U.S. Department of Education Final Rule on Distance Education and Innovation: What You Need to Know

On September 2, 2020, the U.S. Department of Education (“Department”) published a Final Rule, available at https://ifap.ed.gov/federal-registers/FR090220, on distance education and innovation.  The regulations are effective July 1, 2021; however, institutions are permitted to voluntarily implement any or all provisions as of September 2, the date of publication of the final rule.  The Department states that the rule is intended to “strike a balance” between fostering increased innovation in distance education offerings while protecting students and taxpayers.The rule makes the following regulatory changes:

• Allowing asynchronous delivery of some courses or portions of courses delivered as part of clock hour programs (this significant change was made in response to public comments on the proposed rule);
• Providing flexibility to distance education, competency-based education (CBE), and other types of educational programs that emphasize demonstration of learning rather than seat time when measuring student outcomes;
• Clarifying the distinction between distance education and correspondence courses and more clearly defining the requirements of “regular and substantive interaction” between students and faculty and the permissibility of engaging instructional teams in the delivery of education through distance learning;
• Clarifying the requirements for direct assessment programs, including how to determine equivalent credit hours and how to distribute aid to simplify administration, reduce confusion, and protect taxpayers;
• Limiting the requirement for institutions with strong track records to obtain approval from the Education Secretary for only the first direct assessment program offered by the school at a given credential level;
• Requiring institutions to report to the Education Secretary when adding a second or subsequent direct assessment program or establishing a written arrangement for an institution or organization that is not eligible to participate in the title IV, HEA program to provide more than 25 percent, but no more than 50 percent, of a program;
• Recognizing the value of “subscription-based programs,” and simplifying rules regarding the disbursement of title IV funding to students enrolled in these programs; and
• Requiring prompt action by the Department on applications by institutions to the Education Secretary seeking certification or recertification to participate as an eligible institution in the HEA, title IV program.

The rule also adds a definition of “juvenile justice facility” to ensure that students incarcerated in a juvenile justice facility continue their eligibility for Pell Grants.

Additional regulatory changes include:

• Encouraging employer participation in developing educational programs by clarifying that institutions may modify their curricula based on industry advisory board recommendations without relying on a traditional faculty-led decision-making process;
• Simplifying clock-to-credit hour conversions and clarifying that homework time included in the credit hour definition do not translate to clock hours, including for the purpose of determining whether a program meets the Department’s requirements regarding maximum program length;
• Encouraging institutions to give students equal credit for time spent preparing for and participating in lecture and laboratory courses;
• Clarifying that an institution may demonstrate for purposes of participating in title IV, HEA programs, a reasonable relationship between the length of a program if the number of clock hours does not exceed either 150 percent of the minimum requirement to work in the State in which the institution is located or 100 percent of the minimum hours in an adjacent State;
• Providing that the Education Secretary will rely on the accrediting agency or State authorizing agency to evaluate an institution’s appeal of a final audit or program review determination by the Department that includes a finding about the institution’s classification of a course or program as distance education or the institution’s assignment of credit hours; and
• Encouraging closing institutions to offer quality teach-outs by permitting the application of sanctions to individuals or institutions affiliated with other institutions that closed without executing a viable teach-out plan or agreement. 

The final rule culminated a rulemaking that began nearly two years ago, building on the Trump administration’s Rethink Higher Education agenda that “challenged past practices, assumptions, and expectations about what ‘college’ is, what it should do, and how it should operate.” It remains to be seen whether these regulations would be subject to amendment from a change in Secretary, but we view this set of rules as less controversial than others amended or rescinded by Secretary DeVos (such as Gainful Employment and Borrower Defense to Repayment) and not likely to be a priority for change by a new Administration. Institutions of higher education should familiarize themselves with these rule changes as they develop distance education programs.

U.S. Department of Education Extends Clery Act Annual Security Reporting to December 31

In a welcome bit of regulatory relief at time when institutions of higher education are working to comply with a new Title IX rule by August 14, 2020, the Department announced on July 10 that it is extending the date for institutions to distribute their Annual Security Report (ASR) and Annual Fire Safety Report (AFSR) to required recipients to December 31, 2020 (from October 1). The Department does encourage institutions to distribute their reports on the normal schedule if possible.

In addition, the electronic annual crime and fire statistics survey will now be open now from November 18, 2020 through January 14, 2021 for transmission of data to the Department.

