74568 Federal Register / Vol. 88, No. 209 / Tuesday, October 31, 2023 / Rules and Regulations 

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. 

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: Kevin.Campbell@ed.gov. For 

administrative capability: Andrea Drew. 

Telephone: (202) 987–1309. Email: 

Andrea.Drew@ed.gov. For certification 

procedures: Vanessa Gomez. Telephone: 

(202) 987–0378. Email: 

Vanessa.Gomez@ed.gov. For ATB: 

Aaron Washington. Telephone: (202) 

987–0911. Email: Aaron.Washington@

ed.gov. 

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 § 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 

§ 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 §§ 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 § 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 §§ 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 §§ 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 §§ 668.15 

and 668.23 and subpart L of part 668. 

We are removing all regulations under 

§ 668.15 and reserving that section. We 

have revised the financial responsibility 

factors applicable to institutional 

changes in ownership, currently in 

§ 668.15, and moved them to § 668.176. 

As a result, all financial responsibility 

requirements are located in subpart L. 

The Department also amends § 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 § 668.176. 

Administrative Capability 

The Department amends § 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 


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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 §§ 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 § 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 §§ 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 (§§ 668.15, 

668.23, 668.171, and 668.174 Through 

668.177) 

• Remove and reserve § 668.15 and 

consolidate all financial responsibility 

factors, including those dealing with 

changes in ownership, under subpart L 

of part 668. 

• Amend § 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. 

• Amend § 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. 

• Amend § 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. 

• Amend in § 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. 

• Amend in § 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. 

• In § 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. 

• Add a new § 668.176 to consolidate 

the financial responsibility 

requirements for institutions undergoing 

a change in ownership in subpart L of 

part 668. 

• Redesignate the existing § 668.176, 

establishing severability, as § 668.177. 

Administrative Capability (§ 668.16) 

• Amend § 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. 

• Amend § 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. 

• Add § 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. 

• Amend § 668.16(p) to strengthen 

the requirement that institutions must 


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develop and follow adequate procedures 

to evaluate the validity of a student’s 

high school diploma. 

• Add § 668.16(q) to require that 

institutions provide adequate career 

services to eligible students who receive 

title IV, HEA program assistance. 

• Add § 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. 

• Add § 668.16(s) to require 

institutions to disburse funds to 

students in a timely manner consistent 

with the students’ needs. 

• Add § 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. 

• Add § 668.16(u) to require that an 

institution does not engage in 

misrepresentations or aggressive 

recruitment. 

Certification Procedures (§§ 668.13, 

668.14, and 668.43) 

• Amend § 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. 

• Amend § 668.13(c)(1) to include 

additional events that lead to 

provisional certification. 

• Amend § 668.13(c)(2) to require 

provisionally certified schools that have 

major consumer protection issues to 

recertify after three years. 

• Add § 668.13(e) to establish 

supplementary performance measures 

the Secretary may consider in 

determining whether to certify or 

condition the participation of the 

institution. 

• Amend § 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. 

• Amend § 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. 

• Amend § 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 § 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. 

• Add § 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. 

• Add § 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. 

• Add § 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. 

• Add § 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. 

• Add § 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. 

• Amend § 668.14 to establish, in new 

paragraph (e), a non-exhaustive list of 

conditions that the Secretary may apply 

to provisionally certified institutions. 

• Amend § 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. 

• Amend § 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. 

• Amend § 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 § 668.14(b)(32), that 

the program does and does not meet 

such requirements. 

Ability-To-Benefit (§§ 668.2, 668.32, 

668.156, and 668.157) 

• Amend § 668.2 to codify the 

definition of ‘‘eligible career pathway 

program.’’ 

• Amend § 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. 

• Amend § 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. 

• Amend § 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. 

• Amend § 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.’’ 

• Amend the monitoring requirement 

in § 668.156 to provide a participating 

institution that has failed to achieve the 

85 percent success rate up to three years 

to achieve compliance. 


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1 88 FR 32300. 

• Amend § 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. 

• Amend § 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.’’ 

• Amend § 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. 

• Amend § 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. 

• Add a new § 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. 

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 

(§§ 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 nonFederal 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 


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2The 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. 

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

U.S.C. 1099c. 

4We 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. 

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 militaryconnected 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

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

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. 

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 


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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 


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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 (§§ 668.15 and 

668.23 and Subpart L (§§ 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 § 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, § 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. 


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

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, § 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 § 668.15 is 

removed and reserved. 

Discussion: The Department disagrees 

with the commenter. This change was 

an effort to streamline the text and 

amended § 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 

(§ 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. 

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. 


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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 nonsensical, 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 


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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 teachout 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 § 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 § 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 

§ 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 onehalf of the annual financial liabilities 


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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 § 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 

§ 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 § 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 § 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 (§ 668.23) 

Comments: A few commenters 

opposed the Department’s proposal in 

§ 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 


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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 

§ 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 

§ 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 

§ 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 


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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 § 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 § 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 

§ 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 § 668.23(d)(5) that 

institutions disclose amounts spent on 

recruiting, advertising, and preenrollment 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 

§ 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 § 668.13(e)(iv). However, we 

will retain the language in proposed 

§ 668.13(e)(iv), now renumbered as 

§ 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 § 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 § 668.23 was added to provide a data 

source for the supplementary 

performance measures in § 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 § 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 

§ 668.23(d)(5) as well as the reference to 

that proposed paragraph in proposed 

§ 668.13(e)(iv), now renumbered as 

§ 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 upperlevel 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 § 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. 


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Financial Responsibility—General 

Requirements (§ 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 § 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 § 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 § 668.175. 

Changes: None. 

Comments: One commenter expressed 

support for the provision in 

§ 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 § 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 

§ 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 § 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 

§§ 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 (§ 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 


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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 

§ 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 


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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 §§ 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 § 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, § 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, § 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 

§ 668.171(f)(3)(i)(C) to clarify that the 

provisions contained therein apply to 

the discretionary triggers contained in 

§ 668.171(d) and not the mandatory 

triggers contained in § 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 


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6 20 U.S.C. 1099c(c). 

7The budgetary cost of these discharges is not the 

same as the amount forgiven. 

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. 

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 


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8 clsbluesky.law.columbia.edu/2017/11/27/howmissing-sec-filing-deadlines-affects-a-companysstock-value. 

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. 

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 

§ 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 


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9 84 FR 49861. 

10 88 FR 32300. 

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. 

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 § 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. 

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 § 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 (§ 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 

§ 668.171(c)(2)(i)(B), (2) the trigger 

addressing change in ownership in 

proposed § 668.171(c)(2)(i)(D), (3) the 

trigger applicable to GE programs in 

proposed § 668.171(c)(2)(iii), (4) the 

trigger dealing with teach-out plans in 

proposed § 668.171(c)(2)(iv), (5) the 

triggering event describing State actions 

in proposed § 668.171(c)(2)(v), and (6) 

the trigger concerning publicly listed 

entities in proposed § 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 


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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 

§ 668.171(c)(2)(i)(D) with the triggers in 

§ 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 § 668.171(c)(2)(v) and (ix) and have 

moved the provision in proposed 

§ 668.171(c)(2)(v) to the discretionary 

trigger in § 668.171(d)(9) and have 

moved the provision in proposed 

§ 668.171(c)(2)(ix) to the discretionary 

trigger in § 668.171(d)(10). We reserved 

§ 668.171(c)(2)(v) and (ix). We have 

narrowed the scope of the teach-out 

trigger in § 668.171(c)(2)(iv) and we will 

recalculate the composite score for the 

trigger under § 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 

(§ 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 


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11See, 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’’). 

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 § 668.171(c)(2)(i) to ‘‘Legal 

and administrative actions.’’ We have 

changed the text in § 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. 

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 


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12www.justice.gov/sites/default/files/usao-edpa/ 

legacy/2012/06/13/ 

internetWhistleblower%20update.pdf. 

