised on the agency surviving a motion for summary judgment rather 
than a motion to dismiss, as proposed. The commenter posited that a 
motion to dismiss is too low a bar and does not reflect judicial 
consideration of the merits of the claim. The commenter contends that 
an agency surviving a summary judgment motion is a better indicator 
that the agency has a viable claim and that the subject institution is 
at some financial risk. The commenter acknowledged that premising this 
trigger on a summary judgment would extend the timeframe somewhat, but 
nevertheless would occur well before a trial or any appeals.
    Discussion: The Department disagrees with the commenter. Refraining 
from any trigger until after the point at which the institution is 
facing trial makes the Department likely to face circumstances in which 
much-needed financial protections are not available until it is too 
late. Similarly, in cases where both parties file cross-motions for 
summary judgment, and summary judgment on liability is granted to the 
agency, it may be too late to obtain financial protection. Instead, the 
regulations strike the appropriate balance by providing the needed 
financial protections after a government official with regulatory or 
law enforcement authority decides, often after an investigation, that 
the circumstances warrant an enforcement action and, furthermore, after 
that action has proceeded past the motion-to-dismiss stage.
    Changes: None.
    Comments: One commenter suggested that we limit paragraph 
(c)(2)(i)(B) to Federal and State agencies with specific oversight of 
postsecondary institutions rather than the proposed language that 
simply says, ``sued by a Federal or State authority.'' The commenter 
gave an example of the IRS or a state taxing authority suing the 
institution, thereby initiating the mandatory trigger, even though 
these agencies have no particular oversight of the educational 
operations of the institution.
    Discussion: The purpose of the mandatory trigger is to identify 
situations where the financial health of an institution is at risk. For 
example, any action lawsuit from the Federal or State government based 
upon that alleges significant liabilities due to unpaid back taxes 
could represent just as great a risk to an institution's finances as a 
lawsuit that is specific to Federal financial aid. We, therefore, 
decline to adopt the commenter's suggestion.
    Changes: None.
    Comments: A number of commenters objected to the triggers related 
to lawsuits. They argued that the requirement that an institution's 
unfounded lawsuit that fails on the merits might require the 
institution to post substantial financial protection. One commenter 
opined that this established a situation where the institution was 
``guilty until proven innocent.'' Other commenters believed that the 
elimination of arbitration agreements and the class action lawsuits in 
the Borrower Defense regulations creates an environment where frivolous 
lawsuits against institution will be encouraged with needless financial 
triggers being activated.
    Discussion: We disagree with the commenters whose arguments do not 
accurately capture the nature of the trigger related to lawsuits in 
Sec.  668.171(c)(2)(i)(A) and (B). For the situations in paragraph 
(c)(2)(i)(A) of this section, financial protection requirements only 
occur if the institution is required to pay a debt or incurs a 
liability from a settlement, arbitration proceeding or a final judgment 
in a judicial proceeding. Moreover, this trigger is only activated

[[Page 74590]]

if the legal determination results in the impacted institution having a 
recalculated composite score of less than 1.0, the failing threshold. 
The focus of this trigger is on the financial consequences to the 
institution originating from those legal or administrative actions.
    The triggering event described in paragraph (c)(2)(i)(B), 
meanwhile, does not include just any lawsuit filed. It only occurs if 
the institution is sued by a Federal or State authority to impose an 
injunction, establish fines or penalties or to obtain financial relief 
or if the Federal Government decides to intervene in a qui tam lawsuit. 
Government lawsuits against institutions of higher education are not 
common events and are not actions undertaken lightly. While qui tam 
lawsuits are brought by private individuals, they are only a triggering 
event if joined by the Federal Government, which is also a rare 
occurrence. None of these are frivolous actions. It is incorrect to 
claim that the elimination of mandatory arbitration agreements and 
preventing institutions from forcing students to waive their right to 
participate in a class action lawsuit create an environment supporting 
frivolous lawsuits would lead to an increase in the number of mandatory 
triggering events tied to lawsuits. The mere filing of a class action 
or other private litigation (other than a qui tam where the government 
has intervened) are not captured under the mandatory trigger.
    The provisions related to borrower defense are also not triggered 
by the mere presence of claims. They are related to recovery efforts 
for approved claims as a mandatory trigger or the formation of a group 
process by the Department for a discretionary trigger. For the 
discretionary trigger related to borrower defense, the Department must 
determine that the circumstances create a significant adverse effect on 
the institution. These are standards that depend upon actions by the 
Department that are informed by either the approval of claims, which 
follows a determination based upon a preponderance of the evidence that 
the institution engaged in conduct that merits a borrower defense 
approval, or signs that it may have engaged in such conduct for the 
formation of a group.
    Changes: None.
    Comments: One commenter sought clarification on paragraph 
(c)(2)(i)(C) which describes a trigger that is activated if the 
Department initiates an action against an institution to recover the 
costs of adjudicated claims in favor of borrowers under the loan 
discharge provisions in 34 CFR part 685. The commenter wanted to ensure 
that this trigger applied to borrower defense loan discharges and not 
to other loan discharges like a closed school discharge.
    Discussion: We agree with the commenter that the trigger described 
in Sec.  668.171(c)(2)(i)(C) is applicable to borrower defense loan 
discharges, as we conveyed in the preamble discussion of the NPRM.
    Changes: We modified the regulatory language in Sec.  
668.171(c)(2)(i)(C) to clarify that this trigger is initiated by the 
Department initiating an action to recover the cost of adjudicated 
claims in favor of borrowers under the borrower defense to repayment 
provisions.
    Comments: A few commenters objected to the provision in paragraph 
(c)(2)(i)(D) by which institutions undergoing a change in ownership 
would be subject to a mandatory trigger if the institution is required 
to pay a debt or incurs a liability from a settlement, arbitration 
proceeding, final judgment in a judicial proceeding, or an 
administrative proceeding determination. They also voiced an objection 
based on the process of a change in ownership being closely monitored 
and strictly controlled by the Department and therefore the Department 
can quantify the exact impact of any debt or liability as part of the 
Department's process. The commenter believed that this ability rendered 
the financial trigger unnecessary.
    Discussion: We disagree with the commenters, in part. Each of the 
actions in paragraphs (c)(2)(i)(A) through (C) of Sec.  668.171 show 
that an institution is facing a serious legal and administrative action 
that can result in financial instability of an institution. These 
events are more concerning after a change in ownership and creates 
uncertainty around the new owner's ability to operate the institution 
in a financially responsible way.
    Moreover, although the Department reviews the same day balance 
sheet and financial statements for the new owner and institutions in 
the course of its review of changes in ownership, those financial 
statements reflect specific points in time (the day of the transaction 
and the two fiscal years prior to the transaction). As a result, those 
financial statements do not capture litigation outcomes that occur 
subsequently, but which could have a significant negative impact on the 
institution's finances. Therefore, we do believe that it would be 
appropriate to also treat this trigger as one that requires a 
recalculation of the composite score. This aligns the change in 
ownership requirements with Sec.  668.171(c)(2)(i)(A), except in 
paragraph (c)(2)(i)(D) we would perform the recalculation for all 
situations that are captured in paragraph (c)(2)(i)(D) and not limit it 
just to those with a composite score of less than 1.5. We think that is 
appropriate given the concerns about changes in ownership. This means 
that every action under Sec.  668.171(c)(2)(i) except for paragraph 
(c)(2)(i)(B) results in a recalculation. We do not recalculate 
paragraph (c)(2)(i)(B) because the litigation may not indicate a 
specific dollar amount that would form the basis of a recalculation.
    Changes: We have indicated in the regulation that institutions 
subject to paragraph (c)(2)(i)(D) of Sec.  668.171 will have their 
composite score recalculated.

Withdrawal of Owner's Equity (Sec.  668.171(c)(2)(ii))

    Comments: One commenter posited that an institution with a score of 
less than 1.5 that paid a dividend or engaged in a stock buyback which 
resulted in a recalculated score of less than 1.0 should not be 
automatically subject to a financial protection requirement. The 
commenter stated that institutions in this situation should be 
evaluated to determine if the activity poses financial risk to the 
institution.
    Discussion: We disagree with the commenter. In the situation 
presented as an example, the institution, after engaging in the 
financial activity, has a failing composite score of less than 1.0. By 
that measure, the institution is not financially responsible and that 
results in the need for financial protection, e.g., a letter of credit.
    Changes: None.
    Comments: Some commenters objected to the provision in Sec.  
668.171(c)(2)(ii) where a proprietary institution with a composite 
score of less than 1.5 or any proprietary institution through the end 
of its first full fiscal year following a change in ownership would be 
subject to the financial trigger. That trigger occurs when an 
applicable institution has a withdrawal of owner's equity by any means, 
including a dividend, unless the withdrawal is a transfer to an entity 
included in the affiliated entity group or is the equivalent of wages 
in a sole proprietorship or general partnership or a required dividend 
or return of capital. The requirement for financial protection would 
only be initiated if the institution, as a result the withdrawal of 
equity, has a recalculated composite score of less than 1.0, the 
threshold for failure. The commenters opined that this regulation would 
create a burden for the Department in that it would be

[[Page 74591]]

reviewing many institutions which fall subject to this trigger, but it 
is then determined that the financial event did not drive the 
institution's composite score to below 1.0. The commenters further 
stated that current regulations governing this matter were sufficient 
and did not require modification.
    Discussion: We disagree with the commenters. We believe the 
administrative burden placed on the Department is acceptable because of 
the significant risk faced by taxpayers when institutions now have a 
failing composite score as a result of the owner's equity withdrawal. 
As noted in paragraph (c)(2)(ii)(B) of this section, these institutions 
would now have a failing composite score and that necessitates 
obtaining financial protection.
    Changes: None.

Significant Share of Federal Aid in Failing GE Programs (Sec.  
668.171(c)(2)(iii))

    Comments: Several commenters opposed the financial trigger in Sec.  
668.171(c)(2)(iii) for institutions that receive at least 50 percent of 
their title IV, HEA funds from GE programs that are failing under 
subpart S of part 668. The commenters stated that this trigger did not 
correlate to the financial stability of the institution. One of those 
commenters believed that this trigger would be an extraordinary burden 
to an institution that offered a limited number of programs. Another 
stated that the GE calculation has a look back period of several years 
and that data are not indicative of the institution's current financial 
status. Some of the commenters believed that the GE provisions in 
subpart S are sufficient in themselves for Departmental monitoring 
without adding an additional financial trigger linked to GE.
    Discussion: We disagree with the commenters. The purpose of the 
financial triggers is to alert the Department of an institution's 
financial instability as soon as it is reasonable to know of that 
situation. An institution with at least half of its title IV, HEA funds 
coming from failing programs is at risk of a significant loss of 
revenue if those programs continue to fail and lose title IV 
eligibility. The projected cessation of these funds creates a situation 
where the institution's financial health could be negatively impacted. 
Such a situation is exactly what the financial triggers, as opposed to 
the GE regulations, are designed to counteract so that financial 
protection can be obtained to protect current and prospective students 
at the institution as well as protecting taxpayers' interests. The 
issues about the age of the data and the number of programs offered are 
not relevant for these concerns. The focus of this trigger is about the 
potential for the effect on the revenue. Whether half of the title IV, 
HEA revenue comes from one, 10, or 100 programs is not relevant since 
the overall threat to revenue in percentage terms is the same. 
Similarly, the Department's concern is about how a program failing the 
gainful employment requirements could lead to the loss of Federal aid 
and what that means for the institution's ability to meet its financial 
obligations. We are worried about the forward-looking implications of 
that provision, and issues related to the age of the data are addressed 
by the Department in the separate final rule related to gainful 
employment.
    Changes: None.

Teach-Out Plans (Sec.  668.171(c)(2)(iv))

    Comments: Several commenters expressed concerns around the 
mandatory trigger in Sec.  668.171(c)(2)(iv) tied to when an 
institution is required to submit a teach-out plan or agreement 
required by a State or Federal agency, an accreditor, or any other 
oversight entity. The commenters expressed the view that institutions 
are sometimes required to submit a teach-out plan as a normal course of 
business and not due to any fear of closure, institutional misconduct, 
or financial instability. A few of the commenters observed that teach-
out plans can increase the financial strength of the institution rather 
than decrease it. A few commenters observed that some institutions may 
be reluctant to enter a teach-out so that they would not bear the 
burden of the financial trigger. One of the commenters asserted that 
the Department could be the Federal agency requiring the teach-out 
plan, which then in turn would initiate the mandatory trigger 
associated with submitting a teach-out plan due to changes being made 
in the certification procedures part of this rule to request a teach-
out for a provisionally certified institution deemed at risk of 
closure. Some commenters argued that mandatory triggers should only be 
applied to teach-out agreements requested for financial reasons.
    Other commenters raised concerns that the trigger as written could 
require a school to provide financial protection if it voluntarily 
chose to discontinue a program and was asked by the accreditor to 
create a teach-out as part of that process.
    Discussion: The Department agrees with the commenters, in part, 
that the teach-out trigger as included in the NPRM may capture 
instances that are not sufficiently concerning enough to merit a 
mandatory trigger. However, we maintain that circumstances may exist 
where a teach-out request is a sign of financial instability that 
merits the Department's action. These required submissions are often 
associated with institutions facing imminent closure or other financial 
catastrophe where students are negatively impacted.
    Therefore, the Department is clarifying the scope of the mandatory 
teach-out trigger in paragraph (c) of this section and adding a 
separate discretionary trigger in paragraph (d) of this section. We are 
modifying the mandatory trigger to include teach-outs that are 
requested due, in whole or in part, to financial concerns and that 
cover the entire institution. This could include situations where the 
institution is requested to provide separate teach-outs for all its 
programs. This will capture the most serious situations in which teach-
outs are requested and will exclude situations where the teach-out 
requirement is part of a routine matter.
    Given the narrower scope of this mandatory trigger, we have added a 
separate discretionary trigger in Sec.  668.171(d)(13) to capture other 
types of teach-out requests. This trigger is important because there 
may be other types of teach-outs that still represent significant 
negative financial consequences. For instance, an institution that is 
required to submit a teach-out agreement to cover a program that 
enrolls half its students because of concerns about misrepresentations 
may merit a financial protection request because of the extent of 
possible revenue loss. By contrast, a teach-out request for a single 
small program being phased out by the institution would not merit a 
financial protection request.
    Changes: We changed Sec.  668.171(c)(2)(iv) to clarify that the 
mandatory trigger is initiated when the institution is required to 
submit a teach-out plan or agreement, for reasons related to, in whole 
or in part, financial concerns. We have also added new Sec.  
668.171(d)(13) that establishes a discretionary trigger which applies 
to institutions required to submit other teach-out plans or agreements, 
including programmatic teach-outs, by a State, the Department or 
another Federal agency, an accrediting agency, or other oversight body 
that are not covered by the mandatory trigger in paragraph (c) of this 
section.

State Actions (Sec.  668.171(c)(2)(v))

    Comments: A few commenters objected to the mandatory trigger in 
proposed Sec.  668.171(c)(2)(v) tied to when a State licensing or 
authorizing agency

[[Page 74592]]

notifies an institution that it must comply with some requirement, or 
its licensure or authorization will be terminated. The commenters 
argued that this trigger was too far reaching and would be 
unnecessarily activated when an institution had the most minor 
infraction with a State oversight agency. A few of the commenters 
pointed out that some State oversight agencies include in all 
compliance related correspondence pro forma language that authorization 
can be revoked. Some of the commenters believed that this trigger gave 
too much leverage to State agencies in that those agencies could use 
the threat of the Departmental trigger in their interactions with 
institutions. Two commenters believed that institutions offering 
instruction in multiple States were particularly burdened by this 
regulation. One of those commenters believed that any State citation 
should be a discretionary trigger and not a mandatory one. The other 
commenter believed that a State action initiated by a State that was 
not the institution's home State did not present a financial concern to 
the institution. That commenter suggested that a State action from the 
institution's home State be a mandatory trigger but a State action by 
another State be a discretionary trigger.
    Discussion: We agree with the commenters, in part, and have 
combined this triggering event with the discretionary trigger in Sec.  
668.171(d)(9) that is also related to State citations. We believe that 
State authorization or licensure for an institution is a fundamental 
factor of eligibility for institutions seeking to participate or 
participating in the title IV, HEA programs and that the threat of 
removal of a State's authorization or licensure poses a financial risk 
to the institution participating in the title IV, HEA programs. 
However, we are persuaded by the commenters that States may express 
these concerns with varying levels of severity and that connecting 
these actions to a mandatory trigger would risk being over inclusive. 
Therefore, we made this a discretionary trigger to account for the 
issues raised by the commenters. Making this a discretionary trigger 
means that issues raised by commenters about whether the State action 
is the institution's home State or not can be considered in reviewing 
the event.
    Changes: We have removed the mandatory trigger at Sec.  
668.171(c)(2)(v) and instead modified the discretionary trigger at 
Sec.  668.171(d)(9) to include situations where the State licensing or 
authorizing agency has given notice that it will withdraw or terminate 
the institution's licensure or authorization if the institution does 
not take the steps necessary to come into compliance with that 
requirement. We have reserved Sec.  668.171(c)(2)(v).

Publicly Listed Entities (Sec.  668.171(c)(2)(vi))

    Comments: Many commenters objected to the mandatory trigger 
detailed in proposed Sec.  668.171(c)(2)(vi)(D) whereby a late annual 
or quarterly report required by the SEC activates the mandatory 
trigger. Some of the commenters opined that there was not meaningful 
rationale that a late submission of an SEC report indicated any lack of 
financial stability by the institution or any necessity for financial 
protection being obtained. One commenter stated that the proposed 
trigger was speculative, abstract, and unqualifiable and should be 
eliminated.
    Discussion: We disagree with the commenters. Submissions of SEC 
reports are a requirement with a well-known and anticipated deadline so 
when an entity is late to comply with this requirement, it could be an 
indicator of the entity's impaired financial stability. We do agree, 
however, that a minor infraction is not necessarily indicative of 
financial instability. Such a minor infraction can be easily resolved 
when the institution reports the late submission of the SEC report to 
the Department, assuming it has submitted the report in the 21-day 
period following the SEC due date. Notably, as explained in our 
discussion of changes to Sec.  668.171(f), we changed the reporting 
requirements in Sec.  668.171(f) to allow 21 days to report the 
required events to the Department (rather than 10 as originally 
proposed) and Sec.  668.171(f)(3)(i)(B) allows the institution to show 
that the triggering event has been resolved.
    Changes: None.

Non-Federal Educational Assistance Funds (Sec.  668.171(c)(2)(vii))

    Comments: Several commenters opined that the mandatory trigger in 
proposed Sec.  668.171(c)(2)(vii) is unreasonable and unnecessary. This 
trigger is linked to an institution that did not receive at least 10 
percent of its revenue from sources other than Federal educational 
assistance as provided in Sec.  668.28(c), often referred to as the 90/
10 rule. The commenters believed that since this is a regulated event 
under Sec.  668.28 with sanctions for non-compliance, that there is no 
need for inclusion in Sec.  668.171(c) as a mandatory trigger. One 
commenter thought that this trigger was particularly burdensome on 
distance education providers since they are prevented from including 
funds generated through non-eligible distance education programs as 
part of their non-Federal revenue.
    Discussion: We disagree with the commenters. Failure of the 90/10 
rule is a serious issue of non-compliance with statutory and regulatory 
requirements. Failing this requirement twice in consecutive years 
results in an institution losing access to Federal student financial 
aid for two years. That risk of Federal student aid loss can have an 
immediate negative impact on the financial stability of the affected 
institution. This trigger allows us to seek financial protection as far 
in advance of the potential second failure as we can.
    We also disagree with the comment about the burden on distance 
education providers. The exclusion of non-eligible distance education 
courses is part of the requirements for 90/10 compliance. Institutions 
should be able to meet this requirement without counting that revenue, 
which many distance education providers do. Compliance with the 90/10 
rule is important for proprietary institutions to maintain access to 
title IV student aid. If an institution fails to comply with the rule, 
there can be serious implications for the institution's financial 
stability.
    Changes: None.

Cohort Default Rates (Sec.  668.171(c)(2)(viii))

    Comments: Many commenters expressed concerns over the mandatory 
trigger proposed in Sec.  668.171(c)(2)(viii) where an institution is 
at risk of losing access to Federal aid due to high cohort default 
rates (CDRs). Many of these commenters believed it is unfair to hold 
institutions accountable for students' inability to repay their student 
loans. One commenter posited that the return to normalized student loan 
repayments, following the COVID-19 national emergency pause in 
repayments, may not be a smooth transition and that should be factored 
into any financial trigger linked to CDRs. One commenter stated that 
this was another example of information that the institution was 
required to report to the Department when it was already aware of the 
information.
    Discussion: We disagree with the commenters. An institution subject 
to this trigger will lose access to Pell Grants and Direct Loans the 
next time CDRs are calculated unless they can lower their rates or 
successfully appeal their results. It is that threat of pending loss of 
financial aid that merits the inclusion of a mandatory trigger, 
regardless of the reason why an

[[Page 74593]]

institution has a high CDR. While it is true that institutions can and 
do continue operating without access to Federal student aid, it is also 
the case that many institutions are heavily dependent on Federal 
student aid and close when they lose access to it. This trigger is thus 
a prudent step to protect the taxpayers from potential losses that 
could occur if the CDR issue is not resolved by the institution.
    Regarding the transition to a return to normal repayments following 
the COVID-19 national emergency, the Department notes that the effects 
of the pause will continue to keep default rates low for several years. 
The Department has also implemented multiple policy solutions to help 
students avoid default during the return to repayment. This includes a 
temporary 12-month ``on ramp'' where students who are unable to make 
payments will not go into default. We have also implemented a new 
income-driven repayment plan that is more affordable, including the 
automatic enrollment of delinquent borrowers if we have their approval 
for the disclosure of the information needed to calculate their payment 
on income-driven repayment. We agree with the commenter who pointed out 
that the Department is aware of CDRs as it is the Department that 
calculates them. We point out that Sec.  668.171(f) does not require 
institutions to report their CDRs to the Department.
    Changes: None.

Loss of Eligibility (Sec.  668.171(c)(2)(ix))

    Comments: We received a few comments objecting to the mandatory 
trigger proposed in Sec.  668.171(c)(2)(ix) when an institution loses 
eligibility to participate in a Federal educational assistance program 
other than those administered by the Department. The commenters 
believed that the trigger would encourage institutions to not 
participate in programs that would otherwise assist students. One of 
the commenters posited that the trigger should be made discretionary 
and only result in financial protection if the loss or revenue from 
losing the program's eligibility be determined to be material to the 
institution.
    Discussion: We are concerned that an institution's loss of 
eligibility to participate in another Federal agency's educational 
assistance program could be a significant indicator that an institution 
will face financial instability. For instance, an institution that 
receives significant revenue from serving veterans could be financially 
destabilized by losing access to a U.S. Department of Veterans Affairs 
educational assistance program (e.g., the GI Bill). However, we are 
persuaded by commenters that some losses of eligibility for other 
Federal programs could be from programs that represent a small amount 
of revenue or that only persist for a couple of weeks. Accordingly, we 
believe making this a discretionary trigger will allow the Department 
to consider the magnitude of the effect from a loss of eligibility. 
Therefore, we have modified the discretionary trigger in Sec.  
668.171(d)(10) to include loss of institutional eligibility as well as 
loss of program eligibility related to participation in another Federal 
educational assistance program.
    Changes: We removed the mandatory trigger in Sec.  
668.171(c)(2)(ix), and we broadened the discretionary trigger in Sec.  
668.171(d)(10) to include loss of institutional eligibility to 
participate in another Federal educational assistance program. Proposed 
Sec.  668.171(c)(2)(ix) applied only to loss of program eligibility. We 
reserved Sec.  668.171(c)(2)(ix).

Contributions and Distributions (Sec.  668.171(c)(2)(x))

    Comments: Some commenters supported making the trigger in Sec.  
668.171(c)(2)(x) discretionary instead of mandatory. This trigger 
occurs when an institution's financial statements reflect a 
contribution in the last quarter of its fiscal year, and then an entity 
that is part of the financial statements makes a financial distribution 
during the first two quarters of the next fiscal year, which would not 
be captured in the current financial statements.
    One commenter believed the trigger should be discretionary because 
the described action is not always manipulative or results in a lack of 
financial responsibility. Another commenter stated he or she realizes 
that the Department's goal is to prevent manipulation of composite 
scores and to ensure the composite score is demonstrating an accurate 
level of institutional financial resources available to the 
institution. The commenter opined that the trigger does not achieve 
that goal because the Department's recalculation of the composite score 
would only adjust it downward based on the distribution without 
consideration of other financial factors that impact the score. The 
commenter provided an example where an institution has an infusion of 
capital in the fourth quarter which it used to purchase equipment for a 
new program. The example continued with the school enjoying a full 
cohort of students in the new program with the institution achieving an 
increase in revenues in the first two quarters of the institution's 
next fiscal year during which time the institution generated a 
distribution. According to the proposed trigger, the Department would 
only consider the contribution in the last quarter of the first fiscal 
year and the distribution in the first two quarters of the second 
fiscal year with no consideration of the increase in revenue which may 
keep their composite score at a passing level. For this reason, the 
commenter urged that this trigger be discretionary.
    Discussion: The Department disagrees with the commenters and will 
keep this as a mandatory trigger. Integrity in the financial 
responsibility composite score is a key component in ensuring the 
Department conducts accurate oversight of institutions of higher 
education. We have seen entities engage in a practice of intentionally 
increasing their assets at the end of their fiscal year to make an 
institution's composite score look better and then withdrawing those 
funds within the first two quarters of the next fiscal year. Doing so 
presents a misleading picture of financial health and undermines 
integrity in the composite score process. As such, we believe it is 
critical to treat such behavior as a form of composite score 
manipulation that indicates a lack of financial responsibility.
    While we understand the hypothetical example provided by 
commenters, we do not find it persuasive. The recalculated score would 
have to be a failure. An institution in that situation that made a 
small distribution would likely not fail the composite score if the 
school was as financially healthy as the commenter purports. Secondly, 
two quarters of a fiscal year is just six months. It is reasonable to 
ask institutions that receive contributions late in the year to simply 
wait a few months before providing a distribution. Finally, this 
provision is forward looking. Institutions would not be retroactively 
subjected to this requirement so they would know going forward that 
contributions at the end of the year will come with this requirement. 
Accordingly, we will keep this requirement as a mandatory trigger.
    Upon further review, we noted that the second use of the word 
``institution'' in this trigger in the NPRM was not the correct term 
when it should be ``entity'' as it relates to the audited financial 
statements that were submitted to the Department. We have therefore 
fixed this terminology in the final rule text to adopt the more 
accurate terminology.
    Changes: We made a clarifying change to refer to the entity that is 
part of the financial statements rather than the institution. We also 
clarified that the associated reporting requirement in

[[Page 74594]]

Sec.  668.171(f)(1)(v) has a deadline of 21 days after the 
distribution.

Creditor Events (Sec.  668.171(c)(2)(xi))

    Comments: Some commenters objected to the mandatory trigger dealing 
with creditor events in Sec.  668.171(c)(2)(xi). One commenter asserted 
that a creditor may have waived the violation at issue and therefore 
the creditor event should not initiate the trigger. The commenter asked 
us to clarify whether the standard articulated at Sec.  
668.171(f)(3)(i)(A) would apply to this trigger. Another commenter 
believed that this trigger would hinder institutions' access to credit. 
The commenter continued by saying that anytime the Department took an 
action against a school, it would face both the impact of the action 
and then a subsequent requirement to post financial protection because 
creditors would be concerned with the possibility of an institutional 
default associated with the Departmental action and would be reluctant, 
or would refuse, to provide credit. One of the commenters opined that 
the trigger is written in a broad manner that would encompass minor 
technical violations that have little or no financial impact on the 
institution. One of these commenters suggested the trigger be made 
discretionary to give the Department the ability to weigh the impact of 
the creditor event and then determine the need for financial 
protection.
    Discussion: The Department disagrees with the commenters and will 
keep this as a mandatory trigger. We are concerned that in the past 
institutions have had conditions inserted by creditors into financing 
agreements that are designed to dissuade the Department from taking 
action against an institution because it would make the entire amount 
come due or otherwise enter default and thus put the institution at 
risk of sudden closure. If a creditor is so concerned about an 
institution that it needs to attach significant conditions like 
automatic default in response to the Department placing conditions like 
heightened cash monitoring 1 or 2, then the Department believes that is 
an important sign that an institution is deemed financially risky 
enough that we should also secure upfront financial protection. It is 
for these same reasons that we are not persuaded by suggestions from 
commenters to not apply this trigger if the creditor waives the 
default. The Department is concerned by the signal sent by these 
conditions and would not have a way of knowing whether the creditor 
will or will not waive the default until it is too late.
    We disagree with the commenters that this provision would result in 
the minor technical issues being captured. The regulatory language is 
clear that we are worried about defaults or adverse conditions. The 
commenter did not explain how something that is minor or technical 
could rise to the level of being adverse. Nor did they explain how 
something that is adverse, such as a default, could only be minor or 
technical.
    This trigger is not covered by the standard articulated in Sec.  
668.171(f)(3)(i)(A). That provision is related to loan agreements under 
Sec.  668.171(d)(2), a discretionary trigger. The concern with this 
trigger is around financing agreements that specifically implicate 
Department actions.
    The Department's ultimate responsibility is to ensure that 
institutions are financially responsible, and the Department fulfills 
its role as a steward of the taxpayer investments in the Federal 
student financial aid programs. In this instance, we are concerned 
about efforts to discourage proper and necessary Department oversight 
actions.
    Changes: None.

Declaration of Financial Exigency (Sec.  668.171(c)(2)(xii))

    Comments: One commenter requested clarification on the trigger in 
Sec.  668.171(c)(2)(xii), which is a mandatory trigger activated when 
an institution declares a state of financial exigency to a Federal, 
State, Tribal, or foreign governmental entity or its accrediting 
agency. The commenter asked the Department to define a ``declaration of 
financial exigency'' and clarify that it does not include a routine 
financial reporting letter.
    Discussion: We defined ``financial exigency'' in Sec.  668.2 in the 
NPRM and maintain that definition here. We confirm that, under the 
definition, routine financial reporting does not constitute a financial 
exigency.
    Changes: None.

Financial Responsibility--Discretionary Triggering Events (Sec.  
668.171(d))

General

    Comments: Some commenters expressed support for the discretionary 
financial triggers. One of those commenters believed that the adoption 
of the discretionary financial triggers would enhance the financial 
stability of participating institutions.
    Discussion: We thank the commenters for their support.
    Changes: None.
    Comments: One commenter expressed support for the discretionary 
triggers and also proposed adding a discretionary trigger reflecting a 
financial rating by a third party, such as a credit rating agency, 
would provide the most updated financial information available to the 
Department for its determination of the institution's financial 
responsibility.
    Another commenter supporting the discretionary trigger format 
suggested an additional discretionary trigger linked to the presence of 
short-term and contingent liabilities. The commenter believes that such 
debts present greater risks of financial instability to the 
institution.
    Discussion: We decline to accept the commenters' suggestion. The 
presence of short-term financing is not inherently a bad thing, and it 
cannot be used to help an institution's composite score. Contingent 
liabilities should be recorded in the financial statements if the 
amount can be reasonably estimated. If not, it might require a 
disclosure with a range. We believe other triggers would capture the 
most common contingent liabilities, such as lawsuits and settlements. 
If not, the contingent liabilities would be captured in the next 
audited financial statements.
    With regard to the credit rating agency determination, we think 
that looking at the other actions that could likely affect that credit 
rating downgrade is a better approach. In other words, we anticipate 
that looking at specific triggers would allow us to consider the event 
that leads to the rating downgrade rather than the downgrade itself.
    Changes: None.
    Comments: We received a few comments that opposed the discretionary 
financial triggers in general. One of those commenters opined that the 
discretionary nature of the financial triggers introduced uncertainty 
and potential inconsistencies in how these triggers will be applied. 
This commenter thought it crucial that financial triggers be based on 
measurable factors and the idea the Department would use its discretion 
diluted the idea of measurable factors being what caused implementation 
of any required financial protection. Finally, one commenter stated 
that discretionary triggers will effectively supplant more reliable 
indications of an institution's financial status.
    Discussion: We disagree with the commenters. The concept of the 
discretionary triggers is for the Department to be alerted to any 
financial event at a participating institution that may place that

[[Page 74595]]

institution in an infringed financial status or indicate the 
institution is about to close. These triggers, as opposed to the 
mandatory triggers, allow the Department more flexibility in 
determining whether the institution is in financial difficulty. That 
discretion allows the Department to evaluate the institution's 
situation, often with input by the institution, to decide if the 
trigger warrants further action, e.g., requiring financial protection. 
One of the flexibilities of the discretionary financial triggers is the 
ability to disregard the trigger when the determination is made by the 
Department that there is no risk to the institution or its students. 
Conversely, when it is determined that there are reliable indicators of 
an apparent risk to students the Department can act in the timeliest 
way possible which is almost always more rapidly than other financial 
indicators might allow. Additionally, any Federal Government 
enforcement action that is inconsistent, including how the Department 
implements these discretionary triggers, is subject to challenge under 
the Administrative Procedure Act and any other applicable laws.
    Contrary to the commenter's argument, we think these triggers do 
present reasonable conditions where looking at their potential effect 
is not overly complicated. For instance, the Department could see the 
type of action taken by the accreditor and look at why it had taken 
such an action. That could help us understand the possibility of a loss 
of accreditation for either the institution overall or a program and 
thus how much revenue from title IV, HEA aid might be lost. We can look 
at the amounts involved in the defaults, delinquencies, creditor 
amounts, and judgments as well as any terms of conditions attached to 
those events to see their effect. The fluctuations of title IV, HEA 
volume, closure of locations or programs can all be considered in terms 
of how much title IV aid is attached those programs or locations and 
what that looks like as a share of institutional revenue. Similarly, 
for the State citations, loss of program eligibility, teach-outs, and 
actions by other Federal agencies we can consider the number of 
students enrolled from that State, how much title IV, HEA aid an 
institution received from a program which is no longer eligible, and 
what portion of the institution is being required to put together a 
teach-out plan. The Department would similarly know the potential size 
of a group under consideration for a borrower defense discharge. With 
the high dropout rates the Department would know how much an 
institution is undergoing churn on an annual basis, which can be a sign 
of financial struggles given the high cost of student acquisition and 
the inability to have a stable and sustained revenue supply from 
enrollees. Finally, the Department could look at what is being 
investigated at an institution based upon the exchange disclosure. For 
all these items, there are reasonable ways for the Department to 
consider whether a given triggering event at a specific institution is 
likely to have a significant negative financial effect.
    Changes: None.
    Comments: A few commenters believed that the entire set of 
discretionary triggers were not well defined. Some indicated that the 
burden placed upon institutions by the discretionary triggers was 
unacceptable. Commenters also argued that the discretionary triggers 
did not give rise to issues with significant financial impact and that 
a process was required to determine if the discretionary trigger 
impacting an institution is valid and has the requisite financial 
impact.
    Discussion: We disagree with the commenters. The goal of the 
discretionary triggers is to identify situations that could be a sign 
of financial weakness which merit financial protection. However, the 
discretionary triggers leave the Department some discretion to 
determine whether the circumstances are likely to have a significant 
adverse effect on the financial condition of the institution. This 
recognizes that the same discretionary triggering event may have 
different financial effects on an institution. For instance, an 
institution that closes a number of its locations, such as having a 
series of satellite locations that are essentially a single classroom 
for one course, to streamline its operations, while not losing 
substantial amounts of enrollment, would likely not need financial 
protection. On the other hand, an institution that closes all but a 
single location, while suffering massive enrollment losses, likely 
would. The measures thus do not include specific thresholds that would 
guarantee the imposition of financial protection, but rather lay out 
concerning situations that merit more extensive examination.
    We also believe the burden placed upon the institution will be 
reasonable. Several of these triggers, such as fluctuations in title 
IV, HEA volume and pending borrower defense claims can be determined by 
the Department and do not require additional institutional reporting. 
The additional work to report a triggering event and then some back and 
forth with the institution if the Department deems the condition 
potentially worrisome enough to merit a closer look is a reasonable 
cost compared to the benefits that come to taxpayers in obtaining 
financial protection prior to sudden closures and the establishment of 
closed school discharge liabilities. If the institution is financially 
stable, the case can be easily made, and the trigger will not lead to 
any required financial protection. If the situation is such that 
financial protection is determined to be necessary, then we acknowledge 
that burden but see it as a necessity to protect the interests of 
students and taxpayers. The institution, in responding to a 
discretionary triggering event, has the opportunity to explain or 
provide information to the Department that demonstrates that the 
triggering event has not had or will not have a significant adverse 
effect on the institution's financial condition.
    Changes: None.
    Comments: A few commenters were concerned with the language that 
described the discretionary triggers as including those detailed in the 
regulations but not limited to them. The commenters believed that a 
list of financial triggers must be finite and not open ended. One of 
the commenters opined that adding a financial trigger at a later time 
after the publishing of these final rules would require that it be 
negotiated.
    Discussion: We disagree with the commenters. Unlike the mandatory 
triggers, discretionary events are ones in which the Department will 
take a case-by-case look at the situation and determine whether it 
represents a significant negative financial risk. To that end, the list 
of discretionary triggers identifies the items that we think are most 
likely to result in such considerations. That is also why we have 
attached reporting requirements related to them in Sec.  668.171(f). 
However, with thousands of institutions of higher education there are 
bound to be unique situations not contemplated in these regulations in 
which the Department needs to take a closer look at whether they might 
result in financial instability. As such, the Department believes it is 
critical to preserve that flexibility as those situations arise. 
Therefore, the triggers here provide clarity to the field about issues 
the Department is particularly worried about while ensuring that 
unanticipated issues can be investigated as needed.
    We do not agree that rulemaking is required to consider other 
factors. In many parts of our existing regulations, we have 
inexhaustive lists of factors or

[[Page 74596]]

requirements that the Department may consider or require. For instance, 
Sec.  600.31(d) provides a non-exhaustive list of what might be 
considered a change in control. Similarly, Sec.  668.24(c) has a non-
exhaustive list of the records that an institution must maintain, as 
does the list of items that an institution must provide to enrolled and 
perspective students in Sec.  668.43(a). For this provision related to 
triggers, we note that the underlying language in section 498 of the 
HEA lays out the types of issues the Secretary should consider to 
determine whether an institution is financially responsible, such as 
meeting financial obligations as laid out in section 498(c)(C) but does 
not provide any constraint on how the Secretary should determine 
whether an institution is meeting that criteria. Given the varied 
nature in which an institution could fail to show they can meet their 
obligations, we believe a non-exhaustive list is appropriate.
    However, upon reviewing the language further, we do agree that the 
non-exhaustive list did not provide sufficient clarity for the 
community of how other situations could end up being a discretionary 
trigger. To address this issue, we have added new trigger in Sec.  
668.171(d)(14), which includes any other event or action that the 
Department learns about and is determined to likely have a significant 
adverse effect on the institution. This is the same condition as laid 
out at the start of Sec.  668.171(d) but clarifies that any other event 
captured as a trigger would need to rise to this level. As a result of 
adding the new trigger the Department has deleted the reference to 
``including, but not limited to'' at the start of Sec.  668.171(d). We 
have also added a corresponding reporting requirement to paragraph (f) 
of this section.
    Changes: We have added Sec.  668.171(d)(14) to include any other 
event or condition that the Department learns about from the 
institution or other parties, and the Department determines that the 
event or condition may cause a significant adverse effect on the 
financial condition or operations of the institution. We have also 
added Sec.  668.171(f)(1)(xviii) which contains a corresponding 
reporting requirement for this discretionary trigger.
    Comments: A few commenters suggested that the final rules allow a 
process by which institutions can provide input to the Department. The 
commenters felt that this input was essential to the Department making 
a correct determination about an institution's financial stability once 
it encountered a discretionary trigger.
    Discussion: The Department notes that Sec.  668.171(f)(3) has 
provisions explaining how institutions subject to financial triggers 
can provide input demonstrating that the triggering event has been 
resolved. For discretionary triggers, the provisions in paragraph (f) 
allow institutions to provide explanations of how the triggering event 
has not had or will not have a significant adverse effect on the 
financial condition of the institution.
    Changes: None.

Accrediting Agency, Federal, State, Local, or Tribal Actions (Sec.  
668.171(d)(1))

    Comments: One commenter suggested that the final rule be modified 
to include accreditor findings of financial distress or significant 
risk of financial distress that would otherwise fall short of 
``probation'' or ``show-cause order'' be considered as a discretionary 
trigger.
    Discussion: We disagree with the commenter. We believe where the 
regulation discusses placing an institution in a comparable status to 
show cause or probation would capture something that was truly serious 
and that raised questions about an institution's financial health. We 
think this will capture the situations we are most worried about while 
not capturing every single accreditor or regulator action. Furthermore, 
in many instances in which an accrediting agency makes a finding of 
financial distress or there is significant risk of financial distress, 
the agency places an institution on probation or an equivalent status.
    Changes: None.
    Comments: One commenter objected to probation being the cause of a 
discretionary trigger since, in the commenter's view, institutions on 
probation routinely have their accreditation continued. Another 
commenter had a similar view regarding show-cause status as the 
commenter did not regard that status as a negative action but saw it as 
an opportunity for institutional improvement.
    Discussion: We disagree with the commenters. In our experience, 
these statuses are employed by accreditors and State entities when an 
institution is in some degree of non-compliance with the entity's rules 
or standards. The Department's concern here is that an institution 
being placed in this status may be at risk of losing its accreditation, 
which could lead to negative financial consequences, such as the 
inability to award recognized credentials or receive Federal aid. It is 
also common for accreditors to use one of these statuses when they have 
concerns about an institution's financial health. As this is a 
discretionary trigger, the institution may provide information to the 
Department demonstrating that the triggering event was not related to 
an issue that negatively impacted the institution's financial 
condition.
    Changes: None.
    Comments: One commenter sought clarification on whether the 
discretionary trigger applied to programmatic accreditors and 
programmatic State licensing entities.
    Discussion: The language in Sec.  668.171(d)(1) speaks to actions 
imposed on an institution, not a program, so this applies to an 
institutional accreditor as we are concerned about an institution 
losing accreditation, authorization, or eligibility.
    Changes: None.

Other Defaults, Delinquencies, Creditor Events, and Judgments (Sec.  
668.171(d)(2))

    Comments: Two commenters sought clarification whether this trigger 
would be activated if a creditor waived an event that would normally 
activate this trigger. One commenter was concerned that this trigger 
might be activated by an inconsequential event. The commenter suggested 
that this trigger be limited to those events where the institution's 
independent auditor states that the financial risk is significant in 
the annual audited financial statement.
    Discussion: We disagree with the commenters. The purpose of the 
financial triggers, in most cases, is for the Department to be alerted 
to possible threats to the institution's financial stability between 
submissions of the audited financial statement. As this is a 
discretionary trigger, the Department has to determine that the event 
has a significant adverse effect on the financial condition of the 
institution before financial protection is required. The institution 
has the opportunity to provide information to the Department 
demonstrating that the event does not have a significant adverse effect 
on the institution's financial condition, or the event has been waived 
or resolved.
    Changes: None.
    Comments: One commenter was concerned that a financial trigger 
related to entering into a financing arrangement would introduce 
further strain on access to credit for postsecondary institutions.
    Discussion: We disagree with the commenter. The provision in Sec.  
668.171(d)(2) is not simply about an institution entering into a 
financing arrangement. Rather, it is when an institution is subject to 
a default, the creditor calls due on a balance, or there are other 
conditions attached to default or other provisions under such 
arrangement that threaten the

[[Page 74597]]

institution's financial condition or the Department's ability to 
protect itself. Those include when a default, delinquency, or other 
event occurs that allows the creditor to require or impose an increase 
in collateral, a change in contractual obligations, an increase in 
interest rates or payments, or other sanctions, penalties, or fees; or 
when the institution can be subject to default or other adverse 
condition as a result of any action by the Department. We believe this 
discretionary trigger is important to provide us with the flexibility 
to protect the Department and monitor an institution with greater 
financial risk due to such arrangements.
    Changes: None.
    Comments: One commenter sought clarification on the word 
``condition'' as it is used in describing this trigger. The commenter's 
concern was that all institutions are subject to ``conditions'' in 
financing arrangements and recommended that the Department clarify that 
it is only conditions that give rise to potential negative 
consequences.
    Discussion: We agree with the commenter that the current language 
is not clear. To clarify the regulatory text, we have added the word 
``adverse'' before ``condition'' to align with Sec.  668.171(d)(2)(iv).
    Changes: We have modified Sec.  668.171(d)(2)(i) to apply when an 
institution enters into a line of credit, loan agreement, security 
agreement, or other financing arrangement whereby the institution or 
entity may be subject to a default or ``other adverse condition . . .'' 
to clarify the previous language that only said ``condition.''

Fluctuation in Volume (Sec.  668.171(d)(3))

    Comments: One commenter noted that there have been formula changes 
for the Federal methodology calculation for title IV, HEA programs due 
to the Free Application for Federal Student Aid (FAFSA) Simplification 
Act and in case of other future changes due to Federal actions, they 
suggest adding the language ``or changes to the eligibility formula or 
student eligibility changes'' to account for any future legislative 
changes that could impact student eligibility and therefore impact 
fluctuation in volume. Another commenter believed that additions or 
eliminations of title IV, HEA programs would result in fluctuation.
    Discussion: While we agree with the commenters concern, we believe 
our existing language is sufficient to address that concern. The rule 
says fluctuations in the amount of Direct Loan or Pell Grant funds 
``that cannot be accounted for by changes in those programs.'' This 
would also account for any new programs that could be added under title 
IV of the HEA.
    Changes: None.
    Comments: One commenter suggested the Department include other 
changes in revenue particularly from online degree or non-degree 
programs. The commenter stated the Department should be committed to 
capturing revenue fluctuations outside of title IV, HEA-specific 
funding, which may provide a risk to an institution's financial 
stability. The commenter said the proposed change would allow the 
Department to identify instances when traditional institutions are 
addressing financial challenges by relying on expanding enrollment 
through online or non-degree programs. The proposed language should not 
prevent monitoring revenue changes in other areas.
    Discussion: The Department disagrees with the commenters. We think 
it is most appropriate for the Department to focus on the connection to 
title IV for a trigger related to fluctuations since we are tasked with 
oversight of the title IV, HEA programs. The institution's overall 
revenues, expenses, assets, and liabilities are captured on annual 
audited financial statements and reflected on its composite score, 
which is where we would observe other fluctuations and identify 
potential risks.
    Changes: None.
    Comments: One commenter requested the Department publish standards 
for significant fluctuations to avoid inconsistencies in audit report 
disclosures. Another commenter agreed with the Department's changes but 
encouraged the Department to provide more explicit thresholds for title 
IV, HEA volume fluctuations.
    Discussion: The Department believes that the reporting requirements 
in Sec.  668.171(f) provide a way for the institution to document when 
they think significant fluctuations are not sufficiently concerning. We 
do not think a single standard would be appropriate, as the percentage 
or dollar amount of a fluctuation would look very different depending 
on the size of the institution. We think the approach of considering 
this issue through discussions with the institution is more 
appropriate.
    Changes: None.
    Comments: Some commenters inquired whether a fluctuation in title 
IV, HEA volume that was linked to an institutional structural change, 
such as a merger or reorganization, would be treated as a discretionary 
trigger.
    Discussion: The commenters' use of the term ``merger'' needs some 
clarification. When one institution acquires an institution under 
different ownership, and the acquired institution is intended to become 
an additional location of the acquired institution, the transaction is 
often referred to as a merger. This type of ``merger'' is treated as a 
change in ownership in the first instance, and then the addition of an 
additional location. Fluctuations in title IV, HEA volume from this 
type of change would not be a trigger because the Department has other 
methods (through review of financial statements and potential 
provisional conditions) to exercise the appropriate oversight. The term 
merger is also used to refer to the situation where two schools under 
the same ownership are ``merged'' so that one institution becomes an 
additional location of the other institution. This type of ``merger'' 
is not treated as a change in ownership because the ownership stays the 
same. Fluctuations in title IV, HEA volume from this type of merger 
would not be a trigger so long as the title IV volume on a combined 
basis does not significantly fluctuate.
    Changes: None.

High Annual Dropout Rates (Sec.  668.171(d)(4))

    Comments: One commenter suggests the Department add language 
stating the high dropout rates should only be considered when they are 
not caused by external factors. The commenter provides examples of 
natural disasters and COVID-19 as reasons for high dropout rates that 
are not indicative of an institution's financial instability.
    Discussion: The Department believes the reporting process in Sec.  
668.171(f) provides a way for the institution to raise these concerns 
and the Department to consider them without needing to write in 
specific ways to address these specific issues. However, we note that 
at a time when enrollment in postsecondary education is declining and 
the costs of convincing students to enroll is high, the signs of high 
rates of withdrawal can indicate very significant financial challenges 
for institutions.
    Changes: None.
    Comments: Several commenters called upon the Department to define 
``high'' as it relates to this trigger. One of those commenters asked 
if the trigger would apply to all schools in the same way. One 
commenter opined that this trigger would have a disproportionately 
adverse effect on institutions with an open enrollment policy.
    Discussion: We believe that the approach used by the Department in 
assessing discretionary triggers addresses the commenters' concerns. We 
will look at the dropout rate on a case-by-case basis to see if it 
indicates signs of financial concern. For instance,

[[Page 74598]]

we would look at the cost to the institution of needing to continue 
recruiting students to replace those who drop out and what that 
indicates about its financial health given both the cost of student 
acquisition and the loss of a more stable revenue stream that comes 
from someone who stays enrolled for longer periods. We would also 
consider issues, such as the size of the institution, as the number of 
students who drop out also matters for thinking about revenue in 
addition to the percentage that drop out.
    Changes: None.
    Comments: One commenter pointed out that the Department has long 
considered a withdrawal (or dropout) rate of less than 33 percent to be 
a minimum requirement for new institutions seeking participation in 
title IV, HEA programs for the first time. The commenter recommended 
that the Department evaluate all private institutions that had a 
dropout rate of greater than 33 percent and, on an institution-by-
institution basis, determine if financial protection was required.
    Discussion: These discretionary triggers are designed to be 
flexible and allow the Department to assess on a case-by-case basis 
whether financial protection is necessary. Thus, we are reluctant to 
establish a threshold for dropout rates for institutions currently 
participating in the title IV, HEA programs. The goal of this 
discretionary trigger is for the Department to evaluate whether the 
dropout rate of a given institution poses a threat to that 
institution's financial stability and ability to continue to offer 
services to its students.
    Changes: None.

Pending Borrower Defense Claims (Sec.  668.171(d)(6))

    Comments: Several commenters objected to this discretionary trigger 
due to an institution having the potential of providing financial 
protection when the Department forms a group process to consider 
borrower defense claims that are subject to recoupment. One of the 
commenters stated that this was essentially an action by the Department 
to recoup the funds prior to the conclusion of the adjudication of the 
borrower defense claims and before the institution can contest any of 
the claims.
    Discussion: We disagree with the commenters. When there are enough 
pending borrower defense claims for the Department to form a group 
process, that could lead to substantial loan discharges from the 
Department. Therefore, it is appropriate for the Department to consider 
whether it needs to seek financial protection. We disagree with the 
commenters that it is an action to recoup the funds. Seeking financial 
protection in these instances only provides potential protection for 
the Department and taxpayers should discharges happen.
    Changes: None.

Discontinuation of Programs and Closure of Locations Discretionary 
Triggers (Sec.  668.171(d)(7)) and (8))

    Comments: Commenters stated the 25 percent threshold determined by 
the Department is arbitrary and that there is not a strong enough 
justification to show that a discontinuation of a program or closure of 
a location under these circumstances is indicative of an institution's 
financial stability. One commenter summarized the Department's position 
during negotiated rulemaking on closure of locations that enroll more 
than 25 percent of students as being that the threshold was determined 
for the same reason as closure of academic programs and if a location 
closure strengthens an institution's finances, and the institution was 
financially stable there would be no escalation. The commenters also 
stated that the 10 percent LOC provision exceeds the materiality of the 
closure. Some commenters stated that the trigger will have a large 
impact on cosmetology schools as they often only offer cosmetology 
programs, therefore a closure of one program could lead to the 
discretionary trigger even though it would not be indicative of the 
institution's financial stability.
    Discussion: The commenters' concerns speak to some of the reasons 
why the Department elected to make program discontinuation and location 
closures discretionary triggers rather than mandatory triggers. 
Situations such as closures that put an institution in a stronger 
position could be explained as part of the reporting under Sec.  
668.171(f). The Department will thus be able to consider on a case-by-
case basis whether to seek financial protection. That case-by-case 
assessment likewise will allow for consideration of the financial 
effect compared to the amount of financial protection sought.
    With regard to the comments related to cosmetology, if the 
institution only has a single program and closes it then presumably the 
school is closed and thus there is no ongoing financial protection 
requirement. Instead, there would be consideration of whether there are 
liabilities for closed school discharges. If an institution only offers 
two programs, with one being very small, then the case-by-case review 
of the triggering event would allow the Department to consider whether 
that closure really does merit financial protection.
    The thresholds in these discretionary triggers are not attached to 
automatic actions the way numerical thresholds are for provisions such 
as cohort default rates in part 668, subpart N. In those situations, 
institutions that exceed those thresholds face consequences unless they 
appeal the results. In this situation, the trigger still results in a 
case-by-case-case review and determination. To that end, the threshold 
keeps reporting for institutions prior to that case-by-case 
determination more manageable. Absent such a threshold, institutions 
would have to report every closure to the Department. We thus believe 
that 25 percent is reasonable to strike a balance between not making 
institutions report events that are unlikely to have a significant 
adverse effect on the financial condition of the institution, while not 
setting the threshold so high that we do miss instances of closure that 
would cause that result. We note this approach is not dissimilar to 
other areas, such as reporting requirements in Sec.  600.21 where 
institutions must report changes in ownership at different percentages 
of ownership levels on different timeframes based upon our assumption 
of when a specific review of such reporting might result in a change in 
control.
    In considering the concerns raised by commenters about the portion 
of this trigger related to enrollment, we also reviewed the part tied 
to the closure of more than 50 percent of the institution's locations. 
Upon further review, we think a focus on the number of locations is 
less useful than the emphasis on enrollment, as locations may vary 
greatly in size. An institution may close more than 50 percent of its 
locations and that action may impact only a small percentage of 
students. We also believe expressing these percentages, as a share of 
students at the institution who received title IV, HEA funds, is better 
than the way it was drafted in the NPRM. Focusing on title IV, HEA 
recipients align this trigger with programs the Department administers, 
and this will be data more readily apparent to us, which will simplify 
the burden on institutions for assessing whether this trigger should 
result in financial protection. We remain convinced that institutional 
closures of locations or programs that impact more than 25 percent of 
its enrolled students who received title IV, HEA funds may be an 
indicator of impaired financial stability. The loss of revenue 
represented by such a reduction in

[[Page 74599]]

enrollment may have an immediate impact on the institution's ability to 
continue to offer educational services. Additionally, this would 
capture most, if not all, of the instances where a closure of 50 
percent of locations raises concerns for the Department. Therefore, we 
are modifying the regulation so that this discretionary trigger will be 
activated only when an institution closes locations that enroll more 
than 25 percent of its students who received title IV, HEA funds.
    Changes: We revised Sec.  668.171(d)(8) to reflect that the 
discretionary trigger described therein will be activated when an 
institution closes a location or locations that enroll more than 25 
percent of the institution's students. We have removed the part of the 
proposed trigger in Sec.  668.171(d)(8) for situations where an 
institution closes more than 50 percent of its locations. We have noted 
that the triggers in both paragraphs (d)(7) and (8) will be assessed as 
a percentage of students at the institution who received title IV, HEA 
program funds.

State Actions and Citations (Sec.  668.171(d)(9))

    Comments: Two commenters expressed concern that State agencies can 
act in areas that have nothing to do with the institution's financial 
condition and their action will activate this trigger. One commenter 
recommended that a materiality threshold be established for this 
trigger. One commenter was concerned that State agencies can 
incorrectly cite institutions and that this trigger may be activated 
prior to the institution being able to refute the incorrect citation.
    Discussion: We disagree with the commenters. This is a 
discretionary trigger, and the institution will be able to provide 
information to the Department indicating that the State's action is 
erroneous or addresses an issue with little or no impact on the 
institution's financial stability. As we have stated earlier, we do not 
agree that a materiality threshold should be established for any of the 
financial triggers. Such a threshold could effectively place the 
decision about whether an event or action is an indicator of impaired 
financial stability in the purview of the institution and its auditor. 
We maintain that this is the Department's purview in order to ascertain 
if an institution is, in fact, negatively impaired financially due to 
the actions of a State agency. However, as we noted the discretionary 
triggers would involve a case-by-case determination to see if the event 
had a significant adverse financial effect on the institution. That is 
not the same as materiality but captures a concept that the mere 
presence of the discretionary trigger alone is insufficient to lead to 
a request for financial protection. We note that we did eliminate the 
mandatory trigger dealing with State actions as explained under the 
discussion of Sec.  668.171(c)(2)(v) above and moved that provision to 
be included here as part of the discretionary trigger.
    Changes: Provisions in Sec.  668.171(d)(9), dealing with State 
actions and citations has been expanded to include situations where a 
State licensing agency or authorizing agency provides notice that it 
will withdraw or terminate the institution's licensure or 
authorization, making those actions a discretionary trigger rather than 
a mandatory trigger as was proposed.

Loss of Program Eligibility (Sec.  668.171(d)(10))

    Comments: Two commenters stated that the loss of eligibility for a 
non-title IV Federal education assistance program may be unrelated to 
administrative or financial abilities and may be immaterial to an 
institution's financial well-being. One of the commenters contended 
that this discretionary trigger would require a detailed financial 
analysis to determine the impact of losing other Federal education 
assistance programs and that the Department did not provide any 
reasoned justification for the trigger.
    Discussion: We disagree with the commenters. Our concern about the 
loss of eligibility for another Federal assistance program is twofold. 
One, it indicates some degree of revenue loss for the institution. For 
instance, an institution that serves many veterans may face financial 
challenges if it loses access to the GI Bill. We recognize, however, 
that the amount of revenue that comes from a given Federal program can 
vary and thus think a discretionary trigger is best used to assess the 
extent of the effect.
    Second, we are also concerned about what loss of eligibility for a 
program might indicate in terms of implication for title IV, HEA 
programs. It is possible that the reason for the ineligibility might 
indicate problems with Federal aid that need to be examined as well. 
This may not immediately result in a request for financial protection, 
but it could, if it indicates a widespread practice of substantial 
misrepresentations, or some other concern.
    We also disagree with the commenter that this would be a 
challenging trigger to assess. We expect institutions know how many 
students are served by a given Federal program and how much money the 
institution receives from that program. They should be able to report 
that information to the Department. Where this information indicates 
that the loss of eligibility for another Federal education assistance 
program does not affect an institution's financial capability, this 
discretionary trigger would not lead to a requirement to provide 
financial protection. We note that we modified this discretionary 
trigger to also include loss of program eligibility related to 
participation in another Federal educational assistance program, which 
was a proposed mandatory trigger in Sec.  668.171(c)(2)(ix) of the 
NPRM.
    Changes: As mentioned previously, we removed the mandatory trigger 
in Sec.  668.171(c)(2)(ix) and included the substance of that proposed 
mandatory trigger in the discretionary trigger in Sec.  668.171(d)(10) 
to provide ``The institution or one or more of its programs has lost 
eligibility to participate in another Federal educational assistance 
program due to an administrative action against the institution or its 
programs.''

Exchange Disclosures (Sec.  668.171(d)(11))

    Comments: One commenter requested the Department clarify that the 
discretionary trigger concerning exchange disclosures would activate 
only if the possible violation negatively impacted the financial 
condition of the institution.
    Discussion: This is a discretionary trigger, and institutions would 
not be required to provide financial protection if they provide 
information to the Department indicating that the action is not likely 
to have a significant adverse effect on the financial condition of the 
institution.
    Changes: None.

Directed Question

    Comments: Several commenters responded to the Department's directed 
question about whether the Department should include a discretionary or 
mandatory trigger related to when an institution receives a civil 
investigative demand, subpoena, request for documents or information, 
or other formal or informal inquiry from any government entity (local, 
State, Tribal, Federal, or foreign). This would be tied to the 
reporting requirement in proposed Sec.  [thinsp]668.171(f)(1)(iii).
    Some commenters recommended that an investigation by a government 
entity be included as a discretionary trigger. The commenter believed 
that simply reporting the occurrence was insufficient and the 
Department should be empowered to obtain financial

[[Page 74600]]

protection if it determines that such protection is warranted.
    Some commenters stated that an investigation itself should not be a 
trigger and there should not be a requirement to report investigations. 
Another commenter requested the Department clarify whether the trigger 
covers all third-party requests for information rather than only those 
from government agencies. Another commenter opined that establishing 
this factor as a trigger would place too much authority in the hands of 
a third party.
    Discussion: The Department agrees with the commenters that it would 
not be appropriate to make these items a discretionary or mandatory 
trigger. We believe that the mandatory trigger related to lawsuits in 
Sec.  668.171(c)(2)(i)(B) captures situations where such requests 
results in litigation. Other triggers, such as the ones related to SEC 
actions, State actions, or loss of eligibility for other Federal 
programs also capture events that may start with such information 
requests. We think those events are better suited to being triggers 
because they occur further along in the process whereas information 
requests are too early to be able to tell the potential effects on 
financial responsibility.
    However, the Department believes that it is still critical to have 
information on these types of situations for riskier institutions. 
Knowing about ongoing investigations can help the Department assess 
whether it should be looking more carefully into an institution and 
allows us to know sooner if problems might be coming. Accordingly, we 
are not adopting any trigger language related to this provision in 
Sec.  668.171(c) or (d). We are also removing the reporting requirement 
Sec.  668.171(f) because it is not appropriate to ask institutions to 
report on this information for financial responsibility purposes if it 
is not being used as a listed discretionary trigger. Instead, we will 
move a version of this language into Sec.  668.14(e)(10). That is a 
more appropriate spot for requesting such reporting from riskier 
institutions, as that section lists conditions that the Secretary may 
place into the PPA for a provisionally certified institution. In doing 
so, we also deleted the reference to ``informal'' information requests 
because we think that would be too unclear a standard for institutions 
to understand. This language thus only applies to formal requests, 
which include subpoenas, civil investigative demands, and requests for 
documents or information. We have also clarified that institutions 
would only need to report such requests that are related to areas of 
Department oversight, particularly those related to potential borrower 
defense claims and substantial misrepresentations. These areas are the 
marketing or recruiting of prospective students, the awarding of 
Federal financial aid for enrollment at the school, or the provision of 
educational services for which the Federal aid was provided.
    Changes: We have removed language in Sec.  668.171(f)(1)(iii) and 
relocated a modified version of it to Sec.  668.14(e)(10).

Financial Responsibility--Recalculating the Composite Score (Sec.  
668.171(e))

    Comments: One commenter agreed with the Department's changes to 
Sec.  668.171(e).
    Discussion: We thank the commenter for their support.
    Changes: None.
    Comments: Some commenters suggested that under Sec.  
668.171(e)(3)(ii) and (e)(4)(ii), the equity ratio should be adjusted 
by decreasing both the modified total assets in addition to modified 
equity. If the Department is decreasing an institution's equity, its 
total assets should be decreased as well, the commenters argued. 
Another commenter suggested to make this change only under Sec.  
668.171(e)(3)(ii).
    Discussion: The commenters are correct that both modified equity 
and modified assets should be reduced for Sec.  668.171(e)(3)(ii), the 
withdrawal of equity, because for double entry accounting the 
adjustments would be to decrease the equity and the asset. However, we 
do not think the change is appropriate for Sec.  668.171(e)(4)(ii), the 
reclassification of a contribution, because reclassifying a 
contribution to a short-term loan would be an increase in a liability 
and a decrease in equity. We have made that change in the regulatory 
text in the first identified place.
    Changes: We have adjusted Sec.  668.171(e)(3)(ii) to note that we 
will also reduce the modified assets.

Financial Responsibility--Reporting Requirements (Sec.  668.171(f))

    Comments: One commenter offered general support for the enhanced 
reporting requirements and the associated timelines.
    Discussion: We thank the commenter for their support.
    Changes: None.
    Comments: Several commenters stated that the reporting requirements 
are excessive and burdensome and will lead to institutions not 
submitting reports timely. One commenter stated that they will likely 
have to hire additional staff.
    Discussion: The Department disagrees that the reporting 
requirements are as complicated as indicated by commenters. The 
mandatory triggers represent situations that would be easily 
identifiable by the institution. For instance, they would be well aware 
if they have been sued, would know if they declared financial exigency, 
or other similar circumstances. Several mandatory and discretionary 
triggers also rely upon data that the Department already has in its 
possession, such as default rates, 90/10 and GE results, and changes in 
aid volume. Other things are information that institutions have to 
report anyway, such as accreditor actions or closures of locations. The 
Department also expects institutions to maintain an adequate number of 
qualified persons to administer the title IV, HEA programs, as 
discussed elsewhere in this final rule pertaining to administrative 
capability. Therefore, we believe the information needed to be reported 
is manageable and consists of many things that are already covered by 
other reporting requirements.
    Changes: None.
    Comments: Several commenters said 10 days to report triggering 
events was too short. Some requested 30 days from when the institution 
had requisite knowledge to report the triggering event. One commenter 
suggested 21 days would be an appropriate amount of time to report, 
noting that would fit with the monthly accounting cycle and related 
financial reporting.
    Discussion: The Department agrees with the commenters that it is 
reasonable to provide more than 10 days for reporting. We are 
particularly persuaded by the suggestion from the commenters to use 21 
days as they tied that to existing accounting processes, while other 
commenters did not provide a specific basis for 30 days. We, however, 
are establishing that the 21 days be based upon when the event occurred 
since that is an objective date rather than attempting to ascertain 
when institutional leadership became aware of the situation. A 
determination based upon institutional knowledge and awareness would be 
harder for the Department to verify and could result in institutions 
intentionally delaying reporting and then claiming they were unaware of 
the issue. By contrast, the date of the event is going to be more 
easily known.
    Changes: We have adjusted the reporting timeframes from 10 to 21 
days for any provision in Sec.  668.171(f) that required reporting 
within 10 days. We have modified the regulation to clarify that the 
reporting timeframe in

[[Page 74601]]

Sec.  668.171(f)(1)(v) is 21 days after the distribution.
    Comments: Several commenters raised concerns about the Department's 
use of the terms ``preliminary'' and ``final'' in Sec.  
668.171(f)(3)(i) and (ii), respectively. These commenters expressed 
confusion about how these terms interacted with the triggers, 
especially the mandatory triggers that are otherwise presented as 
automatically resulting in a request for financial protection. 
Commenters stated that without definition, these terms rendered the 
entire framework of financial responsibility unclear and how the terms 
will apply to the process of determining if institutions are 
financially responsible.
    Discussion: The Department agrees with the commenters that the 
language used in Sec.  668.171(f)(3) was insufficiently clear with 
respect to mandatory triggering events. In particular, the concept of a 
``preliminary'' determination is not correct for mandatory triggering 
events, which represent a determination that an institution is not 
financially responsible and is subject to a requirement for financial 
protection. Accordingly, we have deleted the word ``preliminary'' in 
the first paragraph under Sec.  668.171(f)(3)(i).
    Other paragraphs within Sec.  668.171(f)(3) raise the same issue 
identified by commenters about how language about a mandatory trigger 
resulting in a request for financial protection being contradicted by 
regulatory language implying the submission of additional information 
to then make a determination about whether financial protection should 
occur. In particular, proposed Sec.  668.171(f)(3)(i)(C) contained 
language about the institution providing information that a mandatory 
or discretionary triggering event has not had or will not have a 
material adverse effect on the financial condition of the institution. 
That reference was not correct for either mandatory or discretionary 
triggers. As we noted in the NPRM and in this final rule, the idea 
behind the mandatory triggers is that they represent financial 
situations that are so concerning that they should result in a 
requirement for financial protection. That would occur following the 
reporting procedures in Sec.  668.171(f), which includes the 
opportunity for the institution to show that the issue has been 
resolved. But it would not involve the demonstration of a material 
adverse effect. For discretionary triggers, as we have discussed, we do 
not think the use of the word ``material'' is appropriate. We have 
provided several reasons elsewhere in this final rule why this is the 
case, including that a materiality standard would defer judgments about 
the potential risks to taxpayer funds to auditors and representations 
from institutional management when this should be a function carried 
out by the Department. However, we do agree that discretionary triggers 
need more evidence of financial effects than just their occurrence to 
result in financial protection requests. To make the way the triggers 
work clearer, we have deleted the reference to the mandatory triggers 
in this paragraph and also clarified that the standard under 
consideration is a significant adverse effect on the institution. As 
stated previously, the Department considers an event to have a 
significant adverse effect when an event or events impact the financial 
stability of an institution in such a way that the Department 
determines it poses a risk to the title IV, HEA programs. This aligns 
with the policy as described in the NPRM and final rule. It also 
captures the idea that the institution could provide evidence of the 
lack of a significant adverse effect for discretionary trigger 
situations.
    The Department does not think similar alterations are necessary for 
the use of the word ``final'' in Sec.  668.171(f)(3)(ii). That 
paragraph includes discretionary triggering events, which would require 
a determination that an institution lacks financial responsibility as 
part of the response in paragraph (f)(3)(i)(C). Accordingly, it is 
appropriate to keep the word ``final'' in this paragraph.
    Changes: We removed the word preliminary as it modified the word 
determination in Sec.  668.171(f)(3)(i). In Sec.  668.171(f)(3)(i)(C), 
we have also removed the reference to the mandatory triggers under 
Sec.  668.171(c) and replaced the word ``material'' (adverse effect) 
with ``significant'' (adverse effect).
    Comments: Several commenters requested that the Department clarify 
under Sec.  668.171(f) that reporting is only required when a 
triggering event is reasonably likely to have a material adverse effect 
on an institution's financial condition. One commenter said that 
discretionary triggers should not be required to be reported.
    Discussion: The Department disagrees with the commenters. We 
believe it is more appropriate for the Department to use its discretion 
to review whether a given discretionary trigger has a significant 
adverse effect on the institution rather than relying on the self 
determination of institutions. Doing so would ensure greater 
consistency in the process as two institutions may make different 
judgments about an otherwise identical event since they would not be 
aware of what other institutions report. By contrast, the Department 
will receive reports of discretionary triggers across schools and can 
consistently treat institutions. Accordingly, we think it is 
appropriate for institutions to report discretionary triggering events 
as noted in this section and from that there can be a determination 
about financial effect. We also note that in reporting the event as 
laid out in Sec.  668.171(f)(3)(i)(C) the institution may clarify when 
it reports the triggering event that discretionary triggers do not have 
a significant adverse financial effect on the institution. Under Sec.  
668.171(f)(3)(i)(A) they may also report for the defaults, 
delinquencies, creditor events, and judgments that are discretionary 
triggering events as defined in Sec.  668.171(d)(2) that those items 
have been waived by a creditor. Finally, under Sec.  
668.171(f)(3)(i)(B) the institution may report that the triggering 
event has been resolved or in the case of liabilities or debts owed 
under the mandatory trigger in Sec.  668.171(c)(2)(i)(A) that the 
institution has sufficient insurance to cover those liabilities. The 
extended reporting time of 21 days to report instead of 10 will also 
further ensure that easily resolvable triggering events can be 
addressed by the time the institution informs the Department about 
them.
    The effect of these paragraphs is that institutions may show when 
they first report a mandatory trigger, that is required to be reported 
in paragraph (f), that the triggering event has been resolved and is no 
longer a concern or provide additional information clarifying how a 
discretionary trigger does not present a significant adverse effect on 
the institution.
    Changes: As discussed previously, we have changed ``material'' to 
``significant'' when describing adverse effect. We also clarified in 
paragraph (f) the point at which an institution can respond to the 
Department in response to mandatory triggering events before financial 
protection is required.
    Comments: Several commenters suggested that the Department remove 
the requirement Sec.  668.171(f)(1)(iii) that institutions report the 
receipt of a civil investigative demand, subpoena, request for 
documents or information, or other formal or informal inquiry from any 
government entity because institutions receive regular questions and 
inquiries from government entities for various reasons many of which 
are unrelated to financial stability. One commenter stated that if the 
Department proceeds

[[Page 74602]]

with the language, we should clarify the scope of this reporting 
requirement.
    Discussion: The Department agrees with commenters, in part. First, 
we agree that this provision is best located elsewhere, as we have 
declined to adopt a trigger related to it. We discuss our reasons for 
this in the ``Directed question'' section. However, we do believe that 
obtaining this information is critical for riskier institutions. 
Knowing about ongoing investigations and documentation requests helps 
the Department identify when there are situations that require our 
attention. It also allows the Department to know if there is the 
possibility of lawsuits or administrative actions that could impact the 
institution's financial health or ability to manage the title IV, HEA 
programs.
    Given those considerations, we think this provision is better 
located within the set of conditions that the Secretary may impose upon 
provisionally certified institutions in Sec.  668.14(e). Placing this 
language in that section allows the Department to request it in a more 
targeted manner when it would be helpful to be particularly aware of 
those situations.
    The Department also recognizes that the language as drafted in the 
NPRM was broader than needed and raised questions about how 
institutions were supposed to comply. We have narrowed and clarified 
the scope of this requirement to remove the reference to informal 
requests, which was too vague. We have also updated the language to 
clarify that institutions do not have to report requests that are 
unrelated to areas of the Department's oversight. Accordingly, we 
indicate we are only interested in receiving reports related to 
recruitment and marketing, awarding of Federal financial aid, or the 
provision of educational services. The Department chose these areas 
because they are areas that can lead to substantial misrepresentations 
and potential borrower defense claims.
    Changes: We have moved Sec.  668.171(f)(1)(iii) to Sec.  
668.14(e)(10) and revised the text. First, we have specified that the 
provision only applies to formal inquiries, which include civil 
investigative demands, subpoenas, and other document or information 
requests. We have removed the reference to informal requests. Second, 
we clarified that these are requests related to marketing or 
recruitment of prospective students, the awarding of financial aid for 
enrollment at the school, or the provision of educational services. 
This thus excludes the types of requests that would not be relevant to 
Department oversight, such as a health code violation in the cafeteria, 
workplace injury investigations, and other similar items.
    Comments: None.
    Discussion: As previously discussed in the comments regarding 
discretionary triggers in paragraph (d) of this section, the Department 
has added a discretionary trigger at Sec.  668.171(d)(14). As a result 
of that addition, we also added a corresponding reporting requirement 
for that trigger in paragraph (f).
    Changes: We have added Sec.  668.171(f)(1)(xviii) which requires 
institutions to report no later than 21 days after any event or 
condition, not already included in paragraph (d), that is likely to 
cause a significant adverse effect on the financial condition of the 
institution.

Financial Responsibility--Public Institutions (Sec.  668.171(g))

    Comments: Multiple commenters supported the Department's proposal 
that a domestic public institution could show that it is financially 
responsible by providing a letter or other documentation acceptable to 
the Department and signed by an official of that government entity 
confirming that the institution is a public institution and is backed 
by the full faith and credit of the government entity. The commenters 
believed that our prior approach excused many public institutions from 
scrutiny of their financial health. Commenters also provided evidence 
that institutions by proxy of being public are not automatically backed 
by the full faith and credit of the State and thus the prior regulatory 
requirement that institutions solely show they are public in 
insufficient.
    Many other commenters opposed this provision. Commenters argued 
obtaining such a letter would be overly prescriptive and dramatically 
increase administrative burden and bureaucracy. Commenters also 
expressed concerns that States may be unwilling to provide such letters 
or use such a request to extract unrelated concessions from 
institutions. Commenters also argued that the need for such a provision 
is unnecessary as there is no documented history of any risk of 
precipitous closure or financial collapse of a public institution of 
higher education.
    Discussion: Section 498 of the HEA establishes that one way an 
institution that fails to meet requirements of financial responsibility 
can still be considered financially responsible is if it ``has its 
liabilities backed by the full faith and credit of a State or its 
equivalent.'' The Department's longstanding policy has been to allow 
institutions that demonstrate they are public to not be otherwise 
subject to requirements like the financial responsibility composite 
score. The Department has also looked for full faith and credit backing 
in considering changes in ownership under current Sec.  668.15. That 
section is being removed and reserved in this final rule, with some, 
but not all, of the most relevant provisions moving into Sec.  668.176.
    While the commenters are correct that the Department has not seen 
significant instances of public institutions that seem to be at risk of 
precipitous closures, we have encountered situations in which public 
institutions facing the potential for significant liabilities have 
ended up not, in fact, having full faith and credit backing from a 
State or its equivalent. When such situations occur, the Department is 
at risk of having liabilities that cannot be backed by another 
government entity and insufficient information about the finances of 
the institution to know if it would be able to reimburse those 
liabilities.
    Accordingly, the Department believes it is critical to have a 
process in place for reaffirming that public institutions have full 
faith and credit backing when the Department believes it needs it for 
oversight purposes. Especially when a new public institution joins the 
Federal student aid programs, or a private institution converts to a 
public institution. Since those are brand new public institutions for 
title IV, HEA purposes, the Department will not have any prior record 
of their public status. Therefore, we believe it is always appropriate 
to confirm that these institutions have full faith and credit backing.
    For other public institutions, we believe a more flexible approach 
is preferable as these will be institutions where the Department has a 
track record of them operating as public institutions for title IV, HEA 
purposes and the concerns about financial stability that merit double-
checking the full faith and credit status are not as universal.
    Accordingly, we are proposing to revise Sec.  668.171(g)(1)(ii) to 
indicate that letters demonstrating public backing will always be 
required for changes in ownership that result in converting an 
institution from private to public and upon the first attempt to have 
an institution recognized as public. We separately reserve the right to 
make similar requests at other points. For instance, the Department 
might request such a letter following complaints or concerns about an 
institution's financial health or evidence of rapid growth that

[[Page 74603]]

is not clearly attributable to local population changes. We believe 
this approach acknowledges the concerns from commenters that applying 
such requests universally would generate unnecessary work to obtain 
letters showing what is already known but allows the Department to 
reaffirm this situation where we believe it to be prudent.
    Changes: We have revised Sec.  668.171(g)(1)(ii) to require a 
letter or other documentation acceptable to the Department showing a 
public institution's full faith and credit backing upon the 
Department's request, rather than for all public institutions in all 
instances.
    Comments: Several commenters expressed confusion about whether the 
triggering events would apply to public institutions. Others wrote in 
saying that the financial protection requests attached to mandatory or 
discretionary triggers should not apply to public institutions because 
the Department does not seek financial protection from public 
institutions.
    Discussion: The commenters are correct that the Department does not 
seek financial protection from public institutions on the grounds that 
full faith and credit backing ensures liabilities will be covered. The 
same would apply to the financial protection requests associated with 
the triggers. However, a public institution that is subject to a 
triggering condition could be subject to a finding of past performance, 
be placed on heightened cash monitoring, or have other conditions 
besides financial protection placed on them, such as provisional 
certification or additional reporting requirements.
    Changes: None.

Financial Responsibility--Past Performance (Sec.  668.174)

    Comments: One commenter requested that the Department clarify if an 
institution may be delinquent in submitting its audit and if so, what 
period of delinquency could exist without being cited for a late audit. 
Another commenter suggested that if a school fails to submit a close 
out audit in a timely manner, the regulations should address whether 
such an institution be subject to a late audit citation and whether the 
institution can be reinstated as an eligible institution.
    Discussion: The Department currently provides institutions with a 
30-day grace period before they are cited for a late submission. 
Institutions that fail to provide the audit within the grace period are 
cited for past performance under Sec.  668.174(a).
    Changes: None.
    Comments: One commenter opined that the proposed requirement in 
Sec.  668.174(a)(2) would require an institution to backdate 
information and create a significant administrative burden.
    Discussion: We disagree with the commenter. The requirement spells 
out when issues uncovered in a final audit determination, or a program 
review determination report would result in a finding of past 
performance. There is no retroactive reporting of information involved. 
The amendment to Sec.  668.174(a)(2) in this final rule just clarifies 
the timeframe of the reports in question.
    Changes: None.

