Federal Student Aid has released new guidance reversing a previously imposed requirement tied to Title IV Program Participation Agreements. The updated policy removes the obligation for owners or individuals with substantial control to personally assume liability for Title IV losses. Effective immediately for new and renewing PPAs, the guidance also outlines how existing agreements will be addressed moving forward.
Electronic Announcement ID: GENERAL-26-04
Subject: Program Participation Agreement Signature Requirements
This Electronic Announcement addresses the general circumstances in which an owner-entity of an eligible institution of higher education (institution) will be required to sign a Program Participation Agreement (PPA) authorized under Section 498 of the Higher Education Act of 1965, as amended (HEA), 20 U.S.C. § 1099c(e).
A PPA conditions the initial and continued participation of an eligible institution in any Title IV, HEA program upon compliance with the provisions of 34 C.F.R. § 668.14, and any additional conditions specified in the PPA that the Secretary requires the institution to meet in order to receive federal student assistance. 34 C.F.R. § 668.14(a)(3)(ii) currently requires that, for all proprietary or private nonprofit institutions, an authorized representative of an entity with direct or indirect ownership of an institution must sign the institution’s PPA. In response to a challenge to the legality of this section of the regulation in court, the Secretary has agreed not to enforce the owner-entity signature requirement in the manner set forth in 34 C.F.R. § 668.14(a)(3)(ii). Copies of both the complaint and the settlement agreement the Department entered into associated with this litigation are attached to this announcement.
The Secretary reserves the right to require that an authorized representative of an entity that directly or indirectly holds a substantial ownership interest in the institution sign that institution’s PPA on a case-by-case basis, in a manner consistent with 20 U.S.C. § 1099c(e). Specifically, the Secretary reserves the right to impose this requirement when the Secretary determines that such signatures are necessary to protect the financial interest of the United States. This may include, for example, when the owner-entity has sufficient assets that such a guarantee is warranted, consistent with the limitations set forth in Section 498(e)(4) of the HEA. However, the Department will not generally impose this requirement if the owner-entity of an institution has no or de minimis assets, unless there are circumstances that suggest that a parent owner withdraws equity from an owner-entity in a pretextual manner in order to intentionally evade liability.
Pursuant to 20 U.S.C. § 1099c(e), the Secretary will not require a financial guarantee from an institution, or the assumption of personal liability by one or more individuals exercising substantial control over the institution, where the institution has met the conditions specified in 20 U.S.C. § 1099c(e)(4)(A)–(D).
Alternatives to PPA Signatures
The Secretary may determine, on an individualized basis, that an entity is not required to sign the PPA for other reasons, including in situations where the Secretary determines that alternative protections are sufficient to minimize the risk of financial losses. Such efforts could include a letter of credit or other acceptable financial protections.
Effective Date
The owner-entity signature policy described in this announcement will be applied to a PPA issued on or after the date of this Electronic Announcement. The Department will not entertain a request to remove an owner-entity signature from a PPA that is currently in effect. The Department intends to apply this guidance prospectively, including upon renewal of a PPA.
The Department intends to revise 34 C.F.R. § 668.14(a)(3)(ii) in the future consistent with the settlement agreement. If you have questions about this announcement, please contact the School Eligibility and Oversight Services Branch at caseteams@ed.gov.
Attachments
Complaint: Hannibal-LaGrange University v. Linda McMahon and U.S. Department of Education
Hannibal-LaGrange University v. U.S. Department of Education Settlement Agreement
SOURCE: (GENERAL-26-04) Program Participation Agreement Signature Requirements