Getting It Right: Panel Examines How to Better Handle School Closures

By Allie Arcese, Sr. Director of Strategic Communications & Engagement

By Allie Bidwell, NASFAA Senior Reporter

It’s not always a bad thing if an institution of higher education closes its doors, a senior Department of Education (ED) official said during a panel discussion at the Bipartisan Policy Center (BPC) Tuesday morning. But in order to reach that outcome, the closure has to be done in an intentional and organized way, the official said.

Speaking at an event focused on reforming the school closure process, ED’s Principal Deputy Under Secretary Diane Auer Jones said that when a school closes “in an orderly fashion, usually everyone wins.” When a school closes without warning—such as in the cases of Corinthian Colleges, ITT Technical Institute, and Argosy University—“it’s disruptive, expensive, unfair, stressful.” The recently concluded negotiated rulemaking process on accreditation and other issues is an attempt to move all school closures in a more structured direction, she said.

Through the process, she said, ED learned that not all accreditors require institutions to have teach-out plans in place, and others that do require them do not always require a sufficient level of detail in the event of a school closure. The consensus reached through the negotiated rulemaking process would create certain triggers that would require an institution to file a teach-out plan with its accrediting agency, Jones said, with detail that includes a list of programs, information about programs, and other institutions in the area that could potentially take on students.

The discussion also turned to a different negotiated rulemaking process on the borrower defense regulations. While ED published a Notice of Proposed Rulemaking (NPRM) for those regulations, it missed a deadline to publish a final rule to allow the regulations to be implemented by July 1, 2019. Jones said that while the NPRM contained language that would prevent students whose institutions have teach-out plans in place from receiving a closed school loan discharge, the final rule “has a very different proposal.”

As far as addressing the backlog of borrower defense to repayment claims, many of which have come as a result of school closures, Jones said ED is “stuck, we’re in a holding pattern,” due to a pending court case filed challenging the agency’s methodology to determine partial relief for some borrowers. She added that while ED is working on a new methodology, it does not have access to data from the IRS or from the Social Security Administration to work with, and ED does not want to require borrowers to provide “tons and tons” of their own financial information, due to the burden it would create.

Jones also touched on financial responsibility tests and letters of credit as a way to ensure the orderly closure of schools, noting that the financial responsibility tests provides information that’s too old to be useful. ED will typically require a letter of credit after a school fails the financial responsibility test, but the data is two years old. In a subsequent panel, some suggested moving toward using more real-time measures of financial stability, such as enrollment and tuition revenue.

“Some people think we can look into our magic ball and at any given moment see what the financials are at an institution at any moment in time. It doesn’t work that way,” Jones said. “You’re always looking in a rear view mirror, and oftentimes when things happen at an institution, they happen quickly and you’re not going to see that by looking two years or a year behind.”

A second panel discussion featuring a group of higher education experts—Barbara Brittingham of the New England Commission of Higher Education, Michael Dakduk of Career Education Colleges and Universities (CECU), Richard Ekman of the Council of Independent Colleges, Robert Kelchen of Seton Hall University, and Daniel Zibel of the National Student Legal Defense Network—discussed the broader landscape of school closures across different sectors, and the likelihood of an increase in closures.

Overall, changing demographics are presenting a challenge for many different colleges and universities across the country, Kelchen said, noting that it is a particularly “tough market” for non-selective institutions across all sectors. With declining enrollment, a shrinking pool of traditional-age applicants, and increasing financial need, “colleges are struggling to make the numbers work.”

While he said he’s skeptical of the number of closures that will come, there are concerns colleges face.

“They want to stay open, but in many cases it’s difficult to do,” he said.

Ekman, meanwhile, said the “doomsday” predictions of massive school closures are not likely, at least for private nonprofit colleges, which he said are “amazingly adaptable and robust.”

Dakduk said the numerous closures of for-profit institutions in recent years has not been surprising due to increased scrutiny of the sector.

Zibel added that when looking back at closures of large for-profit institutions, you see a “swirl of events” including financial instability and law enforcement investigations and that “it’s not a surprise” that the institutions closed.

“What is a surprise is what is the moment of closure and what is causing the house of cards to come tumbling down,” he said. “If you have increased communication around these issues it’s not going to be a surprise.”

Some on the panel expressed concern that taking certain actions would cause undue concern about school closure, leading to a self-fulfilling prophecy. Zibel said in order to avoid that “you need to start normalizing the conversation a little bit.” Institutions, he said, should be more upfront that they are “working to solve problems.”

“We’re not saying we’re going to close, but here is our plan,” Zibel. Talking about these things would ensure “‘closure’ doesn’t become a dirty word,” he added.


Publication Date: 4/24/2019

G. Michael J | 4/24/2019 11:39:13 AM

I understand that there's a lot going on before, when, and after schools close; and that the process needs to protect students and institutions as much as possible, but I can't envision an "everyone wins" scenario.

Aesha E | 4/24/2019 10:23:19 AM

Ooh, I think I misunderstood what I read yesterday; I thought that the thing about not allowing discharge when there's a teach-out was NOT in the NPRM but in the rule they want to release. Whoops!

Also, more excuses about why they're allowing borrower defense claims to languish. They won't be getting access to the SSA information any time soon, and I'm sure many of those who've filed claims would turn over what they're asking for if it meant their claim would be properly reviewed.

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