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Advisory Report

NACUBO’s advisory 19-04, published in October 2019, explains new financial responsibility requirements for private nonprofit institutions and discretionary and non-discretionary triggering events, which affect both public and nonprofit institutions. The new rules, published in September 2019, require that all institutions that receive Title IV aid notify ED when certain triggering events occur.

2016 Borrower Defense Overview

The Obama-era borrower defense rules, which went into effect on October 17, 2018, contained guidance on three major topics:

Borrower Defense to Repayment. The 2016 rules created borrower defense standards and defined the evidence former and current students must provide to show that a college's misconduct warrants debt relief. The new regulations make debt relief available to students when there is:

  1. A breach in contractual promises between a school and its students;
  2. A state or federal court judgement against a school related to the loan or the educational services for which the loan was made; or
  3. Substantial misrepresentation by the school about the nature of the educational program, the nature of financial charges, or the employability of graduates.

NACUBO supported the Department of Education's (ED) goal to protect students from bad actors. However, we remain concerned that the vastly broadened view of misrepresentation will leave institutions acting in good faith vulnerable to lawsuits and burdened with red tape.

Triggering Events. Obama-era guidelines establish a new set of automatic and discretionary triggering conditions that could lead to a recalculation of an institution's composite score, and, if warranted, require the school to provide financial surety to ED and publicly disclose certain information to current and prospective students. Institutions experiencing a triggering event will be required to notify ED, in most cases, within 10 days. They will also have to meet new disclosure requirements.

Financial Responsibility Ratios. Obama-era borrower defense guidance includes provisions for re-calibrating ED financial responsibility ratios when certain triggering events occur. The new rules do not address ratio changes needed as a result of the Financial Accounting Standard's Board's (FASB) new nonprofit financial reporting guidance (Accounting Standards Update 2016-14) or its new lease standard (ASU 2016-02).

 

Background

Initially created in response to the sudden closure of Corinthian Colleges and finalized in the last few months of the Obama administration, the original borrower defense rules were slated to take effect in July 2017. However, the Trump administration put the rules' implementation on hold, stating that the regulations were flawed and needed revision. In response, consumer protection advocates and other stakeholders sued the department, alleging that ED's decision to delay the finalized Obama-era guidance was illegal. After a court battle, ED lost this lawsuit and the finalized Obama-era regulations took effect on October 17, 2018.

In July 2018, the Trump administration unveiled its proposed revisions to the borrower defense rules, which were intended to replace the Obama administration's finalized regulations. Under the master calendar provision of the Higher Education Act, ED had until November 1 to finalize the new rules for them to go into effect July 1, 2019. However, ED missed this deadline. Consequently, the Obama-era regulations will remain in effect until new regulations take their place, in July 2020 at the earliest.

NACUBO has worked extensively on borrower defense rules and their implications for financial responsibility. To find out more, read below or visit our Financial Responsibility Standards page.

2016 Finalized Rules

NACUBO Resources

Note (May 2019): Acknowledging confusion stemming from the sudden and unexpected implementation of the 2016 rules, ED published additional guidance on certain provisions of the rules in March 2019. Notably ED set May 14, 2019, as the deadline to notify it of most financial responsibility actions, events, or conditions between July 1, 2017, and the present that must be reported. All business officers should familiarize themselves with the March 2019 electronic announcement because several provisions affect both public and private institutions. Reporting requirements will continue indefinitely. 

Coverage of the 2016 Rulemaking Process

Department of Education Resources

2018 Proposed Rules

NACUBO Resources

External Resources

NACUBO Tools

Related Pages

To visit pages with related content, click below:

ED Regulations   ED Archives  Financial Responsibility


NACUBO’s guidance explains new financial responsibility requirements for private nonprofit institutions and discretionary and non-discretionary triggering events, which affect both public and nonprofit institutions. The new rules require that all institutions that receive Title IV aid notify ED when certain triggering events occur.

Contact

Liz Clark

Vice President, Policy and Research

202.861.2553

Contact

Megan Schneider

Senior Director, Government Affairs

202.861.2547

Contact

Sue Menditto

Senior Director, Accounting Policy

202.861.2542


News

Borrower Defense Rules Have Significant Implications for Financial Reporting

October 26, 2018

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Financial Responsibility Standards

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