The Department of Education recently proposed new rules that would affect an institution’s determination of financial viability.  These proposal modifies previously proposed changes from 2016 regarding the definition of mandatory and discretionary triggering events.  Under the new proposal, there would only be one mandatory triggering event that is applicable to nonprofit institutions.  The event would be triggered if, after the end of the institution’s fiscal year, a liability is incurred from borrower defense claims owed that would cause the institution’s composite score to fall below 1.0.  There are also several proposed discretionary triggering events, which include certain actions taken by accrediting agencies, loan agreement violations, citation by a State licensing or authorizing agency for violations that may lead to termination of licensure, and having the two most recent cohort default rates at a level of 30% or greater.  Discretionary triggers would prompt the Department of Education to work with the affected institution to determine whether the violation has or could have material financial consequences prior to determining whether the institution is financially responsible.

Additionally, the Department of Education has proposed a revised methodology and definitions for calculating the composite score ratios to reflect the accounting changes in Accounting Standards Update (ASU) 2016-02 (Leases) and ASU 2016-14 (Financial Statements of Not-for-Profit Entities).

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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