13See U.S. Dep’t of Just., Just. Manual sec. 4– 

4.110 (2018). 

14www.justice.gov/d9/press-releases/ 

attachments/2023/02/07/fy2022_statistics_0.pdf. 

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 onequarter 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. 

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 

§ 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-todismiss 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 

§ 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 


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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 

§ 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 § 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 

§ 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 § 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 

§ 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 § 668.171 will 

have their composite score recalculated. 

Withdrawal of Owner’s Equity 

(§ 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 

§ 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 


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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 

(§ 668.171(c)(2)(iii)) 

Comments: Several commenters 

opposed the financial trigger in 

§ 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 (§ 668.171(c)(2)(iv)) 

Comments: Several commenters 

expressed concerns around the 

mandatory trigger in § 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 teachout 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 teachouts 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 

§ 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 

§ 668.171(c)(2)(iv) to clarify that the 

mandatory trigger is initiated when the 

institution is required to submit a teachout plan or agreement, for reasons 

related to, in whole or in part, financial 

concerns. We have also added new 

§ 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 (§ 668.171(c)(2)(v)) 

Comments: A few commenters 

objected to the mandatory trigger in 

proposed § 668.171(c)(2)(v) tied to when 

a State licensing or authorizing agency 


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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 § 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 § 668.171(c)(2)(v) 

and instead modified the discretionary 

trigger at § 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 

§ 668.171(c)(2)(v). 

Publicly Listed Entities 

(§ 668.171(c)(2)(vi)) 

Comments: Many commenters 

objected to the mandatory trigger 

detailed in proposed 

§ 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 wellknown 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 § 668.171(f), we changed 

the reporting requirements in 

§ 668.171(f) to allow 21 days to report 

the required events to the Department 

(rather than 10 as originally proposed) 

and § 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 (§ 668.171(c)(2)(vii)) 

Comments: Several commenters 

opined that the mandatory trigger in 

proposed § 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 

§ 668.28(c), often referred to as the 90/ 

10 rule. The commenters believed that 

since this is a regulated event under 

§ 668.28 with sanctions for noncompliance, that there is no need for 

inclusion in § 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 nonFederal 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 

(§ 668.171(c)(2)(viii)) 

Comments: Many commenters 

expressed concerns over the mandatory 

trigger proposed in § 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 


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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 incomedriven 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 § 668.171(f) does not 

require institutions to report their CDRs 

to the Department. 

Changes: None. 

Loss of Eligibility (§ 668.171(c)(2)(ix)) 

Comments: We received a few 

comments objecting to the mandatory 

trigger proposed in § 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 § 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 § 668.171(c)(2)(ix), and we 

broadened the discretionary trigger in 

§ 668.171(d)(10) to include loss of 

institutional eligibility to participate in 

another Federal educational assistance 

program. Proposed § 668.171(c)(2)(ix) 

applied only to loss of program 

eligibility. We reserved 

§ 668.171(c)(2)(ix). 

Contributions and Distributions 

(§ 668.171(c)(2)(x)) 

Comments: Some commenters 

supported making the trigger in 

§ 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 


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§ 668.171(f)(1)(v) has a deadline of 21 

days after the distribution. 

Creditor Events (§ 668.171(c)(2)(xi)) 

Comments: Some commenters 

objected to the mandatory trigger 

dealing with creditor events in 

§ 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 § 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 

§ 668.171(f)(3)(i)(A). That provision is 

related to loan agreements under 

§ 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 

(§ 668.171(c)(2)(xii)) 

Comments: One commenter requested 

clarification on the trigger in 

§ 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 § 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 

(§ 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 


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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 caseby-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 § 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 


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requirements that the Department may 

consider or require. For instance, 

§ 600.31(d) provides a non-exhaustive 

list of what might be considered a 

change in control. Similarly, § 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 § 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 nonexhaustive 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 

§ 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 § 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 § 668.171(d). We have also 

added a corresponding reporting 

requirement to paragraph (f) of this 

section. 

Changes: We have added 

§ 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 

§ 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 § 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 (§ 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 

§ 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 (§ 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 

§ 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 


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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 

§ 668.171(d)(2)(iv). 

Changes: We have modified 

§ 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 (§ 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 

§ 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 

(§ 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 § 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, 


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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 

(§ 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 (§ 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 § 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-casecase 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 

§ 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 


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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 § 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 § 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 

(§ 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 

§ 668.171(c)(2)(v) above and moved that 

provision to be included here as part of 

the discretionary trigger. 

Changes: Provisions in 

§ 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 

(§ 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 § 668.171(c)(2)(ix) 

of the NPRM. 

Changes: As mentioned previously, 

we removed the mandatory trigger in 

§ 668.171(c)(2)(ix) and included the 

substance of that proposed mandatory 

trigger in the discretionary trigger in 

§ 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 (§ 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 § 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 


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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 

§ 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 § 668.171(c) 

or (d). We are also removing the 

reporting requirement § 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 

§ 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 § 668.171(f)(1)(iii) and relocated a 

modified version of it to § 668.14(e)(10). 

Financial Responsibility— 

Recalculating the Composite Score 

(§ 668.171(e)) 

Comments: One commenter agreed 

with the Department’s changes to 

§ 668.171(e). 

Discussion: We thank the commenter 

for their support. 

Changes: None. 

Comments: Some commenters 

suggested that under § 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 § 668.171(e)(3)(ii). 

Discussion: The commenters are 

correct that both modified equity and 

modified assets should be reduced for 

§ 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 § 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 

§ 668.171(e)(3)(ii) to note that we will 

also reduce the modified assets. 

Financial Responsibility—Reporting 

Requirements (§ 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 § 668.171(f) that 

required reporting within 10 days. We 

have modified the regulation to clarify 

that the reporting timeframe in 


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§ 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 § 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 § 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 

§ 668.171(f)(3)(i). 

Other paragraphs within 

§ 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 

§ 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 § 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 

§ 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 § 668.171(f)(3)(i). In 

§ 668.171(f)(3)(i)(C), we have also 

removed the reference to the mandatory 

triggers under § 668.171(c) and replaced 

the word ‘‘material’’ (adverse effect) 

with ‘‘significant’’ (adverse effect). 

Comments: Several commenters 

requested that the Department clarify 

under § 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 § 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 § 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 

§ 668.171(d)(2) that those items have 

been waived by a creditor. Finally, 

under § 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 

§ 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 § 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 


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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 § 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 

§ 668.171(f)(1)(iii) to § 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 § 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 

§ 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 (§ 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 

§ 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 § 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 § 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 


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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 

§ 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 (§ 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 § 668.174(a). 

Changes: None. 

Comments: One commenter opined 

that the proposed requirement in 

§ 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 

§ 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 

(§ 668.175) 

Comments: None. 

Discussion: In proposed § 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 § 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 § 668.175(b) to replace the 

word ‘‘surety’’ with the phrase 

‘‘financial protection’’ to conform with 

a previous change made in § 668.175(c). 

Comments: A number of commenters 

objected to the proposed requirement in 

§ 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 

§ 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 

§ 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 

§ 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 


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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 § 668.175 specifically exclude 

liquidity disclosure requirements under 


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15 87 FR 65426. 

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 

§ 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 § 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 (§ 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 § 668.15 

to evaluate financial health following a 

change in ownership. The new 

regulation attempts to harmonize the 

requirements of § 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. 

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 


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

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 

§ 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 § 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. 

Changes: None. 

Comments: One commenter asked the 

Department to clarify several provisions 

under § 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 

§ 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 (§ 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 § 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 

§ 668.176 apply to institutions 

undergoing a change in ownership after 

the effective date of these regulations. 

Changes: None. 

Administrative Capability (§ 668.16) 

General Support 

Comments: We received several 

comments in support of the amendatory 

changes to the administrative capability 

regulations in § 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. 


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17 20 U.S.C. 1094(c)(1)(B). 

