NEW INSTITUTIONAL ACCOUNTABILITY CHANGES

As part of the “Borrower Defense to Repayment Final Rules (dubbed institutional accountability final rules), The U.S. Department of Education amended the Student Assistance General Provisions regulations. New rules were added establishing conditions and events that could have an adverse, material effect on an institution’s financial condition, thus warranting protections for students and taxpayers. These are broken up into two categories; mandatory and discretionary financial responsibility triggering events.

Unlike the Borrower Defense to
Repayment regulations included in this package which will go into effect on
July 1, 2020, the amendments below are scheduled for immediate implementation.

Financial Responsibility – Mandatory and Discretionary Triggering Events

The Final Regulations establish mandatory and
discretionary triggering events that have, or could have, a materially adverse
impact on an institution’s financial condition that warrant financial
protection. 

The mandatory triggering events are: 

1) Liabilities arising from a settlement,
final judgment from a court, or final determination arising from an
administrative action or proceeding initiated by a Federal or State
entity; 

2) Withdrawal of owner’s equity from the
institution, unless the withdrawal is a transfer to an entity included in the
affiliated entity group upon whose basis the institution’s composite score was
calculated;

3) For publicly traded institutions, the
Securities and Exchange Commission issues an order suspending or revoking the
registration of the institution’s securities or suspends trading of the
institution’s securities on any national securities exchange, the national
securities exchange notifies the institution that it is not in compliance with
the exchange’s listing requirements and the institution’s securities are
delisted, or the SEC is not in timely receipt of a required report and did not
issue an extension to file the report; and 

4) For the fiscal year reported, when an
institution is subject to two or more discretionary triggering events, those
events become mandatory triggering events, unless a triggering event is
resolved before any subsequent event(s) occurs.  

Discretionary triggering events in the Final Regulations include:

1) The institution’s accrediting agency issues
an order, such as a show-cause order or similar action, that if not satisfied
could result in the loss of institutional accreditation; 

2) The institution violated a provision or
requirement in a security or loan agreement with a creditor; 

3) The institution’s State licensing or
authorizing agency notified the institution that it has violated a State
licensing or authorizing agency requirement and that the agency intends to
withdraw or terminate the institution’s licensure or authorization, if the
institution does not take the steps necessary to come into compliance; 

4) The institution’s failure to meet the 90/10
requirement; 

5) As calculated by the Secretary, the
institution has high annual dropout rates; and

6) The institution’s two most recent official
cohort default rates are thirty percent or greater, unless the institution
files a challenge, which results in reducing below thirty percent the official
cohort default rate for either of or both of those years or precludes the rates
from either or both years from resulting in a loss of eligibility or
provisional certification.

Finally, the Final Regulations also
update the definitions and terms used to calculate an institution’s composite
score and the composite score methodology to align with changes in FASB
accounting standards. Existing leases will be grandfathered, and the new
regulations only apply to new leases.  Existing
long-term debt rules are also being grandfathered, but the new rules require
tie-ins to plant, property, and equipment new long-term debt.  In addition, the Final Regulations revise
Appendices A and B of the financial responsibility regulations to conform with
the updates and changes in accounting standards.