2023 Hawaii Revised Statutes › Title 18. Education › 305J. Post-Secondary Education Authorization › 305J-14 Financial integrity; surety bond.

§305J-14 Financial integrity; surety bond.
(a) A private college or university shall provide evidence of financial integrity at the time of its application for authorization. A private college or university may demonstrate financial integrity by meeting the criteria specified in [subsection] (b), (c), or (d).
(b) A private college or university may demonstrate financial integrity if it:
(1) Has been accredited for at least ten years;
(2) Has operated continuously in the State for at least ten years;
(3) Has not filed for bankruptcy protection pursuant to title 11 of the United States Code;
(4) Maintains a composite score of at least 1.5 on its equity, primary reserve, and net income ratios, as required in title 34 Code of Federal Regulations section 668.172; and
(5) Meets or exceeds the pro rata refund policies required by the United States Department of Education in title 34 Code of Federal Regulations part 668; provided that if it does not participate in federal financial aid programs, its refund and termination procedures shall comply with the requirements of its accrediting body;
provided that a private college or university is not required to meet the criteria specified in paragraphs (1) and (2) if the private college or university is part of a group of private colleges or universities that is owned and operated by a common owner and the other private colleges and universities meet the criteria specified in paragraphs (1) and (2).
(c) A private college or university may also demonstrate financial integrity if it:
(1) Has received and maintains full accreditation without sanction from an accrediting body that is recognized by the United States Department of Education, and which accrediting body requires the private college or university to maintain a surety bond or an escrow account or has affirmatively waived or otherwise removed that requirement for the private college or university;
(2) Operates an instructional facility in the State;
(3) Annually provides to the department audited financial statements for the most recent fiscal year that demonstrate that the private college or university maintains positive equity;
(4) Maintains a composite score of at least 1.5 on its equity, primary reserve, and net income ratios, as required in title 34 Code of Federal Regulations section 668.172; and
(5) Meets or exceeds the pro rata refund policies required by the United States Department of Education in title 34 Code of Federal Regulations part 668; provided that if it does not participate in federal financial aid programs, its refund and termination procedures shall comply with the requirements of its accrediting body.
(d) If a private college or university cannot demonstrate financial integrity as provided in subsections (b) and (c), the private college or university shall file with the director a surety bond in favor of the State in an amount described under subsection (f) prior to receiving authorization under this chapter. The surety bond shall be executed by the private college or university as the principal by a surety company authorized to do business in the State and shall run concurrently with the authorization period and any period of reauthorization, unless terminated or canceled by the surety company.
(e) The surety bond under subsection (d) shall be conditioned to provide indemnification to any student or enrollee, or to any parent or legal guardian of a student or enrollee, whom the director finds to have suffered a loss of tuition or fees as a result of any act or practice that is a violation of this chapter and to provide alternative enrollment as provided in section 305J-15 for students enrolled in a private college or university that ceases operation.
(f) The amount of the surety bond that a private college or university submits pursuant to subsection (d) shall be the greater of $50,000 or an amount equal to a reasonable estimate of the maximum prepaid, unearned tuition and fees of the private college or university, excluding prepaid tuition revenue that consists of government grants or federal student loans and grants authorized under title IV of the Higher Education Act of 1965, 20 United States Code 1070 et seq. for the period or term during the applicable academic year for which programs of instruction are offered, including but not limited to programs offered on a semester, quarter, monthly, or class basis; provided that the private college or university shall use the period or term of greatest duration and expense in determining this amount if its academic year consists of one or more periods or terms. Following the initial filing of the surety bond with the department, the private college or university shall recalculate the amount of the surety bond annually based on a reasonable estimate of the maximum prepaid, unearned tuition and fees received by the institution for the applicable period or term.
(g) The authorization for a private college or university shall be suspended by operation of law when it is no longer covered by a surety bond as required by this section. After receipt of a notice of cancellation from the surety, the department shall give written notice to the private college or university at its last-known address, at least forty-five days prior to the release of the surety bond, to the effect that the private college or university's authorization is suspended by operation of law until it files evidence of a surety bond in a like amount as the surety bond being released.
(h) The principal on a surety bond filed under the provisions of this section shall be released from the surety bond after the principal serves written notice thereof to the department at least sixty days prior to the release. The release shall not discharge or otherwise affect a claim filed by a student or enrollee or the student or enrollee's parent or legal guardian pursuant to section 305J-15 for a loss of tuition or fees that occurred while the surety bond was in effect or that occurred under any note or contract executed during any period of time when the surety bond was in effect, except when another surety bond is filed in a like amount and provides indemnification for any such loss.
(i) Each private college or university that files a surety bond pursuant to this section shall provide in a report to the department annual verification of continued coverage as required by this section no later than January 1 of each year.
(j) A seminary or religious training institution shall not be subject to the requirements of this section. [L 2013, c 180, pt of §2; am L 2014, c 13, §1]