The Department states in its July 10 announcement that it “encourages schools to take appropriate steps to ensure the health and safety of their students and employees, to continue to act in accordance with their campus safety policies and procedures, and to advise the campus community about changing conditions that may affect their safety or any major changes to safety policies or practices.” Institutions continuing or returning to partial or full on ground operations should keep in mind that they are still obligated to comply with their published campus safety policies and procedures, including with regard to emergency notifications and crime statistics collection and reporting. Any changes to published procedures should be communicated to the campus community.

https://ifap.ed.gov/electronic-announcements/040320UPDATEDGuidanceInterruptStudyRelCOVID19

 

Foreign Gifts: New Online Portal Emphasizes DeVos “No Excuses” Approach to Reporting

On June 22, 2020, the U.S. Department of Education published an electronic announcement reminding institutions of higher education of their mandatory reporting obligations under Section 117 of the Higher Education Act (“Section 117”) (20 U.S.C. § 1011f) and launched a new reporting portal to streamline the mandatory reporting process: https://partners.ed.gov/ForeignGifts.

Secretary DeVos has explained that foreign gift reporting under Section 117 is essential to the “transparency and accountability” necessary to “protect academic freedom and our country’s national security and economic future.”

The Department has at least ten ongoing investigations of major universities underway regarding Section 117 compliance, and more are expected.  With this clear signal from the Department that this is a significant enforcement priority, colleges and universities should evaluate their past and current disclosures, past and current interpretation of Section 117 requirements, and make determinations about the extent of any additional reporting required or recommended.

Section 117 requires institutions of higher education to disclose to the U.S. Department of Education information about ownership and control by foreign sources, contracts with foreign sources, and gifts from foreign sources.  The reporting obligation applies to any institution, public or private, or, if a multi-campus institution, any single campus of such institution, in any State, that is legally authorized within such State to provide a program of education beyond secondary school, that provides a program for which the institution awards a bachelor’s degree (or provides not less than a two-year program which is acceptable for full credit toward such a degree) or more advanced degrees, and is accredited by a nationally recognized accrediting agency or association and to which institution Federal financial assistance is extended (directly or indirectly through another entity or person), or which institution receives support from the extension of Federal financial assistance to any of the institution’s subunits.

Institutions that are owned or controlled by a foreign source must file two disclosure reports per year—one no later than January 31 and the other no later than July 31. All other institutions that receive a gift from or enter into a contract with a foreign source, the value of which is $250,000 or more, considered alone or in combination with all other gifts from or contracts with that foreign source within a calendar year, must file a disclosure report no later than January 31 or July 31, whichever is sooner.

The announcement makes clear that foreign gift reporting is considered by the Department to be an “information collection” process subject to 18 U.S.C. § 1001, which provides that whoever knowingly and willfully falsifies, conceals, or covers up by any trick, scheme, or device a material fact; makes any materially false, fictitious, or fraudulent statement or representation; or makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry, may be subject to fines and imprisonment.

The Department also states that if an institution fails to report as required, the Secretary may request that the Department of Justice initiate a civil action in federal district court.

The Electronic Announcement is available at: https://ifap.ed.gov/electronic-announcements/062220ReminderRprtOwnerContrlContrctsGiftsForeignSrc

 

U.S. Department of Education Releases Additional CARES Act and COVID-19 Guidance

On March 15, 2020, the U.S. Department of Education published additional guidance for postsecondary institutions extending and clarifying regulatory flexibilities contained in the CARES Act and related to COVID-19.

Key components of the guidance include:

  • Extension of the time frame for authorization by the Department of temporary distance education approval for previously on-ground programs to include payment periods that overlap March 5, 2020, or that begin on or between March 5, 2020, and December 31, 2020.
  • Waiver of the Department’s requirement that an institution offering at least 50% of a program by distance education to be accredited for distance education by an accrediting agency that has distance education in the scope of its recognition. The waiver is effective for payment periods that begin on or before December 31, 2020.
  • Six month extension of the Title IV financial statement and compliance audit deadlines.

