On October 24, the Biden-Harris administration announced amendments to the regulations implementing title IV of the Higher Education Act of 1965 (HEA). According to the fact sheet, the amendments are intended to allow the Department of Education (ED) to better protect students from the negative effects of sudden college closures, restrict colleges from withholding course credits paid for with federal money from students’ transcripts, require colleges to clearly communicate how much financial aid students will receive, and provide a more streamlined process for states to approve postsecondary opportunities for students without a high school diploma or its equivalent. The amended regulations will take effect on July 1, 2024.

Specifically, the intent behind the amendments was to address ED’s concerns about the number of colleges that closed abruptly, leaving students with few, if any options to complete their programs and taxpayers on the hook for student loan discharges. ED also cited instances where students struggled to find employment due to their programs not meeting licensure requirements or providing inadequate career services.

The proposed amendments add to a string of actions taken by the Biden administration related to student loans beyond student loan forgiveness issues, including a Consumer Financial Protection Bureau report on tuition payment plans offered by colleges and universities (discussed here).

Amendments to the regulations were made in the following areas:

• Financial Responsibility. The amendments give ED the ability to act more swiftly when institutions show warning signs of failure and require schools to report the occurrence of a triggering event.
  • The amendments outline certain mandatory triggering events that will result in requests for a letter of credit or other forms of financial protection to be submitted to ED.
  • These events include when institutions:
    • Have a failing financial responsibility composite score.
    • Are at risk of losing access to federal aid due to having high cohort default rates, failing the 90/10 revenue requirement, or having a significant share of aid in failing gainful employment programs.
    • Take steps to manipulate their composite score or discourage ED oversight such as by making a contribution to the school that results in a passing score and then making a distribution after the fiscal year ends.
    • Declare financial exigency or enter a receivership.
  • The amendments also include several discretionary triggers that could result in a requirement to provide financial protection.
• Administrative Capability. The amendments strengthen how ED administers the statutory requirement that institutions must demonstrate that they are capable of administering the title IV programs, including by:
  • Requiring that institutions provide adequate financial aid counseling and communications to students.
  • Limiting an institution from having a principal or affiliate whose misconduct or institutional closure contributed to significant liabilities to the federal government.
  • Requiring institutions to provide, within 45 days of the student finishing necessary coursework, geographically accessible clinical or externship options that are required prior to the completion of a program.
  • Strengthening requirements that institutions develop and follow adequate procedures to evaluate the validity of a student’s high school diploma.
  • Requiring institutions to provide adequate career services.
• Certification Procedures. The amendments address the agreements institutions sign with ED to participate in its financial aid programs and strengthen ED’s ability to increase scrutiny of institutions that exhibit concerning signs.
• Ability to Benefit. The HEA establishes three “ability to benefit” alternatives that a student without a high school diploma may pursue to access federal financial aid, including participating in a state process approved by ED.
  • The amendments establish safeguards to ensure state processes are adequate and establish reporting requirements.
  • The amendments also define an eligible career pathway program and set clear documentation standards for institutions to demonstrate compliance.

The amendments incorporate public comments received following the publication of the draft rules in May 2023. The final regulations were published in the Federal Register on October 31, 2023 and are available here.