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 handson 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 

§ 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 


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18 20 U.S.C. 1099c(d). 19 GEN–DCL–21–70. 

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. 

Changes: None. 

Administrative Capability—Financial 

Aid Counseling (§ 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 § 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 § 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. 

Changes: None. 

Comments: One commenter requested 

that the Department remove the phrase 

‘‘for students’’ from § 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 § 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 


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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 nonacademic 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 

§ 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 onesize-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 shortterm 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 § 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 


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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 (§ 668.16(k)) 

Comments: One commenter criticized 

§ 668.16(k)(2) and suggested that we 

rewrite it to clarify our intent. The same 

commenter also suggested that we revise 

§ 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 

§ 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 

(§ 668.16(n)) 

Comments: One commenter 

supported the addition of § 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 § 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. 


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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 (§ 668.16(p)) 

Comments: We received many 

comments in support of the proposed 

changes to § 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 

§ 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 § 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, § 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 


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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 

§ 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 § 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 § 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 § 668.32. When determining 

compliance with § 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 § 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 § 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 


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necessary to determine the validity of a 

high school diploma. 

We believe the added guidance under 

§ 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 § 668.16(p)(1)(ii) 

would not apply. 

Changes: None. 

Comments: Many commenters 

requested that the Department delete the 

clause from § 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 § 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 § 600.2. The 

regulations in § 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 

§ 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 

§ 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 § 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 

§ 668.16(p)(2)(iv). 

Administrative Capability—Adequate 

Career Services (§ 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 

§ 668.16(q) because institutions should 

be required to provide adequate career 

services for all programs including nonGE 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 


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work, visual artists, and entrepreneurs, 

such as cosmetologists are selfemployed 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 

§ 668.74. 

Many commenters recommended that 

we revise § 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 § 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 


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20A 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.’’ 

21Stolzenberg, 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. 

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.’’ 21While 

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. 

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 careeroriented 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 studentcentered 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 highquality 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 § 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 § 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 


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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 §§ 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 

(§ 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 postgraduate 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 postgraduation 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 


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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 precompletion 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 § 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 


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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 § 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 § 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 (§ 668.16(s)) 

Comments: One commenter 

supported § 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 § 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 

§ 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 


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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 

§ 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 § 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 § 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 § 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 § 668.164. 

Discussion: Although the 

disbursement regulations in § 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 (§ 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 


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occupation shifts from being a programlevel 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-timeequivalent (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 § 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 § 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-toearnings 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 


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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 

§ 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, § 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 (§ 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 § 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 § 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 nonsubstantial 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 § 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 § 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 (§§ 668.13, 

668.14, and 668.43) 

General Support 

Comments: Several commenters 

supported the proposed certification 

procedure regulations. These 

commenters believe these requirements 


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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 

(§ 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 


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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 riskinformed 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 (§ 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 

§ 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 

§ 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 § 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 § 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 


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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 

§ 668.13(c) states that the institution’s 

certification would become provisional 

if the institution triggers one of the 

financial responsibility events under 

§ 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 

§ 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 forprofit conversions, such as identifying 

situations in which improper benefits 

may inure to private individuals or forprofit 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 § 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 § 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 § 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 


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the factors of financial responsibility 

under subpart L or the standards of 

administrative capability under 

§ 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 § 668.13(c)(1)(i)(G). 

Changes: We have clarified that 

§ 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 

(§ 668.13(c)(2)(ii)) 

Comments: In response to the 

Department’s directed question in the 

NPRM on proposed § 668.13(c)(2) on 

whether to maintain the proposed twoyear 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 lowquality, 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 (§ 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 


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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 forprofit 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 


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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 

§ 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 § 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 

(§ 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. 


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22These measures were listed in the NPRM as 

proposed § 668.13(e)(ii) and (iii). Since they were 

removed in this final rule, the remaining 

supplemental measures have been renumbered as 

§ 668.13(e)(1) through (3). 

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 § 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. 

Changes: We have amended 

§ 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-toearnings 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 

§ 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 


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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 § 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 § 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-toearnings ratio, diminishes the true 

worth of higher education to just 

immediate earnings. The commenter 

shared that such perspective poses a 

significant risk, particularly to firstgeneration 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 § 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 

§ 668.13(e)(i), Renumbered as 

§ 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 


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trigger in the financial responsibility 

regulations in § 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 

§ 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 § 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-toearnings 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 § 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 

§§ 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 § 668.13(e). 

Educational and Pre-Enrollment 

Expenditures (Proposed § 668.13(e)(iv), 

Renumbered as § 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 § 668.13(e)(iv) 

(renumbered § 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 wellknown 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 

§ 668.13(e)(iv), renumbered 

§ 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 § 668.23, commenters raised concerns 

about the reference to disclosures in the 

audited financial statements of the 


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amounts spent on academically related 

and pre-enrollment activities that is 

included in § 668.13(e)(iv). 

Discussion: We agree with the 

commenters that the provision in 

§ 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 § 668.23 and 

have removed it from proposed 

§ 668.13(e)(iv), renumbered 

§ 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 § 668.23(d)’’ from proposed 

§ 668.13(e)(iv), renumbered 

§ 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 

§ 668.13(e)(v), Renumbered 

§ 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 § 668.13(e)(v) (renumbered 

§ 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 

(§ 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 commonsense 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 


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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 § 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 § 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 § 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 

§ 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 

§ 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 nonexhaustive 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 §§ 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 


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23https://fsapartners.ed.gov/knowledge-center/ 

library/electronic-announcements/2022-03-23/ 

updated-program-participation-agreementsignature-requirements-entities-exercisingsubstantial-control-over-non-public-institutionshigher-education. 

24Hearings 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). 

25Hearings 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. 

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. 

Changes: None. 

Comments: Several commenters 

expressed concern with proposed 

§ 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

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.’’ 

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 


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26H. Rep. 102–630. 

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. 

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 § 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 § 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 § 668.174. 

Finally, the commenter would like to 

know why the Department has not 


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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 

§ 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 

§ 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 nonexhaustive, 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 § 668.14(a)(3) ignores 

well-established law on corporate veilpiercing. 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, 


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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 § 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 § 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 dayto-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 

(§ 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 


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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 

§ 668.14(b)(26)(iii), which provides 

several exceptions to the requirement in 

§ 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 § 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 

§ 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 § 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 § 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 § 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 


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27 59 FR 22431, Apr. 29, 1994. 

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. 

30 59 FR 22431, Apr. 29, 1994. 

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 

§ 668.14(b)(26)(iii) to establish 

exceptions to the requirement in 

§ 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 

§ 668.14(b)(26) has existed in some 

form, with only slight variation in its 

effect, since 1994, pursuant to wellestablished 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. 

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

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. 

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 


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31https://www.peerresearchproject.org/peer/ 

research/body/2022.2.17-PEER-OccupationaLicensing-Final.pdf. 

32https://web.archive.org/web/20210620203106/ 

https://www.ncsl.org/Portals/1/Documents/Labor/ 

Licensing/Reddy_PBAExaminationofCosmetology

LicensingIssues_31961.pdf. 

33For 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 CollegeSpecific 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. 

34Cellini, 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-collegecredentials-student-outcomes-and-accountabilitypolicy-for-short-term-programs/. 

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 underqualified 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. 

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 § 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 

§ 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. 

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 

§ 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. 

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 § 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 

§ 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 § 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 


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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 § 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 § 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 


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cost of hours beyond what a State 

requires may further reduce the returnon-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 entrylevel 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 


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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 § 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 

(§ 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 

§ 668.14(b)(32) were included in issue 

papers submitted to negotiators. NonFederal 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 

§ 668.14(b)(32), the provision with 


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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 § 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 § 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 § 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 

§ 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 

§ 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, 

§ 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 

§ 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 . . .’’ 


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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. 

Comments: Other commenters noted 

that the proposed language said that the 

determination of an initial enrollment 

would be in accordance with existing 

regulations in § 600.9(c)(2)(iii). 