Financial Responsibility--Alternative Standards and Requirements (Sec.  
668.175)

    Comments: None.
    Discussion: In proposed Sec.  668.175(c), we changed a reference to 
``providing other surety'' to ``providing financial protection'' to 
better align with our other references to obtaining financial 
protection from institutions, when necessary. However, we neglected to 
make a similar change in Sec.  668.175(b) where we referenced 
``providing other surety.'' We have changed that reference, in these 
final rules, to ``providing other financial protection'' to conform 
with the change made in paragraph (c) of this section.
    Changes: We made a conforming change in Sec.  668.175(b) to replace 
the word ``surety'' with the phrase ``financial protection'' to conform 
with a previous change made in Sec.  668.175(c).
    Comments: A number of commenters objected to the proposed 
requirement in Sec.  668.175(c) and (f) that an institution must remedy 
whatever issues caused a financial responsibility failure. The 
commenters said that in many instances the event that triggered the 
failure would have been something that happened that could not be 
undone even if the consequences stemming from such an event had been 
mitigated. Commenters noted that even in some cases where a triggering 
event could be remedied it may take some time and expense for an 
institution to do so. Some commenters also said that if a situation 
that caused a triggering event had been remedied or otherwise resolved 
there would no longer be any reason for the Department to require the 
financial protection associated with that event.
    Discussion: The proposed regulations require an institution failing 
the financial responsibility standards under Sec.  668.171(b)(2) or (3) 
to remedy those areas of noncompliance in order to participate in the 
title IV, HEA programs under a provisional certification. Timely 
reporting of triggering events may include conditions that cannot be 
remedied immediately but still require assessments by Department staff 
of the risks to the institution and its students.
    As noted in the discussion related to Sec.  668.171(f), 
institutions can indicate to the Department that the triggering event 
has been resolved. If they prove that to the satisfaction of the 
Department then we would not seek financial protection. However, if 
that issue has not been resolved, we would continue the financial 
protection as explained in Sec.  668.171(c) and (d). We do not think 
releasing the financial protection sooner would be appropriate, as the 
Department wants to see that issues have been resolved and are not 
recurring and to give time for the filing of additional financial 
statements.
    Changes: None.
    Comments: Many commenters voiced the concern that the resources 
needed to provide additional letters of credit would further strain an 
institution given the requirements by financial institutions to provide 
100 percent collateral plus fees for the letters of credit. Commenters 
also noted that over time letters of credit have become much more 
expensive for an institution to obtain. The commenters noted that in 
some cases institutions could be required to post letters of credit 
that exceeded 100 percent of an institution's annual title IV, HEA 
funding, an outcome described as being simply unworkable. Other 
commenters noted that funds used to obtain stackable letters of credit 
would not be available as working capital for an institution or to 
assist students. Other commenters acknowledged that the Department has 
a role to protect students but sees that as an obligation for the 
Department to protect against an institution's precipitous closure 
while not unduly impacting an institution's operations to avoid causing 
the problems the letters of credit are protecting against. Commenters 
urged the Department to retain its discretion to set the amount of any 
required financial protection based upon factors including the impact 
on an institution to meet that requirement.
    Discussion: The Department recognizes that institutions in weakened 
financial conditions or at risk of incurring significant liabilities 
will have harder times providing financial protection. Those same 
weaknesses and risks warrant providing financial protections for 
students and taxpayers that are providing Federal student aid funds. 
Institutions agree to administer

[[Page 74604]]

those student aid funds as a fiduciary on behalf of their students, and 
that reasonably includes obligations to mitigate risks by providing 
financial protection when an institution does not meet the applicable 
financial responsibility standards. Students qualify to obtain Federal 
student aid by enrolling in eligible programs and the risk of any 
closure can impair or wipe out the value of a student's progress toward 
completing their educational programs. These risks to the students 
warrant requiring financial protections from the institutions 
notwithstanding the additional difficulties institutions may encounter 
meeting these requirements.
    The Department does retain discretion to determine how much 
financial protection should be so long as that amount is above the 10 
percent minimum. We believe that amount provides us a baseline level of 
protection that would be necessary in all circumstances in which we are 
seeking financial protection. But we can then make determinations 
whether greater amounts are needed or not. In doing so, however, the 
goal is to assess the level of risk to the Department and taxpayers, 
not simply the institution's ability to meet such requirements. An 
inability of the institution to provide financial protection equal to 
the level of risk exhibited by the institution is a concerning sign.
    Changes: None.
    Comments: Some commenters pointed out that some reasons the 
Department requires a letter of credit are not tied to immediate 
financial risks that an institution may be experiencing. Rather, they 
deal with an event such as a change in ownership resulting in a change 
in control where the new owner may have strong financial statements for 
one year but does not yet have a second year of audited financial 
statements for the new owner. The commenter viewed this letter of 
credit requirement as already providing the type of protection that 
would be covered if a subsequent triggering event happened under the 
proposed regulations. Consequently, the commenter thought there would 
be little need for the new owner to provide any additional letter of 
credit if a triggering event occurred.
    Discussion: Financial protections required after approving a change 
in ownership with a new owner or a new approval for an institution to 
participate in the Federal student aid programs are required. This 
protection mitigates risks associated with the new owner operating the 
institution that administers Federal student aid funds as a fiduciary 
on behalf of its students. During this period the institution begins to 
demonstrate that it meets the administrative capability requirements 
and establishes a track record under its then-current ownership. 
Reports of triggering events tied to an institution's financial 
responsibility may represent greater risks to the institution's 
continued operations than were previously known. In these instances, 
the increased level of financial protection is warranted while the 
Department reviews the report about the event and additional 
information provided by the institution.
    Changes: None.
    Comments: One commenter suggested that a larger reworking of the 
financial responsibility regulations was needed to restructure the 
consequences of a failed score and offered ongoing support to do so.
    Discussion: The Department believes that the changes in these 
regulations provide improvements to its administration of the financial 
responsibility standards it sets and enforces for institutions. Changes 
to these regulations in the future will similarly be conducted through 
the negotiated rulemaking process to benefit from discussions and input 
with multiple stakeholders.
    Changes: None.
    Comments: One commenter said that the minimum letters of credit the 
Department accepts as an alternative way for an institution to 
demonstrate financial responsibility or to participate under the 
provisional certification alternative are too low. The commenter 
pointed out that the potential liabilities for a closed school can be 
higher than one year of the Federal student aid funding for that 
institution since substantial liabilities can arise from refunds and 
program liabilities. The commenter noted that this larger range of 
liabilities also shows that the smaller letter of credit provided under 
the provisional certification alternative can also be much smaller than 
the liabilities that could arise from a close institution. The 
commenter said that it is insufficient for the Department to use an 
institution's prior year funding as a reference for setting the 
percentage of a letter of credit because the potential liabilities from 
a closed institution could be larger than that amount.
    Discussion: The Department recognizes that precipitous closures of 
institutions can easily establish repayment liabilities that exceed one 
year of Federal student aid funding for an institution but setting 
financial protection requirements at the largest potential liabilities 
would be poorly aligned with the day-to-day operations of institutions 
that may fail the financial responsibility standards for reasons that 
do not present high risks of precipitous closures. We believe that the 
proposed regulations with the increased financial responsibility 
triggers and stacked letters of credit will provide a better alignment 
of required protections with the relative risks present at an 
institution. We also note that these increased notifications will also 
provide more information that Department staff can use in oversight to 
determine what additional steps may be taken to protect students.
    Changes: None.
    Comments: A commenter said that the options were not workable for 
institutions to have funds set-aside under administrative offset or 
provide cash to be held in escrow instead of providing a letter of 
credit. The commenter said it was unrealistic to think that an 
institution would be able to provide cash in the amounts likely to be 
required under the proposed regulations and noted that having funds 
held back through administrative offset would impair an institution's 
revenue stream potentially for months.
    Discussion: We understand the challenges from choosing either one 
of these options would prevent many institutions from choosing them. 
The option for institutions to provide cash to be held in escrow is 
available because some institutions have asked to do this to minimize 
banking fees associated with obtaining a letter of credit. Similarly, 
the option for institutions to fund an escrow account through offset 
has been made available for institutions that were unable to obtain a 
letter of credit.
    The goal of these financial responsibility provisions is to help 
the Department receive the financial protection deemed necessary to 
protect taxpayers from potential liabilities that may be uncompensated, 
including those stemming from closures. We recognize that providing 
financial protection in any form, including administrative offset, can 
create a cost or burden to the institution. However, we believe that 
burden is justified in order to protect taxpayers and for the 
Department to carry out its duties. Were we to adopt the posture that 
we would never request financial protection if it placed burden on the 
institution then the Department would never end up requesting such 
protection, would expose taxpayers to continued liabilities, and fail 
to meet requirements spelled out in the HEA.
    Changes: None.
    Comments: Commenters requested that Sec.  668.175 specifically 
exclude liquidity disclosure requirements under

[[Page 74605]]

Financial Accounting Standards Board (FASB) ASC 958-250-50-1. (For-
profit and public institutions do not have such a GAAP requirement.) 
Commenters made this suggestion because all nonprofit entities have a 
GAAP requirement to disclose in the notes to financial statements 
relevant information about the liquidity or maturity of assets and 
liabilities, including restrictions and self-imposed limits on the use 
of particular items, which goes beyond information provided on the face 
of the statement of financial position. According to the commenter, 
without such an exclusion, any nonprofit institution may be seen as 
having to provide financial protection and, accordingly, the 
requirements in Sec.  668.175(c) should explain that referenced 
disclosures would be for institutions under financial stress and are in 
addition to those required for nonprofit institutions under FASB ASC 
958-250-50.
    Discussion: The Department regularly reviews financial statements 
for nonprofit institutions when determining whether the institution 
meets required standards of financial responsibility, including 
evaluating the extent to which the institution's assets may be 
encumbered or subject to donor restrictions. We do not believe that any 
changes to the regulations are needed to change the way that these 
resources are evaluated. To the extent that a reportable event takes 
place concerning these assets, the Department will evaluate the report 
to determine whether a financial risk warrants financial protection or 
an increase in existing financial protections. The Department reviews 
the liquidity disclosure; however, that disclosure does not 
automatically cause an institution to fail the financial responsibility 
standards. The language in Sec.  668.175 provides the alternatives that 
an institution can continue participation in the title IV, HEA 
programs, an institution must have failed at least one of those 
standards for this section to apply to them. The Department does not 
exclude any of the accounting standards or disclosures from the 
required GAAP and GAGAS submission to the Department.
    Changes: None.

Financial Responsibility--Change in Ownership Requirements (Sec.  
668.176)

    Comments: Several commenters stated that the Department should 
abandon these regulations because they would have a chilling effect on 
ownership transactions. Commenters argued that the postsecondary 
education sector is in a period of contraction and that allowing for 
the acquisition of institutions will help avoid closures. They also 
argued that the Department should encourage (not discourage) 
financially strong institutions to provide a lifeline to distressed 
institutions. Commenters also argued that the degree of discretion 
available to the Department and the burden of these regulations creates 
too much uncertainty and burden for the parties involved in a 
transaction. Commenters also pointed to existing accrediting agency 
policies are sufficient for handling changes in ownership. Finally, 
commenters raised concerns about requirements that the acquiring 
institution assume liabilities associated with the institution being 
purchased as having a chilling effect on transactions.
    Discussion: The Department believes it is necessary to reevaluate 
the relevant policies to accommodate the increased complexity of 
changes in ownership arrangements and to mitigate the greater risk to 
students and taxpayers when institutions fail to meet Federal 
requirements. The Department implemented subpart L of part 668 
regulations in 1997, and it addresses the financial responsibility of 
institutions in circumstances other than changes of ownership. 
Accordingly, the Department has been relying on Sec.  668.15 to 
evaluate financial health following a change in ownership. The new 
regulation attempts to harmonize the requirements of Sec.  668.15 with 
subpart L of part 668 requirements. For example, the Department will 
now score the audited financial statements that are submitted for the 
institution and its new owner. In that way, the Department is better 
able, as one of the commenters suggests, to encourage financially 
strong acquisitions, and require financial protection in the event the 
acquiring entity's financial statements do not pass. The Department 
cannot rely on an accrediting agency to review changes of ownership. 
Each accrediting agency has its own standards for reviewing such 
changes, and the rigor and the elements of the review vary among 
agencies. Although requiring new owners to assume liabilities may limit 
their interest in some transactions, it ensures that the actual legal 
entities that own institutions are responsible for any liabilities that 
an institution fails to satisfy. The Department's interest in requiring 
owners to assume liability extends to situations where the conduct 
occurred under prior ownership, or where the liability is established 
under new ownership. This is also consistent with the Department's 
longstanding position that liabilities follow the institution, 
notwithstanding a change in ownership. The Department is committed to 
working with institutions that seek to change ownership and we believe 
that these regulations strike the right balance in appropriate increase 
in the oversight of transactions but also adding significant regulatory 
clarity to the process and additional financial analysis of changes of 
ownership to better protect students and taxpayers.
    Changes: None.
    Comments: One commenter expressed concern that there may be 
``loopholes'' that proprietary schools seeking to convert to nonprofit 
status will use to take advantage of students and taxpayers, while 
continuing to charge high tuition. However, the commenter did not 
identify any specific loophole for the Department to close.
    Discussion: The Department is committed to evaluating changes in 
ownership so that those significant organizational changes do not put 
students or taxpayers at risk. One way the Department is doing that is 
by ensuring the resulting financial ownership is financially strong. We 
clarified oversight of for-profit to nonprofit conversions by 
publishing regulations in October 2022, which went into effect on July 
1, 2023.\15\ In those regulations we particularly clarified the 
requirements around financial involvement with a former owner to 
address issues the Department identified when it examined previous 
transactions where a purported conversion to nonprofit status involved 
continuing financial relationships with former owners. The Department 
has found that these ongoing relationships can result in inflated 
purchase prices with financing provided by the former owner or revenue-
based servicing agreements where the former owner continued to benefit 
from the same stream of revenue. We believe the changes to the 
regulatory definition of nonprofit, as well as the increased financial 
oversight of changes in ownership in this final rule, coupled with the 
continuing rigor of the Department's review of nonprofit conversions, 
will allow effective Department decision-making when proprietary 
schools seek to convert to nonprofit status.
---------------------------------------------------------------------------

    \15\ 87 FR 65426.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter believes that if an institution undergoes a 
change in ownership and it fails to submit an audited same-day balance 
sheet as part of an application to continue participation, the 
Department should address whether such an institution

[[Page 74606]]

would be cited for late audit submission and be subject to past 
performance requirements. The commenter also wanted the Department to 
address whether the institution may be reapproved after a loss of 
participation if the past performance violation is still effective.
    Discussion: The HEA and the Department's regulations provide that 
an institution that undergoes a change in ownership does not qualify to 
participate in the title IV, HEA programs.\16\ It may continue to 
participate while the Secretary reviews the change by complying with 
the requirements of 34 CFR 600.20(g) and (h). Requiring the institution 
to submit a same day balance sheet under Sec.  600.20(h)(3)(i) is a 
long-standing requirement for continued participation. The Department's 
review of the same day balance sheet provides a basis for which to seek 
financial protection promptly following the change in ownership if the 
same day balance sheet fails. If an institution fails to submit a same 
day balance sheet--or any of the other requirements under Sec.  
600.20(g) or (h)--it will be subject to a loss of eligibility. The 
institution may seek reinstatement, but a required element of 
reinstatement is compliance with those requirements--including 
submission of an audited same day balance sheet. If the commenter is 
suggesting that a failure to timely submit a same day balance sheet 
should bar the institution for 5 years, the Department thinks doing so 
would be a more significant action than is warranted.
---------------------------------------------------------------------------

    \16\ 20 U.S.C. 1099c(i); 34 CFR 600.31(a).
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter asked the Department to clarify several 
provisions under Sec.  668.176(b)(2)(iii). In particular, the commenter 
asked whether the amount of financial protection would be based upon 
the title IV, HEA funds associated with one or both institutions 
involved. The commenter also asked how the Department intends to exempt 
new owners, while still applying financial protections to other new 
owners. The commenter said the exception for any new owner that submits 
two years or one year of acceptable audited financial statements is 
unclear.
    Discussion: Because there are not always two institutions involved 
in the change in ownership, the amount of the financial protection is 
based on the title IV, HEA funding of the institution that is acquired. 
The Department has historically required financial protection 
(typically 25 percent) from new owners that do not have audited 
financial statements. We have typically required a lower amount of 
financial protection (typically 10 percent) if the new owners have one 
but not two years of audited financial statements. The new rule 
codifies the practice of allowing a new owner to submit financial 
protection in lieu of the requirement in 34 CFR 600.20(g) that two 
years of audited financial statements must be submitted as part of the 
materially complete application.
    Changes: None.
    Comments: One commenter questioned the Department about whether the 
changes under Sec.  668.176(b)(3) apply to the target school, the 
acquiring institution, or both. The commenter stated that if the 
changes are applicable only to the target school, then the regulation 
could limit a stronger acquiring institution from rescuing a struggling 
target school.
    Discussion: The regulation applies to the school that is being 
acquired and requires that the new owner submit two years of audited 
financial statements or post financial protection. The commenter's 
concern about ``limiting a stronger acquiring institution'' is 
misplaced. First, not all transactions involve two institutions. 
Second, when the new owner owns another institution, the Department 
must confirm that the combined ownership of the two schools is 
financially stable. If the financial statements of the new owner do not 
pass the financial responsibility standard, it is prudent to require 
financial protection.
    Changes: None.
    Comments: One commenter stated that the Department should not view 
a buyer with a composite score below 1.5 to be unqualified (Sec.  
668.176(b)(3)(i)(C)) because many institutions that do not meet the 
score have demonstrated that they can participate in the title IV, HEA 
programs without issue.
    Discussion: The Department has used a composite score of 1.5 as a 
measure of the financial soundness of an entity for many years. These 
final regulations do not address the composite score methodology, nor 
the score required for participation in the title IV, HEA programs. We 
note, however, that we impose requirements on participating 
institutions that have a score below 1.5, which may include, among 
others, financial protection and provisional certification.
    Changes: None.
    Comments: A few commenters stated that the Department has not 
adequately explained in Sec.  668.176(c) how it will determine that an 
institution is not financially responsible following a change in 
ownership if the amount of debt assumed to complete the change in 
ownership requires payments (either periodic or balloon) that are 
inconsistent with available cash to service those payments based on 
enrollments for the period prior to when the payment is or will be due.
    Commenters either asked the Department to publish more guidance for 
how it will assess whether an institution can service debt or argued 
that the level of cash needed to service debt was unclear and must be 
clarified in the final rule.
    Discussion: The Department declines to add specifics about the 
process for making the acquisition debt determination. The question of 
how much debt is too burdensome for an institution does not have a one-
size fits all answer, and so is best addressed on a transaction-
specific basis. The Department will also consider issuing sub 
regulatory guidance in the future.
    Changes: None.
    Comments: One commenter requested clarification on whether the 
audit requirements apply just to those undergoing a change in ownership 
in the future or also to existing ownership structures during 
recertification.
    Discussion: The provisions in Sec.  668.176 apply to institutions 
undergoing a change in ownership after the effective date of these 
regulations.
    Changes: None.

Administrative Capability (Sec.  668.16)

General Support

    Comments: We received several comments in support of the amendatory 
changes to the administrative capability regulations in Sec.  668.16. 
One commenter commended the Department's changes because they believe 
when institutions fail to meet administrative capability standards it 
is an indication that the institution provides a substandard education 
and jeopardizes the financial investments of the Department, taxpayers, 
and students.
    Another commenter approved of the proposed changes related to 
career services, geographical accessible clinical or externship 
opportunities, timely disbursement rules, and improvement of financial 
aid counseling and communication. In addition, a commenter acknowledged 
the Department's amendments as a positive step to ensure that 
institutions that participate in Federal student aid programs are held 
accountable.
    Discussion: We appreciate the support of the commenters.
    Changes: None.

[[Page 74607]]

General Opposition

    Comments: Some commenters proposed that we remove all the 
additional administrative capability requirements in the NPRM. The 
commenters argued that the additional topics are already addressed by 
other regulations or accreditation standards. The commenters felt that 
the Department has no evidence to support the need for changes, and the 
consequence of a finding is significant. According to these commenters, 
institutions can face fines, penalties, placement on heightened cash 
monitoring, or even the loss of participation.
    Discussion: We disagree with the commenters. The Department has 
identified issues related to administrative capability through program 
reviews that current regulations do not adequately address. For 
example, the Department has found that institutions will include 
externships/clinicals as part of an educational program because the 
hands-on experience is necessary for the field of study, but then not 
provide the assistance needed for the students to be placed in the 
required externships/clinical or the assistance is delayed to the point 
that the student has to drop out of the program or is dropped by the 
institution itself. When these required externships are not provided, 
or if students cannot access them due to geographic constraints, 
students are unable to complete their programs, or they are unable to 
obtain licensure or become employed in the field. Ensuring that 
students are able to complete programs and obtain licensure or a job in 
their field is an integral part of the administration of a program that 
provides funds for just that purpose.
    Another issue that has been identified during program reviews is 
that institutions will delay disbursement of title IV, HEA program 
funds until the end of a payment period so that they can delay the 
payment of title IV credit balances. This may be done to manipulate an 
institution's results under the 90/10 rule or to avoid returning funds 
under return to title IV. In both cases, such actions are a way to 
evade accountability and oversight of taxpayer funds. Title IV, HEA 
credit balance funds are needed by students to pay for expenses such as 
transportation and childcare that are needed for students to attend 
school. The unnecessary delay in disbursements and payment of credit 
balances has forced students, who might otherwise complete their 
programs, to withdraw. The purpose of the title IV, HEA programs is to 
provide funds needed for students to obtain educational credentials. 
Institutional actions that thwart that objective are evidence that the 
institution cannot properly administer the title IV, HEA programs in 
the best interests of its students.
    The Department has a statutory mandate to ensure that institutions 
participating in the title IV, HEA programs have the administrative 
capability to properly implement the programs. The Department has 
determined that the additional requirements related to administrative 
capability being added in these regulations are necessary to fulfill 
its obligations under that statutory mandate.
    With respect to the concern that noncompliance with these 
provisions could result in actions being taken against an institution, 
the Department points out that it has an obligation to properly oversee 
the title IV, HEA programs. The Department carries out that role using 
tools such as HCM, fines, suspensions, limitations, terminations, 
revocations, and recertification denials. The nature of the action 
depends on the details and severity of the finding. No matter what 
action is taken, institutions have the ability to respond. The 
regulations provide appeal rights within the Department when a 
suspension, limitation, termination, fine, or revocation action is 
taken. This final rule provides the Department with greater ability to 
ensure that institutions are administratively capable of providing the 
education they promise and of properly managing title IV, HEA programs.
    Finally, we note that each of these additions to administrative 
capability touch on distinct areas that we would assess independently. 
Each plays a separate role that addresses a critical issue that is not 
otherwise intertwined with the others.
    Changes: None.
    Comments: One commenter requested that the Department delay 
implementation of the administrative capability requirements until July 
1, 2025, to allow institutions time to implement the FAFSA 
Simplification changes.
    Discussion: The Department declines to adjust the effective date. 
The administrative capability provisions here are important for 
improving our ability to evaluate the capability of institutions to 
participate in the title IV, HEA programs. The changes will benefit 
students and a delay would leave them unprotected for too long.
    Changes: None.
    Comments: Several commenters objected to the new administrative 
capability requirements. The commenters stated that the extensive 
changes and regulatory overload would add to the administrative burden 
currently facing schools, and are vague, duplicative, and challenging 
to measure.
    Discussion: We disagree. As we discuss in the regulatory impact 
analysis, these indicators of administrative capability provide 
critical benefits for the Department, students, and institutions. 
Ensuring that students have accurate financial aid information, get 
their funds in a timely manner, and receive the career services they 
are promised is critical for having Federal investments in 
postsecondary education lead to success. Meanwhile, regulations on past 
performance, negative State actions, valid high school diplomas, and 
similar areas provide important protection for Federal investments. The 
benefits from these steps all outweigh the administrative costs to 
institutions.
    Changes: None.

Legal Authority

    Comments: Some commenters challenged that the proposed changes to 
Sec.  668.16 would create new standards that are outside the scope of 
the Department's statutory authority. These commenters contended that 
the administrative capability standards addressed in the HEA do not 
include Federal student aid requirements that are separate from the 
actual administration of those funds. The commenters also argued that 
the proposed rules have no bearing on the administrative capability of 
an institution to efficiently administer title IV, HEA funds. The 
commenters indicated that provisions on career services, GE, 
misrepresentation, and the actions of other regulatory agencies do not 
belong in the administrative capability regulations.
    Discussion: We disagree with the commenters. In adopting these 
rules, the Secretary is exercising authority granted by the HEA. HEA 
section 487(c)(1)(B) \17\ authorizes the Secretary to issue regulations 
as may be necessary to provide reasonable standards of financial 
responsibility and appropriate institutional capability for the 
administration of title IV, HEA programs in matters not governed by 
specific program provisions, and that authorization includes any matter 
the Secretary deems necessary for the sound administration of the 
student aid programs. In addition, section 498(d) of

[[Page 74608]]

the HEA \18\ authorizes the Secretary to establish certain requirements 
relating to institutions' administrative capacities including their 
past performance with respect to student aid programs, as well as to 
establish such reasonable procedures as the Secretary determines will 
contribute to ensuring that institutions will comply with the 
requirements of administrative capability required by the statute. 
These final rules represent standards the Department has deemed 
necessary to carry out that authority in the HEA. In the sections that 
follow and elsewhere in the preamble, we explain why each of the added 
provisions relate to an institution's ability to administer title IV, 
HEA programs.
---------------------------------------------------------------------------

    \17\ 20 U.S.C. 1094(c)(1)(B).
    \18\ 20 U.S.C. 1099c(d).
---------------------------------------------------------------------------

    Changes: None.

Administrative Capability--Financial Aid Counseling (Sec.  668.16(h))

    Comments: Many commenters supported the Department's proposal 
requiring that financial aid communications advise students and 
families to accept the most beneficial types of financial assistance 
available to them. The commenters commended the Department for devising 
meaningful and detailed guidelines for disclosures to students related 
to Federal student aid which require institutions to disclose vital 
information such as the cost of attendance broken down into components, 
the net price, the source of aid, and whether aid must be repaid.
    Another commenter supported the amendment to Sec.  668.16(h), 
saying it would increase the transparency of financial aid offers for 
students, borrowers, and their families. The commenter believed the 
proposed changes would enable students and their families to make more 
informed decisions on how to pay for their education, how to compare 
financial aid offers, and how to choose among schools.
    Discussion: We agree. We want students to understand the costs of 
attending their program, including costs charged directly by the 
institution, and the financial aid offered by an institution.
    Changes: None.
    Comments: A few commenters said the term ``adequate'' financial aid 
counseling is too vague.
    Discussion: We believe that the language proposed in Sec.  
668.16(h)(1) through (4) provides the necessary clarification for what 
the Department deems adequate. Those paragraphs lay out the kind of 
information that would be adequate for institutions to provide 
students.
    Changes: None.
    Comments: One commenter requested that the Department develop a 
best practices guideline that can be used by institutions to create 
financial aid communications specific to their student populations. The 
guideline, as requested by this commenter, would include all required 
elements to address the issue of accurate financial information such as 
the different types of aid, the total cost of attendance, net price, 
etc. The commenter believes that this approach would provide 
institutions the ability to further engage with students through their 
communications, as the comprehensive requirement may not be the most 
effective solution.
    Discussion: We appreciate the commenter's suggestion. The 
Department already offers the College Financing Plan. Participating 
institutions use this standardized form to notify prospective students 
about their costs and financial aid. It allows prospective students to 
easily compare information from institutions and make informed 
decisions about where to attend school. The ``Loan Options'' box on the 
College Financing Plan includes fields for both the interest rate and 
origination fee of each loan, along with an explanation that, for 
Federal student loans, origination fees are deducted from loan 
proceeds. Furthermore, in October 2021, the office of Federal Student 
Aid issued a Dear Colleague Letter \19\ (DCL) outlining what 
institutions should include and avoid when presenting students with 
their financial aid offers. This DCL includes guidance to institutions 
to present grants and scholarship aid separately from loans so that 
students and families can understand what they are borrowing.
---------------------------------------------------------------------------

    \19\ GEN-DCL-21-70.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter requested that the Department remove the 
phrase ``for students'' from Sec.  668.16 (h)(1) since it seems out of 
place. The provision requires institutions to provide the cost of 
attendance and the estimated costs that students will owe directly to 
the institution based on their enrollment status. The commenter 
believes that the sentence could be restructured and more clearly 
stated.
    Discussion: We decline to accept the commenter's suggestion. In 
this provision, the language says the Secretary will consider if the 
financial aid communications and counseling include information 
regarding the cost of attendance for students. The clause separating 
the cost of attendance language from ``for students'' is important 
because it outlines what should be included in the cost of attendance 
and that it needs to present students with the total estimated costs 
that are owed directly to the institution.
    Changes: None.
    Comments: A few commenters said the requirements in Sec.  668.16(h) 
are too arbitrary, prescriptive, and interfere with their ability to 
communicate with their students. They stated that accreditors already 
require them to report and provide financial aid counseling to their 
students. In addition, the same commenters noted that some institutions 
assist students with financial aid applications and debt management.
    One commenter also noted that financial aid counselors are required 
to meet with students in need of financial aid annually, and that their 
students participate in entrance, exit, and financial planning 
seminars.
    Discussion: We disagree with the commenters. This provision does 
not interfere with the ability of an institution to communicate with 
students about their aid. Institutions that are already communicating 
this information in paragraph (h) would not be required to change their 
practices. Rather, we are concerned that there are too many instances 
in which financial aid information is not clearly communicated. Not all 
institutions are able to meet one on one with each student, thus clear 
and accurate financial aid communications is relevant for those 
institutions. This is the case despite the presence of entrance and 
exit counseling because information provided, often through financial 
aid offers, is confusing or misleading. We cannot speak to the content 
of financial planning seminars offered by institutions, and it is 
possible that some of those would fulfill these requirements and thus 
not necessitate any changes by the institution. This requirement thus 
outlines standards for how to present communications to provide 
students and families with accurate information about their financial 
aid options as they make important educational and financial decisions, 
such as which school provides them with the most beneficial financial 
aid offer or how much to borrow. Moreover, the Department is the 
administrator of the Federal aid programs, which represent most 
financial aid dollars. While accrediting agencies can also play a role 
in ensuring adequate financial aid counseling, it would be 
irresponsible to delegate this

[[Page 74609]]

function solely to a non-governmental entity.
    Changes: None.
    Comments: Several commenters noted that providing additional 
Federal aid information to students can create confusion for potential 
students. One commenter cautions that disclosures that include the 
total cost of attendance can be beneficial, however it can also confuse 
students that attend institutions that do not provide student housing. 
An unintended consequence would be that students may confuse non-
program related costs of attendance as additional institutional 
charges. Another commenter also noted that there is already a wide 
range of required consumer information provided to students and the 
addition of more disclosures could confuse potential students.
    Discussion: The Department disagrees with the commenters. A student 
pursuing postsecondary education needs to consider how to pay for non-
academic expenses, the largest of which is housing. As an example, the 
Department's College Financing Plan provides one option for how 
institutions could provide cost of attendance broken down by on campus 
and off campus costs. Giving students a full sense of what they will 
pay will help them make decisions about how to balance work, academics, 
and borrowing. The Department seeks to provide this clarity.
    Changes: None.
    Comments: Several commenters suggested that the Department could 
further clarify what it means in Sec.  668.16(h) to accept the most 
beneficial type of financial assistance by describing the order in 
which students should accept their aid. These commenters suggested that 
scholarships and grants should be accepted first, followed by 
subsidized and unsubsidized loans, and then private loan options. This 
would ensure, according to the commenters, that students and families 
accept the most beneficial aid options. Another commenter further 
suggested that we prioritize the types of loans and include PLUS and 
private loans last.
    Many commenters argue that the Department is too vague when we 
propose that institutions advise students and families to accept the 
most beneficial types of financial assistance available. The commenters 
contend that institutions are not privy to a student's overall 
financial status and have no basis to advise a student to incur loan 
debt for example. According to the commenters, there is no specific 
guidance for schools to make this decision.
    One commenter criticized the one-size-fits-all approach proposed in 
the NPRM to notify students about the most beneficial aid. The 
commenter explained that the most beneficial aid decisions are student 
specific. The commenter also raised concerns that individual financial 
aid counseling is unlikely because administrators have less time as 
they comply with additional burdensome regulations while facing record 
staffing shortages.
    Another commenter asserted that the Department must clearly state 
that financial aid advisors can only speak to the types of aid offered 
through their institution, as they are not financial advisors. On the 
other hand, one commenter warned that dictating which types of aid are 
the most beneficial could expose institutions to legal action if a 
student followed the advice of a financial aid offer and later found 
that another type of aid would have been more beneficial to them.
    Several commenters request that the Department remove this new 
requirement from the final rule.
    Discussion: The Department's goal with this language is not to 
dictate what is most beneficial, which may vary by institution or 
student, but rather to identify patterns and practices when an 
institution is repeatedly counseling students to accept one kind of aid 
ahead of another, even when the latter would be the better choice. For 
instance, an institution that repeatedly counseled students to take out 
loans before grant aid that does not have to be repaid would clearly 
not be the most beneficial. So, too, would be encouraging students' 
parents to take out a Parent PLUS loan ahead of the student maximizing 
their loans. We also have seen past instances where institutions 
aggressively pushed their own private loan products, including some 
that were sometimes presented as grants when they were actually short-
term loans. Such practices would not be the most beneficial for 
students.
    The Department already offers the College Financing Plan which 
provides one example to institutions on how to present financial aid 
information in a clear way that advises students and families to 
consider aid that is most beneficial, such as aid that does not have to 
be repaid, followed by subsidized and unsubsidized loans, and other 
loan options.
    At the same time, we recognize that individual student 
circumstances vary and that students may have access to specific 
scholarships or there can be State loan options. We do not expect 
institutions or financial aid advisors to advise individual students 
based on their specific financial status. We believe the emphasis of 
considering this issue in terms of overall patterns and practices in 
financial aid communications and clarity on the types of aid, such as 
grant and scholarship aid and loan options, rather than individual 
situations addresses the concerns of most of these commenters. We do 
not believe this would require additional burden on financial aid 
advisors or open institutions up to legal action.
    Regarding the comments about broader financial counseling, this 
provision is only about financial assistance to pay for postsecondary 
education and does not create an expectation for institutions to 
understand and provide counseling to families on broader financial 
topics such as investments or retirement planning.
    Changes: None.
    Comments: One commenter proposed that the Department update the 
College Financing Plan to include items listed in the proposed 
regulations. The commenter also believes that if we interact with the 
financial aid community, the College Financing Plan could be improved 
further to entice additional institutions to use it.
    Discussion: The Department has reached out to financial aid 
administrators to obtain comments on the College Financing Plan during 
past revisions. We will consider additional opportunities to obtain 
feedback during future revisions as well. The College Financing Plan is 
not covered by regulations and does not need regulatory changes to 
address this issue.
    Changes: None.
    Comments: Several commenters suggested that the Department 
strengthen the proposed rule by better defining financial aid 
communications. These commenters believe we should clarify that 
financial aid communication is any communication made to the student 
detailing his or her financial aid package.
    Discussion: The Department has included the details in Sec.  
668.16(h) of what should be included in financial aid communications 
provided to students. Financial aid counseling and financial aid 
communications inform students of the cost of attendance for the 
program, the costs charged directly by the institution, and the 
financial aid offered by an institution. Institutions still have the 
flexibility to determine the best format in which the information is 
provided to their students.
    Changes: None.
    Comments: One commenter proposed that instead of focusing on 
institutional

[[Page 74610]]

capability, the Department should develop financial training and career 
development modules that students would be required to complete prior 
to being able to access student loans. They argued that this would take 
the burden off of institutions.
    Discussion: Entrance loan counseling is required for students to 
complete before their student loans are processed. Entrance counseling 
informs students of the terms and conditions of their loan before 
borrowing and students are also informed of their rights and 
responsibilities. Students learn what a loan is, how interest works, 
repayment options, and tips to avoid delinquency and default. The 
Department agrees that the financial training provided in the required 
entrance loan counseling is important information for students to 
complete before a loan is processed on their behalf. However, 
institutions are also a trusted source of information for students. It 
is critical that institutions offer students information that is 
accurate and complete.
    Changes: None.
    Comments: One commenter wanted the Department to require 
institutions to include information about military education benefits 
such as the Post 9/11 Bill or GI Bill in the types of aid that they 
must disclose to students.
    Discussion: We think it is important for institutions to inform 
eligible students about their military education benefits, but they are 
not included in title IV, HEA program funds and so are not appropriate 
to cover in this provision.
    Changes: None.

Administrative Capability--Debarment or Suspension (Sec.  668.16(k))

    Comments: One commenter criticized Sec.  668.16(k)(2) and suggested 
that we rewrite it to clarify our intent. The same commenter also 
suggested that we revise Sec.  668.16(k)(2)(ii) to separate the actions 
of the individual and the impact to an institution. The commenter 
believes that we should clearly state that it is the misconduct of an 
individual and the closure of an institution that the Department refers 
to in the proposed regulation.
    Discussion: The amendment to Sec.  668.16(k)(2) is to improve 
institutional oversight of the individuals that are hired to make 
significant decisions that could have an impact on the institution's 
financial stability and its administration of title IV, HEA funds. An 
institution's ability to meet these responsibilities is impaired if a 
principal, employee, or third-party servicer of the institution 
committed fraud involving Federal, State, or local funds, or engaged in 
prior conduct that caused a loss to the Federal Government.
    Changes: None.

Administrative Capability--Negative Action by State or Federal Agency, 
Accrediting Agency, or Court (Sec.  668.16(n))

    Comments: One commenter supported the addition of Sec.  668.16(n) 
requiring that an institution has not been subject to a significant 
negative action. The commenter believes that the regulation strengthens 
the Department's ability to preserve the integrity of the title IV, HEA 
programs.
    Discussion: We thank the commenter for their support.
    Changes: None.
    Comments: Several commenters noted that Sec.  668.16(n) fails to 
provide any basis to determine what action the Department would view as 
a significant negative action that would prompt administrative 
capability concerns.
    Two commenters requested clarity for the term ``significant 
negative action.'' These commenters suggested that the Department 
clearly state that this term applies to instances where the conduct 
that was the basis for the action or finding directly relates to an 
institution's handling of title IV, HEA funds. According to the two 
commenters, the Department should also clarify that the finding must be 
a ``significant negative finding.''
    Discussion: We disagree with the commenters. The Department makes 
an administrative capability finding when it determines that an 
institution is not capable of adequately administering the title IV, 
HEA programs. The new provision regarding significant negative findings 
provides the Department with another method of determining whether an 
institution is administratively capable by assessing whether the 
institution has sufficient numbers of properly trained staff, its 
systems or controls are properly designed, and its leaders are acting 
in a fiscally responsible manner and with the best interests of 
students in mind. The Department declines to provide a definition for 
``significant negative action'' or ``significant negative finding.'' 
Generally, we view a significant negative finding as something that 
poses a substantial risk to an institution's ability to effectively 
administer title IV, HEA programs. We would review the circumstances, 
the fact and issues at hand, and other relevant information related to 
the institution and finding in our determination of whether the 
underlying facts pose a substantial risk.
    Changes: None.
    Comments: One commenter requested additional clarity around the 
terms ``finding,'' including whether it must be significant and 
negative, ``repeated,'' ``unresolved,'' ``prior enforcement order,'' 
and ``supervisory directive.'' The same commenter asked for clarity on 
whether loss of eligibility in another Federal program would lead to an 
administrative capability issue if that loss of eligibility was limited 
to a program or quickly cured.
    Discussion: We do not believe the terms used in the provision are 
ambiguous or need further clarification. The words ``significant'' and 
``negative,'' both of which have clear meanings, are operating as a 
modifier to either action or finding. Similarly, the terms used in the 
regulatory example, repeated and unresolved, are clear terms of art 
that need no further clarification. It is thus unnecessary to add 
additional definitions in this provision.
    Regarding the loss of eligibility in another Federal education 
assistance program, we note that it could refer to either institutional 
or programmatic eligibility loss, but the administrative capability 
determination is not automatic. The Department would consider the facts 
and circumstances of the eligibility loss, including whether the issue 
was resolved, and eligibility quickly restored, when making an 
administrative capability determination.
    Changes: None.
    Comments: Several commenters argued that a non-final action by 
another agency or court should not deem an institution administratively 
incapable. These commenters believe the Department would be unjustified 
if we considered an institution to lack administrative capability 
because of an accreditor's probation and that we should revise the 
rule. Ultimately, the Department should state in the preamble that if 
an accrediting agency continues probationary action after reviewing an 
institutions response, the Department will consider the institution 
administratively incapable.
    Discussion: The Department disagrees with the commenters. It is the 
Department's experience that a negative action by a State, accreditor, 
or other Federal agency usually arises from weaknesses in program 
administration or intentional misconduct, either of which can have a 
direct impact on the institution's administration of the title IV, HEA 
programs. Consequently, as part of its oversight responsibilities, the 
Department must be able to consider these actions when evaluating an 
institution's ability to properly administer the title IV, HEA 
programs.

[[Page 74611]]

Further, final decisions on these matters may take many years which 
could put additional students and title IV, HEA funds at risk. Waiting 
until the various processes are resolved would be insufficient to 
protect students and taxpayers.
    As with actions initiated by a State or another Federal agency, 
whether a probationary action would be captured here would depend on 
whether the conduct that resulted in the action is repeated or 
unresolved and whether it has a significant effect on the institution's 
ability to serve its students.
    We also note that administrative capability findings do not 
automatically result in ineligibility for title IV, HEA participation. 
Instead, the Department may consider a range of actions, which can 
range from heightened cash monitoring to a fine, suspension, 
limitation, termination action, a revocation of a provisional PPA, or a 
denial of recertification. No matter what action we take, institutions 
may respond; institutions may internally appeal fines, suspensions, 
limitations, terminations, and revocations.
    Changes: None.

Administrative Capability--High School Diploma (Sec.  668.16(p))

    Comments: We received many comments in support of the proposed 
changes to Sec.  668.16(p). Several commenters supported the amendments 
to strengthen requirements for institutions to devise adequate 
procedures to evaluate the validity of high school diplomas. One 
commenter stated that the proposed regulations will prevent 
institutions from abusing title IV, HEA aid by enrolling students who 
are not academically prepared to attend postsecondary education. 
Another commenter noted that the changes will restore greater program 
integrity.
    Discussion: We agree and thank the commenters for their support.
    Changes: None.
    Comments: Two commenters suggested that the Department publish a 
list of unaccredited high schools. These commenters believed this would 
assist institutions in evaluating the validity of a student's high 
school diploma when needed. Another commenter suggested that the 
Secretary publish a list of valid high schools.
    Discussion: K-12 education is not like postsecondary education in 
which accreditation is a requirement for access to title IV, HEA aid 
and unaccredited institutions are generally not considered to offer 
valid degrees and credentials. States have discretion whether to 
require accreditation and the Department does not review or approve 
accreditors of K-12 schools. As such, it would not be appropriate to 
publish a list of unaccredited high schools. The Department is 
evaluating the feasibility of creating a list of identified high 
schools that issue invalid high school diplomas, and the regulatory 
language is drafted such that, if the Department creates one, the 
institutions would be expected to consider it when evaluating the 
validity of high school diplomas.
    Regardless of whether the Department publishes such a list, 
institutions are responsible for enrolling students who have valid high 
school diplomas, regardless of whether there is a list of them. Any 
such list would not include all unaccredited high schools, as new ones 
are created on an ongoing basis. The Department does not need 
regulatory language to grant the authority to publish such a list, but 
paragraph (p)(1)(iii) in this section specifies that institutions must 
consider such a list if it is created. We think a list of high schools 
that award invalid high school diplomas would be more useful as it 
would identify high school diplomas that have already been identified 
as problematic for institutions to monitor.
    Changes: None.
    Comments: Several commenters urged the Department to change the 
language in the proposed regulation in Sec.  668.16(p)(1) to clarify 
the procedures for institutions. The commenters requested that we 
explain what constitutes an invalid diploma or when to doubt the 
secondary school from which the diploma was obtained. Secondly, the 
same commenters requested that the Department clarify when an 
institution must use a review process. Finally, the same commenters 
believe that any business relationships that involve an unaccredited 
secondary school should require institutions to initiate further 
validation.
    Discussion: We believe the language in paragraphs (p)(1)(i) through 
(iii) of this section lay out what procedures institutions must have 
for determining the validity of a high school diploma they or the 
Department believe may not be valid. Under paragraph (p)(1)(i)(A) that 
means looking at the transcript, the description of course 
requirements, or obtaining documentation from the secondary school 
leaders about the rigor. If the school is overseen by a State or other 
government agency, then paragraph (p)(1)(ii) requires the institution 
to obtain evidence that the high school is recognized or meets 
requirements. Paragraph (p)(1)(iii) says institutions should look for 
the high school on a list of invalid secondary schools if the Secretary 
chooses to create one. We believe those paragraphs create clear 
procedures and that the language in paragraph (p)(1)(ii) gives 
institutions clarity about when or when not to consider State or other 
governmental recognition.
    Regarding the questions about when to review a high school diploma, 
the language in Sec.  668.16(p)(2) spells out when an institution 
should take a closer look at a high school diploma.
    We disagree with the suggestion from commenters to require further 
validation of every instance in which there is a business relationship 
between the high school and the institution. While we have seen many 
instances of problematic relationships of this sort, there are also 
legitimate relationships as well. Requiring validation of every 
instance of this thus risks being overbroad.
    Changes: None.
    Comments: One commenter criticized that the language, ``has reason 
to believe'' used in the proposed regulation, Sec.  668.16(p)(1) is too 
broad. According to the commenter, the regulation should be more 
specific so that the standard is clear. The commenter also believes 
that the added cost for institutions to perform additional work to 
evaluate the validity of high school diplomas should not be overlooked.
    Discussion: We disagree with the commenters. Students who lack a 
valid high school diploma or its recognized equivalent are only 
eligible for Federal aid through narrow and specific pathways. Giving 
aid to students who do not have a valid high school diploma and do not 
qualify through those pathways represents an illegal expenditure of 
taxpayer funds. We believe students who lack high school diplomas also 
tend to have lower success rates in postsecondary education, which can 
have lasting effects on students if they take out loans that must be 
repaid. Ensuring students meet these basic eligibility criteria is thus 
an important protection against fraud, and institutions are the key 
party to catch these issues. It is thus reasonable for institutions to 
exercise sound judgment and caution when reviewing high school diplomas 
to look more closely at ones that seem questionable. We also remind 
commenters that this provision is about reviewing the institution's 
procedures and looking at whether there's a pattern or practice of 
repeatedly failing to identify invalid high school diplomas.
    We discuss the relative costs of this provision versus the benefits 
in the RIA of this final rule. But we reaffirm that the potential costs 
of disbursing

[[Page 74612]]

unallowable funds and the potential for low success for those students 
are greater than the administrative costs to institutions.
    Changes: None.
    Comments: Several commenters objected to the provisions in Sec.  
668.16(p)(1)(i) requiring institutions to obtain additional 
documentation from high schools to confirm the validity of the high 
school diploma if there is reason to believe that it is not valid. Two 
commenters raised concern that many non-traditional students would not 
be able to provide the required documentation because their high 
schools have closed.
    Discussion: We disagree. The proposed regulations provide 
institutions with procedures for determining the validity of a high 
school diploma. Acceptable documentation includes a transcript, written 
descriptions of course requirements, or written and signed statements 
by principals or executive officers of the high school. In general, 
when high schools close there are record retention policies from 
States, districts, or other oversight entities that address this issue 
and provide students access to their diplomas or other records of high 
school completion. As noted above, the Department would consider an 
institution's procedures in terms of their pattern or practice. We 
anticipate the situations described by commenters to be rare. If the 
required documentation cannot be provided due to high schools closing, 
we would consider the specific circumstances on a case-by-case basis.
    Changes: None.
    Comments: Several commenters objected to the Department's proposal 
under Sec.  668.16(p)(1)(ii) to add procedures to evaluate the validity 
of a student's high school diploma. The commenters state that we should 
allow institutions to continue to follow the procedures that they 
already have in place, rather than require a new and complicated set of 
guidelines.
    Discussion: We disagree with the commenters. Providing aid to 
ineligible students is a perpetual source of fraud in the student aid 
programs and represents a misuse of taxpayer dollars. The standards 
outlined in this section are not requiring institutions to individually 
verify every student's high school diploma. They are asking 
institutions to engage in reasonable due diligence when they encounter 
high school diplomas that appear questionable.
    Changes: None.
    Comments: One commenter suggested that the Department develop a 
process to verify student's high school diplomas through a national 
database that the Department maintains. The commenter believes that the 
Department could collaborate with organizations that provide 
verification services to quickly validate high school diplomas. The 
commenter also noted that the database could serve as a repository for 
verified high school diplomas.
    Discussion: We do not believe that would be an appropriate role for 
the Department, as standards for high school diplomas are a State 
function. However, as previously mentioned, we will consider creating a 
list of high schools that the Department has deemed to award invalid 
high school diplomas. The list would in no way be exhaustive, but we 
believe this would be beneficial.
    Changes: None.
    Comments: One commenter raised general concerns that in some areas 
of the country there are large populations of immigrants. According to 
the commenter, these individuals may not be able to provide the 
required documentation about their high school education or may not 
have been able to complete their high school education due to factors 
within the country they were born.
    Discussion: We remind commenters that the intent of the regulations 
is to add clarity to the process that schools must follow when they or 
the Department have questions about the validity of a high school 
diploma. We acknowledge that there are cases where students attended 
high school in another country but do not have that credential in hand 
when applying to a postsecondary institution. A student's failure to 
produce a high school diploma does not obligate the institution to 
treat the diploma as invalid and the student as ineligible solely 
because the student does not have the diploma in hand. If, however, 
other information suggests that the student does not actually have a 
valid diploma, then Sec.  668.16(p) would require the institution to 
take additional steps. Institutions may establish policies regarding 
whether to collect high school diplomas from students and/or what steps 
to take if a student cannot produce their diploma due to exceptional 
circumstances. In instances where a student from a foreign country 
cannot produce his/her high school diploma, the institution should 
determine what next steps to take based on their process for 
determining whether a student has completed high school or has met 
other criteria in Sec.  668.32. When determining compliance with Sec.  
668.16(p), the Department will review the institution's procedures, the 
steps it has taken under those procedures, and the documentation it 
maintains, when dealing with situations where facts suggest that a 
student does not actually have a valid high school diploma. As it does 
now, the Department will review these situations on a case-by-case 
basis.
    Changes: None.
    Comments: Many commenters criticized as unnecessary the proposed 
requirement in Sec.  668.16(p)(2)(i) around when a high school diploma 
is not valid. The commenters particularly objected to the language in 
paragraph (p)(2)(i) around the Department's proposal that institutions 
would determine whether the diploma met the requirements established by 
the appropriate State agency, Tribal agency, or Bureau of Indian 
Education in the State where the high school is located, and if the 
student does not attend in person classes, in the State where the 
student was located at the time the diploma was obtained. The 
commenters believe that the Department should remove this provision 
because it burdens institutions, and we should not require an 
institution to determine whether a high school meets the requirements 
of the high school's regulatory agency. The commenters suggest that 
institutions rely on State licenses and approvals and that regulators 
are better equipped to determine whether a high school should be 
licensed, approved, or recognized when the high school is physically 
located within the State.
    Many commenters suggested we clarify the language in Sec.  
668.16(p)(2)(i) to explain that a high school diploma is not valid if 
the entity did not have required secondary school licenses or meet 
requirements from the home State. The commenters suggested that the 
Department clarify that documentation from a State agency is required 
to validate a diploma only when the State has a mandatory licensing 
requirement for private secondary schools in a given State.
    Discussion: We disagree. Ensuring that students have a valid high 
school diploma is a critical part of maintaining integrity in the title 
IV, HEA financial aid programs. Failure to ensure that a student is 
qualified to train at a postsecondary level often results in students 
withdrawing from institutions after incurring significant debt and 
investing time and personal resources. Extra steps taken by 
institutions on the front end, prevent withdrawals and lost enrollment 
down the road due to students not prepared to be successful at the 
postsecondary level. These regulations will provide institutions with 
additional information when

[[Page 74613]]

necessary to determine the validity of a high school diploma.
    We believe the added guidance under Sec.  668.16(p)(2)(i) will 
provide institutions with clarity when determining whether a high 
school diploma is not valid. This provision would only apply in 
instances where the State has oversight and has established specific 
requirements that must be met in order for a student to receive a high 
school diploma. If private secondary schools are not subject to State 
agency oversight, then the requirement to receive documentation from a 
State agency in Sec.  668.16(p)(1)(ii) would not apply.
    Changes: None.
    Comments: Many commenters requested that the Department delete the 
clause from Sec.  668.16(p)(2)(i) regarding a student not attending in-
person classes in the State where the student was located when they 
obtained their credential. The commenters suggested that the standard 
is not an indicator of an invalid high school diploma because most 
States regulate high schools located within their borders, but do not 
regulate online high schools or those located in other States. 
Furthermore, the commenters thought it would be unfair to students who 
move from one State to another during their high school years. The 
commenters further believed this provision would force institutions to 
reject students even if their high schools were approved in the State 
in which they started their high school education.
    Discussion: We agree with the commenters that the provision would 
be challenging for an institution to enforce as it would have to look 
at how one State might apply requirements to a high school potentially 
located in another State.
    Changes: We have removed the reference to a student's home State 
for someone not attending in-person classes from paragraph (p)(2)(i).
    Comments: Several commenters objected to Sec.  668.16(p)(2)(iii), 
which requires institutions to determine if a diploma was obtained from 
an entity that requires little or no secondary instruction. The 
commenters believed that regulatory agencies should determine the 
validity of the diploma to avoid creating a burden for institutions and 
suggested that we remove this requirement.
    Discussion: We disagree with the commenters. The requirements in 
this paragraph relate to the items included in paragraph (p)(1)(i) of 
this section in terms of how the institution would make this kind of 
determination. While the determination of a regulatory agency is 
important, there are circumstances when the regulatory agency does not 
have sufficient information. Institutions should act on any information 
they obtain from any source which suggests that there is little, or no 
instruction being provided by the entity or that suggests that the 
entity is a diploma mill. If after a good faith effort, they are unable 
to obtain any information indicating that students received coursework 
and instruction equivalent to that of a high school graduate, then 
institutions could treat the inability to find that information as 
proof that the concern in paragraph (p)(2)(iii) is occurring.
    This specific provision says that a high school diploma is invalid 
if it was obtained from an entity that requires little or no secondary 
instruction or coursework to obtain a diploma, including through a test 
that does not meet the requirements of Sec.  600.2. The regulations in 
Sec.  600.2 define a recognized equivalent of a high school diploma. 
Under that provision, there are two equivalencies that can be obtained 
by passing a test: a General Education Development certificate (GED) 
and a State certificate received after passing a State-authorized 
examination that the State recognizes as the equivalent of a high 
school diploma. We believe these equivalencies are common and pose 
little burden on institutions. This provision is an important 
protection to students and title IV, HEA funds and the requirement is a 
minimum expectation to protect the integrity of Federal student aid 
programs.
    Changes: None.
    Comments: Commenters asked the Department to expand the provisions 
in Sec.  668.16(p)(2)(iv) around validating diplomas when there is a 
business relationship between the institution and the high school. 
Commenters said the language in paragraph (p)(2)(iv)(B) of this 
section, which says that a high school diploma is not valid if there is 
a business relationship and the school is unaccredited, is 
insufficient. They said that this safe harbor should also include high 
schools that are licensed or approved by their home State too.
    Discussion: The Department included this provision because we have 
seen many instances in the past where there are concerning 
relationships between high schools and institutions of higher 
education. However, the high school in question in that relationship 
has also exhibited issues that would lead to them being identified as 
invalid under paragraphs (p)(2)(i) through (iii) of Sec.  668.16. As 
such, we think it is better to remove paragraph (p)(2)(iv) entirely 
rather than expanding it. This removal reduces what would otherwise end 
up duplicating with what is already present in other parts of Sec.  
668.16(p)(2). The Department will continue in its own work to look for 
concerning business relationships when it identifies other evidence of 
a high school diploma not being valid.
    Changes: We have removed paragraph Sec.  668.16(p)(2)(iv).

Administrative Capability--Adequate Career Services (Sec.  668.16(q))

    Comments: Several commenters supported the Department's proposal 
that institutions provide adequate career services to their students 
because some institutions leave students on their own to search for 
jobs or make employer connections. The commenters also noted how 
unfortunately, it is not until graduation that students learn that the 
school has no career services staff or no industry connections. The 
commenters further stated that the requirement to invest in career 
services creates an expectation at institutions to better prepare 
students to enter the work force after graduation.
    Discussion: We appreciate the support of these commenters.
    Changes: None.
    Comments: Many commenters supported adding career services to the 
regulation but believe the Department should not include the criteria 
regarding the share of students enrolled in programs designed to 
prepare them for gainful employment. The commenters believe we should 
remove this from Sec.  668.16(q) because institutions should be 
required to provide adequate career services for all programs including 
non-GE programs.
    Discussion: We disagree with the commenters. The share of students 
in GE programs is an important factor for the Department consider when 
evaluating whether institutions have sufficient career services. GE 
programs are career training programs and having a significant share of 
enrollment in these programs is a factor to consider whether there are 
sufficient career services resources. Institutions that do not have 
significant numbers of students in GE programs would still be 
considered under paragraphs (q)(2) through (4) of this section.
    Changes: None.
    Comments: Many commenters recommended that the Department create 
career assessment services to assess programs in fields that use a 
different hiring structure. Career development in the fine and 
performing arts industry differs from corporate recruiting, according 
to the commenters, since typical hiring avenues differ. Performing 
artists typically audition for

[[Page 74614]]

work, visual artists, and entrepreneurs, such as cosmetologists are 
self-employed and run their own businesses. The same commenters 
questioned how the Department will apply this career services 
regulation at institutions with non-traditional programs.
    Discussion: The Department believes that all students should 
receive career services that are appropriate for the program they 
attended that will assist them in securing employment in the relevant 
occupation. The institution and not the Department determines the type 
of services that are most appropriate. Institutions decide what 
programs to offer and construct the curricula used. Therefore, they are 
best suited to know what career opportunities exist that are tied to a 
given program and how to help students reach career goals, including 
what kind of career assessment services are needed. This is the case 
regardless of whether a program is traditional or non-traditional, 
since in both cases the institution would know what it is preparing 
students to do. Our concern is ensuring that institutions made good on 
the commitments they make to students and have the staff and resources 
in place to help students reach their career goals.
    Changes: None.
    Comments: Many commenters raised general concerns that this 
provision would give title IV, HEA compliance officers leverage to 
demand more career services resources than merely those that are 
necessary.
    Discussion: This requirement still provides institutions with the 
discretion to determine how they want to devote their resources between 
career services and other functions. However, what it does require is 
that there must be an alignment between the commitments made with 
regard to career services and what is actually offered. An institution 
will also have the opportunity to respond and appeal to a finding that 
it is not administratively capable due to its lack of career services 
and will have an opportunity to provide additional information to 
demonstrate that its staffing was appropriate given the institution's 
circumstances.
    Changes: None.
    Comments: Many commenters raised general concerns that title IV, 
HEA compliance officers be adequately trained in employment services so 
they can determine whether an institution is providing adequate career 
services to students, including Departmental review of the number and 
distribution of staff, the services the institution has promised to its 
students, and the presence of partnerships with recruiters and 
employers who regularly hire graduates.
    Discussion: The Department believes that institutions should have 
sufficient career services to help students find jobs and honor any 
commitments made about the type of job assistance they provide. The 
Department's focus on evaluating institutions will remain on whether 
the institution can make good on its commitments with appropriate staff 
and resources in place while institutions are best equipped to 
determine what is appropriate to offer based on the education it 
provides.
    Changes: None.
    Comments: We received a number of comments opposing the 
Department's proposal to include adequate career services as a 
requirement for administrative capability. Many commenters asked the 
Department to eliminate this provision because accreditors already 
require that institutions provide career services. The same commenters 
argued that the standards are too vague and do not clearly state how 
the Department would determine the adequacy of services. Many 
commenters also questioned the Department's statutory authority, 
contending that no link between the administration of title IV, HEA 
programs and the adequacy of career services was provided. One 
commenter stated that the issue is more aligned with misrepresentations 
about the employability of graduates found in Sec.  668.74.
    Many commenters recommended that we revise Sec.  668.16(q) to 
clearly state what is expected of institutions to stay in compliance. 
For example, one commenter asked whether the Department expected a 
certain ratio to determine how many career services staff should be 
employed to accommodate students in GE programs. Another commenter 
noted that institutions with a limited workforce may need to hire 
additional staff. One of the commenters also noted that future 
graduates and alumni rely on the career services that institutions 
provide. The same commenter stated that the proposed regulation 
eliminates resources provided by dedicated professionals to fulfil 
unidentified metrics. To promote consumer awareness, according to the 
commenter, the Department should clarify the standards so that 
institutions can inform their students of available career services. 
One commenter stated that the rule overlooks the fact that programs 
designed to prepare students for gainful employment are used for career 
advancement or maintenance, not new employment. The commenter pointed 
to registered nurses who often intend to stay with their same employer 
and do not need career services. The commenter said the Department 
should provide a carve out for these types of programs and students. 
The same commenter pointed to other examples where the goals of the 
regulation are already met, such as programmatic accreditation, 
disclosure requirements and misrepresentation rules.
    Discussion: The Department disagrees with commenters and affirms 
the importance of keeping this requirement. With respect to 
accreditors, the oversight of postsecondary institutions rests on a 
reinforcing regulatory triad. While there are some elements that one 
part of the triad will not consider, such as how the Department cannot 
consider academic quality, some overlap of areas of concern helps 
ensure there are multiple perspectives looking at an issue. With 
respect to career services, the Department has seen this as an issue in 
the past where institutions use promises related to career services as 
a way to market and recruit students. But then they lack the resources 
to back up those promises and students report getting no assistance on 
their job search. The Department is concerned that such behaviors could 
contribute to the approval of borrower defense to repayment claims if 
the institution is making promises to students about assistance it 
knows it cannot provide.
    This provision complements, but is not replaced by, the 
misrepresentation standards for employability of graduates in Sec.  
668.74. Many of those items are distinct because they are concerned 
with things that relate to promises made during recruitment but not the 
career services offered. This includes areas such as relationships 
between institutions and employers, promises made about employment, and 
statistics provided about employment. The overlap involves things such 
as promised placement services, but the provisions are mutually 
reinforcing. Having institutions demonstrate they have sufficient 
career services assists with establishing whether the failure to 
deliver on those services is a form of misrepresentation.
    We also disagree with commenters that there is no link between 
these provisions and administration of the title IV, HEA programs. 
Student surveys repeatedly show that obtaining employment is one of the 
key reasons why they go to college. A national survey of college 
freshmen at baccalaureate institutions consistently finds students 
identifying ``to get a good job'' as the most common reason why

[[Page 74615]]

students chose their college.\20\ Another survey of a broader set of 
students found financial concerns dominate in the decision to go to 
college with the top three reasons identified being ``to improve my 
employment opportunities,'' ``to make more money,'' and ``to get a good 
job.'' \21\ While postsecondary education is not solely about 
employment, the continued reliance on loans to finance postsecondary 
education means students need to have a path to successful careers so 
they can afford their loan payments. Career services thus intrinsically 
connect to ensuring that the aid programs generate their intended 
results. And as noted already, misleading students about the 
availability of career services support could be grounds for a loan 
discharge.
---------------------------------------------------------------------------

    \20\ A national survey of college freshmen at baccalaureate 
institutions consistently finds students identifying ``to get a good 
job'' as the most common reason why students chose their college. 
Another survey of a broader set of students found financial concerns 
dominate in the decision to go to college with the top three reasons 
identified being ``to improve my employment opportunities,'' ``to 
make more money,'' and ``to get a good job.''
    \21\ Stolzenberg, E.B., Aragon, M.C., Romo, E., Couch, V., 
McLennan, D., Eagan, M.K., Kang, N. (2020). ``The American Freshman: 
National Norms Fall 2019,'' Higher Education Research Institute at 
UCLA, www.heri.ucla.edu/monographs/TheAmericanFreshman2019.pdf.
---------------------------------------------------------------------------

    The Department declines to adopt a specific ratio for career 
services staff or create exceptions for career-oriented programs 
focused on advancement within a given employer. We believe such an 
approach would not properly capture the significant variation that 
exists among institutions. For instance, an institution that only 
offers career-oriented programs might need a lower ratio than one where 
only one program is career-oriented and the vast majority of students 
are being prepared to transfer to higher-level programs. Instead, we 
think the language provides flexibility to consider the range of 
institutional circumstances when considering whether there are 
sufficient career services. We disagree that additional clarity is 
needed for institutions to tell students what services they offer. 
Institutions will be aware of what they have available for students, 
and they should provide accurate information about what services they 
offer. Moreover, the institution can consider whether programs are 
designed for career advancement within an employer when considering 
what types of services, they need to provide. For instance, someone 
seeking a promotion within a given employer may need different help 
around asking for a pay increase and how to make their case, as opposed 
to help with job hunting.
    With respect to career services usage by alumni, our focus in this 
language is on the commitments made to students and what services are 
provided there. As noted above, there's no requirement that 
institutions shift resources away from dedicated professionals so long 
as they have the resources in place to make good on the commitments 
they provide to students. This language does not dictate what career 
services promises institutions must make to students. It simply 
requires that the commitments and resources align.
    Changes: None.
    Comments: One commenter believes an alternative solution for 
institutions to provide adequate career services would be to 
collaborate and with and get feedback from students, and partner with 
industries. The commenter opined that if institutions develop a 
student-centered approach to career services, students should benefit 
from the personalized support and guidance as they matriculate through 
college. A student-centered approach can serve the diverse needs of 
both students and institutions according to this commenter. The 
commenter continued by explaining that institutions can identify the 
changing needs and expectations of their students, and students can 
contribute to the development of the career services offered through 
conversations and collaboration. Additionally, the commenter suggested 
that institutions can provide feedback opportunities, via surveys or 
advisory committees to get input from students regarding their career 
service experiences. The feedback, the commenter explained, can 
determine the effectiveness of existing services, identify areas for 
improvement, and provide ideas for future initiatives.
    Discussion: The Department supports the idea of a student-centered 
approach to career services that includes institutions obtaining 
feedback from students and partnering with private industry. We, 
however, do not see this suggestion as a substitute for the provision 
we proposed. We note a high-quality student-centered approach advocated 
by the commenter likely would comply with the requirement to provide 
adequate career services, provided the institution is able to fulfil 
its commitments with respect to career services.
    Changes: None.
    Comments: Several commenters questioned how institutions will 
determine how many career services staff should serve students in GE 
programs if the formula to determine ``adequate'' is not provided. 
These commenters noted that there is no set ratio for institutions to 
determine if they are providing adequate career services to eligible 
students.
    One commenter said that all faculty and staff members throughout 
their campus and not just career services staff prepare students for 
employment and inform them of opportunities. If the institution is 
judged only by the number of employees in their career services office, 
according to this commenter, the collective work of the university 
would be ignored.
    Discussion: The Department disagrees. The language in Sec.  
668.16(b)(2) requires institutions that participate in the title IV, 
HEA programs to have an adequate number of financial aid staff. There 
is no formula to determine adequate. Instead, the Department determines 
adequacy based on varying factors. Determining the adequacy of career 
services staff would be similar. The Department will consider the 
factors set out in Sec.  668.16(q)(1) through (4) in relation to 
characteristics of the particular institution such as its size, the 
number and types of programs offered and the requirements for 
employment in those fields of study. A finding of a lack of 
administrative capability under this provision would not be automatic. 
Therefore, institutions that rely on career services support across the 
faculty could present this information to the Department if they are 
identified for administrative capability concerns and the Department 
could take it into consideration.
    Changes: None.
    Comments: One commenter disagrees that the Department prioritize GE 
programs when assessing an institutions' career services. Most 
institutions offer programs to prepare students for various careers; 
however, not all programs may be considered GE programs.
    Discussion: This regulatory language does not prioritize GE 
programs. Rather it is one factor among four that the Department will 
consider when judging the adequacy of career services. This helps the 
Department get a sense of how many programs have a statutory connection 
to career training or not.
    Changes: None.
    Comments: Two commenters suggested that the Department require 
institutions to provide detailed information on the career services 
offered and provide the job placement records of all graduates in GE 
programs. The commenters believe that the change of required data will 
prevent misleading marketing practices and allow

[[Page 74616]]

institutions to deliver on the promises that they make to students 
during recruitment.
    One commenter noted that their institution already takes extra 
measures to assist students by sponsoring attendance to conferences and 
trade shows, hosting career fairs, and providing one-on-one career 
counseling to demonstrate the importance of preparing students to enter 
the workforce.
    Another commenter asserted that the Department should consider 
verified employment rates to be the number one priority for 
institutions to demonstrate that they provide adequate career services.
    Discussion: The Department disagrees. The Department has existing 
regulations related to job placement rates, including in Sec. Sec.  
668.14, 668.41, and 668.43, and regulations related to 
misrepresentations, among others. We, therefore, do not need separate 
requirements related to job placement rates in this section. With 
respect to the comment regarding an institution providing placement 
rate records, the Department already has the authority to obtain these 
records and it does obtain and review these types of records when 
determining the validity of advertised placement rates. We appreciate 
the examples highlighted by the commenter and those are the kinds of 
things that would be considered when looking at paragraph (q)(3) of 
this section.
    Changes: None.

Administrative Capability--Accessible Clinical or Externship 
Opportunities (Sec.  668.16(r))

    Comments: One commenter expressed full support for the requirement 
that institutions provide students with a geographically accessible 
clinical or externship opportunity within 45 days of successful 
completion of other required coursework.
    Discussion: We thank the commenter for their support.
    Changes: None.
    Comments: Many commenters suggested that institutions be required 
to provide students with clinical or externship opportunities that 
previous students participated in. The commenters felt that students 
should also be reminded that it is ultimately their responsibility to 
secure placement.
    In addition, some commenters agreed with the Department's 
requirement that private institutions provide students with a clinical 
site.
    Discussion: The Department agrees that it is critical institutions 
provide students with the clinical or externship experiences they need 
to earn their credential, including those opportunities that previous 
students participated in. This requirement applies to institutions of 
all types where it is relevant. We do not think it is reasonable to put 
the burden of securing a clinical or externship solely on the student 
if it is required to complete their program.
    Changes: None.
    Comments: Many commenters expressed concern that the providers of 
clinical and externship opportunities have a say in a students' 
placement. They want to ensure that the students selected for placement 
possess the skills and expertise to deliver impeccable care.
    Another commenter recommended that institutions be involved and 
arrange the student placement for their students. The commenter 
believes that students are more connected and get better care when 
institutions are involved.
    In addition, two other commenters asserted that the responsibility 
for placement should be a partnership between the institution, the 
student, and the receiving practice to be a positive training 
experience.
    Discussion: We do not see a conflict between the comments and the 
regulatory language. The Department is adding this requirement because 
we are concerned that in the past institutions have enrolled students, 
received significant tuition payments, then failed to find them the 
clinical opportunities those students needed to complete the program. 
The absence of those clinical experiences then makes it impossible for 
the student to work in the field in which they are being prepared. The 
Department has also seen this occur in some situations where the 
institution knew as it was recruiting students that it lacked 
sufficient partnerships to offer clinical spots to all the students it 
was enrolling.
    This regulatory text does not require that a student attend a 
clinical at a specific spot, just that the institution make sure they 
have a geographically accessible option. Institutions can and should 
work with their students around securing placements. If a student 
chooses to secure a placement on their own, we would not separately 
demand that the school provide them a placement. This provision is to 
address situations where an institution fails to provide required 
clinicals and the students are unable to secure the clinicals on their 
own.
    Changes: None.
    Comments: Many commenters request that this rule not apply to 
medical schools, allied health, or other health profession programs 
because it is confusing to students who are already scheduled to 
participate in experiences throughout their third and fourth years of 
schooling, not at the end of their coursework as the regulation 
suggests. Another commenter suggested that post-graduate training also 
be excluded from the rule.
    Discussion: The Department wishes to clarify the coverage of this 
provision. This language applies to the clinical or externship 
experiences that are needed for students to complete their programs. 
Thus, experiences that occur as part of credential completion, such as 
those in the third or fourth year of a program or at the end of a 
program, would be included. It does not apply to post-graduation parts 
of the career ladder, which include things like the national residency 
program for graduates from medical school. The reference to how the 
externship or clinical is related to licensure in a recognized 
occupation is to note that some licensure requirements state that there 
must be a clinical or externship completed as part of the credential 
earned. The result is that residencies, clerkships, and other similar 
post-graduation experiences are not covered by this requirement.
    Changes: None.
    Comments: We received a number of comments requesting the 
Department to define ``geographically accessible'' clinical or 
externship opportunities. Several commenters suggest that the 
definition should specify the mile radius, and which States and regions 
of the country should be considered.
    A few of the commenters expressed concern that if the Department 
narrowly defines the geographical location required for placement, it 
may not consider the fact that students in rural areas may be limited 
and that some students may need to travel outside of their geographic 
location to complete the requirement.
    Another commenter proposed that the Department use commuting zones 
to provide a reasonable estimation of the geographic areas that a 
student is likely to look for a clinical placement or externship after 
graduation. The commenter explained that commuting zones is defined by 
the Department of Agriculture's Economic Research Service. Commuting 
zones break the country up into 709 areas based on the geographical 
distribution of an area's labor market. The commenter believes that it 
is reasonable to use commuting zones to clarify the definition, 
geographically accessible. Commuting zones already account for various 
distances required when it comes to commuting in metropolitan areas 
compared to rural areas and have

[[Page 74617]]

already factored in variations in distance.
    One commenter also stated that the term geographically accessible 
be removed all together.
    Discussion: The Department declines to provide a specific set of 
metrics for measuring what is geographically accessible, as there could 
be programs on the edge of one commuting zone or another and that 
different program types could have different expectations for what is 
geographically accessible. For example, a clinical experience tied to a 
highly specialized field as part of a graduate program may see a 
geographically accessible option as one that is in another part of the 
country. By contrast, a commuting zone concept is likely to be a better 
fit for certificate programs where students are more likely to be 
staying close to where they live. The Department also declines to 
remove the geographically accessible requirement. This is a critical 
concept to maintain because we do not want institutions to otherwise 
get out of providing the required clinical or externship options by 
simply offering students an opportunity that is completely infeasible 
for them to reach. We also remind commenters that this requirement only 
applies to pre-completion situations, so concerns about how students 
with medical degrees participate in a national matching program would 
not be affected.
    In terms of assessing geographic accessibility, the Department 
would consider how accessible distances look very different in rural 
areas versus urban ones. The level of the credential will also likely 
affect this consideration. Someone completing a professional degree in 
a highly specialized field is almost certainly going to have travel 
longer distances for a clinical and so something quite far away would 
still be viewed as accessible and in line with their expectations. By 
contrast, a student completing a 12-month certificate program is not 
likely expecting to move hundreds of miles away for a clinical 
experience. Nor would they be completing a credential with a level of 
specialization such that there may only be a handful of relevant 
placement options in the country. Preserving the concept of geographic 
accessibility while recognizing the need for flexibility in how that is 
considered based upon the credential level, type, and the physical 
location of the institution is appropriate.
    Changes: None.
    Comments: Several commenters opposed the clinical externship 
opportunities regulation and suggested that the Department allow the 
accrediting agencies, credential agencies, and State licensing agencies 
set the requirements for programs.
    Discussion: We disagree with the commenters. Accreditation agencies 
are one part of the regulatory triad and they play an important role in 
institutional oversight. But the Department must oversee and protect 
the Federal investment. To that end, we are concerned that students who 
do not get offered these clinical or externship experiences will not be 
able to benefit from the educational programs paid for with Federal 
resources. Having this requirement thus complements whatever work 
accreditors conduct in this area.
    Changes: None.
    Comments: Two commenters warned that to ensure compliance, some 
institutions may only enroll the number of students that will have 
clinical opportunities. The same commenters believe that the unintended 
consequences of this action would cause a decline in enrollment for 
allied health students. Another commenter agrees that enrollment in 
high-need areas will be capped, because of the added financial burden 
placed on the institution to secure placements. The commenter said they 
anticipate that institutions will need to hire additional staff or 
contract with private agencies to support out-of-State placements. One 
commenter warned that an institution may secure a spot in clinical 
opportunity that is against the students wishes and would result in 
more than one spot secured for each student. The commenter suggested 
this could result in a competitive structure that creates added 
challenges for smaller schools and companies without the same financial 
resources.
    Discussion: This provision is not dictating the enrollment size of 
given programs nor the exact location of where students go for their 
clinical or externship. But it is critical that institutions have in 
place the resources to help students secure clinical or externship 
opportunities if they are required for completing the program. We also 
note that institutions do not need to provide additional opportunities 
for students who have already secured a clinical spot on their own. 
While we recognize this could be an added cost for institutions, we 
think the benefits for students are significant, as failure to 
participate in a clinical or externship could make it impossible for 
the student to graduate or obtain State licensure or certification. 
Given the downside risk to students, it is an acceptable tradeoff if 
institutions decide they have to offer fewer spots in order to ensure 
that the students they do serve will be able get the additional 
educational experiences necessary to achieve their goals.
    Concerns about a student potentially turning down a spot ignores 
two key elements. First, a spot turned down by one student may well be 
accepted by another. Second, the provision is around offering spots 
that are geographically accessible. Rejections of spots would not be 
deemed a failure to abide by this provision unless widespread 
rejections and a lack of spots indicated that the institution was 
finding some way around this requirement.
    Changes: None.
    Comments: Several commenters felt that the Department is exceeding 
the statutory limits by adding new requirements for clinical or 
externship opportunities. The commenters do not believe the 
requirements are related to an institution's administrative ability to 
process student aid and should be removed from the final regulation.
    Discussion: Properly administering the financial aid programs means 
ensuring that the students you enroll and who are funded with Federal 
aid are able to complete their programs. Institutions that knowingly 
enroll students in excess of the spots for these required experiences 
are setting students up for an inability to complete their program 
either entirely or in a timely manner. It is also a sign that the 
amount of work going into recruitment and marketing efforts may not be 
sufficiently matched with the resources needed to make good on those 
commitments.
    Changes: None.
    Comments: We received a number of comments regarding the 
requirement to provide a geographically accessible clinical or 
externship within 45-days of successful completion of other required 
coursework in Sec.  668.16(r). One commenter requested the Department 
clarify when the 45-day measurement would begin. Another commenter 
asked that the Department extend the placement timeline from 45 days to 
90 days as they have students from every State and many live in rural 
areas. Two commenters claimed it is unreasonable to expect an 
externship to begin within 45 days of coursework completion but believe 
that it is within reason for students to receive their assigned 
opportunity within that time. One commenter raised a concern that the 
requirement for students to complete clinical or externship assignments 
within 45 days of coursework completion would place a hardship on

[[Page 74618]]

students. This commenter suggested that we reconsider the rule. One 
commenter stated that 45-day window does not account for the role of 
third parties in finding placement spots.
    Discussion: The requirement is that institutions provide the 
students with the opportunity within 45 days of successful completion 
of other required coursework. That does not mean the experiences must 
start exactly within 45 days. However, the Department will consider 
whether a pattern where these experiences start well outside reasonable 
periods, e.g., offering a spot that starts in a year so the student has 
an extended gap after finishing their coursework is in fact a sign that 
an institution is not abiding by this requirement and does not have 
sufficient spots for clinical or externships and thus should result in 
a finding of a lack of administrative capability. We decline to adopt a 
longer timeframe. Making a student wait 90 days to receive their spot 
and then potentially waiting longer to begin that experience risks 
delaying their ability to complete their program and begin entering the 
workforce.
    We also disagree with the concerns about 45 days being insufficient 
for third parties. Our anticipation is that institutions will be 
assessing how many clinical spots they have an ongoing basis for 
students who will be needing them in terms to come. Students who find 
their own spots also do not need a second spot offered to them. As 
such, there is nothing that prevents an institution from planning ahead 
and working to find spots with third parties.
    Changes: None.
    Comments: Two commenters urged the Department to revise Sec.  
668.16(r) to state that the institution ``make reasonable'' efforts to 
provide students with geographically accessible clinical or externship 
opportunities.
    Discussion: We decline to accept the recommendation by commenters. 
These are opportunities that institutions require as part of the path 
to completion. Much like we expect institutions to offer students the 
courses they need to finish their chosen programs, they must provide 
them with the clinical or externships they need as well. As previously 
noted, students who find their own spots do not need a spot offered to 
them.
    Changes: None.
    Comments: One commenter proposed that the Department amend Sec.  
668.16(r) to require institutions to disclose their placement policies 
and the services that they promise to provide and require institutions 
to provide the services promised in the disclosure.
    Discussion: We decline to adopt the suggestion by the commenter. 
Our concern here is making sure that if a student must do a clinical or 
externship to finish their program then they must be given the 
opportunity to do so. We do not think disclosures would address the 
situation sufficiently when a needed experience is not offered. We do, 
however, expect that institutions will deliver the career services they 
promise to students.
    Changes: None.

Administrative Capability--Timely Funds Disbursement (Sec.  668.16(s))

    Comments: One commenter supported Sec.  668.16(s), which requires 
institutions to disburse funds to students in a timely manner. The 
commenter also concurred with the Secretary's conditions.
    Discussion: We thank the commenter for their support.
    Changes: None.
    Comments: One commenter suggested that the condition related to 
high rates of withdrawals attributable to delays in disbursements be 
eliminated from the regulation because it is very difficult to 
implement. The commenter stated that the Department would need evidence 
that student withdrawals were specifically caused by delayed 
disbursements.
    Another commenter questioned how the Department, or an institution 
would be able to quantify what we consider to be a high rate of 
withdrawals attributable to disbursements.
    Discussion: The Department disagrees with the suggestion to remove 
this requirement. We think it is critical that students receive their 
Federal aid funds in a timely manner. If students are unable to timely 
receive the funds for which they are entitled, it can impact their 
ability to persist in their programs and can cause them to have to 
withdraw because they are unable to use their funds to pay for books, 
housing, and more. We are particularly concerned in the past that some 
institutions have held onto disbursements to manipulate their 90/10 
rates. This can be done by holding a disbursement until after the end 
of the institution's fiscal year. The Department has also seen 
instances where institutions on a reimbursement payment method hold 
disbursements to students who have a credit balance. In making a 
finding on this issue, the Department would need to establish that any 
of the conditions in paragraph (s)(1) through (4) of this section were 
occurring, including evidence that a student's withdrawal occurred due 
at least in part to delayed disbursement.
    In terms of quantifying this problem, the Department would look at 
students who are marked as withdrawn and see if they had a credit 
balance owed to them, and if so when it was paid. The Department also 
interviews students as appropriate when conducting oversight matters.
    Changes: None.
    Comments: One commenter questioned how the Department would 
determine or document how an institution has delayed a disbursement to 
pass the 90/10 ratio. The commenter pondered how the Department would 
enforce this and whether institutions would have the right to challenge 
it. The commenter believed we can simplify the rule to require all 
institutions to disburse funds 10 days before the beginning of the 
term.
    Discussion: The Department could assess whether an institution has 
delayed a disbursement to pass the 90/10 ratio by looking at the timing 
of disbursements relative to when an institution's fiscal year ends. 
Disbursements occurring just before or after the end of an 
institution's fiscal year could be a sign of manipulation, especially 
when funds that would pay for balances owed prior to the end of the 
fiscal year are disbursed in the next fiscal year. We decline to accept 
the commenter's suggestion to require disbursements 10 days before the 
beginning of the term. This change would apply to cash management 
regulations, which we did not address in this rule.
    Changes: None.
    Comments: One commenter believed that the condition when the 
Secretary is aware of multiple verified and relevant student complaints 
as stated in proposed Sec.  668.16(s)(1) could be misinterpreted to 
suggest that a complaint could cause an administrative capability 
violation if it is verified to come from a student and relevant because 
it relates to the timing of disbursements. The commenter further 
contended if a first-time student complains about the timing of a 
delayed disbursement under the Department's 30-day delay requirement 
for disbursing loans to first time students, the institution could be 
considered in violation of this proposed rule. The commenter 
recommended that Sec.  668.16(s)(1) be amended.
    Discussion: The Department agrees with the commenter that ``valid'' 
would be a better word than ``verified'' in this provision to 
accomplish the Department's goal. Using the word valid would address 
situations, like the one raised by the commenter with respect to the 
30-day loan disbursement delay for

[[Page 74619]]

first time students, where a student believes the delay in disbursement 
is not in their best interest, but the institution was complying with 
another regulatory requirement. To avoid confusion, the Department will 
change the wording of that regulatory provision.
    Changes: The Department has changed ``verified'' to ``valid'' in 
Sec.  668.16(s)(1).
    Comments: One commenter agreed that if an institution receives a 
significant number of student complaints, it is an indication that the 
institution is not disbursing funds in a timely manner.
    On the other hand, another commenter believed the primary issue of 
multiple student complaints is scale. Multiple can mean two. The 
commenter points out that two complaints at a school with 10,000 title 
IV, HEA recipients is on a different scale than 100 hundred complaints 
at a school with 1,000 recipients, however, the commenter acknowledges 
that they are equally troublesome.
    Discussion: Historically, the Department has seen that most 
institutions do not generate significant numbers of student complaints. 
This is the case even at institutions with proven instances of 
widespread misconduct. As such, we do not think simply dismissing 
complaints due to the overall scale of the institution should be 
dispositive in an administrative capability analysis. However, the 
Department will consider the number and nature of these complaints when 
determining whether there should be an administrative capability 
finding.
    Changes: None.
    Comments: One commenter proposed that the Department remove the 
condition regarding student complaints from Sec.  668.16(s). The 
commenter contended that the condition is too vague and hard to prove. 
The commenter suggested an alternative to eliminating the regulation 
would be for the Department to state that only complaints that meet all 
of the following conditions should be considered: (1) complaints that 
have been made in writing to a Federal or State agency, (2) complaints 
that remain outstanding for 120 days, following the institution's 
opportunity to resolve the complaint, and (3) complaints that are 
material and directly relate to an institution's handling of title IV, 
HEA funds. When the Department identifies complaints meeting all three 
conditions, institutions will lack administrative capability only if 
the number of those complaints exceed 5 percent of the institution's 
current enrollment.
    Discussion: We disagree with the commenter. We believe the language 
in paragraph (s)(1) of this section about valid and relevant student 
complaints captures this concept without needing to create as much 
complexity as the commenter suggests. Saying the concepts need to be 
valid captures the idea that they must be proven to be true, while 
relevant makes the connection to what we are worried about with timely 
disbursements. We do not think adopting a threshold for the number of 
complaints is appropriate because most institutions do not generate 
significant numbers of student complaints--even at institutions with 
proven instances of widespread misconduct. We note that the commenter 
did not provide a rationale for setting the threshold at five percent.
    Changes: None.
    Comments: One commenter stated that the language in Sec.  668.16(s) 
fails to recognize that institutions may have conflicting regulatory 
restrictions on the timing of disbursements, which could put a school 
in a position to choose which requirement to comply with. If an 
institution creates a disbursement schedule to align with title IV, HEA 
disbursement regulations, the commenter posited that the institution 
should be considered compliant with administrative capability 
requirements regardless of student complaints.
    Discussion: The Department disagrees with the commenter. There is 
nothing in this administrative capability standard that suggests 
institutions should not first comply with all required title IV, HEA 
disbursement rules. Student complaints about an institution's 
compliance with required disbursement rules would clearly not trigger 
this provision. What this administrative capability standard addresses 
are the situations where an institution may comply with specific 
disbursement rules, such as the 30-day delay for first time loan 
recipients, but then further delay the disbursement until a time period 
that is beneficial to the institution but harms the student. 
Establishing a compliant disbursement schedule would not itself resolve 
this problem because an institution could still unacceptably delay 
disbursements.
    Changes: None.
    Comments: Two commenters suggested that the Department remove the 
addition of Sec.  668.16(s) from the final rule since disbursing funds 
is already regulated. One of the commenters added that we already 
require funds to be disbursed during the current payment period 
according to the cash management regulations in Sec.  668.164.
    Discussion: Although the disbursement regulations in Sec.  668.164 
require institutions to disburse during the current payment period, the 
Department has determined that some institutions wait until the very 
end of a payment period to delay paying credit balances to students 
without regard to whether such policies are in students' best 
interests. In these cases, there is a direct harm to students who need 
the credit balance funds to pay for educationally related expenses such 
as books, transportation, or childcare. The delay in making the 
disbursements and paying the credit balances can cause students to 
withdraw from their educational programs.
    Existing cash management regulations only require institutions to 
disburse funds intended for a payment period at some point during that 
payment period (except in unusual circumstances). Regulations for the 
Pell Grant and campus-based programs require institutions to pay 
students during payment periods at such times and in such amounts as it 
determines will best meet the student's needs. The Direct Loan 
regulations require only that institutions disburse such funds on a 
payment period basis and, generally, in substantially equal amounts. 
The current requirements are not consistent across programs, and there 
is no clear definition in the regulations for what it means to make 
disbursements at such times and in such amounts that best meet 
students' needs for the Pell Grant and FSEOG programs. Therefore, the 
Department believes that the additional regulatory standard is 
necessary to deter unscrupulous institutional behavior with respect to 
disbursement timing and to ensure that institutions are required to 
disburse funds at times that best meet student needs for all the title 
IV, HEA programs.

