The landscape of higher education continues to evolve, with mergers, acquisitions, and ownership changes becoming increasingly common. For institutions, a Change in Ownership (CIO) is far more than a business transaction—it is a highly regulated process that requires careful planning, significant documentation, and strict adherence to federal, state, and accreditor requirements. A misstep can jeopardize an institution’s eligibility for federal student aid, disrupt operations, and erode student trust.
At SST, we guide higher education leaders through the complexities of CIO transactions to ensure compliance, protect student interests, and minimize risk. Below is an overview of the requirements, common pitfalls, and considerations for institutions and potential investors.
Pre-Transaction Notifications
Federal regulations require proactive communication before a CIO:
- 90-Day Notification: Institutions must notify the U.S. Department of Education (ED) at least 90 days before a change occurs.
- Student Notification: Students—both current and prospective—must also be informed 90 days in advance, typically through electronic communications.
- Documentation: Notices must include prescribed ED forms, as well as up-to-date state authorization and accreditation approvals.
Required Approvals
A CIO cannot move forward without clearances from both state and accrediting bodies:
- State Agency Approval: The relevant state higher education agency must approve the transaction according to applicable statutes.
- Accrediting Agency Approval: The institution’s accreditor must sign off on the change, effective the day before closing.
Both approvals are prerequisites before ED will finalize its review.
Financial Requirements
The financial due diligence for CIOs is extensive. Key requirements include:
- Audited Financial Statements: Both the institution and the incoming owner must submit audited financials for the two most recent fiscal years, prepared under GAAP and audited under GAGAS.
- Financial Responsibility: The new owner must demonstrate financial capacity to operate the institution.
- Acquisition Debt: Institutions must provide detailed documentation for any acquisition-related debt.
Because audits often take 30+ days to complete, institutions should schedule them well in advance of the anticipated close date. Prior fiscal year audits and the buyer’s last two years of audits must be finalized before closing. Projections, including acid test ratio calculations, should also be prepared in advance.
Defining a Change of Ownership
ED regulations define CIO broadly, encompassing more than just outright sales. Reportable events include:
- The sale of an institution.
- Transfer of controlling stock in the institution or parent corporation.
- Mergers, divisions, or acquisitions that create new locations.
- Shifts in tax status (e.g., for-profit to non-profit).
- Changes in voting control (e.g., 50/50 owners admitting a 1% partner).
- Ownership transfers to trusts for estate planning purposes.
- The death of an owner with controlling interest.
In each case, institutions must provide detailed ownership documentation, including evidence of voting rights and the ability to appoint directors. Note: ED also requires reporting of ownership changes at the 5% level, but only changes in control (≥50% ownership or director appointment power) trigger CIO.
Ownership Reporting and Process Considerations
Key compliance steps for institutions include:
- 90-Day Pre-Closing Notice: Submit written notification to ED and students well before deal close.
- Seller Audits: Provide the most recent fiscal year audit within 10 days post-close. If the transaction is structured as an asset purchase, a seller stub compliance audit is required.
- Organizational Signatures: Approvals must include signatures from upstream organizational owners holding more than 50%.
- Letters of Credit (LOC): If the buyer lacks two years of audited financials, ED may require a LOC equal to 25% of Title IV funding. In some cases, additional LOC amounts (10%+) may be required to provide financial protection.
Post-Closing Requirements
After closing, institutions may face ongoing compliance obligations, including:
- Regular financial, enrollment, and faculty reporting.
- Restrictions on enrollment growth and new programs until ED approval is finalized.
- Separate maintenance of state and accreditor approvals during merger transitions.
Institutions that fail to comply risk delays in Title IV eligibility recertification and exposure to financial penalties.
Staying Informed
Because CIO requirements evolve, institutions and investors should:
- Monitor the FSA Partner Connect website for updates.
- Consult with state licensing agencies and accrediting bodies for their specific approval timelines.
- Work with experienced advisors to manage financial audits, documentation, and communications.
Final Thoughts
Change of ownership in higher education is a high-stakes process that requires foresight, coordination, and compliance discipline. From pre-transaction notifications to post-closing reporting, every step must be carefully managed to preserve federal aid eligibility and ensure continuity for students.
At SST Accountants & Consultants, we help institutions, and their stakeholders anticipate requirements, avoid costly delays, and navigate the complexities of higher education transactions with confidence.