Financial Responsibility Standards
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.
Financial Responsibility Standards Overview
The Department of Education's financial responsibility standards (Subpart L of 34 CFR 668) are intended to ensure that institutions that participate in the federal financial assistance programs are able to meet their financial obligations and provide the resources necessary to offer their educational programs and comply with ED rules.
The Obama-era borrower defense rules, which were created in response to the sudden closure of Corinthian Colleges, rely on financial responsibility standards as a basis for assessment. In addition to other requirements, nonprofit and for-profit schools are subject to calculation of a composite score made up of three financial ratios. Institutions that do not demonstrate passing scores are subject to additional oversight and may be required to provide surety to ED. To learn more about the Obama-era borrower defense rules, visit NACUBO's Borrower Defense page.
News
- ED Shares Preliminary Final Borrower Defense Rules (September 9, 2019)
- ED Issues Clarifying Guidance on Financial Responsibility Reporting (June 10, 2019)
- ED Sets May 14 Deadline for Reporting Financial Responsibility Triggering Events (April 12, 2019)
- Borrower Defense Rules Have Significant Implications for Financial Reporting (October 26, 2018)
- ED to Finalize New Financial Responsibility Rules (October 2018)
- Department of Education to Revisit Borrower Defense Regulations (August 13, 2018)
- ED Delays Effective Date of State Authorization Rule (May 25, 2018)
- NACUBO Updates Guidance on Financial Responsibility Agreements (May 10, 2018)
- EDs Inspector General Weighs In on HEA Reauthorization (March 15, 2018)
- Progress Made on Financial Responsibility at ED Rulemaking Sessions (March 1, 2018)
- GAO Recommends Updating of ED’s Composite Score (September 29, 2017)
- ED Includes Financial Responsibility Rules in Upcoming Negotiations (September 5, 2017)
- NACUBO Urges ED to Revise Financial Responsibility Scores (July 20, 2017)
- Trump Administration Will Revisit ED Accountability Rules (June 26, 2017)
- ED Releases Financial Responsibility Scores for FY15 (April 3, 2017)
- ED Establishes New Financial Accountability Rules for Private Institutions (November 15, 2016)
- NACUBO Op-ED: ED Proposal Could Jeopardize Nonprofit Institutions (September 19, 2016)
- NACUBO Expresses Concerns with ED Proposal to Expand Federal Financial Responsibility Rules (August 8, 2016)
- ED Proposes Substantial Expansion of Financial Responsibility Indicators (June 27, 2016)
- Negotiators Fail to Reach Agreement on Borrower Defense, Financial Responsibility Rules (March 21, 2016)
- Financial Responsibility Regulations at Stake in Current ED Negotiated Rulemaking (March 7, 2016)
- NAICU Report Addresses Financial Responsibility Regulations (December 3, 2012)
Report of the NAICU Financial Responsibility Task Force
For a decade, NACUBO and the National Association of Independent Colleges and Universities (NAICU) have been urging ED to correct its treatment of certain elements in the ratios used to calculate the composite score. The Report of the NAICU Financial Responsibility Task Force, published in 2012, details the associations' concerns and recommendations.
NACUBO Resources
NACUBO Advisory Report 18-05, Financial Responsibility Standards (Updated July 2019)
Excel worksheet, designed to stress test ratios and composite scores under the 2016 Borrower Defense rules (October 2018)
Financial Responsibility and Borrower Defense Timeline (updated September 2019)
NACUBO Advisory Report 98-1, Title IV Financial Responsibility Standards Revised (January 13, 1998), a resource for nonprofit institutions
Sample Letter from ED to an institution with composite score under 1 detailing letter of credit alternatives
Department of Education Resources
Title IV Financial Responsibility Standards, final rule, Federal Register, November 25, 1997, pp. 62829 - 62887
Note: Appendix G provides details on calculation of the composite score for nonprofit institutions, beginning on page 62885.
2017-18 Student Financial Aid Handbook, Vol 2, Chapter 4, Audits, Standards, Limitations, and Cohort Default Rates
Note: Discussion of financial responsibility standards begins on page 2-89
ED Dear Colleague Letter GEN-03-08, Use of Long-Term Debt in Financial Responsibility Calculation (July 2003)
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