Administrative Capability--Gainful Employment (Sec.  668.16(t))

    Comments: Commenters claimed the Department failed to provide 
evidence to explain why 50 percent was the proper threshold for title 
IV, HEA funds from failing GE programs or for the share of full-time-
equivalent enrollment in failing GE programs to determine that an 
institution lacks administrative capability. Other commenters argued 
that the Department should not use undefined terms like ``full-time 
equivalent'' as students may shift their enrollment statuses.
    Discussion: The Department's goal with this provision is to 
identify the point at which an institution's inability to offer 
programs that prepare students for gainful employment in a recognized

[[Page 74620]]

occupation shifts from being a program-level issue to instead represent 
a widespread issue that shows there is a more systemic problem with the 
way the institution operates.
    In the NPRM, the Department proposed a threshold based on 
enrollment and title IV, HEA revenue because we thought both were 
useful for gauging the impact of failing GE programs. However, we are 
removing the measurement based upon full-time-equivalent (FTE) students 
to address concerns raised by commenters. While looking at enrollment 
using FTE is a common practice within higher education, the way to 
convert that enrollment may not be clear. Title IV, HEA revenue can 
also to some degree capture a similar concept as presumably a student 
who undertakes a larger courseload might receive more Federal aid than 
one who takes fewer courses. Accordingly, we will only measure this 
provision in terms of title IV, HEA revenue in the final rule.
    Regarding the threshold for revenue, the Department chose 50 
percent partly because that is the point where an institution has more 
title IV, HEA revenue associated with failing GE programs than there 
are with those that are either not failing or not evaluated for 
eligibility under the GE metrics. This metric also considers the 
students who might be enrolling in a failing program but not completing 
it, and it makes sense to consider how the failing programs may be 
impacting the larger pool of students while also making the same 
comparison for students enrolling in the passing programs at the 
institution. At that point, more of the title IV, HEA funding going to 
the institution is for students enrolling in failing GE programs than 
for students enrolling in GE-programs that are consistent with 
continued participation in title IV. That is an obvious warning sign 
for the institution, and the 50-percent threshold represents a 
relatively familiar and easily understood measure that is reasonably 
related to the Department's regulatory concerns. At lower percentages 
of title IV, HEA funds at risk it is, in our judgment, relatively more 
likely the case that the issue is tied to program-specific challenges 
and a lesser threat to the institution as a whole. We must draw a line 
for this rule to be fairly clear, and we have concluded that 50 percent 
reflects a reasonable balance of considerations based on available 
information. Furthermore, in Sec.  668.16(m) the Department already 
uses a similar metric related to loan outcomes by considering an 
institution's cohort default rate.
    Changes: We have removed the threshold for at least half of an 
institution's full-time equivalent title IV, HEA recipients that are 
not enrolled in programs that are ``failing'' under subpart S in 
proposed Sec.  668.16(t)(2).
    Comments: We received many comments suggesting that the Department 
should not connect administrative capability to the number of passing 
GE programs. Commenters argued that although high numbers of failing GE 
programs may indicate an institution's financial vulnerability, it 
should not be assumed the institution is unable to administer title IV, 
HEA programs. The commenters feel that the Department has failed to 
explain how these two concepts are related. The commenters further 
stated that debt-to-earnings rates and earnings premium measures assess 
financial value, not administrative capability. One of these commenters 
asserted that the Secretary has no statutory authority to propose the 
rule since GE standards are based on program eligibility and 
administrative capability is separate from program eligibility. The 
commenters requested that we eliminate this proposal.
    Discussion: Demonstrating administrative capability means that the 
institution can show that it complies with the HEA. While it is true 
that GE operates on a programmatic basis, and it is a measure of a 
program's financial value, the Department believes that an 
institution's compliance with programmatic eligibility requirements is 
fully appropriate to review within the consideration of whether an 
institution is administratively capable of administering title IV, HEA 
aid, especially when the compliance issue affects the majority of 
Federal student aid funds received. As explained previously in this 
section, the Secretary has the authority under HEA section 487(c)(1)(B) 
to issue necessary regulations to provide reasonable standards of 
appropriate institutional capability for the administration of title 
IV, HEA programs within the parameters of requirements set out in 
specific program provisions, including any matter the Secretary deems 
necessary for the sound administration of the student aid programs. 
Institutions that participate in the Federal student aid programs must 
demonstrate that they meet administrative capability standards that 
encompass numerous program and institutional requirements. An 
institution that cannot show at least half of its title IV revenue 
comes from passing GE programs is failing to meet the requirement in 
HEA section 102 that its programs prepare students for gainful 
employment in a recognized occupations and it is failing to demonstrate 
administrative capability at the institutional level. The requirement 
is, therefore, well-connected to the administrative capability 
requirements and reflects a reasonable choice. If a majority of an 
institution's title IV, HEA funds go to students enrolling in failing 
GE programs, then that suggests institution-level deficiencies in 
administering the title IV programs.
    Changes: None.
    Comments: A number of commenters objected to the addition of GE 
criteria to the administrative capability standard. The commenters 
believed the added regulations will cause institutions to be penalized 
twice. Once under the GE rules, and again under the administrative 
capability rules. Two commenters also criticized the Department's 
proposal to connect administrative capability to GE, asserting that it 
stacks unnecessary consequences on institutions. Institutions can face 
penalties, fines, and loss of program participation, therefore lacking 
administrative capability caused by a single GE award year failure. The 
commenters argue that the GE regulations already prohibit failing 
programs from being offered which leaves no basis for administrative 
capability concerns.
    Discussion: The Department disagrees with commenters. While failing 
GE programs have their own consequences, the Department is particularly 
concerned that at the point where GE failures are this widespread that 
the issues at hand represent a more systemic issue. This is a scenario 
where an institution is at risk of losing at least half of its title 
IV, HEA revenue, which could result in an inability to meet other 
requirements and provide students with the education that they have 
promised to provide. This requirement in administrative capability thus 
draws a distinction between an institution that may have a few failing 
GE programs that do not represent a significant effect on the school 
with a more pervasive set of challenges.
    Changes: None.
    Comments: One commenter raised a concern that an institution can be 
deemed administratively incapable before being given the opportunity to 
appeal failed GE rates. The proposed administrative capability rule 
states that an institution can be incapable due to failing GE rates in 
the most recent award year; however, under the proposed GE regulation 
an institution can appeal the calculation of rates after the Department 
starts a program termination action when a program fails GE standards 
in two out of three award years. The

[[Page 74621]]

commenter requests revision of the administrative capability rule to 
state that the Department would request an institution to provide 
challenge or appeal information to the Department before initiating 
action.
    Discussion: The Department disagrees that the commenter's concern 
could occur. Institutions have opportunities to review the information 
used to calculate the GE measures at different points. As a part of the 
process for calculating the GE measures, an institution may review the 
accuracy and make corrections to the list of students identified as 
completers of the program under Sec.  668.405(b)(1)(iii). That step is 
completed before the calculations of the debt-to-earnings or earnings 
premium metrics. The program cannot be failing while that process is 
ongoing. In addition, Sec.  668.603(b) provides for an institution to 
initiate an appeal if it believes the Secretary erred in the 
calculation of a GE program's D/E rates or earnings premium measure.
    Changes: None.
    Comments: One commenter raised general concern that the addition of 
GE Programs to the administrative capability standards create a higher 
compliance standard for GE programs, and it creates needless 
distinction between GE programs and non-GE programs. The commenter 
believes that this effort to expand the extent of administrative 
capability in this way is confusing and provides minimal value to their 
students.
    Discussion: The Department disagrees. This provision is a 
straightforward situation in which an institution has a majority of its 
title IV, HEA revenue coming from programs that fail to meet the GE 
requirements. The work to comply with this provision rests in the GE 
regulations. The Department here is indicating it will take a closer 
look when an institution shows its typical title IV, HEA dollar flows 
to a failing GE program.
    Changes: None.

Administrative Capability--Misrepresentation or Aggressive Recruitment 
(Sec.  668.16(u))

    Comments: One commenter supported the proposal to discourage 
aggressive and deceptive recruitment tactics. The commenter believes 
that admissions representatives should not pretend to be employees of 
institutions when they work for third parties.
    Discussion: We appreciate the commenter's support.
    Changes: None.
    Comments: We received a number of comments requesting clarification 
of the language used in the proposed regulation. Two commenters 
questioned what is meant by aggressive recruiting. They felt it is 
unfair to require an institution to comply with something of which they 
are uncertain. Another commenter stated that the new language proposed 
in Sec.  668.16(u) is unnecessary and unwarranted because the Federal 
definition of misrepresentation was recently expanded and included in 
the July 1, 2023, Borrower Defense to Repayment regulations located in 
part 668, subpart F. One other commenter suggested that use of the term 
unreasonable should be reconsidered. The commenter believes that a 
clear definition should be provided.
    Discussion: The Department has explained these terms in part 668, 
subparts F and R, which would apply here. We believe the term 
unreasonable, which is used in part 668, subpart R, is important 
because it indicates a higher standard than just to take advantage of 
someone, which helps distinguish from common sales tactics versus what 
crosses the line into aggressive and deceptive recruitment.
    Changes: None.
    Comments: One commenter accused several institutions of falsifying 
information to improve school rankings. The commenter questions if the 
deceptive actions will be treated the same as aggressive and deceptive 
recruiting actions. The commenter also asks if the institutions will be 
sanctioned for its actions.
    Discussion: The Department cannot comment on the specific conduct 
of institutions. We would need to consider the facts specific to part 
668, subpart F.
    Changes: None.
    Comments: Two commenters recommend that the Department edit the 
proposed version of Sec.  668.16(u) to change misrepresentation to 
substantial misrepresentation. The HEA prohibits substantial 
misrepresentation. The statute permits the Department to impose a 
penalty on an institution that has engaged in substantial 
misrepresentation. The commenters state that statutory provisions do 
not allow sanctions based on non-substantial misrepresentation. It is 
noted that other regulations and guidance distinguish between 
misrepresentation and actionable substantial misrepresentation.
    Discussion: The Department agrees with the commenter for the 
reasons they raised, and we have adjusted the language accordingly.
    Changes: We have added the word ``substantial'' before 
misrepresentation in Sec.  668.16(u).
    Comments: One commenter argued that the misrepresentation rules are 
not a measure of administrative capability, and the Department has no 
authority to enforce this new standard. The commenter feels the 
Department fails to provide a valid reason for evaluating an 
institution's administrative capability so the proposal should be 
deleted from the final rule, otherwise it should be revised to state 
that only a final judicial or agency determination which establishes a 
pattern of misrepresentations can cause an institution to lack 
administrative capability. Therefore, the commenter contends the new 
language in Sec.  668.16(u) is considered unnecessary because 
misrepresentation issues are already addressed in part 668, subparts F 
and G.
    Discussion: The authority for the inclusion of this regulation is 
derived from section 498(d) of the HEA, which provides broad discretion 
to establish reasonable procedures as the Secretary determines ensure 
compliance with administrative capability required by the HEA. The 
inclusion of this in the administrative capability regulations is 
designed to align with the provisions of part 668, subparts F and R. In 
addition to being violations of the specific regulatory standards in 
subparts F and R, the Department believes that institutions engaging in 
substantial misrepresentations or aggressive recruitment show an 
impaired capability to properly administer the title IV, HEA programs. 
These activities not only harm students but also undermine the 
integrity of the title IV, HEA programs as a whole. As such, these 
activities must be reviewed, along with other factors, when determining 
if an institution is administratively capable. The Department does not 
need a final ruling on substantial misrepresentation or aggressive 
recruitment in order for it to consider these factors in an 
administrative capability analysis. Waiting for a final judicial 
determination could take a substantial amount of time and delay our 
ability to protect students and taxpayers and minimize potential harm. 
As with any other determination by the Department, an institution will 
have the ability to respond to a finding of impaired administrative 
capability and the factors related to that finding.
    Changes: None.

Certification Procedures (Sec. Sec.  668.13, 668.14, and 668.43)

General Support

    Comments: Several commenters supported the proposed certification 
procedure regulations. These commenters believe these requirements

[[Page 74622]]

will improve institutional integrity and help to protect students and 
taxpayers.
    A few commenters expressed appreciation that the proposed 
certification procedures included State consumer protection laws, the 
withholding of transcripts, and limits to title IV, HEA access.
    Discussion: We appreciate the commenters' support of these 
provisions.
    Changes: None.
    Comments: Another commenter supported the Department's proposals of 
adding criteria to enter into a PPA, requiring disclosures related to 
professional licensure requirements, adding requirements to PPAs that 
would better protect students directly, including a regulation which 
would prohibit institutions from withholding transcripts for balances 
that result from errors or wrongdoing on the part of the institution, 
and a provision which prohibits institutions from creating additional, 
unnecessary barriers to students' accessing the title IV, HEA 
assistance to which they are entitled. The commenter further encouraged 
the Department to consider requiring entities whose services directly 
lead to the recruitment and enrollment of over 50 percent of an 
institution's student enrollment to sign the PPA.
    Discussion: We appreciate the commenters' support of these 
provisions. We believe the suggestion related to recruitment is best 
considered within the issue of third-party servicer guidance and 
regulations.
    Changes: None.
    Comments: A few commenters agreed with the addition of States' 
attorneys general to the list of entities that can share information 
with each other, the Department, and other entities such as the Federal 
Trade Commission and the Consumer Financial Protection Bureau (CFPB). 
These commenters voiced that any information related to institutions' 
eligibility to participate in the title IV, HEA programs or any 
information on fraud and other violations of law would help protect 
students who are harmed by misconduct.
    Discussion: We appreciate the commenters' support of this 
provision.
    Changes: None.
    Comments: One commenter agreed that special scrutiny should be 
applied to institutions that are at risk of closure or those who 
affiliate with entities that have committed fraud or misconduct using 
title IV, HEA funds.
    Discussion: We appreciate the commenter's support of this 
provision.
    Changes: None.

General Opposition

    Comments: One commenter argued the Department already has 
sufficient oversight authority when it comes to certification and that 
these new regulations will only create unnecessary administrative 
burden. According to the commenter, it takes a lot of effort to have 
programmatic accreditation in addition to institutional accreditation. 
Other commenters stated that the proposed certification procedures 
introduce statutory concerns, and the Department is operating outside 
of its authority granted by Congress, as well as infringing on the 
authority granted to States with the provisions related to State 
licensure and certification.
    Discussion: Throughout this final rule, we sought to strike a 
balance between avoiding imposing unnecessary burden on institutions, 
and providing greater protections for students who might attend 
institutions exhibiting signs of financial struggle or that do not 
serve the students' best interest, as well as protect the taxpayer 
dollars that follow students. We believe that these final rules will 
provide that necessary protection, and any burden on institutions are 
warranted given the risks to students and taxpayers.
    We disagree with the commenters that the proposed and final 
certification procedures exceed the Department's statutory authority. 
HEA section 498 describes the Secretary's authority around 
institutional eligibility and certification procedures and includes 
provisions related to an institution's application for participation in 
title IV, HEA programs and the standards related to financial 
responsibility and administrative capability. Section 487(a) of the HEA 
requires institutions to enter into a PPA with the Secretary, and that 
agreement conditions an institution's participation in title IV 
programs on a list of requirements. Furthermore, as discussed elsewhere 
in the preamble, HEA section 487(c)(1)(B) authorizes the Secretary to 
issue regulations as may be necessary to provide reasonable standards 
of financial responsibility and appropriate institutional capability 
for the administration of title IV, HEA programs in matters not 
governed by specific program provisions, and that authorization 
includes any matter the Secretary deems necessary for the sound 
administration of the student aid programs.
    Regarding the comment that the Department is infringing on 
authorities granted to States, we disagree. As explained in the 
specific provisions related to State licensure and certification, 
requiring institutions to meet standards established by States in no 
way infringes on the rights of the states that are setting those 
standards. These regulations do not impose any additional requirements 
on States and are related to requirements for institutions. In fact, 
our regulations are intended to help States use their authority, while 
protecting students.
    Changes: None.
    Comments: Some commenters recommended the Department keep 
certification procedures as it currently stands and not implement any 
of these new regulations asserting the existing certification processes 
are adequate to determine institutional eligibility.
    Discussion: We disagree with the commenters. We believe that 
improving upon the existing regulations related to certification 
procedures is important to protect the integrity of the title IV, HEA 
programs and to protect students from predatory or abusive behaviors. 
By amending the certification procedures and adding new requirements, 
including adding new events that cause an institution to become 
provisionally certified and new requirements for provisionally 
certified institutions, these final rules address our concerns about 
institutions that have exhibited problems, but remained fully certified 
to participate in the Federal student aid program. The existing 
regulations inhibit our ability to address these problems until it is 
potentially too late to improve institutional behavior or prevent 
closures that harm students and cost taxpayers.
    Changes: None.

Removing Automatic Certification (Sec.  668.13(b)(3))

    Comments: A few commenters supported removing the automatic 
recertification provision. These commenters believe eliminating the 
automatic timeframe will give the Department greater flexibility in 
making decisions in the best interests of students and taxpayers rather 
than being forced to decide quickly.
    Discussion: We appreciate the commenters' support.
    Changes: None.
    Comments: Several commenters requested that the Department maintain 
the current regulation and automatically renew an institution's 
certification if the Department is unable to make a decision within 12 
months. Other commenters asserted that the Department did not provide 
evidence that it had granted an automatic recertification under the 
existing regulations. These commenters alleged that removing this 
provision will remove the incentive for the Department to act on 
certification

[[Page 74623]]

applications within a reasonable timeframe. These commenters also 
believed that automatic certification at the one-year mark has kept the 
Department accountable in prioritizing the processing of certification 
applications. A few commenters noted that the automatic certification 
provision reached consensus in negotiated rulemaking sessions that took 
place only a few years ago and that the provision has only been in 
place for a short period of time. Because of this they argued the 
Department needed a clearer factual basis for rescinding this provision 
than it provided.
    One commenter recommended that the Department amend language around 
approving an institution's certification renewal application if a 
determination has not been made within 12 months to specifically 
exclude those applications that the Department is actively 
investigating instead of removing the entire provision.
    Many commenters sought a collaborative approach where the 
Department and institutions work together to establish reasonable 
timelines and timely responses if the Department moves forward with 
removing the automatic recertification provision.
    Discussion: We disagree with the commenters' concern of removing 
the automatic recertification provision. As explained elsewhere in this 
preamble, while this provision received consensus approval from 
negotiators in the prior rulemaking, the Department has realized that 
imposing a time constraint on recertification negatively impacts our 
goal of program integrity. As the Department faces the first cohort of 
institutions subject to this provision, we have seen that this strict 
timeline can lead to premature decisions of whether to approve 
applications or not when there are unresolved issues that are still 
under review, which can have negative consequences on students, 
institutions, taxpayers, and the Department. In order to avoid an 
automatic recertification, the Department has had to reprioritize 
resources, such as expending extensive staff time on a school with only 
a few hundred students that exhibited significant concerns and should 
not have been recertified, when it could have been addressed over time. 
The efforts to resolve these pending applications also delays work for 
other institutions, as the most complicated cases necessitate the 
greatest amount of work. The result is that institutions that would 
have a recertification without issues can see their application delayed 
as the Department redirects resources to avoid automatically 
recertifying an institution that should not be given that treatment. 
Thus, the Department's primary concern revolves around the resources 
needed to avoid automatic recertification and not that the prior 
regulations caused it to grant automatic recertification.
    We disagree with the commenter that stated that eliminating this 
provision will remove the incentive for the Department to act on 
certification applications within a reasonable timeframe. The 
Department strives to find a balance between providing timely responses 
and making informed decisions that protect students and taxpayers from 
high-risk institutions. As noted previously, the automatic 
certification provision in the prior regulations forced the Department 
to prioritize resources in ways that were not best for properly 
overseeing the Federal aid programs. The removal of this provision 
allows the Department to act in a reasonable timeframe as it relates to 
certification applications, while maintaining our goal of program 
integrity.
    We also disagree with the commenters who believed that automatic 
certification at the one-year mark has kept the Department accountable 
in prioritizing the processing of certification applications. The prior 
regulations created situations where the Department had to prioritize 
reviews of some institutions ahead of others solely to meet this 
deadline, even if a risk-informed process that considered issues such 
as the size of the school would have dictated otherwise.
    While the presence of this provision has created challenges for the 
Department's proper oversight of the title IV, HEA programs, its 
removal does not create harm to institutions. An institution that does 
not receive a decision on its recertification application before its 
existing PPA expires maintains access to the Federal aid programs. That 
participation continues under the same terms as the PPA that expired. 
The institution's situation thus does not change, and it continues 
operating as it had been before the PPA expired.
    We do not think the suggestion for the Department to only exempt 
institutions under active investigation from this provision because it 
would create an unclear standard as to what constitutes an 
investigation and when it is still ongoing.
    We appreciate many commenters offering to work together to 
establish timelines that help reach this goal, but this is ultimately a 
question of what is appropriate for the Department in its oversight 
function. Having the Department regulate itself by creating such a 
short timeline for review of applications, unnecessarily binds our 
oversight authority. These timelines are thus best set by the 
Department, motivated by a general goal of providing responses back to 
institutions while also protecting taxpayer interests.
    Changes: None.

Events That Lead to Provisional Certification (Sec.  668.13(c)(1))

    Comments: Some commenters asserted that the proposed rule imposed 
provisional certification in circumstances that exceeded the 
Department's statutory authority. One commenter argued that the 
Department cannot provisionally certify institutions except in those 
situations explicitly defined in the HEA. This commenter argued that 
the proposed provision contradicts the HEA, which provides that an 
institution may receive a provisional certification when the Secretary 
determines that an institution has an administrative or financial 
condition that may jeopardize its ability to perform its financial 
responsibilities under a PPA.
    Another commenter argued that the new requirements in the 
certification procedures exceed statutory authority, particularly in 
conjunction with the financial responsibility triggering events. This 
commenter argued that we should remove proposed Sec.  
668.13(c)(1)(ii)(A), which says an institution becomes provisionally 
certified if it is subject to one of the financial responsibility 
triggers under Sec.  668.171(c) or (d), because it is arbitrary and 
inconsistent with the Department's proposed financial responsibility 
rules. This commenter stated that while the proposed rule authorizes 
the Secretary to provisionally certify an institution when a mandatory 
or discretionary financial responsibility trigger occurs under Sec.  
668.171(c) or (d) and the Secretary would require the institution to 
post financial protection, the commenter pointed out that the mandatory 
or discretionary financial responsibility events under Sec.  668.171(c) 
or (d) are not necessarily events that would threaten the 
administrative or financial condition of the institution so as to 
jeopardize its ability to perform its financial responsibilities under 
its PPA. This commenter argued that discretionary triggers encompass 
circumstances where no such concern would exist, including probationary 
and show cause actions in their early stages, declines in Federal 
funding that are not necessarily indicative of any financial concerns, 
pending borrower defense claims that may have no potential for

[[Page 74624]]

material adverse financial effect, and instances of State licensure 
exceptions regardless of their materiality.
    This commenter also argued that the proposed rule's requirement for 
the Secretary to obligate the institution to post financial protection 
does not constitute a determination by the Secretary that the 
institution is unable to perform its financial responsibilities under 
its PPA. This commenter is concerned that the proposed rule authorizes 
the Secretary to provisionally certify an institution without first 
determining if the institution has an administrative or financial 
condition that may jeopardize its ability to perform its financial 
responsibilities under a PPA, as required by statute. This commenter is 
troubled that although the financial responsibility rules on 
discretionary triggering events provide that the Secretary may 
determine that an institution is not able to meet its financial or 
administrative obligations if any of the discretionary triggering 
events set forth in the regulation is likely to have a significant 
adverse effect on the financial condition of the institution, the 
proposed rule in Sec.  668.13(c) states that the institution's 
certification would become provisional if the institution triggers one 
of the financial responsibility events under Sec.  668.171(d) and, as a 
result, the Secretary would require the institution to post financial 
protection. The commenter is concerned that the financial 
responsibility rules provide that the occurrence of a discretionary 
triggering event permits (but does not require) the Secretary to 
determine that an institution is unable to meet its financial or 
administrative obligations under that section, and therefore, would 
allow for provisional certification. However, the proposed 
certification rule mandates provisional certification of an 
institution, upon notification from the Secretary, if a discretionary 
triggering event occurs, provided that the Secretary also requires the 
institution to post financial protection.
    Ultimately, this commenter asserted that in both the certification 
procedures and financial responsibility rule, provisional certification 
is inconsistent and at odds with one another. This commenter stated 
that provisional certification is required when a discretionary 
triggering event occurs under the certification rules, while in the 
financial responsibility rule, it is merely permissible when a 
discretionary triggering event occurs. This commenter is worried this 
would create an unworkable regulatory scheme, would cause confusion, 
and would lead to problems with enforcement.
    Discussion: We disagree with the commenters. We discuss the 
statutory authority of the discretionary and mandatory triggers in the 
financial responsibility sections of this final rule. This includes 
explaining that discretionary triggers require a determination that the 
event would or has had a significant adverse effect on an institution, 
which addresses the concern raised by the commenter about probation and 
other events. In both cases, we assert that when the triggering 
condition results in a request for financial protection that means that 
the institution is no longer financially responsible. One effect of not 
being financially responsible is that an institution becomes 
provisionally certified. This is also outlined under Sec.  668.175, 
which discusses how institutions with a failing composite score may 
continue participating as a provisionally certified institution 
depending on the amount of financial protection they provide.
    As explained in the financial responsibility section, the events 
outlined in the financial responsibility triggers are ones that pose a 
threat to an institution's financial condition. HEA section 
498(h)(1)(B)(iii) provides the Department with the authority to 
provisionally certify an institution if it has been determined that its 
administrative or financial condition may jeopardize its ability to 
perform its financial responsibilities under a PPA. We believe those 
events meet that standard.
    Changes: None.
    Comments: One commenter did not agree with institutions being 
provisionally certified as a result of a change in ownership or merger 
because they do not believe that indicates a financial or operational 
concern. This commenter argued that institutions often change ownership 
or merge because they believe the transaction would materially improve 
or benefit their financial condition and educational operations. While 
this commenter understands the Department's desire to monitor 
institutions that undergo such transactions, they disagreed with the 
breadth of the conditions the Department would place on provisionally 
certified schools (including schools provisionally certified solely for 
having undergone a transaction).
    Discussion: We disagree with the commenters' assertion that a 
change in ownership or merger does not create a condition that warrants 
attention. Provisional certification provides an opportunity for the 
Department to oversee and more thoroughly monitor institutions. New 
owners may have little or no experience administering the title IV, HEA 
programs. Therefore, the Department must assess the institution's 
efforts and determine whether technical assistance, further oversight, 
or both are needed. As another example, provisional certification is 
particularly important when institutions have undergone a change in 
ownership and seek to convert to a nonprofit status. As explained in 
the NPRM and in this preamble, provisional certification provides the 
Department with greater ability to monitor the risks of some for-profit 
conversions, such as identifying situations in which improper benefits 
may inure to private individuals or for-profit entities following a 
change in ownership or control. Furthermore, HEA section 498(h)(b)(ii) 
explicitly provides that the Secretary may provisionally certify an 
institution if there is a complete or partial change in ownership.
    Changes: None.
    Comments: Two commenters requested the Department clarify proposed 
Sec.  668.13(c)(1)(i)(G). One commenter assumed the provision of 
subpart L applies to institutions that participate via the provisional 
certification alternative in Sec.  668.175(f), as they believed this 
would be consistent with the language in the preamble in which the 
Department describes the provision as allowing the Department to 
provisionally certify an institution if it is permitted to use the 
provisional certification alternative under subpart L. If the 
commenter's understanding is correct, they request the Department 
clarify in the final rule that institutions may be provisionally 
certified if an institution is participating under the provisional 
certification alternative in Sec.  668.175(f). This commenter brought 
this issue to the Department's attention because they believe every 
title IV, HEA participating institution is already under the provisions 
of subpart L, as subpart L contains financial responsibility 
requirements applicable to all institutions even if select provisions 
only apply to a subset of institutions.
    Another commenter recommended the Department specify that 
provisional certification may only be applied if an institution is not 
financially responsible under the provisions of subpart L.
    Discussion: We agree with the commenters. We want the ability to 
provisionally certify an institution that has jeopardized its ability 
to perform its financial responsibilities by not meeting

[[Page 74625]]

the factors of financial responsibility under subpart L or the 
standards of administrative capability under Sec.  668.16. Since an 
institution is only permitted to use the provisional certification 
alternative once these standards have been met, we will make this 
clarification in Sec.  668.13(c)(1)(i)(G).
    Changes: We have clarified that Sec.  668.13(c)(1)(i)(G) may be 
used to provisionally certify an institution if it is under the 
provisional certification alternative of subpart L.

Provisional Certification Time Limitation for Schools With Major 
Consumer Protection Issues (Sec.  668.13(c)(2)(ii))

    Comments: In response to the Department's directed question in the 
NPRM on proposed Sec.  668.13(c)(2) on whether to maintain the proposed 
two-year limit or limit eligibility to no more than three years for 
provisionally certified schools with major consumer protection issues, 
a few commenters recommend that the Department retain the two-year 
timeline as a maximum. These commenters suggested that the shorter 
duration would be better than risking an additional year of a low-
quality, provisionally certified program continuing to operate largely 
at students' expense. These commenters stated that the Department has 
historically failed students and taxpayers in adequately addressing 
institutions placed on provisional status.
    One commenter stated that the recertification process is lengthy 
and burdensome, and that the Department is likely concerned about the 
challenges a short recertification period may present to institutions 
and the Department itself. However, the commenter asked the Department 
to consider that actions against an institution are also a lengthy 
process. The commenter further explained that should the Department 
determine the consumer protection concern warrants new limitations or 
termination of eligibility it will only have extended that process. 
According to this commenter, that extension would come at the expense 
of students who would continue to enroll in the institution, using 
taxpayer-financed title IV, HEA dollars in the interim. This commenter 
encouraged the Department to accept the relatively small additional 
burden of going through another recertification process at two years or 
shorter, as appropriate, rather than forcing students to bear the 
expense and wasted time of enrolling in a program with known concerns 
without the benefit of careful Department oversight.
    Another commenter expressed concern for extending the provisional 
certification timeline to three years for institutions that have 
consumer protection issues because that would allow institutions to 
continue operating without the best interest of students and taxpayers 
in mind.
    A few commenters suggested that the Department consider whether an 
even shorter timeframe of one year might be more appropriate for 
institutions under provisional certification as a result of claims 
related to consumer protection laws. Given those consumer protection 
concerns, the commenters said the Department should pursue the most 
stringent timeline possible for reassessing provisional certification 
in the interest of enrolled students.
    Discussion: Upon consideration of the comments received, the 
Department believes a three-year limit for provisional certification is 
more appropriate. Overall, we are concerned that two years may be too 
short to gain enough information into the major consumer protection 
concerns. Moreover, this is a maximum period and there is nothing that 
prevents the Department from selecting a shorter period if it desires.
    The Department reached this conclusion after considering the 
process that goes into recertifications, including the types of 
information considered and what has been helpful to understand consumer 
protection concerns in the past. The Department seeks to review all 
available data to determine the appropriate outcome for certification 
and actions. As one commenter suggested, the Department is concerned 
with the challenges that can occur when we recertify for a short 
duration. For example, a two-year certification might not provide the 
Department with enough information to understand if a problem or 
concern has been rectified. Commonly used information sources include 
the compliance audit and financial statements that institutions submit 
annually, recent program review findings, cohort default rates, and an 
institution's policies, among other things. We review the compliance 
audit, for example, to determine whether the institution has resolved 
prior findings, particularly repeat findings. If the duration of the 
certification period is too short, the Department will not have 
adequate information to make an informed decision. In some instances, 
if the Department were to adopt a one- or two-year limitation, we could 
be required to fully certify an institution when there are still 
problems that have not been addressed, whereas provisional 
certification gives us greater ability to monitor risks and impose 
conditions on an institution.
    The Department does not consider a longer provisional certification 
period to be a way to minimize Department workload as one commenter may 
believe, nor do we consider it to be an extension for institutions to 
continue operating when there are issues. Instead, it provides the 
Department with more time to monitor an institution to determine 
whether concerns can be resolved. Furthermore, the response to the 
commenter who raised the issue of limitations or termination that the 
Department may want to impose is the same. The Department's oversight 
of institutional eligibility does not exist only when we consider a 
recertification application. We would have ample opportunities 
throughout the duration of the certification period to act if we had 
cause to do so. If the Department received information on a consumer 
protection issue, as one commenter suggested, the Department would 
evaluate that information and determine the appropriate course of 
action.
    Gathering adequate evidence to justify an adverse action--such as a 
limitation, suspension, or termination--takes time. The longer 
provisional certification duration may provide the time needed to build 
our case. Conversely, if we tried to terminate or limit eligibility 
without adequate evidence, our effort could be unsuccessful, which is 
certainly more problematic for students and taxpayers. Additionally, 
recently recertifying an institution, even provisionally, could lend 
credibility to a program that could impede on our ability to impose an 
adverse action. Finally, the Department sees the best outcome to 
provisional certification as the institution resolving our concerns. We 
would not want to limit, suspend, or terminate an institution that has 
done so.
    For the reasons above, we have decided to keep the maximum duration 
of provisional certification at three years. We note, however, that 
nothing precludes us from setting a shorter time period where we 
believe it is useful as some commenters suggested. The Department could 
impose a provisional certification for a period as short as 6 months.
    Changes: We are extending the maximum period of recertification 
from two years to three in (Sec.  668.13(c)(2)(ii)).
    Comments: A commenter said that the Department should change its 
position regarding whether a provisionally certified institution can be 
given another provisional certification when applying to continue 
participating in the Federal student aid programs. The commenter noted 
that section 498(h) of

[[Page 74626]]

the HEA does not explicitly provide for consecutive re-approvals when 
fixing a maximum time limit for provisional certification at three 
years and contended that this longstanding practice of continuing to 
issue provisional certifications was unlawful.
    Discussion: The Department disagrees with the commenter's view that 
institutions are prohibited from obtaining consecutive approvals to 
participate in the Federal student aid programs under provisional 
certification. The Department's longstanding interpretation of section 
498(h)(1)(B) of the HEA is that these three-year limits refer to the 
individual length of provisional certification. In other words, that 
institutions covered by this provision may not receive a provisional 
certification that lasts up to six years, the maximum length for fully 
certified institutions. We believe the purpose of this provision is to 
ensure that institutions in these situations are revisited on a regular 
and shorter basis than other institutions, not that it serves as a 
ticking clock toward ineligibility. We note that the process of 
requiring institutions to apply for recertification represents a 
significant safeguard since institutions with demonstrated problems can 
have the application denied, or corrective actions can be required as a 
condition of approval. Furthermore, institutions can participate under 
provisional certification with financial protections while otherwise 
demonstrating they have administrative capability to provide valuable 
programs to their students.
    Changes: None.
    Comments: One commenter stated that the timeframes for compliance 
and monitoring settlements between consumer protection agencies and 
for-profit colleges are illustrative. This commenter pointed out that 
when agencies such as the Federal Trade Commission (FTC) and State 
attorneys general reach settlements with institutions for consumer 
protection violations, they frequently require resolution of consumer 
protection violations within a short period (generally a few months) 
and then provide for compliance reporting in one year. This commenter 
stated that when the FTC entered into an agreement with DeVry 
University in 2016 regarding the FTC's charges of deceptive 
advertising, the agreement provided a four-month period for the school 
to initiate training to address the deceptive practices and imposed a 
compliance reporting requirement one year from the date of resolution. 
Similarly, the commenter suggested, the Department should require 
resolution of consumer protection violations within a short period 
(several months) and require recertification after one year.
    Discussion: While the Department understands the concerns of the 
commenters, we cannot verify that all problems have been addressed in 
such a short period of time. A year would not give us enough time to 
review compliance audits and financial statements that institutions 
submit annually, recent program review findings, cohort default rates, 
and an institution's policies, and then monitor an institution's 
progress. We note, however, that we do not only look at institutions 
during a recertification. We review each incoming audit and financial 
statement, for example, and when we do, we also look at many other 
things as part of a comprehensive compliance review.
    Changes: None.
    Comments: One commenter argued that the Department's proposal to 
end an institution's provisional certification after two years if their 
provisional status is related to substantial liabilities owed due to 
borrower defenses to repayment, false certification, or other consumer 
protection concerns violates fundamental notions of fairness, 
institutions' due process rights, and contradicts the governing 
statute. The commenter argued that provisional certification based upon 
liabilities potentially owed violates fundamental notions of fairness 
because provisional certification would be based on unproven and 
unsupported allegations. The commenter also addressed potential 
liabilities owed in connection with borrower defense by stating that 
the proposed rule violates institutions' due process rights, which are 
expressly established in the applicable borrower defense to repayment 
regulations. The commenter also stated that the borrower defense to 
repayment regulations provide for multiple layers of fact finding, 
administrative review, and adjudications in advance of any loan 
discharge or determination of institutional liabilities associated with 
borrower defense to repayment claims.
    The commenter further stated that the proposed rule is vague and 
overbroad and failed to define what a substantial liability is, how it 
is measured, or how tentative or certain a liability must be for it to 
be considered potentially owed under the regulation. This commenter 
stated that the proposed rule failed to provide institutions adequate 
notice for when a provisional certification may be subject to early 
expiration. According to this commenter, ending an institution's 
provisional certification with unproven allegations or premature facts 
is the same as ending an institution's provisional certification 
without justification. In addition, the commenter claimed that the 
proposed rule fails to define what constitutes a claim. This commenter 
questioned whether a claim would encompass any allegation that is made 
against an institution, whether formally or informally. This commenter 
specifically would like to know whether complaints made through an 
institution's complaint procedures would be considered a claim or if 
only claims that were filed in a lawsuit or an administrative 
proceeding would be considered. Further, the commenter pointed out that 
the phrasing used under consumer protection laws is also overbroad and 
vague and fails to appropriately narrow the universe of claims that may 
trigger the application of this proposed subsection of the rule.
    In addition, this commenter argued that the proposed two-year 
period is contrary to the governing statute. This commenter mentioned 
that the applicable HEA provision provides for provisional 
certification in only a few specific circumstances, and the only 
relevant circumstance articulated in the statute is when the Secretary 
determines that an institution is in an administrative or financial 
condition that may jeopardize its ability to perform its financial 
responsibilities under a PPA. This commenter claimed that the proposed 
provision contemplates that institutions will be placed on a limited 
term of provisional certification based on subjective and undefined 
criteria, particularly when the institution faces a substantial 
potential liability related to borrower defense or arising from claims 
under consumer protection laws. According to this commenter, the 
criteria in this provision are ill-defined and unrelated to whether an 
institution's financial responsibility has been jeopardized.
    Discussion: We disagree with the commenters but provide additional 
clarification as to how these provisions work that addresses their 
concerns. The HEA provides that we can provisionally certify an 
institution for no more than three years, but it does not say that the 
Department cannot provisionally certify an institution for a shorter 
amount of time. Nonetheless, as noted above, upon consideration of the 
comments received, the Department will require provisionally certified 
schools that have substantial liabilities owed or potentially owed to 
the Department for discharges related to borrower defense to repayment 
or false certification or arising from claims under consumer protection 
laws to recertify after three

[[Page 74627]]

years, and not two. This additional year will give the Department more 
time to investigate these substantial liabilities owed or potentially 
owed. We also remind commenters that this provision does not dictate 
that an institution automatically becomes ineligible by the end of that 
three-year period. It is instead designed so that the Department looks 
more frequently at institutions that are provisionally certified. It is 
thus not a penalty or some kind of adverse action.
    We also disagree with the commenter that the maximum timeline for 
provisional certification due to reasons related to substantial 
liabilities owed or potentially owed to the Department for discharges 
related to borrower defense to repayment or false certification, or 
arising from claims under consumer protection laws violates an 
institution's due process rights. Substantial liabilities owed or 
potentially owed related to the aforementioned reasons could pose a 
serious threat to the continued existence and operation of an 
institution. That threat bears directly on the statutory requirement 
that the Secretary determine whether the institution for the present 
and near future, the period for which the assessment is made, ``is able 
to meet . . . all of its financial obligations.'' 20 U.S.C. 
1098(c)(1)(C). That consideration looks not merely at obligations 
already incurred but looks as well to the ability of the institution to 
meet ``potential liabilities'' and still maintain the resources to 
``ensure against precipitous closure.'' We see no basis for the 
contention that taking into account risk posed by substantial 
liabilities owed or potentially owed somehow deprives an institution of 
its due process rights. If the risk posed is within the statutory 
mandate to assess, as we show above, taking that risk into account in 
determining whether an institution qualifies to participate in the 
title IV, HEA programs cannot deprive the institution of any 
constitutionally protected right. The institution remains free to 
respond to any claim in any way it chooses. The Department disagrees 
with the contention that we are barred from considering whether that 
risk warrants financial protection for the taxpayer as a condition for 
the continued participation by that institution in this Federal 
program. And in this instance, we would remind the commenter that a 
maximum provisional certification period does not mean that an 
institution would lose certification, rather it is the amount of time 
the Department would allow for that period of provisional 
certification. At the end of that time, the Department would choose to 
fully certify, provisionally certify, or deny the certification of the 
institution.
    The Department also provides some additional clarity around issues 
related to the breadth or what constitutes a claim under consumer 
protection. We do not believe this provision to be overbroad. This 
provision is designed to capture serious concerns raised by 
governmental bodies, similar to what we have laid out in the triggers 
for financial responsibility and the items where we are seeking 
additional reporting under Sec.  668.14(e)(10). Complaints filed by 
borrowers or students through an institutions' internal complaint 
process would not rise to that level since they have not been reviewed 
by an independent body and a determination made regarding the validity 
and seriousness of the claim. Although the internal student complaints 
may ultimately give rise to a governmental action regarding consumer 
protection violations, the Department believes that governmental action 
is necessary to trigger this provision. We disagree with commenters 
that this provision is overly broad.
    Changes: We amended Sec.  668.13(c)(2) to provide that the maximum 
time an institution with major consumer protection issues can remain 
provisionally certified is three years.

Supplementary Performance Measures (Sec.  668.13(e))

Overall
    Comments: Many commenters wrote in favor of the proposed 
supplementary performance measures. These commenters stated these 
measures would be a significant improvement and would collect valuable 
and helpful data that would improve the process of institutional 
oversight and certification. These commenters further shared that these 
measures would better protect students from investing time and money 
into programs that provide little or no value while also protecting 
taxpayer dollars. One commenter recommended the Department strengthen 
the provision further by amending it to provide that the Department 
shall, rather than may, consider the supplementary performance 
measures, which will protect students and taxpayers from investing in 
low-value programs.
    Discussion: We thank the commenters for their support. We decline 
the commenter's suggestion to change ``may'' to ``shall'' in the 
regulations. The benefit of the supplementary performance measures 
provision is that it gives the Department flexibility to consider the 
varying circumstances at each institution. We believe this language 
gives us sufficient ability to meet oversight responsibilities without 
binding the Department into taking actions that may not be warranted.
    Changes: None.
    Comments: A few commenters contended that this regulation is an 
overreach of government, and that the Department does not have the 
legal authority to adopt these measures. Several commenters insisted 
that the supplementary performance measures are not found in or are 
inconsistent with the HEA. One commenter asked what justification the 
Department has identified to establish the need to create supplementary 
performance measures. Commenters stated that HEA section 498 provides 
the requirements an institution must meet for certification including 
eligibility, accreditation, financial responsibility, and 
administrative capability. Commenters opined that the performance 
measures on the list (withdrawal rates, expenditures on instruction 
compared to recruitment, and licensure passage rates) do not relate to 
those requirements. Commenters stated these measures are arbitrary and 
are not found elsewhere in the HEA or its regulations.
    A few commenters stated that there is a statutory provision under 
20 U.S.C. 1232a that prohibits the Department from exercising control 
over expenditures on instruction. They assert that the proposed rule 
violates the statute by interfering with the normal operations of 
institutions.
    Discussion: The Department disagrees. Commenters are correct that 
HEA section 498 describes the Secretary's authority around 
institutional eligibility and certification procedures and includes 
provisions related to the required standards related to financial 
responsibility and administrative capability. Contrary to the 
commenters' suggestion, that provision provides the Department broad 
discretion in determining what factors we deem necessary for an 
institution to be deemed financially and administratively responsible 
when being certified or recertified for participation in the title IV, 
HEA programs. Additionally, HEA section 487(c)(1)(B) provides the 
Department with the authority to issue regulations as may be necessary 
to provide reasonable standards of financial responsibility and 
appropriate institutional capability for the administration of title 
IV, HEA programs in matters not governed by specific program 
provisions, and that authorization includes any matter the Secretary 
deems necessary.

[[Page 74628]]

    The supplementary performance measures in the final rule are within 
our broad authority to ensure institutions are meeting the standards 
necessary to administer the title IV, HEA programs in a manner that 
benefits students and protects taxpayer dollars. The Department has 
determined that these supplementary performance measures, which we will 
evaluate during the certification or recertification process, provide 
factual evidence that is indicative of whether an institution can 
properly administer the title IV, HEA programs. We disagree with the 
commenter who stated that such performance measures are arbitrary, not 
relevant, and are not found elsewhere in HEA or existing regulations. 
How an institution operates and administers the programs directly 
impact elements like withdrawal rate and licensure passage rate. In 
addition, these elements are identified in other places in the 
regulation. For example, the existing regulations in Sec.  
668.171(d)(5) provides a discretionary trigger for institutions with 
high annual dropout rates.
    We also disagree with the commenter who stated that 20 U.S.C. 1232a 
prohibits the Department from regulating in these areas. Considering an 
institution's spending on education and pre-enrollment expenditures as 
a part of a broad range of factors during the certification process 
does not constitute the Department exercising control over curriculum, 
program of instruction, administration, or personnel of any educational 
institution, the spending or exercising any direction, supervision, or 
control of an institution, curriculum, or its program of any of the 
provisions listed in 20 U.S.C. 1232a.
    Changes: None.
    Comments: One commenter questioned the timeframe for implementation 
of the supplementary performance measures and requested more time to 
implement these measures.
    Discussion: We disagree. Postponing implementation of these 
supplementary measures would unnecessarily delay the benefits of the 
rule. We believe the need for the transparency and accountability 
measures is too urgent to postpone any of these measures; to do so 
would abdicate our responsibility to provide effective program 
oversight. However, we note that these provisions will follow the 
master calendar requirements of the HEA and will be applied with 
recertifications or initial certifications starting after that point, 
which means this provision will phase in for institutions.
    Changes: None.
    Comments: Several commenters opined that these performance measures 
are ambiguous, vague, and subject to interpretations without specific 
measurements. The commenters stressed that any supplementary 
performance measures should be clear, specify the thresholds of 
acceptability, and detail what the ramifications would be if not met. 
These commenters stated that without this specificity, it would not be 
possible for an institution to know if it is meeting the standards.
    Discussion: We disagree with the commenter. As noted in other 
discussions in this section, these performance measures are among many 
factors that the Secretary may consider when determining whether to 
certify, or condition the participation of, an institution. When making 
this determination, the Secretary may consider the performance of the 
institution on the measures alongside all other requirements. By 
listing the measures here, we are providing greater clarity to the 
field about what indicators we are considering when deciding an 
institution's certification status.
    However, as discussed in greater detail within the relevant 
subsections in this preamble, we have elected to remove the two 
supplementary performance measures that are related to GE--debt-to-
earnings and earnings premium.\22\ We have also removed the audit 
requirement for instructional spending. Overall, these changes better 
focus on the measures we are most concerned about that are not captured 
under other provisions. We believe these remaining measures are clearer 
and the discussion in the preamble and RIA provides necessary 
information about how they would be used. The removal of the audit 
requirement related to spending on instruction versus other areas, 
meanwhile, reduces burden for institutions.
---------------------------------------------------------------------------

    \22\ These measures were listed in the NPRM as proposed Sec.  
668.13(e)(ii) and (iii). Since they were removed in this final rule, 
the remaining supplemental measures have been renumbered as Sec.  
668.13(e)(1) through (3).
---------------------------------------------------------------------------

    Changes: We have amended Sec.  668.13(e) by removing two 
supplementary performance measures, listed in the NPRM as paragraphs 
(e)(ii) and (iii), that are related to GE-debt-to-earnings and earnings 
premium. We also removed the audit requirement for instructional 
spending listed in the NPRM as paragraph (e)(iv) and renumbered in the 
final rule as Sec.  668.13(e)(2).
    Comments: One commenter expressed concerns about the list of 
supplementary performance measures that institutions would have to 
comply with. This commenter worried that these requirements would cause 
institutions to close and lead to areas completely lacking certain 
types of available schools. Another commenter stated that the proposed 
supplementary measures do not provide more protections for the student 
than what is currently offered.
    Discussion: We disagree with the commenter. The supplementary 
performance measures are a signal to the field about the kind of 
information the Department will take into account as we review 
applications from institutions for certification or recertification. 
The Department will carefully review these applications to determine 
how concerning the results are of these different measures. We believe 
these measures are strong indicators of how well an institution is 
providing educational programs, and how the use of them will protect 
students. The measures listed in this section identify considerations 
that are of the utmost importance to both students and taxpayers when 
evaluating an institution's performance. These are whether students 
will finish (the withdrawal rate), what kind of investment will the 
institution make in them for their money (the instructional spending 
test), and will students be able to get the jobs they prepared for (the 
licensure pass rate). Institutions that regularly struggle on each or 
every one of these measures merit a closer look at how they should be 
certified to participate in the title IV, HEA programs.
    We also disagree with the commenters and believe the measures do 
not create substantial burden for institutions to be in compliance. We 
note that these performance measures are among many factors that the 
Secretary may consider when determining whether to certify, or 
condition the participation of, an institution. They will also go into 
effect under the requirements of the master calendar and apply to 
certifications that begin after the effective date of the regulations, 
which will result in a phase-in for institutions. Finally, two of the 
five supplemental measures presented in the proposed rules will be 
removed in the final rule, as well as the auditing requirement in the 
instructional spending measure, further reducing burden to 
institutions. These are discussed in greater detail in the subsection 
of this part of the preamble related to these measures.
    Changes: None.
    Comments: One commenter requested that the supplementary 
performance measures regulation be modified to state that the 
Department would consider punitive action if two or more of the

[[Page 74629]]

measures were problematic instead of any one of the five measures.
    Discussion: The Department does not take punitive actions. We only 
take administrative action to protect students and taxpayers. As noted 
in other discussions in this section, these performance measures are 
among many factors that the Secretary may consider when determining 
whether to certify, or condition the participation of, an institution. 
We do not think the suggested modification would be appropriate. For 
instance, an institution with low withdrawal rates and a high share of 
spending on education and related expenses that has horrendous job 
placement rates that cover most of their students merits a closer look.
    Changes: None.
    Comments: Other commenters shared that the five proposed measures 
are not adequately defined in the supplementary performance measures 
regulatory text. These commenters stressed that these measures must be 
defined to provide meaningful and valid performance metrics.
    Discussion: We disagree with the commenters. First, we have removed 
the debt-to-earnings rates and earnings premium measure from the 
supplementary performance measures. The remaining measures are common 
areas with which institutions are familiar. For example, the withdrawal 
rate measure is of the percentage of students who withdraw from the 
institution within 100 percent or 150 percent of the published length 
of the program, aligning with the reporting requirements for the 
College Navigator as required by section 132(i) of the HEA. 
Institutions report spending across many categories annually in the 
Integrated Postsecondary Education Data System (IPEDS) Finance Survey 
in accordance with the appropriate accounting standards. The Department 
provides detailed instructions for institutions in the survey materials 
each year that outline how institutions report various expenses. 
Lastly, licensure passage rates are a common calculation made for 
programs that are designed to meet the requirements for a specific 
professional license or certification required for employment in an 
occupation.
    Changes: None.
    Comments: Several commenters stated that the supplementary 
performance measures are redundant because all regional accreditors 
routinely evaluate and set acceptable measures for education spending, 
graduation rates, and placement rates. These commenters expressed that 
any new rules would create unnecessary burden on institutions.
    Discussion: We disagree with the commenters. As explained in other 
discussions in this section, these are common measures with which 
institutions are familiar. Furthermore, accrediting agencies vary in 
their standards and even in the calculations used when they evaluate an 
institution for accrediting purposes. We believe it is important for 
the Department to consider these measures as part of the determination 
of certifying or conditioning an institution's participation.
    Changes: None.
    Comments: Many commenters expressed concern about the other 
information the Secretary may consider in the supplementary performance 
measures. These commenters stated that institutions should be clear on 
what information the Secretary may consider when deciding whether to 
grant or qualify institutional or program eligibility. Other commenters 
said that the list of supplementary measures should be finite so 
institutions have notice of what the Department will consider during 
recertification.
    Discussion: The final Sec.  668.13(e) lists three measurable items 
or aspects useful in recognizing a program or institution's overall 
effectiveness with regard to title IV, HEA administration. We decline 
to adopt an exhaustive list of measures for determining whether to 
certify or condition the participation of an institution under Sec.  
668.13(e). Conducting proper oversight requires the Department to 
carefully review institutions, including if they have unique 
circumstances that merit a closer look. Listing these three measures is 
important because it clarifies what institutions can expect the 
Department to consider. We think an exhaustive list would constrain the 
Department's ability to engage in sufficient oversight.
    Changes: None.
    Comments: One commenter argued that the supplementary performance 
measures in the proposed rules will have a disproportionate effect on 
schools with many first-generation college students in which over half 
are Pell Grant recipients. The commenter stated that the proposed 
regulation overlooks the reality that certain vital professions offer 
lower salaries, and many students pursue degrees without expecting 
immediate financial gains. This commenter noted that they would prefer 
to see policies and rules that support and commend individuals who 
chose careers in teaching, both at elementary and secondary levels, as 
well as other public service-oriented fields, recognizing that 
financial rewards may not be as substantial. Therefore, the commenter 
stressed that labeling programs as failing based on the income of 
recent graduates compared to those who have been out of high school for 
over ten years, or because they don't meet the debt-to-earnings ratio, 
diminishes the true worth of higher education to just immediate 
earnings. The commenter shared that such perspective poses a 
significant risk, particularly to first-generation students and that 
imposing these requirements as part of the PPA could potentially lead 
to the termination of certain programs due to the GE data requirements.
    Discussion: As discussed in greater detail in the relevant 
subsection, we have removed the debt-to-earnings rates and earnings 
premium measure from the supplementary performance measures. The 
commenter's concerns are thus no longer relevant for this section.
    Changes: We have removed the supplementary performance measures 
related to debt-to-earnings rates and earning premium measures of 
programs from Sec.  668.13(e).
    Comments: One commenter argued that the Secretary already has 
regulatory powers and processes that enable the Department to address 
concerns in these areas and, therefore, the supplementary performance 
measures proposed rules are redundant and unnecessary.
    Discussion: We agree that the Secretary already has this regulatory 
authority. However, we see value in highlighting that the Department 
will look at these measures when reviewing an institution's 
certification. As noted earlier, this is not an exhaustive list of 
measures, which reflects the Secretary's broader authority.
    Changes: None.
Withdrawal Rate Measure (Proposed Sec.  668.13(e)(i), Renumbered as 
Sec.  668.13(e)(1) in the Final Rule)
    Comments: One commenter noted that the Department is advantaging 
traditional, highly selective universities in the withdrawal 
calculation. The commenter writes that risk factors for withdrawal are 
more present among non-traditional students who attend adult-serving 
institutions. The commenter recommends removing withdrawal rate from 
the list of supplementary performance measures.
    Discussion: We disagree with the commenter. While we recognize that 
an institution's resources contribute to their ability to support their 
students, we believe this measure neither advantages nor harms specific 
types of institutions. Like the high dropout rate

[[Page 74630]]

trigger in the financial responsibility regulations in Sec.  
668.171(d)(4), we will consider this measure among many factors when 
reviewing an institution. We decline to remove this provision because 
we believe that high withdrawal rates can indicate substantial problems 
at an institution, particularly when there are other concerns that may 
be related.
    Changes: None.
Debt-to-Earnings Ratio and Earnings Premium Measure (Proposed Sec.  
668.13(e)(ii-iii), Now Removed in the Final Rule)
    Comments: Two commenters expressed concern that the Department is 
using inaccurate income data to calculate GE failure. These commenters 
worry that since earnings data are tied to failing GE programs, 
certification procedures will be negatively impacted through the set 
enforcement authority. Another commenter believed that the debt-to-
earnings ratio and Earnings Premium measure fail to accurately indicate 
the quality of a cosmetology institution. The commenter stressed that 
the current Sec.  668.13 is adequate for institutional eligibility 
purposes. One commenter emphasized that the Department had stated it 
had no intention, nor authority, to apply the GE framework to non-GE 
programs. The commenter shared that this proposed language could be 
used to determine institutional eligibility on GE metrics for both GE 
and non-GE programs. The commenter further shared that we did not 
discuss this approach during negotiations for non-GE programs. The same 
commenter shared that if debt-to-earnings ratio and an earnings premium 
measure were calculated for all programs at all institutions and used 
as a supplementary performance measure, the Department would be 
applying the GE rules to institutional eligibility by using those GE 
metrics to approve or recertify an institution's PPA or place them on 
provisional approval status, even if the institution had no GE 
programs, or if only its non-GE programs were failing the GE metrics.
    Discussion: Upon review by the commenters, we have decided to 
remove the two indicators related to GE, which were in proposed Sec.  
668.13(e)(ii) and (iii). While we think these measures do provide 
important information about schools, we are persuaded that their 
inclusion here creates confusion about how they interact with the 
regulations included in a separate final rule related to GE and 
financial value transparency (88 FR 70004). Similarly, there are 
already criteria related to administrative capability and financial 
responsibility for having 50 percent or more of an institution's title 
IV, HEA revenue coming from failing GE programs in Sec. Sec.  
668.171(c)(2)(iii) and 668.16(t), respectively. We think it is better 
to preserve those clearer measures. We refer commenters to the 
discussion of those metrics and their integrity in the separate final 
rule related to GE. The removal of the GE measures from this section 
addresses the concerns for this provision.
    Changes: We have removed the supplementary performance measures 
related to debt-to-earnings rates and earning premium measures of 
programs from Sec.  668.13(e).
Educational and Pre-Enrollment Expenditures (Proposed Sec.  
668.13(e)(iv), Renumbered as Sec.  668.13(e)(2) in the Final Rule)
    Comments: A few commenters opined that the supplementary 
performance measures rules regarding educational spending place 
institutions who educate low-income students and have fewer resources 
at a disadvantage. The commenter stated that education spending, 
instruction, and academic support are not defined with precision, 
leaving institutions unsure about applicability and usage.
    Discussion: We disagree with the commenters but recognize there may 
be confusion about what this measure considers that we want to clarify. 
This performance measure does not consider an institution's absolute 
levels of spending. Rather, the Department wants to look at relative 
prioritization of spending on instruction and instructional activities, 
academic support, and support services compared to the amounts spent on 
recruiting, advertising, and other pre-enrollment expenditures. We 
recognize that the amount of money available for institutions to spend 
on educating their students will vary based upon their relative 
affluence, endowment resources, State investment, and other factors. 
However, we are concerned about institutions that devote a 
comparatively small share of their spending to core educational 
activities and instead devote more to getting students to enroll.
    To clarify this issue, we have adjusted the text of proposed Sec.  
668.13(e)(iv) (renumbered Sec.  668.13(e)(2)) in the final rule) to 
include the words ``compared to'' instead of ``and'' when referring to 
the amounts spent on recruiting, advertising, and other pre-enrollment 
expenditures.
    The Department, however, affirms the importance of this measure. It 
is a well-known concept that budgetary prioritization shows overall 
priorities. To that end, we are worried about institutions that 
prioritize enrolling students over academic related expenditures.
    We also disagree with commenters' assertion that amounts spent on 
instruction and instructional activities, academic support, and student 
services are not well defined. As explained elsewhere in this preamble, 
institutions report educational spending across the categories listed 
in the measure annually in the IPEDS Finance Survey in accordance with 
the appropriate accounting standards. The Department provides detailed 
instructions for institutions in the survey materials each year.
    Changes: We have clarified that the spending levels in proposed 
Sec.  668.13(e)(iv), renumbered Sec.  668.13(e)(2) in the final rule, 
are relative to one another.
    Comments: One commenter stated that the instructional expense 
category in the proposed supplementary performance measures is not 
relevant or well-suited to distance education programs. This commenter 
opined that the learning and teaching experience in online programs may 
not solely be composed of activities conducted by the teaching faculty, 
but may also involve course and curriculum designers, support 
instructors, faculty mentors, and staff who are otherwise qualified in 
student engagement and instruction, as well as utilization of online 
library, tutorial, and interactive learning resources.
    Discussion: We agree that there are important activities that 
contribute to students' instruction outside of those provided by 
teaching faculty, not only for distance education programs but for many 
programs and institutions. However, we note that this measure considers 
more than just instruction, including academic support and support 
services. As explained elsewhere in this preamble, institutions report 
spending across these categories annually in the IPEDS Finance Survey 
in accordance with the appropriate accounting standards and the 
Department provides detailed instructions for institutions in the 
survey materials each year. In these instructions, the various kinds of 
activities mentioned by the commenter are captured across the 
categories of spending.
    Changes: None.
    Comments: As discussed in the financial responsibility section 
related to Sec.  668.23, commenters raised concerns about the reference 
to disclosures in the audited financial statements of the

[[Page 74631]]

amounts spent on academically related and pre-enrollment activities 
that is included in Sec.  668.13(e)(iv).
    Discussion: We agree with the commenters that the provision in 
Sec.  668.23 could be overly confusing, especially considering that the 
Department can also obtain this information from IPEDS. Accordingly, we 
have deleted the provision related to the audit disclosure in Sec.  
668.23 and have removed it from proposed Sec.  668.13(e)(iv), 
renumbered Sec.  668.13(e)(2) in the final rule as well.
    Changes: We have deleted ``as provided through a disclosure in the 
audited financial statements required under Sec.  668.23(d)'' from 
proposed Sec.  668.13(e)(iv), renumbered Sec.  668.13(e)(2) in the 
final rule.
    Comments: One commenter stated the proposed supplementary 
performance measure of resources spent on marketing and recruitment 
would not show if an institution were financially unstable. The 
commenter further stated that smaller and non-traditional institutions 
do not have the ability to rely on name recognition like larger more 
well-known institutions. The commenter concluded that the Department's 
proposed supplementary performance measure may disadvantage non-elite 
and non-traditional institutions that must advertise heavily to 
survive.
    Discussion: We disagree with the commenters. As stated above, this 
performance measure provides important insight into how an institution 
spends their resources, regardless of institutional size, traditional 
adherence, or prestige. As explained elsewhere in this rule, we note 
that this is not a measure of the total dollars spent, but rather a 
consideration of how an institution allocates its funds in the context 
of their budget. We feel strongly that this supplemental measure is 
relevant, applicable, and useful in determining any participating 
institution's performance.
    Changes: None.
    Comments: Another commenter stated that the negotiated rulemaking 
process did not involve the type of substantive consideration of 
institutional budgeting, strategic planning, and enrollment management 
that would be required to consider whether the educational and pre-
enrollment spending supplemental performance measure is appropriate 
and, if so, which ratios or thresholds would be fair to various sectors 
of postsecondary education. The commenter recommended the Department 
complete additional research while involving stakeholders, define 
expenditure categories sufficiently, and allow for temporary changes in 
expenditures.
    Discussion: We disagree with the commenters. We discussed this 
issue during negotiated rulemaking and although we did not reach 
consensus, we considered those discussions when writing our NPRM. In 
response to the NPRM, we received comments from more than 7,500 
individuals and entities, including many detailed and lengthy comments. 
We note that we are not establishing a single bright-line standard. We 
recognize there will be variation in institutional budgeting priorities 
that we should consider during the review process. As discussed, with 
the removal of the audit component from this language, the Department 
will likely rely upon the IPEDS data in reviewing this issue. The 
National Center for Education Statistics within the Institute of 
Education Sciences has responsibility for the IPEDS finance survey 
where these data are reported. It has its own process for updating that 
survey as needed.
    Changes: None.
Licensure Pass Rates (Proposed Sec.  668.13(e)(v), Renumbered Sec.  
668.13(e)(3) in the Final Rule)
    Comments: Several commenters wrote that the definition of licensure 
pass rates is vague and asked the Department to clarify the scope and 
implications for institutions.
    Discussion: As with other supplementary performance measures in 
proposed Sec.  668.13(e)(v) (renumbered Sec.  668.13(e)(3) in the final 
rule), we decline to set a specific threshold for this measure. It 
would be inappropriate to set a threshold in this context because, as 
we have said previously, these measures are ones we will consider among 
many factors when determining whether to certify, or condition the 
participation of, an institution.
    However, we believe the concept of licensure pass rates itself is 
not vague. These would be considered for programs that are designed to 
lead to licensure in a State and would involve looking at the rate at 
which the students from that institution obtain their license, 
including through the passage of necessary licensing tests. This is 
information readily available to institutions and commonly required by 
institutional and programmatic accreditors.
    Changes: None.
    Comments: Many commenters supported the inclusion of this 
provision. For example, one commenter thanked the Department for this 
addition, saying it would bring added protections for students and 
taxpayers as the Department currently has little requirements for 
programs designed to lead to licensure and no ability to hold 
institutions accountable for low passage rates.
    Discussion: We thank the commenters for their support.
    Changes: None.

Signature Requirements for PPAs (Sec.  668.14(a)(3))

    Comments: A few commenters supported adding the PPA signature 
requirement for entities with ownership or control over a for-profit or 
private nonprofit institution. One commenter believed it would remind 
institutions and their principals that the Department has the authority 
to recover unpaid liabilities from controlling entities and 
individuals. One commenter suggested that this reminder may deter 
misconduct and help to prevent unwarranted legal challenges to the 
Department's efforts to pursue redress for liabilities. Another 
commenter supported this provision because it expanded on a policy 
previously outlined in Departmental guidance. This commenter asserted 
that these signature requirements would offer a common-sense protection 
to ensure that the Department is able to recoup liabilities from the 
institution and the company that owns it, as applicable.
    One commenter stated that taxpayers should not have to foot the 
bill due to fraud and mismanagement committed by owners and executives 
of for-profit colleges. This commenter argued that in the same way the 
Department has forgiven student debt for borrower defense claims that 
have indicated widespread fraud, such as the Department's recent loan 
discharges for former students of institutions like Corinthian Colleges 
and Marinello Beauty Schools, the Department should also hold companies 
and executives accountable for their fraud. This commenter claimed that 
failing to hold highly compensated executives accountable for fraud and 
mismanagement incentivizes repeat bad behavior. According to this 
commenter, without a significant change in approach from the 
Department, executives can act with impunity, knowing they will walk 
away with millions in compensation and leave taxpayers responsible for 
the financial harm they have caused. This commenter noted that given 
the amount of money involved, it is unlikely that the Department would 
recover more than a fraction of the liabilities, but this proposed 
provision will hold

[[Page 74632]]

individuals accountable and disincentivize the worst types of behavior 
and preemptively protect students from being harmed.
    Discussion: We appreciate the commenters' support of this 
provision.
    Changes: None.
    Comments: Many commenters believed we do not have the statutory 
authority to require financial guarantees from entities in Sec.  
668.14(a)(3)(ii). These commenters believed the proposed language is 
vague, unlawful, and contradicts the purpose of the HEA. These 
commenters also contended that the Department's authority to require 
financial guarantees from owners derives from HEA section 498(e), which 
provides the Secretary the authority to require financial guarantees 
from an institution, which includes the corporation or partnership 
itself as well individuals who exercise substantial control over that 
institution. However, these commenters argued that this authority does 
not extend to other entities, whether it be a parent or holding 
company.
    Discussion: We disagree with the commenters. The HEA speaks to 
clear limitations for the imposition of personal liabilities on owners. 
The specific authority for requiring personal signatures from owners, 
and the specific parameters of such authority, is necessary in the HEA 
given that general corporate law otherwise places even more restrictive 
conditions on when it is possible to pierce the corporate veil. By 
contrast, the HEA does not include any similar limitation on when the 
Department may obtain additional protection from corporate entities. It 
does not provide any similar limitations the way it does for 
individuals. Furthermore, HEA section 498(e)(1)(A) (20 U.S.C. 
1099c(e)(1)(A)) outlines the Secretary's authority to require financial 
guarantees from institutions or individuals who exercise substantial 
control over an institution. Although HEA section 498(e) specifically 
addresses individual signatures and does not explicitly address entity 
signatures, HEA section 498(e)(2)(B) provides that the ``Secretary may 
determine that an entity exercises substantial control over one or more 
institutions'' where the entity ``directly or indirectly holds a 
substantial ownership interest in the institution.'' As institutional 
ownership has grown exceedingly more complex, the Department has 
determined that as a matter of prudent stewardship of Federal funds, 
the entities that directly and indirectly own or control institutions 
should assume responsibility for the institution's obligations under 
the participation agreement. Without the signature of the owner 
entities, the Department can face significant legal hurdles in 
attempting to collect unsatisfied liabilities, since corporations and 
similar entities are used to insulate higher level entities or 
individual owners from liability.
    We also disagree with the commenter that the language of Sec.  
668.14(a)(3)(ii) is vague as it describes the institutions, the type of 
ownership of the authorized representative of an entity and includes 
four examples of circumstances in which an entity has such power.
    Changes: None.
    Comments: One commenter said that the PPA signature requirement 
will cause mass departures of vital employees from postsecondary 
institutions. The commenter asserted that individuals in business 
should not be held personally liable for unintended mistakes or 
mismanagement any more than government employees should be held 
responsible for misjudgments and errors that potentially create 
additional costs for taxpayers.
    Discussion: The commenter is confusing signatures on behalf of an 
entity versus one in a personal capacity. This regulation is not 
addressing when the Department requests signatures in a personal 
capacity, which is limited under the HEA to certain conditions. This is 
addressing signatures on behalf of the entities that own institutions, 
including higher levels of ownership. If an entity can profit from or 
control an institution while times are good, it is prudent that they 
also accept liability if it cannot be covered by that same institution. 
Entity owners of institutions that do not incur liabilities will not 
face any effects from this provision.
    Changes: None.
    Comments: One commenter stated that the language in Sec.  
668.14(a)(3) failed to define what is meant by the power to exercise 
control. According to this commenter, the absence of definitional 
language and the fact that the proposed language only includes examples 
indicates that the proposed rule merely provides a non-exhaustive list. 
This commenter is concerned that the Secretary might consider an entity 
to have requisite power and require one of its authorized 
representatives to sign the PPA, which opens the door for other, 
undefined scenarios. This commenter observed that the proposed rule 
does not provide any information regarding what constitutes the ability 
to block a significant action under Sec.  668.14(a)(3)(ii)(B), making 
the regulation too vague to guess its meaning and application. The 
commenter concluded that this proposed rule fails to put institutions 
on notice for when additional signatures are required for a PPA and 
fails to provide adequate guidance. This commenter disagrees with the 
Department's rationale for this provision, specifically that this 
provision would help maintain integrity and accountability around 
Federal dollars. The commenter pointed out that several statutory and 
regulatory financial protections already exist to minimize the risk of 
financial losses that the Federal Government might incur. This 
commenter asserted that these protections are specifically designed to 
ensure that an institution receiving title IV, HEA funds can repay its 
debts and are more effective than a rule that requires other entities 
to sign an institution's PPA. For example, the commenter cited 20 
U.S.C. 1099c(c) and the financial responsibility standards as examples 
where the Department has already imposed mechanisms to ensure the 
financial viability of institutions and, more broadly, entities. The 
commenter concluded that proposed Sec.  668.14(a)(3) is arbitrary, 
contradicts the HEA's purpose, and urged the Department to remove it 
from the final rule.
    Discussion: We affirm the importance of this provision and decline 
to remove it. HEA section 498(e)(3) (20 U.S.C. 1099c(e)(3)) provides an 
expressly non-exhaustive list of what is an ownership interest.
    As discussed throughout the NPRM and this final rule, the 
Department is concerned about the significant unpaid liabilities that 
have accrued over years as institutions close with little to no warning 
or engage in misconduct that results in approved borrower defense to 
repayment discharges. In several of these situations, an additional 
corporate entity could have helped offset some of these losses, but the 
Department could not seek repayment from them because they had not 
signed the PPA. This provision works together with the financial 
responsibility requirements to ensure that the Department and in turn 
taxpayers are better protected from uncompensated losses.
    Regarding the comments about the lack of a definition of what it 
means to exercise control, we point commenters to Sec. Sec.  
600.21(a)(6)(ii) and 600.31, which provide definitions and discussions 
of what it means to exercise control. As to the issue of the power to 
block a significant action, the Department generally considers those to 
be the types of actions described in operating agreements, articles of 
organization or bylaws as needing consent by a

[[Page 74633]]

shareholder or group of shareholders to be approved.
    Changes: None.
    Comments: A few commenters declared that our proposal to require 
entities to sign PPAs would likely discourage other entities from 
investing or from sustaining existing investments in institutions of 
higher education. One commenter claimed that while there are certainly 
smaller mom and pop institutions, owning and operating a higher 
education institution or group of institutions is a complex and 
expensive endeavor that requires substantial resources. Some commenters 
stated that reducing outside investment would harm institutions, deter 
their operations and growth, and hinder their ability to serve students 
and provide a variety of programs. Consequently, these commenters 
alleged that the rule could result in the unanticipated closure of 
institutions, thereby causing students to have fewer educational 
options and limiting accessibility, in contravention to the purposes in 
the HEA.
    Several other commenters noted that the proposed signature 
requirement would be overly burdensome and unnecessary for institutions 
to comply with.
    Discussion: The Department is not persuaded by the arguments about 
the chilling effect on outside investors. If a party wants to take a 
position of direct or indirect control in a school, it should be 
willing to assume responsibility for the institution's participation in 
the title IV, HEA programs. As to the hypothetical investor, if the 
investor is worried about potential liabilities related to an 
institution, that may indicate that the institution's ongoing 
participation poses a risk to the government.
    Similarly, we do not believe these requirements would provide undue 
amounts of burden. In March 2022, the Department published an 
electronic announcement updating our signature requirements and has 
been seeking entity signatures under that announcement.\23\ We have 
found that process to be reasonable and manageable. When burden arises 
under this provision it has largely not been due to the complexity of 
the act of providing a signature but rather entities arguing about 
whether they should have to comply.
---------------------------------------------------------------------------

    \23\ https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2022-03-23/updated-program-participation-agreement-signature-requirements-entities-exercising-substantial-control-over-non-public-institutions-higher-education.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters expressed concern with proposed Sec.  
668.14(a)(3) and argued that although the HEA allows the Secretary to 
determine if an entity exercises substantial control over the 
institution, the HEA does not provide the Department the statutory 
authority to require a financial guarantee from a legal entity. These 
commenters reasoned that Congress intentionally excluded language that 
imposed financial guarantees on entities when they discussed both 
individuals and entities in HEA section 498(e) and that the final rule 
should thus remove mention of signatures from entities.
    In addition, these commenters also maintained that non-profit and 
public institutions are not subject to HEA section 498(e) because they 
do not have owners. These commenters claimed that the leadership 
structure in these institutions is not the same as the kind of owners 
Congress contemplated in the 1992 amendments to the HEA. In making this 
point, these commenters namely pointed a Congressional hearing 
discussing proprietary school owners who, ``when schools close or 
otherwise fail to meet their financial responsibilities'' ``escape with 
large profits while the taxpayer and student are left to pay the 
bill.'' \24\
---------------------------------------------------------------------------

    \24\ Hearings on the Reauthorization of the Higher Education Act 
of 1965: Program Integrity, Hearings Before the Subcommittee on 
Postsecondary Education of the Committee on Education and Labor, 
House of Representatives, 102nd Congress, First Session (May 21, 29, 
and 30, 1991).
---------------------------------------------------------------------------

    If the Department decides to move forward with a co-signature 
requirement, these commenters suggest that the final regulation, at 
minimum, be amended to meet the requirements under HEA section 
498(e)(4). According to these commenters, the Department cannot impose 
financial guarantee obligations on an institution that has met the four 
criteria outlined under HEA section 498(e)(4), subparagraphs (A)-(D).
    One commenter also expressed concern that it would be unclear 
whether faith-based organizations providing financial support to an 
institution would represent substantial control as defined by the 
Department. The commenter was concerned that many faith-based 
institutions, who were formed by religious denominations, have clergy 
and other religious leaders in authoritative roles that could be 
considered liable under the proposed rule. Thes commenter emphasized 
that the HEA does not give any indication that these types of religious 
leaders should be considered owners and be held personally liable. The 
commenter also contended that faith-based institutions do not have 
private shareholders or individuals that escape with large profits as 
proprietary owners do.
    Discussion: First, the provisions in this final rule are not 
related to the imposition of personal liability on individuals. The 
Department also acknowledges that nonprofit entities, including many 
faith-based organizations, do not have shareholders that are entitled 
to profit distributions. However, we disagree that the HEA restricts 
the Department from requiring an entity or entities that own a 
nonprofit institution from assuming liability for that institution's 
obligations by signing the participation agreement. All nonprofit 
institutions are owned and operated by one or more legal entities. 
Those legal entities are organized under State law, typically as 
nonprofit, nonstock (or public benefit) corporations or limited 
liability companies. The commenter cites the Congressional hearing on 
HEA 498(e) for the proposition that the entity owner signature 
requirement cannot apply to nonprofit institutions. First, that 
statutory provision provides the Department with the authority to seek 
individual signatures, and the limitations on that authority. The 
commenter apparently seeks to use the statements of the Department's 
Inspector General during that hearing to argue that the entity 
signature requirement should be limited to proprietary schools.
    Although the Inspector General explained that the motivation for 
the proposal was based on an investigation of proprietary schools, the 
Inspector General nevertheless agreed that the individual signature 
requirement should not be limited to proprietary schools.\25\ The 
language of section 498(e) contains no such limitation, and instead 
refers to ``an institution participating, or seeking to participate, in 
a program under this title.''
---------------------------------------------------------------------------

    \25\ Hearings on the Reauthorization of the Higher Education Act 
of 1965: Program Integrity, Hearings Before the Subcommittee on 
Postsecondary Education of the Committee on Education and Labor, 
House of Representatives, 102nd Congress, First Session, May 21, 29, 
and 30, 1991, p.313-314.
---------------------------------------------------------------------------

    As already discussed in this section, the HEA places specific 
limitations on requiring individual people from assuming personal 
liability or personal guarantees out of recognition that it is a 
significant step for the Department to take. Those limitations are 
outlined in section 498(e)(4)(A)-(D). However, the HEA does not 
restrict the Department from requiring signatures on behalf of 
corporations or other entities that

[[Page 74634]]

exercise substantial control over an institution. Requiring signatures 
from owner entities allows the Department to ensure that owners are not 
using multiple layers of corporate entities to shield resources from 
repayment actions if liabilities are established and the institution 
does not satisfy them. If Congress had wanted to restrict the 
Department's ability to require an entity owner to sign the 
participation agreement, it would have said so, just as it limited the 
circumstances in which the Department can require an individual to 
assume personal liability or provide a financial guaranty. In fact, the 
statutory language governing program participation agreements in 
section 487 of the HEA references the definitions in section 498(e) of 
the HEA and refers to individuals and entities separately. Moreover, 
when Congress added the individual signature provision, the original 
House version of the bill did not include the limitation on the 
circumstances where individuals would not be required to assume 
liability, but it was added in conference. As the conference report 
states, ``The conference substitute incorporates this provision with an 
amendment providing a set of conditions under which the Secretary 
cannot require financial guarantees and clarifies that the Secretary 
may use his authority to the extent necessary to protect the financial 
interest of the United States.'' \26\ Since Congress did not restrict 
the Department's ability further and gave the Secretary broad 
authority, we do not think it would be appropriate to limit entity 
signatures in the manner that Congress set forth for assumption of 
personal liability in the HEA.
---------------------------------------------------------------------------

    \26\ H. Rep. 102-630.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter expressed frustration that States and 
accrediting agencies are not being held financially accountable for the 
costs of their failed consumer protection and negligent oversight of 
school quality. This commenter explained that Federal taxpayers are 
incurring billions of dollars in loan discharge costs because States 
and accrediting agencies have failed to provide meaningful oversight of 
educational quality and argued that they do not have any incentive to 
do better. This commenter argued that after incurring billions in loan 
discharge costs, the Department has a compelling reason to hold States 
and accrediting agencies accountable as gatekeepers to title IV, HEA 
funds in the regulatory triad. This commenter reasoned that the 
Department should hold States and accrediting agencies jointly liable 
for the wide range of school misconduct they have enabled and tolerated 
by requiring these agencies to co-sign a PPA, which would incite States 
to develop risk pools or decline to co-sign a PPA for a failing or 
untrustworthy school.
    Discussion: Accrediting agencies are subject to statutory 
provisions under the HEA, as well as Department regulations which 
address issues such as the quality of their oversight. They do not 
exercise substantial control over the institution; therefore, it is not 
appropriate for them to sign a PPA. States effectively provide the same 
financial guarantee as a private owner when they pledge their full 
faith and credit to a public institution.
    Changes: None.
    Comments: One commenter supported the Department's view that to 
protect taxpayers and students, entities that exert control over 
institutions should assume responsibility for institutional liabilities 
and that requiring such entities to assume liability provides 
protection to the recurring problem of institutions failing to pay its 
liabilities. However, this commenter argued that the signature 
requirement in proposed Sec.  668.14(a)(3) is unnecessary. This 
commenter believed that entities did not have to sign a PPA to be held 
financially liable. This commenter asserted that the Secretary has 
broad power to invoke the authorities within HEA section 498(e), and 
therefore does not need a signature to invoke that authority. This 
commenter argued that the HEA enumerates specific circumstances in 
which the Department may not impose the statutory liability 
requirements and under the doctrine where the expression of one thing 
implies the exclusion of others. For example, this commenter stated 
that the list in HEA section 498(e) represents the complete set of 
circumstances in which the Department is prohibited from exercising its 
authority in section 498(e)(1)(A) and (B). In this case, circumstances 
support a sensible inference that PPA signatures being left out must 
have been meant for them to be excluded.
    This commenter determined that the Department's signature 
requirement is bad policy because it would require the Department to 
predict, in advance, whether an individual or parent company must sign 
the PPA. The commenter questioned what would happen if the Department 
failed to accurately predict the losses, specifically if the Department 
took the position that a corporate parent (or individual) must sign the 
PPA before creating those losses to the government. Likewise, the 
commenter questioned the proposed 50 percent threshold, particularly 
whether an institution that caused massive losses to taxpayers and has 
an entity with a 49 percent ownership would face consequences even 
though the entity was not required to pre-sign a PPA. The commenter 
believed the 50 percent threshold would encourage owners to stay under 
a 49 percent threshold or use corporate structures to avoid signature 
requirements.
    This commenter also argued that the Department's statements in the 
NPRM and Electronic Announcement (EA) GENERAL-22-16 constituted an 
unexplained departure from longstanding and current Department 
regulations regarding substantial control in Sec.  668.174(c)(3). The 
commenter stated that for decades the Department has considered a 
person to exercise substantial control over an institution if the 
person directly or indirectly holds at least a 25 percent ownership 
interest in the institution or servicer. The commenter pointed out that 
in 1989 the Department took the position that ownership of more than 50 
percent of an institution or its parent corporation confers an ability 
to affect, and even control, the actions of that institution. The 
commenter noted, however, that these proposed regulations reflect the 
fact that the Secretary also considers the ownership of at least 25 
percent of the stock of an institution or its parent corporation 
generally to constitute ability to affect substantially the actions of 
the institution. The commenter continued that in the 1991 final rule, 
the Department wrote that there were circumstances under which the 
Secretary considers a person to have the ability to affect 
substantially the actions of an institution even when that person does 
not have a controlling interest in that institution or the 
institution's parent corporation. The commenter asserted that the 
Department's statement regarding substantial control remains in the 
regulations today, with no proposals to change that.
    The commenter observed that the proposal in the NPRM, like the 
guidance outlined in EA GENERAL-22-16, completely disregarded decades 
of Departmental policy without any explanation. The commenter is not 
satisfied with the Department's justification that owning more than 50 
percent is considered a simple majority and therefore 50 percent would 
be a suitable percent to use as the threshold. Moreover, the statements 
in the NPRM regarding substantial control undermine the basis for the 
Department's definition of substantial control in Sec.  668.174. 
Finally, the commenter would like to know why the Department has not

[[Page 74635]]

explained why it is not drawing from the Internal Revenue Code's (IRC) 
use of a 35 percent threshold for disqualified individuals with respect 
to private foundations. The commenter described that under the IRC, the 
term disqualified person is vital to the determination and status of 
exempt organizations classified as a private foundation, and in 
addition, the commenter noted that Congress has provided a list of 
disqualified persons with respect to a private foundation. The 
commenter then provided the list of disqualified persons, including 
corporations, partnerships, trusts and estates.
    The commenter concluded that signature requirements are not 
necessary, but if the Department decides to move forward with this 
provision, they encourage the Department to use a 25 percent threshold. 
The commenter argued that there are reasoned options to use a different 
percentage besides 50 and that it provides stronger protections for 
taxpayers and stronger deterrents for entities. The commenter also 
asked the Department to not leave out individuals if signatures from 
holding parent entities and investors will be required. The commenter 
is troubled that the proposed regulation is tailored only to entity 
liability but ignores personal liability, given the Department's EA 
GENERAL-22-16 (Entity Liability) and its subsequent EA GENERAL-23-11 
(Personal Liability), they see no reason why both issues would not be 
considered in this final rule.
    Discussion: We agree with the commenter that the absence of the 
mention of entities in the HEA provides us with the authority to seek 
the signature, but they do not explain why such an absence would allow 
us to seek liability from a higher-level owner that has not signed the 
PPA. Traditionally, only the institution of higher education signed a 
PPA. Absent such a signature from other entities, the Department thus 
did not have a relationship established with those entities in which 
there was a clear acknowledgment of acceptance of liability. This is 
particularly important because many institutions today are structured 
with multiple levels of ownership, such that it is possible that many 
entities are being asked to sign. The signature thus clearly 
establishes that the entity signing will agree to be responsible for 
any unpaid liabilities from the institution.
    We disagree with the commenter that this approach is bad policy. As 
noted in the March 2022 electronic announcement, as well as in this 
final rule, seeking signatures will allow the Department to be more 
proactive about future efforts to ensure taxpayers are compensated for 
liabilities owed from institutions. We think continuing the status quo 
argued for by commenters would not result in receiving greater amounts 
of financial protection and could delay the process of recouping funds 
as the Department would have to defend against potential challenges 
from owner entities that they are not liable absent a signature. 
Seeking additional signatures is thus a prudent policy that improves 
protection and makes clearer to entities that they will be financially 
responsible for taxpayer losses caused by the institution.
    The Department also disagrees with the commenters regarding the 50 
percent threshold in Sec.  668.14(a)(3)(ii)(A). The Department 
determined that the 50 percent threshold described in (A) was 
appropriate because that is the level at which the Department typically 
sees control, most often exercised through the rights described in 
Sec.  668.14(a)(3)(ii)(A). Blocking rights (as described in paragraph 
(a)(3)(ii)(B)) are another source of control, which may be held at even 
lower percentages of ownership. Because the list is non-exhaustive, the 
Department retains the ability to require signatures from entities that 
own less than a 50 percent direct or indirect interest in the 
institution if the Department determines that the entity has the power 
to exercise control over the institution.
    The Department also disagrees with the use of the 35 percent 
threshold as suggested by the commenter because based on the 
transactions that the Department has reviewed, the Department believes 
that the thresholds identified in the regulation are adequate and 
provide sufficient flexibility for the Department to address control 
that might exist below 50 percent.
    Changes: None.
    Comments: One commenter asserted that the proposed signature 
requirements in Sec.  668.14(a)(3) ignores well-established law on 
corporate veil-piercing. The commenter explained that it is a bedrock 
principle of corporate law that corporations (and other corporate 
forms) exist as separate and distinct legal entities with their own 
responsibilities, including for liabilities. Otherwise, the commenter 
noted, there would be little purpose to corporations, as one could 
impute liabilities to all individual owners or ownership entities and 
would no longer be limited to the assets available to the specific 
corporation. The commenter stated that if this was the case, entire 
economies would fail as no business would be able to operate without 
fear of potentially unlimited liability. For this reason, the commenter 
claimed, the exception to limited liability for corporate entities, 
piercing the corporate veil, is very narrow and typically does not 
apply absent fraud or a similar wrongful purpose. This commenter argued 
that the Department's proposed regulation would ignore the long-
established liability limitations for corporations and instead require 
ownership entities that meet a certain control threshold to assume 
liability for the institution's actions in all instances. This 
commenter believed this approach is tantamount to a declaration by the 
Department that corporate liability limiting principles will not apply 
in the title IV, HEA context. This commenter argued that the Department 
lacks the statutory authority to implement such a seismic change that 
runs counter to longstanding public policy and the commenter urged the 
Department to revise the proposed language to instead require ownership 
entities to sign PPAs only if the Department can establish grounds to 
pierce the corporate veil under applicable law.
    This commenter also suggested that the Department revise the 
proposed signature requirements to list only the circumstances in which 
a signature would be required. This commenter believed the proposed 
language provides the Department flexibility to require additional 
entities that do not fit the enumerated examples to sign the PPA. The 
commenter is concerned that giving the Department this much discretion 
would have an even bigger impact on investment in the space as for-
profit and nonprofit purchasers could not even make a minority 
investment in an institution with certainty that it would not be 
required to assume liability for the institution. This commenter urged 
the Department to, at a minimum, revise the language to provide that 
the enumerated examples are in fact the only circumstances in which the 
Department would require a PPA signature.
    Finally, this commenter requested that the Department clarify what 
constitutes a significant action. For the reasons mentioned above, this 
commenter stated it was inappropriate for the Department to abandon 
corporate law principles by requiring entities to sign the PPA. 
However, if this requirement remains in the final rule, this commenter 
requested the Department to clarify which significant actions would 
constitute control. This commenter presumed the Department is 
referencing actions that could impact the day-to-day operations of an 
institution, thus demonstrating exercise over the operations of the 
institution,

[[Page 74636]]

but as written, the regulations are not clear. This commenter 
emphasized that clarity is paramount as investors and lenders would not 
commit resources without forewarning of whether they would be required 
to cosign the PPA.
    Discussion: The Department disagrees with the commenters. The 
entity signature requirement has nothing to do with corporate veil-
piercing to impose liability on individuals. Moreover, corporate law 
does not require that an agreement can only be entered into by the 
lowest level entity or organization. As explained above, the entity 
signature requirement is protection for taxpayers so that entities 
cannot shield themselves from liabilities by structuring their 
ownership in level upon level of different entities. The entities may 
structure themselves as they deem appropriate for tax or other reasons, 
but the Department needs to make sure that the entities that want to 
participate in the title IV, HEA programs are responsible for any 
liabilities that the institution is unable to satisfy. As stated in 
Sec.  668.14(a)(3)(ii), the Secretary will only seek an entity 
signature from entities that exercise control over the institution. An 
entity that does not meet the requirements of Sec.  668.14(a)(3)(ii)(C) 
or (D) can affirmatively establish through its corporate governance 
documents that it does not have the power to exercise any direct or 
indirect control, by blocking or otherwise. In response to the comment 
about what the Department means by the ability to block significant 
actions, the Department's evaluation of that question would depend on 
the entity's organizational or operational documents. These actions 
might include the ability to amend the organizational documents, to 
sell assets, to acquire new institutions or other assets, to set up 
subsidiaries, to incur debt or provide guarantees.
    In further response to one of the commenters, substantial control 
is not limited to exercising control over day-to-day operations of the 
institution itself. Most typically, entities exercise indirect control 
over the institution by their control over major financial and 
governance decisions.
    Changes: None.

