Progress Made on Financial Responsibility at ED Rulemaking Sessions
3/01/2018
The third and final session of the negotiated rulemaking committee tasked with reconsidering the Department of Education's rules on borrower defense to repayment failed to come to agreement on how claims for loan forgiveness should be handled. There was general agreement, however, on the revision of ED's financial responsibility standards undertaken by a dedicated subcommittee to update the rules to conform to recent changes to accounting standards and resolve some longstanding confusion about definitions.
ED is required by law to use a negotiated rulemaking process, pulling in a mix of stakeholders over the course of several months, to draft changes to Title IV regulations. If, at the end of the process, the committee comes to consensus on regulatory language then the department agrees to stick to that language when it releases proposed rules for public comment. If consensus on the entire package of rules is not reached, ED is free to decide what to propose. While the department frequently sticks to agreed-upon language for areas that were not in contention, it is not obligated to do so.
Changes to Financial Responsibility Standards
NACUBO has raised a number of issues with how ED calculates composite scores for nonprofit institutions under its financial responsibility standards over the last decade but made little progress. The changes made to nonprofit financial statements and treatment of leases by the Financial Accounting Standards Board (FASB) made updating the standards more urgent, however, leading ED to appoint a dedicated subcommittee of accounting experts to help draft changes as part of the borrower defense rulemaking. (The borrower defense rules that were promulgated under the Obama administration had revised parts of the financial responsibility standards, adding triggering events that could cause a recalculation of an institution's composite score or additional surety requirements-thus making the topic germane.)
The subcommittee, in consultation with ED staff, prepared revisions to appendices A (for-profit institutions) and B (nonprofit institutions) of the financial responsibility standards found in 34 CFR 668 Subpart L. Key recommendations included revised language and definitions, and introduction of a supplemental schedule to crosswalk between nonprofit financial statements prepared under Accounting Standards Update (ASU) 2016-14 and ED's eZ-Audit requirement, and a transition period for institutions whose composite scores are negatively impacted by adoption of FASB's recent lease standard.
The full negotiating committee subsequently requested changes to the proposed definition of long-term lines of credit and the length of the transition period for leases. ED agreed to the changes at the last meeting but, since consensus on the whole package was not reached, is free to renege or make additional modifications to the language proposed by the subcommittee.
Timing
The next step in the rulemaking process is for ED to publish a proposed rule for public comment. Due to master calendar provisions in the Higher Education Act, ED usually aims to have final regulations issued by November 1 so that they can take effect the following July 1. This rulemaking is running on an earlier schedule than most, so it may move more quickly. Because some colleges and universities are implementing the FASB changes this year, NACUBO has urged ED to consider moving on the revisions to the financial responsibility standards more quickly but whether that will happen is undetermined at this time.
Resources
Documents distributed at the meetings of the negotiated rulemaking committee along with transcripts and recordings of the sessions are posted by ED during the process. Financial responsibility is addressed in Issue Paper #3. Note that the final versions of the various issue papers, encompassing edits made during the final four-day meeting, have not been added since agreement was not reached.
