On July 28, 2022, the U.S. Department of Education (the Department) published in the Federal Register a Notice of Proposed Rulemaking (the Proposed Rule) to amend its regulations concerning changes in institutional ownership or control, revise its definition of “nonprofit institution” and other key terms related to institutional eligibility for federal student financial aid programs under Title IV of the Higher Education Act (Title IV), implement changes to the 90/10 rule for proprietary institutions’ Title IV eligibility, and establish regulations for Pell Grants to be awarded to incarcerated students. These and other Title IV eligibility matters were considered during negotiated rulemaking processes conducted by the Department in late 2021 and early 2022. Comments to the Proposed Rule must be submitted by August 26, 2022. Final regulations on the topics covered by the Proposed Rule must be published in the Federal Register on or before November 1, 2022, in order to take legal effect on July 1, 2023.
Changes in Institutional Ownership or Control
The Proposed Rule includes substantial amendments to the Department’s regulations concerning changes in institutional ownership or control. These regulations apply not only to proprietary institutions, but also to mergers, acquisitions and other control-related transactions for public and private nonprofit institutions. The Department’s proposals would, among other things:
- Clarify that “ownership” means any direct or indirect legal or beneficial interest in an institution or legal entity, which may include a voting interest or a right to share in the profits.
- Require 90-day prior notifications to the Department, and to enrolled and prospective students, of any change in ownership that would result in a change of control (as such terms are defined by the Department).
- Codify Department practice to require, as part of the “materially complete” application required to be submitted to the Department within 10 days following a change in ownership resulting in a change of control, not only documentation an institution’s most recently effective state authorization and accreditation, but also supplemental documentation that such state authorization and accreditation remained in effect as of the day before the change in ownership.
- Where the required financial statements are not available for the new owner or controlling party, codify Department practice to require financial protection (typically through an irrevocable letter of credit) as follows:
- At least 25% of the institution’s prior year Title IV volume if the institution’s new owner does not have two years of acceptable audited financial statements.
- At least 10% of the institution’s prior year volume of title IV aid if the institution’s new owner has only one year of acceptable audited financial statements.
- As deemed necessary in the Department’s discretion, financial protection in the amount of an additional 10% of the institution’s prior year Title IV volume, or such larger amount as determined by the Department.
- If any entity in the new ownership structure holds a 50% or greater direct or indirect voting or equity interest other institutions, the required financial protection may be based on a percentage of the prior year Title IV volume for all institutions under such common ownership.
- Clarify the process for extension of Title IV participation under a temporary provisional program participation agreement (TPPPA) following a change in ownership, and expressly permit the Department to include terms and conditions in the TPPPA that were not present in the institution’s previous Title IV program participation agreement.
- Clarify that the Department has the discretion to determine that an institution’s Title IV participation should not continue following a change of ownership and control.
- Distinguish between reportable changes in ownership on the one hand and…