Limiting Excessive GE Program Length (Sec.  668.14(b)(26)(ii))

    Comments: A few commenters supported the NPRM's proposal to address 
maximum program length for eligible GE programs. During negotiations, 
the Department had proposed to set a maximum length for eligible GE 
programs, not to exceed the shortest minimum program length required by 
any States in order to enter a recognized occupation. In the NPRM, the 
Department revised its proposal to instead stet the maximum length for 
an eligible GE program at the minimum program length required by the 
State in which the institution is located, if the State has established 
such a requirement, or as established by any Federal agency or the 
institution's accrediting agency. The NPRM also proposed an exception 
whereby an institution may apply another State's minimum required 
length as its maximum if the institution documents, with substantiation 
by a certified public accountant, that: a majority of students resided 
in that other State while enrolled in the program during the most 
recently completed award year; a majority of students who completed the 
program in the most recently completed award year were employed in that 
other State; or the other State is part of the same metropolitan 
statistical area as the institution's home State and a majority of 
students, upon enrollment in the program during the most recently 
completed award year, stated in writing that they intended to work in 
that other State.
    Commenters that supported the NPRM's proposal stated that they 
understand our concerns with excessive length and the wide variation 
among States' requirements for the same professions, but that the 
Department's original proposal during negotiated rulemaking would place 
undue hardship on institutions and students in States with much longer 
requirements. The commenters also raised a concern that, if the new 
rule went into effect immediately, it could place undue hardship on 
students currently enrolled in a program that could lose title IV, HEA 
eligibility before they complete their program due to circumstances 
outside their control.
    Another commenter said they are glad the Department is taking the 
issue of inflated program lengths seriously, especially given reports 
that program lengths have been deliberately inflated in some States. 
This commenter supported the proposal to limit program lengths to the 
minimum hours required for State licensure or, where applicable, the 
hours required for licensure in a bordering State. This commenter 
stressed that allowing programs to require up to 150 percent of the 
hours needed for licensure has created a situation ripe for abuse, with 
excessively long programs requiring students to spend more time and 
money than needed to complete their studies. This commenter agreed that 
these proposed changes will benefit students and reduce the taxpayer 
dollars spent on programs requiring licensure that exceed the required 
length.
    Several other commenters supported the proposal to limit the hours 
that an eligible GE program can require. The commenters noted that the 
proposed rule would ensure that students only pay for the hours 
necessary to obtain licensure and do not unnecessarily use up their 
lifetime eligibility for Pell Grants.
    Discussion: We appreciate the commenters' support and believe that 
this provision protects students from being charged for unnecessary 
training.
    While we think it is important to protect students through this 
provision, we also agree with the commenters who said that it would not 
be appropriate for this new requirement to affect students who are 
already enrolled in eligible programs, as we do not want to disrupt 
those students' educational plans if their program were to lose 
eligibility for title IV, HEA funds due to being too long. Therefore, 
when these regulations are implemented, we will permit institutions to 
continue offering a program after the implementation date of the 
regulations that exceeds the applicable minimum length for students who 
were enrolled prior to the regulatory change taking effect. This will 
mean that some institutions may temporarily offer two versions of the 
same program concurrently but will not be able to enroll new students 
in the version of the program that exceeds the minimum length. In these 
cases, the institution is not required to report both programs to the 
Department but must internally document the existence of two separate 
versions of the program and indicate which students are enrolled in 
each program.
    Changes: None.
    Comments: One commenter stated the proposed rule would curtail 
title IV, HEA eligibility in ways that would sharply reduce nursing 
graduates, worsening the severe shortage of nurses. The commenter 
argued that many institutions may no longer be permitted to offer 
Bachelor of Science in Nursing (BSN) programs with title IV, HEA 
eligibility because such programs would include more credits than 
necessary to practice as a nurse, which in many States only requires a 
diploma or associate degree.
    Discussion: We agree with the concerns raised by the commenter 
about how degree programs subject to State hours requirements could be 
affected and have made a change to address this issue. We are 
clarifying that this provision does not apply to situations where a 
State has a requirement for a

[[Page 74637]]

student to obtain a degree in order to be licensed in the profession 
for which the program prepares the student. Minimum length requirements 
typically operate differently for non-degree and degree programs. For a 
non-degree program, the hours required by a State typically represent 
all, or the vast majority of, the curriculum offered in a program. By 
contrast, State educational requirements for licensure or certification 
within a degree program may only represent a portion of that credential 
and likely will not include other components of a degree, such as 
general education requirements. As such, minimum length requirements 
for degree programs may understate the potential length of the program 
and inadvertently exclude programs that are otherwise abiding by the 
minimum time related to the component of the program that fulfills 
specific State licensure requirements. For instance, a State may 
establish requirements for the component of a bachelor's degree in 
registered nursing related to the nursing instruction, but not speak to 
the rest of the degree program.
    Importantly, this exclusion of State requirements related to 
completing a degree is based upon the way the requirement is defined, 
not how the program is offered. In other words, if the State has a 
requirement for non-degree programs measured in clock hours, an 
institution could not simply offer a degree program and avoid having 
this requirement apply.
    Changes: We have added new Sec.  668.14(b)(26)(iii), which provides 
several exceptions to the requirement in Sec.  668.14(b)(26)(ii), 
including that the requirement does not apply in cases where a State's 
requirements for licensure involve degree programs.
    Comments: Several commenters argued that the acceptable length of a 
program is best determined by the institutions and their accrediting 
agencies and has been refined over time. These commenters noted that 
accreditors are trusted with ensuring the quality of an educational 
program. These commenters further claimed that this proposal is an 
overreach and amounts to prohibited direction, supervision, and control 
over the curriculum offered by the institution.
    Discussion: The Department disagrees that Sec.  668.14(b)(26) is an 
overreach or amounts to control over the institution's curriculum. The 
general authority of the Department to issue regulations regarding the 
certification of an institution and an institution's administrative 
capability is fully outlined in response to multiple comments and is 
equally applicable here. Further, these requirements are not dictating 
the length of a particular program, or its curriculum. Instead, the 
Department has concluded that programs exceeding the length the State 
has set for licensure or certification in a given occupation should not 
be supported by Federal student financial aid. As a result, 
institutions may offer longer programs; the students who attend them, 
however, cannot receive title IV, HEA funds to pay for them. The 
Department determined that it did not have the legal authority to 
partially fund a program, nor did it believe such an approach was 
appropriate given the potential harms to students who enroll in 
partially funded programs and are unable to complete their programs due 
to a lack of title IV, HEA funds.
    The Department is concerned that the language in the NPRM sent 
conflicting signals about how program length requirements set by 
accrediting agencies could be considered for this provision. While the 
provision had previously focused on State requirements, the regulatory 
text in proposed Sec.  668.14(b)(26)(ii) included a mention of the 
institutional accrediting agency as one of the three parties whose 
program length requirements would establish the maximum number of 
hours. We are concerned that continuing to include accrediting agency 
requirements in this provision would undercut the purpose of focusing 
on State requirements, as an accreditor could decide to simply set hour 
requirements higher than what a State deems necessary. Moreover, the 
inclusion of institutional accrediting agency requirements is 
problematic in this situation because there are some programmatic 
accreditors that are sometimes also able to operate as institutional 
accreditors depending on a school's program mixture. These accreditors 
may have specific hour requirements, while other institutional 
accreditors do not. This would create situations where institutions 
otherwise in the same State would have different requirements based 
upon their underlying program mix. Removing the provisions pertaining 
to program length requirements of accrediting agencies will thus ensure 
greater consistency.
    The removal of accrediting agencies' program length requirements 
also recognizes the different roles of these entities in the regulatory 
triad compared to the Department and States. Accrediting agencies are 
responsible for overseeing academic quality while States oversee 
consumer protections and the Department administers the title IV, HEA 
programs. While we understand that accrediting agencies may have 
policies related to program length, they are involved in setting 
States' requirements and not required to consider the value of title 
IV, HEA funds when they make determinations about academic quality, and 
could therefore approve programs that they may view to be academically 
valuable without considering the relative costs and benefits to 
students, including the potential harm to students created by excessive 
borrowing or loss of Pell Grant lifetime eligibility due to program 
length that exceeds States' requirements for licensure or certification 
for the occupation in which a student seeks employment. Therefore, we 
believe the Department has its own unique interest in this issue that 
cannot be satisfied merely by relying on accrediting agency 
determinations about program length.
    Change: We have removed references to accrediting agency program 
length requirements from Sec.  668.14(b)(26)(ii).
    Comments: One commenter suggested the rule should be amended to 
allow programs to meet title IV, HEA eligibility by allowing for the 
longer of two measures: The program length can be no longer than the 
longest number of credit hours required for licensure in a State in 
which the institution is permitted to enroll students in compliance 
with Sec.  600.9; or the program length is in compliance with the 
standards of one of the institution's accreditors. The commenter argued 
that this approach would allow distance education programs to continue 
to participate in the title IV, HEA programs while recognizing the 
licensure variances amongst States.
    Discussion: The Department recognizes that Sec.  668.14(b)(26)(ii) 
as written in the NPRM created the potential for confusion for programs 
offered entirely online or through correspondence. As drafted in the 
NPRM, the limitation on the number of hours that may be included in an 
eligible program relied on the minimum in the State where the 
institution is located. For fully online programs, there may be 
situations when the length of a program required in the institution's 
State differs from State requirements for the length of a program in 
the student's State. To address this issue, we have clarified that this 
provision does not apply to fully online programs or programs offered 
completely through correspondence, since these are the only situations 
where this disparity might occur. Given that the concerns being 
addressed in this provision are largely focused on in-person or hybrid 
programs, we believe this change will reduce confusion and better meet 
the Department's goals. With regard to the commenter's suggested 
revision to the

[[Page 74638]]

language to rely on an institution's accreditors, the Department 
disagrees. The suggested revision would allow the program length 
standards of an accrediting agency to set the minimum program length 
for eligibility and, as mentioned above, the Department is concerned 
that this inclusion would allow an accrediting agency to set a program 
length longer than the minimum in a given State and undermine the 
authority of the State to set requirements. The Department has 
concluded that following the limits set by States, eliminating the 
mention of institutional accrediting agencies, and not exposing 
students to excessive costs for extra hours is the better approach.
    Changes: We have added new Sec.  668.14(b)(26)(iii) to establish 
exceptions to the requirement in Sec.  668.14(b)(26)(ii), including 
that the requirement does not apply to programs that are offered fully 
through distance education or correspondence courses.
    Comments: One commenter disagreed with the proposed limitation on 
excessive hours for GE programs and urged the Department to eliminate 
that provision of the NPRM. The commenter stated the proposed rule is 
vague and ambiguous, and that the proposed limitations on program 
lengths are illogical, contrary to the HEA's purpose, and not supported 
by any rational basis. The commenter asserted that the proposed rule 
failed to recognize that for many GE programs, there are no required 
minimums in that there are no minimum number of clock hours, credit 
hours, or the equivalent established by a State, or a Federal agency, 
or the institution's accrediting agency. The commenter concluded that 
in this scenario, it is unclear how institutions will comply with this 
proposed rule, and it should be explained in the final rule.
    Discussion: The Department disagrees with the commenter. The rule 
is not vague. The requirements for meeting this program participation 
provision are clearly spelled out in the regulatory text. If a State 
has established a clock hours, credit hours, or equivalent training 
requirement for licensure or certification in a specified occupation, 
then an institution cannot offer a program intended to prepare students 
for that occupation that is longer than the State-determined length 
except in the limited circumstance specified.
    The regulation set forth in Sec.  668.14(b)(26) has existed in some 
form, with only slight variation in its effect, since 1994, pursuant to 
well-established authority under the HEA.\27\ We are only changing the 
what the maximum is, but we are not changing which programs would be 
subject to the regulation.
---------------------------------------------------------------------------

    \27\ 59 FR 22431, Apr. 29, 1994.
---------------------------------------------------------------------------

    As explained previously, HEA section 498 describes the Secretary's 
authority relating to institutional eligibility and certification 
procedures, and HEA section 487(c)(1)(B) gives the Department the 
authority to issue regulations as may be necessary to provide 
reasonable standards of financial responsibility and appropriate 
institutional capability for the administration of title IV. Moreover, 
HEA section 498A(e) authorizes the Secretary to determine an 
appropriate length for programs that are measured in clock hours. 
Furthermore, the Department has authority under the HEA sections 101, 
102, and 481(b) to implement and enforce statutory eligibility 
requirements, including those relating to GE programs. Such programs 
are those that ``provide training to prepare students for gainful 
employment in a recognized occupation.'' Similarly, as described in the 
recently-published regulations for Financial Value Transparency and 
Gainful Employment, various Federal statutes grant the Secretary 
general rulemaking authority, including section 410 of the General 
Education Provisions Act (GEPA), which provides the Secretary with 
authority to make, promulgate, issue, rescind, and amend rules and 
regulations governing the manner of operations of, and governing the 
applicable programs administered by, the Department, and section 414 of 
the Department of Education Organization Act (DEOA), which authorizes 
the Secretary to prescribe such rules and regulations as the Secretary 
determines necessary or appropriate to administer and manage the 
functions of the Secretary or the Department. These provisions, 
together with the provisions in the HEA regarding GE programs, 
authorize the Department to promulgate regulations that establish 
measures to determine the eligibility of GE programs for title IV, HEA 
program funds, including establishing reasonable restrictions on the 
length of those programs.
    The Department originally implemented this provision in 1994 in an 
effort to target areas of past abuse such as course stretching, where 
institutions had extended the duration of, or number of hours required 
by, their programs to increase the amount of Federal student aid that 
the institution could receive as payment for institutional charges. The 
1994 NPRM proposing this provision stated, ``The Secretary believes 
that the excessive length of programs requires a student to incur 
additional unnecessary debt.'' \28\ Prior to the 1992 reauthorization 
of the HEA, the Department's Inspector General had told Congress that 
course stretching can result in students ``paying as much as 38 times 
the tuition charged'' for other programs providing the same training.'' 
\29\
---------------------------------------------------------------------------

    \28\ 59 FR 9548, Feb. 28, 1994.
    \29\ ``Abuses in Federal Student Aid Programs,'' Report, 
Permanent Subcommittee on Investigations of the Committee on 
Governmental Affairs, United States Senate, 1991, https://files.eric.ed.gov/fulltext/ED332631.pdf.
---------------------------------------------------------------------------

    When the 150 percent limitation was set in 1994, some commenters 
believed it was too lenient, but the Department had relied on the 
notion that the 150 percent limitation gave ``latitude for institutions 
to provide quality programs and furnishes a sufficient safeguard 
against the abuses of course stretching.'' \30\ However, a program that 
exceeds length requirements by 50 percent is costing students and 
taxpayers a substantial amount for training that is not necessary to 
obtain employment.
---------------------------------------------------------------------------

    \30\ 59 FR 22431, Apr. 29, 1994.
---------------------------------------------------------------------------

    We believe that revising the limit to 100 percent of the State's 
requirement for licensure is logical and appropriate. When a student 
seeks training for a specific occupation, their goal is to meet the 
requirements for that occupation.
    Changes: None.
    Comments: Several commenters stated that requiring program hours to 
be equivalent to the State minimum would limit educational 
opportunities for students and destroy critical pathways to employment. 
These commenters noted that students who would prefer to attend a 
longer program, up to 150 percent of the State minimum, would be denied 
the previously allowed student aid if they choose to do so. These 
commenters further explained that, in order to receive title IV aid, 
these students would now have to attend programs providing no more than 
the minimum hours, which may not include the experiences needed for 
that student to enter their desired employment. Some commenters also 
raised concern that this would limit the ability of students to 
relocate to another State and seek employment. Another commenter 
suggested that border States' graduates with lower hours would be held 
hostage to the State in which they graduated. According to another 
commenter, a number of their students may want to work in a neighboring 
State or even across the country in the future and they argue that 
limiting a student's education to a State's minimum lowers their 
chances for reciprocity in the

[[Page 74639]]

future if the student decides they would like to work in a different 
State.
    Another commenter insisted the proposed limitation on program 
length is unnecessary and potentially counterproductive in terms of 
helping meet the need for skilled workers to fulfill the urgent demand 
for individuals to meet our nation's infrastructure rebuilding efforts. 
A few commenters representing massage therapy institutions also argued 
that a reduction in program length would put the public at a dangerous 
risk due to under-qualified practitioners.
    Discussion: We disagree with the commenters. We believe that it is 
important to ensure that students and taxpayers are not paying for 
training programs that exceed the program length required for State 
licensure. Programs that are unnecessarily long may interfere with a 
student's ability to persist and complete a course of study. Students 
in such programs not only pay more in tuition, in order to attend more 
courses, but also enter the labor market later than they would have if 
their program were no longer than necessary to satisfy State 
requirements. Research into the effects of higher hours requirements 
for the two types of programs most likely to be affected by this 
provision also finds that there is no connection between more hours and 
higher wages. A January 2022 study looking at variations of training 
hours found a lack of any correlation between setting higher hours 
requirements in massage therapy or cosmetology and increased wages.\31\ 
A 2016 study focused on cosmetology similarly found no correlation 
between curriculum hours and wages.\32\ That same study also found no 
correlation between training hours and safety incidents or complaints. 
We also are not persuaded that this provision will deny opportunities 
for students, as the regulation aligns program length with State 
licensing or certification requirements. Our goal is to ensure students 
seeking employment in a specific occupation can do so without incurring 
excessive debt and spending more time than needed out of the labor 
market.
---------------------------------------------------------------------------

    \31\ https://www.peerresearchproject.org/peer/research/body/2022.2.17-PEER-Occupationa-Licensing-Final.pdf.
    \32\ https://web.archive.org/web/20210620203106/https://www.ncsl.org/Portals/1/Documents/Labor/Licensing/Reddy_PBAExaminationofCosmetologyLicensingIssues_31961.pdf.
---------------------------------------------------------------------------

    We understand the concern of the commenters about students' ability 
to relocate, but research shows that most students seek or obtain 
employment close to where they live or attend school.\33\ We have 
addressed such concerns by allowing institutions to prove that a nearby 
State's hours would be more appropriate to consider. We note that Sec.  
[thinsp]668.14(b)(26)(ii)(B) as written in the NPRM and continued in 
the final rule includes three scenarios in which institutions could use 
another State's program length in Sec.  [thinsp]668.14(b)(26)(ii)(B). 
Specifically, that could occur if a majority of students resided in 
that other State while enrolled in the program during the most recently 
completed award year; if a majority of students who completed the 
program in the most recently completed award year were employed in that 
State; or if the other State is part of the same metropolitan 
statistical area as the institution's home State and a majority of 
students, upon enrollment in the program during the most recently 
completed award year, stated in writing that they intended to work in 
that other State. This flexibility mitigates the commenter's concern 
about students being unable to seek employment across state lines. 
States may also adjust their requirements for those with out-of-state 
training where they deem appropriate, and many do so through 
participation in licensure compacts and reciprocity agreements.
---------------------------------------------------------------------------

    \33\ For example, Conzelmann et al. (2022) find that about two 
thirds of students live and work in the state in which the 
institution they attended is located. See Grads on the Go: Measuring 
College-Specific Labor Markets for Graduates, available at https://www.nber.org/papers/w30088. Other research highlights the tight 
relationship between local communities and postsecondary 
institutions particularly in the 2-year sector (see for example, 
Acton (2020). Community College Program Choices in the Wake of Local 
Job Losses in the Journal of Labor Economics), and based on IPEDS 
data in recent years, over 90 percent of first-time, degree seeking 
students enrolled at 2-year and less than 2-year institutions did so 
in the state in which they are a residence.
---------------------------------------------------------------------------

    Finally, none of these commenters explained why the Department 
should not rely on States' judgments regarding the appropriate amount 
of training required for particular professions. The Department's 
proposed revision Sec.  668.14(b)(26)(ii) reflects the concern that any 
debt incurred or lifetime student aid eligibility used beyond what a 
State requires is excessive and can hold students back. Programs with 
lower training requirements in particular tend to result in lower 
earnings for graduates, which means spending an additional few hundred 
or thousand dollars to attend an unnecessarily long program may be the 
difference between a positive and negative return on investment.\34\ 
Such unnecessary expenditures may then lead to further negative 
financial impacts, such as the need to use an income-driven repayment 
plan or a higher risk of default from an unaffordable debt load. In 
order to avoid such unnecessary consequences and safeguard public 
financial investments, the revised provision ensures that programs 
funded in part by taxpayer dollars are no longer than necessary to meet 
the requirements for the occupation for which they prepare students.
---------------------------------------------------------------------------

    \34\ Cellini, Stephanie R., Blanchard, Kathryn J. ``Quick 
college credentials: Student outcomes and accountability policy for 
short-term programs,'' Brookings Institution. Washington, DC. 2021. 
https://www.brookings.edu/articles/quick-college-credentials-student-outcomes-and-accountability-policy-for-short-term-programs/.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter requested the Department reconsider this 
restriction if programs demonstrate with alternative criteria that they 
do deliver a specific border State's required educational elements in a 
shorter amount of time and need every additional clock hour they can 
get to do so. The commenter shared that Oregon's minimum number of 
clock hours for their skin care program is 484, while bordering 
Washington State requires a minimum number of 750 clock hours for the 
same program. The commenter stated that the two cities where the 
schools are located are less than 10 miles apart, less than a 30-minute 
drive in light traffic, but the commenter is concerned that they would 
not be able to meet the exception criteria provided.
    Discussion: The Department believes the exceptions in Sec.  
668.14(b)(26)(ii)(B) account for the commenter's situation. If many 
students are indeed living, working, or plan to move to Oregon, the 
institution will be permitted to extend the program's length to 
Oregon's minimum number of clock hours. Furthermore, based on the 
distance mentioned in the comment, it is very likely that the 
institutions are within a metropolitan statistical area of the other 
State as provided in Sec.  668.14(b)(26)(ii)(B)(3). The Department 
believes it is appropriate to determine this using the institution's 
compliance audit report with its most recent completed award year.
    Changes: None.
    Comments: One commenter suggested that the Department simplify the 
proposed language for Sec.  668.14(b)(26)(ii) and lower the threshold 
from 150 percent to 125 or 115 percent or some carefully considered 
margin for exceptions, because they assert that not all programs are 
exploiting students or the intent of the title IV, HEA programs.
    Discussion: We appreciate the suggestion from the commenter but do

[[Page 74640]]

not believe we have a reasoned basis for any of those suggested 
lengths. We believe that 100 percent is the most sensible and 
defensible program length as it reflects a determination by the State 
of the minimum program length needed for licensure or certification. As 
previously discussed, course stretching, where schools deliberately 
stretch the length of a course or program beyond what is required for 
employment, imposing increased costs on students and taxpayers, has 
been a problem that the Department and Congress have worked to address 
for decades.
    Aside from the circumstances addressed in Sec.  
668.14(b)(26)(ii)(B), discussed above, commenters have not demonstrated 
that allowing institutions to offer programs with hours exceeding State 
minimum requirements for licensure confers sufficient value to offset 
the potential harm to students resulting from additional borrowing, or 
reduced Pell Grant lifetime eligibility to pay for the additional 
hours.
    Changes: None.
    Comments: Several commenters noted that institutions know best when 
deciding how many hours within the 100 to 150 percent range are needed 
to help students obtain jobs. Several commenters specified that their 
programs are more than 100 percent but less than 150 percent of the 
threshold, which is in line with the requirements of most employers and 
therefore allows more flexibility for job placement. Commenters did not 
provide great detail of occupations that are affected by such 
additional requirements, but mentioned them in reference to some 
pipeline programs.
    Discussion: States establishing licensure or certification 
requirements for specific professions carefully consider their hour 
requirements, which are often set through a body convened for this 
purpose. We believe it is appropriate to rely on States' determinations 
regarding the proper length of the program, rather than on 
institutions' preferences. As noted above, the research on earnings for 
cosmetology and massage therapy professionals has not found a 
connection between higher numbers of hours and increased earnings. We 
cannot speak to the preferences of individual employers, but overall, 
the studies the Department has seen show that requiring more hours of 
training, beyond what a State requires, does not translate into better 
economic results for borrowers. We believe it is appropriate to follow 
State requirements. If employers are requiring additional training 
beyond what is required for licensure in an occupation in order for a 
student to obtain employment in that occupation, employers and 
institutions should work with their States to update the minimum 
requirements.
    Changes: None.
    Comments: One commenter expressed concern that the proposed rule 
would disqualify financial aid for programs equal to the level of the 
State's requirement for licensure. The commenter noted that massage 
therapists in some States may only require 500 hours to get licensed 
and the minimum hour requirement for title IV, HEA program eligibility 
is 600 hours. For example, several commenters noted that the State of 
Florida has the lowest minimum clock-hour requirements for cosmetology, 
skin, barbering, and massage programs in the United States. Florida's 
State minimum for Massage Therapy is 500 hours; for Full Specialist it 
is 400 hours; and for Electrolysis, Laser Hair Removal and Skincare the 
State minimum is 540 hours. Since a program must include at least 600 
hours to qualify for Federal funds, this would make programs in Florida 
ineligible. These commenters warned that this proposed rule would lead 
to school closures.
    Several other commenters similarly stipulated that institutions 
rely on the 150 percent rule to qualify their programs for title IV, 
HEA participation and that if the rule is amended from 150 percent of a 
State's minimum to 100 percent, they would lose eligibility for title 
IV financial aid. One commenter suggested that if the Department 
retains this provision, it should also reduce the minimum number of 
hours required for title IV, HEA eligibility. The commenter stressed 
that only 21 States require 500 hours to become licensed in massage 
therapy. The commenter recommended that the Department conclude that 
the States' requirements adequately determine the minimum program 
requirements for purposes of title IV, HEA eligibility.
    Discussion: We agree with the commenters' premise that a State's 
requirements for program length are adequate for a student seeking 
employment in a licensed or certified occupation in that State. That is 
why we are limiting the maximum program length for GE programs to 100 
percent of the respective State's minimum for licensure or 
certification in a given occupation for which the program trains 
students. The Department defers to State authorities regarding the 
appropriate number of instructional hours required to qualify to 
practice in a given profession. If a State has set a minimum 
requirement that is lower than the minimum number of hours required to 
qualify for title IV, HEA eligibility, it would be inappropriate to 
allow such a program to qualify for aid that Congress intended to 
support students enrolled in longer programs. Institutions offering 
programs longer than the State minimum licensing requirements may have 
engaged in course stretching and designed the programs to obtain title 
IV, HEA aid, resulting in increased costs to taxpayers and students. To 
the extent commenters seek to criticize State licensing requirements, 
such concerns should be directed to the States and respective licensing 
bodies.
    Furthermore, we cannot change program eligibility thresholds for 
title IV programs as those are minimum statutory requirements provided 
in HEA section 481(b), which require programs to provide 600 clock 
hours of instruction to be eligible. However, the 600-hour threshold 
referenced by the commenters is applicable only to program eligibility 
for Pell Grant assistance, not Direct Loans. Programs comprising 
between 300 and 600 clock hours, such as those referenced by the 
commenters, can access Direct Loans if they meet the other requirements 
in HEA section 481(b)(2) (20 U.S.C. 1088(b)(2)) and in the Department's 
regulations under Sec.  668.8(d)(2).
    Changes: None.
    Comments: Several commenters pointed out that the proposal to limit 
excessive length of GE programs does not result in a uniform 
application across all States, given that the States set the minimums. 
For example, one commenter opined that it is unfair that a massage 
therapy student in a State where the State minimum is 750 hours 
qualifies for title IV, HEA funds, but a similarly situated student in 
a State with a minimum of 500 hours does not.
    Discussion: This issue is an unavoidable effect of the 
decentralized higher education system that exists. For instance, 
differing program lengths across States also result in students 
receiving different amounts of total aid depending on the duration of a 
program. Aid amounts received for students at public institutions vary 
depending on the amount of investment the State makes in its public 
institution and the corresponding tuition then charged to students. The 
Department is not dictating the number of required hours to States. We 
are committed to not overpaying for programs beyond what the State 
requires for licensure or certification. This is particularly important 
for programs that prepare students for occupations that only require a 
short amount of training, as the financial returns for these programs 
are often quite low and the additional

[[Page 74641]]

cost of hours beyond what a State requires may further reduce the 
return-on-investment, or even make them negative.
    Changes: None.
    Comments: Another commenter argued that the proposed rule confers 
too much control over program length on the Department by virtue of its 
authority over title IV, HEA administration.
    Discussion: The Department is not dictating how long programs must 
be. The Department is deferring to the judgment of States regarding the 
minimum time someone should be in a program to obtain licensure or 
certification. As discussed above, the revised maximum program length 
adopted here reflects our conclusion that it is inappropriate to expend 
taxpayer resources to fund coursework beyond what the State deems 
necessary. Institutions are always free to offer programs outside of 
title IV, HEA.
    Changes: None.
    Comments: A few commenters questioned why the Department would 
mandate all GE programs to be the same length. The commenters opined 
that many programs go beyond core skill curriculum and teach service 
writing, technical writing, or business math skills. These commenters 
argued that additional classes are related, desirable, and beneficial 
to the graduate. Many of these commenters also argued that reducing 
these classes would result in disadvantaged or harmed students, 
deteriorated programs, ceasing participation in the title IV, HEA 
programs, and widespread school closures.
    Discussion: The Department is not mandating uniform program length. 
The regulatory change will specify that if a State dictates the number 
of hours needed for licensure or certification, we will not provide 
taxpayer funding for programs that exceed that number. If commenters 
believe these additional hours are critical for success, we suggest 
they approach their State about revising the program length 
requirements or offer the coursework outside of the title IV, HEA 
programs.
    Changes: None.
    Comments: Several commenters shared their concern about accrediting 
agencies and State agencies approving changes in program length and the 
time needed for these actions. These commenters suggested that the 
Department accommodate all current GE programs and develop a gradual 
transition period to bring all GE programs into compliance.
    Discussion: The Department does not think an extended legacy 
eligibility period is appropriate given our concern about the effects 
of excessive debt on students. As already noted, we will apply this 
provision to new program enrollees following the effective date of 
these regulations, so that no currently enrolled student would be 
negatively affected.
    Changes: None.
    Comments: Several commenters argued that reducing program length to 
the minimum required by the State would result in a lower pass rate for 
State licensing examinations. These commenters predicted that there 
would be a close correlation between the reduced passing or licensure 
rate and the reduced program length.
    Discussion: If the commenters believe that graduates cannot pass 
the State licensing exam following completion of a program that 
complies with State training requirements, we suggest they discuss with 
the State whether the hours required are appropriate. We note, in any 
case, that the commenters did not establish any correlation or causal 
relationship between longer programs and passage rates.
    Changes: None.
    Comments: A few commenters argued that reducing the allowable 
program length would not reduce the institution's overhead expenses but 
would reduce the amount of title IV, HEA aid received by students. 
These commenters insisted that many students, especially female, low-
income, and minority students, could not afford such a reduction in aid 
and would withdraw.
    Discussion: The Department disagrees with commenters that this 
provision would result in an unfunded gap for students. Institutions 
would not be able to offer a program qualifying for title IV, HEA funds 
if it is longer than the State minimum, so the program would either 
have Federal aid for the full program length, assuming it otherwise 
remained eligible, or not at all. Institutions that stay within the 
minimum course length would likely have reduced costs from providing 
less instruction. We note again that this provision will apply to new 
program enrollees on or after the effective date of these regulations.
    Changes: None.
    Comments: One commenter stressed that many State regulators are 
slow to update licensure requirements and this may hurt students. The 
commenter explained that obtaining support from various State 
legislators or regulators to promptly update existing, obsolete 
requirements is a process that can span several years, thus inhibiting 
students from obtaining the most up to date education in the 
occupation. The commenter recommended that the Department continue the 
existing GE program length limit at no more than 150 percent of an 
existing State requirement.
    Discussion: The Department cannot speculate on how quickly or 
slowly licensing bodies may update licensure requirements. However, 
States are the ones tasked with determining whether certain occupations 
require licenses or certifications and what standards apply to such 
licenses or certifications. The Department has no way to verify the 
commenters' claims. However, we note that by statute, regulations 
regarding title IV, HEA funds are subject to the master calendar 
deadline, which includes at least seven months between a regulation's 
finalization and effective date.
    Changes: None.
    Comments: One commenter cited section 101(b)(1) of the Higher 
Education Act which defines an institution of higher education, in 
part, as any program that provides not less than a one-year program of 
training that prepares students for gainful employment in a recognized 
occupation, and urged the Department to not adopt any rule that would 
require eligible training programs to be at least one year. The 
commenter insisted that a one-year minimum would have an adverse impact 
on many massage therapy training programs.
    Discussion: The Department is not requiring that programs be at 
least one year in length. We refer the commenter to section 103(c) of 
the HEA, which includes a definition for a ``postsecondary vocational 
institution,'' which does not contain a requirement related to program 
length. As noted in section 102(a)(1)(B), these institutions are 
eligible to participate in the title IV, HEA programs, if they meet 
other eligibility requirements. The minimum length for a program is 
found in section 481(b) and it is at least 300 hours offered over a 
minimum period of 10 weeks, along with some added criteria.
    Changes: None.
    Comments: One commenter noted that eliminating the 150 percent rule 
would be problematic because 21 States regulate the massage therapy 
profession with a 500-hour requirement for entry-level education, yet 
the average school operates at just over 625 hours. Additionally, the 
commenter said eliminating the 150 percent would severely undermine the 
massage therapy interstate compact, which set the requirement to mirror 
the industry average at 625 hours. Separately, a few commenters 
referred to other efforts of the Federation of State Massage Therapy

[[Page 74642]]

Boards (FSMTB) regarding the ``minimum clock hour pact.'' The 
commenters stated that institutions participating in this pact will be 
required to provide a minimum of 650 hours so that the graduates can 
seamlessly transfer their license among participating States. The 
commenters recommended that the Department consult with the FSMTB and 
set a minimum program requirement that best aligns with the massage 
therapy industry. The commenters insisted this approach would enable 
the graduates to be able to apply their education to other States and 
appropriately transfer their license to practice.
    Discussion: As noted above, an institution in a State that 
increases or decreases its minimum hours for certain professions can 
adjust the lengths of corresponding training programs accordingly. 
Thus, if the States in this compact adjust the minimum hours for 
certain licenses, then the programs can adjust too. If a State chooses 
not to join the compact for whatever reason, we do not see why we 
should not respect their choice to keep hours shorter.
    Changes: None.
    Comments: Several commenters argued the proposed alternate State 
rule is too restrictive and impossible to meet. These commenters 
further stated the current adjacent State rule should remain in effect.
    Discussion: The Department is concerned that the current rule, 
which simply allows a program to meet the adjacent State's requirement 
without justification, could be used simply to increase program length 
and take in more Federal aid even if no student from that institution 
works in that State after graduation. Given our concerns about the 
affordability of programs, we believe institutions should demonstrate 
there is an actual need to apply an adjacent State's higher hours due 
to the majority of the program's students residing, or the majority of 
graduates being employed, in the adjacent State. As stated in Sec.  
668.14(b)(26)(ii)(B), an institution will have to provide documentation 
that is substantiated by the certified public accountant who prepares 
the institution's compliance audit report to use an adjacent State's 
program length.
    Changes: None.
    Comments: A few commenters from Florida stated that the Florida 
State legislature relied on the 150 percent rule when deciding to 
reduce the State minimum program length. The commenter shared that the 
reduction in minimum clock hours would not have been adopted by the 
Florida State legislature if Florida students' Federal funding for 
these programs was going to be jeopardized.
    Discussion: This rule does not prohibit any State from amending its 
own State laws. States can and do regularly amend their laws, on an 
ongoing basis, and this final rule would not interfere with their 
ability to do so. We cannot speculate on the reasons for a given 
State's decision to enact a specific requirement nor second guess a 
State's licensing determination when setting a Federal requirement.
    Changes: None.

Programmatic Accreditation, State Licensure/Certification, and State 
Consumer Protection Law Requirements (Sec.  668.14(b)(32))

Overall
    Comments: Commenters shared that although the proposed language was 
taken from the negotiated rulemaking process in 2022, the provisions 
related to State authorization reciprocity agreements, State consumer 
protection laws, and State licensure requirements are not suitable for 
this final rule. Commenters stated stakeholders interested in State 
reciprocity, consumer protection laws, and licensure were excluded from 
the original conversations and must be included for any proposed 
regulation. One commenter said that the Department did not follow 
established procedural mechanisms for rulemaking and stressed that the 
proposed rules were flawed due to a lack of adequate representation and 
feedback of stakeholders and said these topics should not be included 
in this final rule.
    Many commenters argued that the section on consumer protection laws 
was particularly rushed during negotiated rulemaking and advised the 
Department to delay any changes pertaining to this issue and negotiate 
it when we discuss distance education and State authorization and 
include more qualified negotiators in the discussion.
    One commenter added that because this issue was not properly 
addressed during the last negotiated rulemaking, the NPRM noticeably 
lacks the root problem that is trying to be solved, research on the 
scope of that problem, and economic impact on institutions and States 
of the proposed language. Another commenter stated that due to the 
broad implications of the proposed regulatory change, the subject of 
State authorization reciprocity agreements should have been an issue 
addressed by the Committee.
    Discussion: We disagree with the commenters' concerns. Section 
492(b)(1) of the HEA (20 U.S.C. 1098a(b)(1)) provides that the 
Secretary shall select individuals with demonstrated expertise or 
experience in the relevant subjects under negotiation, reflecting the 
diversity in the industry, representing both large and small 
participants, as well as individuals serving local areas and national 
markets. The Department identified the relevant subjects to be 
negotiated and invited the public to nominate negotiators and advisors. 
After reviewing the qualifications of the nominees, the Department made 
selections for Committee members. The Committee included negotiators 
representing accrediting agencies, institutions of higher education 
from multiple sectors, State attorneys general, other State agency 
representatives, among others. These negotiators had the proper 
qualifications to negotiate issues related to consumer protection and 
State authorization reciprocity agreements, particularly institutional 
and State representatives. We also disagree that these issues were not 
discussed during negotiated rulemaking. Versions of the language we are 
finalizing in Sec.  668.14(b)(32) were included in issue papers 
submitted to negotiators. Non-Federal negotiators also submitted 
additional materials expressing thoughts on the issue. These items did 
not reach consensus and the Department is exercising its authority 
under the HEA to issue rules as we see fit, taking into account public 
comment as we move from the proposed to final rule.
    Furthermore, the Department provided many opportunities for public 
comment throughout the negotiated rulemaking process. In response to 
the proposed rule alone, the Department received more than 7,500 
comments.
    We also disagree that the scope of the problem we want to solve 
isn't clear. As articulated throughout the NPRM and again in this final 
rule, the Department is concerned about the significant liabilities 
Federal taxpayers keep incurring due to discharges from closed schools 
or approved borrower defense to repayment claims. Closures also have 
very significant and concerning effects on students, as has been well 
documented by Government Accountability Office (GAO) and State Higher 
Education Executives Officers Association (SHEEO). To that end, the 
changes in this section are designed to strengthen the regulatory triad 
by allowing States to be stronger partners in addressing these problems 
if they choose to do so.
    Changes: None.
    Comments: Many commenters predicted that implementing proposed 
Sec.  668.14(b)(32), the provision with

[[Page 74643]]

licensure and certification requirements and State consumer protection 
laws, would increase burden and cost to institutions. These commenters 
assert that institutions would pass these costs on to students or in 
some cases simply reduce their educational offerings, which would also 
be detrimental to students.
    Discussion: The Department is concerned that a program tied to 
licensure or certification where a student cannot then work in that 
field will leave them with unaffordable debt burdens that they will 
struggle to repay. That also creates the risk for significant taxpayer 
losses if it results in approved borrower defense to repayment claims. 
As to the commenters' concern that institutions will pass these costs 
onto students, institutions will still need to consider pricing their 
programs so the return on investment is reasonable for students and 
competitive with institutions located in the student's home State.
    Changes: None.
    Comments: A few commenters raised a concern about the change of 
using the word ``ensure'' in the proposed regulatory text considered 
during negotiated rulemaking to ``determine'' in Sec.  668.14(b)(32) in 
the proposed rule, which requires all programs that prepare students 
for occupations requiring programmatic accreditation or State licensure 
to meet those requirements and comply with all State consumer 
protection laws. One commenter opined that the word ``determine'' is no 
less a legal burden than ``ensure.''
    Discussion: We changed ``ensure'' to ``determine'' in the NPRM to 
align with the relevant language in existing regulations in Sec.  
668.43 related to licensure and an institution's obligation to make a 
determination regarding the State in which a student resides. As 
discussed in greater detail in response to other comments on this 
provision, we believe the increased standard is appropriate and 
necessary so that students are not using Federal aid to pay for credits 
and programs that cannot help them reach their educational goals.
    Changes: None.
    Comments: One commenter questioned whether the Department evaluated 
the potential impact of the amendment to Sec.  668.14(b)(32) to 
students and online programs.
    Discussion: The Department recognizes that the implications of 
these changes will most likely affect institutions that offer online 
programs to students who live in States different from where the 
institution is located. But these are the exact situations we are 
concerned about addressing with these changes. The Department is 
worried that an institution enrolling students from another State may 
not be doing the work to ensure their programs have the necessary 
approvals for licensure or certification the way a school with a 
physical location would. Similarly, we are concerned that these 
institutions may not be doing as much to help provide transition 
opportunities for students. As discussed in the RIA, we recognize that 
this will create additional costs to these institutions, but we believe 
the benefits exceed those costs. In particular, we cite the benefits to 
the Department from shrinking the number of sudden closures that then 
result in closed school discharges and reducing taxpayer transfers to 
programs that cannot help students achieve their educational goals. 
Furthermore, institutions that participate in a reciprocity agreement 
could rely on that process to understand the different requirements of 
States and what provisions may require adaptations.
    Comments: A few commenters shared concerns about a lack of clarity 
with the term ``at the time of initial enrollment'' and asked for 
clarification before any proposed regulation goes into effect. The 
commenters requested the Department share additional guidance on ``at 
the time of initial enrollment'' and a list of licensing bodies by 
profession and State.
    Several commenters wondered whether the proposed requirement 
applied only to the State the student was in at the time of enrollment 
or if it also applied to any State the student might move to later. 
Some commenters wanted to know if program eligibility is specified at 
the time of initial enrollment, and whether the program remain eligible 
if the student moves to a State where the program does not meet 
prerequisites. Several commenters would also like to know if the 
proposed requirements only addressed incoming students, or would it 
also apply retroactively to students admitted to the program before the 
regulation became effective.
    Discussion: The Department intends for institutions to use the 
provision in Sec.  600.9(c)(2)(iii) to determine initial enrollment. 
This is a term that is already used in existing State authorization 
regulations and was cited in Sec.  668.14(b)(32) in the proposed and 
now final rule. That establishes consistency across the regulations 
when this concept is applied.
    The existing regulation, Sec.  600.9(c)(2)(iii), provides that an 
institution must make a determination regarding the State in which a 
student is located at the time of the student's initial enrollment in 
an educational program and, if applicable, upon formal receipt of 
information from the student, in accordance with the institution's 
procedures, that the student's location has changed to another State. 
Institutions thus have flexibility to determine how to structure such a 
policy. This could allow them to make determinations around students 
who plan to move to a different State during the enrollment process, 
for example. Institutions collect a substantial amount of information 
in a student's application and when students enroll, and we hope that 
the information collected there will assist them in their 
determinations.
    We recognize that institutions cannot predict if a student moves 
and do not think it would be reasonable to apply this criterion in a 
way that covers students even after they moved. We also recognize that 
this provision could affect the eligibility of some programs. Our goal 
is not to have it apply retroactively. As such, it would cover new 
program entrants on or after the effective date of these final 
regulations.
    Finally, we are persuaded by arguments from commenters that it is 
possible a student may be currently living in one State but have 
concrete plans to move to another one. At the same time, the cost to 
the student and taxpayers of paying for a program that does not lead to 
licensure is so great that we think there needs to be sufficient proof 
from the student themselves of their plans. To that end, we are adding 
a provision that also allows an institution to offer a program to a 
student who currently lives in a State where the program does not meet 
requirements for licensure or certification if they can provide an 
attestation from the student about the specific State they intend to 
move to, and the program does satisfy the educational requirements for 
licensure in that State. If borrowers in this situation do end up 
filing borrower defense to repayment applications, the mere presence of 
such an attestation alone would not necessarily be proof the claim is 
not approvable. The Department would be looking for information about 
how the information about eligibility was conveyed to the borrower, 
such that they did understand their attestation.
    Changes: We have modified Sec.  668.14(b)(32) to include the phrase 
``or for the purposes of paragraphs (b)(32)(i) and (ii) of this 
section, each student who enrolls in a program on or after July 1, 
2024, and attests that they intend to seek employment . . .''

[[Page 74644]]

    Comments: Other commenters noted that the proposed language said 
that the determination of an initial enrollment would be in accordance 
with existing regulations in Sec.  600.9(c)(2)(iii). However, some 
expressed concerns that the time of initial enrollment seems to be 
inconsistent with Sec.  600.9(c)(2)(iii). Other commenters pointed out 
that this could include prospective face-to-face students who will 
ultimately be located at the institution where the program meets State 
requirements at time of initial enrollment.
    Discussion: We remind the commenters that Sec.  600.9(c)(2)(iii) is 
in reference to students enrolled in distance education or 
correspondence courses. For face-to-face students, they would fall 
under the requirement that the institution's programs meet the 
requirements of the State in which the institution is located. However, 
to provide further clarification, we will add the words ``in distance 
education or correspondence courses'' after ``or in which students 
enrolled by the institution.
    Changes: We have modified Sec.  668.14(b)(32) to say, ``In each 
State in which the institution is located or in which students enrolled 
by the institution in distance education or correspondence courses are 
located . . .'' to clarify that the initial enrollment determination is 
regarding those students who will not be engaged in face-to-face 
instruction.
    Comments: Many commenters asked how the Department would train on 
and enforce compliance for State licensure and certification 
requirements and State consumer protection laws. These commenters 
further asked what we would require as evidence of compliance for both 
provisions.
    Discussion: With respect to closure, the Department would ask 
institutions to indicate which States have laws they are complying 
with, and we would look at how those reports vary across institutions. 
With respect to licensure and certification we would look for 
institutions to report what States a given program is not able to 
enroll students in. Institutions are already disclosing a lot of this 
information under Sec.  668.43, which we are adjusting to harmonize it 
with this change in the certification procedures regulations, and we 
would look at how the disclosures align with the States where students 
are enrolling. We would also look at student complaints and borrower 
defense applications alleging that they are unable to work in the field 
tied to their program.
    Changes: None.
    Comments: A few commenters affirmed that the proposed regulation 
for State consumer protection does not account for the unique nature of 
medical education, which requires residencies and clinical rotations 
away from the school. These commenters were concerned that the changes 
might negatively impact students enrolled in graduate clinical degree 
programs by resurrecting pre-reciprocity barriers to participate in 
internships and clinical rotations at health care institutions in other 
States. These commenters stated that under the reciprocity agreement 
such barriers have been taken down, and this would be a reversal of 
that progress. Some commenters suggested that the Department exempt 
medical colleges from the new requirements or recommended that revised 
regulations state that students enrolled in out-of-State clinical 
education rotations are considered enrolled at the main campus of their 
medical institution rather than in distance education or correspondence 
courses. One commenter stated that if an exemption from the proposed 
State consumer protection law requirements is not provided to U.S. 
medical schools, the Department should clarify in the final regulation 
that medical schools should not face undue administrative burdens and 
fees that further complicate distance education requirements.
    Discussion: The Department does not believe this language affects 
the concerns raised by commenters. The NPRM language did not cover 
issues related to education rotations, and the final rule's language 
narrows the scope of this provision even further. To the extent the 
commenters meant to discuss the provisions in administrative capability 
related to clinicals or externships, we note that those are experiences 
prior to completion of the credential.
    Changes: None.
Programmatic Accreditation or State Licensure, and Disclosures 
(Sec. Sec.  668.14(b)(32)(i) and (ii) and 668.43(a)(5)(v))
    Comments: Several commenters opposed the regulation that requires 
all programs that prepare students for specific occupations requiring 
programmatic accreditation or State licensure to meet those 
requirements. The commenters stated that to comply with the proposed 
regulation, a distance education program that prepares students for an 
occupation that requires licensure would be required to confirm that 
the program satisfies licensure requirements for each State where they 
have students enrolled.
    A few commenters requested that the Department add language that 
acknowledged institutions that may be unable to obtain the information 
necessary to comply with the provision. Several commenters wondered 
what the Department recommended to do when an institution cannot obtain 
affirmation or there is no available process to determine State 
educational prerequisites in a State. The commenters insisted the 
current State licensure environment does not have a process to allow 
distance programs to provide such confirmations. The commenters warned 
that the Department cannot compel State licensure agencies to create 
processes and procedures to provide the necessary determinations. A few 
commenters stressed that licensure requirements are subject to change 
and licensing bodies are under no obligation to communicate those 
changes to out-of-State institutions. A few commenters suggested the 
Department add language that provides an opportunity for exceptions 
concerning the State licensing boards because they argue that State 
professional licensing boards vary widely and that some have no 
mechanism or process for providing documented approval for an out-of-
State institution's program.
    Discussion: The Department is concerned that students who use title 
IV funds to pay for programs that lack the necessary approvals for 
licensure or certification in the States where the student wishes to 
work will end up incurring debt and using up lifetime eligibility for 
loans and grants that cannot be put toward the occupations for which 
they are being prepared. Given that licensure or certification outside 
of cosmetology is generally associated with higher wages, that also 
means that students may not receive the economic returns necessary to 
afford their loan payments.\35\
---------------------------------------------------------------------------

    \35\ Kleiner, M.M. and A.B. Krueger (2013), ``Analyzing the 
Extent and Influence of Occupational Licensing on the Labor 
Market,'' Journal of Labor Economics, 31(2): S173-S202.
---------------------------------------------------------------------------

    This provision is not dictating what requirements States do or do 
not set for licensure or certification. Nor is it dictating what States 
must provide in terms of information to institutions. It is simply 
saying that if such requirements exist, an institution must follow them 
with respect to the students attending from those States. That also 
means that if an institution cannot determine that its program meets 
the education requirements for licensure or certification, then it 
cannot offer the program to future students in that State.

[[Page 74645]]

Furthermore, as noted elsewhere in this section, institutions using a 
reciprocity agreement for distance education can use that to streamline 
how they are able to understand the different requirements of States.
    With respect to changes in State licensure requirements, we would 
not expect institutions to immediately discontinue programs for 
existing students when requirements change. However, we would expect 
the institution to come into compliance with the new requirements in 
short order or cease enrolling new students in that program. 
Institutions should reach out to the Department when such situations 
arise.
    Changes: None.
    Comments: A few commenters opposed this provision saying that it 
would unfairly limit the student's choices and mobility options, the 
student has a right to enroll in any program when they are fully 
informed, the missing requirements for licensure are usually minimal, 
information regarding requirements across States is inconsistent and 
the increased burden upon institutions would harm enrollment and 
outreach efforts.
    Discussion: The Department disagrees with the commenters. 
Postsecondary education programs are significant investments for 
students, which can easily cost into the thousands or tens of thousands 
of dollars. When a student attends a program that is tied to a 
profession that requires licensure or certification, they should have a 
reasonable expectation that the Federal Government will only allow them 
access to a program that will allow them to meet their professional 
goals. Any burden to institutions here is outweighed by the benefit 
this final regulation will have on students and taxpayer investments. 
If the commenters believe the differences in requirements are minimal, 
then we suggest they take steps to make their programs compliant with 
the necessary requirements.
    Changes: None.
    Comments: A few commenters shared concern about the lack of clarity 
with the term ``satisfies.'' The commenter asked for clarification 
before any proposed regulation goes into effect.
    Discussion: Under Sec.  668.14(b)(32)(ii), the term ``satisfies'' 
means that were someone to graduate from that program they would have 
met whatever educational requirements the State sets for obtaining 
licensure and certification. That does not cover post-completion 
assessments that institutions do not administer. The Department is 
concerned that in the past institutions have told prospective students 
that programs would obtain necessary approvals for licensure by the 
time students graduated, but then they never did. Those students were 
then left with what were essentially worthless credentials.
    Changes: None.
    Comments: A few commenters suggested the Department add language 
that provides an opportunity for exceptions concerning the State 
licensing boards because they argue that State professional licensing 
boards vary widely and that some have no mechanism or process for 
providing documented approval for an out-of-State institution's 
program.
    Discussion: The Department notes that institutions are the ones 
making the certification to the Department. If they cannot determine it 
based upon the State licensing board, they could also look at the 
experiences of their graduates and document confirmation that those 
graduates all met the educational requirements for licensure or 
certification. We do not, however, believe an exemption is appropriate. 
The cost in terms of dollars and time in postsecondary programs is too 
great for the Department to presume that a program that an institution 
is unsure meets the licensing requirements will qualify. Moreover, 
sorting through licensing requirements can be a challenging and time-
consuming task. We believe the burden of that task should be placed on 
the institution that will be making determinations again and again for 
students across multiple States instead of placing it onto the 
individual student.
    Changes: None.
    Comments: Several commenters observed that the proposed regulation 
for institutions to satisfy the educational prerequisites for State 
licensure or certification requirements would impose an infeasible 
burden for both schools and State licensing boards.
    Many commenters reported that in previous determinations of 
licensure compliance, such investigations were time-consuming and 
costly and often yielded no definitive answer. According to these 
commenters, inquiries to State bodies frequently resulted in no reply. 
The commenters further explained that State rules vary widely and are 
subject to frequent changes. For institutions offering distance 
education to have legal certainty that a program provides such 
prerequisites, the commenters stated that they would need to confirm 
that information with each State or territory where they offer the 
program and vary in operation. For example, some licensing boards do 
not have a procedure for validating out-of-State programs, or they may 
lack the legal authority or sufficient personnel to make such 
evaluations. The commenters asked how the Department could impose this 
requirement given that we cannot guarantee the necessary State 
cooperation.
    Discussion: When a student enters a program that prepares them for 
an occupation that requires licensure or certification, they should 
have the expectation that finishing that program will allow them to 
fulfill the educational requirements necessary for getting the 
necessary approval to work in that field. We are concerned that 
students attending programs that do not have those necessary approvals 
will not only fail to achieve their educational goals but may also end 
up with earnings far below what they expected. Such programs also 
represent a waste of taxpayer money, as the Federal Government is 
supporting credits that cannot be redeemed for their stated purpose. 
The Department agrees that complying with this requirement will create 
costs for institutions, but we also believe those costs are worthwhile 
to protect student and taxpayer investments. Institutions are not 
required to participate in the title IV programs, both overall and on a 
programmatic basis. If they do not want to take the necessary steps to 
protect against wasted investments, then they can choose to make these 
programs not eligible for Federal aid.
    The Department cannot speak to how States vary in terms of 
commitments made to institutions. It is reasonable to presume however, 
that they all explain the rules around what it takes to obtain a 
license or certification and we believe it is far more appropriate to 
place this burden on the institution rather than the student. The 
institution can use the information determined again and again as it 
enrolls additional students and employ people with experience 
understanding licensing rules. It is unreasonable to expect the student 
to be as knowledgeable about licensing and certification requirements 
as institutional employees.
    Regarding changes in State licensure, we do not expect a program to 
suddenly cease its offerings to currently enrolled students. However, 
we expect the institution to take swift action to come into compliance 
for new enrollees.
    Changes: None.
    Comments: One commenter remarked that there is burden associated 
with contacting out-of-State entities, and that they particularly did 
not like that regulations require institutions to treat territories and 
freely associated states in the same way that they treat States.

[[Page 74646]]

While the commenter agreed with this in principle, they stated that 
applying this proposal would be challenging because not all territories 
have boards for evaluating disciplines. In addition, the commenter 
mentioned that some boards do not have internet presence, which would 
make the proposal to treat territories the same as States improbable. 
According to this commenter, institutional size causes burden because 
these regulations do not fall evenly on all institutions. The commenter 
mentioned that their institution does not have the luxury of State and 
large private institutions, who have multiple staff members to work on 
these issues. The commenter stated that their faculty spend countless 
hours completing tasks for States and territories in which they have no 
student inquiries or enrollment. The commenter argued that these 
policies are anti-competitive, in the sense that they favor 
institutions with the footprint to be able to manage massive compliance 
operations, and anti-student because they limit student choices 
needlessly.
    Discussion: This requirement only applies to the States where 
institutions are enrolling students and where they are either living at 
the time of initial enrollment or where they attest that they wish to 
live. If an institution is not enrolling students from a given State, 
it is not obligated to determine anything regarding that State; it just 
cannot offer the program to anyone in that State.
    We disagree with the framing of anti-competitiveness. A student who 
has a credential from a program that does not allow them to be licensed 
or certified in their State is not just at a competitive disadvantage 
in the workplace, they are disqualified from competing. Allowing 
institutions to put the burden and risk on the student that a multi-
thousand-dollar credential may put them on the road to nowhere is an 
unacceptable outcome. The purpose of the title IV aid programs is to 
provide opportunity for students. Institutions should have the 
resources to operate the programs they wish to offer.
    Changes: None.
    Comments: Many commenters noted that it is not reasonable to 
presume that students will necessarily pursue their career in the State 
in which they initially enroll in their program. For example, several 
commenters offered that the students might be members of the military 
or family thereof and only be temporarily located in that State, or 
they might live near a State border and intend to find employment in a 
neighboring State or move to a State where jobs are more available.
    Several other commenters added that students might want to enroll 
in a specific program based on the strength of its reputation, or 
because their desired program may simply lack certain State-specific 
courses, such as State history, that the State that they intend to move 
to may require. These commenters also noted that students may simply 
want to enroll in a program that requires licensure but have no 
intention of pursuing that license. Several commenters argued that it 
should be sufficient for institutions to inform student prior to 
enrollment about possible licensure or certification issues they may 
need to consider.
    Discussion: We disagree with the suggestion that students may 
simply not be interested in the license. Overall, it is reasonable to 
assume that a student who enters a program that prepares students for 
an occupation that requires licensure or certification wants to work in 
that program. We also believe it is too easy for institutions to tell 
students information verbally about whether they could be licensed or 
certified that will then result in the potential for the filing of a 
borrower defense to repayment claim that will be challenging to 
adjudicate.
    However, we do agree that there are instances in which a student, 
such as a military-connected student, might plan to leave the State 
they reside in and intend to seek employment in another State. 
Therefore, we have added language to Sec.  668.14(b)(32) to say that an 
institution can consider the State a student is in at their time of 
initial enrollment, or the State identified in an attestation from a 
student where they intend to seek employment in another State. We would 
note that the student must identify a specific State and the 
institution's program must meet the requirements of that State.
    Programs must meet the requirements for licensure in the relevant 
State. We are worried that a program that leaves a student just shy of 
that finish line still represents potentially added costs for students 
and a roadblock that could prevent them from earning their license or 
certification.
    Changes: We have modified Sec.  668.14(b)(32) to cover States in 
which students enrolled by the institution in distance education or 
correspondence courses are located, as determined at the time of 
initial enrollment in accordance with 34 CFR 600.9(c)(2); or, for the 
purposes of paragraphs (b)(32)(i) and (ii), each student who enrolls in 
a program on or after July 1, 2024, and attests that they intend to 
seek employment.
    Comments: Several commenters encouraged the Department to add 
language in proposed Sec.  668.14(b)(32)(ii) that acknowledged 
institutions that may be unable to obtain the information necessary to 
comply with the proposed provision of satisfying the applicable 
educational prerequisites for professional licensure or certification 
requirements in the State. One commenter pointed out that during the 
negotiated rulemaking, suggested language that accounted for 
institutions in this situation was proposed.
    Several commenters also encouraged the Department to allow case-by-
case waivers of the licensure and certification requirements for 
students who knowingly enroll in programs that fail licensure 
requirements in their current State because they know students who plan 
on moving to different States, States in which their licensure and 
certification would be accepted. These commenters claimed that such 
waivers would allow for students to acknowledge, as has previously been 
the case, that they are aware of limitations of the program they are 
about to enroll in.
    Discussion: The Department declines to adopt the commenters' 
suggestion. We are concerned that such waivers could be exploited by 
institutions that do not want to engage in the necessary work to 
determine if their programs have the necessary approvals. We are not 
convinced that students would be fully informed as to what they are or 
are not agreeing to and this could instead be used by institutions to 
attempt to avoid other potential consequences, such as approved 
borrower defense to repayment claims. However, we would note that, as 
discussed previously, we will allow students to attest that they intend 
to seek employment in another State, but the institution would still be 
required to determine that their program meets the requirements of that 
State.
    Changes: None.
    Comments: One commenter predicted that because students can 
complete educational prerequisites for licensure or certification at 
the undergraduate level, the proposed change would require an 
institution offering a graduate level program preparing students for 
licensure or certification to offer the same course. According to this 
commenter, this provision could require students to take the same 
course twice if they did not complete the educational prerequisites 
from the same institution offering the licensure preparation program. 
Finally, one commenter pointed out that Sec.  668.43(a)(5)(v) refers to 
``educational requirements'' whereas Sec.  668.14(b)(32)(ii) refers to 
``educational

[[Page 74647]]

prerequisites.'' The commenter asked for clarification and consistency 
on these terms.
    Discussion: The regulatory requirement relates to institutions 
ensuring their programs have the necessary approvals for licensure or 
certification. We do not believe that our regulation is written in a 
way that would require what the commenter described, but we have 
changed ``prerequisites'' to ``requirements'' for clarity and to align 
with the regulations related to disclosure requirements. This provision 
concerns whether the program meets the requirements for licensure or 
certification. If the program does overall but there is a difference in 
the student's educational trajectory that means they might have to do 
some additional coursework we would not consider that individual 
circumstance to be a violation. However, we do note that institutions 
separately must be aware of rules around false certification 
discharges, which capture situations such as when an institution 
enrolls someone in a program that prepares students for an occupation 
that requires licensure when they know that person has a criminal 
conviction that would make them ineligible for licensure.
    Changes: We have modified Sec.  668.14(b)(32)(ii) to replace 
``prerequisites'' with ``requirements.''
    Comments: A few commenters objected to the public disclosure 
requirement in proposed Sec.  668.43(a)(5)(v) if an institution is also 
subject to Sec.  668.14(b)(32)(ii). The commenters argued that these 
rules are redundant and impose unnecessary, costly, and overly 
burdensome requirements on institutions. Some of these commenters 
pointed out the wording change in Sec.  668.43(a)(5)(v) in that an 
institution's obligation is limited to those States where the 
institution is ``aware'' that a program does or does not meet a State's 
educational requirements. The commenters suggested that this change 
lessens an institution's obligations. The commenters stated if this is 
not the Department's intended result, then they oppose the language as 
it removes the current option to indicate that an institution has not 
made a determination. A few commenters were concerned that the 
institution may not address each State as is currently required in 
proposed Sec.  668.43(a)(5)(v).
    Several commenters suggested that instead of pursuing the proposed 
regulation in Sec.  668.14(b)(32), the Department should simply 
continue enforcement of the current regulations directing institutions 
to offer public notifications addressing all States regardless of 
student location and individualized notifications to prospective and 
enrolled students as provided in Sec.  668.43(a)(5)(v) and (c). A few 
commenters remarked on how the proposed regulation seems to be at odds 
with the current regulations pertaining to individual notifications and 
recommended that these discrepancies be fixed.
    Another commenter urged the Department to withdraw proposed Sec.  
668.14(b)(32)(ii) in favor of continued institutional implementation 
and the Department enforcement of the current regulations. According to 
the commenter, the current rules requiring institutions to offer public 
notifications addressing all States and individualized notifications to 
prospective and enrolled students is adequate.
    Discussion: We believe this requirement in certification procedures 
complements the disclosure requirements described by commenters but are 
making some alterations to Sec.  668.43(a)(5)(v) to address areas of 
confusion. The requirement in Sec.  668.14(b)(32)(ii) protects students 
from enrolling in programs that cannot meet their educational goals and 
stops the expenditure of taxpayer resources for such programs as well. 
The disclosure requirements are also important because they send 
information to students prior to enrollment about where they will or 
will not be able to have a program meet educational requirements for 
licensure or certification. Without such disclosure requirements, a 
student could enroll and be told by an institution that they are not 
able to study in their preferred program because they would not be 
eligible for title IV funds to do so. This could result in students 
wasting time and money on programs they do not desire when they could 
have enrolled at another institution that has a program that meets the 
necessary requirements for them to obtain employment in their home 
State.
    We agree with the commenter that the change from ``determine'' to 
``aware'' is confusing and conflicts with the language in Sec.  
668.14(b)(32) and other language in Sec.  668.43. We will change ``is 
aware'' to ``has determined'' and add a cross reference to Sec.  
668.14(b)(32). Additionally, we will make other conforming changes in 
Sec.  668.43(c).
    Changes: We have modified Sec.  668.43(a)(5)(v) to say, ``. . . 
where the institution has determined, including as part of the 
institution's obligation under Sec.  668.14(b)(32) . . .'' 
Additionally, we have modified Sec.  668.43(c)(1) to say, ``. . . 
provide notice to that effect to the student prior to the student's 
enrollment in the institution in accordance with Sec.  668.14(b)(32).'' 
We have modified Sec.  668.43(c)(2) to remove the reference to 
paragraph (a)(5)(v)(B) since that paragraph no longer exists. It now 
only references paragraph (a)(5)(v).
    Comments: A few commenters predicted that the proposed changes in 
Sec.  668.14(b)(32) would have an inordinate effect on the people-
helping professions, such as behavioral and mental health services. One 
commenter was concerned that the proposed changes in Sec.  
668.14(b)(32) did not appear to consider multi-jurisdictional 
institutions and programs, programs which are largely offered through 
distance education.
    Discussion: The Department is concerned that someone who wants to 
work in a people-helping profession will not be able to do so if they 
attend a program that lacks the approvals necessary for licensure or 
certification in the student's State. As noted, the institution has 
discretion to decide which programs they offer, and from which States 
they recruit students.
    Changes: None.
    Comments: Many commenters pondered how the Department reconciled 
the limitation on institutions and students from meeting State 
educational prerequisites for Teacher Preparation Programs that often 
include only a course or two in the program addressing State specific 
history or culture even though, there is a pathway to licensure through 
State reciprocal agreements and the new Teacher Education Compact for 
license mobility.
    Discussion: The Department's concern is that a student who 
completes a program be able to meet the educational requirements for 
licensure or certification in their State. We are persuaded by 
commenters that the way to meet this requirement can take a few forms. 
While the most straightforward would be to simply get licensed in the 
State they are living in, there are options for some occupations like 
teaching to obtain a license in their home State through reciprocity. 
In such situations the student obtains a license in a different State, 
but there is an agreement that allows them to use that license 
elsewhere. We believe that such situations would address the 
Department's policy concern, provided that the student obtain a license 
that through reciprocity allows them to work in the State covered by 
the requirements in Sec.  668.14(b)(32)(ii). This could include both a 
full license as well as a provisional one. Because these are all forms 
of licensure we do not think a regulatory change to capture this 
concept is necessary.
    Changes: None.

