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NACUBO Expresses Concerns with ED Proposal to Expand Federal Financial Responsibility Rules

August 8, 2016

The Department of Education (ED) issued a Notice of Proposed Rulemaking (NPRM) in mid-June outlining proposed regulations and seeking comments on the proposal. The rulemaking was largely spurred by borrowers seeking relief following the demise of the for-profit Corinthian Colleges chain.

While NACUBO applauds ED's goal to strengthen and clarify the current provisions for student borrowers who have been misled or defrauded by unscrupulous institutions, there are significant areas of concern in ED's proposal. In a comment letter to the department, NACUBO states, "The proposed regulations go beyond the remedies necessary to establish systems to provide relief to federal student loan borrowers who have been wronged."

The new regulations would substantially expand financial responsibility indicators for private nonprofit and for-profit institutions. These new "triggers," which are not comprehensive financial indicators and do not suggest that an institution is about to close precipitously, would demand colleges and universities obtain letters of credit or provide other surety and would require extensive disclosures to enrolled and prospective students.

NACUBO has prepared a short summary document, highlighting key points made in the 13-page letter. Of the many concerns expressed in NACUBO's comments submitted to ED, some of the most pressing include:

  • Significant additions to financial responsibility regulations that have the potential to put otherwise fiscally sound institutions in financial jeopardy.
  • An excessive amount of automatic triggering events that would immediately render an institution "unable to meet its financial or administrative obligations," according to ED.
  • Extensive look-back periods that brand institutions as "not financially responsible" even after they have paid any incident-related fines.
  • Reporting requirements for pending lawsuits.
  • Accounting term usage and materiality thresholds that are not in line with, nor can logically be applied to, nonprofit intuitions.
  • Unreasonably short reporting timelines.
  • Disclosure requirements based upon the faulty triggers could threaten enrollment, donor relationships, and access to capital.

NACUBO is particularly troubled that these rules are being added to a foundation of financial responsibility practices that are already broken. For many years, ED analysts have repeatedly computed composite scores that neither NACUBO nor independent financial auditors can replicate.

Six higher education associations signed on in support of NACUBO's comment letter: The Association of Jesuit Colleges and Universities (AJCU), the Coalition of Higher Education Assistance Organizations (COHEAO), the Council of Independent Colleges (CIC), the National Association of Independent Colleges and Universities (NAICU), the National Association of Student Financial Aid Administrators (NASFAA), and UNCF.

Additionally, NACUBO supported the American Council on Education's (ACE) position concerning the proposed regulations and signed on to two letters submitted by ACE to ED, one focused on the new financial responsibility requirements and the other on the borrower defense provisions.

NACUBO also issued a separate press statement. In it, John Walda said, "As the association dedicated to sound fiscal and administrative practices in higher education, NACUBO is concerned with the department's interpretation of what truly constitutes a risky financial situation for an institution.

"We are eager to see the Department of Education produce final rules that are sensible and truly shield students and taxpayers from fraudulent schools."

The official ED comment period has closed. However, interested parties can still weigh in with the Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA). Information on submitting written comments or meeting with OIRA can be found on its website.

The final rule is scheduled to be published before November 1, to take effect on July 1, 2017.

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Liz Clark
Director, Federal Affairs
202.861.2553
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