The guidance also includes important new information concerning:

  • Accreditation site visit extension flexibilities and requirements.
  • Extension by six months of the “materially complete application” requirements following a Title IV change of ownership and control to allow additional time for the institution to remain TItle IV certified while secure state and accreditor approvals as well as the audited same day balance sheet.
  • Waiver of MCAT score requirement for foreign graduate medical school admissions for students admitted to medical school during an admissions year in which the MCAT was unavailable to students for some period of time during that year due to COVID-19 related interruptions.
  • Additional flexibilities concerning verification of high school (or equivalent) completion status that applies until December 31, 2020, for both the 2019-2020 and 2020-2021 award years.
  • Treatment of the PPP loan forgiveness amount in calculating the institution’s composite score.
  • Treatment of student workers when determining the number of employees for PPP loan eligibility.
  • Tax treatment of HEERF and emergency financial aid grants to students.
  • Clarifications  regarding Campus-Based Waivers/Reallocation and FSEOG Emergency Aid Grants.
  • Clarifications regarding Leaves of Absence (LOA) flexibilities.
  • Return of Title IV Funds (R2T4) guidance and processing detail.
  • Clarifications regarding Satisfactory Academic Progress (SAP) flexibilities.
  • Clarifications regarding Teacher Education Assistance for College and Higher Education (TEACH) Grant Program flexibilities.

Institutions should carefully analyze the full guidance document and related Q&A , available here: https://ifap.ed.gov/electronic-announcements/051520UPDATEDGuidanceInterruptStudyRelCOVID19May2020

 

 

U.S. Department of Education Makes Available CARES Act Funds for Institutions of Higher Education

On April 21, 2020, the Department made available the institutional portion of the Higher Education Emergency Relief Fund (HEERF) under Section 18004(a)(1) and 18004(c) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

By statute, the institutional HEERF funds are to be used to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising; endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.

Through an associated FAQ, the Department has provided further guidance and limitations on use of the institutional HEERF funds:

  • An institution must enter into the Funding Certification and Agreement with the U.S. Department of Education to receive and distribute Emergency Financial Aid Grants to Students in order to be eligible to receive the institutional HEERF portion of the funds. In other words, institutions cannot select only to receive the institutional, but not student, portion of the HEERF funds provided by Congress.
  • Institutions that have provided refunds to students for room and board, tuition, and other fees (such as activities fees) may use the institutional HEERF funds to reimburse themselves, so long as the institution can demonstrate that such costs were incurred as a result of significant changes to the delivery of instruction, including interruptions in instruction, due to coronavirus. Institutions will need to be able to document how those reimbursements are related to the COVID-19 interruption. 
  • Institutions may reimburse themselves for refunds previously made to students on or after March 13, 2020, but only if they can demonstrate that such refunds were necessitated by significant changes to the delivery of instruction, including interruptions in instruction, due to coronavirus.
  • Institutions may use institutional HEERF funds for costs incurred by the institution to purchase laptops, hotspots, or other IT equipment and software necessary to enable students to participate in distance learning as a result of the coronavirus interruption.
  • Institutions that purchased computers or other equipment to donate or provide to students on or after March 13, 2020 may reimburse themselves for those costs, again if tied to need arising from the coronavirus interruption.
  • The institutional HEERF funds can be used to make additional emergency financial aid grants to students (to supplement the student HEERF funds), provided that such grants are for expenses related to the disruption of campus operations due to coronavirus (including eligible expenses under a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care). Only students who are or could be eligible to participate in programs under Section 484 in Title IV of the Higher Education Act of 1965, as amended (HEA), may receive emergency financial aid grants.
  • At institutions that provide both online and ground-based education, students who were enrolled exclusively in online programs on March 13, 2020 are not eligible for emergency financial aid grants, as the Department’s position is that students who were enrolled exclusively in online programs would not have expenses related to the disruption of campus operations due to coronavirus. Fully 100% online institutions were already ineligible for HEERF funding.
  • Institutional HEERF funds may be used to award scholarships or to provide payment for future academic terms only if the institution can demonstrate that such grants are needed for expenses related to the disruption of campus operations due to coronavirus. If provided to students in the form of emergency financial aid,  such uses are allowable.
  • Institutional HEERF funds can be used to pay a per-student fee to a third-party service provider, including an Online Program Manager (OPM), for each additional student using the distance learning platform, learning management system, online resources, or other support services; however, institutions may not use institutional HEERF funds to pay third-party recruiters or OPMs for recruiting or enrolling new students at the institution.
  • The Funding and Certification Agreement that institutions must sign also makes clear that institutional HEERF funds cannot be used for: senior administrator and/or executive salaries, benefits, bonuses, contracts, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; and any other cash or other benefit for a senior administrator or executive.

