Federal Regulation Changes Impacting Your School
The Department of Education is in the process of establishing new federal regulations for proprietary schools.
The Department of Education (ED) recently completed its second round of negotiated rulemaking sessions covering many regulation changes that could impact your school.
ED kicked off its negotiated rulemaking proceedings in October 2021 with the student loans and affordability committee, which failed to reach a consensus regarding borrower defense and other critical issues at the end of 2021.
The second round of negotiated rulemaking on institutional and programmatic eligibility concluded in March and failed to reach a consensus in critical areas like gainful employment and administrative capability. The committee did reach a consensus on 90/10.
ED must stick closely to the agreed-upon language for topics that reached a consensus. For topics that did not reach a consensus, ED has the flexibility to implement changes of their choice. The issue papers they released in advance of negotiations give us insight into how they may proceed.
Nothing is set in stone just yet. All regulations must first go through a public comment period. If regulations are complete by November 1, 2022, they will come into effect on July 1, 2023.
Here’s a summary of the federal regulations changes that could impact your school.
Table of Contents
New Federal Regulations: The Student Loans and Affordability Committee
The Student Loans and Affordability Committee was held from October-December 2021 and did not reach a consensus on many critical issues. You can view recordings, issue papers, and transcripts here.
Here are the highlights:
Borrower Defense To Repayment
ED split Borrower Defense To Repayment into three subsections: adjudication process, post-adjudication, and recovery from institutions. Overall, ED seeks to make the process more borrower-friendly, meaning your school must prepare its records now.
As part of the proposed changes to the Borrower Defense To Repayment Process, ED proposed a definition of aggressive and deceptive recruitment tactics or conduct.
Arbitration and Class Action Waivers
Proposed federal regulations prohibit:
- Pre-dispute agreements for claims that could become a borrower defense claim.
- Agreements waiving a borrower’s right to participate in a class-action lawsuit.
- Requiring that students complete an internal process before reaching out to accreditors or the government.
The proposed regulation would require institutions to share arbitration records with ED in one database.
Closed School Discharge
New language offers a more generous definition of closed school discharge, including automatic discharges when students don’t re-enroll at a different institution or complete a teach-out plan. The proposed language is retroactive for students whose school closed before July 1, 2023, even if they enrolled in a comparable program.
Institutional And Programmatic Eligibility Committee
The Institutional and Programmatic Eligibility Committee was held from January-March 2022, and reached a consensus on 90/10 and ability to benefit. You can view recordings, issue papers, and transcripts here.
Here are the highlights:
ED redefined 90/10 as part of the 2020 stimulus bill, moving GI benefits to the “90” portion of the 90/10 split. Now, 10% of for-profit schools’ revenue must come from sources other than the GI bill and federal student aid. In this negotiated rulemaking session, ED sought to further define what funds count towards federal funds.
Negotiators reached a consensus on this topic, meaning it will move into public comment and go into effect on July 1, 2023.
Key changes include moving GI benefits and federal money used to support state grants into the 90% portion of the calculation.
ED and other committee members negotiated in good faith and removed language that would prevent schools from counting revenue from non-Title IV programs towards the 10% portion of the calculation. The final language allows schools to count non-Title IV programs in the 10% portion of the calculation as long as the instructor can teach at a school’s accredited locations. This means instructors can go to hospitals or other corporate sites to provide staff with continuing education, and schools can count that revenue towards the 10% portion.
ED added additional reporting regulations, including requiring schools to report 90/10 failure within 90 days of the failure. Institutions would be liable for any funds disbursed after they failed the 90/10 rule for the second consecutive fiscal year.
ED proposes including misrepresentation or aggressive recruitment under administrative capability. If a school engaged in misrepresentation or aggressive recruiting, the school would not be considered administratively capable. Unfortunately, the definition ED uses for misrepresentation and aggressive recruiting is the definition established by the Affordability and Student Loans committee, which is not yet finalized.
Other provisions include
- Requiring institutions to provide “adequate career services.” They have not yet established a definition of “adequate,” leaving the language vague.
- Requiring institutions with clinicals/externships to provide students with an accessible clinical/externship opportunity within 45 days of completing the required coursework.