However, some expressed concerns that 

the time of initial enrollment seems to 

be inconsistent with § 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 § 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 

§ 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 § 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-ofState 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 

(§§ 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

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. 


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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 § 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. 


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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 anticompetitiveness. 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-thousanddollar 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 § 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 

§ 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 § 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 § 668.43(a)(5)(v) refers 

to ‘‘educational requirements’’ whereas 

§ 668.14(b)(32)(ii) refers to ‘‘educational 


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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 

§ 668.14(b)(32)(ii) to replace 

‘‘prerequisites’’ with ‘‘requirements.’’ 

Comments: A few commenters 

objected to the public disclosure 

requirement in proposed 

§ 668.43(a)(5)(v) if an institution is also 

subject to § 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 § 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 § 668.43(a)(5)(v). 

Several commenters suggested that 

instead of pursuing the proposed 

regulation in § 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 § 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 

§ 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 

§ 668.43(a)(5)(v) to address areas of 

confusion. The requirement in 

§ 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 § 668.14(b)(32) and other 

language in § 668.43. We will change ‘‘is 

aware’’ to ‘‘has determined’’ and add a 

cross reference to § 668.14(b)(32). 

Additionally, we will make other 

conforming changes in § 668.43(c). 

Changes: We have modified 

§ 668.43(a)(5)(v) to say, ‘‘. . . where the 

institution has determined, including as 

part of the institution’s obligation under 

§ 668.14(b)(32) . . .’’ Additionally, we 

have modified § 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 

§ 668.14(b)(32).’’ We have modified 

§ 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 

§ 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 § 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 § 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. 


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Comments: Several commenters 

pointed out that the changes to 

§ 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, 

§ 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 

(§ 668.14(b)(32)(iii)) 

Comments: Several commenters 

supported proposed § 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 § 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 § 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 

§ 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 


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36https://sheeo.org/college-closure-protectionpolicies/. 

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 

§ 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 shortterm 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. 

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 

§ 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 


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2975. 

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 

§ 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. 

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 zerosum 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 

§ 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 

§ 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 


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

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 

§ 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 

§ 668.14(b)(32)(iii), one being that 

institutions are currently noncompliant, 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. 

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 


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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 § 668.14(b)(32)(iii) 

with the existing definition of State 

authorization reciprocity agreement in 

§ 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 educationspecific 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 

§ 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 

§ 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 § 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. 


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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 closurerelated 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 § 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 generalpurpose 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 (§ 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. 


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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 


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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 

(§ 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 § 668.164(c)(1). 

We consider all charges incurred for a 

payment period to be paid for when the 


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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 § 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 


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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 ‘‘freefor-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 § 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 § 668.22 unless the 

balance owed was the result of fraud or 

misconduct on the part of the student’’ 

from the end of § 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 welldocumented 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 

§ 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 

(§ 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 overborrowing, including consultations 


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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 (§ 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 teachout 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 § 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 § 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 highquality 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 


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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 nonexclusive 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 § 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 


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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 

§ 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 

§ 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 

§ 668.171. 

Discussion: In the NPRM, the 

Department included a directed 

question asking about whether there 

should be a financial responsibility 

trigger in § 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 § 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 

§ 668.171(f)(1)(iii) to a new 

§ 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 

§ 668.14(e)(10) as described. 

Change in Ownership From For-Profit to 

Nonprofit Status (§ 668.14(f)) 

Comments: Several commenters 

agreed with the Department’s proposed 

§ 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 § 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. 


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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 § 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 forprofit 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 forprofit 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 

§ 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. 


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39 86 FR 69607. 

40The case for college: Promising solutions to 

reverse college enrollment declines | Brookings. 

41https://knocking.wiche.edu/report/. 

The Department disagrees with 

concerns about the timelines and their 

effect on nonprofits purchasing forprofit 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 forprofit 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 forprofit to nonprofit status, and add 

conditions to institutions that we deem 

appropriate. 

Changes: None. 

Ability To Benefit (ATB) (§§ 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 highquality 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 § 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

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 § 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 highschool age individuals in the country.41

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. 


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42As 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. 

43https://fsapartners.ed.gov/knowledge-center/ 

library/dear-colleague-letters/2012-06-28/gen-12- 

09-subjecttitle-iv-eligibility-students-without-validhigh-school-diploma. 

Changes: None. 

Definitions (§ 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. 

Changes: None. 

Student Eligibility—General (§ 668.32) 

Comments: One commenter 

recommended that the Department 

communicate that technical changes 

made to § 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 

§ 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. 

Changes: None. 

Approved State Process (§ 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 institution’s academic standards and requirements, and student rights. * Aligns with the skill needs of industries in the economy of the State or 

regional economy involved. 

* Assessment of each student’s existing capabilities through means 

other than a single standardized test. 

* Tutoring in basic verbal and quantitative skills, if appropriate. 

* Prepares 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. 

* Assistance in developing educational goals. 

* Counseling, including counseling regarding the appropriate class level 

for that student given the student’s individual’s capabilities. 

* Follow-up by teachers and counselors regarding the student’s classroom performance and satisfactory progress toward program completion. 

* Includes counseling to support an individual in achieving the individual’s education and career goals. 

* Includes, as appropriate, education offered concurrently with and in 

the same context as workforce preparation activities and training for 

a specific occupation or occupational Cluster. 

* 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 § 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 § 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 


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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 twoyear period under proposed 

§ 668.156(b). 

Discussion: We believe it is clear that 

§ 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 § 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 § 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 § 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 nonhigh 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. 


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44 20 U.S.C. 1091. 

45www2.ed.gov/policy/highered/reg/ 

hearulemaking/2021/analysisofatbusage.pdf. 

www2.ed.gov/policy/highered/reg/hearulemaking/ 

2021/atbusagedata.xlsx. 

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 § 668.156(e)(3), States 

will provide the Secretary the 

information necessary to meet this 

statutory obligation. Specifically, 

§ 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 § 668.156(h) that 

a State must submit reports on its 

process, according to deadlines and 

procedures that we publish in the 

Federal Register. 

Changes: None. 

Comments: Several commenters asked 

the Department to add linguistic status 

to the proposed reporting under 

§ 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 selfreported 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 § 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 § 668.156(j)(1)(iii), 

the Department may lower the success 

rate required under § 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 

§ 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 § 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 § 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 

(§ 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 goodfaith 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 


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operational burden for postsecondary 

institutions. 

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 § 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 § 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 

§ 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 subregulatory 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 subregulatory 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 § 668.157(a)(1)(iii) is 

redundant to the requirement under 

§ 668.157(a)(1)(ii) and that the 

Department should change 

§ 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 § 668.157(a)(1)(ii) 

required an institution to demonstrate 

that a student enrolled in an ECPP 

receives adult education and literacy 

services under § 463.30. The adult 


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education and literacy services under 

§ 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 § 463.30(g) as 

long as one other service under 

§ 463.30(a) through (f) or (h) is 

incorporated. We believe that the 

reference to workforce preparation 

activities under § 668.157(a)(1)(iii) is 

important to maintain in the case that 

workforce preparation activities are not 

included in the ECPP under 

§ 668.157(a)(1)(ii). Furthermore, our 

regulations specify the definition of 

‘‘workforce preparation activities’’ as 

defined in § 463.34. 

We do not believe that it is necessary 

to reference § 463.35 because the 

requirements under § 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 § 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 § 668.157(a)(5). 

Comments: One commenter asked the 

Department to provide more detail on 

academic and career services in 

§ 668.157(a)(4) and workforce 

preparation activities and training in 

§ 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 § 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 


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46 sheeo.org/wp-content/uploads/2022/11/ 

SHEEO_NSCRC_CollegeClosures_Report1.pdf. 

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. 

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 


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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 transactions § 668.23(d)(1) ......................................... Require management to add a note to the financial statements disclosing if 

there are no related party transactions for the year. 