More information on CARES Act grant resources and guidance can be found on the Office of Postsecondary Education’s webpage: https://www2.ed.gov/about/offices/list/ope/caresact.html

 

 

U.S. Department of Education Delivering $6 Billion in Student Emergency Grants via Institutions

On April 9, 2020, the Secretary of Education announced the availability of more than $6 billion for immediate distributed to colleges and universities to provide direct emergency cash grants to college students through the authority of the Higher Education Emergency Relief Fund authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act provides nearly $14 billion to support postsecondary education students and institutions. Colleges and universities are required to utilize the $6.28 billion made available today to provide cash grants to students for expenses related to disruptions to their educations due to the COVID-19 outbreak, including things like course materials and technology as well as food, housing, health care, and childcare. In order to access the funds, the Department must receive a signed certification from the higher education institution affirming they will distribute the funds in accordance with applicable law. The college or university will then determine which students will receive the cash grants.

School allocations are set by formula prescribed in the CARES Act that is weighted significantly by the number of full-time students who are Pell-eligible but also takes into consideration the total population of the school and the number of students who were not enrolled full-time online before the coronavirus outbreak. The Department is utilizing the most recent data available from the Integrated Postsecondary Education Data System (IPEDS) and Federal Student Aid (FSA) for this calculation.

Institutions will receive allocations and guidance for the institutional share of the Higher Education Emergency Relief Fund in the coming weeks. Institutions will be able to use these funds to cover costs associated with significant changes to the delivery of instruction due to the coronavirus.

Additional information on institution-level funding for students, including data tables, can be found here. The Secretary’s letter to college and university presidents with additional information on this funding allocation can be found here.

https://www.ed.gov/news/press-releases/secretary-devos-rapidly-delivers-more-6-billion-emergency-cash-grants-college-students-impacted-coronavirus-outbreak

U.S. Department of Education Posts Updated COVID-19 Guidance for Institutions Following Enactment of CARES Act

Late on Friday, April 3, the Department posted updated guidance for institutions that recognizes the regulatory flexibilities authorized by Congress in the CARES Act, but also addresses other areas including Clery Act,  Distance Education, Foreign Schools and FERPA, among other issues relevant to the COVID-19 interruption. The guidance is effective through June 30, 2020 unless otherwise extended by the Department. The Higher Education Relief Fund portion of CARES ACT is not addressed and will be the subject of future guidance.

ELECTRONIC ANNOUNCEMENTS

– April 03, 2020
(OPE Announcements) Subject: UPDATED Guidance for interruptions of study related to Coronavirus (COVID-19)
https://ifap.ed.gov/electronic-announcements/040320UPDATEDGuidanceInterruptStudyRelCOVID19

Lease Points Colleges and Universities Should Not Miss

DO NOT BE FOOLED BY “STANDARD FORM LEASES” and
BEWARE OF CHANGING RULE ON TREATMENT OF LEASES IN TITLE IV COMPOSITE SCORE

There is no such thing as a “standard lease,” even if the document has that title at the top.

Julie Mebane, Partner (Real Estate), Duane Morris LLP

If your institution is reviewing a lease form and you are considering signing it for the tenant, make sure that you don’t gloss over it in the belief that its terms cannot be negotiated.  Usually, many lease terms can be modified and the tenant’s position can be enhanced if you pay attention to its language, especially a few important provisions:

  • Consider starting out by having both landlord and tenant sign a term sheet with the key business points summarized.  This can avoid confusion and disagreements later when the lease is reduced to writing.
  • Pay close attention to the description of the leased premises.  Make sure that the location and the number of rentable square feet are included and accurate, and consider including a space plan as an exhibit.
  • Double-check the rent calculations in the lease.  With regard to periodic rent increases, you may want to include a chart that summarizes the timing and amount of rent increases, rather than just a description like “3% rent escalations per year.”
  • If the tenant will be paying operating expenses as part of its rent, consider negotiating a cap on the amount of annual increases that can be passed through to the tenant.
  • Ask the landlord to pre-approve and describe in the lease any up-front alterations or other work of improvements the tenant needs to do on the premises.
  • In the use clause, more general language benefits the tenant.  Try to include the right to conduct “office and other administrative uses” or possibly “all other lawful uses.”  You may enhance the tenant’s right to assign and sublet in the future by broadening the use clause.
  • With regard to the parties’ respective maintenance and repair obligations, be sure there is a complete description of the landlord’s duties.  Try to include structural maintenance and repairs, floors, ceilings, roofs, windows, HVAC and building systems, interior plumbing and wiring in the landlord’s list.
  • Get a representation from the landlord that the premises and the property are in compliance with applicable laws and in good operating condition and repair as of the commencement date.
  • Try to negotiate the surrender language so the tenant does not need to remove all of the tenant improvements, cabling and furniture, fixtures and equipment at the end of the term.
  • Beware of leased spaces formerly occupied by Title IV institutions. See our [date]  blog post on that subject.