[[Page 74648]]

    Comments: Several commenters pointed out that the changes to Sec.  
668.14(b)(32) will be done to regulations that reached consensus during 
negotiations a few years ago. Commenters emphasized that consensus is 
hard to achieve, and that it should not lightly be set aside, 
especially in favor of changes that are strenuously disputed.
    Discussion: Since that consensus language was reached, the 
Department has approved multiple claims related to borrower defense to 
repayment for programs that made promises or claims about State 
approval that were not true. The review of those claims has taken 
extensive amounts of resources to verify and even then, not every 
borrower who was harmed from those false statements has applied for 
relief and even when the loans are discharged the Department cannot 
make up for the borrower's lost time. This is particularly worrisome 
since many of these individuals likely cannot find the time to go back 
and enter a program that would let them work in their desired 
profession. As such, the Department is concerned from its practice 
administering the aid programs that disclosure alone is insufficient. 
It creates too many opportunities for institutions to disclose one 
thing on paper but then try to convince the student of something else 
verbally. We also believe that putting the burden on an individual 
student is the incorrect policy when the institution is receiving 
significant sums of Federal resources to administer the Federal aid 
programs.
    Changes: None.
    Comments: A few commenters suggested that the Department meet with 
members of State licensing boards and educators to become more informed 
about what is required for the licensure process. Another commenter 
suggested that the Department maintain a website that would allow 
students to easily find the State requirements for licensure for each 
profession.
    Discussion: The Department believes that a website-based approach 
would still have the limitations that come from disclosures that we 
think are insufficient. As noted earlier in this section, the 
Department has determined that the institutions should be the ones to 
work with States to determine if their programs have the necessary 
requirements for licensure or certification since they know their 
content and curricula. In making this regulatory change, the Department 
sought comment from all interested public stakeholders, and received 
and considered over 7,500 comments on these final regulations.
    Changes: None.
    Comments: One commenter opined that occupational licensing 
requirements limit employment opportunities with little benefit and 
that the proposed regulation would further entrench State licensing 
requirements when Federal policymaking should be encouraging States to 
reverse the proliferation. The commenter continued that similar to 
actions by the Trump administration, the Executive Order on Promoting 
Competition in the American Economy from the Biden administration, 
called for banning or limiting cumbersome occupational licensing 
requirements that impede economic mobility. The commenter asserted that 
there are better proxies for program quality than a program meeting 
State licensing standard, and the Department should not impede States 
as they reconsider current licensing standards.
    Discussion: This rule, among other things, requires institutions to 
determine that each program eligible for title IV, HEA program funds 
meet the requirements for professional licensure or certification in 
the State it is located or where students in distance education or 
correspondence courses are located, as determined at the time of 
initial enrollment in accordance with 34 CFR 600.9(c)(2). This rule is 
not requiring States to set up licensing or certification requirements. 
Whether they have such requirements or what they put them in is up to 
the State. Instead, Sec.  668.14(b)(32) is focused on not using 
government resources to support programs where the graduates will not 
be able to work in the field for which they are prepared.
    Changes: None.
    Comments: One commenter encouraged the Department to maintain 
current consumer protection requirements at the institutional level and 
not extend them to the program level because that has the potential to 
create a mix of compliant and noncompliant programs within an 
institution.
    Discussion: Issues applicable to licensure or certification occur 
at the programmatic level because they are occupation specific. The 
advantage of such an approach is that institutions can continue to 
offer compliant programs while they work to correct deficiencies with 
non-compliant programs. This situation already commonly exists today. 
Institutions may have some programs eligible for Federal aid while 
others are not. They may seek approvals for some programs but not 
others.
    Changes: None.
State Consumer Protection Laws (Sec.  668.14(b)(32)(iii))
    Comments: Several commenters supported proposed Sec.  
668.14(b)(32)(iii) and agreed that the current regulations were not 
sufficient to protect students. For example, attorneys general from 20 
States and the District of Columbia stated that students are entitled 
to the protection of consumer protection laws in their State, no matter 
if they attend a school located in their State or if they attended an 
online program offered by an out-of-State institution.
    However, many of these commenters also thought that the proposed 
regulations in Sec.  668.14(b)(32)(iii) did not go far enough; 
particularly that limiting the discussion to closure, recruitment, and 
misrepresentation leaves out other consumer protection laws, which 
generally need to be affirmed. One commenter suggested a list 
containing, for example, disclosure requirements, laws creating 
criminal liability for violations of education-specific or sector-
specific State laws, and laws related to school ownership and record 
retention. Another commenter asked that the list include, among other 
things, enrollment cancellations and agreements, incentive 
compensation, and private causes of action.
    Discussion: We appreciate the commenters' support but decline to 
broaden this provision. Many of the issues raised by the commenter get 
at broader questions of State authorization and reciprocity, which we 
think are better addressed in a future regulatory package. We do, 
however, remind the public that this language in no way eliminates the 
requirement that institutions abide by laws not related to 
postsecondary education from a given State, as provided in Sec.  
600.9(c)(1)(ii). This includes unfair and deceptive acts and practices 
(UDAP) laws.
    Changes: None.
    Comments: In addition to the broader concerns some commenters 
shared about the inclusion of the requirement for compliance with 
States' consumer protection laws related to misrepresentations, some 
commenters said that the definition of misrepresentation was unclear. 
Some suggested aligning the definition with the misrepresentation 
definition in Sec.  668.74. Other commenters said that 
misrepresentations are covered under other laws because they are 
considered UDAP laws. Commenters also said that State attorneys general 
are already authorized to act upon misrepresentation claims that 
institutions have against them. Other commenters said that the 
inclusion of

[[Page 74649]]

misrepresentation specifically could unintentionally imply that the 
Department was narrowing the scope of the existing requirement that 
institutions are not obligated to comply with other general-purpose 
laws of other States beyond misrepresentation.
    Discussion: We are persuaded by the commenters that the language 
related to misrepresentations is capturing many situations that 
institutions are still subject to even if they are part of a 
reciprocity agreement. As noted by commenters, most State laws related 
to misrepresentations fall under UDAP laws. Those are generally 
applicable laws and thus apply to institutions of higher education in 
all circumstances because they are not specific to postsecondary 
education. Given that many of the borrower defense to repayment 
regulations are informed by State UDAP laws, we think that continuing 
to rely on them here rather than a separate call out for 
misrepresentation is sufficient.
    Changes: We have removed the reference to misrepresentation in 
Sec.  668.14(b)(32)(iii).
    Comments: Many commenters said the language in this section is 
vague. These commenters pointed out that the terms closure, 
recruitment, and misrepresentation have different meanings from State 
to State and are used in different contexts. For example, commenters 
wanted to understand what is meant by closure, specifically if it 
refers to programs, schools, or locations. These commenters would also 
like to know who will determine what are consumer protection laws, will 
it be the Department or each State. If it would be determined by the 
Department, commenters asked for guidance, and if determined by the 
State, commenters warned that the result could be an uneven patchwork 
of protection. One commenter provided examples of ways in which States 
differ with their handling of closure (e.g., how prescriptive teach-out 
requirements are), recruitment (e.g., whether it includes advertising) 
and misrepresentation (e.g., vast differences in how fraud is dealt 
with).
    Discussion: The Department agrees with the commenters and is both 
removing some provisions that are unclear and providing a more precise 
definition of the remaining term. As discussed above, we are removing 
misrepresentation because it is already going to be covered by State 
UDAP laws. We are also persuaded that the coverage of recruitment is 
hard to separate from marketing. We also think that from a State 
perspective many of the issues related to recruitment would fall under 
UDAP so believe it is an acceptable tradeoff to rely on UDAP laws for 
this purpose as well. In terms of closure, we added clarification that 
this includes requirements related to record retention policies, teach-
out plans or agreements, and tuition recovery funds or surety bonds. 
This includes both programmatic and institutional requirements. These 
items are the four key types of tools that States have to address 
closures and we think giving a concrete and limited list will remove 
any ambiguity as to what does or does not apply.
    The Department notes that these concepts are also supported by 
August 2023 research from SHEEO that talks about common policies 
related to closure.\36\ That research notes a short-term benefit for 
re-enrollment from teach-out and record retention policies. The 
findings for tuition recovery and surety bonds are more complicated 
because those policies tend to be about making students whole for 
losses instead of encouraging continuation.
---------------------------------------------------------------------------

    \36\ https://sheeo.org/college-closure-protection-policies/.
---------------------------------------------------------------------------

    Tuition recovery funds were discussed by the Department during the 
NPRM as falling under this requirement. Relatedly, we would also 
consider surety bonds required by States. We did not call out teach-
outs or record retention policies by name but are persuaded that those 
are related to this issue. As noted in the discussions for financial 
responsibility and provisional certification, teach-outs are an 
important tool to helping students complete their degree when an 
institution closes.
    Changes: We have revised Sec.  668.14(b)(32)(iii) to read 
``Complies with all State laws related to closure, including record 
retention, teach-out plans or agreements, and tuition recovery funds or 
surety bonds.''
    Comments: Another commenter believed that the proposed rules would 
lead to decreased access for out-of-State students due to uneven 
protection rules. To avoid this, the commenter stressed that the terms 
closure, recruitment, and misrepresentations must be defined precisely 
so that they will be interpreted consistently across State lines and as 
desired by the Department. The commenter recommended the Department 
engage with organizations who best understand State reciprocity 
agreements to address this topic.
    Discussion: We disagree with the commenter. Students enrolling in 
distance education programs have many options and requiring 
institutions to comply with State consumer protection laws when a State 
seeks to enforce them only helps students have better protections from 
bad practices by institutions. The Department believes that the greater 
specificity around policies related to closure and the removal of 
misrepresentation and recruitment will address the commenter's 
concerns. These are all clear policies, the terms of which will vary 
across States but the nature of what these terms capture will not.
    Comments: Several commenters pointed out that National Council for 
State Authorization Reciprocity Agreements (NC-SARA) has a new Policy 
Modification Process that launched in January 2023 and would conclude 
by the end of October 2023. According to the commenters, this process 
covers multiple topics, including student consumer protection, and 
commenters argued that this Policy Modification Process should serve as 
some justification for the adequacy of NC-SARA as well as justification 
to delay consideration of this issue until the next round of 
rulemaking.
    Discussion: The Department disagrees with the suggestions from the 
commenters. There are specific and limited windows for the Department 
to issue regulations that abide by the master calendar dates. Given 
ongoing issues with closures and approval of borrower defense to 
repayment claims, we do not think it would be appropriate to wait for a 
non-governmental entity to instead play a role we can address through 
regulations now. Further, we have no ability to know what the outcome 
of that process will be.
    Changes: None.
    Comments: Another commenter shared their concern in that the 
proposed language could be interpreted to say that institutions 
authorized to operate in multiple States pursuant to a reciprocity 
agreement are not required to comply with all generally applicable 
State laws. The commenter recommended the provision be revised to 
clarify that institutions that are authorized to operate in multiple 
States pursuant to a reciprocity agreement must follow all generally 
applicable State laws and those education-specific State laws that 
relate to closure, recruitment, and misrepresentations. The commenter 
also recommended broadening the provision to require institutions 
authorized pursuant to a reciprocity agreement to comply with all 
consumer protection laws in States where programs are offered.
    Discussion: The Department agrees with the commenter that this 
language does not affect the applicability of generally applicable 
State laws. This provision concerns the certifications the

[[Page 74650]]

institution will make to the Department and confirming to us that they 
are complying with all State laws related to closure of postsecondary 
institutions. Institutions can and should be subject to laws beyond the 
specific types that institutions are certifying to us. That includes 
generally applicable State laws and what other laws specific to 
postsecondary education that apply for institutions that do or do not 
participate in a reciprocity agreement.
    Changes: None.
    Comments: Many commenters asserted that the requirement to observe 
individual States' consumer protection laws pertaining to closure, 
recruitment, and misrepresentations, including both generally 
applicable State laws and those specific to educational institutions, 
will eliminate most or all of the advantage that derives from 
subscribing to NC-SARA. These commenters remarked that NC-SARA was 
created to streamline compliance with the patchwork of State laws, and 
that these proposed regulations on State consumer laws would move us in 
the opposite direction, and problems that have been addressed in the 
past would return. Commenters argued that State authorization is a 
State prerogative and outside the purview of the Department, which 
risks assuming State authority in what it proposes. States have the 
right to authorize the operation of institutions of higher education 
and to enter into reciprocity agreements that are not rendered 
ineffective by the Department.
    Commenters also stated that NC-SARA adequately addresses problems 
that students might encounter as well as concerns the Department wants 
to address. These commenters also asserted that this requirement would 
impose a costly, time-consuming burden on institutions offering 
distance education to track and adhere to the various State consumer 
protection laws. These commenters concluded that this regulatory burden 
would mostly negatively target the smaller, less affluent institutions 
that do not have the same staffing and resources of larger schools. 
Similarly, other commenters said the provisions in the proposed rule 
were vague and redundant to work carried out by NC-SARA.
    Other commenters remarked that there are other consumer protections 
available to students outside of NC-SARA, for example, that can be 
found in State laws that are enforceable, in the governing boards of 
higher education institutions, and in the requirements of accreditors. 
As one commenter put it, safeguards for distance education students are 
currently in place not only through NC-SARA but also through the 
regulatory triad of accreditors, State agencies, and the Department.
    Discussion: The three provisions in Sec.  668.14(b)(32)(iii)--
consumer protection laws related to closure, recruitment, and 
misrepresentation--that the Department outlined in the NPRM are the 
biggest sources of taxpayer liabilities generated by institutional 
actions. We have removed the issues related to misrepresentation and 
recruitment because we are persuaded those can be largely addressed by 
generally applicable State laws. We are unpersuaded, however, that 
reciprocity agreements would be undermined by asking institutions to 
take steps requested by a State to protect students in case of a 
closure. As 21 State attorneys general also noted, complying with State 
consumer protection laws does not impede the purpose of reciprocity 
agreements.\37\ The attorneys general explained that institutions would 
still be exempt from State authorization requirements, like submitting 
an application or paying a fee to a State authorization agency.
---------------------------------------------------------------------------

    \37\ ED-2023-OPE-0089-2975; https://www.regulations.gov/comment/ED-2023-OPE-0089-2975.
---------------------------------------------------------------------------

    We disagree that our proposal renders reciprocity agreements 
ineffective. Institutions will still have the many benefits that such 
agreements offer, including reduced burden and fees. States are a key 
part of the regulatory triad of postsecondary education. We believe 
that if States wish to create laws to protect their students from 
closure, they should be able to do so. This language preserves State 
flexibility on how they wish to write their laws.
    Research demonstrates how closures can be incredibly disruptive to 
students' educational journeys, many of them never re-enroll, and those 
with student loan debt have very high default rates.
    In response to the rule creating burden on institutions that offer 
distance education, we believe it is reasonable for an institution that 
chooses to offer distance education adhere to State laws where the 
student they enrolled is located. The burden on the institution is far 
outweighed by the benefits for students of not taking on debt or using 
up lifetime Federal aid eligibility for programs that cannot help them 
meet their educational goals.
    The Department also rejects the zero-sum framing that suggests this 
change is not necessary because of the presence of other parts of the 
regulatory triad. The existing regulatory triad work has not prevented 
numerous closures, particularly sudden ones. The Department is 
improving its work in this space and believes other parties should do 
the same. We believe the aforementioned changes to Sec.  
668.14(b)(32)(iii) of the final rule to focus explicitly on closure 
addresses the concerns of vagueness and redundancy.
    Changes: None.
    Comments: One commenter mentioned how States could be inundated 
with burdensome compliance actions if the proposed language under Sec.  
668.14(b)(32) moves forward. For example, this commenter mentioned that 
Colorado is the home State to 42 Colorado-based institutions that 
participate in NC-SARA, and that 1,166 institutions from other States, 
through NC-SARA, also serve students in Colorado. These 1,166 
institutions are annually approved to participate in NC-SARA by each of 
their home States. The commenter is concerned that under the proposed 
regulation, Colorado may need to manage the NC-SARA compliance of not 
only their 42 in-State institutions, but also the additional 1,166 
institutions that serve students in Colorado based on Colorado's unique 
requirements for recruiting, closure, and misrepresentations.
    Discussion: The Department believes limiting this provision to only 
closure and spelling out specific areas underneath it addresses the 
concerns of commenters. Moreover, the extent to which these closure 
provisions apply to out-of-State schools will depend on underlying 
State law. For example, some tuition recovery funds specifically 
exclude out-of-State institutions.
    Changes: None.
    Comments: A few commenters believed the success of State-led 
reciprocity agreements are clear from the extraordinary speed with 
which the legislatures of nearly every State and territory adopted new 
legislation for the purpose of joining the State authorization 
reciprocity agreement administered by the NC-SARA. According to these 
commenters, NC-SARA's success demonstrates the overwhelming approval of 
the existing reciprocity framework by the directly elected 
representatives of those States. These commenters concluded that the 
State legislatures, controlled by both Democrats and Republicans, 
signaled their strong belief in a system of reciprocity that would 
eliminate the very bureaucracy and administrative burden that the 
Department, with no mandate from Congress, now proposes to reinstate.
    A few additional commenters also added that although the Department 
would be reintroducing a problem previously deemed so serious that 
every State, but one acted with unprecedented

[[Page 74651]]

speed to address it, the agency does not seem to be solving any 
particular problem in return. These commenters stated that if there 
were no tools available to manage issues relating to closure, 
recruitment, and misrepresentations, they would understand the argument 
for taking such an extraordinary step, but they do not believe this to 
be the case. These commenters pointed out that every State has general 
consumer protection laws that may be invoked to address such concerns 
involving students, and every State has created new laws outside their 
State authorization framework if they feel additional tools are 
required. These commenters believe the Department has an extraordinary 
array of statutes, regulations, and guidance at its disposal for 
assisting students with matters involving closure, recruitment, and 
misrepresentations. Moreover, commenters recognized that this 
administration has dedicated the better part of its regulatory agenda 
to expanding and strengthening such provisions. Accordingly, these 
commenters concluded that there is no reasonable justification for 
requiring students, employers, and institutions to pay the extreme cost 
that would be associated with this proposed rule.
    Discussion: The Department is clear about the problems we are 
concerned with--the disruptive nature of closures and how they affect 
students' ability to complete and generate costs for taxpayers in the 
form of loan discharges. Joining a reciprocity agreement should not 
absolve institutions from doing a better job at managing closures. The 
removal of misrepresentation and recruitment addresses the confusion 
about generally applicable State laws.
    Changes: None.
    Comments: A few commenters asserted that the Department knows who 
the bad actors are and who are causing harm to students as they pursue 
their higher education. These commenters stated that rather than 
implementing changes that would affect many schools in costly, 
burdensome ways, the Department should instead target the bad actors 
with more tailored rules or otherwise deal with them appropriately.
    Discussion: The Department identifies institutions it is concerned 
about through its various oversight authorities. But not all 
institutions that suddenly close were easily identifiable as a problem 
right before the moment of closure. Instead, we think normalizing steps 
to prepare for closures would leave students, taxpayers, and 
institutions in a stronger position.
    Changes: None.
    Comments: One commenter predicted that implementing proposed Sec.  
668.14(b)(32)(iii) would subject institutions to inconsistent, costly, 
and unnecessary State-by-State laws, such as required contributions to 
numerous and varying State tuition recovery funds, numerous and varying 
bonding requirements, requirements to register recruiters, and 
restrictions on recruiting practices and methods.
    Discussion: We disagree with the commenters. The removal of 
recruitment and misrepresentation address the concerns raised about 
registering recruiters. If institutions seek to benefit from enrolling 
out-of-State students, we think it is reasonable they contribute to the 
costs of protecting them in case of a closure. We note that many States 
exempt closure requirements for institutions of certain sectors, 
students attending out-of-State institutions through distance 
education, institutions under a reciprocity agreement, or a combination 
of those factors. And while institutions could make changes to their 
policies related to closure, that is also true regarding their 
participation in reciprocity agreements.
    Changes: None.
    Comments: One commenter agreed that the Department should pay close 
attention to the issue of State consumer protection because States have 
concerns about out-of-State schools taking advantage of students. The 
commenter cited an August 2021 letter by State attorneys general and 
several higher education consumer protection groups. However, the 
commenter pointed out that State attorneys general are only one entity. 
The commenter further noted that all States except California have 
chosen to enter NC-SARA, which in most cases involved a bill passed by 
State legislature and signed by the governor voluntarily. On this same 
point, another commenter affirmed that if any State has sufficient 
concerns, it could affect remedies under NC-SARA policies or simply 
depart NC-SARA and enforce any laws it wishes.
    Discussion: The Department is not telling States how to structure 
their laws related to closure. We are requiring institutions to certify 
to us that they are complying with all laws related to closure in the 
States where they operate. This is critical because we are concerned 
about the disruptions and costs associated with closure.
    Changes: None.
    Comments: One commenter reported that there seems to be three 
possible interpretations of the Department's suggested language in 
Sec.  668.14(b)(32)(iii), one being that institutions are currently 
non-compliant, the second being that the Department's proposal 
supersedes NC-SARA policy, and the third interpretation being that the 
Department's proposed rule does not affect NC-SARA policy. The 
commenter offered extensive reasons why each of the three 
interpretations were problematic, namely that the Department did not 
offer any research backing that if its policies are implemented, it 
would provide relief. The commenter cited research of a large student 
tuition recovery fund that, though students paid into it for years, 
made payouts to only a tiny fraction of students who were harmed by 
closing institutions. The commenter also reported that they 
commissioned a law firm to examine State legal enforcement actions 
against high-profile institutions that often led to closure. The 
commenter stated that that assessment showed that State attorneys 
general have almost exclusively used general purpose fraud and 
misrepresentation consumer protection statutes when filing claims 
against institutions they believe are serving students poorly. The 
commenter then mentioned that as the Department is likely aware, NC-
SARA policy does not prevent States from enforcing these statutes. The 
commenter concluded that this analysis, at the very least, raises 
substantial questions about whether the concerns noted by the 
Department could be addressed through other means.
    Discussion: The Department is persuaded by the commenter, in part. 
As already noted, we have removed the language related to 
misrepresentation and recruitment as we believe those issues would be 
largely covered by State UDAP laws, which generally apply. However, in 
addition to tuition recovery funds, we are concerned about requests for 
teach-outs and provisions for record retention. The Department agrees 
that tuition recovery funds or surety bond requirements in many States 
may not be as effective as possible, which recent SHEEO research 
confirms.\38\ However, given the continued presence of closures and 
their disruption, every part of the regulatory triad must do all it can 
to help minimize the negative effects from closures.
---------------------------------------------------------------------------

    \38\ sheeo.org/college-closure-protection-policies.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Many commenters advised the Department to work with NC-
SARA as well as consumer protection groups and relevant higher 
education associations to create a process that would protect students 
more uniformly. These commenters are concerned that the proposed 
regulations on State consumer protection laws

[[Page 74652]]

would leave protection up to each State and likely cause it to have 
uneven protection. However, if the Department is determined to 
implement the regulations, one commenter proposed that the Department 
limit the language to two issues of concern, tuition recovery funds and 
aggressive student recruiting, which would align with how it is 
addressed elsewhere in the NPRM.
    Discussion: As discussed above, the Department has limited this 
language to include tuition recovery funds as well as three other areas 
specifically related to closure. We will continue to identify 
opportunities to improve joint oversight of institutions of higher 
education.
    Changes: None.
    Comments: Several commenters suggested the Department reconcile the 
proposed language in Sec.  668.14(b)(32)(iii) with the existing 
definition of State authorization reciprocity agreement in Sec.  600.2.
    Discussion: We disagree. This regulation concerns what institutions 
will certify to the Department. It requires that they certify 
compliance with all requirements related to closure in any State in 
which they operate. It does not adjust the definition of a reciprocity 
agreement, but institutions will have to ensure they are being accurate 
in their certifications to the Department.
    Changes: None.
    Comments: One commenter opined that the proposed regulation for 
State consumer protection contradicts the Department's stated goals of 
promoting innovation and flexibility in distance education because it 
imposes rigid, prescriptive requirements that stifle creativity and 
diversity in instructional design and delivery.
    Discussion: The Department does not think creativity in avoiding 
the costs of closures is a good avenue for innovation. This provision 
does not affect modes of instructional design and delivery. Instead, it 
seeks sensible protections for students to try to minimize the costs 
and disruption from closures.
    Changes: None.
    Comments: One commenter requested that the Department clarify what 
it means that institutions are only required to comply with State laws 
to which they are subject. For example, the commenter wants to know if 
the Department means to say that if a State's consumer protection laws 
explicitly state that they apply only to institutions operating with a 
physical presence in the State, an institution operating under a 
reciprocity agreement without a physical presence should not be 
required to comply with a law from which it is exempt.
    Discussion: This certification requires institutions to affirm that 
they are complying with applicable State laws related to record 
retention, teach-out plans or agreements, and tuition recovery funds or 
surety bonds. Institutions would have to affirm they are complying with 
those applicable and relevant State laws. For instance, if a State's 
tuition recovery fund law exempts out-of-State institutions, those 
institution would not have to abide by it. This provision does not 
speak to generally applicable State laws, which apply to institutions.
    Changes: None.
    Comments: One commenter worried that the proposed regulation for 
State consumer protection would create conflicts with NC-SARA protocols 
to the point that there would be confusion and consumer protection 
would be weakened rather than improved oversight. The commenter added 
that potential conflict with the rules of accrediting agencies could 
also increase. In addition, the commenter pointed out that many States 
have difficulty maintaining and implementing their own policies and 
that adding new, complicated Federal requirements for them to comply 
with will result in those regulations being implemented ineffectively 
or not at all.
    Discussion: We disagree with the commenters. The situation of 
decreased oversight suggested by the commenter would have been most 
likely to arise when there is ambiguity or a lack of clarity as to what 
is or is not covered by this requirement. The changes to this provision 
in the final rule remove that ambiguity and will make it easier for all 
parties to understand what is covered. We also do not think this 
provision will create conflicts with accreditation agencies, as they 
cannot dictate State laws. This provision also does not tell States how 
they can or should structure their laws related to closure of 
postsecondary institutions and the four areas underneath that. They can 
continue to structure such laws, if they have them, as they see fit.
    Changes: None.
    Comments: One commenter asserted that the current definition of 
State authorization reciprocity agreement allows agreements that 
prohibit States from enforcing their education specific consumer 
protection laws against member schools. As a result, the commenter 
states that the NC-SARA agreements prohibit member States from applying 
or enforcing their education-specific consumer protections to member 
out-of-State schools, which has created an unfair two-tier system that 
leaves millions of online students unprotected by State law and 
vulnerable to fraud and financial ruin.
    Discussion: The Department believes that we need to protect 
students from the most concerning outcomes in postsecondary education. 
We added Sec.  668.14(b)(32)(iii) to remind institutions of the 
requirement to comply with State laws related to four key elements that 
relate to closure.
    Changes: None.
    Comments: Several commenters were concerned that the proposed 
language in Sec.  668.14(b)(32)(iii) could be mistaken to imply that 
institutions that do not participate in a reciprocity agreement and 
that offer programs in multiple States, do not have to comply with 
State laws in each State where they operate, except for in the three 
specified areas. These commenters stated that in fact, institutions 
that operate in multiple States without participating in a reciprocity 
agreement must comply with all applicable State and Federal laws. The 
commenters urged the Department to revise the proposed regulations to 
make clear that institutions that do not participate in a reciprocity 
agreement, must comply with all applicable State laws in the States 
where they offer programs.
    One commenter recommended that the Department revise the proposed 
language in Sec.  668.14(b)(32)(iii) because as it is, it runs the risk 
of inadvertently suggesting that title IV schools are not required to 
comply with generally applicable State consumer protection laws. This 
commenter emphasized that no such exemption exists and, notably, that 
State authorization reciprocity agreements do not exempt institutions 
offering distance education from compliance with such generally 
applicable laws. This commenter suggested that the Department clarify 
this language to prevent any possible misinterpretation. This commenter 
also observed that requiring schools that offer programs in multiple 
States to comply with all State consumer protection laws in each State 
where the school enrolls students would not impede the purpose of 
reciprocity agreements, which seek to reduce the cost and burden of 
compliance with multiple States-authorization requirements. This 
commenter argued that schools can be required to comply with all 
applicable consumer protection laws, while still being exempt from 
compliance with State-authorization requirements, including, for 
example, requirements to submit an application or pay a fee to a State-
authorizing agency.

[[Page 74653]]

    Discussion: This language does not change the existing requirement 
that institutions must comply with generally applicable State laws. In 
fact, that is one of the reasons why we have removed misrepresentation 
and recruitment, as State UDAP laws would likely address those issues. 
Instead, this language specifically requires that institutions certify 
that they comply with relevant State laws related to the closure of 
institutions of higher education. We address our concerns by rewriting 
this language to address the types of closure-related requirements. 
Institutions would have to provide this certification regardless of 
whether they participate in a reciprocity agreement.
    Changes: None.
    Comments: One commenter recognized that the suggested language in 
the State consumer laws section is an attempt to give States back some 
of the authority they have lost, but the commenter believed that the 
changes might create unintended consequences by only focusing on the 
specific areas listed in the proposed language. To address the problem, 
the commenter suggested some language changes to alleviate some likely 
unintended consequences of the text as currently proposed. Namely, this 
commenter suggested to simplify that this provision would apply to all 
applicable State laws. In addition, this commenter suggested that this 
provision include that for institutions covered by a State 
authorization reciprocity agreement as defined in Sec.  600.2, 
notwithstanding any limitations in that agreement, the institution 
comply with all State higher education requirements, standards, or laws 
related to risk of institutional closure, or to recruitment and 
marketing practices, and with all State general-purpose laws, 
including, but not limited to those related to misrepresentations, 
fraud, or other illegal activity.
    Discussion: The Department appreciates the suggestion from the 
commenter, but we think making this language clearly about four key 
items related to closure clarifies that it applies to all institutions 
regardless of whether they participate in a reciprocity agreement.
    Changes: None.

Transcript Withholding (Sec.  668.14(b)(33))

General Support
    Comments: Several commenters appreciated and supported the 
Department's proposal to prohibit transcript withholding or take any 
other negative action against a student related to a balance owed by 
the student that resulted from an error in the institution's 
administration of the title IV, HEA programs, returns of funds under 
the R2T4 funds process, or any fraud or misconduct by the institution 
or its personnel.
    Commenters cited a range of reasons for the support. Several 
commenters noted that transcript withholding is most likely to affect 
low-income and first-generation students, students most at risk of not 
finishing their programs, as well as students of color, and thus 
limiting the practice is particularly important for students seeking 
educational opportunity. For instance, one commenter cited a study that 
found that low-income students, as measured by their eligibility for a 
Federal Pell Grant, only make up 30 percent of enrollment at Virginia's 
two-year public colleges but comprise 63 percent of those students who 
owe debts to those schools. That same commenter provided similar 
statistics showing that although Black students comprise only 17 
percent of enrollment in Virginia's two-year public institutions, they 
account for 40 percent of the students who owe debts to those schools.
    Several commenters provided detailed stories about how transcript 
withholding had stymied students' educational paths, including one 
student who was on a payment plan with a private university that would 
take 15 years to pay off.
    A few commenters also noted that transcript withholding can be an 
enormous obstacle preventing them from securing employment and 
beginning their career. In fact, one commenter emphasized, in some 
States, graduates cannot sit for professional licensure exams without 
their transcript.
    A few commenters also pointed to actions taken by States, such as 
New York, Washington, Louisiana, and California, in recent years to ban 
transcript withholding more broadly as further recognition that this is 
a problem that must be addressed. A few other commenters argued that 
transcript withholding frustrates the policy goals of Federal aid 
programs by preventing students from pursuing higher education at other 
venues.
    Several commenters also cited findings by CFPB examiners that found 
transcript withholding under certain circumstances to be abusive and in 
violation of Federal consumer protection law. One commenter emphasized 
a phrase from CFPB's report which stated that institutions took 
unreasonable advantage of the critical importance of official 
transcripts and institutions' relationship with consumers. Several 
other commenters cited research by the Student Borrower Protection 
Center, which found that schools typically receive only cents on the 
dollar when they collect on institutional debts using transcript 
withholding. These commenters said they do not believe the benefits to 
the schools from the small amounts collected justifies the stress and 
delays transcript withholding places on students.
    A different commenter raised concerns about how schools routinely 
charge the withdrawn student for amounts of returned title IV aid, 
creating an account balance for expenses that were previously covered 
by financial aid. The commenter believes this is a windfall for 
schools, which can collect for educational services that were never 
fully rendered to students.
    Overall, several commenters argued that this provision has 
significant benefits that could help millions of students, including 
allowing students to continue pursuing their educational goals.
    Discussion: We appreciate the commenters' support.
    Changes: None.
General Opposition
    Comments: Several commenters stated that this provision exceeds the 
Department's authority in the HEA by interfering with the normal 
operating business of the institution. They also said the Department 
has routinely stated that it is not within its authority to ban 
transcript withholding without due cause. The commenters pointed to 
discussions during negotiated rulemaking where the Department talked 
about difficulty in identifying any legal standing to engage on this 
topic. The commenters also noted that the Department acknowledged that 
the student has an agreement with the institution, which shifts the 
conversation from institutional error to a scenario of process, 
procedure, and institutional business, where the Department lacks the 
authority to intervene.
    Discussion: We disagree with the commenters. While we agree that a 
student establishes an agreement with an institution when the student 
enrolls, we disagree with the commenters' characterization of the 
discussion of the rulemaking. The existence of an agreement does not 
mean that an institution is exempt from oversight. The Department has 
authority under HEA section 487 to establish its own agreement with an 
institution, setting the conditions for its participation in the title 
IV, HEA programs.

[[Page 74654]]

Additionally, HEA section 498 requires the Secretary oversee an 
institution's administration of title IV, HEA funds on behalf of 
students, ensuring that the institution is administratively capable and 
financially responsible. When an institution withholds transcripts from 
students that include credits that have been paid for or should have 
been paid for, even in part, using title IV, HEA funds, withholding of 
such transcripts due to a balance owed falls squarely under the 
Department's authority to oversee the administration of those funds. In 
such cases, the institution denies a student a substantial portion of 
the value of the service that the institution tacitly or explicitly 
agrees to provide when it enrolls a student, i.e., authoritative 
confirmation of a student's academic progress. Such an action also 
undermines the express purpose of the title IV, HEA programs to support 
students' completion of postsecondary credential.
    Changes: None.
    Comments: Several commenters supported the Department's position 
that institutions should not prevent students from enrolling or re-
enrolling in school because of small balances due. However, in the case 
of larger balances, many commenters stated that institutions have 
limited alternatives to collect past due debts.
    Several commenters stated that they work with students that owe a 
balance by offering payment options that meet the individual's needs 
and asserted that one of their only means of leverage in many cases is 
withholding a transcript. Many commenters said transcript withholding 
is typically the only thing that would make a student want to pay their 
debt. One commenter said many students in their school do not respond 
to requests to repay debts because they simply stop attending classes 
and never officially drop out from the classes. These commenters 
indicated that in many cases, they would be unable to recoup the 
amounts owed from the students who intend to quit school entirely or 
attend another institution.
    One commenter stated that they work diligently with students to 
keep their account balances in house to avoid collection fees and 
credit bureau reporting. This commenter also asserted that they charge 
no interest or plan fees on students who enroll in a plan, which is to 
the student's advantage since returned funds may reduce what the 
student owes in Federal loans. The same commenter questioned what an 
institution's incentive would be to continue working with students with 
outstanding balances when it could easily turn the accounts over to 
collections for more aggressive collection options.
    Many commenters argued that arguments made by consumer advocates 
are anecdotal, limited in scope, and appear to neglect the greater 
consumer impact. These commenters said the CFPB's findings in its Fall 
2022 Supervisory Highlights that institutions rarely, if at all, 
release transcripts to prospective employers were untrue. They said 
interviews with college officials would find that almost all of them 
disclose transcripts to potential employers. A few other commenters 
stated that for students that are in line for a job, trying to enter 
the military or need their transcripts to pass their boards, the school 
releases transcripts. These commenters reasoned that when the student 
becomes gainfully employed, they will be able pay the debt.
    Another commenter argued that institutions would need to build 
infrastructure to manage the added costs of this provision, which would 
detract from funding for other core services. A separate commenter 
noted that transcript withholding is particularly important for private 
institutions that cannot rely upon collecting State tax refunds to pay 
institutional debts the way a public institution could.
    A few commenters supported the Association of Collegiate Registrars 
and Admissions Officers' (AACRAO) and National Association of College 
and University Business Officers' (NACUBO) recommendations that were 
provided to the Department in April 2022, which allow the use of 
administrative process holds and student success holds while 
eliminating holds tied to trivial or minor debts.
    Many of these commenters explained that without the option to 
withhold transcripts, institutions might resort to using collection 
agencies with more negative impacts on students than transcript 
withholding. One commenter warned that outside collection agencies 
could ultimately increase the amount a student owes to an institution.
    Discussion: We appreciate the commenters' efforts to provide 
favorable repayment options to students and hope that institutions will 
continue to do so. We also appreciate that some institutions choose to 
provide transcripts to employers upon request, but the commenters do 
not provide conclusive evidence that this is true of all or even most 
institutions, whereas the CFPB provided a clear account of this 
problematic practice.
    We disagree that withholding transcripts is the most appropriate 
way to get students to repay a balance owed. In fact, doing so can make 
it more difficult for students to repay if it affects their ability to 
obtain gainful employment, even for those students who have not yet 
completed a degree. Although we acknowledge that preventing 
institutions from withholding transcripts removes a key form of 
leverage that an institution has over a student to demand that the 
student repay a debt to the institution and could result in additional 
burden on the institution to collect that debt, we believe that trade-
off is justified given the significant harm to students when they are 
unable to access their transcripts.
    Finally, we note that the regulatory language prevents the 
institution from taking any other negative action against a student 
related to a balance owed by the student that resulted from the 
institution's own error. Because selectively referring a student to a 
collection agency would be a negative action, an institution would not 
be permitted to use a collection agency to have the student repay an 
amount owed specifically because of the error. In these cases, 
institutions will either need to find other methods of encouraging 
students to repay amounts owed or write off the balances entirely.
    Changes: None.
    Comments: Several commenters stated that before taking extreme 
measures such as employing outside collection agencies, their 
institutions use transcript holds as a means of encouraging 
communication with the student. One commenter noted that many students 
are unaware of how they finance their college education and even less 
are aware of general economic concepts, such as how to save, create a 
budget, and simple or compounding interest. Several commenters stated 
that through financial literacy discussions, they teach students and 
borrowers much needed skills related to financial literacy and work 
with them to find a debt solution that fits within their present 
financial capabilities. By taking away these tools, the commenters 
indicated, the institution loses the power to have discussions about 
financial literacy, which the commenter asserted ultimately hurts the 
students. Other commenters also pointed to financial literacy as a 
reason why students may end up owing balances.
    Discussion: We appreciate the commenters' point that financial 
literacy efforts can help students repay debts. However, we disagree 
with the commenters that transcript withholding should be a tool to 
initiate such counseling. Institutions have many opportunities to work 
with students to

[[Page 74655]]

provide instruction and support regarding financial literacy prior to 
withdrawal, and we do not believe that the value of such education 
outweighs the significant negative impacts on students when they are 
unable to obtain transcripts and cannot demonstrate their other 
educational achievements to another institution or an employer. We also 
do not see how financial literacy would address some of the situations 
in which we are preventing transcript withholding, particularly as a 
result of an institution's actions. Financial literacy training can be 
useful if done well, but it is preventative process that does not 
obviate the problems that are caused when students already owe a 
balance to the institution and the institution withholds their 
transcripts.
    Changes: None.
    Comments: One commenter questioned why the Department would want 
students to continuously accrue more debt. The commenter is concerned 
that in the proposed requirement there is no verbiage regarding the 
Fair Credit Reporting Act and the student's responsibility to repay 
debt in a timely manner. They assert that this challenges the legality 
and liability for the university to report outstanding debt to credit 
bureaus for other creditors to be informed. The commenter argued that 
the proposed requirement regarding release of transcripts deserves more 
conversation because they believe, as written, it will cause more harm 
than good. The commenter pointed out that increasing a person's debt 
beyond their means creates a scenario where their debt-to-income ratio 
is unmanageable. The commenter asserted that it is unfair to students 
who have the right to know the damage that accruing more debt may cause 
and it is damaging to their credit and future capabilities when 
attempting to make purchases.
    Discussion: We disagree with the commenters. The Department does 
not believe that students should continuously take on more debt, but we 
also are not persuaded by commenters that a regulation that prevents an 
institution from withholding transcripts will cause students to take on 
substantially more debt. This regulation does not relate to students 
taking on more or less debt. It only relates to the ability of an 
institution to withhold a transcript for credits already earned and 
paid for by the student. Although we acknowledge that some institutions 
may find it more difficult to recoup debts from students without 
withholding their transcripts, institutions have other methods of 
contacting students and persuading them to repay their debts.
    As we describe below, although we have still broadly limited an 
institution's ability to withhold transcripts for payment periods that 
are fully paid for, we have limited the applicability of the regulation 
that prevents institutions from taking ``any negative action'' to only 
occasions where the balance owed is the result of institutional error, 
fraud, or misconduct. We believe that this is an appropriately narrow 
scope for the strict prohibition on taking negative action. 
Specifically, with respect to the Fair Credit Reporting Act, any 
institution that is reporting to the credit bureaus have an obligation 
to report accurate information. Where the derogatory reporting is on a 
debt that is due to institutional error, fraud, or misconduct, the 
derogatory reporting would not be accurate information that would be of 
value to other potential creditors.
    Changes: None.
    Comments: One commenter shared that their university currently 
places a hold on the student's account that prevents all services, 
including additional registrations, and places the student's account 
with third party collection agents if a student owes a balance, which 
they are concerned would be seen as a negative action if this provision 
is included in the final rule. This commenter worried that the proposed 
regulatory language would not allow the university to pursue debt 
collection or prevent the students with balances from future 
registrations.
    Discussion: The commenter is correct that the actions described, 
including placing a student's account with third party debt collectors 
and preventing the student from registering for future courses, would 
be considered ``negative actions'' that are not permitted under these 
final regulations if the student's balance owed is due to school error. 
In these situations, we acknowledge that institutions may need to write 
off balances owed if the students do not agree to repay the funds to 
the institution. However, we do note that we have removed the provision 
that would also have prevented these actions for a balance owed due to 
an R2T4 process.
    Changes: None.
Transcripts for All Paid for Credits (Sec.  668.14(b)(34))
    Comments: Several commenters expressed support for the changes in 
transcript withholding but said the Department should go further. One 
commenter stated that colleges should be required to transcript every 
credit that title IV funds have paid for. This commenter argued that 
when institutions fail to do so they deprive students of the credits 
they've earned and diminish the value of the title IV programs. Several 
other commenters argued against this idea. They noted that students 
have a multitude of funds from various sources, for example, that 
Federal funds are intermixed with State, institutional, scholarship, 
and individual funds. These funds are combined to address all 
institutional charges and though Federal funds are usually the first 
dollar in, commenters stated that it is a stretch to argue that Federal 
dollars paid for the entire credits earned by the student. These 
commenters continued to say that it would be nearly impossible for an 
institution to deconstruct the credits paid entirely by Federal dollars 
and as a practical matter it would be impossible to parse out the 
amount on a transcript.
    Another commenter urged the Department to categorically ban 
transcript withholding at title IV schools related to any debt, not 
just debt that accrues due to R2T4 and prohibit title IV schools from 
withholding any academic records as a form of debt collection, 
including diplomas, certificates, and any other document that a student 
or graduate may need to complete their education elsewhere or to enter 
the workforce.
    Discussion: We are convinced by the arguments made by commenters 
who said that transcript withholding in general diminishes the returns 
to students and taxpayers from title IV funds by depriving students of 
the credits they have already paid for and earned and effectively 
preventing them from transferring to another institution without 
substantial loss of time and resources. While we disagree with the 
commenters who argued against this, we agree with their argument that 
determining which credits have been paid for with title IV, HEA funds 
is difficult because that money is fungible. For those reasons, we have 
added an additional paragraph requiring institutions to transcript all 
credit or clock hours for payment periods in which (1) The student 
received title IV, HEA funds; and (2) all institutional charges 
incurred for the payment period were paid for or included in an 
agreement to pay, such as a loan or a payment plan, when the request 
for the official transcript is made.
    For purposes of these new provisions, we consider an institutional 
charge to be ``for a payment period'' if they are allowable charges for 
the payment period, as defined under Sec.  668.164(c)(1). We consider 
all charges incurred for a payment period to be paid for when the

[[Page 74656]]

institution has credited the student's account for an amount sufficient 
to cover those charges Additionally, we consider charges to be paid 
sequentially as a student's account is credited, where the oldest 
charges are the first to be paid.
    Regarding the commenter who asked the Department to categorically 
ban all transcript withholding at institutions eligible for title IV 
aid, we continue to believe that we do not have the authority to 
prevent an institution from withholding transcripts in circumstances 
where the student does not receive title IV, HEA funds, or in cases 
where the student has not paid for all the institutional charges 
associated with the credits they have earned. In those cases, the 
Department does not impose restrictions on an institution's ability to 
withhold transcripts or transcript credits from payment periods in 
which the student has not received title IV, HEA funds or has not paid 
for all institutional charges.
    Changes: We have redesignated proposed Sec.  668.14(b)(34) to 
(b)(35) and added an additional paragraph (b)(34) to establish a 
requirement for institutions participating in the title IV, HEA 
programs to transcript all credit or clock hours for payment periods in 
which (1) The student received title IV, HEA funds; and (2) all 
institutional charges were paid, or included in an agreement to pay, at 
the time the request is made.
Objections Tied to R2T4
    Comments: Several commenters supported the Department's original 
language around transcript withholding for school error but were 
concerned with the Department's current proposal to expand the 
prohibition to R2T4. Other commenters specifically criticized the new 
R2T4 provisions.
    Several commenters noted that when they return funds to the 
Department through R2T4, this creates a balance due to the institution. 
In these cases, the Department gets its money back, but the institution 
does not. The commenters asserted that this could affect as much as 
one-quarter of its students and that being unable to collect that much 
revenue due to a ban on transcript withholding would be a significant 
loss.
    A few commenters raised concerns about the limit on transcript 
withholding due to R2T4 because of differential treatment between 
students who do and do not receive Federal aid. They said because 
schools are barred from having a separate policy for title IV and non-
title IV students this requirement is attempting to dictate school 
policy for all students.
    One commenter argued that attempts to have tuition refund policies 
closely mimic R2T4 requirements often resulted in balances owed. This 
commenter stressed that R2T4 is not a simple proration, but a complex 
three-page worksheet, and asserted that even the best aligned policy 
does not guarantee offsetting a student's credits and debits. Other 
commenters pointed out that page 32383 of the NPRM indicated 
uncertainty about the legal authority of these regulations by saying 
that institutional policies and R2T4 rules may not coincide and 
discrepancies between the two could result in a balance owed by the 
student after the student's withdrawal.
    Several commenters argued that not allowing institutions to recoup 
these costs would have a range of negative consequences. One commenter 
said that universities could end up having to view Federal aid as ``bad 
money'' because they will no longer plan on receiving a substantial 
portion of the Federal funds promised ahead of a semester. A few other 
commenters warned that institutions would pass these costs on to future 
students in the form of higher tuition to offset the cost of more 
generous refund policies. One commenter argued that these unpaid 
balances would be paid for with institutional aid, which limits the 
availability of those funds for other students. A few other commenters, 
meanwhile, said institutions would reduce access, including through 
more stringent admissions practices focused on identifying students who 
would be better able to pay their university expenses without adequate 
Federal aid.
    A few commenters raised concerns about withholding transcripts due 
to R2T4 calculations by pointing to Department rules on overpayments. 
One commenter stated that the HEA denies Federal student aid to 
students who owe overpayments on grants, including balances of more 
than $50 resulting from the R2T4 calculation, until the student repays 
those funds. According to this commenter, institutions frequently repay 
the Department for student balances owed because of the R2T4 
calculation instead of reporting an overpayment to the Department. The 
commenter further explained that this keeps the liability with the 
school instead of the Department. This commenter argued that it is 
inconsistent for the Department to maintain such a strict policy for 
overpayments while holding schools to a different standard when 
students owe balances of title IV funds because of the R2T4 
calculation. The commenter concluded that if this provision remains in 
the regulations, institutions will likely alter their practices and 
begin reporting overpayments to the Department instead of repaying them 
on the student's behalf, potentially leaving students worse off if they 
owed small balances.
    Several commenters asserted that preventing transcript withholding 
related to R2T4 creates operational issues for institutions since they 
are unable to determine the exact amount of any debt that might come 
from the R2T4 money because funds are often comingled. The commenters 
stated that when title IV, HEA funds are returned, a student's balance 
owed increases, which is a challenge for institutional systems that 
can't tell the difference. Additionally, they said when the institution 
tries to only collect a percentage of the entire debt owed, this causes 
additional difficulty for the students.
    Another commenter raised similar operational concerns, indicating 
that financial holds are often initiated via the bursar's office or 
office of student accounts. The commenter noted that leaders 
representing these offices have indicated that it would be challenging 
to pinpoint a debt--and its resulting hold--to a R2T4 calculation. The 
commenter mentioned that student's ledger account is a snapshot in time 
and that charges are continually added and removed from the account 
while payments are processed, and refunds are distributed.
    One commenter stated that the transcript withholding provision 
would negate the terms of enrollment agreements or institutional 
tuition refund policies across all sectors of education, since it would 
essentially not permit an institution to obtain payment for tuition 
that is not refunded to a student under the institution's tuition 
refund policies.
    Additionally, the commenter stated that many student account 
systems may not be able to automatically identify these holds/debts as 
R2T4-related. According to the commenter, staff would have to manually 
analyze the accounts of students with holds to determine if they were 
caused by return, and then release the hold. The commenter is unclear 
how staff would be required to handle a balance on a student's account 
that came from both an R2T4 calculation and some other source and may 
result in the elimination of a non-R2T4 hold.
    Several commenters argued that the Department should not prohibit 
transcript withholding due to R2T4 because the institution is not 
solely at fault when a student owes a balance, such as students who 
withdraw due to

[[Page 74657]]

work, childcare, family, addiction, housing insecurity, or food 
insecurity. Commenters also cited students who failed all their classes 
or withdrew after receiving a refund check.
    Along similar lines, one commenter argued that prohibiting 
institutions from withholding transcripts or taking any other negative 
action except in cases of student fraud would result in a ``free-for-
all'' education system. This commenter asserted that students would be 
able to obtain educational credits, withdraw from the institution, and 
simply transfer those credits to another institution because the first 
institution was prohibited from withholding an academic transcript due 
to an unpaid balance.
    Many of these commenters suggested either removing the ban on 
transcript withholding or taking other negative action due to R2T4 
while a few others suggested removing this proposed provision until the 
next round of rulemaking, when discussions on R2T4 will take place.
    Discussion: We are persuaded by many of the commenters who wrote in 
opposition to preventing institutions from taking negative actions 
against students who owed balances due to the R2T4 process. We continue 
to believe that balances owed due to the R2T4 process present 
impediments to a withdrawn student's eventual completion of a 
postsecondary credential, and as described in the NPRM, our data 
suggests that there is a relationship between returns under the R2T4 
process and negative student outcomes. We were not convinced by 
arguments that the prohibition on transcript withholding due to R2T4 
would cause institutions to lose substantial amounts of revenue, 
particularly when that revenue would have been owed in many cases for 
periods for which the student did not receive instruction. Nor were we 
persuaded by the argument that enrollment agreements would be violated, 
since such agreements could be renegotiated in light of new 
requirements, potentially to include more generous tuition refund 
policies. However, in light of the arguments presented by commenters 
regarding the administrative challenges to implementing the provision, 
concerns about students at open access institutions who enroll solely 
for the purpose of receiving a credit balance, and the fact that the 
broader prohibition on transcript withholding we are establishing will 
largely result in most withdrawn students receiving transcripts 
including credits for payment periods that are fully paid for, we 
believe it is reasonable to remove the provision regarding R2T4 from 
proposed Sec.  668.14(b)(33).
    We disagree with the commenters that the Department's policy 
preventing institutions from withholding a transcript or taking another 
negative action is analogous to its requirements regarding 
overpayments, particularly when the provision related to R2T4 is 
removed. Institutions are still permitted to withhold transcripts and 
take other negative actions against students when students owe a 
balance for payment periods in which they have not received title IV, 
HEA funds or have not fully paid charges, except in cases where an 
institution's error caused the account balance. The prohibition applies 
only in limited circumstances and is tailored to ensure that students 
do not lose the value of the educational experience that title IV, HEA 
funds supported.
    Changes: We have struck the phrase ``or returns of title IV, HEA 
funds required under Sec.  668.22 unless the balance owed was the 
result of fraud or misconduct on the part of the student'' from the end 
of Sec.  668.14(b)(33).
Alternative Ideas
    Comments: One commenter encouraged the Department to look for all 
opportunities to minimize or prohibit transcript withholding, including 
for institutions under provisional status, given the well-documented 
harm this practice inflicts upon students.
    Discussion: The Department agrees with the commenter and has taken 
the strongest possible action within its purview to prevent such 
withholding by requiring institutions to transcript all credits that 
were paid for in periods where students received title IV, HEA funds.
    Changes: None.
    Comments: One commenter recommended limiting the prohibited actions 
for R2T4 debts to the withholding of transcripts because other actions, 
such as holding diplomas or holding future enrollment, do not impede a 
student from enrolling elsewhere if they can transfer their completed 
coursework and secure transcripts.
    Discussion: The Department acknowledges this commenter's concern, 
and the elimination of the R2T4 provision resolves it. The intent of 
the remaining provisions in Sec.  668.14(b)(33) is to prevent an 
institution from taking any negative action against a student for a 
balance resulting from its own error, fraud, or other misconduct, and 
we continue to believe this is appropriate.
    Changes: None.
    Comments: One commenter disagrees with the Department requiring 
schools sending funds back to the Department as part of R2T4, and 
instead recommended that the Department collect the debt from the 
student themselves.
    Discussion: Although we have eliminated the R2T4 provision related 
to transcript withholding, the Department does not agree with shifting 
the substantial burden of returning title IV, HEA funds to the 
Department, from institutions to students. In addition, we do not have 
statutory authority to do so even if the Department agreed with the 
commenter.
    Changes: None.
    Comments: One commenter requested the Department allow campuses to 
retain Federal funds for students who withdraw if their R2T4 portfolio 
falls below a designated threshold (e.g., average of 5 percent return 
over last three years) of their total Federal aid disbursements in a 
year. This commenter pointed out that campuses could continue to report 
the R2T4 calculations for the Department to assess this measure in 
future years to determine if they are exempt from returning these funds 
and thus prohibited from billing for the portion of the account paid by 
these Federal funds.
    Discussion: Although we have eliminated the R2T4 limitation from 
the transcript withholding provisions, the Department disagrees with 
limiting the applicability of the other provisions to institutions that 
have a limited number of students who withdraw or a limited proportion 
of title IV, HEA funds that is returned through the R2T4 process. The 
Department intends for these provisions to apply to all institutions 
equally.
    Changes: None.

Conditioning Financial Aid (Sec.  668.14(b)(35))

    Comments: Several commenters stated that the proposed rules to 
prohibit any policy, procedure, or condition that induces a student to 
limit the amount of Federal aid they receive is vague and harmful. The 
commenters opined that the proposed rule would bar institutions from 
providing counseling services and forbids any policy or procedure that 
persuades students not to over borrow. The commenters stated the 
proposed rule would deprive students of valuable information that they 
need to avoid overborrowing. The commenters further stated that the 
proposed rule should be replaced with language that expressly 
authorizes institutions to engage in counseling practices aimed at 
discouraging over-borrowing, including consultations

[[Page 74658]]

aimed at discouraging students from borrowing more than amounts needed 
to cover school charges, except to the extent that the student has a 
demonstrable need for additional funds to pay for living expenses.
    Discussion: We disagree with the commenters' concern that policies 
and procedures limiting the amount of Federal aid is harmful to 
students. As explained elsewhere in the rule, we believe it is critical 
that students have access to the Federal aid to which that are 
entitled, especially to cover necessities like food and housing. The 
final rule would allow institutions to provide counseling to students, 
but it would prevent institutions from establishing obstacles or 
inducements against borrowing as a matter of practice and policy.
    Changes: None.

Conditions for Provisionally Certified Institutions (Sec.  668.14(e))

    Comments: One commenter supported the Department's inclusion of a 
non-exhaustive list of conditions that the Department may apply to 
provisionally certified institutions. This commenter agreed that the 
list provides several tools that the Department can use in appropriate 
circumstances to protect students and safeguard the integrity of the 
title IV system. This commenter argued that it was important that the 
list be explicitly non exhaustive to preserve the Department's 
flexibility to impose additional conditions where appropriate to 
respond to the highly varied, situationally specific compliance issues 
faced by institutions seeking certification or recertification.
    Discussion: We appreciate the commenter's support.
    Changes: None.
    Comments: One commenter cited recent research from the State Higher 
Education Executives Officers Association (SHEEO) to show the 
significant harm students suffer when their college closes suddenly. 
The commenter explained that the SHEEO report found that less than half 
of students impacted by a school closure ended up enrolling elsewhere 
and that less than half of those who did enroll completed their program 
of study. Given the significant threat that schools at risk of closure 
pose to students and taxpayers, the commenter supports the Department's 
proposal to set additional conditions on institutions deemed at risk of 
closure. However, the commenter is concerned that because closures can 
happen very rapidly, requiring schools at risk of closure to have just 
a teach-out plan is not enough. The commenter noted that teach-out 
plans require time, staff, and significant effort to convert into 
actual teach-out agreements, which are all things institutions at risk 
of closure often do not have at their disposal. Therefore, the 
commenter urged the Department to require institutions at risk of 
closure to submit teach-out agreements, and not only teach-out plans.
    Discussion: The Department appreciates the commenter's support. As 
noted in the language, the Department has the discretion to request 
either a teach-out plan or agreement when we think that a provisionally 
certified institution is at risk of closure. This provides the 
flexibility to require either a plan or agreement depending on the 
level of concern.
    Changes: None.
    Comments: Many commenters asserted Sec.  668.14(e) exceeds the 
Department's authority under section 498 of the HEA. These commenters 
claimed that although section 498(h) of the HEA provides the Department 
with limited authority to provisionally certify certain types of 
institutions, they argue that there is no corresponding authority for 
the Department to assert additional conditions on those institutions. 
These commenters argued that if Congress had intended to give the 
Department the authority to impose restrictive conditions on 
provisionally certified institutions, they would have made that clear 
in section 498(h) or in another provision of the HEA.
    In conclusion, these commenters suggested that the Department 
clearly define its authority to apply conditions to provisionally 
certified institutions, specifically how the Department would determine 
what is necessary or appropriate for an institution, including the 
addition of criteria and a materiality standard. These commenters also 
would like the opportunity to converse with the Department about the 
imposition of such conditions, including appropriate appeal rights in 
the event of an adverse decision ensure this authority is used 
properly. These commenters claimed such checks on the Department's 
authority is particularly important if the Department's list of 
conditions remains non exhaustive.
    Discussion: We disagree with the commenters. HEA section 498(h) 
provides that the Secretary may provisionally certify an institution's 
eligibility to participate in the Federal student aid programs. This 
provides for an alternative certification method compared to full 
certification. While the HEA does not provide for imposing conditions 
explicitly, it inherently provides the Secretary with flexibility in 
how the Department certifies those institutions where financial risks 
or administrative capability concerns are present. Furthermore, HEA 
section 498(h)(3) provides the Secretary with the authority to 
terminate an institution's participation at any time during a period of 
provisional certification if the Secretary determines the institution 
is unable to meet its responsibilities.
    Changes: None.
    Comments: While expressing disapproval of Sec.  668.14(e), some 
commenters listed a few conditions they would like to see revised if 
the Department moves forward with this rule. Namely, the revision of 
limitations on the additions of new programs and locations and on the 
rate of growth of new enrollment by students, pointing out that these 
conditions may inhibit an institution's ability to provide high-quality 
educational programming or to secure funds sought by the Department to 
show financial responsibility, thereby making such conditions 
counterproductive for institutions and the Department. These commenters 
also claimed that the proposed conditions would impede the Department's 
goal of providing students with the best educational programs at the 
best possible prices by inhibiting an institution's ability to revise 
or introduce programs consistent with new trends and employer demands. 
These commenters highlighted that for career schools in particular, the 
ability to adjust and to adapt to new technologies is essential to 
prepare students for current job markets. These commenters are 
concerned that an institution could be prevented from making a 
necessary change to its programs due to Department imposed conditions, 
and students taking outdated programs may, unnecessarily, be at a 
competitive disadvantage when applying for jobs. These commenters 
emphasized that these concerns could lead to lower starting salaries or 
poorer career outcomes for students, both of which would be harmful to 
students, employers, and the taxpayers supporting title IV programs.
    Discussion: The Department affirms the need for the ability to put 
conditions on a provisionally certified institution. A school in this 
position is exhibiting some concerning signs that merits additional 
oversight and work to protect taxpayer investments and students. We are 
concerned that allowing a risky institution to continue growing or 
adding new programs could increase the total amount of exposure to 
closed school discharges and result in greater disruptions for 
students. We believe addressing those concerns are more

[[Page 74659]]

important than the hypothetical benefits identified by commenters. The 
conditions laid out in this section would not prevent an institution 
from improving its existing programs, especially since the Department 
does not consider issues like curricula. The Department will consider 
which of these conditions are most appropriate for each provisionally 
certified institution it reviews.
    Changes: None.
    Comments: One commenter expressed concerns with the list of 
conditions for provisionally certified schools being prefaced with 
``including, but not limited to'' as it would give the Department the 
discretion to impose virtually any condition it wants. The commenter 
stated this notion is further confirmed in the NPRM's preamble when it 
says the Department will add to this list of conditions at a later 
date. The commenter asserted that the potential conditions on 
provisionally certified schools will make it more difficult for 
institutions to enter transactions. This commenter emphasized that 
transactions often provide significant benefits to students as 
transaction partners can provide additional resources to improve or 
expand an institution's educational offerings. This commenter warned 
that if the proposed rules take effect, potential buyers or merger 
partners would be less likely to undergo transactions due to the risk 
that the institution, which would participate provisionally, would be 
subject to conditions that prohibit the very purpose of the transaction 
(e.g., to invest in and expand educational offerings). Also, this 
commenter stated that the risk is exacerbated by the Department's non-
exclusive list of conditions, as transaction partners would have to 
weigh the benefits of the transaction against unknown regulatory 
conditions. This commenter concluded that such uncertainty would make 
it very difficult for a rational business actor to enter a transaction.
    This commenter is also concerned that the Department would, as a 
routine matter, impose all available conditions on all provisionally 
certified schools. This commenter believes the Department has recently 
started imposing growth restrictions as a consequence of all 
transactions when they were previously reserved for transactions 
involving buyers without one or two complete years of audited financial 
statements. This commenter agreed the Department should be required by 
regulation to identify a specific concern the Department has about a 
provisionally certified institution when imposing conditions on that 
institution. This commenter is concerned with the ease in which the 
Department could place an institution on provisional certification, 
coupled with the breadth of potential conditions and the risk that 
would be universally applied because the Department is essentially 
promulgating conditions that would be applicable to virtually the 
entire private postsecondary sector. This commenter urged the 
Department to revise the list of conditions that would be placed on 
provisionally certified schools by making the list exhaustive rather 
than non-exhaustive, requiring the Department to tailor conditions 
imposed on individual institutions and explain each condition and 
create a process for institutions to appeal the imposition of one or 
more conditions.
    Discussion: The Department affirms the importance of a non-
exhaustive list. Proper oversight of institutions of higher education 
necessitates flexibility to apply conditions that the Department deems 
critical to address specific issues identified at institutions. With 
thousands of institutions to oversee, it would not be possible to 
anticipate every single situation the Department might uncover that 
requires addressing. Providing the non-exhaustive list of conditions 
provides some important clarity to the field about the general types of 
conditions the Department would consider. This helps them know the most 
common types of conditions that might be employed.
    With respect to growth conditions, the Department includes this 
condition currently when we are worried about the condition of the 
institution following a change in ownership. This growth condition is 
not applied universally. It is possible that the commenter is simply 
more aware of riskier changes in ownership.
    Changes: None.
    Comments: Two commenters raised concerns about proposed Sec.  
668.14(e)(9). One commenter raised concerns that the provision lacks 
sufficient definition, violates First Amendment protections, and grants 
the Secretary sweeping authority to impose burdensome restrictions on 
an institution that may interfere with the institution's ability to 
timely deliver necessary information to the student.
    Two commenters raised concerns that this proposal would allow the 
Secretary to rely on mere allegations, which may include speculative 
and unreliable information without providing those institutions access 
to due process or testing before a judge or regulatory authority.
    One of the commenters objected to basing this provision on 
misrepresentations instead of substantial misrepresentations. The 
commenter said this distinction is particularly important because only 
substantial misrepresentations are a ground for borrower defense, while 
a misrepresentation may be an inadvertent or immaterial statement.
    Third, one of the commenters said it would be unreasonable for the 
Department to review all the marketing and other recruitment materials. 
They noted that any delay caused by reviewing these materials would 
harm the ability of students to make informed enrollment decisions and 
achieve academic success. Further, this commenter is concerned with the 
proposal being silent on what the Secretary would be reviewing in the 
materials submitted to them, which would open the door to the 
Department interfering with aspects of the materials that have no 
connection to delivering accurate, non-deceptive information to 
students.
    The same commenter also said the provision runs afoul of well-
established First Amendment jurisprudence designed to prevent 
unjustified government interference in commercial speech. The commenter 
noted that before commercial speech can be subject to prior restraint, 
the Supreme Court requires a determination that the speech is false or 
misleading. The commenter argued that the proposal ignores this 
requirement and instead mandates review of any alleged 
misrepresentation, failing to provide any determination that the speech 
is false or misleading. The commenter claimed this unfettered 
discretion is impermissible because virtually any amount of discretion 
beyond the merely ministerial is suspect and standards must be precise 
and objective. Moreover, the commenter stated that regulation of 
commercial speech must not be more extensive than is necessary to serve 
governmental interest. The commenter stated that this requires narrow, 
objective, and definite standards which are necessary to cure the 
problem of unbridled discretion characterizing prior restraints. The 
commenter noted that the absence of a final deadline constitutes a 
prior restraint of unlimited duration that would not pass 
constitutional muster.
    Discussion: The Department agrees with the commenter in part. 
First, we agree that it would be prudent to align the standards for 
misrepresentation to what is under part 668, subpart F, as that 
provides the basis for why the Department would be concerned about the 
misleading nature of statements. That means clarifying this provision 
is

[[Page 74660]]

related to substantial misrepresentations.
    Second, we agree that allegations are not a sufficient bar for 
applying this condition as it would not be consistent with how the 
Department has constructed other parts of this rule, such as the 
financial responsibility triggers. To address this, we have removed 
allegations and instead focused it on when an institution is found to 
have engaged in substantial misrepresentations.
    We believe these two changes address the other concerns raised by 
the commenter. In this situation the Department would be responding 
directly to a finding that the institution engaged in substantial 
misrepresentations, aggressive and deceptive recruitment as defined 
under part 668, subpart R, or the incentive compensation rules, which 
are in Sec.  668.14(b)(22). As the Department's review would be 
directly related to the issues identified we believe the nexus sought 
is clear.
    With regard to the burden of submitting materials for review, the 
Department believes reviewing marketing and recruitment materials is a 
reasonable step for institutions in this situation. The schools 
affected by this provision will have been found to have engaged in 
violations directly related to their recruitment processes. Two of the 
three provisions also potentially have a direct connection to borrower 
defense to repayment, which means those actions may have resulted in 
approved discharges for borrowers that have to be reimbursed. When such 
situations occur, the Department must have confidence that the 
concerning behavior has been remedied. Receiving these materials allows 
the Department to ensure that the institution has corrected its issues. 
Absent such abilities, the Department may otherwise have to consider 
terminating the institutions if we are not confident it can recruit 
students without resorting to activity that runs afoul of the HEA and 
its regulations.
    Changes: We have revised Sec.  668.14(e)(9) to say, ``For an 
institution found to have engaged in substantial misrepresentations.''
    Comments: See earlier comments related to the directed question for 
financial responsibility triggers in Sec.  668.171.
    Discussion: In the NPRM, the Department included a directed 
question asking about whether there should be a financial 
responsibility trigger in Sec.  668.171 related to when an institution 
receives a civil investigative demand, subpoena, request for documents 
or information, or other formal or informal inquiry from any government 
entity (local, State, Tribal, Federal, or foreign). While the 
Department did not include a trigger for this issue in the regulatory 
text, it did include a reporting requirement for it in proposed Sec.  
[thinsp]668.171(f)(1)(iii).
    In response to comments provided in the financial responsibility 
component of the regulations, the Department is persuaded that it would 
not be appropriate to include a trigger related to just the receipt of 
such requests as they may not ultimately result in actions by 
government authorities. Absent a trigger, it is thus not appropriate to 
have a reporting requirement for those items in the financial 
responsibility section. However, the Department does think having 
institutions report this information to us is important, as it can help 
identify issues that might need further monitoring. Accordingly, we 
have relocated the provision that was in Sec.  668.171(f)(1)(iii) to a 
new Sec.  668.14(e)(10). We believe that applying this to institutions 
that are at risk of closure is appropriate as the Department has in the 
past seen institutions suddenly close following years of government 
investigations at the State and Federal level.
    In moving this provision, the Department also considered comments 
received on this language when it was a financial responsibility 
reporting requirement. In particular, we were persuaded by concerns 
that the language was too broad or confusing. For those reasons, we 
have removed informal requests from this language, since the standard 
for what is an informal request is not clear. We have also further 
clarified that the types of requests that would be reported should be 
related to marketing or recruitment of prospective students, the 
awarding of Federal financial aid for enrollment at the school, or the 
provision of educational services for which Federal aid is provided. We 
chose these areas because they are ones that relate to the possibility 
of borrower defense to repayment claims, which can be a source of 
liability, as well as the Department's rules on misrepresentation and 
aggressive and deceptive recruitment in part 668, subparts F and R. We 
think these are appropriate to request of institutions that are at risk 
of closing because we are concerned about potential liabilities from 
such institutions and whether they would be repaid.
    Changes: We have added new Sec.  668.14(e)(10) as described.

Change in Ownership From For-Profit to Nonprofit Status (Sec.  
668.14(f))

    Comments: Several commenters agreed with the Department's proposed 
Sec.  668.14(f) and the rationale that the changes would allow for more 
rigorous oversight of institutions that as a group have had problematic 
conversions and that have been at heightened risk of harming students 
and taxpayers.
    One commenter supported the change in ownership provisions included 
within certification procedures. This commenter cited a recent GAO 
report that suggested a former owner or other senior institutional 
official played an inappropriate insider role in the transaction in a 
third of the conversions it reviewed. The commenter asserted that given 
these findings, the requirements that any institution attempting a 
conversion must continue to comply with the 90/10 rule, comply with 
restrictions on advertising itself as a non-profit, and provide 
reporting on any relationship between a former owner and the new entity 
are vital protections.
    Discussion: We thank commenters for their support.
    Changes: None.
    Comments: One commenter suggested that as the Department oversees 
schools changing from a for-profit to nonprofit status, that it also 
considers that such schools typically maintain high tuition when 
compared to State and community colleges that offer similar programs. 
This commenter believed that if the new regulations allow this, that 
loophole should be closed, or the new rules would be worthless.
    Discussion: We are expressly prohibited from regulating 
postsecondary institutions' tuition. Currently the HEA regulates the 
amount of money an individual can receive, not how much an institution 
can charge.
    Changes: None.
    Comments: One commenter said they submitted extensive material and 
recommendations for the proposed GE regulations in subpart S and 
advised that institutions undergoing the conversion to a nonprofit 
status not be required to adhere to subpart S as proposed in Sec.  
668.14(f) until the Department revises its framework in accord with the 
commenter's GE recommendations.
    Discussion: The Department addressed the comments related to GE in 
the separate final rule related to this topic. Conversions are an 
ongoing concern for the Department. We do not think it would be 
appropriate to delay our review of that issue, because it encompasses 
issues that go above and beyond items related to GE.

[[Page 74661]]

    Changes: None.
    Comments: One commenter argued against the proposed changes for 
schools undergoing a conversion to nonprofit status because they 
believed the rules the Department has already implemented with the 
final regulations of October 2022 ensure that nonprofit buyers are 
legitimate, and that requiring monitoring or prohibiting relationships 
with the institution's prior owner is sufficient. This commenter also 
asserted that the proposal to require the submission of two complete 
fiscal years of compliance audits and financial statements imposes an 
unnecessary waiting period on schools. The commenter is concerned that 
given that the Department has taken a long time, more than a year in 
some cases, to complete its review of audits and statements, that could 
mean that a school seeking approval would have to continue to comply 
with GE and 90/10 rules for several years after the purchase and 
conversion took place. Instead of allowing for such delays, the 
commenter suggested that once the Department has approved the 
transaction and related conversion, it should regulate the school as a 
legitimate nonprofit entity.
    Discussion: We disagree with the commenters. The regulations here 
give the Department the ability to monitor risks associated with 
conversions from proprietary to nonprofit status, including but not 
limited to improper benefit to former owners of the institution or 
other affiliated individuals or entities. The requirement for continued 
90/10 and GE reporting is included so that conversions cannot be used 
to circumvent those rules.
    Changes: None.
    Comments: Several commenters approved of the Department's rigorous 
review of changes in institutional ownership to convert to non-profit 
status in Sec.  668.14(f) and (g). One commenter agreed that an 
enhanced review of conversion attempts, including, as noted in the 
NPRM, monitoring IRS-institution communications, would alert the 
Department to covert conversion attempts.
    Another commenter supported the Department's proposal to set out 
PPA conditions for institutions converting from for-profit to nonprofit 
status, stating that this proposal will protect consumers and will 
strengthen the Department's ability to monitor converted for-profit 
institutions. This commenter agreed that the proposed rule would add 
important safeguards to the conversion process by requiring 
institutions seeking to convert from for-profit to nonprofit status to 
continue to meet all the of regulatory requirements applicable to for-
profit colleges for a period of the later of years under the new 
ownership, or until the Department approves the institution's request 
to convert to nonprofit status. This commenter argued that in recent 
years, several for-profit colleges have purported to convert from a 
for-profit to a nonprofit, sometimes while maintaining financial 
arrangements that continue to benefit the previous for-profit owner, 
calling into doubt whether the nonprofit label really fits. This 
commenter also supported this provision requiring converting 
institutions to submit regular reports on agreements entered with a 
former owner of the institution or a related person or entity. This 
commenter asserted this would help the Department monitor and assess 
whether the converted nonprofit's arrangements with the former owner 
are appropriate and whether the institution is in fact operating as a 
nonprofit. This commenter also strongly supported the provision that 
would prohibit an institution from advertising that it operates a 
nonprofit until the Department approves the institution's request to 
convert to a nonprofit institution.
    Discussion: We appreciate the commenters' support.
    Changes: None.
    Comments: One commenter argued that requiring extended compliance 
in Sec.  668.14(f) and (g) will limit buyers who are legitimate 
nonprofit entities. This commenter noted that the Department's soon to 
be effective change in ownership regulations already address the 
Department's underlying concerns by ensuring nonprofit buyers are 
legitimate and monitoring or prohibiting (in some cases) relationships 
with the institution's prior owner. The commenter therefore believes 
there is no need for the Department to require a converting institution 
to comply with regulations applicable to for-profit schools after the 
Department has approved the conversion. As written, the commenter 
stated, converting institutions would have to continue to comply with 
the gainful employment and 90/10 rules for the later of the 
Department's approval of the conversion to nonprofit status and the 
Department's acceptance, review, and approval of financial statement 
and compliance audits covering two full fiscal years under the new 
nonprofit ownership. They mentioned that this second prong related to 
acceptance of financials could greatly extend the post-transaction 
compliance period. The commenter explained that for example an 
institution with a calendar year fiscal end undergoing a change in 
ownership and nonprofit conversion in March 2025 would not submit the 
second full fiscal year of financials to the Department until mid to 
late 2028. According to the commenter, the Department has recently 
taken an increasingly long time (including well over a year) to review 
and approve financial statement submissions, so it is very possible the 
institution would have to comply with the gainful employment and 90/10 
rules until well into 2029 which would be over four years after the 
transaction occurred. The commenter stressed that the Department has 
already promulgated regulatory changes to ensure that converting 
institutions involve legitimate nonprofit entities so they are unclear 
why the Department feels such institutions should also comply with for-
profit regulations for such an extended period of time. The commenter 
emphasized that this timeframe would make legitimate nonprofit entities 
reluctant to acquire for-profit institutions and ensure they operate on 
a nonprofit basis. The commenter recommends the Department revise the 
proposed regulatory language to require converting institutions comply 
with the gainful employment and 90/10 rules only until the Department 
has had a chance to approve the transaction and related conversion. The 
commenter argued that once the Department has made a determination that 
the institution and/or its new owner is a legitimate nonprofit entity, 
it should be regulated as such.
    Discussion: The Department disagrees with the commenters. It is 
true that the regulations related to change in ownership that went into 
effect on July 1, 2023, addressed the process for reviewing attempts to 
convert from a for-profit to a nonprofit status in ways that will 
identify unacceptable continuing relationships with former owners. 
However, we also do not want institutions engaging in conversions 
solely as a means of evading accountability provisions that are 
specific to either for-profit institutions or certain programs they 
offer, such as the GE requirements. Accordingly, continuing to have an 
institution abide by GE and 90/10 requirements will reduce the 
likelihood that an institution converts solely to avoid accountability 
consequences. We note this approach is similar in concept to how the 
Department monitors an institution's finances more carefully for 
multiple years after a change in ownership occurs.

[[Page 74662]]

    The Department disagrees with concerns about the timelines and 
their effect on nonprofits purchasing for-profit institutions. Keeping 
institutions subject to these provisions for a few more years serves as 
an added protection that institutions will be operating legitimately as 
nonprofits. Absent this condition the Department is concerned that 
institutions would simply convert to nonprofit status solely as a means 
of avoiding accountability and not because of a determination that that 
is the best way to serve students. We anticipate that institutions 
purchase institutions for long-term operation. Another few years of 
oversight is thus eminently reasonable.
    Changes: None.
    Comments: One commenter stated that the proposed changes for 
financial responsibility, the PPAs, and administrative capability are 
good steps forward because such proposals will prohibit known bad 
actors from simply setting up shop under a new name and continuing to 
access Federal funds. The commenter stated this final rule will allow 
more oversight of programs at risk of closing for failure to meet GE 
metrics. However, the commenter urged the Department to further 
mitigate the risk of institutions failing to meet Federal requirements 
and creating risky financial situations for students and taxpayers. The 
commenter suggested setting preemptive conditions for initially 
certified nonprofit institutions as well as for institutions that have 
undergone a change in ownership and seek to convert to nonprofit 
status. The commenter noted that these preemptive conditions would help 
the department monitor risks associated with some for-profit 
institution conversions, such as the risk of improper benefit to the 
school owners and affiliated people and entities.
    Discussion: The Department appreciates the commenter's support. We 
will continue to review changes of ownership, including changes from 
for-profit to nonprofit status, and add conditions to institutions that 
we deem appropriate.
    Changes: None.

Ability To Benefit (ATB) (Sec. Sec.  668.2, 668.32, 668.156, and 
668.157)

General Support

    Comments: Many commenters supported the consensus language and 
noted that the regulations will add much needed clarity to the ATB and 
eligible career pathway program (ECPP) processes.
    Discussion: We thank the commenters for their support.
    Changes: None.

General Opposition

    Comments: One commenter believed that ATB alternatives are flawed 
and do more harm than good for students. The commenter suggested that 
we eliminate ATB completely.
    Discussion: ATB and ECPPs are authorized by the HEA. Furthermore, 
giving ATB students access to high-quality programs can help put them 
on a path to long-term success.
    Changes: None.

General Comments

    Comments: One commenter stated that the Department only indicated 
that it was going to regulate on Sec.  668.156 the Approved State 
Process in the request for negotiator nominations yet went beyond that 
during rulemaking and regulated on eligible career pathway 
programs.\39\
---------------------------------------------------------------------------

    \39\ 86 FR 69607.
---------------------------------------------------------------------------

    Discussion: The Department announced topics for the rulemaking, 
that as the commenter mentions, included ATB. One of the three ATB 
alternatives is the Approved State Process (``State process'' or 
``process'') which falls under Sec.  668.156. Under that process, a 
non-high school graduate could receive title IV, HEA, Federal student 
aid for enrollment in an institution that is participating in the State 
process. In both the NPRM and these final regulations, we are 
establishing that those institutions that participate in the State 
process must meet the definition of an ECPP. For these reasons, we 
believe that ECPPs are tied to the ATB alternatives and are a logical 
outgrowth of the regulatory process to discuss how ECPPs are 
implemented and affect the State process.
    Changes: None.
    Comments: A few commenters noted that the data that the Department 
distributed during rulemaking showed that student enrollment through 
the ATB alternatives and ECPPs has decreased by over 50 percent since 
2016. The commenters believed that increasing regulation on the State 
process could have a chilling effect on States and postsecondary 
institutions choosing to use the alternative.
    Discussion: We disagree this regulation will have a chilling effect 
on States and postsecondary institutions choosing to use this ATB 
alternative. While the Department acknowledges that the State process 
has been used little to date, we also know there could be many reasons 
it has been underutilized. For instance, the data shows that overall 
undergraduate enrollment has fallen significantly over the last several 
years.\40\ It also shows a greater share of high school students 
graduating with a high school diploma or equivalency, and fewer people 
enrolling in postsecondary education, due at least in part to, 
demographic trends that show there are fewer high-school age 
individuals in the country.\41\
---------------------------------------------------------------------------

    \40\ The case for college: Promising solutions to reverse 
college enrollment declines [verbar] Brookings.
    \41\ https://knocking.wiche.edu/report/.
---------------------------------------------------------------------------

    Nonetheless, we believe the changes to the ATB and ECPP processes 
will encourage their responsible usage by providing much-needed 
clarity. For instance, the current success rate requirement meant 
States had to admit students through a State process without the use of 
title IV aid to obtain the data necessary for the application (using 
prior- or prior-prior-year data). If the combined success rate for all 
the participating institutions in a State process is not 95 percent of 
what high school graduates achieved, no postsecondary institution in 
the State can admit students through the State process. With these 
final regulations, we created an initial application that does not 
require a success rate calculation. That will allow States and 
participating institutions time to collect the data for the success 
rate calculation and still allow access to title IV aid. We have also 
separated the success rate calculation in the subsequent application to 
account for individual participating institutions as opposed to a 
combined success rate for all participating institutions in the State. 
Finally, we have lowered the success rate calculation to 85 percent of 
what high school graduates achieved, giving states a better chance of 
success in the State process, while simultaneously ensuring positive 
outcomes for students.
    We have also added clarity to ECPPs with these final regulations. 
Since 2014 the Department has provided guidance on ECPPs through a 
series of Dear Colleague Letters (DCL GEN 16-09 and 15-09). The DCLs 
help postsecondary institutions to implement ECPPs, but there are 
currently no regulations or clear documentation standards for ECPPs. We 
believe this has led to inconsistency in ECPPs, labeling of programs as 
ECPPs that do not meet the statutory threshold and a lack of authority 
for the Department to intervene. With these final regulations, we are 
defining ECPPs and clarifying the documentation requirements for them 
as well. We believe this will also serve to increase States' 
participation in the State process.

[[Page 74663]]

    Changes: None.

Definitions (Sec.  668.2)

    Comments: Several commenters stated the Department should use the 
exact definition of ``eligible career pathway programs'' from section 
484 of the HEA because it is consistent across three statues: the HEA, 
the Workforce Innovation and Opportunity Act of 1998, as amended (WIOA) 
and the Perkins Career and Technical Education Act of 2006, as amended 
Perkins IV. The commenters believe that the regulations should mirror 
the exact language in statute to avoid unintended consequences, 
loopholes, conflicts, confusion, or misinterpretations.
    Discussion: As discussed in the preamble to the proposed rule, the 
definition of an ECPP is in large part a duplication of the statutory 
definition found in HEA section 484(d)(2) and has the same effect. The 
Department has only excluded the statutory language that reads 
``(referred to individually in this chapter as an `apprenticeship,' 
except in section 171).'' \42\ That exclusion has no impact on the 
definition's meaning and does not affect its alignment and consistency 
with the statutory definition.
---------------------------------------------------------------------------

    \42\ As we observed in the NPRM, the statute's reference to 
``section 171'' may have been intended as a reference to section 171 
of the Workforce Innovation and Opportunity Act, Public Law 113-128, 
which is in section 3226 of title 29, Labor. Neither the National 
Apprenticeship Act nor the HEA contains a section 171.
---------------------------------------------------------------------------

    Changes: None.

Student Eligibility--General (Sec.  668.32)

    Comments: One commenter recommended that the Department communicate 
that technical changes made to Sec.  668.32 were not done as a benefit 
to those enrolled prior to 2012, but rather as an unfortunate fact that 
those enrolled two decades ago were not required to experience program 
design and delivery innovations that focus intentionally on supporting 
their access and success. The commenter believed that since 2015 the 
Department has communicated the idea that pre-2012 ATB requirements 
were easier and better than new ATB and that these legacy students had 
the better option. The commenter also requested that the Department 
reveal the numbers of potential participants who could utilize the 
legacy provision.
    Discussion: The changes made to Sec.  668.32 are technical, 
required by statute and were explained in 2012 through DCL GEN 12-
09.\43\ The Department does not view the legacy requirements in statute 
as fortunate or unfortunate, but rather a fact of the law. The 
Department is unable to know the potential number of participants that 
could use the legacy provision.
---------------------------------------------------------------------------

    \43\ https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2012-06-28/gen-12-09-subjecttitle-iv-eligibility-students-without-valid-high-school-diploma.
---------------------------------------------------------------------------

    Changes: None.

Approved State Process (Sec.  668.156)

    Comments: One commenter requested that the Department add the six 
services that participating institutions were required to offer each 
ATB student back to the final regulations.
    Discussion: The six services were introduced in 1994--20 years 
prior to the introduction of ECPPs. Most ATB students that enroll and 
receive title IV aid will be required to enroll in an ECPP. The 
services required under the previous regulation are somewhat redundant 
to the requirements of an ECPP and they meet the same goals. Please see 
the chart below for a comparison.

------------------------------------------------------------------------
  Previous services required under
         the State process                  Requirements of ECPPs
------------------------------------------------------------------------
* Orientation regarding the          * Aligns with the skill needs of
 institution's academic standards     industries in the economy of the
 and requirements, and student        State or regional economy
 rights.                              involved.
* Assessment of each student's       * Prepares an individual to be
 existing capabilities through        successful in any of a full range
 means other than a single            of secondary or postsecondary
 standardized test.                   education options, including
* Tutoring in basic verbal and        apprenticeships registered under
 quantitative skills, if              the Act of August 16, 1937.
 appropriate.
* Assistance in developing           * Includes counseling to support an
 educational goals.                   individual in achieving the
* Counseling, including counseling    individual's education and career
 regarding the appropriate class      goals.
 level for that student given the    * Includes, as appropriate,
 student's individual's               education offered concurrently
 capabilities.                        with and in the same context as
* Follow-up by teachers and           workforce preparation activities
 counselors regarding the student's   and training for a specific
 classroom performance and            occupation or occupational
 satisfactory progress toward         Cluster.
 program completion.                 * Organizes education, training,
                                      and other services to meet the
                                      needs of an individual in a manner
                                      that accelerates the educational
                                      and career advancement of the
                                      individual to the extent
                                      practicable.
                                     * Enables an individual to attain a
                                      secondary school diploma or its
                                      recognized equivalent, and at
                                      least 1 recognized postsecondary
                                      credential.
                                     * Helps an individual enter or
                                      advance within a specific
                                      occupation or occupational
                                      cluster.
------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter requested that the Department increase the 
initial period under Sec.  668.156(b) from two to three years.
    Discussion: We believe that two years is adequate time for the 
State to gather the data necessary to determine a success rate (outcome 
metric for the ECPPs) to reapply to the Department. If a participating 
institution does not enroll any ATB students through its State process 
under Sec.  668.156(g)(2), we will grant the State a one-year extension 
to its initial approval.
    A State begins its initial period after its first application has 
been approved by the Department. During the initial two-year period, 
the participating institutions will not be subject to outcomes metrics 
about their ECPPs. Instead, a participating institution will be 
required to demonstrate that it does not have a withdrawal rate of over 
33 percent and there will be a cap on enrollment of ATB students in 
ECPPs. In the subsequent application (the application to be submitted 
two years after the initial application was submitted), the 
participating institution will be required to calculate a success rate. 
The success rate is a metric directly related to the ECPPs the 
participating institution offers.
    As mentioned in the NPRM, we believe, that the two-year initial 
period is a necessary guardrail against the rapid expansion of ECPPs 
through the State process. These protections are particularly important 
because as mentioned above the required success

[[Page 74664]]

metric is no longer included at the initial application of a State 
process.
    Changes: None.
    Comments: One commenter said that we should exempt States with 
processes approved prior to the effective date of this final regulation 
from the initial two-year period under proposed Sec.  668.156(b).
    Discussion: We believe it is clear that Sec.  668.156(b) relates 
solely to a State applying for its first approval. States that had an 
approved process before the effective date of these regulations are not 
subject to the initial 2-year period. Those States will be subject to 
the new requirements under Sec.  668.156(e) for the subsequent 
application.
    Changes: None.
    Comments: Many commenters requested that the Department remove the 
enrollment cap in the State process of no more than 25 ATB students or 
one percent of enrollment in an ECPP at each participating institution 
during the initial two-year period. These commenters believe that the 
cap will hamper innovation, restrict funding, is arbitrary, is too 
small to get an accurate data for the success rate calculation, and 
will disincentivize the use of the State process option.
    Discussion: We disagree with the commenters' assertions about the 
enrollment cap. First, the enrollment cap is not arbitrary. As we 
stated in the NPRM, the enrollment cap is intended to serve as a 
guardrail against the rapid expansion of ECPPs during a period when 
there is no required success metric at the initial application of a 
State process. Additionally, although the Department started with an 
enrollment cap of 1 percent, it was a committee member, concerned about 
its impact on smaller institutions, who suggested that the cap be 
established as the greater of one percent of enrollment or 25 students 
at each participating institution. The Committee adopted that committee 
member's suggestion, and the Department incorporated it into these 
regulations.
    This enrollment cap will not disincentivize the use of the State 
process option. As noted in this section, the clarifying amendments to 
these regulations, including a lower success rate of 85 percent, is 
likely to increase participation in the State process. Further the 
enrollment cap is only for a two-year period, that will be lifted upon 
successful reapplication to the Department.
    Changes: None.
    Comments: One commenter asked multiple questions about the 
definition of the enrollment cap in Sec.  668.156(b)(2). They asked 
whether the Department could enforce this requirement and whether the 
cap will only apply to the initial two-year period. They also asked 
whether the ``cap'' is a limitation on enrollment for postsecondary 
institutions that offer ECPPs or a cap on the number of ATB students 
who are eligible to receive title IV aid through the State process in 
the initial two-year period. Finally, they asked about the Department's 
statutory authority to institute a cap on the number of students who 
are eligible to receive aid under the ATB State process and whether the 
Department has the authority to limit access to title IV aid to 
eligible students.
    Discussion: In terms of enforcement, the cap is a part of the State 
process, so enforcement of the cap is the State's responsibility. If 
the State is unable to enforce requirements in the regulation, the 
State may wish to take more time before applying to the Department to 
resolve internal control issues and may wish to apply later for an 
approved State process.
    The cap is the limit on the number of ATB students at each 
participating institution who are eligible to receive title IV aid 
through the State process. It applies solely for the initial two-year 
period. It no longer applies once the subsequent application is 
approved.
    The Department's authority for the enrollment cap stems from 
section 484(d)(1)(A)(ii) of the HEA, which gives the Secretary 
authority to determine the grounds for approval or disapproval of a 
State process.
    Changes: None.
    Comments: Several commenters requested lowering the success rate 
under Sec.  668.156(e)(1) from 85 to 75 percent. These commenters 
believed that 75 percent would be a more reasonable target and help to 
encourage States to submit an application to the Department for the 
State process ATB alternative.
    Discussion: Like the commenters, the Department seeks to encourage 
participation in the State process, provided there are appropriate 
protections in place for students. The negotiated rulemaking committee 
reached consensus on the 85 percent threshold after careful discussion, 
and we are not persuaded that the Department should deviate from the 
consensus language.
    We believe that changing the requirement from a success rate of 95 
percent to 75 percent would unduly compromise student protections built 
into this alternative. We believe a reduction to 85 percent best 
supports the Department's interests in increasing State participation 
in the State process, while simultaneously ensuring positive outcomes 
for students.
    In arriving at the 85 percent success rate, the Department 
considered relevant data on the use of the State process under the 
current regulations. Many States have not availed themselves of this 
alternative, despite it providing a pathway for non-high school 
graduates to gain access to title IV aid. Although the State process 
was authorized under section 484 of the HEA in 1994, the Department did 
not receive its first application until 2019. As of August 2023, only 
six States have applied to the Department to have a State process 
approved. In the approved States, student enrollment through the State 
process has been slow and relatively low. Several States reported 
single digit enrollment after years of Department approval.
    We understand that States may be hesitant to apply, in part, due to 
the 95 percent success rate requirement. Given the modest enrollment 
figures, the bar may be set too high for a State to risk investing 
resources in the process only to have its application denied. For 
example, under the 95 percent success rate requirement, if the high 
school graduate success rate was 80 percent based on 10,000 students, 
but the success rate for non-high school graduates was 70 percent based 
on 10 graduates in the State process, the overall success rate would be 
87.5 percent and that State would fail, meaning that every 
participating institution would be prohibited from awarding title IV 
aid to ATB students admitted through the State process. However, that 
State would meet an 85 percent success rate. Additionally, under these 
final regulations, the success rate of those participating institutions 
would now be calculated individually, and not collectively as a State. 
This would mean individual participating institutions could pass the 85 
percent success rate calculation, even if other participating 
institutions in their State did not.
    As the Department seeks to increase participation in the State 
process, it must also ensure that the State process results in positive 
outcomes for non-high school graduate students. The Department believes 
that lowering the success rate to 85 percent and applying it to 
participating schools individually, will best balance these interests, 
while encouraging States to apply for the State process and expand 
postsecondary options for students. We believe that a success rate 
below 85 percent would compromise quality and program integrity.

