The Department of Education (DOE) recently revised the financial responsibility standards to ensure institutions participating in federal financial aid programs maintain necessary fiscal stability and accountability.

Details of the final rule, which were published in the Federal Register on October 31, will go into effect on July 1, 2024. The DOE also published a three-page fact sheet summarizing the final rule.

New Financial Responsibility Standards

  • Enhanced Scrutiny: Institutions must submit more comprehensive financial information, providing a clearer picture of their financial health.
  • Composite Score Adjustments: Adjustments to the methodology for calculating the composite score used to assess financial responsibility, potentially affecting an institution’s eligibility for federal aid programs.
  • Event Reporting: Additional reporting requirements for certain events that might indicate financial risks, such as lawsuits, loan defaults, or significant fluctuations in revenue or enrollment.

These events include when institutions:

  • Have a failing financial responsibility composite score because they are required to pay a debt or other liability or are subject to a lawsuit by Federal or State actors
  • 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 Department oversight by contributing to the school that results in a passing score and then making a distribution after the fiscal year ends; or enter into debt covenants that could cause adverse conditions if the Department places limitations on the institution’s access to Federal financial aid
  • Declare financial exigency or enter a receivership

Implications for Institutions

  • Institutions may need to review and potentially alter their financial practices to meet the enhanced standards.
  • Financial monitoring will become more rigorous, requiring continuous oversight and potentially more frequent reporting.
  • Compliance with the new standards will be critical to maintain eligibility for federal financial aid programs.

Transcript Withholding Policies

In an effort to protect students, the Department of Education has also addressed the practice of withholding transcripts from students as a means to collect debts.

Institutions cannot withhold transcripts—or take other negative actions against a student—in cases where a debt on a student’s account is created because of an error made by the institution in administering Title IV funds, or when there is fraud or misconduct by the institution or its employees.

An institution will have to provide an official transcript to a student for payment periods when the student received Title IV aid and all institutional charges for that payment period were paid or included in an agreement to pay.

Implications for Students Institutions

  • Students will have improved access to their educational records, which can facilitate their educational and professional advancement.
  • Institutions will need to review and adjust their debt collection practices to comply with these new policies.

Our Role

As a committed accounting and business advisory firm specializing in the higher education sector, we stand ready to guide you through the evolving landscape. Our expertise allows us to provide assistance in various key areas::

  • Compliance Review: We will collaborate with you to verify that your financial reporting and practices align with the latest standards.
  • Financial Planning: Our dedicated team can support you in adapting and enhancing your financial strategies to uphold or enhance your institution’s financial responsibility score.
  • Process Improvement: We offer guidance in updating your policies and procedures to meet the requirements of new transcript withholding regulations.

Next Steps

It is crucial for your institution to promptly comprehend and implement these changes. Our team is available to assist you in navigating through this transition, ensuring sustained compliance and success for your college or university.