These provisions of a lease, and many others, can usually be negotiated and improved for the tenant.  Don’t consider any lease, even a pre-printed form that says it’s “standard,” to be carved in stone.

New and Extended Lease Rules Are Changing for Title IV Composite Score Purposes

Katherine Brodie, Partner (Education), Duane Morris LLP

On September 23, 2019, the U.S. Department of Education published a Final Rule that applies to all higher education institutions that participate in the federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”).

Specifically, the Final Rule amends the annual Title IV financial responsibility composite score to take into account the Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) 2016-2, which requires that leases be treated as both right-of-use assets and liabilities. Public entities must adopt 2016-2 for leases entered into after fiscal years starting on or after December 15, 2018. Private entities must adopt the new standard starting January 1, 2020. FASB, however, has proposed delaying the private entity implementation date to January 1, 2021.

The Department of Education’s Final Rule exempts all leases entered into before December 15, 2018 from application of 2016-2 for composite score purposes. For leases entered into on or after December 15, 2018 (which the Department states can include extensions or modifications of pre-December 15, 2018 leases), auditors must apply FASB ASU 2016-2 and, as a result, some institutions’ composite scores may be adversely impacted. Since FASB ASU 2016-2 does not subject private entities to the new standard until at least January 1, 2020, there is an argument that the Department should not have an institution’s official composite score calculation reflect the new lease accounting standards until such time as the new standard is required under GAAP, but the Department has not yet clarified its position on this point (despite several pending requests for clarity on that point). Bottom line, as institutions negotiate new leases or seek to extend or modify current leases, they should consult Title IV counsel and their auditors for guidance because certain lease terms may significantly impact the carrying value of a leased asset under the new FASB standard as applied by the Department of Education.

Avoiding Land Mines: Do Your Homework on that New Campus or Instructional Location

Authors: Julie Mebane, Partner (Real Estate) and Katherine Brodie, Partner (Higher Education)

Nothing is more unwelcome than a big surprise after your institution has invested hours and dollars in a new instructional location. Up front due diligence is essential, and it needs to identify issues that may impair your ability to operate at a new location or expose the institution to significant liabilities. Be sure to consider the following and utilize counsel well versed in college and university property acquisitions and applicable regulations to examine any problems you may encounter:

  • What is the zoning of the property? Is there a zoning report that can be reviewed (if not, consider ordering one)? Does the property have the number of parking spaces required by law or local ordinances?
  • Are there any CC&Rs (covenants, conditions and restrictions) recorded against the property? Get and review copies to make sure they don’t prohibit any intended uses.
  • Is there a conditional use permit (CUP) or planned development permit affecting the property? If so, review this for any use restrictions.
  • What is the current condition of the property and the physical plant? Check for current building permits, and consider getting a professional inspection report on the building’s systems.
  • Does the current owner have a title policy covering the property? Important information about the location and its history can be gained from this document.
  • Does the owner have a Phase 1 environmental assessment regarding any hazardous materials at the location? Request and review this for possible issues, and keep it as a baseline in case of future problems.
  • Are there any litigation or condemnation actions that have been filed relating to the property? These can be red flags for any future owner or occupant.
  • Is the property in a designated flood zone, near an earthquake fault line, or otherwise located in an area exposed to natural disasters? Natural hazard disclosure reports can be obtained without much expense.
  • Was the property previously used by an institution participating in U.S. Department of Education Title IV federal student aid programs and did that institution close with unpaid liabilities owed to the Department? If so, moving into that space by lease or purchase could expose your institution to assumption of the unpaid liabilities of the previous owner.
  • Do you know your state, accreditor and Department of Education reporting obligations? These agencies must generally be notified of any change of location or any new space where more than 50% of an eduational program will be offered, or the institution risks liability for all Title IV funds disbursed to students at the new location and potentially other regulatory sanctions.

Most of these questions can be answered with the help of a forthcoming landlord when negotiating a new lease and with the assistance of experienced counsel. If the property is being purchased, the seller is likely required by law to make certain representations and warranties and to disclose property-related information and materials during the buyer’s due diligence period.

So don’t be surprised – get the information you need before you commit to a new campus or instructional location.