New Regulations by the Department of Education: Ensuring Accountability and Enhancing Student Protections

On October 31, 2023, the Department of Education (ED) published final regulations amending various aspects of the Higher Education Act of 1965 (HEA). These changes, effective July 1, 2024, aim to enhance the financial responsibility, administrative capability, certification procedures, and student eligibility criteria, especially for those without a high school diploma. The new regulations are a response to evolving challenges in higher education, intending to better protect students and taxpayers.

Financial Responsibility

Financial responsibility standards evaluate an institution’s financial stability, including factors such as cash management, debt obligations, and overall financial health. Institutions must demonstrate that they can sustain operations without relying excessively on federal aid or facing significant financial risks that could jeopardize their ability to fulfill their educational mission.

The new regulations significantly enhance the ED’s ability to identify and mitigate financial risks among institutions. Key changes include:

• Mandatory and Discretionary Triggers – New triggers are established to provide earlier notice of potential financial instability, allowing for preemptive measures by the ED such as letters of credit or recalculations of composite score.
• Composite Score Requirements – Institutions must understand the revised methodology for calculating financial responsibility composite scores. This includes adhering to updated reporting and audit requirements to ensure accurate financial health assessments.
• Audit Submission Deadlines – Institutions must now submit compliance audits and financial statements either six months after the end of their fiscal year or 30 days after the auditor’s report, whichever is earlier. Under current regulations, nonprofit and public institutions subject to the Single Audit Act must still submit their annual audits by the earlier of 30 days after audit completion or nine months following the fiscal year.
• Ownership Documentation – Institutions with significant foreign ownership must provide detailed legal status documentation.
• Related-Party Disclosures – Institutions must include a disclosure that includes all related-party transactions. Such information must include, but is not limited to, the name, location, and description of the related entity, including the nature and amount of any transaction between the related party and the institution, financial or otherwise, regardless of when it occurred.
  • Institutions will need to develop an approach to identifying related parties and provide the required information in the disclosure. Institutions that would rather not include an unaudited related party disclosure must consult with their auditors on the approach and composition of a note that could meet both GAAP and regulatory requirements.

Administrative Capability

Administrative capability standards, on the other hand, assess an institution’s capacity to administer federal student aid programs efficiently and effectively. This includes having adequate systems for financial aid disbursement, student records management, and compliance with federal regulations governing higher education.

The amendments aim to ensure that institutions demonstrate robust administrative practices to support student success and integrity in financial aid administration. Key changes include:

• Enhanced Financial Aid Counseling – Institutions are now required to offer detailed financial aid counseling, including cost of attendance, types of aid, net price, and relevant deadlines.
• Career Services and Externship Opportunities – Institutions must provide adequate career services and ensure clinical or externship opportunities are accessible and timely.
• Prohibition of Aggressive Recruitment and Misrepresentation – Explicitly prohibits aggressive recruitment tactics and misrepresentation, emphasizing the need for integrity and transparency in institutional practices, and requires that institutions not be involved in significant negative legal actions.

Certification Procedures

Certification procedures outlined by the ED require institutions to undergo rigorous assessments to participate in federal student aid programs. These procedures involve detailed reviews of an institution’s financial statements, audit reports, and compliance history. Institutions must meet established criteria to gain and maintain certification, ensuring they continue to meet the ED’s standards for financial responsibility and administrative capability.

These changes to certification procedures create a more stringent process for certifying institutional eligibility to participate in Title IV programs:

• Elimination of Automatic Renewal – Certification is no longer automatically renewed after 12 months without departmental decision, ensuring continuous and rigorous oversight of institutional eligibility.
• Provisional Certification and Performance Measures – New criteria for provisional certification and supplementary performance measures for ongoing eligibility are established to maintain high standards of institutional performance and accountability.
• Additional guidance on Financial Value Transparency and Gainful Employment

Ability to Benefit (ATB)

The ATB provisions are another critical aspect of federal student aid eligibility. These provisions allow individuals without a high school diploma or equivalent to qualify for federal financial aid if they demonstrate the ability to benefit from postsecondary education through alternative criteria, such as passing an approved test or completing a designated coursework.

ATB provisions aim to provide educational opportunities to individuals who may not meet traditional academic prerequisites but have the potential to succeed in higher education and contribute positively to society.

The ATB regulations are updated to clarify eligibility criteria for students without a high school diploma and include the following key changes:

• Eligible Career Pathway Programs – Codifies the definition and requirements for career pathway programs, ensuring they provide meaningful education and employment opportunities.
• State Process and Documentation – Establishes new safeguards and documentation requirements for institutions to validate and maintain eligible career pathway programs.

How Weaver Can Help

The ED’s updated standards are essential mechanisms for ensuring accountability and maintaining the quality and integrity of higher education in the United States. By upholding these standards, the ED aims to foster a more accountable and transparent higher education system, while striving to protect students, taxpayers, and the broader educational community. Institutions must adapt to these changes to continue participating in federal financial aid programs, ensuring they meet the higher standards set to protect educational and financial integrity.

To find out how Weaver can assist your institution in complying with these changes, contact us. We are here to help.

Authored by Bryant Sanchez

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