Disclosures on amounts spent on recruiting activities, advertising, and 

other pre-enrollment expenditures.

§ 668.23(d)(5) ......................................... Delete a proposal in the NPRM to require an institution to disclose in a footnote 

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 institution’s finances.§ 668.171(b)(3)(vi), (d)(5), and 

(f)(3)(i)(C) and 668.175(f)(1)(i).

Replace the word ‘‘material’’ with ‘‘significant’’ as it describes both an 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 

§ 668.171(f)(3)(i)(C). 

Mandatory Triggers—Legal and administrative actions.§ 668.171(c)(2)(i)(D) ............................... State that for institutions subject to 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 § 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 

agreements.

§ 668.171(c)(2)(iv) .................................. State that the mandatory trigger is 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 

or agreements.

§ 668.171(d)(13) ..................................... Add a discretionary trigger for when an 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 § 668.171(c)(2)(iv). 

Mandatory Triggers—State actions ........ § 668.171(c)(2)(v) ................................... Remove the mandatory trigger dealing with State actions from § 668.171(c)(2)(v) 

and § 668.171(c)(2)(v) is reserved. 

Discretionary Triggers—State actions .... § 668.171(d)(9) ....................................... Amend the discretionary trigger at § 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 ... § 668.171(c)(2)(ix) .................................. Remove the mandatory trigger dealing an institution’s loss of eligibility for another Federal educational assistance program from § 668.171(c)(2)(ix) and 

§ 668.171(c)(2)(ix) is reserved. 


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TABLE 3.1—SUMMARY OF KEY CHANGES IN THE FINAL REGULATIONS—Continued 

Provision Regulatory section Description of final provision 

Discretionary Triggers—Loss of program 

eligibility.

§ 668.171(d)(10) ..................................... Amend the discretionary trigger at § 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 administrative actions.§ 668.171(c)(2)(i) .................................... Change the heading of § 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 § 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 administrative actions.§ 668.171(c)(2)(i)(B) ............................... Amend § 668.171(c)(2)(i)(B) to state 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 administrative actions.§ 668.171(c)(2)(i)(C) ............................... Amend § 668.171(c)(2)(i)(C) to state that the trigger is activated when the Department has initiated action to recover from an institution the cost of adjudicated claims. 

Discretionary Triggers—Discontinuation 

of programs and closure of locations.

§ 668.171(d)(8) ....................................... Revise § 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 removed the similar 

proposed trigger in § 668.171(d)(8) for situations where an institution closes 

more than 50 percent of its locations. 

Reporting Requirements ......................... § 668.171(f)(1)(iii) ................................... Remove the reporting requirement at § 668.171(f)(1)(iii) and reserving 

§ 668.171(f)(1)(iii). We have moved the requirement that was proposed at 

§ 668.171(f)(1)(iii) to § 668.14(e)(10). 

Reporting Requirements ......................... § 668.171(f)(3)(i) ..................................... Remove the word ‘‘preliminary’’ as it describes the determination made by the 

Department. 

Recalculating the Composite Score ....... § 668.171(e)(3)(ii) and (e)(4)(ii) .............. Adjust the equity ratio by decreasing the modified equity and modified assets. 

Reporting Requirements ......................... § 668.171(f) ............................................ Provide institutions 21 days to report triggering events, up from 10 days in the 

NPRM. 

Public Institutions .................................... § 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 .................................... § 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 § 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 

high school diplomas for distance 

education students.

§ 668.16(p) ............................................. Require institutions to look at the State where the high school is located to determine its validity, not the student’s State if they are attending courses online. 

Failing gainful employment programs ..... § 668.16(t) .............................................. Remove § 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 a 

lack of financial responsibility.

§ 668.13(c)(1)(i)(G) ................................. Clarify that the Secretary may provisionally certify an institution if it is under the 

provisional certification alternative within subpart L. 

Maximum certification length for institutions with consumer protection concerns.§ 668.13(c)(2)(ii) ..................................... Require institutions exhibiting consumer protection concerns to recertify within 

no more than three years. 

Supplementary performance measures .. § 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.§ 668.14(b)(26)(ii) and (iii) ...................... Limit the number of hours in a GE program 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 ... § 668.14(b)(32)(i) and (ii) ....................... Require all programs that prepare 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 .................. § 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. 


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Federal Register / Vol. 88, No. 209 / Tuesday, October 31, 2023 / Rules and Regulations 74671 

TABLE 3.1—SUMMARY OF KEY CHANGES IN THE FINAL REGULATIONS—Continued 

Provision Regulatory section Description of final provision 

Prohibition on transcript withholding ....... § 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 

institutions at risk of closure.

§ 668.14(e)(10) ....................................... Add a reporting requirement to inform the Department of government investigations. 

Disclosure requirements related to 

whether a program meets the educational requirements for licensure or 

certification in a State.

§ 668.43(c) ............................................. Changes to harmonize this disclosure requirement with the provisions in 

§ 668.14(b)(32). 

Ability to Benefit 

Department approval of eligible career 

pathways programs.

§ 668.157 ................................................ Require the Department to approve at 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 


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74672 Federal Register / Vol. 88, No. 209 / Tuesday, October 31, 2023 / Rules and Regulations 

47Burns, 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. 

48The budgetary cost of these discharges is not 

the same as the amount forgiven. 

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

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-bycase 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 


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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 

§ 668.171(c)(2)(i)(A).

An institution with a composite score of less than 1.5 with 

some exceptions is required to pay a debt or incurs a 

liability from a settlement, final judgment, or similar proceeding that results in a recalculated composite score 

of less than 1.0.

For institutional fiscal years that ended between July 1, 

2019, and June 30, 2020, there were 225 private nonprofit or proprietary schools with a composite score of 

less than 1.5. Of these, 7 owe a liability to the Department, though not all of 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 § 668.171(c)(2)(i)(B) ........................ Lawsuits against an institution after July 1, 2024, by Federal or State authorities or a qui tam in which the Federal Government has intervened.The Department is aware of approximately 50 institutions 

or ownership groups that have been subject to Federal 

or State 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 

§ 668.171(c)(2)(i)(C).

The Department has initiated a proceeding to recoup the 

cost of approved borrower defense claims against an 

institution.

The Department has initiated one proceeding against an 

institution to recoup the proceeds of approved claims. 

Separately, the 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 and liabilities 

§ 668.171(c)(2)(i)(D).

An institution in the process of a change in ownership 

must pay a debt or liability related to settlement, judgment, or similar matter at any point through the second 

full fiscal year after the change in ownership.

Over the last 5 years there have been 188 institutions 

that underwent a change in ownership. This number 

separately counts campuses that may be part of the 

same chain or ownership group that are part of a 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 

§ 668.171(c)(2)(ii)(A).

A proprietary institution with a score less than 1.5 has a 

withdrawal of owner’s equity that results in a composite 

score of less than 1.0.

In the most recent available data, 161 proprietary institutions had a composite score that is less than 1.5. The 

Department 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 aid in failing GE 

programs § 668.171(c)(2)(iii).

An institution has at least 50 percent of its title IV, HEA 

aid received for programs that fail GE thresholds.

There are approximately 740 institutions that would meet 

this trigger based upon 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 agreements 

§ 668.171(c)(2)(iv).

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.

Not identified because the Department is not currently always informed when an institution is required to submit 

a teach-out plan or agreement. 

Actions related to publicly listed entities 

§ 668.171(c)(2)(vi).

These apply to any entity where at least 50 percent of an 

institution’s direct or indirect ownership is listed on a 

domestic or foreign exchange. Actions include the 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.

Department data systems currently identify 38 schools 

that are owned by 13 publicly traded corporations. One 

of these may be affected by this trigger. 

90/10 failure § 668.171(c)(2)(vii) .................... A proprietary institution did not meet the requirement to 

derive at least 10 percent of its revenue from sources 

other than Federal educational assistance.

