Higher Education Financial Responsibility Triggering Event Rules Changed – What to Know

SUMMARY

In October 2023, the U.S. Department of Education (DOE) announced major changes to financial responsibility rules for higher education institutions. These changes were to “triggering events,” situations that must be reported to the DOE that may indicate a school isn’t financially strong enough to keep receiving federal student aid. The new rules took effect on July 1, 2024.

Even if a school meets composite score requirements – a measure of its financial health – it may still be deemed financially irresponsible based on triggering events. Late reporting may cause the DOE to decide the school is financially irresponsible. Given the strict 21-day reporting deadline, it’s critical for schools to quickly identify and understand triggering events.

TRIGGERING EVENTS: MANDATORY VS. DISCRETIONARY

On September 17, 2024, Federal Student Aid, part of the DOE, issued General Announcement 24-112, outlining all triggering events and the relevant documentation required.¹

MANDATORY TRIGGERING EVENTS

These events automatically require financial protection or a recalculation of the composite score to determine if financial protection is warranted. Detailed in statute 34 CFR 668.171(c),² these types of common triggering events and associated documentation include:

• Legal and Administrative Actions:
  • Final Monetary Judgement, Award or Settlement: Copy of final judgment or settlement agreement
  • Federal or State Authority or Qui Tam Action: Copy of complaint issued by the authority
  • Borrower Defense Recovery: No documentation required; tracked by the DOE
  • Final Judgment or Settlement with Change in Ownership: Final agreement copy
• Withdrawal of Owner’s Equity: Declaration notice or payment evidence of dividend/ equity withdrawal
• Gainful Employment: Not a separately reportable trigger; implementation guidance available in GENERAL-24-74
• Institutional Teach-Out Plans or Agreements: Accreditor notification, institutional response and plan
• Publicly Listed Entities: SEC revocation, suspension or noncompliance notice
• Non-Federal Education Assistance Funds (90/10 Rule): Reported separately, per 34 CFR 668.28(c)(4) within 45 days
• Cohort Default Rates: No separate reporting required
• Contributions and Distributions: General ledger detailing contributions/ distributions from the last fiscal quarter and first two quarters of the current year
• Financing Arrangement Subject to Default Due to DOE Action: Copy of debt agreement with default clause
• Declaration of Financial Exigency: Institutional notice of declaration
• Receivership (or Equivalent under Foreign Law): Petition initiating the process

DISCRETIONARY TRIGGERING EVENTS

These events allow the DOE to decide whether financial protection is necessary. Event types, detailed in statute 34 CFR 668.171(d),³ and suggested accompanying documentation include:

• Accrediting and Governmental Agency Action: Accrediting agency or federal, state, local or tribal documents showing probation, show-cause or comparable statuses
• Creditor-Related Conditions:
  • Defaults or adverse terms in financing agreement: Loan/ credit/ security agreement copy
  • Changes in financing terms triggered by default/ delinquency: Creditor correspondence
  • Termination or suspension of financing agreements: Creditor notifications
  • DOE-triggered default risks: Financial agreement with relevant clauses
  • Non-Final Judgments Awarding Monetary Relief: Judgment copies
• Other Notable Events (No Reporting Required Unless Notified):
  • Title IV Volume Fluctuations
  • High Annual Dropout Rates
  • Interim Reporting (upon notification)
  • Pending Borrower Defense Claims
• Operational Changes:
  • Discontinued Programs: Provide documentation identifying discontinued programs, their discontinuation dates, confirmation they met the 25% threshold and whether current students may complete their programs.
  • Closed Locations: Submit records listing closed locations, dates of closure and confirmation that the closures meet the 25% threshold.
  • State Actions & Citations: Present evidence that a state agency intends to withdraw or terminate the institution’s license or authorization unless compliance steps are taken.
  • Loss of Program Eligibility: Include official Federal documentation showing loss of eligibility for one or more programs due to administrative action.
  • Exchange Disclosures: Provide public filings confirming the institution is under investigation for possible State, Federal or foreign law violations.
  • Federal Agency Actions: Submit Federal documentation showing the institution may lose eligibility for educational assistance unless it complies with agency requirements.
  • Teach-Out Plans & Agreements: Include proof that the institution has submitted a teach-out plan or agreement — including programmatic teach-outs — mandated by a State authority, the DOE, another federal agency, accreditor or other oversight body.

FINANCIAL PROTECTION

The DOE may require institutions to provide financial protection, such as a letter of credit or cash escrow, for up to two full fiscal years – even after resolution of the triggering event. The DOE may demand layered financial protections when multiple unrelated triggers occur.

AUDIT RISKS

Institutions may be deemed financially irresponsible if issued a qualified, adverse or disclaimed audit opinion. Additionally, if financial statements include disclosures about diminished liquidity or going-concern issues, and these concerns are not alleviated, the DOE may reach the same conclusion — even if other financial metrics are met.

In this frequently evolving regulatory landscape, discussing triggering events and reporting procedures with Title IV compliance experts is key. Contact Sikich’s team of Title IV audit professionals.

1. General-24-112, Federal Student Aid. https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2024-09-17/documentation-requirements-mandatory-and-discretionary-trigger-reporting-under-financial-responsibility
2. 34 CFR 668.171(c), Code of Federal Regulations. https://www.ecfr.gov/current/title-34/part-668/section-668.171#p-668.171(c)
3. 34 CFR 668.171(d), Code of Federal Regulations. https://www.ecfr.gov/current/title-34/part-668/section-668.171#p-668.171(d)

About Our Authors

Dane Hiatt, CPA, is a Director in the firm’s audit practice. He has deep experience providing Title IV and not-for-profit audit services. Working primarily with clients in the higher education and not-for-profit sectors, he has a unique ability to help clients with their audit and accounting needs.

Justin Kopec is a Senior Manager in audit and assurance services with over 15 years of experience providing Title IV and not-for-profit audit solutions. He works closely with leaders in the higher education and not-for-profit sectors.