New Regulations on Financial Responsibility

Last October, the U.S. Department of Education (ED) announced final rules that strengthen financial accountability for higher education institutions and increase protection for students. The new regulations impact institutions participating in federal student aid programs under Title IV of the Higher Education Act.

In response to a substantial number of abrupt college closings, the new regulations, which will go into effect on July 1, 2024, intend to improve the assessment of an institution’s financial stability, discourage risky financial behavior and ensure student and taxpayer protection from the costs of sudden school closures.

In addition, the new rules will restrict colleges from withholding course credits paid for with federal money from students’ transcripts and require colleges to clearly communicate to students how much financial aid they will receive.

Under the new rules, an institution is deemed unable to meet its financial obligations if it:

  • Fails to make refunds under its refund policy
  • Fails to repay ED for any liability arising from the institution’s participation
  • Fails to make a payment on an undisputed financial obligation for more than 90 days
  • Fails to satisfy payroll obligations in accordance with the published payroll schedule
  • Borrows funds from retirement plans or restricted funds without authorization
  • Is subject to a mandatory triggering event that ED determines to have a significant adverse effect on the institution’s financial condition

The new regulations authorize ED to impose safeguards when an institution self-discloses specified financial warning signs or “triggering events.” ED will determine whether to intervene and require additional financial protection on a case-by-case basis. Triggering events must be reported within 21 days of the event.

Triggering events mandating intervention include, but are not limited to:

  • Failing the financial responsibility composite score
  • Failing to satisfy a condition of federal aid participation
  • Improperly manipulating the composite score or discouraging ED oversight
  • Entering debt covenants that could cause adverse conditions if ED adds limitations to the institution’s federal financial aid
  • Declaring federal exigency or entering a receivership

Discretionary events include, but are not limited to:

  • Being subjected to adverse accreditor actions
  • Reporting significant fluctuations in federal student aid volume
  • Closing programs or locations that enroll a significant number of students
  • Being subjected to adverse actions taken by state and federal agencies

In addition to financial responsibility, the new rules cover administrative capability, certification procedures and the ability to benefit.

To learn more about the new regulations and receive guidance on remaining compliant, connect with SST’s higher education specialists