The U.S. Department of Education (ED) continues to monitor institutions’ compliance with Section 117 of the Higher Education Act (Section 117), which requires higher education institutions to report certain gifts from and contracts with foreign sources. On July 22, ED updated a July 8 Electronic Announcement with a link to additional guidance about its interpretation of Section 117 reporting requirements, as reflected in a June 23 presentation to the American Council on Education (ACE). On August 16, in a follow-up letter from ACE to ED, ACE indicated that it was “pleased to learn that ED plans to close the outstanding Section 117 investigations that remain open; that ED will address the concerns and issues with the existing reporting portal; and that Section 117 management will be transferred [from the Office of the General Counsel] back to Federal Student Aid (FSA).”
Overview of Section 117
Section 117 requires an “institution” to file a disclosure report when it “receives a gift from” or “enters into a contract with” a “foreign source” that is valued at US$250,000 or more, either alone or when combined with other gifts and contracts with the same foreign source in the same calendar year. See 20 U.S.C. §1011f. Reports are due twice per year on January 31 and July 31.
The statute authorizes ED to promulgate regulations related to Section 117 compliance. The statute also authorizes the Attorney General of the United States (i.e., the U.S. Department of Justice (DOJ)) to bring a civil action against an institution at the ED Secretary’s request “[w]henever it appears that an institution has failed to comply with the requirements of [Section 117], including any rule or regulation promulgated under this section.” 20 U.S.C. § 1011f(f)(1).
To date, ED has issued subregulatory guidance instead of regulations, including a November 13, 2020 Notice of Interpretation (NOI) that sought “to clarify the Department’s enforcement authority for failure to adequately report under [Section 117].” The NOI asserts that ED can enforce Section 117 compliance as a Title IV matter, i.e., that compliance is a required component of an institution’s Program Participation Agreement to participate in the federal student financial aid programs. In other words, a Title IV violation could under the NOI result in “fines, limitations, suspensions, or termination of the institution’s Title IV participation.”
Between June 2019 and January 2021, ED initiated investigations into 19 institutions’ compliance with Section 117. To date, ED has announced formal closure of four of those matters.
ED Recent Guidance
The July 2022 Electronic Announcement indicated that ED “is committed to ensuring compliance with Section 117 and working collaboratively with [institutions of higher education] to identify and address potential foreign malign influences.” The slide deck linked in the Electronic Announcement covers eight topics: Foreign Sources, Transaction Amount, Gift Reporting, Contract Reporting, Restricted Gifts and Contracts, Covered Institutions and Entities, Reporting Portal and System, and Compliance Generally. The presentation featured Lisa Brown, ED’s General Counsel, and Richard Cordray, the FSA Chief Operating Officer.
Highlights from the updated guidance include the following:
- Institutions that do not report timely (i.e., in accordance with statutory deadlines) “[are] not in compliance with Section 117.”
- Contracts are valued at the time of execution. Gifts are valued based on the amount actually received by the institution.
- “Money-out,” arms-length transactions are generally not reportable, but “[t]ransactions well below market value – even if ‘money out’ – may be reportable”.
- Institutions must make a “good faith effort” to determine whether a gift or contract relates to a foreign source. Such efforts may include gathering information from the…