Over the last 5 years an average of 12 schools failed the 

90/10 test. Most recently, the Department reported that 

21 proprietary institutions had received 90 percent 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) failure 

§ 668.171(c)(2)(viii).

An institution’s two most recent official CDRs are 30 percent or greater.Twenty institutions with at least 30 borrowers in their cohorts had a CDR 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). 


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TABLE 4.1—MANDATORY TRIGGERING EVENTS—Continued 

Trigger Description Impact 

Contributions followed by a distribution 

§ 668.171(c)(2)(x).

The institution’s financial statements reflect a contribution 

in the last quarter of its fiscal year followed by a distribution within first two quarters of the next fiscal year 

and that results in a recalculated composite score of 

<1.0.

Not currently identified because this information is not 

currently centrally recorded in Department databases. 

Creditor events § 668.171(c)(2)(xi) ................ An institution has a condition in its agreements with a 

creditor that could result in a default or adverse condition due to an action by the Department or a creditor 

terminates, withdraws, or limits a loan agreement or 

other financing arrangement.

Not currently identified because institutions do not currently report the information needed to assess this trigger to the Department. Several major private for-profit 

colleges that failed had creditor arrangements that 

would have met this trigger. 

Financial exigency § 668.171(c)(2)(xii) .......... The institution makes a formal declaration of financial exigency.Not identified because institutions do not currently always 

report this information to the Department. 

Receivership § 668.171(c)(2)(xiii) ................... The institution is either required to or chooses to enter a 

receivership.

The Department is aware of 3 instances of 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 

§ 668.171(d)(1).

The institution is placed on show cause, probation, or an equivalent status.Since 2018, we identified just under 190 private institutions that 

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 judgments § 668.171(d)(2).The institution is subject to other creditor actions or conditions 

that can result in a creditor requesting 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.

Not identified because institutions do not currently report this information to the Department. 

Fluctuations in title IV, HEA volume § 668.171(d)(3).There is a significant change upward or downward in the title IV, 

HEA volume at an institution between consecutive award 

years or over a period of award years.

From the 2016–2017 through the 2021–2022 award years, approximately 155 institutions enrolled 1,000 or more title IV, 

HEA students and saw their title IV, HEA 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 

§ 668.171(d)(4).

An institution has high annual dropout rates, as calculated by 

the Department.

According to College Scorecard data for the award year (AY) 

2014–15 cohort, 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 § 668.171(d)(5) An institution that is required to provide additional reporting due 

to a lack of financial responsibility shows negative cash flows, 

failure of other financial ratios, or other indicators of a significant adverse change of the financial condition of a school.

Not currently identified because Department staff currently do 

not look for this practice in their reviews. 

Pending borrower defense 

claims § 668.171(d)(6).

The institution has pending borrower defense claims and the 

Department has formed a group process to consider at least 

some of them.

To date there are 53 institutional names that have had more 

than 2,000 borrower defense claims filed against them. This 

number may 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 

§ 668.171(d)(7).

The institution discontinues a program or programs that affect 

more than 25 percent of its enrolled students that receive title 

IV, HEA program funds.

Not currently identified due to data limitations. 

Location closures 

§ 668.171(d)(8).

The institution closes locations that enroll more than 25 percent 

of its students who receive title IV, HEA program funds.

Not currently identified due to data limitations. 

State actions and citations 

§ 668.171(d)(9).

The institution 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.

Not identified because institutions do not currently report this information consistently to the Department. 


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49www.gao.gov/products/gao-21-105373. 

50 sheeo.org/more-than-100000-studentsexperienced-an-abrupt-campus-closure-betweenjuly-2004-and-june-2020. 

TABLE 4.2—DISCRETIONARY TRIGGERING EVENTS—Continued 

Trigger Description Impact 

Loss of institutional or program 

eligibility § 668.171(d)(10).

The institution or one or more of its programs loses eligibility to 

participate in another Federal education assistance program 

due to an administrative action.

The Department does not currently have comprehensive data 

on program eligibility loss for all other Federal assistance programs. The Department is aware of 5 institutions 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 

§ 668.171(d)(11).

An institution that is at least 50 percent owned by an entity that 

is listed on a domestic or foreign stock exchange notes in a 

filing that it is under investigation for possible violations of 

State, Federal, or foreign law.

Department data systems currently identify 38 schools that are 

owned by 13 publicly traded corporations. There is one school 

that could potentially be affected by either this trigger or the 

similar mandatory one. 

Actions by another Federal 

agency § 668.171(d)(12).

The institution is cited and faces loss of education assistance 

funds from another Federal agency if it does not comply with 

that agency’s requirements.

Not identified because current reporting by institutions do not always capture these events. 

Other teach-out plans or agreements § 668.171(d)(13).The institution is required to submit a teach-out plan or agreement, including programmatic teach-outs and it is not captured in § 668.171(c)(2)(iv).Not identified because the Department is not currently always 

informed when an institution is required to submit a teach-out 

plan or agreement. 

Other events or conditions 

§ 668.171(d)(14).

Any other event or condition the Department determines is likely 

to have a significant adverse effect on the financial condition 

of the institution.

Not identified because this is designed to capture events not 

present in other triggers that have a similar effect on 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

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 


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51 libertystreeteconomics.newyorkfed.org/2017/ 

11/who-is-more-likely-to-default-on-student-loans/. 52www.luminafoundation.org/resource/its-notjust-the-money/; www.thirdway.org/report/rippleeffect-the-cost-of-the-college-dropout-rate. 

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

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 

§ 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 


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53www.newamerica.org/education-policy/policypapers/decoding-cost-college/. 

54www.gao.gov/products/gao-23-104708. 

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. 

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 § 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 § 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 

§ 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 § 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 

§ 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 


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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. 


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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 

§ 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 § 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 teachout 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 § 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 § 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 § 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 

certified 

Provisionally 

certified 

Month-to-month 

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. 


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55Updated Program Participation Agreement 

Signature Requirements for Entities Exercising 

Substantial Control Over Non-Public Institutions of 

Higher Education. https://fsapartners.ed.gov/ 

knowledge-center/library/electronicannouncements/2022-03-23/updated-programparticipation-agreement-signature-requirementsentities-exercising-substantial-control-over-nonpublic-institutions-higher-education. 

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 § 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 § 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. 

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] 

Federal fiscal year Established 

liabilities 

Amounts 

collected from 

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 § 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 § 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 


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56Burns, 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. 

57The 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). 

58www.nber.org/papers/w27658. 

59www.gao.gov/products/gao-21-105373; 

sheeo.org/more-than-100000-students-experiencedan-abrupt-campus-closure-between-july-2004-andjune-2020/. 

60https://sheeo.org/more-than-100000-studentsexperienced-an-abrupt-campus-closure-betweenjuly-2004-and-june-2020/. 

61https://sheeo.org/wp-content/uploads/2023/08/ 

SHEEO_CollegeClosures_Report3.pdf. 

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. 

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. 

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 reenrollment 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 teachout 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 § 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 § 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 § 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 § 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. 

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 


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62 sr.ithaka.org/publications/solving-strandedcredits. 

63 sr.ithaka.org/publications/stranded-credits-amatter-of-equity. 64www.aeaweb.org/articles?id=10.1257/ 

pol.20180279; www.nber.org/papers/w24804. 

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. 

Other changes within § 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 lowto-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 

§ 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. 

Finally, the requirement in 

§ 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

The expanded requirements for who 

signs a PPA as spelled out in 

§ 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 § 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 

§ 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 


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65As of January 2023, there are six States with an 

approved State process. 

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. 

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 

§ 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. 


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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 § 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, 

§ 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 

§ 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

Scenario 

Cohorts 2024–2033 

Outlays 

($ in 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. 


