Guidance Issued on Triggers Under Financial Responsibility Standards

New guidance on documentation requirements for mandatory and discretionary triggers under the new financial responsibility standards regulations were released by the Department of Education.  The guidance was released on September 17 and institutions that meet the criteria to report to the Department must do so within 21 days.

Institutions must comply with a longer list of requirements to demonstrate compliance with the Department’s financial responsibility standards under new regulations that went into effect on July 1, 2024. For institutions that fail, a form of financial protection will be required by the Department, which is typically a letter of credit of 10 percent of the prior fiscal year’s total Title IV funds. In general, the new triggers allow the Department much greater latitude to identify high-risk events and more easily obtain financial protection to offset the cost of loan discharges when an institution closes or engages in behavior that leads to approved borrower defense to repayment claims.

The new regulations were part of the Department second set of final accountability regulations that cover a broad range of functions on college campuses. The first set of regulations related to Financial Value Transparency and Gainful Employment.  Both sets of regulations were issued in the fall of 2023, and emerged from the negotiated rulemaking on Institutional and Programmatic Eligibility that concluded in March 2022. The regulations are intended to address the Department’s concerns over institutional accountability and consumer protection, particularly with respect to institutions that close without warning.