[[Page 74665]]

    Despite these changes to the success rate, we believe it is 
important to note the 95 percent success rate served the Department's 
interest in ensuring that the State process offers a postsecondary 
pathway to students who are, non-high school graduates. Although we 
have determined to reduce the required success rate from 95 percent to 
85 percent to help encourage States to establish these pathways, and 
determined that, even with such a reduction, there are adequate 
protections for students, ultimately, we believe that ensuring these 
programs create positive student outcomes is more important than simply 
increasing the number of participating States and, for that reason, 
favor a more rigorous success rate requirement.
    Changes: None.
    Comments: One commenter said that the 85 percent success rate is 
not an appropriate outcome indicator for the State process because they 
believed that quality should not be measured by the financial outcomes 
of program completers.
    Discussion: The success rate calculation does not take financial 
outcomes into account. The success rate calculation is a persistence 
metric. Section 484(d)(1)(A)(ii) of the HEA requires the Department to 
consider the effectiveness of the State process in enabling students 
without a high school diploma to benefit from the ECPP. Since 1994, the 
Department has implemented this requirement by assessing the 
effectiveness of a State process through a success rate, which is a 
persistence metric and not an earnings metric.
    Changes: None.
    Comments: One commenter noted the Department proposed two new 
reporting requirements for the State process ATB alternative, yet there 
is no such reporting required under the ATB test, six credit-hour, or 
225 clock-hour alternatives. The commenter contended that this could 
discourage participation in the State process alternative.
    Discussion: These reporting requirements related to the State 
process are necessary for the Department to discharge its statutory 
obligations under section 484 of the HEA.\44\ Section 484(d)(1)(A)(ii) 
requires the Secretary to consider the effectiveness of the State 
process in enabling students without secondary school diplomas or the 
equivalent thereof to benefit from the instruction offered by 
institutions utilizing such process, and also take into account the 
cultural diversity, economic circumstances, and educational preparation 
of the populations served by the institutions. Through the additional 
reporting requirements in Sec.  668.156(e)(3), States will provide the 
Secretary the information necessary to meet this statutory obligation. 
Specifically, Sec.  668.156(e)(3) requires States to report information 
on the enrollment and success of participating students by eligible 
career pathway program and by race, gender, age, economic 
circumstances, and educational attainment, to the extent available. We 
have also added under Sec.  668.156(h) that a State must submit reports 
on its process, according to deadlines and procedures that we publish 
in the Federal Register.
---------------------------------------------------------------------------

    \44\ 20 U.S.C. 1091.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters asked the Department to add linguistic 
status to the proposed reporting under Sec.  668.156(e)(3). One 
commenter stated that knowing whether ATB supports new Americans is 
imperative for the future of not only many new Americans, but also the 
future labor market. The commenter recommended that we require 
reporting on other languages that are spoken at home and the self-
reported English proficiency of students.
    Discussion: We appreciate the commenters' suggestion. We will 
specify the data elements that must be reported in a notice published 
in the Federal Register. We will consider including linguistic status.
    Changes: None.
    Comments: One commenter asked the Department to broaden the 
Department's discretion under Sec.  668.156(j)(1)(iii), which provides 
that the Department may lower the success rate to 75 percent (from the 
standard 85 percent) for two years if more than 50 percent of the 
participating institutions in the State fail to reach 85 percent. The 
commenter suggested that the Department should have the discretion to 
determine an appropriate success rate in circumstances that may extend 
beyond two years.
    Discussion: Under Sec.  668.156(j)(1)(iii), the Department may 
lower the success rate required under Sec.  668.156(e)(1) from 85 to 75 
percent if 50 percent or more participating institutions across all 
States do not meet the success rate in a given year. As discussed 
elsewhere in this document, through these regulations, the Department 
is lowering the otherwise applicable success rate from 95 to 85 
percent. Given this easing of the requirement, we believe that two 
years will provide participating institutions sufficient time to comply 
with the regulations.
    We also believe that having a standardized rate (75 percent) will 
help program integrity, data efficacy, and ensures consistency. We 
choose two years because that is the length of the initial approval 
period under Sec.  668.156(b). We choose 75 percent, because we believe 
that is a reasonable exception and reduction from the 85 percent 
success rate requirement.
    Under Sec.  668.156(e)(1), each participating institution will 
calculate its own success rate. Previously, there was one collective 
success rate calculated for all participating institutions in the 
State. If flexibilities under Sec.  668.156(j)(1)(iii) are invoked and 
a participating institution, or group of institutions, continues to 
have a success rate of less than 75 percent for more than two years, 
the State will need to remove the specific institution(s) from their 
State process, or risk revocation of its approval by the Department.
    Changes: None.

Eligible Career Pathway Program (Sec.  668.157)

    Comments: The Department received many comments requesting that we 
reconsider requiring the Department to approve nearly all ECPPs for ATB 
use. Commenters were concerned that this is a dramatic departure from 
the Department's current practice, and this could further discourage 
use of ATB and ECPPs.
    Discussion: Currently, we do not approve individual career pathway 
programs for ATB use and have provided minimal guidance on 
documentation requirements. The Department is aware of compliance and 
program integrity concerns with programs that claim to offer an ECPP 
but do not offer all required components. While the Department believes 
that many institutions have made a good-faith effort to comply with the 
statutory definition, we believe it is necessary to establish an 
approval process in regulation to ensure program quality. Approving 
ECPPs would address these issues and allow ATB students served by ECPPs 
to receive better educational opportunities.
    The Department, however, understands the concerns voiced through 
public comment and is persuaded based on the data released during 
negotiated rulemaking \45\ that approving almost every ECPP for ATB use 
could add too much regulatory and

[[Page 74666]]

operational burden for postsecondary institutions.
---------------------------------------------------------------------------

    \45\ www2.ed.gov/policy/highered/reg/hearulemaking/2021/analysisofatbusage.pdf. www2.ed.gov/policy/highered/reg/hearulemaking/2021/atbusagedata.xlsx.
---------------------------------------------------------------------------

    In the final rule, the Department balances the consumer protection 
and burden concerns by instead limiting the Department approval to the 
first ECPP offered by an institution for ATB students. The Department 
will also maintain the authority to review ECPPs beyond the first one 
if the Secretary deems it necessary. This approach is similar to the 
Department's approval of prison education programs in part 668, subpart 
P, and direct assessment programs in Sec.  668.10. If an institution 
already offers an ECPP, the Department will require the institution to 
apply for and obtain affirmative verification that the ECPP meets the 
standards as outlined in these new regulations in order to enroll 
students in the ECPP through ATB. The postsecondary institution will 
also need to affirm that any other ECPPs that the school offers for ATB 
use also comply with the new regulatory standards and documentation 
requirements. If the ECPP fails to meet the new standards as outlined 
in regulation on or after the effective date, then the ECPP will lose 
eligibility for ATB students who wish to use title IV aid to enroll, 
and the Department reserves the authority to evaluate other eligible 
ECPPs that enroll ATB students (if any) at the postsecondary 
institution. Please note that if an ECPP loses ATB title IV eligibility 
that does not mean that it loses overall title IV program eligibility, 
it just means that an ATB student could not receive title IV aid to 
enroll in the program. Only students with a high school diploma or its 
recognized equivalent could receive title IV aid to enroll in an 
eligible program that has lost its ECPP designation.
    If the institution does not offer an ECPP, then the institution 
will be required to apply to the Department and have its first ECPP 
approved by the Department prior to offering title IV aid to enrolled 
students in the ECPP through ATB. The postsecondary institution will 
also need to affirm that any and all other ECPPs that the school offers 
to ATB students also comply with the new regulatory standards and 
documentation requirements.
    Through this approach the Department will know who is offering an 
ECPP through ATB and that at least the first offering meets 
requirements.
    Changes: The Department has amended Sec.  668.157(b) and (c) to 
require the approval of one ECPP at each participating institution. If 
an institution already offers an ECPP for ATB use, it must apply for 
and obtain affirmative verification that the ECPP meets the regulatory 
standards in order to continue enrolling ATB students in the ECPP and 
affirm that any other ECPPs that it offers to ATB students also comply 
with the standards and documentation requirements.
    The Department has also omitted Sec.  668.156(a)(3), which would 
have required the Department to verify a sample of ECPPs that enroll 
ATB students through the State process alternative, as noted above, one 
ECPP will be approved per postsecondary institution, including those 
that enroll students through the State process.
    Comments: Several commenters requested that the Department detail 
the ECPP approval process in regulation. One commenter further 
suggested that the Department should delay final ATB regulations until 
it has done so.
    Discussion: The Department declines to regulate on the approval 
process. Regulating the process reduces the Department's ability to 
quickly adapt the process to better meet the needs of ATB. However, we 
will release sub-regulatory guidance on ATB and ECPPs as needed.
    The Department will release an ATB ECPP application form prior to 
the effective date of the regulations. All information collections are 
required to go through an approval process that includes two separate 
timeframes for the public to comment. Therefore, there will be 
additional public feedback received through that process.
    Changes: None.
    Comments: Several commenters asked whether institutions could 
continue offering eligible ECPPs while the approval process is ongoing. 
The commenters also asked if the Department would work with 
institutions if an ECPP is not approved for ATB use and expressed 
concern about whether institutions would have sufficient funding and 
staff to complete the approval process.
    Discussion: Postsecondary institutions can continue to offer 
eligible ECPPs to ATB students while a Department review is pending. 
The Department will release information about the approval process 
through sub-regulatory guidance. The Department will not hold a 
postsecondary institution liable if its ECPP does not meet the 
documentation standards in these new regulations prior to July 1, 2024. 
The Department will however continue to hold a postsecondary 
institution liable if we determine that the postsecondary institution 
did not make a good-faith effort (as outlined in the seventh question 
in DCL GEN 16-09) to comply with the statutory definition of an ECPP 
which has been in law since 2014. The Department will work with 
postsecondary institutions when issues arise regarding the continued 
title IV eligibility of their ECPP(s); however, ECPPs that fail to meet 
the regulatory definition on or after the effective date of these 
regulations may lose title IV eligibility for ATB students for failure 
to comply. We do not believe that the approval requirements are unduly 
burdensome and note, regarding the commenters' concerns about funding 
and staff, that the Department is amending the regulations to require 
the approval of one ECPP as opposed to almost all ECPPs offered for 
ATB, so the burden to complete the approval process will be limited.
    Changes: None.
    Comments: One commenter stated that the Department should publish 
on its website the basis for its conclusions that an ECPP submitted by 
a postsecondary institution does or does not comply with the HEA and 
Department ATB regulations for all programs it reviews to show that the 
Department is not using its review process to target and eliminate 
proprietary institution programs.
    A few commenters believed that the Department's reference to 
curtailing bad actors in the NPRM was a veiled reference to ECPPs at 
proprietary institutions.
    Discussion: The standards in the ATB and ECPP regulations apply to 
all postsecondary institutions and the Department will continue to 
review all ECPPs pre-July 1, 2024, based on the statute and post July 
1, 2024, based on the statute and regulations. When an ECPP is denied, 
that institution will be informed of the reason for the denial. If we 
observe trends or common reasons for denials, the Department will 
consider issuing additional information, but we do not plan to publish 
individual denials. Inquirers may be able to file a Freedom of 
Information Act requested for that information.
    Changes: None.
    Comments: One commenter noted that the Department's documentation 
requirement under Sec.  668.157(a)(1)(iii) is redundant to the 
requirement under Sec.  668.157(a)(1)(ii) and that the Department 
should change Sec.  668.157(a)(1)(iii) to reference integrated 
education and training as defined in 34 CFR 463.35.
    Discussion: The Department does not believe the documentation 
requirements are redundant. Documentation requirements under Sec.  
668.157(a)(1)(ii) required an institution to demonstrate that a student 
enrolled in an ECPP receives adult education and literacy services 
under Sec.  463.30. The adult

[[Page 74667]]

education and literacy services under Sec.  463.30 include eight 
different programs activities, and services, and the regulatory text 
uses an ``or'' and not ``and'', meaning that the services do not 
necessarily have to include ``workforce preparation activities'' in 
Sec.  463.30(g) as long as one other service under Sec.  463.30(a) 
through (f) or (h) is incorporated. We believe that the reference to 
workforce preparation activities under Sec.  668.157(a)(1)(iii) is 
important to maintain in the case that workforce preparation activities 
are not included in the ECPP under Sec.  668.157(a)(1)(ii). 
Furthermore, our regulations specify the definition of ``workforce 
preparation activities'' as defined in Sec.  463.34.
    We do not believe that it is necessary to reference Sec.  463.35 
because the requirements under Sec.  668.157(a)(5) essentially uses the 
definition of integrated education and training.
    Changes: None.
    Comments: A few commenters recommended that the Department change 
the reference to secondary education in Sec.  668.157(a)(5) to adult 
education.
    Discussion: The Department declines to make this change because the 
commenter did not provide sufficient rationale. However, we are going 
to delete the word ``secondary'' to align with the language of the 
statute, which references ``education'' broadly. Section 484(d)(2)(D) 
of the HEA states that the ECPP must include, as appropriate, education 
offered concurrently with and in the same context as workforce 
preparation activities and training for a specific occupation or 
occupational cluster.
    Changes: We have removed the word ``secondary'' from Sec.  
668.157(a)(5).
    Comments: One commenter asked the Department to provide more detail 
on academic and career services in Sec.  668.157(a)(4) and workforce 
preparation activities and training in Sec.  668.157(a)(5). The 
commenter contended that the Department has not established baseline 
requirements and that it is unclear where, how, or when the Department 
will create them.
    Discussion: The Department declines to further change Sec.  
668.157. We established baseline requirements by requiring that 
postsecondary institutions maintain specific documentation that will 
validate their ECPPs for ATB use upon request of the Department. As 
stated throughout this final rule, previously the Department did not 
have ECPP approval requirements for ATB. The Department does not seek 
to regulate in a way that will curtail flexibility in a postsecondary 
institution's ECPP. However, the Department expects the institution to 
be able to document its position that the ECPP meets the HEA and 
regulation definition of an ECPP.
    The Department intends to release sub-regulatory guidance on this 
topic.
    Changes: None.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Office of Management and Budget 
(OMB) must determine whether this regulatory action is ``significant'' 
and, therefore, subject to the requirements of the Executive order and 
subject to review by OMB. Section 3(f) of Executive Order 12866, as 
amended by Executive Order 14094, defines a ``significant regulatory 
action'' as an action likely to result in a rule that may--
    (1) Have an annual effect on the economy of $200 million or more 
(as of 2023 but adjusted every 3 years by that Administrator of the 
Office of Information and Regulatory Affairs (OIRA) for changes in 
gross domestic product), or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, territorial, or 
Tribal governments or communities;
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise legal or policy issues for which centralized review would 
meaningfully further the President's priorities, or the principles 
stated in the Executive Order, as specifically authorized in a timely 
manner by the Administrator of OIRA in each case.
    This final regulatory action is not anticipated to have an annual 
effect on the economy of more than $200 million. The Department has not 
historically estimated that there is a significant budget impact on 
changes to Financial Responsibility, Administrative Capability, 
Certification Procedures, and ATB, and anticipates that this will 
continue in the final rule. The Financial Responsibility regulations 
would be the most likely to result in transfers if the Department 
collects on a letter of credit or funds in an escrow account to offset 
the costs of unpaid liabilities or discharges related to closed schools 
or borrower defense to repayment. However, the Department has not 
consistently had significant financial protection to cover those types 
of liabilities, so we have taken a more conservative approach to not 
assume any savings from these provisions. Potential effects of 
collecting on greater amounts of financial protection are instead 
captured as a sensitivity analysis.
    However, the issues in this final regulation are significant 
because they raise legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive Order. Therefore, this regulation is subject to review by OMB 
under section 3(f)(1) of Executive Order 12866 (as amended by Executive 
Order 14094). We therefore have assessed the potential costs and 
benefits, both quantitative and qualitative, of this regulatory action 
and have determined that the benefits will justify the costs.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866 (as amended by Executive Order 14094). To the 
extent permitted by law, Executive Order 13563 requires that an 
agency--
    (1) Propose or adopt regulations only on a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying

[[Page 74668]]

changing future compliance costs that might result from technological 
innovation or anticipated behavioral changes.''
    We are issuing these regulations only on a reasoned determination 
that their benefits will justify their costs. In choosing among 
alternative regulatory approaches, we selected those approaches that 
maximize net benefits. Based on the analysis that follows, the 
Department believes that these regulations are consistent with the 
principles in Executive Order 13563.
    We also have determined that this regulatory action will not unduly 
interfere with State, local, territorial, or Tribal governments in the 
exercise of their governmental functions.
    In this regulatory impact analysis, we discuss the need for 
regulatory action, summarize the key changes from the NPRM to the final 
rule, respond to comments related to the RIA in the NPRM, discuss the 
potential costs and benefits, estimate the net budget impacts and 
paperwork burden as required by the Paperwork Reduction Act, and 
discuss regulatory alternatives we considered.
    The regulatory actions related to Financial Responsibility, 
Administrative Capability, and Certification Procedures provide 
benefits to the Department by strengthening our ability to conduct more 
proactive and real-time oversight of institutions of higher education. 
Specifically, under the Financial Responsibility regulations, the 
Department can more easily obtain financial protection to offset the 
cost of discharges when an institution closes or engages in behavior 
that results in approved defense to repayment claims. The changes to 
the Certification Procedures rules allow the Department more 
flexibility to increase its scrutiny of institutions that exhibit 
concerning signs, including by placing them on provisional status or 
adding conditions to their PPA. For Administrative Capability, we are 
expanding the requirements to address additional areas of concern that 
could indicate severe or systemic administrative issues in properly 
managing the title IV, HEA programs, such as failing to provide 
adequate financial aid counseling including clear and accurate 
communications or adequate career services. Enhanced oversight ability 
better protects taxpayers and helps students by dissuading institutions 
from engaging in overly risky behavior and encouraging institutions to 
make improvements. These benefits come at the expense of some added 
costs for institutions to acquire additional financial protection or 
potentially shift their behavior. The Department believes these 
benefits of improved accountability outweigh those costs. There could 
also be limited circumstances in which an institution that was 
determined to lack financial responsibility and required to provide 
financial protection could choose to cease participating in the Federal 
aid programs instead of providing the required financial protection. 
The Department believes this would be most likely to occur in a 
situation in which the institution was already facing severe financial 
instability and on the verge of abrupt closure. In such a situation, 
there could be transfers from the Department to borrowers that occur in 
the form of a closed school loan discharge, though it is possible that 
the amount of such transfers is smaller than what it would otherwise be 
as the institution would not be operating for as long a period as it 
would have without the request for additional financial protection. 
However, the added triggers are intended to catch instances of 
potential financial instability far enough in advance to avoid an 
abrupt closure.
    Finally, the ATB regulations provide much-needed clarity on the 
process for reviewing and approving State applications to offer a 
pathway into title IV, HEA aid for individuals who do not have a high 
school diploma or its recognized equivalent. Although States will 
likely incur costs in pursuing the required application, for this 
population of students, the regulations provide students with more 
opportunities for success by facilitating States' creation and 
expansion of options.

1. Congressional Review Act Designation

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated that this 
rule is covered under 5 U.S.C. 804(2) and (3).

2. Need for Regulatory Action

    Institutions of higher education receive tens of billions of 
dollars in Federal assistance for postsecondary education each year. In 
most cases, these grants and loans provided to students help them 
achieve their educational dreams, unlocking opportunities they would 
not otherwise be able to afford. Unfortunately, however, there are also 
far too many situations in which institutions take advantage of 
borrowers instead of serving them well. Over the past several years, 
the Department has approved around $13.6 billion in student loan 
discharges for borrowers who attended institutions that engaged in a 
range of misrepresentations, including lying about job placement rates, 
the employment opportunities available to graduates, whether programs 
had certain necessary approvals for graduates to be licensed or 
certified to work in occupations related to the training, and the 
ability to transfer credits. Almost all these discharges were related 
to conduct by institutions that are no longer operating and who closed 
prior to the Department obtaining sufficient financial protection to 
offset the losses to taxpayers from granting these discharges.
    Relatedly, the Department also regularly encounters situations when 
institutions close with minimal to no warning for students. A study of 
college closures from July 2004 to June 2020 by the State Higher 
Education Executive Officers (SHEEO) Association found that 70 percent 
of students affected by a closure experienced a sudden closure.\46\ A 
larger share of students affected by closures received Pell Grants than 
those who attended open institutions. Sudden closures leave behind 
numerous problems. For students, they often have no approved teach-out 
options, giving them minimal direction on where they could finish their 
education. They also often have trouble accessing necessary records, 
and in many cases, do not continue their postsecondary education 
anywhere. The SHEEO report confirms this outcome, noting significantly 
negative correlations between sudden closures and either re-enrollment 
or completion compared to students who experienced an orderly closure. 
SHEEO found the re-enrollment rate for those in an orderly closure was 
nearly 30 percentage points higher than those affected by a sudden 
closure (70 percent versus 42 percent). Sudden closures are also costly 
for the government, as the Department rarely has sufficient financial 
protection on hand to offset the losses to the taxpayer from the closed 
school loan discharges that are a critical benefit for giving students 
a fresh start on their debt.
---------------------------------------------------------------------------

    \46\ sheeo.org/wp-content/uploads/2022/11/SHEEO_NSCRC_CollegeClosures_Report1.pdf.
---------------------------------------------------------------------------

    By contrast, the individuals and entities that managed, 
administered, or owned the institutions prior to their closure often 
faced minimal consequences for their actions beyond the loss of ongoing 
revenue from the title IV programs. To date, these entities have rarely 
paid liabilities from the costs of discharges that are not covered by 
any financial protection on hand. Companies and individuals have been 
able to own or operate other institutions

[[Page 74669]]

even after sudden closures or significant evidence of misconduct.
    The final regulations improve the Department's ability to take 
proactive steps to mitigate the harm from sudden closures and 
institutional misconduct. Changes to the financial responsibility 
regulations, for instance, allow the Department to seek financial 
protection as soon as certain warning signs occur. Doing so allows the 
Department to have more funds on hand to offset taxpayer losses if 
misconduct or closures occur. It will also discourage institutions from 
engaging in certain behaviors that are likely to result in a demand for 
financial protection. These rules recognize that while the exact timing 
of a closure may be sudden and unexpected, the months and years leading 
up to that point often involve several signs that indicate a weakening 
financial situation. Taking swifter and more proactive action when 
those indicators occur will ultimately leave students and taxpayers in 
a stronger position.
    The changes to certification procedures provide similar benefits 
with respect to the conditions placed on institutions as they operate 
in the title IV programs. Historically, many problematic institutions 
have maintained full certification status up to the date they closed 
suddenly. The final rule strengthens the ability of the Department to 
place additional conditions on institutions, including more situations 
where an institution can become provisionally certified. The rules also 
make it easier for the Department to demand a teach-out plan or 
agreement. This is a critical tool for ensuring that borrowers have 
clear options for how they could continue their education in the event 
of a closure.
    The certification procedures rules include several protections for 
students that will limit situations in which credits paid for with 
title IV funds cannot be used to deliver the benefits sought from an 
educational program. Requiring institutions to certify that they have 
the necessary approvals for program graduates to obtain licensure or 
certification ensures students are not taking on loan debt or using up 
their financial aid eligibility for programs where they legally will 
not be able to work in their desired field. Similarly, restrictions on 
when institutions can withhold transcripts due to unpaid balances will 
ensure students can make use of credits paid for in whole or in part by 
taxpayer money.
    The administrative capability provisions in this final rule 
accomplish three goals. First, they identify additional areas where the 
Department has seen concerning activity by institutions, often through 
program reviews, that leads to loan discharges tied to misconduct, 
false certification discharges, or the establishment of other 
liabilities. This is addressed through areas like clearer expectations 
for career services and verifying high school diplomas. Second, the 
rules strengthen the Department's ability to hold institutions 
accountable when they employ someone who has a history of concerning 
past conduct in the aid programs. Third, the rules address areas where 
the Department has seen institutional conduct undercut the ability of 
students to successfully use their financial aid dollars. For instance, 
student aid offers that have confusing or misleading terminology or 
fail to clearly differentiate between what is a grant or a loan may 
lead students into taking on debt they did not intend to incur or not 
be able to fully understand the relative costs of different educational 
options.
    Finally, the ATB provisions bring much-needed clarity to help 
States stand up educational opportunities for students who do not have 
a recognized high school diploma or its equivalent. That will help 
States looking to create more of these programs and lead to the 
expansion of ways for students to seek postsecondary education.

3. Summary of Comments and Changes From the NPRM

                           Table 3.1--Summary of Key Changes in the Final Regulations
----------------------------------------------------------------------------------------------------------------
                Provision                      Regulatory section            Description of final provision
----------------------------------------------------------------------------------------------------------------
                                            Financial Responsibility
----------------------------------------------------------------------------------------------------------------
Disclosures of related party              Sec.   668.23(d)(1)........  Require management to add a note to the
 transactions.                                                          financial statements disclosing if there
                                                                        are no related party transactions for
                                                                        the year.
Disclosures on amounts spent on           Sec.   668.23(d)(5)........  Delete a proposal in the NPRM to require
 recruiting activities, advertising, and                                an institution to disclose in a footnote
 other pre-enrollment expenditures.                                     to its financial statement audit the
                                                                        dollar amounts it has spent in the
                                                                        preceding fiscal year on recruiting
                                                                        activities, advertising, and other pre-
                                                                        enrollment expenditures.
Effect of discretionary triggers on an    Sec.   668.171(b)(3)(vi),    Replace the word ``material'' with
 institution's finances.                   (d)(5), and (f)(3)(i)(C)     ``significant'' as it describes both an
                                           and 668.175(f)(1)(i).        adverse effect on an institution or the
                                                                        financial condition of an institution
                                                                        from a discretionary trigger. And
                                                                        removing the reference to a mandatory
                                                                        trigger in Sec.   668.171(f)(3)(i)(C).
Mandatory Triggers--Legal and             Sec.   668.171(c)(2)(i)(D).  State that for institutions subject to
 administrative actions.                                                conditions as described, the trigger
                                                                        will be activated only when the
                                                                        conditions result in a recalculated
                                                                        composite score of less than 1.0 as
                                                                        recalculated by the Department according
                                                                        to Sec.   668.171(e). The timeframe for
                                                                        this trigger is through the end of the
                                                                        second full fiscal year after the change
                                                                        in ownership has occurred.
Mandatory Triggers--Teach-out plans or    Sec.   668.171(c)(2)(iv)...  State that the mandatory trigger is
 agreements.                                                            activated if the institution is required
                                                                        to submit a teach-out plan or agreement
                                                                        for reasons related to financial
                                                                        concerns.
Discretionary Triggers--Teach-out plans   Sec.   668.171(d)(13)......  Add a discretionary trigger for when an
 or agreements.                                                         institution is required to submit any
                                                                        teach-out plan or agreement by a State,
                                                                        the Department or another Federal
                                                                        agency, an accrediting agency or other
                                                                        oversight body and which is not covered
                                                                        by Sec.   668.171(c)(2)(iv).
Mandatory Triggers--State actions.......  Sec.   668.171(c)(2)(v)....  Remove the mandatory trigger dealing with
                                                                        State actions from Sec.
                                                                        668.171(c)(2)(v) and Sec.
                                                                        668.171(c)(2)(v) is reserved.
Discretionary Triggers--State actions...  Sec.   668.171(d)(9).......  Amend the discretionary trigger at Sec.
                                                                        668.171(d)(9) to include when an
                                                                        institution is cited by a State
                                                                        licensing or authorizing agency and the
                                                                        State or agency for not meeting
                                                                        requirements and is provided notice that
                                                                        the State or agency will withdraw or
                                                                        terminate the institution's licensure or
                                                                        authorization if the institution does
                                                                        not come into compliance with that
                                                                        requirement.
Mandatory Triggers--Loss of eligibility.  Sec.   668.171(c)(2)(ix)...  Remove the mandatory trigger dealing an
                                                                        institution's loss of eligibility for
                                                                        another Federal educational assistance
                                                                        program from Sec.   668.171(c)(2)(ix)
                                                                        and Sec.   668.171(c)(2)(ix) is
                                                                        reserved.

[[Page 74670]]

 
Discretionary Triggers--Loss of program   Sec.   668.171(d)(10)......  Amend the discretionary trigger at Sec.
 eligibility.                                                           668.171(d)(10) to include when an
                                                                        institution or one of its educational
                                                                        programs loses eligibility to
                                                                        participate in another Federal
                                                                        educational assistance program due to an
                                                                        administrative action against the
                                                                        institution or its programs.
Mandatory Triggers--Legal and             Sec.   668.171(c)(2)(i)....  Change the heading of Sec.
 administrative actions.                                                668.171(c)(2)(i) from ``Debts,
                                                                        liabilities, and losses'' to ``Legal and
                                                                        administrative actions'' to better
                                                                        reflect what actions are related to this
                                                                        mandatory trigger. Amend Sec.
                                                                        668.171(c)(2)(i)(A) to more accurately
                                                                        state what financial actions will
                                                                        activate this trigger. They are when
                                                                        institution has entered against it a
                                                                        final monetary judgment or award or
                                                                        enters into a monetary settlement which
                                                                        results from a legal proceeding, whether
                                                                        or not the judgment, award or settlement
                                                                        has been paid.
Mandatory Triggers--Legal and             Sec.   668.171(c)(2)(i)(B).  Amend Sec.   668.171(c)(2)(i)(B) to state
 administrative actions.                                                that when a qui tam lawsuit, in which
                                                                        the Federal Government has intervened is
                                                                        a mandatory trigger but only if the qui
                                                                        tam action has been pending for 120 days
                                                                        after the intervention and there has
                                                                        been no motion to dismiss or its
                                                                        equivalent, filed within the applicable
                                                                        120-day period or if a motion to dismiss
                                                                        was filed and denied within the
                                                                        applicable 120 day period.
Mandatory Triggers--Legal and             Sec.   668.171(c)(2)(i)(C).  Amend Sec.   668.171(c)(2)(i)(C) to state
 administrative actions.                                                that the trigger is activated when the
                                                                        Department has initiated action to
                                                                        recover from an institution the cost of
                                                                        adjudicated claims.
Discretionary Triggers--Discontinuation   Sec.   668.171(d)(8).......  Revise Sec.   668.171(d)(8) to reflect
 of programs and closure of locations.                                  that the discretionary trigger described
                                                                        therein will be activated when an
                                                                        institution closes a location or
                                                                        locations that enroll more than 25
                                                                        percent of the institution's students.
                                                                        We removed the similar proposed trigger
                                                                        in Sec.   668.171(d)(8) for situations
                                                                        where an institution closes more than 50
                                                                        percent of its locations.
Reporting Requirements..................  Sec.   668.171(f)(1)(iii)..  Remove the reporting requirement at Sec.
                                                                         668.171(f)(1)(iii) and reserving Sec.
                                                                        668.171(f)(1)(iii). We have moved the
                                                                        requirement that was proposed at Sec.
                                                                        668.171(f)(1)(iii) to Sec.
                                                                        668.14(e)(10).
Reporting Requirements..................  Sec.   668.171(f)(3)(i)....  Remove the word ``preliminary'' as it
                                                                        describes the determination made by the
                                                                        Department.
Recalculating the Composite Score.......  Sec.   668.171(e)(3)(ii)     Adjust the equity ratio by decreasing the
                                           and (e)(4)(ii).              modified equity and modified assets.
Reporting Requirements..................  Sec.   668.171(f)..........  Provide institutions 21 days to report
                                                                        triggering events, up from 10 days in
                                                                        the NPRM.
Public Institutions.....................  Sec.   668.171(g)..........  Clarify that the financial responsibility
                                                                        provisions for public institutions with
                                                                        full faith and credit backing from the
                                                                        State would relate to conditions such as
                                                                        past performance and heightened cash
                                                                        management, but not letters of credit.
Public Institutions.....................  Sec.   668.171(g)..........  State that the Department will ask for
                                                                        proof of full faith and credit backing
                                                                        when a public institution first seeks to
                                                                        participate in the aid programs, if it
                                                                        converts to public status, or otherwise
                                                                        upon request.
Alternative Standards and Requirements..  Sec.   668.175.............  Clarify that if the Department requires
                                                                        financial protection as a result of more
                                                                        than one mandatory or discretionary
                                                                        trigger, the Department will require
                                                                        separate financial protection for each
                                                                        individual trigger, unless the
                                                                        Department determines that individual
                                                                        triggers should be treated as a single
                                                                        triggering event.
----------------------------------------------------------------------------------------------------------------
                                            Administrative Capability
----------------------------------------------------------------------------------------------------------------
Procedures for determining validity of    Sec.   668.16(p)...........  Require institutions to look at the State
 high school diplomas for distance                                      where the high school is located to
 education students.                                                    determine its validity, not the
                                                                        student's State if they are attending
                                                                        courses online.
Failing gainful employment programs.....  Sec.   668.16(t)...........  Remove Sec.   668.16(t)(2), which said
                                                                        institutions had to have more than half
                                                                        of their full-time-equivalent students
                                                                        who received title IV not be enrolled in
                                                                        programs failing gainful employment.
----------------------------------------------------------------------------------------------------------------
                                            Certification Procedures
----------------------------------------------------------------------------------------------------------------
Provisional certification stemming from   Sec.   668.13(c)(1)(i)(G)..  Clarify that the Secretary may
 a lack of financial responsibility.                                    provisionally certify an institution if
                                                                        it is under the provisional
                                                                        certification alternative within subpart
                                                                        L.
Maximum certification length for          Sec.   668.13(c)(2)(ii)....  Require institutions exhibiting consumer
 institutions with consumer protection                                  protection concerns to recertify within
 concerns.                                                              no more than three years.
Supplementary performance measures......  Sec.   668.13(e)...........  Remove debt-to-earnings rates and
                                                                        earnings premium from the supplementary
                                                                        performance measures the Secretary may
                                                                        consider in determining whether to
                                                                        certify or condition the participation
                                                                        of an institution. Also removed the
                                                                        requirement for all institutions to
                                                                        include an audit disclosure related to
                                                                        the amount of money spent on recruitment
                                                                        and marketing and clarified that
                                                                        provision would be based on comparing
                                                                        amounts spent on recruiting, marketing,
                                                                        and pre-enrollment activities to amounts
                                                                        spent on instruction and instructional
                                                                        activities, academic support, and
                                                                        student support services.
Limiting excessive hours of GE programs.  Sec.   668.14(b)(26)(ii)     Limit the number of hours in a GE program
                                           and (iii).                   for new entrants starting on the
                                                                        effective date of the regulations. Limit
                                                                        this provision to non-degree programs
                                                                        not offered entirely through distance
                                                                        education and remove program lengths as
                                                                        set by an institution's accrediting
                                                                        agency from the maximum length
                                                                        determination.
Licensure or certification requirements.  Sec.   668.14(b)(32)(i) and  Require all programs that prepare
                                           (ii).                        students for occupations requiring
                                                                        programmatic accreditation or State
                                                                        licensure to meet those requirements for
                                                                        all new entrants upon the effective date
                                                                        of the regulations for each State in
                                                                        which the student is located if they are
                                                                        not enrolled in face-to-face instruction
                                                                        or a State that a student attests they
                                                                        intend to seek employment in.
State laws related to closure...........  Sec.   668.14(b)(32)(iii)..  Require institutions to comply with all
                                                                        applicable State laws related to
                                                                        closure, including teach-out plans and
                                                                        agreements, tuition recovery funds,
                                                                        surety bonds, and record retention
                                                                        policies.

[[Page 74671]]

 
Prohibition on transcript withholding...  Sec.   668.14(b)(33).......  Prevent institutions from taking negative
                                                                        action against a student for balances
                                                                        owed due to school error. Remove a
                                                                        similar proposed requirement for
                                                                        balances owed due to R2T4 requirements.
                                                                        Prevent institutions from withholding
                                                                        transcripts for any credits funded in
                                                                        whole or in part with title IV funds.
Requirements for provisionally certified  Sec.   668.14(e)(10).......  Add a reporting requirement to inform the
 institutions at risk of closure.                                       Department of government investigations.
Disclosure requirements related to        Sec.   668.43(c)...........  Changes to harmonize this disclosure
 whether a program meets the educational                                requirement with the provisions in Sec.
 requirements for licensure or                                           668.14(b)(32).
 certification in a State.
----------------------------------------------------------------------------------------------------------------
                                               Ability to Benefit
----------------------------------------------------------------------------------------------------------------
Department approval of eligible career    Sec.   668.157.............  Require the Department to approve at
 pathways programs.                                                     least one career pathway program offered
                                                                        by an institution for ATB use to verify
                                                                        compliance with the regulatory
                                                                        definition.
----------------------------------------------------------------------------------------------------------------

    Comments: Some commenters raised concerns that the proposed changes 
in certification procedures related to institutions agreeing to comply 
with State laws related to misrepresentation, recruitment, and closure 
did not include a federalism analysis in the NPRM and did not include 
an assessment of the burden on States or institutions.
    Discussion: The proposed changes in certification procedures do not 
require a federalism analysis because they are not regulating States. 
Instead, we are requiring institutions to certify that they are meeting 
certain requirements within a State in which they are located or a 
State from which they choose to enroll students in distance education 
programs. Whether a State chooses to have education-specific laws in 
these areas is and remains an area of State discretion. Moreover, many 
States already exercise discretion around when and whether provisions 
related to closure, such as tuition recovery funds, apply to 
institutions that do not have a physical presence in their State. For 
institutions, any burden would come from whether States do or do not 
enforce additional laws against them. Accordingly, the burden will vary 
by the institution's specific situation, and there is not a direct 
burden from the Federal Government related to this provision.
    Changes: None.
    Comments: A few commenters argued that they could not support the 
NPRM due to the regulatory, financial, and logistical burden reporting 
would place on small institutions. They worried that they would have to 
shift resources away from students and toward reporting to meet the 
standards of the NPRM.
    Discussion: The Department feels that any additional burden on 
institutions will help protect students. That said, we believe the 
reporting provisions in this rule are largely about requiring 
institutions to tell us about critical events in a reasonable 
timeframe, which will not be particularly burdensome to address. We 
have made changes in other areas, such as ATB, to reduce the burden on 
institutions by requiring approval for only one program.
    Changes: None.
    Comments: Some commenters said the NPRM's RIA lacked an analysis of 
the financial consequences or unintended outcomes of the Department 
determining that the same event led to multiple mandatory or 
discretionary triggering events. They also argued that the RIA did not 
consider the financial cost from seeking a letter of credit when a 
triggering event is immaterial.
    Discussion: The Department disagrees that the commenters' concerns 
would occur and, therefore, does not think there are additional 
analyses that could have been conducted. We clarify in this final rule 
that our intent is not to stack multiple requests for financial 
protection from the same event. Instead, we will consider whether those 
triggers connect to one event. We will also consider these events when 
determining the amount of the financial protection required.
    We also disagree that the triggering conditions would lead to the 
Department asking for financial protection due to immaterial events. As 
we discuss in response to commenter suggestions to add a materiality 
threshold for these triggers, we believe that all the mandatory 
triggering situations represent significant and worrisome events that 
present a risk to an institution's financial health. The few items 
within that category in which the size of the effect might vary 
substantially based upon the individual facts calls for a recalculation 
of the composite score. We will evaluate the discretionary triggers on 
a case-by-case basis, which allows us to determine if the triggering 
event represents a lack of financial responsibility. We do not need to 
analyze hypothetical events that we do not believe will occur.
    Changes: None.
    Comments: Some commenters argued that the Department did not 
consider how the costs of obtaining a letter of credit could 
financially harm an institution due to the fees charged to obtain the 
financial protection or by tying up funds that must be held as 
collateral.
    Discussion: The Department discussed both issues in the NPRM. With 
respect to the fees charged, institutions may provide cash in escrow 
instead of a letter of credit. That would not entail any fees being 
charged.
    The Department believes the benefits from seeking financial 
protection are worth the costs to institutions in terms of either fees 
paid for a letter of credit or the opportunity cost of funds being held 
in escrow. The mandatory and discretionary trigger situations allow the 
Department to obtain financial protection when there are situations 
that indicate a serious risk that the institution may be facing 
financial challenges. These actions correct an imbalance that exists in 
regulations, where institutions can operate while exhibiting 
significant signs of risk and either close suddenly or engage in 
misconduct, resulting in unreimbursed discharges and costs to 
taxpayers. The Department believes it is appropriate to better reflect 
taxpayer equities, even at the expense of some capital for 
institutions. Moreover, there is no guarantee that institutions would 
put the funds that go toward financial protection toward ways that 
would strengthen an institution. Institutions can and have issued 
executive compensation or bonuses to senior leaders even while 
exhibiting signs of significant financial risk.
    Changes: None.
    Comments: One commenter noted that the Department's estimate for

[[Page 74672]]

compliance costs are incredibly high, with an estimate of $240 million 
and 5.1 million hours of reporting burden on institutions in the first 
year alone. This commenter and others stated that the costs were far 
too high for institutions to bear.
    Discussion: The Department feels that any compliance costs will 
help protect students in the long run. The shift of any resources 
toward reporting would help students know if the program they are 
entering will yield a sustainable income. We note that the compliance 
costs discussed in the comment are largely related to the GE program 
accountability framework and the financial value transparency 
framework. That issue is discussed in the separate final rule that 
covers those topics. We anticipate the compliance costs for this 
regulation to be $4 million, which includes ATB as well as the 
accountability focused items.
    Changes: None.
    Comments: One commenter noted that there has not been a proper 
estimate of the impact this NPRM will have on States and institutions, 
and that previous estimates have been far below the actual time and 
cost it has taken for institutions to comply. They argued that more 
research is necessary before any new requirements are implemented.
    Discussion: The Department feels that these new requirements will 
help protect students. An increase in time and cost to institutions 
will be worth it in the long run.
    Changes: None.

4. Discussion of Benefits, Costs, and Transfers

Financial Responsibility

    Assessing whether institutions are financially responsible is a 
critical way the Department ensures integrity in the title IV, HEA 
programs. Institutions facing financial struggles are more likely to go 
out of business. Particularly at private for-profit colleges, closures 
are more likely to be abrupt, meaning students are given minimal to no 
notice and there are no agreements in place to help students continue 
their educations elsewhere without delays and disruptions. Institutions 
in poor financial health may also pursue any possible means to bring in 
additional revenue, even if doing so results in taking advantage of 
students. In the past, the Department has seen institutions engage in 
high-pressure sales tactics to try to attract as many students as 
possible to continue meeting revenue goals. Such situations engender 
cultures where recruiters are better off making misleading comments to 
students about credit transferability, job placement rates, and 
graduate earnings so they can keep their jobs and keep enrollment up. 
But such behavior also leads to the later approval of loan discharges 
related to borrower defense to repayment.
    Hundreds of thousands of students have been affected by these 
sudden closures and institutional misconduct over the last decade-plus. 
For instance, a study by SHEEO found that 70 percent of students who 
experienced a closure from July 2004 to June 2020 went through an 
abrupt closure.\47\ Similarly, FSA data show that closures of for-
profit colleges that occurred between January 2, 2014, to June 30, 
2021, resulted in $550 million in closed school discharges. (This 
excludes the additional $1.1 billion in closed school discharges 
related to ITT Technical Institute that was announced in August 2021.) 
Of that amount, the Department recouped just over $10.4 million from 
institutions.\48\
---------------------------------------------------------------------------

    \47\ Burns, R., Brown, L., Heckert, K., Weeden, D. (2022). A 
Dream Derailed? Investigating the Impacts of College Closures on 
Student Outcomes, State Higher Education Executive Officers 
Association. https://sheeo.org/project/college-closures/; https://sheeo.org/wp-content/uploads/2023/08/SHEEO_CollegeClosures_Report1.pdf.
    \48\ The budgetary cost of these discharges is not the same as 
the amount forgiven.
---------------------------------------------------------------------------

    Separately, as of September 2023 the Department had approved $13.6 
billion in discharges related to borrower defense findings for almost 1 
million borrowers. Among approvals since 2021, there has only been a 
single instance in which the Department recovered funds to offset the 
costs of borrower defense discharges from the institution, which was in 
the Minnesota School of Business and Globe University's bankruptcy 
proceeding. In that situation, the Department received $7 million from 
a bankruptcy settlement. While the Department will continue to pursue 
recoupment efforts of approved borrower defense claims, it will be 
challenging to obtain any funds from institutions that have already 
closed.
    The financial responsibility regulations will increase the 
situations in which the Department seeks financial protection in 
response to warning signs instead of waiting until it is too late, and 
the institution is out of money. These situations fall into two 
categories. The first are mandatory triggering events. These are 
uncommon but serious situations that indicate an impairment to the 
institution's financial situation that is worrisome enough that the 
Department needs to step in and obtain protection. The second category 
are discretionary triggering events. These may be more common 
occurrences that may, but do not always, indicate concerning financial 
situations. These items would be reviewed on a case-by-case basis to 
determine whether they merit obtaining financial protection.
    The table below shows the Department's estimation of the possible 
effect of the mandatory and discretionary triggering events based upon 
past observed events. In some cases, the table may overstate the 
potential effect of the triggers, assuming there is not an overall 
change in institutional behavior that leads to a baseline increase in 
triggering events. For example, some of the mandatory triggering events 
would involve a recalculation of the composite score. That could mean 
those events result in a request for financial protection at a lower 
rate than is reported. Similarly, one event may cause multiple 
simultaneous triggering events. As noted in the preamble to this rule, 
the Department would consider in those situations whether a single or 
multiple letters of credit are appropriate. The table below does not 
account for this overlap or the possibility that the same institution 
could show up under multiple of the triggering events for different 
reasons. The numbers for discretionary triggers are particularly likely 
to overstate the effect because they do not account for how many would 
be determined to warrant financial protection. Finally, even though the 
Department's goal in establishing these triggers is to obtain financial 
protection in advance of a closure, there is a possibility that some of 
the trigger events could occur so close to the closure that there is 
not an opportunity to obtain that relief in time.
    There are some triggers where the Department cannot currently 
identify the number of institutions potentially affected. Each of these 
is a situation with obvious connections to financial concerns but where 
data systems have not been set up to track them on a comprehensive 
basis. For example, the Department has not historically asked 
institutions to report when they declare financial exigency, so we do 
not have a complete tally of how many institutions have done so. 
However, the declaration of financial exigency is supposed to occur 
when there is a significant and immediate threat to the financial 
health of the entity that might necessitate drastic measures. Other 
mandatory triggers are constructed with the hope that they will not be 
triggered but will rather discourage certain actions that could be used 
to undercut the financial oversight structure. For instance, the

[[Page 74673]]

withdrawal of equity after making a contribution is a sign of 
attempting to manipulate composite scores. Treating that as a mandatory 
trigger will dissuade that activity and ensure there is greater 
integrity in the composite scores. Similarly, the presence of creditor 
conditions has been used in the past to try and discourage the 
Department from taking actions against an institution. We are concerned 
that such approaches try to put private creditors ahead of the 
Department and a trigger in this situation corrects for that problem.

                 Table 4.1--Mandatory Triggering Events
------------------------------------------------------------------------
           Trigger                 Description             Impact
------------------------------------------------------------------------
Debts or liability payments   An institution with   For institutional
 Sec.   668.171(c)(2)(i)(A).   a composite score     fiscal years that
                               of less than 1.5      ended between July
                               with some             1, 2019, and June
                               exceptions is         30, 2020, there
                               required to pay a     were 225 private
                               debt or incurs a      nonprofit or
                               liability from a      proprietary schools
                               settlement, final     with a composite
                               judgment, or          score of less than
                               similar proceeding    1.5. Of these, 7
                               that results in a     owe a liability to
                               recalculated          the Department,
                               composite score of    though not all of
                               less than 1.0.        these liabilities
                                                     are significant
                                                     enough to result in
                                                     a recalculated
                                                     score of 1.0. We do
                                                     not have data on
                                                     non-Department
                                                     liabilities that
                                                     might meet this
                                                     trigger.
Lawsuits Sec.                 Lawsuits against an   The Department is
 668.171(c)(2)(i)(B).          institution after     aware of
                               July 1, 2024, by      approximately 50
                               Federal or State      institutions or
                               authorities or a      ownership groups
                               qui tam in which      that have been
                               the Federal           subject to Federal
                               Government has        or State
                               intervened.           investigations,
                                                     lawsuits, or
                                                     settlements since
                                                     2012. This includes
                                                     criminal
                                                     prosecutions of
                                                     owners. Many of
                                                     these institutions,
                                                     however, are no
                                                     longer operating.
                                                     Some of these would
                                                     not have resulted
                                                     in a trigger under
                                                     the requirements
                                                     related to the
                                                     filing of a motion
                                                     to dismiss within
                                                     120 days.
Borrower defense recoupment   The Department has    The Department has
 Sec.   668.171(c)(2)(i)(C).   initiated a           initiated one
                               proceeding to         proceeding against
                               recoup the cost of    an institution to
                               approved borrower     recoup the proceeds
                               defense claims        of approved claims.
                               against an            Separately, the
                               institution.          Department has
                                                     approved borrower
                                                     defense claims at
                                                     more than nine
                                                     other institutions
                                                     or groups of
                                                     institutions where
                                                     it has not sought
                                                     recoupment.
Change in ownership debts     An institution in     Over the last 5
 and liabilities Sec.          the process of a      years there have
 668.171(c)(2)(i)(D).          change in ownership   been 188
                               must pay a debt or    institutions that
                               liability related     underwent a change
                               to settlement,        in ownership. This
                               judgment, or          number separately
                               similar matter at     counts campuses
                               any point through     that may be part of
                               the second full       the same chain or
                               fiscal year after     ownership group
                               the change in         that are part of a
                               ownership.            single transaction.
                                                     The Department does
                                                     not currently have
                                                     data on how many of
                                                     those had a debt or
                                                     liability that
                                                     would meet this
                                                     trigger. Moreover,
                                                     we cannot estimate
                                                     how many of these
                                                     situations would
                                                     have resulted in a
                                                     recalculated
                                                     composite score
                                                     that failed.
Withdrawal of owner's equity  A proprietary         In the most recent
 Sec.   668.171(c)(2)(ii)(A).  institution with a    available data, 161
                               score less than 1.5   proprietary
                               has a withdrawal of   institutions had a
                               owner's equity that   composite score
                               results in a          that is less than
                               composite score of    1.5. The Department
                               less than 1.0.        has not determined
                                                     how many of those
                                                     may have had a
                                                     withdrawal of
                                                     owner's equity that
                                                     would result in a
                                                     composite score
                                                     that meets this
                                                     trigger.
Significant share of Federal  An institution has    There are
 aid in failing GE programs    at least 50 percent   approximately 740
 Sec.   668.171(c)(2)(iii).    of its title IV,      institutions that
                               HEA aid received      would meet this
                               for programs that     trigger based upon
                               fail GE thresholds.   current data. These
                                                     are almost entirely
                                                     private for-profit
                                                     institutions that
                                                     offer only a small
                                                     number of programs
                                                     total. These data
                                                     only include
                                                     institutions
                                                     operating in March
                                                     2022 that had
                                                     completions
                                                     reported in 2015-16
                                                     and 2016-2017. Data
                                                     are based upon 2018
                                                     and 2019 calendar
                                                     year earnings.
Teach-out plans or            The institution is    Not identified
 agreements Sec.               required to submit    because the
 668.171(c)(2)(iv).            a teach-out plan or   Department is not
                               agreement, by a       currently always
                               State, the            informed when an
                               Department or         institution is
                               another Federal       required to submit
                               agency, an            a teach-out plan or
                               accrediting agency,   agreement.
                               or other oversight
                               body for reasons
                               related in whole or
                               in part to
                               financial concerns.
Actions related to publicly   These apply to any    Department data
 listed entities Sec.          entity where at       systems currently
 668.171(c)(2)(vi).            least 50 percent of   identify 38 schools
                               an institution's      that are owned by
                               direct or indirect    13 publicly traded
                               ownership is listed   corporations. One
                               on a domestic or      of these may be
                               foreign exchange.     affected by this
                               Actions include the   trigger.
                               SEC taking steps to
                               suspend or revoke
                               the entity's
                               registration or
                               taking any other
                               action. It also
                               includes actions
                               from exchanges,
                               including foreign
                               ones, that say the
                               entity is not in
                               compliance with the
                               listing
                               requirements or may
                               be delisted.
                               Finally, the entity
                               failed to submit a
                               required annual or
                               quarterly report by
                               the required due
                               date.
90/10 failure Sec.            A proprietary         Over the last 5
 668.171(c)(2)(vii).           institution did not   years an average of
                               meet the              12 schools failed
                               requirement to        the 90/10 test.
                               derive at least 10    Most recently, the
                               percent of its        Department reported
                               revenue from          that 21 proprietary
                               sources other than    institutions had
                               Federal educational   received 90 percent
                               assistance.           or more of their
                                                     revenue from title
                                                     IV, HEA programs
                                                     based upon
                                                     financial
                                                     statements for
                                                     fiscal years ending
                                                     between July 1,
                                                     2020, and June 30,
                                                     2021.
Cohort default rate (CDR)     An institution's two  Twenty institutions
 failure Sec.                  most recent           with at least 30
 668.171(c)(2)(viii).          official CDRs are     borrowers in their
                               30 percent or         cohorts had a CDR
                               greater.              at or above 30
                                                     percent for the
                                                     fiscal year
                                                     (FY)2017 and FY2016
                                                     cohorts (the last
                                                     rates not impacted
                                                     by the pause on
                                                     repayment during
                                                     the national
                                                     emergency).

[[Page 74674]]

 
Contributions followed by a   The institution's     Not currently
 distribution Sec.             financial             identified because
 668.171(c)(2)(x).             statements reflect    this information is
                               a contribution in     not currently
                               the last quarter of   centrally recorded
                               its fiscal year       in Department
                               followed by a         databases.
                               distribution within
                               first two quarters
                               of the next fiscal
                               year and that
                               results in a
                               recalculated
                               composite score of
                               <1.0.
Creditor events Sec.          An institution has a  Not currently
 668.171(c)(2)(xi).            condition in its      identified because
                               agreements with a     institutions do not
                               creditor that could   currently report
                               result in a default   the information
                               or adverse            needed to assess
                               condition due to an   this trigger to the
                               action by the         Department. Several
                               Department or a       major private for-
                               creditor              profit colleges
                               terminates,           that failed had
                               withdraws, or         creditor
                               limits a loan         arrangements that
                               agreement or other    would have met this
                               financing             trigger.
                               arrangement.
Financial exigency Sec.       The institution       Not identified
 668.171(c)(2)(xii).           makes a formal        because
                               declaration of        institutions do not
                               financial exigency.   currently always
                                                     report this
                                                     information to the
                                                     Department.
Receivership Sec.             The institution is    The Department is
 668.171(c)(2)(xiii).          either required to    aware of 3
                               or chooses to enter   instances of
                               a receivership.       institutions
                                                     entering
                                                     receiverships in
                                                     the last few years.
                                                     Each of these
                                                     institutions
                                                     ultimately closed.
------------------------------------------------------------------------


               Table 4.2--Discretionary Triggering Events
------------------------------------------------------------------------
           Trigger                 Description             Impact
------------------------------------------------------------------------
Accreditor actions Sec.       The institution is    Since 2018, we
 668.171(d)(1).                placed on show        identified just
                               cause, probation,     under 190 private
                               or an equivalent      institutions that
                               status.               were deemed as
                                                     being significantly
                                                     out of compliance
                                                     and placed on
                                                     probation or show
                                                     cause by their
                                                     accrediting agency,
                                                     with the bulk of
                                                     these stemming from
                                                     one agency that
                                                     accredits
                                                     cosmetology
                                                     schools.
Other creditor events and     The institution is    Not identified
 judgments Sec.                subject to other      because
 668.171(d)(2).                creditor actions or   institutions do not
                               conditions that can   currently report
                               result in a           this information to
                               creditor requesting   the Department.
                               grated collateral,
                               an increase in
                               interest rates or
                               payments, or other
                               sanctions,
                               penalties, and
                               fees, and such
                               event is not
                               captured as a
                               mandatory trigger.
                               This trigger also
                               captures judgments
                               that resulted in
                               the awarding of
                               monetary relief
                               that is subject to
                               appeal or under
                               appeal.
Fluctuations in title IV,     There is a            From the 2016-2017
 HEA volume Sec.               significant change    through the 2021-
 668.171(d)(3).                upward or downward    2022 award years,
                               in the title IV,      approximately 155
                               HEA volume at an      institutions
                               institution between   enrolled 1,000 or
                               consecutive award     more title IV, HEA
                               years or over a       students and saw
                               period of award       their title IV, HEA
                               years.                volume change by
                                                     more than 25
                                                     percent from one
                                                     year to the next.
                                                     Of those, 33 saw a
                                                     change of more than
                                                     50 percent. The
                                                     Department would
                                                     need to determine
                                                     which circumstances
                                                     indicated enough
                                                     risk to need
                                                     additional
                                                     financial
                                                     protection.
High dropout rates Sec.       An institution has    According to College
 668.171(d)(4).                high annual dropout   Scorecard data for
                               rates, as             the award year (AY)
                               calculated by the     2014-15 cohort,
                               Department.           there were
                                                     approximately 66
                                                     private
                                                     institutions that
                                                     had more than half
                                                     their students
                                                     withdraw within two
                                                     years of initial
                                                     enrollment. Another
                                                     132 had withdrawal
                                                     rates between 40
                                                     and 50 percent. The
                                                     Department would
                                                     need to determine
                                                     which circumstances
                                                     indicated enough
                                                     risk to need
                                                     additional
                                                     financial
                                                     protection.
Interim reporting Sec.        An institution that   Not currently
 668.171(d)(5).                is required to        identified because
                               provide additional    Department staff
                               reporting due to a    currently do not
                               lack of financial     look for this
                               responsibility        practice in their
                               shows negative cash   reviews.
                               flows, failure of
                               other financial
                               ratios, or other
                               indicators of a
                               significant adverse
                               change of the
                               financial condition
                               of a school.
Pending borrower defense      The institution has   To date there are 53
 claims Sec.   668.171(d)(6).  pending borrower      institutional names
                               defense claims and    that have had more
                               the Department has    than 2,000 borrower
                               formed a group        defense claims
                               process to consider   filed against them.
                               at least some of      This number may
                               them.                 include multiple
                                                     institutions
                                                     associated with the
                                                     same ownership
                                                     group. There is no
                                                     guarantee that a
                                                     larger number of
                                                     claims will result
                                                     in a group claim,
                                                     but they indicate a
                                                     higher likelihood
                                                     that there may be
                                                     practices that
                                                     result in a group
                                                     claim.
Program discontinuation Sec.  The institution       Not currently
   668.171(d)(7).              discontinues a        identified due to
                               program or programs   data limitations.
                               that affect more
                               than 25 percent of
                               its enrolled
                               students that
                               receive title IV,
                               HEA program funds.
Location closures Sec.        The institution       Not currently
 668.171(d)(8).                closes locations      identified due to
                               that enroll more      data limitations.
                               than 25 percent of
                               its students who
                               receive title IV,
                               HEA program funds.
State actions and citations   The institution is    Not identified
 Sec.   668.171(d)(9).         cited by a State      because
                               licensing or          institutions do not
                               authorizing agency    currently report
                               for failing to meet   this information
                               State or agency       consistently to the
                               requirements,         Department.
                               including notice
                               that it will
                               withdraw or
                               terminate the
                               institution's
                               licensure or
                               authorization if
                               the institution
                               does not take the
                               steps necessary to
                               come into
                               compliance with
                               that requirement.

[[Page 74675]]

 
Loss of institutional or      The institution or    The Department does
 program eligibility Sec.      one or more of its    not currently have
 668.171(d)(10).               programs loses        comprehensive data
                               eligibility to        on program
                               participate in        eligibility loss
                               another Federal       for all other
                               education             Federal assistance
                               assistance program    programs. The
                               due to an             Department is aware
                               administrative        of 5 institutions
                               action.               participating in
                                                     title IV, HEA
                                                     programs that have
                                                     lost access to the
                                                     Department of
                                                     Defense's Tuition
                                                     Assistance (TA)
                                                     program since 2017.
                                                     Three of those also
                                                     lost accreditation
                                                     or access to title
                                                     IV, HEA funds.
                                                     Since 2018 the
                                                     Veterans
                                                     Administration (VA)
                                                     has reported over
                                                     900 instances of an
                                                     institution of
                                                     higher education
                                                     having its access
                                                     to VA benefits
                                                     withdrawn. However,
                                                     this number
                                                     includes extensive
                                                     duplication that
                                                     counts multiple
                                                     locations of the
                                                     same school,
                                                     withdrawals due to
                                                     issues captured
                                                     elsewhere like loss
                                                     of accreditation or
                                                     closure, and
                                                     withdrawals that
                                                     may not have lasted
                                                     an extended period.
                                                     The result is that
                                                     the actual number
                                                     of affected
                                                     institutions would
                                                     likely be
                                                     significantly
                                                     lower.
Exchange disclosures Sec.     An institution that   Department data
 668.171(d)(11).               is at least 50        systems currently
                               percent owned by an   identify 38 schools
                               entity that is        that are owned by
                               listed on a           13 publicly traded
                               domestic or foreign   corporations. There
                               stock exchange        is one school that
                               notes in a filing     could potentially
                               that it is under      be affected by
                               investigation for     either this trigger
                               possible violations   or the similar
                               of State, Federal,    mandatory one.
                               or foreign law.
Actions by another Federal    The institution is    Not identified
 agency Sec.                   cited and faces       because current
 668.171(d)(12).               loss of education     reporting by
                               assistance funds      institutions do not
                               from another          always capture
                               Federal agency if     these events.
                               it does not comply
                               with that agency's
                               requirements.
Other teach-out plans or      The institution is    Not identified
 agreements Sec.               required to submit    because the
 668.171(d)(13).               a teach-out plan or   Department is not
                               agreement,            currently always
                               including             informed when an
                               programmatic teach-   institution is
                               outs and it is not    required to submit
                               captured in Sec.      a teach-out plan or
                               668.171(c)(2)(iv).    agreement.
Other events or conditions    Any other event or    Not identified
 Sec.   668.171(d)(14).        condition the         because this is
                               Department            designed to capture
                               determines is         events not present
                               likely to have a      in other triggers
                               significant adverse   that have a similar
                               effect on the         effect on the
                               financial condition   institution.
                               of the institution.
------------------------------------------------------------------------

Benefits
    The changes to the financial responsibility regulations provide 
significant benefits to the Federal Government as well as to students. 
There are some additional benefits to institutions that are not subject 
to these triggering conditions due to the deterrent effects of these 
regulations.
    Federal benefits come in several forms. First, the Department will 
obtain greater amounts of financial protection from institutions. That 
increases the likelihood of offsetting costs to taxpayers that arise 
from discharges in the case of a school closing or engaging in 
misconduct that results in the approval of borrower defense to 
repayment claims. As already discussed in this section, the Department 
historically has had minimal funds in place to offset these discharges. 
That means the cost of giving borrowers the relief they are entitled to 
has fallen on the taxpayers more heavily than on the institutions whose 
behavior created those circumstances.
    The Department also benefits from the deterrent effects of many of 
these provisions. For instance, the trigger related to the withdrawal 
of owner equity after making a contribution discourages institutions 
from engaging in behavior that could disguise their true financial 
condition. That gives the Department a more accurate picture of an 
institution's financial health. Similarly, the trigger related to 
creditor conditions dissuades institutions from attempting to leverage 
the threat of creditor actions as a reason why the Department should 
not take an action that it deems necessary to protect taxpayers' 
investments and students. The triggers also discourage the use of 
receiverships by institutions, which the Department has seen in the 
past still lead to chaotic closures and problems for students.
    Other triggers achieve deterrence in different manners. For 
instance, the clearer linkages between triggers and lawsuits or conduct 
that results in recoupment efforts from approved borrower defense 
claims creates a further disincentive for institutions to behave in 
such a manner that could lead to misconduct, approved borrower defense 
claims, and recoupment. Similarly, facing financial protection tied to 
high cohort default rates, achieving insufficient revenue from non-
Federal sources, and having too much title IV revenue come from 
programs that do not meet gainful employment requirements is an added 
incentive to not fail to meet those requirements.
    The regulations also provide benefits to students. The rules 
encourage institutions to put themselves in the strongest financial 
situation possible. In some cases, that might mean additional 
investment in the institution to improve its results on certain 
metrics, such as student loan default rates or performance on gainful 
employment measures or to keep funds invested in an institution instead 
of removing them. The triggers that have a deterrence effect also 
benefit students since the institution would have further reason to not 
engage in the kind of aggressive or predatory behavior that has been 
the source of many approved borrower defense claims to date or 
destabilized institutions and contributed to their closure.
    Protecting students from sudden closures will provide them 
significant benefits. For example, research by GAO found that 43 
percent of borrowers never completed their program or transferred to 
another school after a closure.\49\ While 44 percent transferred to 
another school, 5 percent of all borrowers transferred to a college 
that later closed. GAO then looked at the subset of borrowers who 
transferred long enough ago that they could have been at the new school 
for six years, the amount of time typically used to calculate 
graduation rates. GAO found that nearly 49 percent of these students 
who transferred did not graduate in that time. These findings are 
similar to those from SHEEO, which found that just 47 percent of 
students reenrolled after a closure, and of those who reenrolled, only 
37 percent earned a postsecondary credential.\50\
---------------------------------------------------------------------------

    \49\ www.gao.gov/products/gao-21-105373.
    \50\ sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020.
---------------------------------------------------------------------------

    The deterrence effect of these final rules also benefits students 
by encouraging institutions to improve the financial value of their 
educational offerings. For example, the trigger for

[[Page 74676]]

institutions with high dropout rates will incentivize institutions to 
improve their graduation rates. Along with the trigger for institutions 
failing the cohort default rate, this can reduce the number of students 
who default on their loans, as students who do not complete a degree 
are more likely to default on their loans.\51\ Improved completion 
rates also have broader societal benefits, such as increased tax 
revenue because college graduates, on average, have lower unemployment 
rates, are less likely to rely on public benefit programs, and 
contribute more in tax revenue through higher earnings.\52\
---------------------------------------------------------------------------

    \51\ libertystreeteconomics.newyorkfed.org/2017/11/who-is-more-likely-to-default-on-student-loans/.
    \52\ www.luminafoundation.org/resource/its-not-just-the-money/; 
www.thirdway.org/report/ripple-effect-the-cost-of-the-college-dropout-rate.
---------------------------------------------------------------------------

    Many institutions will also benefit from the financial 
responsibility triggers. In the past, institutions that were unwilling 
to engage in aggressive and deceptive tactics may have been at a 
disadvantage in trying to attract potential students. These triggers 
will discourage the use of such tactics, providing benefits to 
institutions that will not have to adjust their recruitment or 
marketing approaches to avoid conduct that risks causing a triggering 
event to occur.
Costs
    Some institutions will face costs from these regulatory changes. 
The largest are the costs associated with providing financial 
protection. Some of these are administrative costs in the form of fees 
paid to banks or other financial institutions to obtain a letter of 
credit. These are costs that an institution bears regardless of whether 
a letter of credit is collected upon. The exact amount of this fee will 
vary by institution and at least partly reflect the assessment of the 
institution's riskiness by that financial institution. Institutions do 
not report the costs of obtaining a letter of credit to the Department. 
Anecdotally, institutions have reported that, over time, financial 
institutions have increasingly charged higher fees for letters of 
credit or asked for a larger percentage of the funds to be held at the 
financial institution in order to issue the letter of credit. That is 
why many institutions are instead opting to provide funds in escrow to 
the Department, an option that does not carry additional fees.
    Institutions also have opportunity costs associated with the funds 
that must be set aside to obtain a letter of credit or placed into 
escrow as they cannot use those resources for other purposes. The 
nature of the opportunity cost will vary by institution as well as the 
counterfactual use of the funds otherwise identified for that purpose. 
For example, an institution that would have otherwise distributed the 
funds set aside as profits or dividends to owners faces a different set 
of opportunity costs than one that was going to make additional 
investments in the educational enterprise, such as upgrading facilities 
or adding staff. There is no way to clearly assess what these 
opportunity costs are because money is fungible, and each institution's 
circumstances are unique. Moreover, there will be some institutions 
that provide letters of credit when they could have instead made 
investments in the institution to have avoided the triggering event. 
For instance, additional spending on instruction and student supports 
might have raised completion rates and helped lower default rates and 
therefore would have avoided a trigger. Another example of a way to 
avoid a trigger is not taking a distribution after making a 
contribution. As such, it would not be reasonable to determine that 
every instance of financial protection provided incurs an opportunity 
cost that would have benefited the institution and its students.
    Institutions will also face costs in the form of transfers to the 
Department that occur when it collects on a letter of credit or keeps 
the funds from a cash escrow account, title IV, HEA offset, or other 
forms of financial protection. In those situations, the Department 
would use those funds to offset liabilities owed to it. The collection 
of the escrow does not affect the total amount of liabilities 
originally owed by the institution, as those are determined through 
separate processes. However, this would be a transfer because the 
Department would be collecting against a liability in situations where 
it traditionally has not done so at high rates. Successfully offsetting 
the cost of more liabilities is a benefit to the Department and 
taxpayers.
    On net, the increase in the number of triggering conditions means 
it is likely that the Department will be seeking financial protection 
more often than it does under current practice. It is also likely that 
the amount collected upon will also increase as there will be some 
institutions that would close regardless of any deterrence effect of 
the trigger. In other cases, whether increases in requests for 
financial protection translate into greater collection of this 
protection will depend on how institutions change their behavior.
    Variations in institutional response to the triggers could affect 
the amounts collected. If there is no change in institutional behavior, 
then the amount collected will increase, as institutions face 
triggering events and then take no steps to avoid closures or 
misconduct. However, if institutions do respond to the triggers, then 
both the frequency at which the Department asks for financial 
protection and the rate at which it collects upon it may not 
significantly change. Examples highlight how these dynamics could 
affect outcomes. If the number of institutions that enter into 
receivership does not change as a result of the mandatory trigger, then 
the Department would seek more financial protection than it currently 
does. The past instances of receivership that the Department is aware 
of ended in closures. If that too is unchanged, then the presence of 
the trigger would result in the collection of greater amounts of 
financial protection. However, if the trigger fully discourages the use 
of receiverships, then there would not be financial protection demanded 
as a result of this trigger and there would not be funds from that 
trigger to collect. Similarly, if institutions change their conduct to 
avoid the types of lawsuits that result in a trigger, then neither the 
frequency with which the Department seeks financial protection, nor the 
amount collected would change.
    Regardless of the institutional response, the general effect of 
these provisions is that increases in financial protection provide 
greater opportunities for benefits that help the Department and 
students with a related increase in the potential costs faced by 
institutions that are subject to additional requests for financial 
protection.

Administrative Capability

Benefits
    The Administrative Capability portion of the final rule provides 
benefits for students and the Department.
Students
    For students, the changes help them make more informed choices 
about where to enroll and how much they might borrow and helps ensure 
that students who are seeking a job get the assistance they need to 
launch or continue their careers. The changes in Sec.  668.16(h) expand 
an existing requirement related to sufficient financial aid counseling 
to also include written information, such as what is contained when 
institutions inform students about their financial aid packages. Having 
a clear sense of how much an institution will cost is critical for 
students to properly judge the financial transaction they are entering 
into when they enroll. For many

[[Page 74677]]

students and families, a postsecondary education is the second-most 
expensive financial decision they make after buying a home. However, 
the current process of understanding the costs of a college education 
is far less straightforward than that of a buying a home. When home 
buyers take out a mortgage, for example, there are required standard 
disclosures that present critical information like the total price, 
interest rate, and the amount of interest that will ultimately be paid. 
Having such common disclosures helps to compare different mortgage 
offers.
    By contrast, financial aid offers are extremely varied. A 2018 
study by New America that examined more than 11,000 financial aid 
offers from 515 schools found 455 different terms used to describe an 
unsubsidized loan, including 24 that did not use the word ``loan.'' 
\53\ More than a third of the financial aid offers New America reviewed 
did not include any cost information. Additionally, many colleges 
included Parent PLUS loans as ``awards'' with 67 unique terms, 12 of 
which did not use the word ``loan'' in the description. Similarly, a 
2022 report by the GAO estimated that, based on their nationally 
representative sample of colleges, 22 percent of colleges do not 
provide any information about college costs in their financial aid 
offers, and of those that include cost information, 41 percent do not 
include a net price and 50 percent understate the net price.\54\ GAO 
estimated that 21 percent of colleges do not include key details about 
how Parent PLUS loans differ from student loans. This kind of 
inconsistency creates significant risk that students and families may 
be presented with information that is both not directly comparable 
across institutions and may be outright misleading. That hinders the 
ability to make an informed financial choice and can result in students 
and families paying more out-of-pocket or going into greater debt than 
they had planned.
---------------------------------------------------------------------------

    \53\ www.newamerica.org/education-policy/policy-papers/decoding-cost-college/.
    \54\ www.gao.gov/products/gao-23-104708.
---------------------------------------------------------------------------

    The new requirements establish key information that must be 
provided to students. Some of these details align with the existing 
College Financing Plan, which is used by half of the institutions in at 
least some form. Students will thus be more likely to receive 
consistent information, including, in some cases, through the expanded 
adoption of the College Financing Plan. Clear and reliable information 
further helps students choose institutions and programs that might have 
lower net prices, regardless of sticker price, which may result in 
students enrolling in institutions and programs where they and their 
families are able to pay less out of pocket or take on lower amounts of 
debt.
    Students also benefit from the procedures in Sec.  668.16(p) 
related to evaluating high school diplomas. It is critical that 
students can benefit from the postsecondary training they pursue. If 
they do not, then they risk wasting time and money, as well as ending 
up with loan debt they would struggle to repay because they are unable 
to secure employment in the field they are studying. Students who have 
not obtained a valid high school diploma may be at a particular risk of 
ending up in programs where they are unlikely to succeed. The 
Department has seen in the past that institutions that had significant 
numbers of students who enrolled from diploma mills or other schools 
that did not provide a proper secondary education have had high rates 
of withdrawal, non-completion, or student loan default. The 
requirements in Sec.  668.16(p) better ensure that students pursuing 
postsecondary education have received the secondary school education 
needed to benefit from the programs they are pursuing.
    In the past, the Department has had problems with several 
institutions related to promises of getting jobs or making sure 
students are prepared to enter certain occupations. These issues are 
addressed by the changes in Sec.  668.16(q) and (r). The first deals 
with ensuring that institutions have the career services resources 
necessary to make good on what they are telling students in terms of 
the degree of assistance they can provide for finding a job. This 
responds to issues the Department has seen where recruiters tell 
students that they will receive extensive job search and placement help 
only for those individuals to find that such assistance is not actually 
available. The second addresses issues where institutions have 
recruited students for programs that involve time in a clinical or 
externship setting in order to complete the program, only the 
institution does not actually have sufficient spots available for all 
its students to be offered a necessary spot. When that occurs, the 
student is unable to finish their program and thus cannot work in the 
field for which they are being prepared. Students will thus benefit 
from knowing that they will receive the promised career services and be 
able to engage in the non-classroom experiences necessary to complete 
their programs. That in turn will help them find employment after 
graduation and give them an improved financial return on their program.
    Changes on the awarding of financial aid funds in Sec.  668.16(s) 
will help students by ensuring they receive their refunds when most 
needed. Refunds of financial aid funds remaining after paying for 
tuition and fees gives students critical resources to cover important 
costs like food, housing, books, and transportation. Students that are 
unable to pay for these costs struggle to stay enrolled and may instead 
need to either leave a program or increase the number of hours they are 
working, which can hurt their odds of academic success. Timely aid 
receipt will thus help with retention and completion for students.
    Finally, the provisions in Sec.  668.16(k)(2) and (t) through (u) 
also benefit students by protecting them from institutions that are 
engaging in poor behavior, institutions that are at risk of losing 
access to title IV, HEA aid for a significant share of their students 
because they do not deliver sufficient financial value, and 
institutions that are employing individuals who have a problematic 
history with the financial aid programs. All three of these elements 
can be a sign of an elevated risk of closure or an institution's 
engagement in concerning behaviors that could result in 
misrepresentations to borrowers.
Federal Government
    The Department and the Federal Government also benefit from the 
Administrative Capability regulations set out in this rule. False 
institutional promises about the availability of career services or 
failure to get students into the externships or clinical experiences 
they need can result in the Department granting a borrower defense 
discharge. For instance, the Department has approved borrower defense 
claims at American Career Institute for false statements about career 
services and at Corinthian Colleges and ITT Technical Institute related 
to false promises about students' job prospects. The Department has 
also encountered numerous applications that contain allegations that 
institutions promised extensive help for career searches that never 
materialized. But the Department has largely not been able to recoup 
the costs of those transfers to borrowers from the Department. The 
added Administrative Capability regulations increase the ability of the 
Department to identify circumstances earlier that might otherwise lead 
to borrower defense discharges later. That should reduce the number of 
future claims as institutions would know ahead of time that failing

[[Page 74678]]

to offer these services is not acceptable and therefore would comply. 
It also could mean terminating the participation in the title IV, HEA 
programs sooner for institutions that do not meet these standards, 
reducing the exposure to future possible liabilities through borrower 
defense.
    The Department also benefits from improved rules around verifying 
high school diplomas. Borrowers who received student loans when they 
did not in fact have a valid high school diploma may be eligible for a 
false certification discharge. If that occurs, the Department has no 
guarantee that it would be able to recover the cost of such a discharge 
from the institution, resulting in a transfer from the government to 
the borrower. Similarly, grant aid that goes to students who lack a 
valid high school diploma is a transfer of funds that should not 
otherwise be allowed and is unlikely to be recovered. Finally, if 
students who lack a valid high school diploma or its equivalent are not 
correctly identified, then the Department may end up transferring 
Federal funds to students who are less likely to succeed in their 
program and could end up in default or without a credential. Such 
transfers would represent a reduction in the effectiveness of the 
Federal financial aid programs.
    Provisions around hiring individuals with past problems related to 
the title IV, HEA programs also benefit the Department. Someone with an 
existing track record of misconduct, including the possibility that 
they have pled guilty to or been convicted of a crime, represents a 
significant risk to taxpayers that those individuals might engage in 
the same behavior again. Keeping these individuals away from the 
Federal aid programs would decrease the likelihood that concerning 
behavior will repeat. These regulations will reduce the risk that 
executives who run one institution poorly can simply jump to another or 
end up working at a third-party servicer.
    The Department gains similar benefits from the provisions related 
to institutions subject to a significant negative action or findings by 
a State or Federal agency, court, or accrediting agency; and 
institutions found to have engaged in substantial misrepresentations or 
similar behavior. These are situations where a school may be at risk of 
closure or facing significant borrower defense liabilities. Allowing 
these institutions to continue to participate in title IV, HEA programs 
could result in transfers to borrowers in the form of closed school or 
borrower defense discharges that are not reimbursed. These provisions 
will allow for more proactive action to address these concerning 
situations and behaviors.
    The provision regarding institutions with significant title IV 
revenue from failing GE programs recognizes that having most aid 
associated with programs that could imminently lose access to Federal 
student aid represents a sign of broader institutional problems than a 
program-by-program assessment may indicate. These situations raise 
broader concerns about the amount of debt institutions are leaving 
students to pay and the return that students are receiving. Making that 
an administrative capability finding will allow the Department to 
conduct a more systemic review of the institutions in question.
    Finally, the Department benefits from students receiving accurate 
financial aid information. Students whose program costs end up being 
far different from what the institution initially presented may end up 
not completing a program because the price tag ends up being 
unaffordable. That can make them less likely to pay their student loans 
back and potentially leave them struggling in default. This could also 
include situations where the cost is presented accurately but the 
institution fails to properly distinguish grants from loans, resulting 
in a student taking on more debt than they intended to and being unable 
to repay their debt as a result.
Costs
    The regulations create costs for institutions, as well as some 
administrative costs for the Department, and the possibility of some 
smaller costs for students in more limited circumstances. Institutions 
could see increased costs to improve their financial aid information, 
strengthen their career services department, improve their procedures 
for verifying high school diplomas, and improve partnerships to provide 
clinical opportunities and externships. The extent of these costs will 
vary across institutions. Institutions that do not have to change any 
practices will see no added costs. Beyond that, costs could range from 
small one-time charges to tweak financial aid communications to ongoing 
expenses to have the staff necessary for career services or findings 
spots for clinical and externship opportunities. The costs associated 
with a strengthened review of high school diplomas will also vary based 
upon what institutions currently do to review questionable credentials 
and institutions' tendency to enroll students with the kinds of 
indicators that merit further review. Based upon past experience, the 
Department has seen issues with valid high school diplomas being most 
common in open access certificate and associate degree programs.
    The provisions related to issues such as State, accreditor, or 
other Federal agency sanctions or conducting misrepresentations also 
have varied cost effects on institutions. Those not facing any of these 
issues would see no added costs. Institutions subject to these 
provisions would see costs to rectify these problems and, if they go 
unaddressed, could see costs in the form of reduced transfers from the 
Department if those actions result in loss of access to title IV, HEA 
financial assistance.
    These changes also impose some administrative costs on the 
Department. The Department needs to incorporate procedures into its 
reviews of institutions to identify the added criteria. That could 
result in costs for retraining staff or added time to review certain 
institutions where these issues manifest.
    Several commenters asserted that the provisions related to valid 
high school diplomas would create costs for students. They claimed this 
would happen from institutions rejecting otherwise valid high school 
diplomas or delays associated with reviewing diplomas. The Department 
disagrees that such situations are likely to occur because the 
provisions do not require the review of every diploma, but only those 
for which there is a question about its validity. By providing the 
guidance and clarity in these regulations, we believe that this 
provision will help institutions develop processes to evaluate diplomas 
so that they do not arbitrarily reject diplomas, therefore helping 
students. The commenters raising these concerns also largely 
represented four-year private nonprofit institutions and well-regarded 
private high schools, none of which have been the source of these 
issues in the past. Instead, the possible cost to students would be 
borne by individuals who do not in fact have valid high school diplomas 
who would have been able to obtain financial aid under the prior 
regulations but are unable to do so in this situation. While this 
restricts the choices available to those individuals, they should not 
have been eligible for aid under the old regulations. Additionally, 
this restriction may itself not always be a cost, as individuals in 
those situations would be less likely to complete their courses, and 
more likely to be able to have difficulty repaying loans or end up in 
default.

