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Business and Policy Areas
Business and Policy Areas

ED Proposes New Title IV Rules for Foreign Institutions

August 2, 2010

The Department of Education issued proposed rules on July 20 relating to foreign institutions participating in Federal student aid programs. These proposed rules most notably require nonprofit foreign institutions that receive more than $5 million in federal aid, and all for-profit foreign institutions, to file compliance audits.

The proposed regulations expand on the definition of nonprofit status for foreign institutions. If ED recognizes a tax authority of a foreign institution's home country as one that is able to determine an institution's nonprofit status for Title IV purposes, ED would accept that determination for any institution in that country. The definition further goes on to explain that a nonprofit institution may not be owned by a for-profit entity, either directly or indirectly.

Audited Financial Statements

There would no longer be uniform rules for foreign institutions that submit compliance audits and audited financial statements. Instead, the requirements would be dependent on the amount of Title IV funds that the public or nonprofit foreign institution receives:

  • Less than $500,000: Submissions are waived, unless the institution is still in its initial Title IV provisional period. If the institution is within the provisional period, it would be required to submit audited financial statements using accepted accounting principles of the institution's home country.
  • $500,000-$3,000,000: These institutions would be allowed to submit audited financial statements using accepted accounting principles of the home country in lieu of financial statements prepared using U.S. generally accepted accounting principles (GAAP).
  • $3,000,000-$5,000,000: Institutions that receive between three and five million dollars in Title IV funds would be required to submit audited financial statements once every three years using accepted accounting principles of the home country and U.S. GAAP. For the remaining two years in the period, the institution could submit audited financial statements using the home country's accepted accounting principles.
  • More than $5,000,000 (or any for-profit institution): These institutions would be required to submit, yearly, audited financial statements using U.S. GAAP and accepted accounting principles of the institution's home country.

Compliance Audits

For compliance audits, the proposed rules would divide institutions into two groups, those receiving less than $500,000 and those receiving more than $500,000 in Title IV funds.

Institutions receiving less than $500,000 would be required to submit compliance audits under an alternative compliance audit protocol performed in accordance with the audit guide from ED's Office of Inspector General. An alternative compliance audit is "not required to express an opinion of the reliability of the institution's assertions concerning the institution's compliance with the requirements." The alternative audit is performed "as an agreed-upon procedures attestation engagement," whereas the standard audit is performed as an examination-level engagement. Submissions would be required annually, although certain circumstances an institution could submit a compliance audit annually for two years, and then, if permitted by ED, could subsequently submit a cumulative three-year audit. Institutions that wish to submit cumulative, three-year compliance audits would have to, according to the proposed regulations, "be fully certified, have timely submitted and had accepted compliance audits for two consecutive fiscal years, and have no history of late submissions since then."

Institutions receiving $500,000 or more in Title IV funds would be required to submit annual compliance audits using the standard audit procedures for foreign institutions, as exists under current rules. An institution filing a standard compliance audit for the first time as a result of receiving more than $500,000 in Title IV funds must also submit any alternative audits for preceding years that were prepared under the rules for institutions receiving less than $500,000.

Financial Responsibility

The proposed regulations would permit foreign public institutions to meet the financial responsibility requirements in a manner similar to domestic public institutions. An institution will be considered financially responsible if it:

  • notifies the Secretary that it is designated as a public institution by the country
  • provides documentation from an official of that country or 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.

If the institution does not meet the new requirements, it would have to demonstrate financial responsibility under the general requirements of financial responsibility, including the application of the equity ratio, primary reserve ratio, and net income ratio. The full faith and credit provision would provide an alternate method of meeting the financial responsibility standards, but it would not excuse the institution from submitting the required audited financial statements.

Comments are due to ED by August 19. NACUBO urges institutions affected by these proposed rules to send comments to ED. Please also provide a copy to NACUBO.


Bryan Dickson
Senior Policy Analyst