- Requiring institutions to receive more than half of Title IV revenue from programs that pass debt to earning ratios.
- Requiring institutions to counsel students on financial aid and whether or not it must be repaid with instructions for accepting/declining/adjusting the award.
The committee did not reach consensus. While several parties were dissatisfied, the negotiator representing proprietary schools was the only dissenter, meaning ED could choose to proceed with the above regulations.
The committee did not reach a consensus on gainful employment, meaning ED will likely implement changes in line with the issue papers released throughout the rulemaking process.
Issue papers proposed a return to debt-to-earning ratios and another metric that would compare student earnings to the earnings of high school graduates in their states. Only for-profit colleges and non-degree programs at nonprofit colleges would be held accountable for those rations, but ED may require every institution, regardless of tax status, to submit data on completion, debt, and other information. ED proposes hosting the data for every institution on a website where students can easily access it to help better inform their big decisions.
ED also declined to consider alternate earnings as part of the appeals process to the rule.
Secretary Cardona has vowed to create strong rules surrounding gainful employment, and gainful employment promises are also part of the FTC’s October notice to for-profit schools.
Change of Ownership and Control
ED is proposing changing distance education regulations as part of change of ownership and control. ED is considering requiring institutions to offer distance education programs from the institution’s main campus. If an institution offered distance education at a branch campus, the program would need to be relocated to the main campus to keep schools from offering programs in states with more relaxed regulations. Several negotiators pushed back against this language, but ED did not take negotiator feedback, and this topic did not reach a consensus. Because ED hesitated to take feedback on this topic, schools will likely be required to conduct distance education at their main campuses. ED was receptive to pushing the effective date to July 1, 2024, to give schools time to transition.
Revenue Sharing Agreements
Revenue-sharing agreements were also included under change of ownership and control. ED reversed its original position and updated language allows private nonprofit schools to have a revenue-sharing agreement with the former owner of the institution if it’s based on fair market value. This was a contentious topic among negotiators and, therefore, could change depending on what feedback ED takes under advisement.
ED proposed changing mandatory and discretionary triggers. If a mandatory triggering event occurs, ED determines the institution is not financially responsible and will require a letter of credit.
Proposed mandatory triggers include
- Events or lawsuits causing the institution to have a recalculated composite score of less than 1.
- When an institution is sued by the state, federal government, or a qui tam lawsuit where the government has intervened, if the lawsuit has been pending for more than 120 days.
- Whenever ED finds a borrower defense claim in favor of the borrower, the amount discharged is greater than or equal to two percent of Title IV funds for the year prior.
- When an institution is required to submit a teach-out plan.
- When an institution fails the 90/10 rule for one year.
- When an institution has programs that fail the gainful employment rule for one year.
- When the SEC takes adverse action against a publicly-traded institution.
- When an institution receives two discretionary triggers.
ED proposed adding discretionary triggers when institutions:
- Have significant fluctuations in Title IV funds
- Have high dropout rates
- Face significant reduction in programs
- Close most locations
- Receive state citations
Certification Procedures for Participation
ED is proposing several variations to the federal student aid process, but one of the most concerning procedures limits Title IV funds for programs to the minimum number of hours required for training, established state-by-state OR the national median of the minimum number of clock hours required for training. This proposal would significantly impact schools in states where licensing requirements are higher than the national median. Committee members from almost every constituency showed significant concern over this regulation, therefore it is hopeful that ED will make positive adjustments.
Other proposals included:
- Requiring schools to be accredited in each state its program is located in, if accreditation is required.
- Requiring institutions to comply with all state-level consumer protection laws in each state the school is located in or has students in.
- Prohibiting transcript holds.
Because there were so many different procedures packaged into one conversation, the committee did not reach a consensus.
Remain Compliant with Federal Regulations in 2022 and Beyond
Many of these federal regulation changes will come into effect July 1, 2023, or 2024, but unfortunately, some may be retroactive. Retroactive rules and ever-changing regulations make the already arduous compliance process even more difficult.
Here at CourseKey, we’re staying on top of the regulations impacting your school and ensuring our products give you a comprehensive database with a strong audit trail. Request a demo to learn how career education programs improve data integrity and stay compliant with CourseKey.