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TABLE 6.1—ACCOUNTING STATEMENT FOR PRIMARY SCENARIO

Annualized impact 

(millions, $2023) 

Discount 

rate = 3% 

Discount 

rate = 7% 

Benefits 

Consolidation of all financial responsibility factors under subpart L ................................................................................................................ 0.12 0.12 

Not 

quantified 

Costs 

Information submission that may be required of provisionally certified institutions, initially certified nonprofit institutions, and those that 

undergo a change in ownership .................................................................................................................................................................... 0.02 0.02 

Required financial aid counseling to students 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 ................................................................... 2.88 2.89 

Information submission 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 .............................................................................................................................................................. 0.72 0.72 

Compliance with approval requirements for State process for ATB ................................................................................................................ 0.16 0.16 

Documentation requirements for Eligible Career Pathways program .............................................................................................................. 0.50 0.50 

Increased reporting of financial 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 .................................................................................................................................................. 0.08 0.08 

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 § 668.13(e) but decided to only 

remove the items related to debt-toearnings 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 


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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 § 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 

§§ 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 fulltime-equivalent (FTE) students and for 

small institutions of at least two but 

less-than-4-years and 4-year institutions, 


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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-thanfour-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. 

71The 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). 

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 twoyear institution of less than 500 fulltime-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

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 


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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

OMB 

control No. 

Regulatory 

section Information collection Hours Estimated cost 

Average 

hours per 

institution 

Average 

amount per 

institution 

As % of 

average 

revenue 

1845–0022 ...... § 668.14 ........ Amend § 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.

258 $12,398 10 481 0.01 

Amend § 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.


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TABLE 8.3—ESTIMATED PAPERWORK BURDEN ON SMALL ENTITIES—Continued 

OMB 

control No. 

Regulatory 

section Information collection Hours Estimated cost 

Average 

hours per 

institution 

Average 

amount per 

institution 

As % of 

average 

revenue 

1845–0022 ...... § 668.15 ........ Remove and reserve § 668.15 thereby consolidating all financial responsibility factors, including those governing 

changes in ownership, under part 668, subpart L.

(1,493) (70,576) (1) (46) 0.00 

1845–0022 ...... § 668.16 ........ Amend § 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.

34,518 1,658,590 11 529 0.01 

Amend § 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 ...... § 668.23 ........ Amend § 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.

8,640 416,305 40 1,917 0.02 

1845–0176 ...... § 668.156 ...... Amend § 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.

1,920 92,256 320 15,376 0.20 

1845–0175 ...... § 668.157 ...... Add a new § 668.157 to clarify the documentation requirements for eligible career pathway programs.6,000 288,300 10 481 0.01 

1845–0022 ...... § 668.171 ...... Amend § 668.171(f) to revise the set of conditions whereby an 

institution must report to the Department that a triggering 

event, described in § 668.171(c) and (d), has occurred.

948 45,551 2 103 0.001 

Amend § 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 § 668.14(e) as 

§ 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 


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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 

§ 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 × 

10 = 250) to complete the submission of 

information or required action. We 

estimate that it will take proprietary 

institutions 130 hours (13 × 10 = 130) 

to complete the submission of 

information or required action. We 

estimate that it will take public 

institutions 50 hours (5 × 10 = 50) to 

complete the submission of information 

or required action. 

The estimated § 668.14(e) total burden 

is 430 hours with a total rounded 

estimated cost for all institutions of 

$20,663 (430 × $48.05 = $20,661.50). 

STUDENT ASSISTANCE GENERAL PROVISIONS—OMB CONTROL NUMBER 1845–0022 

Affected entity Respondent Responses Burden hours Cost $48.05 per 

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 

§ 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 

Affected entity Respondent Responses Burden hours Cost $¥48.05 per 

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 § 668.16 to clarify the 

characteristics of institutions that are 

administratively capable. The final rule 

amends § 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 § 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 § 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 × 8 = 15,304) to complete 

the required review and update. We 

estimate that it will take proprietary 

institutions 12,032 hours (1,504 × 8 = 


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12,032) to complete the required review 

and update. We estimate that it will take 

public institutions 14,504 hours (1,813 

× 8 = 14,504) to complete the required 

review and update. The estimated 

§ 668.16(h) total burden is 41,840 hours 

with a total rounded estimated cost for 

all institutions of $2,010,412 (41,840 × 

$48.05 = $2,010,412). 

The changes in § 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 nonprofit institutions 5,739 hours (1,913 × 

3 = 5,739) to complete the required 

review and update. We estimate that it 

will take proprietary institutions 4,512 

hours (1,504 × 3 = 4,512) to complete 

the required review and update. We 

estimate that it will take public 

institutions 5,439 hours (1,813 × 3 = 

5,439) to complete the required review 

and update. The estimated § 668.16(p) 

total burden is 15,690 hours with a total 

rounded estimated cost for all 

institutions of $753,905 (15,690 × 

$48.05 = $753,904.50). 

The total estimated increase in burden 

to OMB Control Number 1845–0022 for 

§ 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 

Affected entity Respondent Responses Burden hours Cost $48.05 per 

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 

§ 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 § 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 × 40 = 13,520) to complete 

the required documentation gathering 

and translation as needed. We estimate 

that it will take proprietary institutions 

920 hours (23 × 40 = 920) to complete 

the required footnote activity. The 

estimated § 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 × $48.05 = $693,842). 

The total estimated increase in burden 

to OMB Control Number 1845–0022 for 

§ 668.23 is 14,440 hours with a total 

rounded estimated cost of $693.842. 

STUDENT ASSISTANCE GENERAL PROVISIONS—OMB CONTROL NUMBER 1845–0022 

Affected entity Respondent Responses Burden hours Cost $48.05 per 

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 

§ 668.156 clarify the requirements for 

the approval of a State process. Under 

§ 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 § 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 § 668.156(e) requires 

that States report information on race, 

gender, age, economic circumstances, 

and education attainment. Under 

§ 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 

§ 668.156(a) for a total of 1,600 hours 

(160 hours × 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 § 668.156(c) for a total of 400 


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hours (40 hours × 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 § 668.156(e) for a total 

of 1,200 hours (120 hours × 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 × 10 States) with a 

total estimated cost of $153,760.00 in 

OMB Control Number 1845–0176. 

APPROVED STATE PROCESS—1845–0176 

Affected entity Respondent Responses Burden hours Cost $48.05 per 

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 § 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 § 668.157(b), for 

career pathways programs that do not 

enroll students through a State process 

as defined in § 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 

§ 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 § 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 × 1 program = 

360 programs × 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 × 1 program = 130 programs 

× 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 × 1 program = 

510 programs × 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 

§ 668.157 is 10,000 hours with a total 

estimated cost of $480,500.00. 

ELIGIBLE CAREER PATHWAYS PROGRAM—1845–0175 

Affected entity Respondent Responses Burden hours Cost $48.05 

per 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 

§ 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 

§ 668.171(b) and the financial triggers in 

§ 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 

§ 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 § 668.171(f) adds burden to 

institutions regarding evidence of 

financial responsibility. The regulations 

in § 668.171(f) require institutions to 

demonstrate to the Department that it 

met the triggers set forth in the 


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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 × 2 hours = 100) to 

complete the required documentation 

and reporting activity. We estimate that 

it will take proprietary institutions 

1,300 hours (650 institutions × 2 hours 

= 1,300) to complete the required 

documentation and reporting activity. 

The regulatory language in 

§ 668.171(g) adds burden to public 

institutions regarding evidence of 

financial responsibility. The regulations 

in § 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 × 5 hours = 180 hours). 

The total estimated increase in burden 

to OMB Control Number 1845–0022 for 

§ 668.171 is 1,580 hours with a total 

rounded estimated cost of $775,919. 

STUDENT ASSISTANCE GENERAL PROVISIONS—OMB CONTROL NUMBER 1845–0022 

Affected entity Respondent Responses Burden hours Cost $48.05 per 

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

Regulatory 

section Information collection 

OMB control No. 

and 

estimated burden 

Estimated cost $48.05 

Institutional $22.26 

Individual unless 

otherwise noted 

§ 668.14 ........... Amend § 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 teachout plan or agreement. Amend § 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.