[[Page 74679]]

Certification Procedures

    Certification procedures represent the Department's process for 
ensuring that institutions agree to abide by the requirements of the 
title IV, HEA programs, which provides critical integrity and 
accountability around Federal dollars. Decisions about whether to 
certify an institution's participation, how long to certify it for, and 
what types of conditions should be placed on that certification are 
critical elements of managing oversight of institutions, particularly 
the institutions that pose risks to students and taxpayers. Shorter 
certification periods or provisional certification allow the Department 
greater flexibility to respond to an institution exhibiting some signs 
of concern. Similarly, institutions that do not raise concerns can be 
certified for longer and with no additional conditions, allowing the 
Department to focus its resources where greater attention is most 
needed.
Benefits
    The Certification Procedures regulations provide benefits for the 
Federal Government, students, and States.
Federal Government
    The regulations provide several important benefits for the 
Department and the Federal Government more generally. These 
particularly relate to improved program integrity, improved resource 
management, greater protection from closures, greater assurances that 
taxpayers will not fund credits that cannot result in long-term student 
benefits, and improved resource management. The elimination of Sec.  
668.13(b)(3) addresses the first two benefits. The provision being 
removed required the Department to issue a decision on a certification 
within 12 months of the date its participation expires. While it is 
important for the Department to move with deliberate speed in its 
oversight work, the institutions that have extended periods with a 
pending certification application are commonly in this situation due to 
unresolved issues that must be dealt with first. For instance, an 
institution may have a pending certification application because it may 
have an open program review or a Federal or State investigation that 
could result in significant actions. Forcing decisions on those 
application before the review process or an investigation is completed 
results in suboptimal outcomes for the Department, the school, and 
students. For the institution, the Department may end up placing it on 
a short certification that would result in an institution facing the 
burden of redoing paperwork after only a few months. That would carry 
otherwise unnecessary administrative costs and increase uncertainty for 
the institution and its students.
    The provisions in Sec.  668.13(c)(1) that provides additional 
circumstances in which an institution would become provisionally 
certified also provides benefits for program integrity and improved 
program administration. For instance, the ability to request a teach-
out plan or agreement when a provisionally certified institution is at 
risk of closure ensures the Department is not solely dependent upon a 
State or accreditation agency to help find options for students when a 
closure appears possible. The inability to ask for a teach-out plan or 
agreement to date has limited the Department's ability to ensure 
students are given options for continuing their education. This can 
result in an increase in closed school loan discharges, as well as 
significant costs to students who cannot recoup the time spent in a 
program they cannot continue elsewhere. Creating situations that 
automatically result in provisional certification also helps with 
program integrity and management. An institution may face a sudden 
shock that puts them out of business or the gradual accumulation of a 
series of smaller problems that culminates in a sudden closure. The 
pace at which these events occur requires the Department to be nimble 
in responding to issues and better able to add additional requirements 
for an institution's participation outside of the normal renewal 
process. Under current regulations, the Department has too often been 
in a position where an obviously struggling institution faces no 
additional conditions on participation even if doing so might have 
resulted in a more orderly closure.
    Such benefits are also related to the provisions in Sec.  668.14(e) 
that lay out additional conditions that could be placed on an 
institution if it is in a provisional status. This non-exhaustive list 
of requirements specifies ways the Department can more easily protect 
students and taxpayers when concerns arise. Some of these conditions 
make it easier to manage the size of a risky institution and would 
ensure that it does not keep growing when it may be in dire straits. 
This would be done through conditions like restricting the growth of an 
institution, preventing the addition of new programs or locations, or 
limiting the ability of the institution to serve as a teach-out partner 
for other schools or to enter into agreements with other institutions 
to provide portions of an educational program.
    Other conditions in Sec.  668.14(e) give the Department better 
ability to ensure that it is receiving the information it needs to 
properly monitor schools and that there are plans for adequately 
helping students. The reporting requirements in Sec.  668.14(e)(7) and 
(10) help the Department more quickly receive information about issues 
so it could react in real-time as concerns arise.
    To get a sense of the potential effect of these changes, Table 4.3 
below breaks down the certification status of all institutions 
participating in title IV, HEA programs. This provides some sense of 
which institutions might currently be subject to additional conditions.

 Table 4.3--Certification Status of Institutions Participating in the Title IV, HEA Federal Student Aid Programs
----------------------------------------------------------------------------------------------------------------
                                                                     Fully      Provisionally    Month-to-month
                                                                   certified      certified       certification
----------------------------------------------------------------------------------------------------------------
Public..........................................................        1,748               86                23
Private Nonprofit...............................................        1,464              191                35
Private For-Profit..............................................        1,115              489                43
Foreign.........................................................          297               73                42
                                                                 -----------------------------------------------
    Total.......................................................        4,624              839               143
----------------------------------------------------------------------------------------------------------------
Source: Postsecondary Education Participants Systems as of August 2023.
Note: The month-to-month column is a subset of schools that could be in either the fully certified or the
  provisionally certified column.


[[Page 74680]]

    As the table shows, there is a very significant difference in the 
amounts of liabilities assessed versus the amounts collected. This 
shows the importance of greater accountability to avoid the liabilities 
in the first place. It also demonstrates the critical need for tools 
like the financial responsibility triggers to obtain protection that 
can offset these liabilities.
    The Department also benefits from changes in Sec.  668.14 that 
increase the number of entities that could be financially liable for 
the cost of monies owed to the Department that are unpaid by 
institution. EA GENERAL-22-16 updated PPA signature requirements for 
entities exercising substantial control over non-public institutions of 
higher education.\55\ While EA GENERAL-22-16 used a rebuttable 
presumption, language in Sec.  668.14(a)(3) would not only require a 
representative of the institution to sign a PPA, but also an authorized 
representative of an entity with direct or indirect ownership of a 
private institution. For private nonprofit institutions, this 
additional signature would generally be by an authorized representative 
of the nonprofit entity or entities that own the institution. 
Historically, the Department has often seen colleges decide to close 
when faced with significant liabilities instead of paying them. The 
result is both that the existing liability is not paid and the cost to 
taxpayers further increases due to closed school discharges due to 
students.
---------------------------------------------------------------------------

    \55\ Updated Program Participation Agreement Signature 
Requirements for Entities Exercising Substantial Control Over Non-
Public Institutions of Higher Education. https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2022-03-23/updated-program-participation-agreement-signature-requirements-entities-exercising-substantial-control-over-non-public-institutions-higher-education.
---------------------------------------------------------------------------

    To get a sense of how often the Department successfully collects on 
assessed liabilities, we looked at the amount of institutional 
liabilities established as an account receivable and processed for 
repayment, collections, or referral to Treasury following the 
exhaustion of any applicable appeals over the prior 10 years. This does 
not include liabilities that were settled or not established as an 
account receivable and referred to the Department's Finance Office. 
Items in the latter category could include liabilities related to 
closed school loan discharges that the Department did not assess 
because there were no assets remaining at the institution to collect 
from.
    We then compared estimated liabilities to the amount of money 
collected from institutions for liabilities owed over the same period. 
The amount collected in a year is not necessarily from a liability 
established in that year, as institutions may make payments on payment 
plans, have liabilities held while they are under appeal, or be in 
other similar circumstances.

       Table 4.4--Liabilities Versus Collections From Institutions
                             [$ in millions]
------------------------------------------------------------------------
                                                             Amounts
          Federal fiscal year             Established    collected from
                                          liabilities     institutions
------------------------------------------------------------------------
2013..................................            19.6              26.9
2014..................................            86.1              37.5
2015..................................           108.1              13.1
2016..................................            64.5              30.8
2017..................................           149.7              34.5
2018..................................           126.2              51.1
2019..................................           142.9              52.3
2020..................................           246.2              31.7
2021..................................           465.7              29.1
2022..................................           203.0              37.0
                                       ---------------------------------
    2013-2022.........................         1,611.9             344.2
------------------------------------------------------------------------
Source: Department analysis of data from the Office of Finance and
  Operations including reports from the Financial Management Support
  System.

    The added signature requirements are important because there may be 
many situations where the entities that own the closed institution 
still have resources that could be used to pay liabilities owed to the 
Department. The provisions in Sec.  668.14(a)(3) make it clearer that 
the Department will seek signatures on PPAs from those types of 
entities, making them financially liable for the costs to the 
Department. In addition to the financial benefits in the form of the 
greater possibility of transfers from the school or other entities to 
the Department, this provision also provides deterrence benefits. 
Entities considering whether to invest in or otherwise purchase an 
institution would want to conduct greater levels of due diligence to 
ensure that they are not supporting a place that might be riskier and, 
therefore, more likely to generate liabilities the investors would have 
to repay. The effect should mean that riskier institutions receive less 
outside investment and are unable to grow unsustainably. In turn, 
outside investors may then be more willing to consider institutions 
that generate lower returns due to more sustainable business practices. 
This could include institutions that do not grow as quickly because 
they want to ensure they are capable of serving all their students well 
or make other choices that place a greater priority on student success.
    The provisions in Sec.  668.14(b)(32)(iii) will benefit the 
Department in its work to minimize the costs of institutional closures 
in two ways. The first is to help students better navigate their 
options if they wish to complete their education while the second is to 
minimize the financial costs associated with loan discharges for 
students who do not continue their education elsewhere. The part of the 
provision related to requiring institutions to abide by a State's laws 
related to closure around teach-out plans or agreements and the 
retention of student records relate to that first goal. Teach-outs are 
designed to give students the most seamless path to finishing a program 
and typically address complex issues like what credits will or will not 
transfer, whether the cost will be the same, and other key matters. 
Similarly, successful transfer requires that

[[Page 74681]]

students have ways to access their records, especially transcripts. An 
August 2023 study by SHEEO found that students whose colleges closed 
and were in States that had both teach-out and record retention 
policies in place were more likely to re-enroll within four months than 
those who did not have those policies in place.\56\ Though there were 
not long-term completion benefits from these policies, it does suggest 
that at least giving students the chance to continue has benefit.
---------------------------------------------------------------------------

    \56\ Burns, R., Weeden, D., Bryer, E., Heckert, K., Brown, L. 
(2023). A Dream Derailed? Investigating the Causal Effects of 
Student Protection Authorization Policies on Student Outcomes After 
College Closures, State Higher Education Executive Officers 
Association. https://sheeo.org/wp-content/uploads/2023/08/SHEEO_CollegeClosures_Report3.pdf page 35.
---------------------------------------------------------------------------

    Providing students with a smoother path to continuing their 
education when their college closes provide financial benefits for the 
Department too. The regulations around closed school discharges that 
were finalized on November 1, 2022 (87 FR 65904) state that borrowers 
who did not graduate from a program and were enrolled within 180 days 
of closure only lose eligibility for a closed school loan discharge if 
they accept and complete either a teach-out or a continuation of the 
program at another location of the same school.\57\ That provision is 
designed to encourage orderly closures and the provision of teach-out 
agreements. Reinforcing the emphasis on teach-outs by requiring 
institutions to abide by State specific laws related to that area will 
thus further encourage the offering of orderly plans for students to 
continue their education and potentially reduce the number of closed 
school discharges that are granted because more borrowers will re-
enroll, complete, and thus not be eligible for a closed school 
discharge.
---------------------------------------------------------------------------

    \57\ The closed school discharge regulation is currently stayed 
pending appeal from a court's denial of a preliminary injunction. 
See Career Colleges & Schs. of Tex. v. United States Dep't of Educ., 
No. 23-50491, Doc 42-1 (5th Cir. Aug. 7, 2023).
---------------------------------------------------------------------------

    Requiring institutions to abide by State-specific laws related to 
tuition recovery funds and surety bonds also benefits the Department by 
providing another source of funds to cover potential costs from 
closures. As SHEEO notes in its August 2023 paper, these policies as 
currently constructed are generally less about encouraging re-
enrollment or program completion and more about giving students a path 
to having some of their costs reimbursed. To the extent these funds can 
help students pay off Federal loans, that would cover costs that are 
otherwise borne by the Department. Moreover, making institutions 
subject to these requirements would also help deter behavior that could 
lead to a closure since it would result in increased expenses for an 
institution.
    Overall, having institutions abide by State laws specific to 
closure of postsecondary education institutions will benefit the 
Department by allowing the State part of the regulatory triad to be 
more involved. That means the Department would get greater support in 
ensuring struggling colleges have teach-out plans and agreements in 
place, as well as lessening the costs from discharges that are not 
reimbursed.
    Several other provisions in the certification procedures 
regulations address the benefits related to ensuring that Federal 
student aid is paying for fewer credits that cannot be used for long-
term student success. This shows up in several ways. For one, the 
Department is concerned about students who receive Federal loans and 
grants to pay for credits in programs that lack the necessary licensure 
or certification for the students to actually work in those fields. 
When that occurs, the credits are essentially worthless as they cannot 
be put toward the occupations connected to the program.
    In other cases, students may be accumulating credits far in excess 
of what they need to obtain a job in a given State. Section 
668.14(b)(26) provides that the Department will not pay for GE programs 
that are longer than what is needed in the State where they are located 
(or a bordering State if certain exceptions are met), subject to 
certain exclusions. States establish the educational requirements they 
deem necessary and paying for credits beyond that point increases costs 
to the Department and also creates the risk that the return on 
investment for the program will be worse due to higher costs that may 
not be matched by an increase in wages in the relevant field.
    The Department also receives benefits from ensuring that students 
are able to use the credits paid for with Federal funds. The changes in 
Sec.  668.14(b)(34) establish that institutions must provide official 
transcripts that include all credits from a period in which the student 
received title IV, HEA program funds and the student had satisfied all 
institutional charges for that period at the time when the request was 
made. This provision bolsters other requirements that ban transcript 
withholding related to institutional errors Sec.  668.14(b)(33). As a 
result, students will be more easily able to transfer their credits, 
which can bolster rates of completion and the associated benefits that 
come with earning a postsecondary credential.
    The changes in Sec.  668.14(b)(35) also benefit the Department by 
bolstering the ability of students to complete their education. 
Research shows that additional financial aid can provide important 
supports to help increase the likelihood that students graduate. For 
example, one study showed that increasing the amount some students were 
allowed to borrow improved degree completion, later-life earnings, and 
their ability to repay their loans.\58\ The language in Sec.  
668.14(b)(35) addresses situations in which an institution may prevent 
a student from receiving all the title IV aid they are entitled to 
without replacing it with other grant aid. The changes diminish the 
risk that students are left with gaps that could otherwise have been 
covered by title IV aid, which would help them finish their programs.
---------------------------------------------------------------------------

    \58\ www.nber.org/papers/w27658.
---------------------------------------------------------------------------

Students
    Many of the same benefits for the Department will also accrue to 
students. This is particularly true for the provisions designed to make 
college closures more orderly and better protect students throughout 
that process. In most cases, college closures are extremely disruptive 
for students. As found by GAO and SHEEO, only 44 to 47 percent of 
students enroll elsewhere after a closure, and even fewer complete 
college.\59\ SHEEO also found that over 100,000 students were affected 
by sudden closures from July 2004 to June 2020.\60\ Allowing the 
Secretary to provisionally certify an institution deemed at risk of 
closure as well as request a teach-out plan or agreement from a 
provisionally certified institution at risk of closure will provide 
students with more structured pathways to continue their education if 
their institution shuts down. Requiring institutions to abide by State-
specific laws related to the closure of postsecondary institutions will 
also give States a stronger role to ensure closures are orderly. As 
noted above, SHEEO has found that the presence of teach-out and record 
retention requirements are positively correlated with short-term 
enrollment, though long-term benefits fade out.\61\ Ensuring States can 
enforce

[[Page 74682]]

their laws related to tuition recovery funds and surety bonds also 
provides financial benefits to students by giving them another avenue 
to receive money back besides a closed school loan discharge.
---------------------------------------------------------------------------

    \59\ www.gao.gov/products/gao-21-105373; sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
    \60\ https://sheeo.org/more-than-100000-students-experienced-an-abrupt-campus-closure-between-july-2004-and-june-2020/.
    \61\ https://sheeo.org/wp-content/uploads/2023/08/SHEEO_CollegeClosures_Report3.pdf.
---------------------------------------------------------------------------

    Other changes within Sec.  668.14(b)(26) provide benefits to 
students by reducing the number of postsecondary credits paid for with 
Federal aid that are either not needed for success or cannot be used to 
help students achieve their educational goals. In the former area, 
limitations on the length of programs will reduce situations where 
borrowers may be paying for credits beyond what is needed to get 
licensed for a GE program. Given that many of these are certificate 
programs that result in low-to-moderate incomes, the cost of added 
credits may well undercut a program's positive financial return on 
investment. It also represents more time a student must spend enrolled 
as opposed to making money in the workforce. Provisions around 
requiring programs to have necessary approvals for licensure or 
certification reduce the likelihood that students may end up expending 
significant amounts of time and money, including Federal aid, in 
programs where they will be unable to work in their chosen field upon 
completion. It would be very challenging for students in these 
situations to receive the financial benefits they sought from a program 
and protections will ensure that time and money are well spent.
    The limitations on how institutions can withhold transcripts in 
Sec.  668.14(b)(33) and (34) similarly benefit students by increasing 
the situations in which they will be able to make use of the credits 
they earn. In particular, the requirement added from the NPRM that 
institutions must provide a transcript that includes credits earned 
during a period in which the student received title IV, HEA program 
funds and no longer has a balance for that period will protect more 
credits entirely from withholding. Withheld transcripts are a 
significant issue. A 2020 study by Ithaka S+R estimated that 6.6 
million students have credits they are unable to access because their 
transcript is being withheld by an institution.\62\ That study and a 
2021 study published by the same organization estimate that the 
students most affected are likely adult learners, low-income students, 
and racial and ethnic minority students.\63\ This issue inhibits 
students with some college, but no degree, from completing their 
educational programs, as well as prevents some students with degrees 
from pursuing further education or finding employment if potential 
employers are unable to verify that they completed a degree or if they 
are unable to obtain licensure for the occupation for which they 
trained.
---------------------------------------------------------------------------

    \62\ sr.ithaka.org/publications/solving-stranded-credits.
    \63\ sr.ithaka.org/publications/stranded-credits-a-matter-of-equity.
---------------------------------------------------------------------------

    Finally, the requirement in Sec.  668.14(b)(35) around polices to 
limit the awarding of aid will benefit students by ensuring that they 
receive all the Federal aid they are entitled to. This will likely 
result in a small increase in transfers from the Department to students 
as they receive aid that would otherwise have been withheld by the 
school. Research shows that increased ability to borrow can increase 
completed credits and improve grade point average, completion, post-
college earnings, and loan repayment for some students.\64\
---------------------------------------------------------------------------

    \64\ www.aeaweb.org/articles?id=10.1257/pol.20180279; 
www.nber.org/papers/w24804.
---------------------------------------------------------------------------

    The expanded requirements for who signs a PPA as spelled out in 
Sec.  668.14(a)(3) provides similar benefits for students. Requiring 
outside investors to be jointly and severally liable for any 
liabilities not paid for by the institution should encourage more 
cautious approaches to institutional management and investment. Such 
approaches discourage the kind of aggressive recruitment that has 
resulted in schools misrepresenting key elements of postsecondary 
educations to students, giving grounds for the approval of borrower 
defense to repayment claims. Institutions that also took less cautious 
approaches have also exhibited signs of financial struggle if they 
cannot maintain enrollment, including instances of sudden closures that 
left students without clear educational options.
States
    States will benefit from the language in Sec.  668.14(b)(32) that 
requires institutions to abide by State laws related to institutional 
closures. As discussed already, college closures are disruptive for 
students, can often mean the end of their educational journey, and can 
result in unreimbursed costs for the student. Closures can also be 
burdensome on States that step in and try to manage options for 
students, especially if the institution closes without a teach-out 
agreement in place or a plan for record retention. Under current 
regulations, a State is not always able to enforce its own laws related 
to the closure of postsecondary institutions for places that do not 
have a physical presence in their State. Ensuring States can enforce 
laws related to institutional closure for their students regardless of 
where the school is physically located will allow States to better 
protect the people living in their borders, if they choose to do so. At 
the same time, because the State has the option to choose whether to 
have laws in this area, and what the content of those laws say, they 
have flexibility to determine how much work applying these provisions 
will mean for them.
Costs
    The regulations create some costs for the Federal Government, 
students, States, and institutions.
Federal Government
    The regulations create some modest administrative costs for the 
Department. These consist of staffing costs to monitor the additional 
conditions added to PPAs, as well as any increase in changes to an 
institution's certification status. Beyond these administrative costs, 
the Department could see a slight increase in costs in the title IV, 
HEA programs that come in the form of greater transfers to students who 
would otherwise have received less financial aid under the conditions 
prohibited in Sec.  668.14(b) (35). As discussed in the benefits 
section, greater aid could help students finish their programs.
Students
    The Department is not anticipating that these regulations will have 
a significant cost for students, especially on an ongoing basis. The 
greatest cost for students could be for those who are in the process of 
choosing an institution as the regulations go into effect. These 
students may incur some costs to expand or otherwise continue their 
school search if it turns out a program they were considering did not 
have necessary approvals, was subject to a growth restriction, or some 
other condition that meant they could not enroll in that institution. 
However, these costs would be more than offset by the benefits received 
by a student from enrolling in a program where they will be able to 
obtain necessary licensure or certification or enrolling in an 
institution that is not as risky.
States
    Ensuring States can enforce their laws related to institutional 
closures regardless of whether the school is physically located in 
their borders could have some additional administrative costs for 
States. The extent of these costs would be dependent on how States 
structure their laws. For instance, if States chose to expand their 
laws to

[[Page 74683]]

subject more institutions to requirements for teach-outs, record 
retention, surety bonds, or tuition recovery funds, then they would see 
added administrative costs to enforce the expanded requirements. 
However, if States make no changes or choose to not apply requirements 
to online schools not located in their borders, then they would not see 
added costs. This provision thus gives States the option to choose how 
much added work to take on or not.
Institutions
    Some institutions will see increased administrative costs or costs 
in the form of reduced transfers from the Department, but the nature 
and extent will vary significantly. Many institutions will see no 
change in their transfers, as they are not affected by provisions like 
the ones that cap program length, require having necessary approvals 
for licensure or certification, or do not offer distance programs 
outside their home State. For other institutions, the nature and extent 
of costs will vary depending on how much they must either engage in 
administrative work to come into compliance with the regulations or 
otherwise reduce enrollment that is supported by title IV, HEA funds. 
For instance, an institution that enrolls many students who are in 
States where the program does not have necessary approvals for 
licensure or certification will either face administrative costs to 
make their program eligible or see a reduction in transfers because 
they no longer enroll students from those locations. Similarly, 
programs that need to be shortened because they are longer than State 
requirements will either generate administrative costs to come into 
compliance or stop offering those programs. For institutions offering 
distance education, the costs will also depend based upon whether they 
are enrolling significant numbers of students in States that have rules 
around institutional closures or not and how much it costs to comply 
with those rules. This includes issues like whether the institution 
must provide more surety bonds or contribute money into a tuition 
recovery fund.
    Institutions that are placed on provisional status will incur other 
administrative expenses. This can come from submitting additional 
information for reporting purposes or applying for recertification 
after a shorter period, which requires some staff time. Institutions 
that are asked to provide a teach-out plan or agreement will also incur 
administrative expenses to produce those documents.
    The highly varied nature of these effects means it is not possible 
to model these costs for institutions. For instance, the Department 
does not currently have data from institutions on which programs are 
more than 100 percent of the required length set by the State. Nor do 
we know how many programs enroll students from States where they do not 
have the necessary approvals for graduates to obtain licensure or 
certification. The same is true of several other provisions. This makes 
it impossible to estimate how many institutions would have to consider 
adjustments. We also do not know how extensive any necessary 
modifications would be or how many students are affected--two issues 
that affect the administrative costs and potential costs in the form of 
reduced transfers.
    Overall, however, we believe that the benefits to the Federal 
Government and students will exceed these costs. For example, a program 
that lacks the necessary approvals for a graduate to become licensed or 
certified is not putting graduates in a position to use the training 
they are paying for. Even if there are costs to the institution to 
modify or cease enrolling students in that program, the benefits to 
students from not paying for courses that cannot lead them to achieve 
their educational goals makes the cost versus benefit analysis 
worthwhile.

Ability To Benefit

    The HEA requires students who are not high school graduates to 
fulfill an ATB alternative and enroll in an eligible career pathway 
program to gain access to title IV, HEA aid. The three ATB alternatives 
are passing an independently administered ATB test, completing six 
credits or 225 clock hours of coursework, or enrolling through a State 
process.\65\ Colloquially known as ATB students, these students are 
eligible for all title IV, HEA aid, including Federal Direct loans. The 
ATB regulations have not been updated since 1994. In fact, the current 
Code of Federal Regulations makes no mention of eligible career pathway 
programs. Changes to the statute have been implemented through sub 
regulatory guidance laid out in Dear Colleague Letters (DCLs). DCL GEN 
12-09, 15-09, and 16-09 explained the implementation procedures for the 
statutory text. Due to the changes over the years the Department 
updates, clarifies, and streamlines the regulations related to ATB.
---------------------------------------------------------------------------

    \65\ As of January 2023, there are six States with an approved 
State process.
---------------------------------------------------------------------------

Benefits
    The regulations will provide benefits to States by more clearly 
establishing the necessary approval processes. This helps more States 
have their applications approved and reduces the burden of seeking 
approval. This is particularly achieved by creating an initial and 
subsequent process for applications. Currently, States that apply are 
required to submit a success rate calculation under current Sec.  
668.156(h) as a part of the first application. Doing so is very 
difficult because the calculation requires that a postsecondary 
institution is accepting students through its State process for at 
least one year. This means that a postsecondary institution needs to 
enroll students without the use of title IV aid for one year to gather 
enough data to submit a success rate to the Department. Doing so may be 
cost prohibitive for postsecondary institutions.
    The regulations also benefit institutions by making it easier for 
them to continue participating in a State process while they work to 
improve their results. More specifically, reducing the success rate 
calculation threshold from 95 percent to 85 percent, and allowing 
struggling institutions to meet a 75 percent threshold for a limited 
number of years, gives institutions additional opportunities to improve 
their outcomes before being terminated from a State process. This added 
benefit does not come at the expense of costs to the student from 
taking out title IV, HEA aid to attend an eligible career pathway 
program. This is because the Department incorporates more guardrails 
and student protections in the oversight of ATB programs, including 
documentation and approval by the Department of the eligible career 
pathway program. That means regulatory oversight is not decreased 
overall.
    Institutions that are maintaining acceptable results also benefit 
from these regulations. Under current regulations, the success rate 
calculation includes all institutions combined. The result is that an 
institution with strong outcomes could be combined with those that are 
doing worse. Under the final regulations, the State calculates the 
success rate for each individual participating institution, therefore 
allowing other participating institutions that are in compliance with 
the regulations to continue participation in the State process.

[[Page 74684]]

Costs
    The regulatory changes impose additional costs on the Department, 
postsecondary institutions, and entities that apply for the State 
process.
    The regulations will break up the State process into an initial and 
subsequent application that must be submitted to the Department after 
two years of initial approval. This increases costs to the State and 
participating institutions. This new application process will be offset 
because the participating institutions will no longer need to fund 
their own State process without title IV, HEA program aid to gain 
enough data to submit a successful application to the Department.
    In the initial application, the State will have to calculate the 
withdrawal rate for each participating institution. This increases 
costs to the State and participating institutions. The increased 
administrative costs associated with the new outcome metric will be 
minimal because a participating institution already know how to 
calculate the withdrawal rate as it is already required under 
Administrative Capability regulations.
    The Department is placing additional reporting requirements on 
States, including information on the demographics of students. This 
increases administrative burden costs to the State and participating 
institutions. There is a lack of data about ATB and eligible career 
pathway programs, and the new reporting means the Department will be 
able to analyze the data and may be able to report trends publicly.
    The minimum documentation requirements in Sec.  668.157 prescribe 
what all eligible career pathway programs will have to meet in the 
event of an audit, program review, or review and approval by the 
Department. Currently the Department does not approve eligible career 
pathway programs, therefore, the regulation increases costs to any 
postsecondary institutions that provide an eligible career pathway 
program. For example, Sec.  668.157(a)(2) requires a government report 
demonstrate that the eligible career pathway program aligns with the 
skill needs of industries in the State or regional labor market. 
Therefore, if no such report exists the program would not be title IV, 
HEA eligible. Further, in Sec.  668.157(b) and (c) the Department 
approves at least one eligible career pathway program at each 
postsecondary institution that offers such programs. We believe that 
benefits of the new documentation standards outweigh their costs 
because the regulations increase program integrity and oversight and 
could stop title IV, HEA aid from subsidizing programs that do not meet 
the statutory definition. Institutions currently use their best faith 
to comply with the statute which means there are likely many different 
interpretations of the HEA. These regulations will set clear 
expectations and standardize the rules.
    Elsewhere in this section under the Paperwork Reduction Act of 
1995, we identify and explain burdens specifically associated with 
information collection requirements.

5. Net Budget Impacts

    We do not estimate that the regulations on Financial 
Responsibility, Administrative Capability, Certification Procedures, 
and ATB will have a significant budget impact. This is consistent with 
how the Department has treated similar changes in recent regulatory 
changes related to Financial Responsibility and Certification 
Procedures. The Financial Responsibility triggers are intended to 
identify struggling institutions and increase the financial protection 
the Department receives. While this may increase recoveries from 
institutions for certain types of loan discharges, affect the level of 
closed school discharges, or result in the Department withholding title 
IV, HEA funds, all items that would have some budget impact, we have 
not estimated any savings related to those provisions. Historically, 
the Department has not been able to obtain much financial protection 
from closed schools and existing triggers have not been widely used. 
Therefore, we will wait to include any effects from these provisions 
until indications are available in title IV, HEA loan data that they 
meaningfully reduce closed school discharges or significantly increase 
recoveries. We did run some sensitivity analyses where these changes 
did affect these discharges, as described in Table 5.1. We only project 
these sensitivity analyses affecting future cohorts of loans. This 
approach reflects our assumption that much of the liabilities 
associated with past cohorts of loans due to closed school discharges 
and borrower defense is either already known or will be tied to 
institutions that are closed thus there will not be a way to obtain 
financial protection. Concerns with the inability to have sufficient 
financial protection in place prior to the generation of liabilities is 
one of the reasons the Department is issuing this final rule as we hope 
to prevent such situations from repeating in the future. The results in 
Table 5.1 differ from those in the NPRM which included the effect of 
the GE provisions which are now in the baseline for this analysis. We 
are including the estimate of the financial responsibility 
sensitivities without the GE provisions from the NPRM in Table 5.1 for 
comparison.

        Table 5.1--Financial Responsibility Sensitivity Analysis
------------------------------------------------------------------------
                                                      Cohorts 2024-2033
                                                        Outlays ($ in
                     Scenario                             millions)
                                                   ---------------------
                                                       NPRM      Final
------------------------------------------------------------------------
Closed School Discharges Reduced by 5 percent.....       -284       -247
Closed School Discharges Reduced by 25 percent....     -1,500     -1,254
Borrower Defense Discharges Reduced by 5 percent..        -70        -56
Borrower Defense Discharges Reduced by 15 percent.       -230       -173
------------------------------------------------------------------------

6. Accounting Statement

    As required by OMB Circular A-4, we have prepared an accounting 
statement showing the classification of the benefits, costs, and 
transfers associated with the provisions of these regulations.

[[Page 74685]]



          Table 6.1--Accounting Statement for Primary Scenario
------------------------------------------------------------------------
                                                    Annualized impact
                                                    (millions, $2023)
                                               -------------------------
                                                  Discount     Discount
                                                 rate = 3%    rate = 7%
------------------------------------------------------------------------
                                Benefits
------------------------------------------------------------------------
Consolidation of all financial responsibility          0.12         0.12
 factors under subpart L......................
                                                        Not
                                                 quantified
------------------------------------------------------------------------
                                  Costs
------------------------------------------------------------------------
Information submission that may be required of         0.02         0.02
 provisionally certified institutions,
 initially certified nonprofit institutions,
 and those that undergo a change in ownership.
Required financial aid counseling to students          2.88         2.89
 and families to accept the most beneficial
 type of financial assistance and strengthened
 requirement for institutions to develop and
 follow procedures to validate high school
 diplomas.....................................
Information submission that any domestic or            0.72         0.72
 foreign institution that is owned directly or
 indirectly by any foreign entity holding at
 least a 50 percent voting or equity interest
 in the institution must provide documentation
 of the entity's status under the law of the
 jurisdiction under which the entity is
 organized....................................
Compliance with approval requirements for              0.16         0.16
 State process for ATB........................
Documentation requirements for Eligible Career         0.50         0.50
 Pathways program.............................
Increased reporting of financial                       0.08         0.08
 responsibility triggers and requirement that
 some public institutions provide
 documentation from a government entity that
 confirms that the institution is a public
 institution and is backed by the full faith
 and credit of that government entity to be
 considered as financially responsible........
------------------------------------------------------------------------
                                Transfers
------------------------------------------------------------------------
None in primary estimate.
------------------------------------------------------------------------

Financial Responsibility Triggers

    We conducted several sensitivity analyses to model the potential 
effects of the Financial Responsibility triggers if they did result in 
meaningful increases in financial protection obtained that can offset 
either closed school or borrower defense discharges. We modeled these 
as reductions in the number of projected discharges in these 
categories. This would not represent a reduction in benefits given to 
students, but a way of considering what the cost would be if the 
Department was reimbursed for a portion of the discharges. These are 
described above in Net Budget Impacts.

7. Alternatives Considered

    The Department considered the following items in response to public 
comments submitted on the NPRM. Many of these are also discussed in the 
preamble to this final rule.

Financial Responsibility

    We considered adopting a materiality threshold but declined to do 
so. Materiality is a concept often attested to by auditors based upon 
representations made by management. We are concerned that such an 
approach would undercut the discretion of the Department and that the 
time it would take for auditors to provide an assessment of materiality 
would result in it taking too long to seek financial protection when 
needed.
    We also considered adopting a formal appeals process related to the 
imposition of letters of credit but decided that maintaining the 
current practice of having back and forth discussions with institutions 
while we work to understand the nature of the triggering event would be 
more effective and efficient for both parties. The purpose of the 
trigger is to quickly seek financial protection when there are concerns 
about how the triggering event may affect the financial health of the 
institution. An appeals process could result in dragging out that 
process so long that closures could still occur with no protection in 
place.

Administrative Capability

    The Department considered adopting a suggestion from commenters to 
not require institutions to verify high school diplomas that might be 
questionable if they came from a high school that was licensed or 
registered by the State. However, we are concerned that those terms 
could be read to allow obtaining a business license that is unrelated 
to education as exempting high schools from consideration.

Certification Procedures

    We considered removing all supplementary performance measures in 
Sec.  668.13(e) but decided to only remove the items related to debt-
to-earnings and earnings premium. Providing institutions notice that 
measures such as withdrawal rates, licensure passage rates, and the 
share of spending devoted to marketing and recruitment could be 
considered during the institutional certification and recertification 
process gives greater clarity to the field.
    We also considered adopting suggestions by commenters to only apply 
the signature requirement to individuals. However, we decided to keep 
applying the requirements to corporations or entities because that 
better reflects the structure of most ownership groups for institutions 
of higher education and thus better matches our goal of ensuring 
taxpayers have greater protections against possible liabilities.
    The Department considered suggestions from commenters to entirely 
remove requirements that institutions certify they abide by certain 
State laws specifically related to postsecondary education as well as 
to expand the types of education-specific laws covered by that 
provision. We ultimately felt that limiting this provision to specific 
items related to protecting students from institutional closures struck 
the best balance between giving clear expectations to the field with 
protecting students from the circumstances we are most worried about.
    For certification requirements related to professional licensure, 
we considered suggestions from commenters to maintain the current 
regulations that require disclosures to students. However, we are 
concerned that students who use Federal aid to pay for programs where 
graduates will be unable to work in their desired field sets students 
up for financial struggles and is likely to be a waste of taxpayer 
resources. Accordingly, we think the

[[Page 74686]]

stronger certification requirement will better protect students and 
lessen the risk of paying for programs that cannot lead to employment 
in the related field.
    We also considered adopting recommendations from commenters to 
allow GE programs to be as long as 150 percent of State maximum hour 
requirements. However, we are concerned that allowing programs to 
exceed the time necessary to receive State certification or licensure 
risks students taking on greater amounts of loan debt that will not 
result in appreciably higher earnings. That could risk students ending 
up with loans that would have been more affordable at the shorter 
program lengths. Accordingly, we think a cap related to 100 percent of 
the required State length is more appropriate.

Ability To Benefit

    The Department considered suggestions from commenters to reduce the 
success rate to as low as 75 percent. However, we are concerned that 
level would expose the State process to unacceptable levels of 
performance and poor student outcomes. We also considered adopting 
larger caps on the number of students that could enroll in eligible 
career pathways programs in the initial two years of the State process 
or not having any cap at all. Given that the caps are only in place for 
two years, we think that starting small and ensuring models are 
successful is better than allowing programs to start at larger sizes 
before determining if they can serve students well.

8. Regulatory Flexibility Act Analysis

    This section considers the effects that the final regulations will 
have on small entities in the Educational Sector as required by the 
Regulatory Flexibility Act (RFA, 5 U.S.C. et seq., Pub. L. 96-354) as 
amended by the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA). The purpose of the RFA is to establish as a principle of 
regulation that agencies should tailor regulatory and informational 
requirements to the size of entities, consistent with the objectives of 
a particular regulation and applicable statutes. The RFA generally 
requires an agency to prepare a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements under the 
APA or any other statute unless the agency certifies that the rule will 
not have a ``significant impact on a substantial number of small 
entities.'' As noted in the RIA, the Department does not expect that 
the regulatory action will have a significant budgetary impact, but 
there are some costs to small institutions that are described in this 
Final Regulatory Flexibility Analysis.

Description of the Reasons That Action by the Agency Is Being 
Considered

    These final regulations address four areas: financial 
responsibility, administrative capability, certification procedures, 
and ATB. The financial responsibility regulations will increase our 
ability to identify high-risk events that are likely to have a 
significant adverse effect on the financial condition of the 
institution and require the financial protection we believe is needed 
to protect students and taxpayers. We strengthened institutional 
requirements in the administrative capability regulations at Sec.  
668.16 to improve the administration of the title IV, HEA programs and 
address concerning practices that were previously unregulated. The 
certification procedures regulations will create a more rigorous 
process for certifying institutions to participate in the title IV, HEA 
programs. Finally, we amended regulations for ATB at Sec. Sec.  668.156 
and 668.157, which will clarify student eligibility requirements for 
non-high school graduates and the documentation requirements for 
eligible career pathway programs.

Succinct Statement of the Objectives of, and Legal Basis for, the 
Regulations

    The objective of the financial responsibility regulations is to 
ensure institutions meet minimum standards of financial responsibility 
on an ongoing basis while identifying changes in condition that warrant 
safeguards such as increased financial protection. Doing so increases 
the Department's ability to identify high-risk events and require the 
financial protection we believe is needed to protect students and 
taxpayers. We are strengthening requirements in the administrative 
capability regulations to improve the administration of the title IV, 
HEA programs and address concerning practices that were previously 
unregulated.
    Our goal of the certification procedures regulations is to create a 
more rigorous process for certifying institutions to participate in the 
title IV, HEA programs. We expect all of these regulations to better 
protect students and taxpayers.
    Finally, our objective for the ATB regulations is to clarify 
student eligibility requirements for non-high school graduates and the 
documentation requirements for eligible career pathway programs so that 
more students can access postsecondary education and succeed.
    The Department's authority to pursue the financial responsibility 
regulations is derived from section 498(c) of the HEA. HEA section 
498(d) authorizes the Secretary to establish certain requirements 
relating to institutions' administrative capacities. The Secretary's 
authority around institutional eligibility and certification procedures 
is derived primarily from HEA section 498. Section 487(a) of the HEA 
requires institutions to enter into an agreement with the Secretary, 
and that agreement conditions an institution's participation in title 
IV programs on a list of requirements. Furthermore, as discussed 
elsewhere in the preamble, HEA section 487(c)(1)(B) authorizes the 
Secretary to issue regulations as may be necessary to provide 
reasonable standards of financial responsibility and appropriate 
institutional capability for the administration of title IV, HEA 
programs in matters not governed by specific program provisions, and 
that authorization includes any matter the Secretary deems necessary 
for the sound administration of the student aid programs. The 
Department's authority for the ATB regulations comes from section 
498(d) of the HEA, which outlines how a student who does not have a 
certificate of graduation from a school providing secondary education, 
or the recognized equivalent of such certificate, can be eligible for 
Federal student aid.

Description of and, Where Feasible, an Estimate of the Number of Small 
Entities to Which the Regulations Will Apply

    The Small Business Administration (SBA) defines ``small 
institution'' using data on revenue, market dominance, tax filing 
status, governing body, and population. Most entities to which the 
Office of Postsecondary Education's (OPE) regulations apply are 
postsecondary institutions, however, which do not report data on 
revenue that is directly comparable across institutions. As a result, 
for purposes of this NPRM, the Department proposes to continue defining 
``small entities'' by reference to enrollment, to allow meaningful 
comparison of regulatory impact across all types of higher education 
institutions.
    The enrollment standard for small less-than-two-year institutions 
(below associate degrees) is less than 750 full-time-equivalent (FTE) 
students and for small institutions of at least two but less-than-4-
years and 4-year institutions,

[[Page 74687]]

less than 1,000 FTE students.\66\ As a result of discussions with the 
Small Business Administration, this is an update from the standard used 
in some prior rules, such as the NPRM associated with this final rule, 
``Financial Value Transparency and Gainful Employment (GE), Financial 
Responsibility, Administrative Capability, Certification Procedures, 
Ability to Benefit (ATB),'' published in the Federal Register May 19, 
2023,\67\ the final rule published in the Federal Register on July 10, 
2023, for the ``Improving Income Driven Repayment'' rule,\68\ and the 
final rule published in the Federal Register on October 28, 2022, on 
``Pell Grants for Prison Education Programs; Determining the Amount of 
Federal Education Assistance Funds Received by Institutions of Higher 
Education (90/10); Change in Ownership and Change in Control.'' \69\ 
Those prior rules applied an enrollment standard for a small two-year 
institution of less than 500 full-time-equivalent (FTE) students and 
for a small 4-year institution, less than 1,000 FTE students.\70\ The 
Department consulted with the Office of Advocacy for the SBA and the 
Office of Advocacy has approved the revised alternative standard for 
this rulemaking. The Department continues to believe this approach most 
accurately reflects a common basis for determining size categories that 
is linked to the provision of educational services and that it captures 
a similar universe of small entities as the SBA's revenue standard.\71\
---------------------------------------------------------------------------

    \66\ In regulations prior to 2016, the Department categorized 
small businesses based on tax status. Those regulations defined 
``non-profit organizations'' as ``small organizations'' if they were 
independently owned and operated and not dominant in their field of 
operation, or as ``small entities'' if they were institutions 
controlled by governmental entities with populations below 50,000. 
Those definitions resulted in the categorization of all private 
nonprofit organizations as small and no public institutions as 
small. Under the previous definition, proprietary institutions were 
considered small if they are independently owned and operated and 
not dominant in their field of operation with total annual revenue 
below $7,000,000. Using FY 2017 IPEDs finance data for proprietary 
institutions, 50 percent of 4-year and 90 percent of 2-year or less 
proprietary institutions would be considered small. By contrast, an 
enrollment-based definition applies the same metric to all types of 
institutions, allowing consistent comparison across all types.
    \67\ 88 FR 32300.
    \68\ 88 FR 43820.
    \69\ 87 FR 65426.
    \70\ In those prior rules, at least two but less-than-four-years 
institutions were considered in the broader two-year category. In 
this iteration, after consulting with the Office of Advocacy for the 
SBA, we separate this group into its own category.
    \71\ The Department uses an enrollment-based definition since 
this applies the same metric to all types of institutions, allowing 
consistent comparison across all types. For a further explanation of 
why the Department proposes this alternative size standard, please 
see ``Student Assistance General Provisions, Federal Perkins Loan 
Program, Federal Family Education Loan Program, and William D. Ford 
Federal Direct Loan Program (Borrower Defense)'' proposed rule 
published July 31, 2018 (83 FR 37242).

                         Table 8.1--Small Institutions Under Enrollment-Based Definition
----------------------------------------------------------------------------------------------------------------
                                                                       Small           Total          Percent
----------------------------------------------------------------------------------------------------------------
Proprietary.....................................................           2,114           2,331              91
    2-year......................................................           1,875           1,990              94
    4-year......................................................             239             341              70
Private not-for-profit..........................................             997           1,831              54
    2-year......................................................             199             203              98
    4-year......................................................             798           1,628              49
Public..........................................................             524           1,924              27
    2-year......................................................             461           1,145              40
    4-year......................................................              63             779               8
                                                                 -----------------------------------------------
        Total...................................................           3,635           6,086              60
----------------------------------------------------------------------------------------------------------------
Source: 2020-21 IPEDS data reported to the Department.

    Table 8.1 summarizes the number of institutions affected by these 
final regulations. As seen in Table 8.2, the average total revenue at 
small institutions ranges from $3.0 million for proprietary 
institutions to $16.5 million at private institutions.

       Table 8.2--Average and Total Revenues at Small Institutions
------------------------------------------------------------------------
                                           Average           Total
------------------------------------------------------------------------
Proprietary..........................       2,959,809      6,257,035,736
    2-year...........................       2,257,046      4,231,961,251
    4-year...........................       8,473,115      2,025,074,485
Private not-for-profit...............      16,531,376     16,481,781,699
    2-year...........................       3,664,051        729,146,103
    4-year...........................      19,740,145     15,752,635,596
Public...............................      11,084,101      5,808,068,785
    2-year...........................       8,329,653      3,839,969,872
    4-year...........................      31,239,665      1,968,098,913
                                      ----------------------------------
        Total........................       7,853,339     28,546,886,220
------------------------------------------------------------------------

    As noted in the net budget estimate section, we do not anticipate 
that the Financial Responsibility, Administrative Capability, 
Certification Procedures, and ATB components of the regulation will 
have any significant budgetary impact, or an impact on a substantial 
number of small entities. We have, however, run a sensitivity analysis 
of what an effect of the Financial Responsibility provisions could be 
on offsetting the transfers of certain loan

[[Page 74688]]

discharges from the Department to borrowers by obtaining additional 
funds from institutions. We elected to use a sensitivity analysis to 
reflect the uncertainty of how this rule, as well as final rules around 
GE and borrower defense may deter the behavior that in the past led to 
liabilities against institutions. These sensitivities reduced borrower 
defense claims by 5 percent and 15 percent and closed school claims by 
5 percent and 25 percent. Using the sensitivities, we estimated there 
could be a reduction in the budget impact of closed school discharges 
or borrower defense of $0.5 to $1.5 billion for loan cohorts through 
2033 from all types of institutions, not just small institutions. Since 
these amounts scale with the number of students, we anticipate the 
impact to be much smaller at small entities.
    While we do not anticipate a significant budget impact from these 
provisions, the RIA identifies some potential costs to institutions 
that may also affect small institutions. The Department has not 
quantified these costs because they are specific to individual 
institutions' circumstances. The largest are the costs associated with 
providing financial protection. Some of these are administrative costs 
in the form of fees paid to banks or other financial institutions to 
obtain a letter of credit. These are costs that an institution bears 
regardless of whether a letter of credit is collected upon. The exact 
amount of this fee will vary by institution and at least partly reflect 
the assessment of the institution's riskiness by the financial 
institution. Institutions do not report the costs of obtaining a letter 
of credit to the Department.
    In addition to the potential cost of financial protection, 
institutions could see increased costs to improve their financial aid 
information, strengthen their career services, improve their procedures 
for verifying high school diplomas, and providing clinical 
opportunities and externships. The extent of these costs will vary 
across institutions, with some not requiring any changes and others 
facing costs that could range from small one-time charges to tweak 
financial aid communications to ongoing expenses to have the staff 
necessary for career services or findings spots for clinical and 
externship opportunities. Potential costs associated with reviewing 
high school diplomas will also vary greatly based on institutions' 
existing procedures.
    The certification provisions could also result in administrative 
expenses or costs in the form of reduced transfers from the Department, 
but the nature and extent will vary significantly. Many institutions 
will see no change in their transfers, as they are not affected by 
provisions like the ones that cap the length of gainful employment 
programs, require having necessary approvals for licensure or 
certification, or do not offer distance programs outside their home 
State. For other institutions, the nature and extent of costs will vary 
depending on how much they must either engage in administrative work to 
come into compliance with the regulations or otherwise reduce 
enrollment that is supported by title IV, HEA funds. Institutions that 
are placed on provisional status will incur other administrative 
expenses. This can come from submitting additional information for 
reporting purposes or applying for recertification after a shorter 
period, which requires some staff time. Institutions that are asked to 
provide a teach-out plan or agreement will also incur administrative 
expenses to produce those documents.
    The ability to benefit provisions will impose additional costs on 
small entities that apply for the State process. The regulations will 
break up the State process into an initial and subsequent application 
that must be submitted to the Department after two years of initial 
approval. This increases costs to the State and participating 
institutions. This new application process will be offset because the 
participating institutions will no longer need to fund their own State 
process without title IV, HEA program aid to gain enough data to submit 
a successful application to the Department. There are also additional 
reporting costs associated with the ATB and eligible career pathways 
program requirements that are described in the following section of 
this analysis.

Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Regulations, Including an Estimate of 
the Classes of Small Entities That Will Be Subject to the Requirements 
and the Type of Professional Skills Necessary for Preparation of the 
Report or Record

    As detailed in the Paperwork Reduction Act of 1995 section of this 
preamble, institutions in certain circumstances will be required to 
submit information to the Department. The final regulations require 
provisionally certified institutions at risk of closure to submit to 
the Department acceptable teach-out plans, and acceptable record 
retention plans. For provisionally certified institutions at risk of 
closure, are teaching out or closing, or are not financially 
responsible or administratively capable, the change requires the 
release of holds on student transcripts. Other provisions require 
institutions to provide adequate financial aid counseling and financial 
aid communications to advise students and families to accept the most 
beneficial types of financial assistance available to enrolled students 
and strengthen the requirement to evaluate the validity of students' 
high school diplomas. The final regulations also require information 
about relevant foreign ownership, the State process for ability to 
benefit qualification, eligible career pathways programs, financial 
responsibility trigger events, and, for some institutions, confirmation 
that they are public institutions backed by the full faith and credit 
of that government entity to be considered as financially responsible. 
Based on the share of institutions considered small entities, we have 
estimated the paperwork burden of these provisions in Table 8.3.

                             Table 8.3--Estimated Paperwork Burden on Small Entities
----------------------------------------------------------------------------------------------------------------
                                                                               Average      Average     As % of
 OMB control No.      Regulatory      Information      Hours     Estimated    hours per    amount per   average
                       section         collection                   cost     institution  institution   revenue
----------------------------------------------------------------------------------------------------------------
1845-0022........  Sec.   668.14..  Amend Sec.             258      $12,398           10          481       0.01
                                     668.14(e) to
                                     establish a
                                     non-exhaustive
                                     list of
                                     conditions
                                     that the
                                     Secretary may
                                     apply to
                                     provisionally
                                     certified
                                     institutions,
                                     such as the
                                     submission of
                                     a teach-out
                                     plan or
                                     agreement.
                                    Amend Sec.
                                     668.14(g) to
                                     establish
                                     conditions
                                     that may apply
                                     to an
                                     initially
                                     certified
                                     nonprofit
                                     institution,
                                     or an
                                     institution
                                     that has
                                     undergone a
                                     change of
                                     ownership and
                                     seeks to
                                     convert to
                                     nonprofit
                                     status.

[[Page 74689]]

 
1845-0022........  Sec.   668.15..  Remove and         (1,493)     (70,576)          (1)         (46)       0.00
                                     reserve Sec.
                                     668.15 thereby
                                     consolidating
                                     all financial
                                     responsibility
                                     factors,
                                     including
                                     those
                                     governing
                                     changes in
                                     ownership,
                                     under part
                                     668, subpart L.
1845-0022........  Sec.   668.16..  Amend Sec.          34,518    1,658,590           11          529       0.01
                                     668.16(h) to
                                     require
                                     institutions
                                     to provide
                                     adequate
                                     financial aid
                                     counseling and
                                     financial aid
                                     communications
                                     to advise
                                     students and
                                     families to
                                     accept the
                                     most
                                     beneficial
                                     types of
                                     financial
                                     assistance
                                     available.
                                    Amend Sec.
                                     668.16(p) to
                                     strengthen the
                                     requirement
                                     that
                                     institutions
                                     must develop
                                     and follow
                                     adequate
                                     procedures to
                                     evaluate the
                                     validity of a
                                     student's high
                                     school diploma.
1845-0022........  Sec.   668.23..  Amend Sec.           8,640      416,305           40        1,917       0.02
                                     668.23(d) to
                                     require that
                                     any domestic
                                     or foreign
                                     institution
                                     that is owned
                                     directly or
                                     indirectly by
                                     any foreign
                                     entity holding
                                     at least a 50
                                     percent voting
                                     or equity
                                     interest in
                                     the
                                     institution
                                     must provide
                                     documentation
                                     of the
                                     entity's
                                     status under
                                     the law of the
                                     jurisdiction
                                     under which
                                     the entity is
                                     organized.
1845-0176........  Sec.   668.156.  Amend Sec.           1,920       92,256          320       15,376       0.20
                                     668.156 to
                                     clarify the
                                     requirements
                                     for the
                                     approval of a
                                     State process.
                                     The State
                                     process is one
                                     of the three
                                     ATB
                                     alternatives
                                     that an
                                     individual who
                                     is not a high
                                     school
                                     graduate could
                                     fulfill to
                                     receive title
                                     IV, Federal
                                     student aid to
                                     enroll in an
                                     eligible
                                     career pathway
                                     program.
1845-0175........  Sec.   668.157.  Add a new Sec.       6,000      288,300           10          481       0.01
                                      668.157 to
                                     clarify the
                                     documentation
                                     requirements
                                     for eligible
                                     career pathway
                                     programs.
1845-0022........  Sec.   668.171.  Amend Sec.             948       45,551            2          103      0.001
                                     668.171(f) to
                                     revise the set
                                     of conditions
                                     whereby an
                                     institution
                                     must report to
                                     the Department
                                     that a
                                     triggering
                                     event,
                                     described in
                                     Sec.
                                     668.171(c) and
                                     (d), has
                                     occurred.
                                    Amend Sec.
                                     668.171(g) to
                                     require some
                                     public
                                     institutions
                                     to provide
                                     documentation
                                     from a
                                     government
                                     entity that
                                     confirms that
                                     the
                                     institution is
                                     a public
                                     institution
                                     and is backed
                                     by the full
                                     faith and
                                     credit of that
                                     government
                                     entity to be
                                     considered as
                                     financially
                                     responsible.
----------------------------------------------------------------------------------------------------------------

Identification, to the Extent Practicable, of All Relevant Federal 
Regulations That May Duplicate, Overlap or Conflict With the 
Regulations

    The regulations are unlikely to conflict with or duplicate existing 
Federal regulations.

Alternatives Considered

    As described in section 7 of the Regulatory Impact Analysis above, 
``Alternatives Considered,'' we evaluated several alternative 
provisions and approaches. For financial responsibility, we considered 
adopting a materiality threshold and a formal appeals process related 
to the imposition of letters of credit. In the administrative 
capability regulations, the Department considered not requiring 
institutions to verify high school diplomas that might be questionable 
if they came from a high school that was licensed or registered by the 
State. We considered removing all supplementary performance measures in 
the certification procedures, as well as only applying the signature 
requirement to individuals. The Department considered suggestions from 
commenters to entirely remove requirements that institutions certify 
they abide by certain State laws specifically related to postsecondary 
education as well as to expand the types of education-specific laws 
covered by that provision. For certification requirements related to 
professional licensure, we considered suggestions from commenters to 
maintain the current regulations that require disclosures to students. 
We also considered adopting recommendations from commenters to allow GE 
programs to be as long as 150 percent of State maximum hour 
requirements. In the ATB regulations, we considered suggestions from 
commenters to reduce the success rate to as low as 75 percent.

9. Paperwork Reduction Act of 1995

    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department provides the general public and Federal agencies 
with an opportunity to comment on proposed and continuing collections 
of information in accordance with the Paperwork Reduction Act of 1995 
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps ensure that the public 
understands the Department's collection instructions, respondents can 
provide the requested data in the desired format, reporting burden 
(time and financial resources) is minimized, collection instruments are 
clearly understood, and the Department can properly assess the impact 
of collection requirements on respondents.
    Sections 668.14, 668.15, 668.16, 668.23, 668.156, 668.157, and 
668.171 of the final regulations contain information collections 
requirements.
    Under the PRA, the Department has or will at the required time 
submit a copy of these sections and Information Collection requests to 
OMB for its review. A Federal agency may not conduct or sponsor a 
collection of information unless OMB approves the collection under the 
PRA and the corresponding information collection instrument displays a 
currently valid OMB control number. Notwithstanding any other provision 
of law, no person is required to comply with, or is subject to penalty 
for failure to comply with, a collection of information if the 
collection instrument does not display a currently valid OMB control 
number. In these final regulations, we display the control numbers 
assigned by OMB to any information collection requirements proposed in 
the NPRM and adopted in the final regulations.

Section 668.14--Program Participation Agreement

    Requirements: The final rule redesignates current Sec.  668.14(e) 
as Sec.  668.14(h). The Department also includes a new paragraph (e) 
that outlines a non-exhaustive list of conditions that we may opt to 
apply to provisionally certified institutions. The final rule also 
requires that institutions at risk of closure must submit an

[[Page 74690]]

acceptable teach-out plan or agreement to the Department, the State, 
and the institution's recognized accrediting agency. Institutions at 
risk of closure must also submit an acceptable records retention plan 
that addresses title IV, HEA records, including but not limited to 
student transcripts, and evidence that the plan has been implemented, 
to the Department.
    The final rule also requires that an institution at risk of closure 
that is teaching out, closing, or that is not financially responsible 
or administratively capable, release holds on student transcripts. 
Other conditions for institutions that are provisionally certified and 
may be applied by the Secretary are also included.
    Burden Calculations: Section 668.14 will add burden to all 
institutions, domestic and foreign. The change in Sec.  668.14(e) will 
require provisionally certified institutions at risk of closure to 
submit to the Department acceptable teach-out plans and record 
retention plans. For provisionally certified institutions that are at 
risk of closure, are teaching out or closing, or are not financially 
responsible or administratively capable, the change requires the 
release of holds on student transcripts.
    This type of submission will require 10 hours for each institution 
to provide the appropriate material or take the required action under 
the final regulations. As of January 2023, there were a total of 863 
domestic and foreign institutions that were provisionally certified. We 
estimate that of that figure 5 percent or 43 provisionally certified 
institutions may be at risk of closure. We estimate that it will take 
private non-profit institutions 250 hours (25 x 10 = 250) to complete 
the submission of information or required action. We estimate that it 
will take proprietary institutions 130 hours (13 x 10 = 130) to 
complete the submission of information or required action. We estimate 
that it will take public institutions 50 hours (5 x 10 = 50) to 
complete the submission of information or required action.
    The estimated Sec.  668.14(e) total burden is 430 hours with a 
total rounded estimated cost for all institutions of $20,663 (430 x 
$48.05 = $20,661.50).

                       Student Assistance General Provisions--OMB Control Number 1845-0022
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................              25              25              250             $12,013
Proprietary................................              13              13              130               6,247
Public.....................................               5               5               50               2,403
                                            --------------------------------------------------------------------
    Total..................................              43              43              430             $20,663
----------------------------------------------------------------------------------------------------------------

Section 668.15--Factors of Financial Responsibility

    Requirements: This section is being removed and reserved.
    Burden Calculations: With the removal of regulatory language in 
Sec.  668.15 the Department will remove the associated burden of 2,448 
hours under OMB Control Number 1845-0022.

                       Student Assistance General Provisions--OMB Control Number 1845-0022
----------------------------------------------------------------------------------------------------------------
                                                                                               Cost $-48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................            -866            -866             -816            -$39,209
Proprietary................................            -866            -866             -816             $39,209
Public.....................................            -866            -866             -816             $39,209
                                            --------------------------------------------------------------------
    Total..................................          -2,598          -2,598           -2,448            $117,627
----------------------------------------------------------------------------------------------------------------

Section 668.16--Standards of Administrative Capability

    Requirements: The Department amends Sec.  668.16 to clarify the 
characteristics of institutions that are administratively capable. The 
final rule amends Sec.  668.16(h) which will require institutions to 
provide adequate financial aid counseling and financial aid 
communications to advise students and families to accept the most 
beneficial types of financial assistance available to enrolled 
students. This includes clear information about the cost of attendance, 
sources and amounts of each type of aid separated by the type of aid, 
the net price, and instructions and applicable deadlines for accepting, 
declining, or adjusting award amounts. Institutions also must provide 
students with information about the institution's cost of attendance, 
the source and type of aid offered, whether it must be earned or 
repaid, the net price, and deadlines for accepting, declining, or 
adjusting award amounts.
    The final rule also amends Sec.  668.16(p) which strengthens the 
requirement that institutions must develop and follow adequate 
procedures to evaluate the validity of a student's high school diploma 
if the institution or the Department has reason to believe that the 
high school diploma is not valid or was not obtained from an entity 
that provides secondary school education. The Department updates the 
references to high school completion in existing regulations to high 
school diploma which will set specific requirements to the existing 
procedural requirement for adequate evaluation of the validity of a 
student's high school diploma.
    Burden Calculations: Section 668.16 adds burden to all 
institutions, domestic and foreign. The changes in Sec.  668.16(h) 
require an update to the financial aid communications provided to 
students.
    We estimate that this update will require 8 hours for each 
institution to review their current communications and make the 
appropriate updates to the material. We estimate that it will take 
private non-profit institutions 15,304 hours (1,913 x 8 = 15,304) to 
complete the required review and update. We estimate that it will take 
proprietary institutions 12,032 hours (1,504 x 8 =

[[Page 74691]]

12,032) to complete the required review and update. We estimate that it 
will take public institutions 14,504 hours (1,813 x 8 = 14,504) to 
complete the required review and update. The estimated Sec.  668.16(h) 
total burden is 41,840 hours with a total rounded estimated cost for 
all institutions of $2,010,412 (41,840 x $48.05 = $2,010,412).
    The changes in Sec.  668.16(p) add requirements for adequate 
procedures to evaluate the validity of a student's high school diploma 
if the institution or the Department has reason to believe that the 
high school diploma is not valid or was not obtained from an entity 
that provides secondary school education.
    This update will require 3 hours for each institution to review 
their current policy and procedures for evaluating high school diplomas 
and make the appropriate updates to the material. We estimate that it 
will take private non-profit institutions 5,739 hours (1,913 x 3 = 
5,739) to complete the required review and update. We estimate that it 
will take proprietary institutions 4,512 hours (1,504 x 3 = 4,512) to 
complete the required review and update. We estimate that it will take 
public institutions 5,439 hours (1,813 x 3 = 5,439) to complete the 
required review and update. The estimated Sec.  668.16(p) total burden 
is 15,690 hours with a total rounded estimated cost for all 
institutions of $753,905 (15,690 x $48.05 = $753,904.50).
    The total estimated increase in burden to OMB Control Number 1845-
0022 for Sec.  668.16 is 57,530 hours with a total rounded estimated 
cost of $2,764,317.

                       Student Assistance General Provisions--OMB Control Number 1845-0022
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................           1,913           3,826           21,043          $1,011,116
Proprietary................................           1,504           3,008           16,544             794,940
Public.....................................           1,813           3,626           19,943             958,261
                                            --------------------------------------------------------------------
    Total..................................           5,230          10,460           57,530           2,764,317
----------------------------------------------------------------------------------------------------------------

Section 668.23--Compliance Audits

    Requirements: The Department adds Sec.  668.23(d)(2)(ii) that 
requires an institution, domestic or foreign, that is owned by a 
foreign entity holding at least a 50 percent voting or equity interest 
to provide documentation of its status under the law of the 
jurisdiction under which it is organized, as well as basic 
organizational documents. The submission of such documentation will 
better equip the Department to obtain appropriate and necessary 
documentation from an institution which has a foreign owner or owners 
with 50 percent or greater voting or equity interest which will provide 
a clearer picture of the institution's legal status to the Department, 
as well as who exercises direct or indirect ownership over the 
institution.
    Burden Calculations: The regulatory language in Sec.  
668.23(d)(2)(ii) adds burden to foreign institutions and certain 
domestic institutions to submit documentation, translated into English 
as needed.
    We estimate this reporting activity will require an estimated 40 
hours of work for affected institutions to complete. We estimate that 
it will take private non-profit institutions 13,520 hours (338 x 40 = 
13,520) to complete the required documentation gathering and 
translation as needed. We estimate that it will take proprietary 
institutions 920 hours (23 x 40 = 920) to complete the required 
footnote activity. The estimated Sec.  668.23(d)(2)(ii) total burden is 
14,440 hours with a total rounded estimated cost for all institutions 
of $693,842 (14,440 x $48.05 = $693,842).
    The total estimated increase in burden to OMB Control Number 1845-
0022 for Sec.  668.23 is 14,440 hours with a total rounded estimated 
cost of $693.842.

                       Student Assistance General Provisions--OMB Control Number 1845-0022
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................             338             338           13,520            $649,636
Proprietary................................              23              23              920              44,206
                                            --------------------------------------------------------------------
    Total..................................             361             361           14,440             693,842
----------------------------------------------------------------------------------------------------------------

Section 668.156--Approved State Process

    Requirements: The changes to Sec.  668.156 clarify the requirements 
for the approval of a State process. Under Sec.  668.156, a State must 
apply to the Secretary for approval of its State process as an 
alternative to achieving a passing score on an approved, independently 
administered test or satisfactory completion of at least six credit 
hours (or its recognized equivalent coursework) for the purpose of 
determining a student's eligibility for title IV, HEA programs. The 
State process is one of the three ATB alternatives that an individual 
who is not a high school graduate could fulfill to receive title IV, 
HEA, Federal student aid to enroll in an eligible career pathway 
program.
    The monitoring requirement in redesignated Sec.  668.156(c) 
provides a participating institution that has failed to achieve the 85 
percent success rate up to three years to achieve compliance.
    The redesignated Sec.  668.156(e) requires that States report 
information on race, gender, age, economic circumstances, and education 
attainment. Under Sec.  668.156(h), the Secretary may specify in a 
notice published in the Federal Register additional information that 
States must report.
    Burden Calculation: We estimate that it will take a State 160 hours 
to create and submit an application for a State Process to the 
Department under Sec.  668.156(a) for a total of 1,600 hours (160 hours 
x 10 States).
    We estimate that it will take a State an additional 40 hours 
annually to monitor the compliance of the institution's use of the 
State Process under Sec.  668.156(c) for a total of 400

[[Page 74692]]

hours (40 hours x 10 States). This time includes the development of any 
Corrective Action Plan for any institution the State finds not be 
complying with the State Process.
    We estimate that it will take a State 120 hours to meet the 
reapplication requirements in Sec.  668.156(e) for a total of 1,200 
hours (120 hours x 10 States).
    The total hours associated with the change in the regulations as of 
the effective date of the regulations are estimated at a total of 3,200 
hours of burden (320 hours x 10 States) with a total estimated cost of 
$153,760.00 in OMB Control Number 1845-0176.

                                        Approved State Process--1845-0176
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
State......................................              10              30            3,200            $153,760
                                            --------------------------------------------------------------------
    Total..................................              10              30            3,200             153,760
----------------------------------------------------------------------------------------------------------------

Section 668.157--Eligible Career Pathway Program

    Requirements: The final rule amends subpart J by adding Sec.  
668.157 to clarify the documentation requirements for eligible career 
pathway program. This new section dictates the documentation 
requirements for eligible career pathway programs for submission to the 
Department for approval as a title IV eligible program. Under Sec.  
668.157(b), for career pathways programs that do not enroll students 
through a State process as defined in Sec.  668.156, the Secretary will 
verify the eligibility of the first eligible career pathway program 
offered by an institution for title IV, HEA program purposes pursuant 
to Sec.  668.157(a). The Secretary will have the discretion required to 
verify the eligibility of programs in instances of rapid expansion or 
if there are other concerns. Under Sec.  668.157(b), we will also 
provide an institution with the opportunity to appeal any adverse 
eligibility decision.
    Burden Calculations: Section 668.157 adds burden to institutions to 
participate in eligible career pathway programs. Section 668.157 
requires institutions to demonstrate to the Department that the 
eligible career pathways programs being offered meet the regulatory 
requirements for the first one or two programs offered by the 
institution.
    We estimate that 1,000 institutions will submit the required 
documentation to determine eligibility for a career pathway program. We 
estimate that this documentation and reporting activity will require an 
estimated 10 hours per program per institution. We estimate that each 
institution will document and report on one individual eligible career 
pathways program for a total of 10 hours per institution. We estimate 
it will take private non-profit institutions 3,600 hours (360 
institutions x 1 program = 360 programs x 10 hours per program = 3,600) 
to complete the required documentation and reporting activity. We 
estimate that it will take proprietary institutions 1,300 hours (130 
institutions x 1 program = 130 programs x 10 hours per program = 1,300) 
to complete the required documentation and reporting activity. We 
estimate that it will take public institutions 5,100 hours (510 
institutions x 1 program = 510 programs x 10 hours per program = 5,100) 
to complete the required documentation and reporting activities. The 
total estimated increase in burden to OMB Control Number 1845-0175 for 
Sec.  668.157 is 10,000 hours with a total estimated cost of 
$480,500.00.

                                   Eligible Career Pathways Program--1845-0175
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................             360             360            3,600             172,980
Proprietary................................             130             130            1,300              62,465
Public.....................................             510             510            5,100             245,055
                                            --------------------------------------------------------------------
    Total..................................           1,000           1,000           10,000             480,500
----------------------------------------------------------------------------------------------------------------

Section 668.171--General

    Requirements: The final rule amends Sec.  668.171(f) by adding 
several new events to the existing reporting requirements, and 
expanding others, that must be reported generally no later than 21 days 
following the event. Implementation of the reportable events will make 
the Department more aware of instances that may impact an institution's 
financial responsibility or stability. The reportable events are linked 
to the financial standards in Sec.  668.171(b) and the financial 
triggers in Sec.  668.171(c) and (d) where there is no existing 
mechanism for the Department to know that a failure or a triggering 
event has occurred. Notification regarding these events allows the 
Department to initiate actions to either obtain financial protection, 
or determine if financial protection is necessary, to protect students 
from the negative consequences of an institution's financial 
instability and possible closure.
    The final rule also amends Sec.  668.171(g) by adding language 
which requires an institution seeking eligibility as a public 
institution for the first time, as part of a request to be recognized 
as a public institution following a change in ownership, or otherwise 
upon request by the Department to provide to the Department a letter 
from an official of the government entity or other signed documentation 
acceptable to the Department. The letter or documentation must state 
that the institution is backed by the full faith and credit of the 
government entity. The Department also includes similar amendments to 
apply to foreign institutions.
    Burden Calculations: The regulatory language in Sec.  668.171(f) 
adds burden to institutions regarding evidence of financial 
responsibility. The regulations in Sec.  668.171(f) require 
institutions to demonstrate to the Department that it met the triggers 
set forth in the

[[Page 74693]]

regulations. We estimate that domestic and foreign institutions have 
the potential to hit a trigger that will require them to submit 
documentation to determine eligibility for continued participation in 
the title IV programs. The overwhelming majority of reporting will 
likely stem from the mandatory triggering event on GE programs that are 
failing with limited reporting under additional events. We estimate 
that this documentation and reporting activity will require an 
estimated 2 hours per institution. We estimate it will take private 
non-profit institutions 100 hours (50 institutions x 2 hours = 100) to 
complete the required documentation and reporting activity. We estimate 
that it will take proprietary institutions 1,300 hours (650 
institutions x 2 hours = 1,300) to complete the required documentation 
and reporting activity.
    The regulatory language in Sec.  668.171(g) adds burden to public 
institutions regarding evidence of financial responsibility. The 
regulations in Sec.  668.171(g) require institutions in two specific 
circumstances or upon request from the Department to demonstrate that 
the public institution is backed by the full faith and credit of the 
government entity. We estimate that 36 public institutions (two percent 
of the currently participating public institutions) will be required to 
recertify in a given year. We further estimate that it will take each 
institution 5 hours to procure the required documentation from the 
appropriate governmental agency for a total of 180 hours (36 
institutions x 5 hours = 180 hours).
    The total estimated increase in burden to OMB Control Number 1845-
0022 for Sec.  668.171 is 1,580 hours with a total rounded estimated 
cost of $775,919.

                       Student Assistance General Provisions--OMB Control Number 1845-0022
----------------------------------------------------------------------------------------------------------------
                                                                                                Cost $48.05 per
              Affected entity                  Respondent       Responses      Burden hours       institution
----------------------------------------------------------------------------------------------------------------
Private non-profit.........................              50              50              100              $4,805
Proprietary................................             650             650            1,300              62,465
Public.....................................              36              36              180               8,649
                                            --------------------------------------------------------------------
    Total..................................             736             736            1,580              75,919
----------------------------------------------------------------------------------------------------------------

    Consistent with the discussions above, the following chart 
describes the sections of the final regulations involving information 
collections, the information being collected and the collections that 
the Department will submit to OMB for approval and public comment under 
the PRA, and the estimated costs associated with the information 
collections. The monetized net cost of the increased burden for 
institutions and students, using wage data developed using Bureau of 
Labor Statistics (BLS) data.
    For individuals, we used the median hourly wage for all 
occupations, $22.26 per hour according to BLS (bls.gov/oes/current/oes_nat.htm#=0000). For institutions, we used the median hourly wage 
for Education Administrators, Postsecondary, $48.05 per hour according 
to BLS (bls.gov/oes/current/oes119033.htm).

                        Collection of Information
------------------------------------------------------------------------
                                                         Estimated cost
                                                             $48.05
                                       OMB control No.    Institutional
Regulatory section     Information      and estimated        $22.26
                       collection          burden          Individual
                                                             unless
                                                         otherwise noted
------------------------------------------------------------------------
Sec.   668.14.....  Amend Sec.        1845-0022, +430   +20,663
                     668.14(e) to      hrs.
                     establish a non-
                     exhaustive list
                     of conditions
                     that the
                     Secretary may
                     apply to
                     provisionally
                     certified
                     institutions,
                     such as the
                     submission of a
                     teach-out plan
                     or agreement.
                     Amend Sec.
                     668.14(g) to
                     establish
                     conditions that
                     may apply to an
                     initially
                     certified
                     nonprofit
                     institution, or
                     an institution
                     that has
                     undergone a
                     change in
                     ownership and
                     seeks to
                     convert to
                     nonprofit
                     status.
Sec.   668.15.....  Remove and        1845-0022, -      -117,627
                     reserve Sec.      2,448 hrs.
                     668.15 thereby
                     consolidating
                     all financial
                     responsibility
                     factors,
                     including those
                     governing
                     changes in
                     ownership,
                     under part 668,
                     subpart L.
Sec.   668.16.....  Amend Sec.        1845-0022         +2,764,317
                     668.16(h) to      +57,530 hrs.
                     require
                     institutions to
                     provide
                     adequate
                     financial aid
                     counseling and
                     financial aid
                     communications
                     to advise
                     students and
                     families to
                     accept the most
                     beneficial
                     types of
                     financial
                     assistance
                     available.
                     Amend Sec.
                     668.16(p) to
                     strengthen the
                     requirement
                     that
                     institutions
                     must develop
                     and follow
                     adequate
                     procedures to
                     evaluate the
                     validity of a
                     student's high
                     school diploma.
Sec.   668.23.....  Amend Sec.        1845-0022,        +693,842
                     668.23(d) to      +14,440 hrs.
                     require that
                     any domestic or
                     foreign
                     institution
                     that is owned
                     directly or
                     indirectly by
                     any foreign
                     entity holding
                     at least a 50
                     percent voting
                     or equity
                     interest in the
                     institution
                     must provide
                     documentation
                     of the entity's
                     status under
                     the law of the
                     jurisdiction
                     under which the
                     entity is
                     organized.
Sec.   668.156....  Amend Sec.        1845-0176,        +153,760
                     668.156 to        +3,200.
                     clarify the
                     requirements
                     for the
                     approval of a
                     State process.
                     The State
                     process is one
                     of the three
                     ATB
                     alternatives
                     that an
                     individual who
                     is not a high
                     school graduate
                     could fulfill
                     to receive
                     title IV,
                     Federal student
                     aid to enroll
                     in an eligible
                     career pathway
                     program.
Sec.   668.157....  Add a new Sec.    1845-0175,        +480,500
                     668.157 to        +10,000.
                     clarify the
                     documentation
                     requirements
                     for eligible
                     career pathway
                     programs.

[[Page 74694]]

 
Sec.   668.171....  Amend Sec.        1845-0022,        +75,919
                     668.171(f) to     +1,580 hrs.
                     revise the set
                     of conditions
                     whereby an
                     institution
                     must report to
                     the Department
                     that a
                     triggering
                     event,
                     described in
                     Sec.
                     668.171(c) and
                     (d), has
                     occurred. Amend
                     Sec.
                     668.171(g) to
                     require some
                     public
                     institutions to
                     provide
                     documentation
                     from a
                     government
                     entity that
                     confirms that
                     the institution
                     is a public
                     institution and
                     is backed by
                     the full faith
                     and credit of
                     that government
                     entity to be
                     considered as
                     financially
                     responsible.
------------------------------------------------------------------------

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by the final regulations follows: 
1845-0022, 1845-0176, and 1845-0175.

------------------------------------------------------------------------
                                       Total burden     Change in burden
            Control No.                   hours              hours
------------------------------------------------------------------------
1845-0022.........................          2,621,280            +71,532
1845-0176.........................              3,200             +3,200
1845-0175.........................             10,000            +10,000
                                   -------------------------------------
    Total.........................          2,634,480            346,232
------------------------------------------------------------------------

    To comment on the information collection requirements, please send 
your comments to the Office of Information and Regulatory Affairs in 
OMB, Attention: Desk Officer for the U.S. Department of Education. Send 
these comments by email to <a href="/cdn-cgi/l/email-protection#3976706b78667d767a727c6d7956545b175c5649175e564f"><span class="__cf_email__" data-cfemail="eca3a5beadb3a8a3afa7a9b8ac83818ec289839cc28b839a">[email protected]</span></a> or by fax to (202) 
395-6974. You may also send a copy of these comments to the Department 
contact named in the ADDRESSES section of the preamble.
    We have prepared the Information Collection Request (ICR) for these 
collections. You may review the ICR which is available at 
www.reginfo.gov. Click on Information Collection Review. These 
collections are identified as collections 1845-022, 1845-0175, 1845-
1076.

Intergovernmental Review

    This program is subject to Executive Order 12372 and the 
regulations in 34 CFR part 79. One of the objectives of the Executive 
Order is to foster an intergovernmental partnership and a strengthened 
federalism. The Executive order relies on processes developed by State 
and local governments for coordination and review of proposed Federal 
financial assistance.
    This document provides early notification of our specific plans and 
actions for this program.

Assessment of Educational Impact

    In the NPRM we requested comments on whether the proposed 
regulations would require transmission of information that any other 
agency or authority of the United States gathers or makes available. 
Based on the response to the NPRM and on our review, we have determined 
that these final regulations do not require transmission of information 
that any other agency or authority of the United States gathers or 
makes available.

Federalism

    Executive Order 13132 requires us to ensure meaningful and timely 
input by State and local elected officials in the development of 
regulatory policies that have federalism implications. ``Federalism 
implications'' means substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. The final regulations do not have federalism implications.
    Accessible Format: On request to one of the program contact persons 
listed under FOR FURTHER INFORMATION CONTACT, individuals with 
disabilities can obtain this document in an accessible format. The 
Department will provide the requestor with an accessible format that 
may include Rich Text Format (RTF) or text format (txt), a thumb drive, 
an MP3 file, braille, large print, audiotape, or compact disc, or other 
accessible format.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. You may 
access the official edition of the Federal Register and the Code of 
Federal Regulations at www.govinfo.gov. At this site you can view this 
document, as well as all other documents of this Department published 
in the Federal Register, in text or Adobe Portable Document Format 
(PDF). To use PDF, you must have Adobe Acrobat Reader, which is 
available free at the site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

List of Subjects in 34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs-education, 
Incorporation by reference, Loan programs-education, Reporting and 
recordkeeping requirements, Selective Service System, Student aid, 
Vocational education.

Miguel A. Cardona,
Secretary of Education.

    For the reasons discussed in the preamble, the Secretary amends 
part 668 of title 34 of the Code of Federal Regulations as follows:

[[Page 74695]]

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority:  20 U.S.C. 1001-1003, 1070g, 1085, 1088, 1091, 1092, 
1094, 1099c, 1099c-1, 1221e-3, and 1231a, unless otherwise noted.
    Section 668.14 also issued under 20 U.S.C. 1085, 1088, 1091, 
1092, 1094, 1099a-3, 1099c, and 1141.
    Section 668.41 also issued under 20 U.S.C. 1092, 1094, 1099c.
    Section 668.91 also issued under 20 U.S.C. 1082, 1094.
    Section 668.171 also issued under 20 U.S.C. 1094 and 1099c and 5 
U.S.C. 404.
    Section 668.172 also issued under 20 U.S.C. 1094 and 1099c and 5 
U.S.C. 404.
    Section 668.175 also issued under 20 U.S.C. 1094 and 1099c.


0
2. Section 668.2 is amended in paragraph (b) by adding definitions of 
``Eligible career pathway program'' and ``Financial exigency'' in 
alphabetical order to read as follows:


Sec.  668.2  General definitions.

* * * * *
    (b) * * *
    Eligible career pathway program: A program that combines rigorous 
and high-quality education, training, and other services that--
    (i) Align with the skill needs of industries in the economy of the 
State or regional economy involved;
    (ii) Prepare an individual to be successful in any of a full range 
of secondary or postsecondary education options, including 
apprenticeships registered under the Act of August 16, 1937 (commonly 
known as the ``National Apprenticeship Act''; 50 Stat. 664, chapter 
663; 29 U.S.C. 50 et seq.);
    (iii) Include counseling to support an individual in achieving the 
individual's education and career goals;
    (iv) Include, as appropriate, education offered concurrently with 
and in the same context as workforce preparation activities and 
training for a specific occupation or occupational cluster;
    (v) Organize education, training, and other services to meet the 
particular needs of an individual in a manner that accelerates the 
educational and career advancement of the individual to the extent 
practicable;
    (vi) Enable an individual to attain a secondary school diploma or 
its recognized equivalent, and at least one recognized postsecondary 
credential; and
    (vii) Help an individual enter or advance within a specific 
occupation or occupational cluster.
* * * * *
    Financial exigency: A status declared by an institution to a 
governmental entity or its accrediting agency representing severe 
financial distress that, absent significant reductions in expenditures 
or increases in revenue, reductions in administrative staff or faculty, 
or the elimination of programs, departments, or administrative units, 
could result in the closure of the institution.
* * * * *

0
3. Section 668.13 is amended by:
0
a. Removing paragraph (b)(3).
0
b. Revising paragraphs (c)(1)(i)(C) and (D).
0
c. In paragraph (c)(1)(i)(E), removing the word ``or'' at the end of 
the paragraph.
0
d. Revising paragraph (c)(1)(i)(F).
0
e. Adding paragraph (c)(1)(i)(G).
0
f. Revising paragraph (c)(1)(ii).
0
g. Adding paragraph (c)(1)(iii).
0
h. Revising paragraph (c)(2) and (d)(2)(ii).
0
i. Adding paragraph (e).
    The revisions and addition read as follows:


Sec.  668.13  Certification procedures.

* * * * *
    (c) * * *
    (1) * * *
    (i) * * *
    (C) The institution is a participating institution that is applying 
for a renewal of certification--
    (1) That the Secretary determines has jeopardized its ability to 
perform its financial responsibilities by not meeting the factors of 
financial responsibility under subpart L of this part or the standards 
of administrative capability under Sec.  668.16;
    (2) Whose participation has been limited or suspended under subpart 
G of this part; or
    (3) That voluntarily enters into provisional certification;
    (D) The institution seeks to be reinstated to participate in a 
title IV, HEA program after a prior period of participation in that 
program ended;
* * * * *
    (F) The Secretary has determined that the institution is at risk of 
closure; or
    (G) The institution is under the provisional certification 
alternative of subpart L of this part.
    (ii) An institution's certification becomes provisional upon 
notification from the Secretary if--
    (A) The institution triggers one of the financial responsibility 
events under Sec.  668.171(c) or (d) and, as a result, the Secretary 
requires the institution to post financial protection; or
    (B) Any owner or interest holder of the institution with control 
over that institution, as defined in 34 CFR 600.31, also owns another 
institution with fines or liabilities owed to the Department and is not 
making payments in accordance with an agreement to repay that 
liability.
    (iii) A proprietary institution's certification automatically 
becomes provisional at the start of a fiscal year if it did not derive 
at least 10 percent of its revenue for its preceding fiscal year from 
sources other than Federal educational assistance funds, as required 
under Sec.  668.14(b)(16).
    (2) If the Secretary provisionally certifies an institution, the 
Secretary also specifies the period for which the institution may 
participate in a title IV, HEA program. Except as provided in paragraph 
(c)(3) of this section or subpart L of this part, a provisionally 
certified institution's period of participation expires--
    (i) Not later than the end of the first complete award year 
following the date on which the Secretary provisionally certified the 
institution for its initial certification;
    (ii) Not later than the end of the third complete award year 
following the date on which the Secretary provisionally certified an 
institution for reasons--
    (A) Related to substantial liabilities owed or potentially owed to 
the Department for discharges related to borrower defense to repayment 
or false certification, or arising from claims under consumer 
protection laws; or
    (B) As a result of a change in ownership, recertification, 
reinstatement, automatic re-certification, or a failure under Sec.  
668.14(b)(32); and
    (iii) If the Secretary provisionally certified the institution as a 
result of its accrediting agency losing recognition, not later than 18 
months after the date that the Secretary withdrew recognition from the 
institution's nationally recognized accrediting agency.
* * * * *
    (d) * * *
    (2) * * *
    (ii) The revocation takes effect on the date that the Secretary 
transmits the notice to the institution.
* * * * *
    (e) Supplementary performance measures. In determining whether to 
certify, or condition the participation of, an institution under this 
section and Sec.  668.14, the Secretary may consider the following, 
among other information at the program or institutional level:
    (1) Withdrawal rate. The percentage of students who withdrew from 
the institution within 100 percent or 150 percent of the published 
length of the program.

