President Joe Biden’s administration announced final regulations to significantly enhance oversight and accountability for higher education institutions and strengthen consumer protections for student borrowers.
The new rules will:
- Strengthen the United States Department of Education’s (ED) ability to protect students and taxpayers 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 to students how much financial aid they will receive—a common source of confusion and error
The regulations, which will go into effect July 1, 2024, directly answer President Biden’s agenda to make college more affordable, hold colleges accountable, and protect taxpayers and consumers.
In particular, the rules address the ED’s concerns about the substantial number of colleges that have closed abruptly, the largest of which were private, for-profit institutions, leaving students with few—if any—options to complete their programs elsewhere and taxpayers on the hook for student loan discharges.
Beyond abrupt closures, there have also been many instances in which students struggle to find employment due to their programs not meeting licensure requirements or providing inadequate career services.
The final rules cover four areas.
This relates to situations where the ED can more swiftly obtain financial protection, like a letter of credit when a college exhibits warning signs of a closure.
Administrative capability lays out additional instances in which institutions must show they have sufficient resources and procedures in place for areas like career services and financial aid communication to participate in the federal student aid programs.
These procedures address the conditions the ED can place in the written agreements it has with colleges to participate in the federal student aid programs.
Ability to Benefit
These regulations lay out a process for states to approve postsecondary programs that serve students who don’t have a high school diploma.
Final Regulation Changes
The final regulations make the following changes.
The final rules establish warning signs from colleges that make it easier for the ED to secure letters of credit or other forms of upfront financial protection. These include situations such as an institution showing financial risk due to paying a debt, lawsuits by federal or state actors, or being in danger of losing access to federal student aid due to having a high cohort default rate.
Such changes are critical to both dissuade risky behavior and help protect taxpayers from the cost of sudden closures. From 2013–2022, the ED sought more than $1.6 billion in liabilities from institutions but collected only $344 million.
The ED is responsible for ensuring institutions have the administrative capability to effectively administer the federal student aid programs. However, when an institution exhibits problems, the ED often lacks the ability to hold institutions accountable.
The final rules add several requirements for colleges, including:
- Clearer, more comparable information on financial aid, including distinguishing between scholarships and loans that must be repaid
- Prohibiting colleges from withholding transcripts for federally funded courses
- Requiring adequate career services
- Limiting the employment of individuals with a history of risky management of the federal student aid programs
The final rules lay out additional conditions the ED can place on institutions when they exhibit warning signs, such as requiring a teach-out plan or agreement; or limiting the addition of new programs and locations.
The rules also take steps to limit student aid availability to career-training programs that aren’t longer than state requirements for certification or licensure, including through reciprocity agreements or provisional licensure.
Additionally, the rules require that institutions certify that institutions operating through distance education will abide by any state laws related to the closure of postsecondary institutions, such as rules for teach-outs, record retention, and tuition recovery or surety bonds.
Ability to Benefit
The ability to benefit rules establish clearer processes for access to federal aid for students who don’t have a high school diploma or its recognized equivalent. The rules will increase access to postsecondary education for more students.
Additional Efforts to Strengthen Accountability
This announcement builds on the administration’s stated goals of holding colleges accountable, protecting students and taxpayers, and helping students afford the education and skills they need after high school.
In October 2023, the ED revitalized the gainful employment rule to help ensure institutions do their part to deliver real financial value to students and taxpayers. The ED has also approved $127 billion in relief for nearly 3.6 million students, including relief for borrowers whose colleges took advantage of them or closed suddenly.
Biden has also enacted an increase to Pell Grants and wants to put the grant on a path to doubling the maximum award by 2029, while proposing tuition-free community college and new tuition assistance at Historically Black Colleges and Universities and minority-serving institutions.
The ED developed these final rules in response to public comments received following the publication of the draft rules in May 2023.
The final regulations—as well as a fact sheet on the final rule—were published in the Federal Register on October 31, 2023.
We’re Here to Help
To learn more about these final rules and accountability efforts for higher education institutions, contact your Moss Adams professional.