Neg Reg Day 4: Committee Moves Through Changes in Ownership and Certification Procedures as Final Day Approaches

By Owen Daugherty, NASFAA Staff Reporter

Negotiators sifted through a packed agenda during the second to last day of the final session of the Institutional and Programmatic Eligibility negotiated rulemaking committee, as the group must take consensus votes on all seven issue papers before the end of the week.

Picking up with the change of ownership issue paper that they began reviewing on Wednesday, the committee heard from the Department of Education (ED) about changes it made last night to its definition of nonprofit institutions in consideration of negotiator recommendations yesterday.

ED outlined language in the proposed regulations that uses "fair market assessments/value" with regard to continued financial arrangements between converted for-profits and their former owners, and with respect to revenue-sharing agreements despite the fact that several negotiators objected to that language during Wednesdays session.

The language in question carved out an exception for such financial arrangements if the institution demonstrates that the arrangement is reasonable based on fair market value.

Negotiators again reiterated their displeasure with the language ED is planning to use, with several detailing the potential for abuse that such language could bring.

"This language is actually worse than nothing, and doesn't help the problem that the regulation was attempting to address," said Carolyn Fast, a negotiator on behalf of consumer advocacy groups. "It would be better in my opinion to scratch this entire section rather than to legitimize the kinds of relationships that we're trying to avoid."

Barmak Nassirian, a negotiator on behalf of groups representing student veterans, called the inclusion of the language a deal-breaker and suggested the committee should move on and continue discussion on change of ownership, considering the fact that ED appeared unlikely to budge on the issue.

Kelli Perry, a negotiator representing private nonprofit institutions, expressed concern over another part of the nonprofit institution definition that specifies that no part of its net earnings benefits any private for-profit entity. She noted that nonprofit institutions have a multitude of arrangements with for-profit entities that benefit those entities, such as food service contracts and bookstores. ED legal counsel clarified that it is not EDs intent to limit those types of business relationships.

Perry also asked ED for an update on a question she asked late yesterday regarding proposed language in the definition of distance education that would require all distance education programs to be associated with the main campus of the institution. Her question was whether ED would permit distance education programs to be associated with branch campuses, given the oversight ED already has over branch campuses. Greg Martin, negotiating on behalf of ED indicated that distance education programs could not be associated with branch campuses, only main campuses, but did agree to take the issue back to ED leadership for consideration. In response to concerns voiced over burden, ED did indicate willingness to include a one-year transition period for this provision in the preamble to allow schools time to comply.

Following a brief caucus called by Nassirian with negotiators representing consumer groups, state agencies, legal aid groups, state attorneys general, student borrowers, and civil rights organizations, the committee took a consensus vote on the change of ownership issue paper.

A vast majority of negotiators issued "no" votes on the consensus check, with the only "yes" vote coming from the department.

Negotiators who explained their "no" votes overwhelmingly called on the department to return to language from the second rulemaking session, reiterating concerns that committee members previously raised.

The committee then moved on to discuss the certification procedures issue paper. ED indicated that it chose to remove language it had proposed in earlier sessions that would have given them discretion to put institutions on provisional certification for repeat findings of noncompliance in audits or program reviews. However, ED chose to add a new option for provisional certification based on EDs determination that the school was at risk of closure.

Adams said it was unfortunate that ED made the decision to add risk of closure language to the regulations, equating an announcement that an institution was at risk of closure to a bank run, which will effectively lead it to closing by scaring people away.

ED's Martin cited previous instances of precipitous closure and that this language reflected a desire on EDs part to take action when it sees a risk of closure before other events occur that put students at risk.

Legal counsel for ED clarified that the announcement would come in the form of the secretary of education informing the institution of the decision and opening room for a discussion, not an immediate announcement to the public.

The committee then moved on to discuss the Program Participation Agreement section of the issue paper, reviewing changes ED made to from the previous iteration.