1845–0022, +430 hrs ......................................................... +20,663 

§ 668.15 ........... Remove and reserve § 668.15 thereby consolidating all financial responsibility factors, including those governing 

changes in ownership, under part 668, subpart L.

1845–0022, ¥2,448 hrs ..................................................... ¥117,627 

§ 668.16 ........... Amend § 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 § 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 +57,530 hrs ..................................................... +2,764,317 

§ 668.23 ........... Amend § 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.

1845–0022, +14,440 hrs .................................................... +693,842 

§ 668.156 ......... Amend § 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.

1845–0176, +3,200 ............................................................. +153,760 

§ 668.157 ......... Add a new § 668.157 to clarify the documentation requirements for eligible career pathway programs.1845–0175, +10,000 ........................................................... +480,500 


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COLLECTION OF INFORMATION—Continued 

Regulatory 

section Information collection 

OMB control No. 

and 

estimated burden 

Estimated cost $48.05 

Institutional $22.26 

Individual unless 

otherwise noted 

§ 668.171 ......... Amend § 668.171(f) to revise the set of conditions whereby an institution must report to the Department that a 

triggering event, described in § 668.171(c) and (d), has 

occurred. Amend § 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.

1845–0022, +1,580 hrs ...................................................... +75,919 

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. 

Control No. Total burden 

hours 

Change in burden 

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 OIRA_

DOCKET@omb.eop.gov 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: 


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PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

■ 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. 

■ 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: 

§ 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. 

* * * * * 

■ 3. Section 668.13 is amended by: 

■ a. Removing paragraph (b)(3). 

■ b. Revising paragraphs (c)(1)(i)(C) and 

(D). 

■ c. In paragraph (c)(1)(i)(E), removing 

the word ‘‘or’’ at the end of the 

paragraph. 

■ d. Revising paragraph (c)(1)(i)(F). 

■ e. Adding paragraph (c)(1)(i)(G). 

■ f. Revising paragraph (c)(1)(ii). 

■ g. Adding paragraph (c)(1)(iii). 

■ h. Revising paragraph (c)(2) and 

(d)(2)(ii). 

■ i. Adding paragraph (e). 

The revisions and addition read as 

follows: 

§ 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 § 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 

§ 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 § 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 recertification, or a failure under 

§ 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 

§ 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. 


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(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. 

* * * * * 

■ 4. Section 668.14 is amended by: 

■ a. Adding paragraph (a)(3). 

■ b. Revising paragraphs (b)(5), (17), 

(18), and (26). 

■ c. In paragraph (b)(30)(ii)(C), removing 

the word ‘‘and’’ at the end of the 

paragraph. 

■ d. In paragraph (b)(31)(v), removing 

the period and adding a semicolon in its 

place. 

■ e. Adding paragraphs (b)(32) through 

(35). 

■ f. Redesignating paragraphs (e) 

through (h) as paragraphs (h) through 

(k), respectively. 

■ f. Adding new paragraphs (e) through 

(g). 

The revisions and additions read as 

follows: 

§ 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 § 668.23 that— 

(1) A majority of students resided in 

that State while enrolled in the program 

during the most recently completed 

award year; 


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(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 teachout 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 § 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 § 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 


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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. 

* * * * * 

§ 668.15 [Removed and Reserved] 

■ 4. Section 668.15 is removed and 

reserved. 

■ 5. Section 668.16 is amended by: 

■ a. Revising the introductory text and 

paragraphs (h), (k), and (m). 

■ b. Redesignating paragraph (n) as 

paragraph (v). 

■ c. Adding a new paragraph (n). 

■ d. Removing the word ‘‘and’’ at the 

end of paragraph (o)(2). 

■ e. Revising paragraph (p). 

■ f. Adding paragraphs (q) through (u). 

■ g. Revising newly redesignated 

paragraph (v). 

■ h. Removing the parenthetical 

authority citation at the end of the 

section. 

The revisions and additions read as 

follows: 

§ 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 

§ 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 

§ 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 

§ 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 

§ 668.187(a) or § 668.206(a), the 

Secretary allows the institution to 

continue to participate in the title IV, 

HEA programs. In such a case, the 


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Secretary may provisionally certify the 

institution in accordance with 

§ 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 § 668.209, 

§ 668.210, or § 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 

§ 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 

§ 668.204(c) or § 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 § 668.192 or 

§ 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 § 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. 

* * * * * 

■ 6. Section 668.23 is amended by 

revising paragraphs (a)(4) and (5) and 

(d)(1) and (2) to read as follows: 

§ 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 


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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 § 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. 

* * * * * 

■ 7. Section 668.32 is amended by 

revising the section heading and 

paragraphs (e)(2), (3), and (5) to read as 

follows: 

§ 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 § 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 § 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 § 668.2. 

* * * * * 

■ 8. Section 668.43 is amended by 

revising paragraphs (a)(5)(v) and (c)(1) 

and (2) to read as follows: 

§ 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 § 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 

§ 668.14(b)(32). 

(2) If the institution makes a 

determination under paragraph (a)(5)(v) 


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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. 

* * * * * 

■ 9. Section 668.156 is revised to read 

as follows: 

§ 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 § 668.2 and as documented 

pursuant to § 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 

§ 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 sixmonth 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 


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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) 

■ 10. Section 668.157 is added to read 

as follows: 

§ 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 § 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 indemand 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 § 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. 

■ 11. Section 668.171 is amended by 

revising paragraphs (b) introductory 

text, (b)(3), and (c) through (i) to read as 

follows: 

§ 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 § 668.22, or pay title 

IV, HEA credit balances as required 

under § 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 


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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 § 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 § 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 teachout 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 


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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 

§ 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 § 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 § 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), § 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), § 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), § 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), § 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), 

§ 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), 

§ 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. 


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(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 § 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 § 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 § 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 § 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 wageequivalent distributions that exceed 150 

percent of the total amount of wageequivalent distributions it made during 

its prior fiscal year, less any 

distributions that were made to pay any 


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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 § 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 


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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 § 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 § 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 § 668.175, or the institution 

does not submit its financial statements 

and compliance audits by the date and 

in the manner required under § 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 § 668.13(d); or 

(3) Deny the institution’s application 

for certification or recertification to 

participate in the title IV, HEA 

programs. 

■ 13. Section 668.174 is amended by: 

■ a. Revising paragraph (a)(2) and 

(b)(2)(i). 

■ b. Adding paragraph (b)(3). 

■ c. Revising paragraph (c)(1). 

The revisions and addition read as 

follows: 

§ 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). 

* * * * * 

■ 14. Section 668.175 is amended by: 

■ a. Revising paragraphs (b), (c), (d), and 

(f)(1) and (2); and 

■ b. Adding paragraph (i). 

The revisions and addition read as 

follows: 


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§ 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 § 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 § 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 § 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 § 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 § 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 § 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 

§ 668.171(b), its recalculated composite 

score under § 668.171(e) is less than 1.0, 

it is subject to an action or event under 

§ 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 § 668.171(h); or 

(ii) The institution is not financially 

responsible because of a condition of 

past performance, as provided under 

§ 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 § 668.171(b)(2) or (3) 

to the Department’s satisfaction; and 


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(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 fr.inspection@

nara.gov. 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≤. 

(1) Accounting Standards Codification 

(ASC) 850, Related Party Disclosures, 

Updated through September 10, 2018. 

(2) [Reserved] 

§ 668.176 [Redesignated as § 668.177] 

■ 15. Section 668.176 is redesignated as 

§ 668.177. 

■ 16. A new § 668.176 is added to read 

as follows: 

§ 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 § 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 § 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 

§ 668.175(d). 

(c) Acquisition debt. (1) 

Notwithstanding any other provision in 


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74710 Federal Register / Vol. 88, No. 209 / Tuesday, October 31, 2023 / Rules and Regulations 

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 

§ 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 § 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 sameday 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 § 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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