To begin and continue to participate in any Title IV, the Higher Education Act (HEA), program, an institution must demonstrate to the Secretary that the institution is financially responsible under the established requirements.
The Secretary considers an institution to be financially responsible if determined that:
For a variety of reasons and given the current environment, it might be difficult to meet these requirements—with that comes the financial responsibility letter from the Department of Education.
This financial responsibility letter typically looks like:
“In assessing the financial strength of School ABC, our financial analyst reviewed the financial statements using the indicators that are set forth in regulations at 34 C.F.R. 668.171. These statements yield a composite score of X.X out of a possible 3.0. A minimum score of 1.5 is necessary to meet the requirement of financial standards.”
Note: X.X will be under 1.5, or this letter would not have been issued.
Institutions are typically given two options at this point:
If you have the financial means to chose Option 1, this means you get to continue to operate as normal and no provisional Program Participation Agreement (PPA) would be issued. Option 2 is the more common choice we see, which will, at bare minimum, require adherence of Zone Alternative and Heightened Cash Monitoring 1 requirements. We typically see a 10 percent letter of credit required for this option as well.
A few of the processes that will require adjustments under this provisional certification are as follows:
A lot of times, as auditors, we run into issues with method of payment or notification requirements not being met, as an institution is just not fully aware of what requirements accompany these changes. Schools owners that are used to withdrawing money from the company at any point will have to start notifying the Department of Education before doing so. Further, institutions that are accustomed to holding credit balances and drawing funds prior to crediting ledger cards will have to rethink their systems.
In the end, it comes down to thoroughly reading what you are signing and understanding the fine print. Also important is to share this information with the appropriate parties you work with to make sure all legs move in the same direction. For example, if you use an outside accountant, make sure they also understand how this will impact current practices; and if you use a third-party servicer to assist with your Title IV process, make sure they know what change has occurred and when it has occurred. Most servicers will be your “best friend” in this process, as they have experience with these requirements and are the ones that typically assist with funding processes. Most importantly, make sure your staff understands these changes, as it will impact their daily operations. And ensure, lastly, that your auditor is provided the proper documentation and understands when these changes took place—they will need to comment on these requirements on your next compliance report.
Don’t be afraid to seek advice from your third-party servicer, your auditor, or even the Department of Education. Forming a proper plan at the beginning of changes that will impact how you run your company is the best way to get to a happy ending.
Please reach out to our team if you have any questions or concerns.
This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.