Financial Responsibility Standards
Overview
The Department of Education's (ED) 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.
On September 23, 2019, new borrower defense and financial responsibility rules were finalized. Both regulations went into effect on July 1, 2020. The final borrower defense rules define events that trigger reporting requirements. All institutions must notify ED when certain triggering events occur. And, certain triggering events can lead can lead to a recalculation of an NFP institution's financial responsibility composite score.
Advisory Report
NACUBO Advisory 19-04, published in October 2019, explains discretionary and non-discretionary triggering events under borrower defense regulations, which affect both public and nonprofit institutions. The Advisory also addresses new financial responsibility requirements and composite score calculations for private nonprofit institutions.
Accounting Tutorials
NACUBO has created financial responsibility accounting tutorials on address a variety of topics:
- A cross-walk between financial statements, the supplemental schedule (format from the Fed Reg. Regulation), and e-Z Audit reporting templates
- Debt Obtained for Long-term Purposes
- Leases and the transition election
- An Excel tool for non-operating gains and losses to assist with e-Z Audit reporting
- A Question and Answer document from questions submitted during a NACUBO November 2020 Townhall.
NACUBO Comments on Title IV Proposed Rulemaking (2022)
Negotiations in 2022 addressed several topics, including financial responsibility. NACUBO, working with the National Association of Independent Colleges and Universities (NAICU) and the American Council on Education (ACE), has submitted comments concerning institutional financial responsibility regulations. NACUBO has consistently advocated for updating the existing financial responsibility regulations, and the comments offer multiple suggestions to that end.
Resources: 1997 Regulation (in effect prior to July 1, 2020)
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.
Additional 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
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)
Archived News: From NACUBO Current
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