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As NACUBO reported in October, new Obama-era borrower defense rules are presently in effect and call for a recalculation of an institution’s most recent composite score if certain events occur. As such, the rules augment financial responsibility standards and have significant implications for nonprofit and for-profit institutions that participate in federal student aid programs. Other provisions impact all institutions participating in the federal Direct Loan Program.

Last month, the Department of Education (ED) published updated guidance concerning those provisions—and acknowledged the complex circumstances that surrounded their effective date.

Nonprofit and For-Profit Institutions

Notably, ED has set May 14 as the deadline to notify it of any financial responsibility actions, events, or conditions occurring between July 1, 2017, and the present that must be reported under the rules. Significant new reporting requirements that require institutions to notify the secretary within specified timeframes for these triggering events.

Last fall, NACUBO published Advisory (2018-05), which addresses how borrower defense rules impact ED's financial responsibility standards and explains the triggers and reporting requirements.

Business officers should:

  • Become familiar with the new events, actions, and other conditions that potentially impact your institution’s composite score calculation.
  • Establish a campus protocol to monitor and report triggers.
  • Begin to consider how to handle possible future public disclosures about triggering events.

The current rules do not address ratio terminology and definitional changes needed because of the Financial Accounting Standards Board's (FASB) new nonprofit financial reporting requirements (Accounting Standards Update 2016-14) and its new lease standard (ASU 2016-02). NACUBO continues to advocate for updated guidance from ED. Further, NACUBO anticipates additional changes in a new borrower defense to repayment rulemaking package ED is expected to publish in the coming months.

Other Provisions

All business officers should familiarize themselves with ED’s updated guidance because several provisions affect all institutions, public and private. Specifically, the March guidance explains that the final regulations established a federal standard for borrower defense to repayment applications based upon judgments against institutions, breaches of contract by institutions, and substantial misrepresentations by institutions. ED has affirmed that this standard will be applied for borrower defense to repayment claims asserted with respect to loans first disbursed on or after July 1, 2017.

Further, the guidance highlights the new requirements to submit certain records to ED and prohibits internal dispute resolution, class action bans, and pre-dispute arbitration agreements.


NACUBO Advisory (2018-05), Changes to the Department of Education’s Financial Responsibility Standards for Nonprofit Institutions

ED Guidance Concerning Some Provisions of the 2016 Borrower Defense to Repayment Regulations

Additional NACUBO Resources on Title-IV Financial Responsibility Standards


Liz Clark

Vice President, Policy and Research



Sue Menditto

Senior Director, Accounting Policy


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