[[Page 74696]]

    (2) Educational and pre-enrollment expenditures. The amounts the 
institution spent on instruction and instructional activities, academic 
support, and support services, compared to the amounts spent on 
recruiting activities, advertising, and other pre-enrollment 
expenditures.
    (3) Licensure pass rate. If a program is designed to meet 
educational requirements for a specific professional license or 
certification that is required for employment in an occupation, and the 
institution is required by an accrediting agency or State to report 
passage rates for the licensure exam for the program, such passage 
rates.
* * * * *

0
4. Section 668.14 is amended by:
0
a. Adding paragraph (a)(3).
0
b. Revising paragraphs (b)(5), (17), (18), and (26).
0
c. In paragraph (b)(30)(ii)(C), removing the word ``and'' at the end of 
the paragraph.
0
d. In paragraph (b)(31)(v), removing the period and adding a semicolon 
in its place.
0
e. Adding paragraphs (b)(32) through (35).
0
f. Redesignating paragraphs (e) through (h) as paragraphs (h) through 
(k), respectively.
0
f. Adding new paragraphs (e) through (g).
    The revisions and additions read as follows:


Sec.  668.14  Program participation agreement.

    (a) * * *
    (3) An institution's program participation agreement must be signed 
by--
    (i) An authorized representative of the institution; and
    (ii) For a proprietary or private nonprofit institution, an 
authorized representative of an entity with direct or indirect 
ownership of the institution if that entity has the power to exercise 
control over the institution. The Secretary considers the following as 
examples of circumstances in which an entity has such power:
    (A) If the entity has at least 50 percent control over the 
institution through direct or indirect ownership, by voting rights, by 
its right to appoint board members to the institution or any other 
entity, whether by itself or in combination with other entities or 
natural persons with which it is affiliated or related, or pursuant to 
a proxy or voting or similar agreement.
    (B) If the entity has the power to block significant actions.
    (C) If the entity is the 100 percent direct or indirect interest 
holder of the institution.
    (D) If the entity provides or will provide the financial statements 
to meet any of the requirements of 34 CFR 600.20(g) or (h) or subpart L 
of this part.
    (b) * * *
    (5) It will comply with the provisions of subpart L of this part 
relating to factors of financial responsibility;
* * * * *
    (17) The Secretary, guaranty agencies, and lenders as defined in 34 
CFR part 682, nationally recognized accrediting agencies, Federal 
agencies, State agencies recognized under 34 CFR part 603 for the 
approval of public postsecondary vocational education, State agencies 
that legally authorize institutions and branch campuses or other 
locations of institutions to provide postsecondary education, and State 
attorneys general have the authority to share with each other any 
information pertaining to the institution's eligibility for or 
participation in the title IV, HEA programs or any information on 
fraud, abuse, or other violations of law;
    (18) It will not knowingly--
    (i) Employ in a capacity that involves the administration of the 
title IV, HEA programs or the receipt of funds under those programs, an 
individual who has been:
    (A) Convicted of, or pled nolo contendere or guilty to, a crime 
involving the acquisition, use, or expenditure of Federal, State, or 
local government funds;
    (B) Administratively or judicially determined to have committed 
fraud or any other material violation of law involving Federal, State, 
or local government funds;
    (C) An owner, director, officer, or employee who exercised 
substantial control over an institution, or a direct or indirect parent 
entity of an institution, that owes a liability for a violation of a 
title IV, HEA program requirement and is not making payments in 
accordance with an agreement to repay that liability; or
    (D) A ten-percent-or-higher equity owner, director, officer, 
principal, executive, or contractor at an institution in any year in 
which the institution incurred a loss of Federal funds in excess of 5 
percent of the participating institution's annual title IV, HEA program 
funds; or
    (ii) Contract with any institution, third-party servicer, 
individual, agency, or organization that has, or whose owners, officers 
or employees have--
    (A) Been convicted of, or pled nolo contendere or guilty to, a 
crime involving the acquisition, use, or expenditure of Federal, State, 
or local government funds;
    (B) Been administratively or judicially determined to have 
committed fraud or any other material violation of law involving 
Federal, State, or local government funds;
    (C) Had its participation in the title IV programs terminated, 
certification revoked, or application for certification or 
recertification for participation in the title IV programs denied;
    (D) Been an owner, director, officer, or employee who exercised 
substantial control over an institution, or a direct or indirect parent 
entity of an institution, that owes a liability for a violation of a 
title IV, HEA program requirement and is not making payments in 
accordance with an agreement to repay that liability; or
    (E) Been a 10 percent-or-higher equity owner, director, officer, 
principal, executive, or contractor affiliated with another institution 
in any year in which the other institution incurred a loss of Federal 
funds in excess of 5 percent of the participating institution's annual 
title IV, HEA program funds;
* * * * *
    (26) If an educational program offered by the institution on or 
after July 1, 2024, is required to prepare a student for gainful 
employment in a recognized occupation, the institution must--
    (i) Establish the need for the training for the student to obtain 
employment in the recognized occupation for which the program prepares 
the student; and
    (ii) Demonstrate a reasonable relationship between the length of 
the program and the entry level requirements for the recognized 
occupation for which the program prepares the student by limiting the 
number of hours in the program to the greater of--
    (A) The required minimum number of clock hours, credit hours, or 
the equivalent required for training in the recognized occupation for 
which the program prepares the student, as established by the State in 
which the institution is located, if the State has established such a 
requirement or as established by any Federal agency; or
    (B) Another State's required minimum number of clock hours, credit 
hours, or the equivalent required for training in the recognized 
occupation for which the program prepares the student, if the 
institution documents, with substantiation by a certified public 
accountant who prepares the institution's compliance audit report as 
required under Sec.  668.23 that--
    (1) A majority of students resided in that State while enrolled in 
the program during the most recently completed award year;

[[Page 74697]]

    (2) A majority of students who completed the program in the most 
recently completed award year were employed in that State; or
    (3) The other State is part of the same metropolitan statistical 
area as the institution's home State and a majority of students, upon 
enrollment in the program during the most recently completed award 
year, stated in writing that they intended to work in that other State; 
and
    (iii) Notwithstanding paragraph (a)(26)(ii) of this section, the 
program length limitation does not apply for occupations where the 
State entry level requirements include the completion of an associate 
or higher-level degree; or where the program is delivered entirely 
through distance education or correspondence courses;
* * * * *
    (32) In each State in which: the institution is located; students 
enrolled by the institution in distance education or correspondence 
courses are located, as determined at the time of initial enrollment in 
accordance with 34 CFR 600.9(c)(2); or for the purposes of paragraphs 
(b)(32)(i) and (ii) of this section, each student who enrolls in a 
program on or after July 1, 2024, and attests that they intend to seek 
employment, the institution must determine that each program eligible 
for title IV, HEA program funds--
    (i) Is programmatically accredited if the State or a Federal agency 
requires such accreditation, including as a condition for employment in 
the occupation for which the program prepares the student, or is 
programmatically pre-accredited when programmatic pre-accreditation is 
sufficient according to the State or Federal agency;
    (ii) Satisfies the applicable educational requirements for 
professional licensure or certification requirements in the State so 
that a student who enrolls in the program, and seeks employment in that 
State after completing the program, qualifies to take any licensure or 
certification exam that is needed for the student to practice or find 
employment in an occupation that the program prepares students to 
enter; and
    (iii) Complies with all State laws related to closure, including 
record retention, teach-out plans or agreements, and tuition recovery 
funds or surety bonds;
    (33) It will not withhold official transcripts or take any other 
negative action against a student related to a balance owed by the 
student that resulted from an error in the institution's administration 
of the title IV, HEA programs, or any fraud or misconduct by the 
institution or its personnel;
    (34) Upon request by a student, the institution will provide an 
official transcript that includes all the credit or clock hours for 
payment periods--
    (i) In which the student received title IV, HEA funds; and
    (ii) For which all institutional charges were paid or included in 
an agreement to pay at the time the request is made; and
    (35) It will not maintain policies and procedures to encourage, or 
that condition institutional aid or other student benefits in a manner 
that induces, a student to limit the amount of Federal student aid, 
including Federal loan funds, that the student receives, except that 
the institution may provide a scholarship on the condition that a 
student forego borrowing if the amount of the scholarship provided is 
equal to or greater than the amount of Federal loan funds that the 
student agrees not to borrow.
* * * * *
    (e) If an institution is provisionally certified, the Secretary may 
apply such conditions as are determined to be necessary or appropriate 
to the institution, including, but not limited to--
    (1) For an institution that the Secretary determines may be at risk 
of closure--
    (i) Submission of an acceptable teach-out plan or agreement to the 
Department, the State, and the institution's recognized accrediting 
agency; and
    (ii) Submission to the Department of an acceptable records 
retention plan that addresses title IV, HEA records, including but not 
limited to student transcripts, and evidence that the plan has been 
implemented;
    (2) For an institution that the Secretary determines may be at risk 
of closure, that is teaching out or closing, or that is not financially 
responsible or administratively capable, the release of holds on 
student transcripts;
    (3) Restrictions or limitations on the addition of new programs or 
locations;
    (4) Restrictions on the rate of growth, new enrollment of students, 
or title IV, HEA volume in one or more programs;
    (5) Restrictions on the institution providing a teach-out on behalf 
of another institution;
    (6) Restrictions on the acquisition of another participating 
institution, which may include, in addition to any other required 
financial protection, the posting of financial protection in an amount 
determined by the Secretary but not less than 10 percent of the 
acquired institution's title IV, HEA volume for the prior fiscal year;
    (7) Additional reporting requirements, which may include, but are 
not limited to, cash balances, an actual and protected cash flow 
statement, student rosters, student complaints, and interim unaudited 
financial statements;
    (8) Limitations on the institution entering into a written 
arrangement with another eligible institution or an ineligible 
institution or organization for that other eligible institution or 
ineligible institution or organization to provide between 25 and 50 
percent of the institution's educational program under Sec.  668.5(a) 
or (c); and
    (9) For an institution found to have engaged in substantial 
misrepresentations to students, engaged in aggressive recruiting 
practices, or violated incentive compensation rules, requirements to 
hire a monitor and to submit marketing and other recruiting materials 
(e.g., call scripts) for the review and approval of the Secretary; and
    (10) Reporting to the Department, no later than 21 days after an 
institution receives from any local, State, Tribal, Federal, or foreign 
government or government entity a civil investigative demand, a 
subpoena, a request for documents or information, or other formal 
inquiry that is related to the marketing or recruitment of prospective 
students, the awarding of Federal financial aid for enrollment at the 
school, or the provision of educational services for which Federal aid 
is provided.
    (f) If a proprietary institution seeks to convert to nonprofit 
status following a change in ownership, the following conditions will 
apply to the institution following the change in ownership, in addition 
to any other conditions that the Secretary may deem appropriate:
    (1) The institution must continue to meet the requirements under 
Sec.  668.28(a) until the Department has accepted, reviewed, and 
approved the institution's financial statements and compliance audits 
that cover two complete consecutive fiscal years in which the 
institution meets the requirements of paragraph (b)(16) of this section 
under its new ownership, or until the Department approves the 
institution's request to convert to nonprofit status, whichever is 
later.
    (2) The institution must continue to meet the gainful employment 
requirements of subpart S of this part until the Department has 
accepted, reviewed, and approved the institution's financial statements 
and compliance

[[Page 74698]]

audits that cover two complete consecutive fiscal years under its new 
ownership, or until the Department approves the institution's request 
to convert to nonprofit status, whichever is later.
    (3) The institution must submit regular and timely reports on 
agreements entered into with a former owner of the institution or a 
natural person or entity related to or affiliated with the former owner 
of the institution, so long as the institution participates as a 
nonprofit institution.
    (4) The institution may not advertise that it operates as a 
nonprofit institution for the purposes of title IV, HEA until the 
Department approves the institution's request to convert to nonprofit 
status.
    (g) If an institution is initially certified as a nonprofit 
institution, or if it has undergone a change in ownership and seeks to 
convert to nonprofit status, the following conditions will apply to the 
institution upon initial certification or following the change in 
ownership, in addition to any other conditions that the Secretary may 
deem appropriate:
    (1) The institution must submit reports on accreditor and State 
authorization agency actions and any new servicing agreements within 10 
business days of receipt of the notice of the action or of entering 
into the agreement, as applicable, until the Department has accepted, 
reviewed, and approved the institution's financial statements and 
compliance audits that cover two complete consecutive fiscal years 
following initial certification, or two complete fiscal years after a 
change in ownership, or until the Department approves the institution's 
request to convert to nonprofit status, whichever is later.
    (2) The institution must submit a report and copy of the 
communications from the Internal Revenue Service (IRS) or any State or 
foreign country related to tax-exempt or nonprofit status within 10 
business days of receipt so long as the institution participates as a 
nonprofit institution.
* * * * *


Sec.  668.15  [Removed and Reserved]

0
4. Section 668.15 is removed and reserved.

0
5. Section 668.16 is amended by:
0
a. Revising the introductory text and paragraphs (h), (k), and (m).
0
b. Redesignating paragraph (n) as paragraph (v).
0
c. Adding a new paragraph (n).
0
d. Removing the word ``and'' at the end of paragraph (o)(2).
0
e. Revising paragraph (p).
0
f. Adding paragraphs (q) through (u).
0
g. Revising newly redesignated paragraph (v).
0
h. Removing the parenthetical authority citation at the end of the 
section.
    The revisions and additions read as follows:


Sec.  668.16  Standards of administrative capability.

    To begin and to continue to participate in any title IV, HEA 
program, an institution must demonstrate to the Secretary that the 
institution is capable of adequately administering that program under 
each of the standards established in this section. The Secretary 
considers an institution to have that administrative capability if the 
institution--
* * * * *
    (h) Provides adequate financial aid counseling with clear and 
accurate information to students who apply for title IV, HEA program 
assistance. In determining whether an institution provides adequate 
counseling, the Secretary considers whether its counseling and 
financial aid communications advise students and families to accept the 
most beneficial types of financial assistance available to them and 
include information regarding--
    (1) The cost of attendance of the institution as defined under 
section 472 of the HEA, including the individual components of those 
costs and a total of the estimated costs that will be owed directly to 
the institution, for students, based on their attendance status;
    (2) The source and amount of each type of aid offered, separated by 
the type of the aid and whether it must be earned or repaid;
    (3) The net price, as determined by subtracting total grant or 
scholarship aid included in paragraph (h)(2) of this section from the 
cost of attendance in paragraph (h)(1) of this section;
    (4) The method by which aid is determined and disbursed, delivered, 
or applied to a student's account, and instructions and applicable 
deadlines for accepting, declining, or adjusting award amounts; and
    (5) The rights and responsibilities of the student with respect to 
enrollment at the institution and receipt of financial aid, including 
the institution's refund policy, the requirements for the treatment of 
title IV, HEA program funds when a student withdraws under Sec.  
668.22, its standards of satisfactory progress, and other conditions 
that may alter the student's aid package;
* * * * *
    (k)(1) Is not, and has not been--
    (i) Debarred or suspended under Executive Order (E.O.) 12549 (3 
CFR, 1986 Comp., p. 189) or the Federal Acquisition Regulations (FAR), 
48 CFR part 9, subpart 9.4; or
    (ii) Engaging in any activity that is a cause under 2 CFR 180.700 
or 180.800, as adopted at 2 CFR 3485.12, for debarment or suspension 
under E.O. 12549 (3 CFR, 1986 Comp., p. 189) or the FAR, 48 CFR part 9, 
subpart 9.4; and
    (2) Does not have any principal or affiliate of the institution (as 
those terms are defined in 2 CFR parts 180 and 3485), or any individual 
who exercises or previously exercised substantial control over the 
institution as defined in Sec.  668.174(c)(3), who--
    (i) Has been convicted of, or has pled nolo contendere or guilty 
to, a crime involving the acquisition, use, or expenditure of Federal, 
State, Tribal, or local government funds, or has been administratively 
or judicially determined to have committed fraud or any other material 
violation of law involving those funds; or
    (ii) Is a current or former principal or affiliate (as those terms 
are defined in 2 CFR parts 180 and 3485), or any individual who 
exercises or exercised substantial control as defined in Sec.  
668.174(c)(3), of another institution whose misconduct or closure 
contributed to liabilities to the Federal Government in excess of 5 
percent of its title IV, HEA program funds in the award year in which 
the liabilities arose or were imposed;
* * * * *
    (m)(1) Has a cohort default rate--
    (i) That is less than 25 percent for each of the three most recent 
fiscal years during which rates have been issued, to the extent those 
rates are calculated under subpart M of this part;
    (ii) On or after 2014, that is less than 30 percent for at least 
two of the three most recent fiscal years during which the Secretary 
has issued rates for the institution under subpart N of this part; and
    (iii) As defined in 34 CFR 674.5, on loans made under the Federal 
Perkins Loan Program to students for attendance at that institution 
that does not exceed 15 percent;
    (2) Provided that--
    (i) If the Secretary determines that an institution's 
administrative capability is impaired solely because the institution 
fails to comply with paragraph (m)(1) of this section, and the 
institution is not subject to a loss of eligibility under Sec.  
668.187(a) or Sec.  668.206(a), the Secretary allows the institution to 
continue to participate in the title IV, HEA programs. In such a case, 
the

[[Page 74699]]

Secretary may provisionally certify the institution in accordance with 
Sec.  668.13(c) except as provided in paragraphs (m)(2)(ii) through (v) 
of this section;
    (ii) An institution that fails to meet the standard of 
administrative capability under paragraph (m)(1)(ii) of this section 
based on two cohort default rates that are greater than or equal to 30 
percent but less than or equal to 40 percent is not placed on 
provisional certification under paragraph (m)(2)(i) of this section if 
it--
    (A) Has timely filed a request for adjustment or appeal under Sec.  
668.209, Sec.  668.210, or Sec.  668.212 with respect to the second 
such rate, and the request for adjustment or appeal is either pending 
or succeeds in reducing the rate below 30 percent;
    (B) Has timely filed an appeal under Sec.  668.213 after receiving 
the second such rate, and the appeal is either pending or successful; 
or
    (C)(1) Has timely filed a participation rate index challenge or 
appeal under Sec.  668.204(c) or Sec.  668.214 with respect to either 
or both of the two rates, and the challenge or appeal is either pending 
or successful; or
    (2) If the second rate is the most recent draft rate, and the 
institution has timely filed a participation rate challenge to that 
draft rate that is either pending or successful;
    (iii) The institution may appeal the loss of full participation in 
a title IV, HEA program under paragraph (m)(2)(i) of this section by 
submitting an erroneous data appeal in writing to the Secretary in 
accordance with and on the grounds specified in Sec.  668.192 or Sec.  
668.211 as applicable;
    (iv) If the institution has 30 or fewer borrowers in the three most 
recent cohorts of borrowers used to calculate its cohort default rate 
under subpart N of this part, we will not provisionally certify it 
solely based on cohort default rates; and
    (v) If a rate that would otherwise potentially subject the 
institution to provisional certification under paragraphs (m)(1)(ii) 
and (m)(2)(i) of this section is calculated as an average rate, we will 
not provisionally certify it solely based on cohort default rates;
    (n) Has not been subject to a significant negative action or a 
finding as by a State or Federal agency, a court, or an accrediting 
agency, where the basis of the action is repeated or unresolved, such 
as non-compliance with a prior enforcement order or supervisory 
directive, and the institution has not lost eligibility to participate 
in another Federal educational assistance program due to an 
administrative action against the institution;
* * * * *
    (p) Develops and follows adequate procedures to evaluate the 
validity of a student's high school diploma if the institution or the 
Secretary has reason to believe that the high school diploma is not 
valid or was not obtained from an entity that provides secondary school 
education, consistent with the following requirements:
    (1) Adequate procedures to evaluate the validity of a student's 
high school diploma must include--
    (i) Obtaining documentation from the high school that confirms the 
validity of the high school diploma, including at least one of the 
following--
    (A) Transcripts;
    (B) Written descriptions of course requirements; or
    (C) Written and signed statements by principals or executive 
officers at the high school attesting to the rigor and quality of 
coursework at the high school;
    (ii) If the high school is regulated or overseen by a State agency, 
Tribal agency, or Bureau of Indian Education, confirming with, or 
receiving documentation from that agency that the high school is 
recognized or meets requirements established by that agency; and
    (iii) If the Secretary has published a list of high schools that 
issue invalid high school diplomas, confirming that the high school 
does not appear on that list; and
    (2) A high school diploma is not valid if it--
    (i) Did not meet the applicable requirements established by the 
appropriate State agency, Tribal agency, or Bureau of Indian Education 
in the State where the high school is located;
    (ii) Has been determined to be invalid by the Department, the 
appropriate State agency in the State where the high school was 
located, or through a court proceeding; or
    (iii) Was obtained from an entity that requires little or no 
secondary instruction or coursework to obtain a high school diploma, 
including through a test that does not meet the requirements for a 
recognized equivalent of a high school diploma under 34 CFR 600.2;
    (q) Provides adequate career services to eligible students who 
receive title IV, HEA program assistance. In determining whether an 
institution provides adequate career services, the Secretary 
considers--
    (1) The share of students enrolled in programs designed to prepare 
students for gainful employment in a recognized occupation;
    (2) The number and distribution of career services staff;
    (3) The career services the institution has promised to its 
students; and
    (4) The presence of institutional partnerships with recruiters and 
employers who regularly hire graduates of the institution;
    (r) Provides students, within 45 days of successful completion of 
other required coursework, geographically accessible clinical or 
externship opportunities related to and required for completion of the 
credential or licensure in a recognized occupation;
    (s) Disburses funds to students in a timely manner that best meets 
the students' needs. The Secretary does not consider the manner of 
disbursements to be consistent with students' needs if, among other 
conditions--
    (1) The Secretary is aware of multiple valid and relevant student 
complaints;
    (2) The institution has high rates of withdrawals attributable to 
delays in disbursements;
    (3) The institution has delayed disbursements until after the point 
at which students have earned 100 percent of their eligibility for 
title IV, HEA funds, in accordance with the return to title IV, HEA 
requirements in Sec.  668.22; or
    (4) The institution has delayed disbursements with the effect of 
ensuring the institution passes the 90/10 ratio;
    (t) Offers gainful employment (GE) programs subject to subpart S of 
this part and at least half of its total title IV, HEA funds in the 
most recent award year are not from programs that are ``failing'' under 
subpart S of this part;
    (u) Does not engage in substantial misrepresentations, as defined 
in subpart F of this part, or aggressive and deceptive recruitment 
tactics or conduct, including as defined in subpart R of this part; and
    (v) Does not otherwise appear to lack the ability to administer the 
title IV, HEA programs competently.
* * * * *

0
6. Section 668.23 is amended by revising paragraphs (a)(4) and (5) and 
(d)(1) and (2) to read as follows:


Sec.  668.23  Compliance audits and audited financial statements.

    (a) * * *
    (4) Submission deadline. Except as provided by the Single Audit 
Act, chapter 75 of title 31, United States Code, an institution must 
submit annually to the Department its compliance audit and its audited

[[Page 74700]]

financial statements by the date that is the earlier of--
    (i) Thirty days after the later of the date of the auditor's report 
for the compliance audit and the date of the auditor's report for the 
audited financial statements; or
    (ii) Six months after the last day of the institution's fiscal 
year.
    (5) Audit submission requirements. In general, the Department 
considers the compliance audit and audited financial statements 
submission requirements of this section to be satisfied by an audit 
conducted in accordance with 2 CFR part 200, or the audit guides 
developed by and available from the Department of Education's Office of 
Inspector General, whichever is applicable to the entity, and provided 
that the Federal student aid functions performed by that entity are 
covered in the submission.
* * * * *
    (d) * * *
    (1) General. To enable the Department to make a determination of 
financial responsibility, an institution must, to the extent requested 
by the Department, submit to the Department a set of acceptable 
financial statements for its latest complete fiscal year (or such 
fiscal years as requested by the Department or required by this part), 
as well as any other documentation the Department deems necessary to 
make that determination. For fiscal years beginning on or after July 1, 
2024, financial statements submitted to the Department must match the 
fiscal year end of the entity's annual return(s) filed with the IRS. 
Financial statements submitted to the Department must include the 
Supplemental Schedule required under Sec.  668.172(a) and section 2 of 
appendices A and B to subpart L of this part, and be prepared on an 
accrual basis in accordance with generally accepted accounting 
principles (GAAP), and audited by an independent auditor in accordance 
with generally accepted government auditing standards (GAGAS), issued 
by the Comptroller General of the United States and other guidance 
contained in 2 CFR part 200; or in audit guides developed by and 
available from the Department of Education's Office of Inspector 
General, whichever is applicable to the entity, and provided that the 
Federal student aid functions performed by that entity are covered in 
the submission. As part of these financial statements, the institution 
must include a detailed description of related entities based on the 
definition of a related entity as set forth in Accounting Standards 
Codification (ASC) 850. The disclosure requirements under this 
paragraph (d)(1) extend beyond those of ASC 850 to include all related 
parties and a level of detail that would enable the Department to 
readily identify the related party. Such information must include, but 
is not limited to, the name, location and a description of the related 
entity including the nature and amount of any transactions between the 
related party and the institution, financial or otherwise, regardless 
of when they occurred. If there are no related party transactions 
during the audited fiscal year or related party outstanding balances 
reported in the financial statements, then management must add a note 
to the financial statements to disclose this fact.
    (2) Submission of additional information. (i) In determining 
whether an institution is financially responsible, the Department may 
also require the submission of audited consolidated financial 
statements, audited full consolidating financial statements, audited 
combined financial statements, or the audited financial statements of 
one or more related parties that have the ability, either individually 
or collectively, to significantly influence or control the institution, 
as determined by the Department.
    (ii) For a domestic or foreign institution that is owned directly 
or indirectly by any foreign entity holding at least a 50 percent 
voting or equity interest in the institution, the institution must 
provide documentation of the entity's status under the law of the 
jurisdiction under which the entity is organized, including, at a 
minimum, the date of organization, a current certificate of good 
standing, and a copy of the authorizing statute for such entity status. 
The institution must also provide documentation that is equivalent to 
articles of organization and bylaws and any current operating or 
shareholders' agreements. The Department may also require the 
submission of additional documents related to the entity's status under 
the foreign jurisdiction as needed to assess the entity's financial 
status. Documents must be translated into English.
* * * * *

0
7. Section 668.32 is amended by revising the section heading and 
paragraphs (e)(2), (3), and (5) to read as follows:


Sec.  668.32  Student eligibility.

* * * * *
    (e) * * *
    (2) Has obtained a passing score specified by the Secretary on an 
independently administered test in accordance with subpart J of this 
part, and either--
    (i) Was first enrolled in an eligible program before July 1, 2012; 
or
    (ii) Is enrolled in an eligible career pathway program as defined 
in Sec.  668.2;
    (3) Is enrolled in an eligible institution that participates in a 
State process approved by the Secretary under subpart J of this part, 
and either--
    (i) Was first enrolled in an eligible program before July 1, 2012; 
or
    (ii) Is enrolled in an eligible career pathway program as defined 
in Sec.  668.2;
* * * * *
    (5) Has been determined by the institution to have the ability to 
benefit from the education or training offered by the institution based 
on the satisfactory completion of 6 semester hours, 6 trimester hours, 
6 quarter hours, or 225 clock hours that are applicable toward a degree 
or certificate offered by the institution, and either--
    (i) Was first enrolled in an eligible program before July 1, 2012; 
or
    (ii) Is enrolled in an eligible career pathway program as defined 
in Sec.  668.2.
* * * * *

0
8. Section 668.43 is amended by revising paragraphs (a)(5)(v) and 
(c)(1) and (2) to read as follows:


Sec.  668.43  Institutional and programmatic information.

    (a) * * *
    (5) * * *
    (v) If an educational program is designed to meet educational 
requirements for a specific professional license or certification that 
is required for employment in an occupation, or is advertised as 
meeting such requirements, a list of all States where the institution 
has determined, including as part of the institution's obligation under 
Sec.  668.14(b)(32), that the program does and does not meet such 
requirements; and
* * * * *
    (c)(1) If the institution has made a determination under paragraph 
(a)(5)(v) of this section that the program's curriculum does not meet 
the State educational requirements for licensure or certification in 
the State in which a prospective student is located, or if the 
institution has not made a determination regarding whether the 
program's curriculum meets the State educational requirements for 
licensure or certification, the institution must provide notice to that 
effect to the student prior to the student's enrollment in the 
institution in accordance with Sec.  668.14(b)(32).
    (2) If the institution makes a determination under paragraph 
(a)(5)(v)

[[Page 74701]]

of this section that a program's curriculum does not meet the State 
educational requirements for licensure or certification in a State in 
which a student who is currently enrolled in such program is located, 
the institution must provide notice to that effect to the student 
within 14 calendar days of making such determination.
* * * * *

0
9. Section 668.156 is revised to read as follows:


Sec.  668.156  Approved State process.

    (a)(1) A State that wishes the Secretary to consider its State 
process as an alternative to achieving a passing score on an approved, 
independently administered test or satisfactory completion of at least 
six credit hours or its recognized equivalent coursework for the 
purpose of determining a student's eligibility for title IV, HEA 
program funds must apply to the Secretary for approval of that process.
    (2) A State's application for approval of its State process must 
include--
    (i) The institutions located in the State included in the proposed 
process, which need not be all of the institutions located in the 
State;
    (ii) The requirements that participating institutions must meet to 
offer eligible career pathway programs through the State process;
    (iii) A certification that, as of the date of the application, each 
proposed career pathway program intended for use through the State 
process constitutes an ``eligible career pathway program'' as defined 
in Sec.  668.2 and as documented pursuant to Sec.  668.157;
    (iv) The criteria used to determine student eligibility for 
participation in the State process; and
    (v) For an institution listed for the first time on the 
application, an assurance that not more than 33 percent of the 
institution's undergraduate regular students withdrew from the 
institution during the institution's latest completed award year. For 
purposes of calculating this rate, the institution must count all 
regular students who were enrolled during the latest completed award 
year, except those students who, during that period--
    (A) Withdrew from, dropped out of, or were expelled from the 
institution; and
    (B) Were entitled to and actually received in a timely manner, a 
refund of 100 percent of their tuition and fees.
    (b) For a State applying for approval for the first time, the 
Secretary may approve the State process for a two-year initial period 
if--
    (1) The State's process satisfies the requirements contained in 
paragraphs (a), (c), and (d) of this section; and
    (2) The State agrees that the total number of students who enroll 
through the State process during the initial period will total no more 
than the greater of 25 students or 1.0 percent of enrollment at each 
institution participating in the State process.
    (c) A State process must--
    (1) Allow the participation of only those students eligible under 
Sec.  668.32(e)(3);
    (2) Monitor on an annual basis each participating institution's 
compliance with the requirements and standards contained in the State's 
process, including the success rate as calculated in paragraph (f) of 
this section;
    (3) Require corrective action if an institution is found to be in 
noncompliance with the State process requirements;
    (4) Provide a participating institution that has failed to achieve 
the success rate required under paragraphs (e)(1) and (f) up to three 
years to achieve compliance;
    (5) Terminate an institution from the State process if the 
institution refuses or fails to comply with the State process 
requirements, including exceeding the total number of students 
referenced in paragraph (b)(2) of this section; and
    (6) Prohibit an institution from participating in the State process 
for at least five years after termination.
    (d)(1) The Secretary responds to a State's request for approval of 
its State process within six months after the Secretary's receipt of 
that request. If the Secretary does not respond by the end of six 
months, the State's process is deemed to be approved.
    (2) An approved State process becomes effective for purposes of 
determining student eligibility for title IV, HEA program funds under 
this subpart--
    (i) On the date the Secretary approves the process; or
    (ii) Six months after the date on which the State submits the 
process to the Secretary for approval, if the Secretary neither 
approves nor disapproves the process during that six-month period.
    (e) After the initial two-year period described in paragraph (b) of 
this section, the State must reapply for continued participation and, 
in its application--
    (1) Demonstrate that the students it admits under that process at 
each participating institution have a success rate as determined under 
paragraph (f) of this section that is within 85 percent of the success 
rate of students with high school diplomas;
    (2) Demonstrate that the State's process continues to satisfy the 
requirements in paragraphs (a), (c), and (d) of this section; and
    (3) Report information to the Department on the enrollment and 
success of participating students by eligible career pathway program 
and by race, gender, age, economic circumstances, and educational 
attainment, to the extent available.
    (f) The State must calculate the success rate for each 
participating institution as referenced in paragraph (e)(1) of this 
section by--
    (1) Determining the number of students with high school diplomas or 
equivalent who, during the applicable award year described in paragraph 
(g)(1) of this section, enrolled in the same programs as students 
participating in the State process at each participating institution 
and--
    (i) Successfully completed education or training programs;
    (ii) Remained enrolled in education or training programs at the end 
of that award year; or
    (iii) Successfully transferred to and remained enrolled in another 
institution at the end of that award year;
    (2) Determining the number of students with high school diplomas or 
equivalent who, during the applicable award year described in paragraph 
(g)(1) of this section, enrolled in the same programs as students 
participating in the State process at each participating institution;
    (3) Determining the number of students calculated in paragraph 
(f)(2) of this section who remained enrolled after subtracting the 
number of students who subsequently withdrew or were expelled from each 
participating institution and received a 100 percent refund of their 
tuition under the institution's refund policies;
    (4) Dividing the number of students determined under paragraph 
(f)(1) of this section by the number of students determined under 
paragraph (f)(3) of this section; and
    (5) Making the calculations described in paragraphs (f)(1) through 
(4) of this section for students who enrolled through a State process 
in each participating institution.
    (g)(1) For purposes of paragraph (f) of this section, the 
applicable award year is the latest complete award year for which 
information is available.
    (2) If no students are enrolled in an eligible career pathway 
program through a State process, then the State will receive a one-year 
extension to its initial approval of its State process.
    (h) A State must submit reports on its State process, in accordance 
with deadlines and procedures established and published by the 
Secretary in the

[[Page 74702]]

Federal Register, with such information as the Secretary requires.
    (i) The Secretary approves a State process as described in 
paragraph (e) of this section for a period not to exceed five years.
    (j)(1) The Secretary withdraws approval of a State process if the 
Secretary determines that the State process violated any terms of this 
section or that the information that the State submitted as a basis for 
approval of the State process was inaccurate.
    (i) If a State has not terminated an institution from the State 
process under paragraph (c)(5) of this section for failure to meet the 
success rate, then the Secretary withdraws approval of the State 
process, except in accordance with paragraph (j)(1)(ii) of this 
section.
    (ii) At the Secretary's discretion, under exceptional 
circumstances, the State process may be approved once for a two-year 
period.
    (iii) If 50 percent or more participating institutions across all 
States do not meet the success rate in a given year, then the Secretary 
may lower the success rate to no less than 75 percent for two years.
    (2) The Secretary provides a State with the opportunity to contest 
a finding that the State process violated any terms of this section or 
that the information that the State submitted as a basis for approval 
of the State process was inaccurate.
    (3) If the Secretary upholds the withdrawal of approval of a State 
process, then the State cannot reapply to the Secretary for a period of 
five years.

(Approved by the Office of Management and Budget under control 
number 1845-0049)



0
10. Section 668.157 is added to read as follows:


Sec.  668.157  Eligible career pathway program.

    (a) An institution demonstrates to the Secretary that a student is 
enrolled in an eligible career pathway program by documenting that--
    (1) The student has enrolled in or is receiving all three of the 
following elements simultaneously--
    (i) An eligible postsecondary program as defined in Sec.  668.8;
    (ii) Adult education and literacy activities under the Workforce 
Innovation and Opportunity Act as described in 34 CFR 463.30 that 
assist adults in attaining a secondary school diploma or its recognized 
equivalent and in the transition to postsecondary education and 
training; and
    (iii) Workforce preparation activities as described in 34 CFR 
463.34;
    (2) The program aligns with the skill needs of industries in the 
State or regional labor market in which the institution is located, 
based on research the institution has conducted, including--
    (i) Government reports identifying in-demand occupations in the 
State or regional labor market;
    (ii) Surveys, interviews, meetings, or other information obtained 
by the institution regarding the hiring needs of employers in the State 
or regional labor market; and
    (iii) Documentation that demonstrates direct engagement with 
industry;
    (3) The skill needs described in paragraph (a)(2) of this section 
align with the specific coursework and postsecondary credential 
provided by the postsecondary program or other required training;
    (4) The program provides academic and career counseling services 
that assist students in pursuing their credential and obtaining jobs 
aligned with skill needs described in paragraph (a)(2) of this section, 
and identifies the individuals providing the career counseling 
services;
    (5) The appropriate education is offered, concurrently with and in 
the same context as workforce preparation activities and training for a 
specific occupation or occupational cluster through an agreement, 
memorandum of understanding, or some other evidence of alignment of 
postsecondary and adult education providers that ensures the education 
is aligned with the students' career objectives; and
    (6) The program is designed to lead to a valid high school diploma 
as defined in Sec.  668.16(p) or its recognized equivalent.
    (b) For a postsecondary institution that offered an eligible career 
pathway program prior to July 1, 2024, the institution must--
    (1) Apply to the Secretary to have one of its career pathway 
programs determined to be eligible for title IV, HEA program purposes 
by a date as specified by the Secretary; and
    (2) Affirm that any career pathway program offered by the 
institution meets the documentation standards in paragraph (a) of this 
section.
    (c) For a postsecondary institution that does not offer an eligible 
career pathway program prior to July 1, 2024, the institution must--
    (1) Apply to the Secretary to have its program determined to be an 
initial eligible career pathway program; and
    (2) Affirm that any subsequent career pathway program offered by 
the institution, initiated only after the approval of the initial 
eligible career pathway program, will meet the documentation standards 
outlined in paragraph (a) of this section.
    (d) The Secretary provides an institution with the opportunity to 
appeal an adverse eligibility decision under paragraphs (b) and (c) of 
this section.
    (e) The Secretary maintains the authority to require the approval 
of additional eligible career pathway programs offered by a 
postsecondary institution beyond the requirements outlined in 
paragraphs (b) and (c) of this section for any reason, including but 
not limited to--
    (1) A rapid increase, as determined by the Secretary, of eligible 
career pathway programs at the institution; or
    (2) The Secretary determines that other eligible career pathway 
programs at the postsecondary institution do not meet the documentation 
standards outlined in this section.


0
11. Section 668.171 is amended by revising paragraphs (b) introductory 
text, (b)(3), and (c) through (i) to read as follows:


Sec.  668.171  General.

* * * * *
    (b) General standards of financial responsibility. Except as 
provided in paragraph (h) of this section, the Department considers an 
institution to be financially responsible if the Department determines 
that--
* * * * *
    (3) The institution is able to meet all of its financial 
obligations and provide the administrative resources necessary to 
comply with title IV, HEA program requirements. An institution is not 
deemed able to meet its financial or administrative obligations if--
    (i) It fails to make refunds under its refund policy, return title 
IV, HEA program funds for which it is responsible under Sec.  668.22, 
or pay title IV, HEA credit balances as required under Sec.  
668.164(h)(2);
    (ii) It fails to make repayments to the Department for any debt or 
liability arising from the institution's participation in the title IV, 
HEA programs;
    (iii) It fails to make a payment in accordance with an existing 
undisputed financial obligation for more than 90 days;
    (iv) It fails to satisfy payroll obligations in accordance with its 
published payroll schedule;
    (v) It borrows funds from retirement plans or restricted funds 
without authorization; or
    (vi) It is subject to an action or event described in paragraph (c) 
of this section (mandatory triggering events), or

[[Page 74703]]

an action or event that the Department has determined to have a 
significant adverse effect on the financial condition of the 
institution under paragraph (d) of this section (discretionary 
triggering events); and
* * * * *
    (c) Mandatory triggering events. (1) Except for the mandatory 
triggers that require a recalculation of the institution's composite 
score, the mandatory triggers in this paragraph (c) constitute 
automatic failures of financial responsibility. For any mandatory 
triggers under this paragraph (c) that result in a recalculated 
composite score of less than 1.0, and for those mandatory triggers that 
constitute automatic failures of financial responsibility, the 
Department will require the institution to provide financial protection 
as set forth in this subpart, unless the institution demonstrates that 
the event is resolved or that insurance covers the loss in accordance 
with paragraph (f)(3) of this section. The financial protection 
required under this paragraph is not less than 10 percent of the total 
title IV, HEA funding in the prior fiscal year. If the Department 
requires financial protection as a result of more than one mandatory or 
discretionary trigger, the Department will require separate financial 
protection for each individual trigger. For automatic triggers, the 
Department will consider whether the financial protection can be 
released following the institution's submission of two full fiscal 
years of audited financial statements following the Department's notice 
that requires the posting of the financial protection. In making this 
determination, the Department considers whether the administrative or 
financial risk caused by the event has ceased or been resolved, 
including full payment of all damages, fines, penalties, liabilities, 
or other financial relief. For triggers that require a recalculation of 
the composite score, the Department will consider whether the financial 
protection can be released if subsequent annual submissions pass the 
Department's requirements for financial responsibility.
    (2) The following are mandatory triggers:
    (i) Legal and administrative actions. (A) For an institution or 
entity with a composite score of less than 1.5, other than a composite 
score calculated under 34 CFR 600.20(g) and Sec.  668.176, that has 
entered against it a final monetary judgment or award, or enters into a 
monetary settlement which results from a legal proceeding, including 
from a lawsuit, arbitration, or mediation, whether or not the judgment, 
award or settlement has been paid, and as a result, the recalculated 
composite score for the institution or entity is less than 1.0, as 
determined by the Department under paragraph (e) of this section;
    (B) On or after July 1, 2024, the institution or any entity whose 
financial statements were submitted in the prior fiscal year to meet 
the requirements of 34 CFR 600.20(g) or this subpart, is sued by a 
Federal or State authority to impose an injunction, establish fines or 
penalties, or to obtain financial relief such as damages, or in a qui 
tam action in which the United States has intervened, but only if the 
Federal or State action has been pending for 120 days, or a qui tam 
action has been pending for 120 days following intervention by the 
United States, and--
    (1) No motion to dismiss, or its equivalent under State law has 
been filed within the applicable 120-day period; or
    (2) If a motion to dismiss or its equivalent under State law, has 
been filed within the applicable 120-day period and denied, upon such 
denial;
    (C) The Department has initiated action to recover from the 
institution the cost of adjudicated claims in favor of borrowers under 
the borrower defense to repayment provisions in 34 CFR part 685 and, 
the recalculated composite score for the institution or entity as a 
result of the adjudicated claims is less than 1.0, as determined by the 
Department under paragraph (e) of this section; or
    (D) For an institution or entity that has submitted an application 
for a change in ownership under 34 CFR 600.20 that has entered against 
it a final monetary judgment or award, or enters into a monetary 
settlement which results from a legal proceeding, including from a 
lawsuit, arbitration, or mediation, or a monetary determination arising 
from an administrative proceeding described in paragraph (c)(2)(i)(B) 
or (C) of this section, at any point through the end of the second full 
fiscal year after the change in ownership has occurred, and as a 
result, the recalculated composite score for the institution or entity 
is less than 1.0, as determined by the Department under paragraph (e) 
of this section. This trigger applies whether the judgment, award, 
settlement, or monetary determination has been paid.
    (ii) Withdrawal of owner's equity. (A) For a proprietary 
institution whose composite score is less than 1.5, or for any 
proprietary institution through the end of the first full fiscal year 
following a change in ownership, and there is a withdrawal of owner's 
equity by any means, including by declaring a dividend, unless the 
withdrawal is a transfer to an entity included in the affiliated entity 
group on whose basis the institution's composite score was calculated; 
or is the equivalent of wages in a sole proprietorship or general 
partnership or a required dividend or return of capital; and
    (B) As a result of that withdrawal, the institution's recalculated 
composite score for the entity whose financial statements were 
submitted to meet the requirements of Sec.  668.23 for the annual 
submission, or 34 CFR 600.20(g) or (h) for a change in ownership, is 
less than 1.0, as determined by the Department under paragraph (e) of 
this section.
    (iii) Gainful employment. As determined annually by the Department, 
the institution received at least 50 percent of its title IV, HEA 
program funds in its most recently completed fiscal year from gainful 
employment (GE) programs that are ``failing'' under subpart S of this 
part. (iv) Institutional teach-out plans or agreements. The institution 
is required to submit a teach-out plan or agreement, by a State, the 
Department or another Federal agency, an accrediting agency, or other 
oversight body for reasons related in whole or in part to financial 
concerns.
    (v) [Reserved]
    (vi) Publicly listed entities. For an institution that is directly 
or indirectly owned at least 50 percent by an entity whose securities 
are listed on a domestic or foreign exchange, the entity is subject to 
one or more of the following actions or events:
    (A) SEC actions. The U.S. Securities and Exchange Commission (SEC) 
issues an order suspending or revoking the registration of any of the 
entity's securities pursuant to section 12(j) of the Securities 
Exchange Act of 1934 (the ``Exchange Act'') or suspends trading of the 
entity's securities pursuant to section 12(k) of the Exchange Act.
    (B) Other SEC actions. The SEC files an action against the entity 
in district court or issues an order instituting proceeding pursuant to 
section 12(j) of the Exchange Act.
    (C) Exchange actions. The exchange on which the entity's securities 
are listed notifies the entity that it is not in compliance with the 
exchange's listing requirements, or its securities are delisted.
    (D) SEC reports. The entity failed to file a required annual or 
quarterly report with the SEC within the time period prescribed for 
that report or by any extended due date under 17 CFR 240.12b-25.
    (E) Foreign exchanges or oversight authority. The entity is subject 
to an event, notification, or condition by a

[[Page 74704]]

foreign exchange or oversight authority that the Department determines 
is equivalent to those identified in paragraphs (c)(2)(vi)(A) through 
(D) of this section.
    (vii) Non-Federal educational assistance funds. For its most 
recently completed fiscal year, a proprietary institution did not 
receive at least 10 percent of its revenue from sources other than 
Federal educational assistance, as provided under Sec.  668.28(c). The 
financial protection provided under this paragraph (c)(3)(viii) will 
remain in place until the institution passes the 90/10 revenue 
requirement under Sec.  668.28(c) for two consecutive years.
    (viii) Cohort default rates. The institution's two most recent 
official cohort default rates are 30 percent or greater, as determined 
under subpart N of this part, unless--
    (A) The institution files a challenge, request for adjustment, or 
appeal under subpart N of this part with respect to its rates for one 
or both of those fiscal years; and
    (B) That challenge, request, or appeal remains pending, results in 
reducing below 30 percent the official cohort default rate for either 
or both of those years or precludes the rates from either or both years 
from resulting in a loss of eligibility or provisional certification.
    (ix) [Reserved]
    (x) Contributions and distributions. (A) An institution's financial 
statements required to be submitted under Sec.  668.23 reflect a 
contribution in the last quarter of the fiscal year, and the entity 
that is part of the financial statements then made a distribution 
during the first two quarters of the next fiscal year; and
    (B) The offset of such distribution against the contribution 
results in a recalculated composite score of less than 1.0, as 
determined by the Department under paragraph (e) of this section.
    (xi) Creditor events. As a result of an action taken by the 
Department, the institution or any entity included in the financial 
statements submitted in the current or prior fiscal year under 34 CFR 
600.20(g) or (h), Sec.  668.23, or this subpart is subject to a default 
or other adverse condition under a line of credit, loan agreement, 
security agreement, or other financing arrangement.
    (xii) Declaration of financial exigency. The institution declares a 
state of financial exigency to a Federal, State, Tribal, or foreign 
governmental agency or its accrediting agency.
    (xiii) Receivership. The institution, or an owner or affiliate of 
the institution that has the power, by contract or ownership interest, 
to direct or cause the direction of the management of policies of the 
institution, files for a State or Federal receivership, or an 
equivalent proceeding under foreign law, or has entered against it an 
order appointing a receiver or appointing a person of similar status 
under foreign law.
    (d) Discretionary triggering events. The Department may determine 
that an institution is not able to meet its financial or administrative 
obligations if the Department determines that a discretionary 
triggering event is likely to have a significant adverse effect on the 
financial condition of the institution. For those discretionary 
triggers that the Department determines will have a significant adverse 
effect on the financial condition of the institution, the Department 
will require the institution to provide financial protection as set 
forth in this subpart. The financial protection required under this 
paragraph (d) is not less than 10 percent of the total title IV, HEA 
funding in the prior fiscal year. If the Department requires financial 
protection as a result of more than one mandatory or discretionary 
trigger, the Department will require separate financial protection for 
each individual trigger. The Department will consider whether the 
financial protection can be released following the institution's 
submission of two full fiscal years of audited financial statements 
following the Department's notice that requires the posting of the 
financial protection. In making this determination, the Department 
considers whether the administrative or financial risk caused by the 
event has ceased or been resolved, including full payment of all 
damages, fines, penalties, liabilities, or other financial relief. The 
following are discretionary triggers:
    (1) Accrediting agency and government agency actions. The 
institution's accrediting agency or a Federal, State, local, or Tribal 
authority places the institution on probation or issues a show-cause 
order or places the institution in a comparable status that poses an 
equivalent or greater risk to its accreditation, authorization, or 
eligibility.
    (2) Other defaults, delinquencies, creditor events, and judgments. 
(i) Except as provided in paragraph (c)(2)(xi) of this section, the 
institution or any entity included in the financial statements 
submitted in the current or prior fiscal year under 34 CFR 600.20(g) or 
(h), Sec.  668.23, or this subpart is subject to a default or other 
adverse condition under a line of credit, loan agreement, security 
agreement, or other financing arrangement;
    (ii) Under that line of credit, loan agreement, security agreement, 
or other financing arrangement, a monetary or nonmonetary default or 
delinquency or other event occurs that allows the creditor to require 
or impose on the institution or any entity included in the financial 
statements submitted in the current or prior fiscal year under 34 CFR 
600.20(g) or (h), Sec.  668.23, or this subpart, an increase in 
collateral, a change in contractual obligations, an increase in 
interest rates or payments, or other sanctions, penalties, or fees;
    (iii) Any creditor of the institution or any entity included in the 
financial statements submitted in the current or prior fiscal year 
under 34 CFR 600.20(g) or (h), Sec.  668.23, or this subpart takes 
action to terminate, withdraw, limit, or suspend a loan agreement or 
other financing arrangement or calls due a balance on a line of credit 
with an outstanding balance;
    (iv) The institution or any entity included in the financial 
statements submitted in the current or prior fiscal year under 34 CFR 
600.20(g) or (h), Sec.  668.23, or this subpart enters into a line of 
credit, loan agreement, security agreement, or other financing 
arrangement whereby the institution or entity may be subject to a 
default or other adverse condition as a result of any action taken by 
the Department; or
    (v) The institution or any entity included in the financial 
statements submitted in the current or prior fiscal year under 34 CFR 
600.20(g) or (h), Sec.  668.23, or this subpart has a judgment awarding 
monetary relief entered against it that is subject to appeal or under 
appeal.
    (3) Fluctuations in title IV volume. There is a significant 
fluctuation between consecutive award years, or a period of award 
years, in the amount of Direct Loan or Pell Grant funds, or a 
combination of those funds, received by the institution that cannot be 
accounted for by changes in those programs.
    (4) High annual dropout rates. As calculated by the Department, the 
institution has high annual dropout rates.
    (5) Interim reporting. For an institution required to provide 
additional financial reporting to the Department due to a failure to 
meet the financial responsibility standards in this subpart or due to a 
change in ownership, there are negative cash flows, failure of other 
financial ratios, cash flows that significantly miss the projections 
submitted to the Department, withdrawal rates that increase 
significantly, or other indicators of a significant change in the 
financial condition of the institution.

[[Page 74705]]

    (6) Pending borrower defense claims. There are pending claims for 
borrower relief discharge under 34 CFR 685.400 from students or former 
students of the institution and the Department has formed a group 
process to consider claims under 34 CFR 685.402 and, if approved, those 
claims could be subject to recoupment.
    (7) Discontinuation of programs. The institution discontinues 
academic programs that enroll more than 25 percent of its enrolled 
students who receive title IV, HEA program funds.
    (8) Closure of locations. The institution closes locations that 
enroll more than 25 percent of its students who receive title IV, HEA 
program funds.
    (9) State actions and citations. The institution, or one or more of 
its programs, is cited by a State licensing or authorizing agency for 
failing to meet State or agency requirements, including notice that it 
will withdraw or terminate the institution's licensure or authorization 
if the institution does not take the steps necessary to come into 
compliance with that requirement.
    (10) Loss of institutional or program eligibility. The institution 
or one or more of its programs has lost eligibility to participate in 
another Federal educational assistance program due to an administrative 
action against the institution or its programs.
    (11) Exchange disclosures. If an institution is directly or 
indirectly owned at least 50 percent by an entity whose securities are 
listed on a domestic or foreign exchange, the entity discloses in a 
public filing that it is under investigation for possible violations of 
State, Federal or foreign law.
    (12) Actions by another Federal agency. The institution is cited 
and faces loss of education assistance funds from another Federal 
agency if it does not comply with the agency's requirements.
    (13) Other teach-out plans or agreements not included in paragraph 
(c) of this section. The institution is required to submit a teach-out 
plan or agreement, including programmatic teach-outs, by a State, the 
Department or another Federal agency, an accrediting agency, or other 
oversight body.
    (14) Other events or conditions. Any other event or condition that 
the Department learns about from the institution or other parties, and 
the Department determines that the event or condition is likely to have 
a significant adverse effect on the financial condition of the 
institution.
    (e) Recalculating the composite score. When a recalculation of an 
institution's most recent composite score is required by the mandatory 
triggering events described in paragraph (c) of this section, the 
Department makes the recalculation as follows:
    (1) For a proprietary institution, debts, liabilities, and losses 
(including cumulative debts, liabilities, and losses for all triggering 
events) since the end of the prior fiscal year incurred by the entity 
whose financial statements were submitted in the prior fiscal year to 
meet the requirements of Sec.  668.23 or this subpart, and debts, 
liabilities, and losses (including cumulative debts, liabilities, and 
losses for all triggering events) through the end of the first full 
fiscal year following a change in ownership incurred by the entity 
whose financial statements were submitted for 34 CFR 600.20(g) or (h), 
will be adjusted as follows:
    (i) For the primary reserve ratio, increasing expenses and 
decreasing adjusted equity by that amount.
    (ii) For the equity ratio, decreasing modified equity by that 
amount.
    (iii) For the net income ratio, decreasing income before taxes by 
that amount.
    (2) For a nonprofit institution, debts, liabilities, and losses 
(including cumulative debts, liabilities, and losses for all triggering 
events) since the end of the prior fiscal year incurred by the entity 
whose financial statements were submitted in the prior fiscal year to 
meet the requirements of Sec.  668.23 or this subpart, and debts, 
liabilities, and losses (including cumulative debts, liabilities, and 
losses for all triggering events) through the end of the first full 
fiscal year following a change in ownership incurred by the entity 
whose financial statements were submitted for 34 CFR 600.20(g) or (h), 
will be adjusted as follows:
    (i) For the primary reserve ratio, increasing expenses and 
decreasing expendable net assets by that amount.
    (ii) For the equity ratio, decreasing modified net assets by that 
amount.
    (iii) For the net income ratio, decreasing change in net assets 
without donor restrictions by that amount.
    (3) For a proprietary institution, the withdrawal of equity 
(including cumulative withdrawals of equity) since the end of the prior 
fiscal year from the entity whose financial statements were submitted 
in the prior fiscal year to meet the requirements of Sec.  668.23 or 
this subpart, and the withdrawal of equity (including cumulative 
withdrawals of equity) through the end of the first full fiscal year 
following a change in ownership from the entity whose financial 
statements were submitted for 34 CFR 600.20(g) or (h), will be adjusted 
as follows:
    (i) For the primary reserve ratio, decreasing adjusted equity by 
that amount.
    (ii) For the equity ratio, decreasing modified equity and modified 
total assets by that amount.
    (4) For a proprietary institution, a contribution and distribution 
in the entity whose financial statements were submitted in the prior 
fiscal year to meet the requirements of Sec.  668.23, this subpart, or 
34 CFR 600.20(g) will be adjusted as follows:
    (i) For the primary reserve ratio, decreasing adjusted equity by 
the amount of the distribution.
    (ii) For the equity ratio, decreasing modified equity by the amount 
of the distribution.
    (f) Reporting requirements. (1) In accordance with procedures 
established by the Department, an institution must timely notify the 
Department of the following actions or events:
    (i) For a monetary judgment, award, or settlement incurred under 
paragraph (c)(2)(i)(A) of this section, no later than 21 days after 
either the date of written notification to the institution or entity of 
the monetary judgment or award, or the execution of the settlement 
agreement by the institution or entity.
    (ii) For a lawsuit described in paragraph (c)(2)(i)(B) of this 
section, no later than 21 days after the institution or entity is 
served with the complaint, and an updated notice must be provided 21 
days after the suit has been pending for 120 days.
    (iii) [Reserved]
    (iv) For a withdrawal of owner's equity described in paragraph 
(c)(2)(ii) of this section--
    (A) For a capital distribution that is the equivalent of wages in a 
sole proprietorship or general partnership, no later than 21 days after 
the date the Department notifies the institution that its composite 
score is less than 1.5. In response to that notice, the institution 
must report the total amount of the wage-equivalent distributions it 
made during its prior fiscal year and any distributions that were made 
to pay any taxes related to the operation of the institution. During 
its current fiscal year and the first six months of its subsequent 
fiscal year (18-month period), the institution is not required to 
report any distributions to the Department, provided that the 
institution does not make wage-equivalent distributions that exceed 150 
percent of the total amount of wage-equivalent distributions it made 
during its prior fiscal year, less any distributions that were made to 
pay any

[[Page 74706]]

taxes related to the operation of the institution. However, if the 
institution makes wage-equivalent distributions that exceed 150 percent 
of the total amount of wage-equivalent distributions it made during its 
prior fiscal year less any distributions that were made to pay any 
taxes related to the operation of the institution at any time during 
the 18-month period, it must report each of those distributions no 
later than 21 days after they are made, and the Department recalculates 
the institution's composite score based on the cumulative amount of the 
distributions made at that time;
    (B) For a distribution of dividends or return of capital, no later 
than 21 days after the dividends are declared or the amount of return 
of capital is approved; or
    (C) For a related party receivable or other assets, no later than 
21 days after that receivable/other assets are booked or occur.
    (v) For a contribution and distribution described in paragraph 
(c)(2)(x) of this section, no later than 21 days after the 
distribution.
    (vi) For the provisions relating to a publicly listed entity under 
paragraph (c)(2)(vi) or (d)(11) of this section, no later than 21 days 
after the date that such event occurs.
    (vii) For any action by an accrediting agency, Federal, State, 
local, or Tribal authority that is either a mandatory or discretionary 
trigger, no later than 21 days after the date on which the institution 
is notified of the action.
    (viii) For the creditor events described in paragraph (c)(2)(xi) of 
this section, no later than 21 days after the date on which the 
institution is notified of the action by its creditor.
    (ix) For the other defaults, delinquencies, or creditor events 
described in paragraphs (d)(2)(i), (ii), (iii), and (iv) of this 
section, no later than 21 days after the event occurs, with an update 
no later than 21 days after the creditor waives the violation, or the 
creditor imposes sanctions or penalties, including sanctions or 
penalties imposed in exchange for or as a result of granting the 
waiver. For a monetary judgment subject to appeal or under appeal 
described in paragraph (d)(2)(v) of this section, no later than 21 days 
after the court enters the judgment, with an update no later than 21 
days after the appeal is filed or the period for appeal expires without 
a notice of appeal being filed. If an appeal is filed, no later than 21 
days after the decision on the appeal is issued.
    (x) For the non-Federal educational assistance funds provision in 
paragraph (c)(2)(vii) of this section, no later than 45 days after the 
end of the institution's fiscal year, as provided in Sec.  
668.28(c)(3).
    (xi) For an institution or entity that has submitted an application 
for a change in ownership under 34 CFR 600.20 that is required to pay a 
debt or incurs a liability from a settlement, arbitration proceeding, 
final judgment in a judicial proceeding, or a determination arising 
from an administrative proceeding described in paragraph (c)(2)(i)(B) 
or (C) of this section, the institution must report this no later than 
21 days after the action. The reporting requirement in this paragraph 
(f)(1)(xi) is applicable to any action described in this section 
occurring through the end of the second full fiscal year after the 
change in ownership has occurred.
    (xii) For a discontinuation of academic programs described in 
paragraph (d)(7) of this section, no later than 21 days after the 
discontinuation of programs.
    (xiii) For a failure to meet any of the standards in paragraph (b) 
of this section, no later than 21 days after the institution ceases to 
meet the standard.
    (xiv) For a declaration of financial exigency, no later than 21 
days after the institution communicates its declaration to a Federal, 
State, Tribal, or foreign governmental agency or its accrediting 
agency.
    (xv) If the institution, or an owner or affiliate of the 
institution that has the power, by contract or ownership interest, to 
direct or cause the direction of the management of policies of the 
institution, files for a State or Federal receivership, or an 
equivalent proceeding under foreign law, or has entered against it an 
order appointing a receiver or appointing a person of similar status 
under foreign law, no later than 21 days after either the filing for 
receivership or the order appointing a receiver or appointing a person 
of similar status under foreign law, as applicable.
    (xvi) The institution closes locations that enroll more than 25 
percent of its students no later than 21 days after the closure that 
meets or exceeds the thresholds in this paragraph (f)(1)(xvi).
    (xvii) If the institution is directly or indirectly owned at least 
50 percent by an entity whose securities are listed on a domestic or 
foreign exchange, and the entity discloses in a public filing that it 
is under investigation for possible violations of State, Federal, or 
foreign law, no later than 21 days after the public filing.
    (xviii) For any other event or condition that is likely to have a 
significant adverse condition on the financial condition of the 
institution, no later than 21 days after the event or condition occurs.
    (2) The Department may take an administrative action under 
paragraph (i) of this section against an institution, or determine that 
the institution is not financially responsible, if it fails to provide 
timely notice to the Department as provided under paragraph (f)(1) of 
this section, or fails to respond, within the timeframe specified by 
the Department, to any determination made, or request for information, 
by the Department under paragraph (f)(3) of this section.
    (3)(i) In its timely notice to the Department under this paragraph 
(f), or in its response to a determination by the Department that the 
institution is not financially responsible because of a triggering 
event under paragraph (c) or (d) of this section that does not have a 
notice requirement set forth in this paragraph (f), in accordance with 
procedures established by the Department, the institution may--
    (A) Show that the creditor waived a violation of a loan agreement 
under paragraph (d)(2) of this section. However, if the creditor 
imposes additional constraints or requirements as a condition of 
waiving the violation, or imposes penalties or requirements under 
paragraph (d)(2)(ii) of this section, the institution must identify and 
describe those penalties, constraints, or requirements and demonstrate 
that complying with those actions will not significantly affect the 
institution's ability to meet its financial obligations;
    (B) Show that the triggering event has been resolved, or for 
obligations resulting from monetary judgments, awards, settlements, or 
administrative determinations that arise under paragraph (c)(2)(i)(A) 
or (D) of this section, that the institution can demonstrate that 
insurance will cover all of the obligation, or for purposes of 
recalculation under paragraph (e) of this section, that insurance will 
cover a portion of the obligation; or
    (C) Explain or provide information about the conditions or 
circumstances that precipitated a triggering event under paragraph (d) 
of this section that demonstrates that the triggering event has not 
had, or will not have, a significant adverse effect on the financial 
condition of the institution.
    (ii) The Department will consider the information provided by the 
institution in its notification of the triggering event in determining 
whether to issue a determination that the institution is not 
financially responsible.
    (g) Public institutions. (1) The Department considers a domestic 
public

[[Page 74707]]

institution to be financially responsible if the institution--
    (i) Notifies the Department that it is designated as a public 
institution by the State, local, or municipal government entity, Tribal 
authority, or other government entity that has the legal authority to 
make that designation; and
    (ii) Provides a letter or other documentation acceptable to the 
Department and signed by an official of that government entity 
confirming that the institution is a public institution and is backed 
by the full faith and credit of the government entity in the following 
circumstances--
    (A) Before the institution's initial certification as a public 
institution;
    (B) Upon a change in ownership and request to be recognized as a 
public institution; or
    (C) Upon request by the Department, which could include during the 
recertification of a public institution;
    (iii) Is not subject to a condition of past performance under Sec.  
668.174; and
    (iv) Is not subject to an automatic mandatory triggering event as 
described in paragraph (c) of this section or a discretionary 
triggering event as described in paragraph (d) of this section that the 
Department determines will have a significant adverse effect on the 
financial condition of the institution.
    (2) The Department considers a foreign public institution to be 
financially responsible if the institution--
    (i) Notifies the Department that it is designated as a public 
institution by the country or other government entity that has the 
legal authority to make that designation; and
    (ii) Provides a letter or other documentation acceptable to the 
Department and signed by an official of that country or other 
government entity confirming that the institution is a public 
institution and is backed by the full faith and credit of the country 
or other government entity. This letter or other documentation must be 
submitted before the institution's initial certification, upon a change 
in ownership and request to be recognized as a public institution, and 
for the first re-certification of a public institution after July 1, 
2024. Thereafter, the letter or other documentation must be submitted 
in the following circumstances--
    (A) When the institution submits an application for re-
certification following any period of provisional certification;
    (B) Within 10 business days following a change in the governmental 
status of the institution whereby the institution is no longer backed 
by the full faith and credit of the government entity; or
    (C) Upon request by the Department;
    (iii) Is not subject to a condition of past performance under Sec.  
668.174; and
    (iv) Is not subject to an automatic mandatory triggering event as 
described in paragraph (c) of this section or a discretionary 
triggering event as described in paragraph (d) of this section that the 
Department determines will have a significant adverse effect on the 
financial condition of the institution.
    (h) Audit opinions and disclosures. Even if an institution 
satisfies all of the general standards of financial responsibility 
under paragraph (b) of this section, the Department does not consider 
the institution to be financially responsible if the institution's 
audited financial statements--
    (1) Include an opinion expressed by the auditor that was an 
adverse, qualified, or disclaimed opinion, unless the Department 
determines that the adverse, qualified, or disclaimed opinion does not 
have a significant bearing on the institution's financial condition; or
    (2) Include a disclosure in the notes to the institution's or 
entity's audited financial statements about the institution's or 
entity's diminished liquidity, ability to continue operations, or 
ability to continue as a going concern, unless the Department 
determines that the diminished liquidity, ability to continue 
operations, or ability to continue as a going concern has been 
alleviated. The Department may conclude that diminished liquidity, 
ability to continue operations, or ability to continue as a going 
concern has not been alleviated even if the disclosure provides that 
those concerns have been alleviated.
    (i) Administrative actions. If the Department determines that an 
institution is not financially responsible under the standards and 
provisions of this section or under an alternative standard in Sec.  
668.175, or the institution does not submit its financial statements 
and compliance audits by the date and in the manner required under 
Sec.  668.23, the Department may--
    (1) Initiate an action under subpart G of this part to fine the 
institution, or limit, suspend, or terminate the institution's 
participation in the title IV, HEA programs;
    (2) For an institution that is provisionally certified, take an 
action against the institution under the procedures established in 
Sec.  668.13(d); or
    (3) Deny the institution's application for certification or 
recertification to participate in the title IV, HEA programs.


0
13. Section 668.174 is amended by:
0
a. Revising paragraph (a)(2) and (b)(2)(i).
0
b. Adding paragraph (b)(3).
0
c. Revising paragraph (c)(1).
    The revisions and addition read as follows:


Sec.  668.174  Past performance.

    (a) * * *
    (2) In either of its two most recently submitted compliance audits 
had a final audit determination or in a Departmentally issued report, 
including a final program review determination report, issued in its 
current fiscal year or either of its preceding two fiscal years, had a 
program review finding that resulted in the institution's being 
required to repay an amount greater than five percent of the funds that 
the institution received under the title IV, HEA programs during the 
year covered by that audit or program review;
* * * * *
    (b) * * *
    (2) * * *
    (i) The institution notifies the Department, within the time 
permitted and as provided under 34 CFR 600.21, that the person or 
entity referenced in paragraph (b)(1) of this section exercises 
substantial control over the institution; and
* * * * *
    (3) An institution is not financially responsible if an owner who 
exercises substantial control, or the owner's spouse, has been in 
default on a Federal student loan, including parent PLUS loans, in the 
preceding five years, unless--
    (i) The defaulted Federal student loan has been fully repaid and 
five years have elapsed since the repayment in full;
    (ii) The defaulted Federal student loan has been approved for, and 
the borrower is in compliance with, a rehabilitation agreement and has 
been current for five consecutive years; or
    (iii) The defaulted Federal student loan has been discharged, 
canceled, or forgiven by the Department.
    (c) .* * *
    (1) An ownership interest is defined in 34 CFR 600.31(b).
* * * * *

0
14. Section 668.175 is amended by:
0
a. Revising paragraphs (b), (c), (d), and (f)(1) and (2); and
0
b. Adding paragraph (i).
    The revisions and addition read as follows:

[[Page 74708]]

Sec.  668.175  Alternative standard and requirements.

* * * * *
    (b) Letter of credit or cash escrow alternative for new 
institutions. A new institution that is not financially responsible 
solely because the Department determines that its composite score is 
less than 1.5, qualifies as a financially responsible institution by 
submitting an irrevocable letter of credit that is acceptable and 
payable to the Department, or providing other financial protection 
described under paragraph (h)(2)(i) of this section, for an amount 
equal to at least one-half of the amount of title IV, HEA program funds 
that the Department determines the institution will receive during its 
initial year of participation. A new institution is an institution that 
seeks to participate for the first time in the title IV, HEA programs.
    (c) Financial protection alternative for participating 
institutions. A participating institution that is not financially 
responsible, either because it does not satisfy one or more of the 
standards of financial responsibility under Sec.  668.171(b), (c), or 
(d), or because of an audit opinion or disclosure about the 
institution's liquidity, ability to continue operations, or ability to 
continue as a going concern described under Sec.  668.171(h), qualifies 
as a financially responsible institution by submitting an irrevocable 
letter of credit that is acceptable and payable to the Department, or 
providing other financial protection described under paragraph 
(h)(2)(i) of this section, for an amount determined by the Department 
that is not less than one-half of the title IV, HEA program funds 
received by the institution during its most recently completed fiscal 
year, except that this paragraph (c) does not apply to a public 
institution. For purposes of a failure under Sec.  668.171(b)(2) or 
(3), the institution must also remedy the issue(s) that gave rise to 
the failure to the Department's satisfaction.
    (d) Zone alternative. (1) A participating institution that is not 
financially responsible solely because the Department determines that 
its composite score under Sec.  668.172 is less than 1.5 may 
participate in the title IV, HEA programs as a financially responsible 
institution for no more than three consecutive years, beginning with 
the year in which the Department determines that the institution 
qualifies under the alternative in this paragraph (d).
    (i)(A) An institution qualifies initially under this alternative 
if, based on the institution's audited financial statements for its 
most recently completed fiscal year, the Department determines that its 
composite score is in the range from 1.0 to 1.4; and
    (B) An institution continues to qualify under this alternative if, 
based on the institution's audited financial statements for each of its 
subsequent two fiscal years, the Department determines that the 
institution's composite score is in the range from 1.0 to 1.4.
    (ii) An institution that qualified under this alternative for three 
consecutive years, or for one of those years, may not seek to qualify 
again under this alternative until the year after the institution 
achieves a composite score of at least 1.5, as determined by the 
Department.
    (2) Under the zone alternative, the Department--
    (i) Requires the institution to make disbursements to eligible 
students and parents, and to otherwise comply with the provisions, 
under either the heightened cash monitoring or reimbursement payment 
method described in Sec.  668.162;
    (ii) Requires the institution to provide timely information 
regarding any of the following oversight and financial events--
    (A) Any event that causes the institution, or related entity as 
defined in Accounting Standards Codification (ASC) 850, to realize any 
liability that was noted as a contingent liability in the institution's 
or related entity's most recent audited financial statements; or
    (B) In accordance with Accounting Standards Update (ASU) No. 2015-
01 and ASC 225 and taking into account the environment in which the 
entity operates, any losses that are unusual in nature, meaning the 
underlying event or transaction should possess a high degree of 
abnormality and be of a type clearly unrelated to, or only incidentally 
related to, the ordinary and typical activities of the entity, taking 
into account the environment in which the entity operates; infrequently 
occur, meaning the underlying event or transaction should be of a type 
that would not reasonably be expected to recur in the foreseeable 
future; or both;
    (iii) May require the institution to submit its financial statement 
and compliance audits earlier than the time specified under Sec.  
668.23(a)(4); and
    (iv) May require the institution to provide information about its 
current operations and future plans.
    (3) Under the zone alternative, the institution must--
    (i) For any oversight or financial event described in paragraph 
(d)(2)(ii) of this section for which the institution is required to 
provide information, in accordance with procedures established by the 
Department, notify the Department no later than 10 days after that 
event occur; and
    (ii) As part of its compliance audit, require its auditor to 
express an opinion on the institution's compliance with the 
requirements under the zone alternative in this paragraph (d), 
including the institution's administration of the payment method under 
which the institution received and disbursed title IV, HEA program 
funds.
    (4) If an institution fails to comply with the requirements under 
paragraph (d)(2) or (3) of this section, the Department may determine 
that the institution no longer qualifies under the alternative in this 
paragraph (d).
* * * * *
    (f) * * *
    (1) The Department may permit an institution that is not 
financially responsible to participate in the title IV, HEA programs 
under a provisional certification for no more than three consecutive 
years if--
    (i) The institution is not financially responsible because it does 
not satisfy the general standards under Sec.  668.171(b), its 
recalculated composite score under Sec.  668.171(e) is less than 1.0, 
it is subject to an action or event under Sec.  668.171(c), or an 
action or event under paragraph (d) of this section has a significant 
adverse effect on the institution as determined by the Department, or 
because of an audit opinion or going concern disclosure described in 
Sec.  668.171(h); or
    (ii) The institution is not financially responsible because of a 
condition of past performance, as provided under Sec.  668.174(a), and 
the institution demonstrates to the Department that it has satisfied or 
resolved that condition; and
    (2) Under the alternative in this paragraph (f), the institution 
must--
    (i) Provide to the Department an irrevocable letter of credit that 
is acceptable and payable to the Department, or provide other financial 
protection described under paragraph (h) of this section, for an amount 
determined by the Department that is not less than 10 percent of the 
title IV, HEA program funds received by the institution during its most 
recently completed fiscal year, except that this paragraph (f)(2)(i) 
does not apply to a public institution that the Department determines 
is backed by the full faith and credit of the State or equivalent 
governmental entity;
    (ii) Remedy the issue(s) that gave rise to its failure under Sec.  
668.171(b)(2) or (3) to the Department's satisfaction; and

[[Page 74709]]

    (iii) Comply with the provisions under the zone alternative, as 
provided under paragraph (d)(2) and (3) of this section.
* * * * *
    (i) Incorporation by reference. The material listed in this 
paragraph (i) is incorporated by reference into this section with the 
approval of the Director of the Federal Register under 5 U.S.C. 552(a) 
and 1 CFR part 51. This incorporation by reference (IBR) material is 
available for inspection at U.S. Department of Education and at the 
National Archives and Records Administration (NARA). Contact U.S. 
Department of Education at: Office of the General Counsel, 400 Maryland 
Avenue SW, Room 2C-136, Washington, DC 20202; phone: (202) 401-6000; 
https://www2.ed.gov/about/offices/list/ogc/index.html?src=oc. For 
information on the availability of this material at NARA, visit 
www.archives.gov/federal-register/cfr/ibr-locations or email 
<a href="/cdn-cgi/l/email-protection#bfd9cd91d6d1cccfdadccbd6d0d1ffd1decdde91d8d0c9"><span class="__cf_email__" data-cfemail="c0a6b2eea9aeb3b0a5a3b4a9afae80aea1b2a1eea7afb6">[email protected]</span></a>. The material may be obtained from the Financial 
Accounting Standards Board (FASB), 401 Merritt 7, P.O. Box 5116, 
Norwalk, CT 06856-5116; (203) 847-0700; www.fasb.org<ls-thn-eq>.
    (1) Accounting Standards Codification (ASC) 850, Related Party 
Disclosures, Updated through September 10, 2018.
    (2) [Reserved]


Sec.  668.176  [Redesignated as Sec.  668.177]

0
15. Section 668.176 is redesignated as Sec.  668.177.


0
16. A new Sec.  668.176 is added to read as follows:


Sec.  668.176  Change in ownership.

    (a) Purpose. To continue participation in the title IV, HEA 
programs during and following a change in ownership, institutions must 
meet the financial responsibility requirements in this section.
    (b) Materially complete application. To meet the requirements of a 
materially complete application under 34 CFR 600.20(g)(3)(iii) and 
(iv)--
    (1) An institution undergoing a change in ownership and control as 
provided under 34 CFR 600.31 must submit audited financial statements 
of its two most recently completed fiscal years prior to the change in 
ownership, at the level of the change in ownership or the level of 
financial statements required by the Department, that are prepared and 
audited in accordance with the requirements of Sec.  668.23(d); and
    (2) The institution must submit audited financial statements of the 
institution's new owner's two most recently completed fiscal years 
prior to the change in ownership that are prepared and audited in 
accordance with the requirements of Sec.  668.23 at the highest level 
of unfractured ownership or at the level required by the Department.
    (i) If the institution's new owner does not have two years of 
acceptable audited financial statements, the institution must provide 
financial protection in the form of a letter of credit or cash to the 
Department in the amount of 25 percent of the title IV, HEA program 
funds received by the institution during its most recently completed 
fiscal year;
    (ii) If the institution's new owner only has one year of acceptable 
financial statements, the institution must provide financial protection 
in the form of a letter of credit or cash to the Department in the 
amount of 10 percent of the title IV, HEA program funds received by the 
institution during its most recently completed fiscal year; or
    (iii) For an entity where no individual new owner obtains control, 
but the combined ownership of the new owners is equal to or exceeds the 
ownership share of the existing ownership, financial protection in the 
form of a letter of credit or cash to the Department in the amount of 
25 percent of the title IV, HEA program funds received by the 
institution during its most recently completed fiscal year, based on 
the combined ownership share of the new owners, except for any new 
owner that submits two years or one year of acceptable audited 
financial statements as described in paragraphs (b)(2)(i) and (ii) of 
this section.
    (3) The institution must meet the financial responsibility 
requirements in this paragraph (b)(3). In general, the Department 
considers an institution to be financially responsible only if it--
    (i) For a for-profit institution evaluated at the ownership level 
required by the Department for the new owner--
    (A) Has not had operating losses in either or both of its two 
latest fiscal years that in sum result in a decrease in tangible net 
worth in excess of 10 percent of the institution's tangible net worth 
at the beginning of the first year of the two-year period. The 
Department may calculate an operating loss for an institution by 
excluding prior period adjustment and the cumulative effect of changes 
in accounting principle. For purposes of this section, the calculation 
of tangible net worth must exclude all related party accounts 
receivable/other assets and all assets defined as intangible in 
accordance with the composite score;
    (B) Has, for its two most recent fiscal years, a positive tangible 
net worth. In applying the standard in this paragraph (b)(3)(ii)(B), a 
positive tangible net worth occurs when the institution's tangible 
assets exceed its liabilities. The calculation of tangible net worth 
excludes all related party accounts receivable/other assets and all 
assets classified as intangible in accordance with the composite score; 
and
    (C) Has a passing composite score and meets the other financial 
requirements of this subpart for its most recently completed fiscal 
year.
    (ii) For a nonprofit institution evaluated at the ownership level 
required by the Department for the new owner--
    (A) Has, at the end of its two most recent fiscal years, positive 
net assets without donor restrictions. The Department will exclude all 
related party receivables/other assets from net assets without donor 
restrictions and all assets classified as intangibles in accordance 
with the composite score;
    (B) Has not had an excess of net assets without donor restriction 
expenditures over net assets without donor restriction revenues over 
both of its two latest fiscal years that results in a decrease 
exceeding 10 percent in either the net assets without donor 
restrictions from the start to the end of the two-year period or the 
net assets without donor restriction in either one of the two years. 
The Department may exclude from net changes in fund balances for the 
operating loss calculation prior period adjustment and the cumulative 
effect of changes in accounting principle. In calculating the net 
assets without donor restriction, the Department will exclude all 
related party accounts receivable/other assets and all assets 
classified as intangible in accordance with the composite score; and
    (C) Has a passing composite score and meets the other financial 
requirements of this subpart for its most recently completed fiscal 
year.
    (iii) For a public institution, has its liabilities backed by the 
full faith and credit of a State or equivalent governmental entity.
    (4) For a for-profit or nonprofit institution that is not 
financially responsible under paragraph (b)(3) of this section, provide 
financial protection in the form of a letter of credit or cash in an 
amount that is not less than 10 percent of the prior year title IV, HEA 
funding or an amount determined by the Department, and follow the zone 
requirements in Sec.  668.175(d).
    (c) Acquisition debt. (1) Notwithstanding any other provision in

[[Page 74710]]

this section, the Department may determine that the institution is not 
financially responsible following a change in ownership if the amount 
of debt assumed to complete the change in ownership requires payments 
(either periodic or balloon) that are inconsistent with available cash 
to service those payments based on enrollments for the period prior to 
when the payment is or will be due.
    (2) For a for-profit or nonprofit institution that is not 
financially responsible under this section, provide financial 
protection in the form of a letter of credit or cash in an amount that 
is not less than 10 percent of the prior year title IV, HEA funding or 
an amount determined by the Department, and follow the zone 
requirements in Sec.  668.175(d).
    (d) Terms of the extension. To meet the requirements for a 
temporary provisional program participation agreement following a 
change in ownership, as described in 34 CFR 600.20(h)(3)(i), an 
institution must meet the following requirements:
    (1) For a proprietary institution or a nonprofit institution--
    (i) The institution must provide the Department a same-day balance 
sheet for a proprietary institution or a statement of financial 
position for a nonprofit institution that shows the financial position 
of the institution under its new owner, as of the day after the change 
in ownership, and that meets the following requirements:
    (A) The same-day balance sheet or statement of financial position 
must be prepared in accordance with generally accepted accounting 
principles (GAAP) published by the Financial Accounting Standards Board 
and audited in accordance with generally accepted government auditing 
standards (GAGAS) published by the U.S. Government Accountability 
Office (GAO);
    (B) As part of the same-day balance sheet or statement of financial 
position, the institution must include a disclosure that includes all 
related-party transactions, and such details as would enable the 
Department to identify the related party in accordance with the 
requirements of Sec.  668.23(d). Such information must include, but is 
not limited to, the name, location, and description of the related 
entity, including the nature and amount of any transaction between the 
related party and the institution, financial or otherwise, regardless 
of when it occurred;
    (C) Such balance sheet or statement of financial position must be a 
consolidated same-day financial statement at the level of highest 
unfractured ownership or at a level determined by the Department for an 
ownership of less than 100 percent;
    (D) The same-day balance sheet or statement of financial position 
must demonstrate an acid test ratio of at least 1:1. The acid test 
ratio must be calculated by adding cash and cash equivalents to current 
accounts receivable and dividing the sum by total current liabilities. 
The calculation of the acid test ratio must exclude all related party 
receivables/other assets and all assets classified as intangibles in 
accordance with the composite score;
    (E) A proprietary institution's same-day balance sheet must 
demonstrate a positive tangible net worth the day after the change in 
ownership. A positive tangible net worth occurs when the tangible 
assets exceed liabilities. The calculation of tangible net worth must 
exclude all related party accounts receivable/other assets and all 
assets classified as intangible in accordance with the composite score; 
and
    (F) A nonprofit institution's statement of financial position must 
have positive net assets without donor restriction the day after the 
change in ownership. The calculation of net assets without donor 
restriction must exclude all related party accounts receivable/other 
assets and all assets classified as intangible in accordance with the 
composite score; and
    (ii) If the institution fails to meet the requirements in 
paragraphs (d)(1)(i) of this section, the institution must provide 
financial protection in the form of a letter of credit or cash to the 
Department in the amount of at least 25 percent of the title IV, HEA 
program funds received by the institution during its most recently 
completed fiscal year, or an amount determined by the Department, and 
must follow the zone requirements of Sec.  668.175(d); and
    (2) For a public institution, the institution must have its 
liabilities backed by the full faith and credit of a State, or by an 
equivalent governmental entity, or must follow the requirements of this 
section for a proprietary or nonprofit institution.

[FR Doc. 2023-22785 Filed 10-30-23; 8:45 am]
BILLING CODE 4000-01-P


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