Anne Kress, a negotiator on behalf of two-year public institutions, took issue with language that would limit Title IV aid eligibility for programs preparing students for gainful employment to the lesser of the minimum clock hours required by the state or the national median of the minimum hours required for training.

Kress noted that, while she understands EDs concerns about the high number of training hours required in some states in certain occupations, neither schools nor students have any control over the number of hours of training a state requires for licensure. She suggested that ED focus its energy on those states and not to address the problem through students. Adams agreed, noting that the federal government should not be determining how many hours are needed to become licensed.

Negotiators questioned whether there were other instances in regulations where Title IV aid only funds part of the published length of a program and wondered how the policy would interact with Satisfactory Academic Progress (SAP) regulations. Martin said the department would need to further consider this policys interaction with SAP, adding that it is not immediately clear what the interplay would look like.

Negotiators then spoke at length expressing their issues with EDs proposed language that an institution must ensure that each program it offers is programmatically accredited if required by the state or a federal agency, and that the program satisfies the applicable educational prerequisites for professional licensure or certification requirements in the state.

Laura Rasar King, representing accrediting agencies, argued strongly in favor of including pre-accreditation status as satisfying the programmatic accreditation requirement, noting that it is standard practice that pre-accreditation is granted until a program graduates its first class, and as such, not permitting pre-accreditation as acceptable would create significant barriers to establishing new programs. ED later made changes to the language to accommodate pre-accreditation status if that status were acceptable to a federal or state agency. 

Negotiators were split on the impact of new language ED proposed that would require institutions to certify as a condition of their participation that their programs comply with all state consumer protection laws. Several negotiators expressed concern that this language would essentially upend state authorization reciprocity agreements like NC-SARA, while others argued those concerns were overblown. ED clarified that the language does not prejudice NC-SARA and that state authorization reciprocity would remain intact even with the new language.

Discussion then moved to the next section of the issue paper, where ED addressed the practice of transcript withholding for overdue student account balances. Negotiators had requested broad prohibition of the practice, but ED returned to the table with a more narrow ban, limiting transcript withholding only in instances where it is related to a balance owed by the student that resulted from an error in the institutions administration of the Title IV programs or in the case of fraud of misconduct by the institution.

This portion received significant pushback, as negotiators voiced displeasure with the language not going nearly far enough as it relates to transcript withholding. Many called on ED to include language that would outright ban transcript withholding.

EDs response was that it did not have the authority to ban transcript withholding, arguing it needs a clear Title IV connection to regulate in this area and the language included attempts to strike a balance.

The committee continued through the issue paper, finishing with the institutional and programmatic information section, though following constructive suggestions regarding EDs proposal surrounding the disclosure requirement, the department agreed to make some changes for the sake of clarity and return Friday morning with updated language for the committee to take a consensus vote.

Fridays final session will feature a consensus vote on the certification procedures issue paper and discussion as well as a consensus vote on the 90/10 issue paper, the last one on the committees agenda for the session.

Stay tuned to NASFAAs Todays News for more coverage of negotiated rulemaking sessions throughout the week, and read up on our previous rulemaking coverage.


Publication Date: 3/18/2022

Peter G | 3/18/2022 5:12:52 PM

I agree with Anne Kress' comments on the state licensure, but would add there are three other levels:
1) There's no infrastructure for a school to pre-emptively determine which programs would even be impacted, so schools (and students!) would in some cases only determine aid was being yanked when it came back flagged from the FSA School Eligibility tea.
2) Yes, there are programs that are obviously subject to state licensure in every state - nursing, cosmetology, etc. But there are programs where it's less clear, and the list of programs that may be impacted is fairly extensive, as we've discovered working through the State Auth issues.
3) There may be valid reasons for states to have differing licensure requirements, including scope of practice or liability, etc. covered elsewhere in state law.

While I can appreciate ED's concern, I don't think a single white paper is sufficient basis to suddenly attempt to tackle this issue in this manner.

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