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Regulation | 6 Months Ended
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Jun. 30, 2023
Regulation [Abstract] |
Regulation | Regulation Our higher education institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition, and results of operations. Other than as set forth below, there have been no material changes to the laws and regulations affecting our higher education institutions that are described in our Annual Report on Form 10-K for the year ended December 31, 2022. United States Regulation CARES Act On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Among other things, the CARES Act suspended payments and interest accrual on federal student loans until September 30, 2020, in addition to suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions of federal benefits like Social Security benefits during the same timeframe. On March 30, 2021, the Secretary of Education also extended student loan relief to all Federal Family Education Loans (“FFEL”) not previously covered. In June 2023, the Department of Education announced that student loan interest will begin accruing September 1, 2023, and student loan repayment will resume in October 2023. American Rescue Plan Act of 2021 On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021. Among other things, the legislation amended the “90/10 Rule” to include “all federal education assistance” in the “90” side of the ratio calculation. See “Item 1. Business – Regulation – U.S. Regulatory Environment – The 90/10 Rule” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a description of the 90/10 Rule. The legislation required the Department to conduct a negotiated rulemaking process to modify related Department regulations, which the Department began in January 2022. In March 2022, the Institutional and Programmatic Eligibility negotiated rulemaking committee reached consensus on changes to the 90/10 Rule. On October 27, 2022, the Department of Education released final 90/10 regulations, which are largely consistent with the consensus language. However, within the preamble of the regulation the Department indicated that non-Title IV eligible programs offered via distance education are not eligible to be counted in the “10” side of the ratio calculation. The final regulations also provided for an expanded definition of “federal education assistance” that will be periodically defined by the Secretary of Education. On December 20, 2022, the Department published guidance further indicating that non-Title IV eligible programs offered in part or in whole via distance education are not eligible to be counted in the “10” side of the ratio calculation, and has continued to issue guidance related to implementation of the new rule. On December 21, 2022, the Department released a non-exhaustive list of federal agencies and federal education assistance programs that must be included as federal revenue in the 90/10 calculation. Such agencies include the U.S. Department of Defense (military tuition assistance) and the Department of Veterans Affairs (veterans education benefits), in addition to the Title IV programs already covered by the 90/10 Rule. The new 90/10 regulations are effective for fiscal years beginning on or after January 1, 2023. Current Negotiated Rulemaking Improving Institutional Quality and Accountability Committee In January 2023, the Department indicated its intention to establish one or more rulemaking committees in 2023 to propose new regulations on distance education, improving the use of deferments and forbearances, third-party servicers and related issues, cash management, return of federal funds, state authorization, accreditation and related issues, and TRIO programs. The Department invited interested parties to comment on the topics suggested by the Department at public hearings held on April 11 and 12, 2023. The Department also accepted written comments through April 24, 2023. Section 432(a) Committee In June 2023, the Department indicated its intention to establish a rulemaking committee related to the modification, waiver or compromise of federal student loans, as permitted in HEA Section 432(a). The Department held a public hearing on July 18, and accepted written comments through July 20, 2023. Following completion of negotiated rulemaking committee meetings, the Department of Education issues proposed rules for public comment. If the negotiated rulemaking committee reaches consensus on a topic, the Department of Education is bound to propose a rule consistent with the consensus. Following public comment, the Department issues final regulations, which, if published by November 1, would generally take effect July 1 of the following year. Financial Value Transparency and Gainful Employment, Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit On May 17, 2023, the Department released proposed rules on financial value transparency and gainful employment, financial responsibility, administrative capability, certification procedures, and ability to benefit. The proposed gainful employment rule would establish two independent metrics, both of which must be passed by a program subject to the rule in order to maintain Title IV eligibility. Any program that fails either or both metrics in a single year would be required to provide a disclosure to students, and any program that fails the same metric in two of three consecutive years would lose its access to federal financial aid. The two metrics are 1) a debt-to-earnings ratio that compares the median earnings of graduates who received federal financial aid to the median annual payments on loan debt borrowed for the program, and 2) an earnings premium test that measures whether the typical graduate from a program that received federal financial aid is earning at least as much as a typical high school graduate in their state (or, in some cases, nationally) and within a certain age range in the labor force. A program that fails in two out of three consecutive years, or is voluntarily discontinued by the institution, would not be eligible to have Title IV reinstated for a minimum of three years. The proposed rule also includes the requirement that all schools provide a link to a Department of Education-hosted website that includes information on cost, earnings, and licensure information. The Department’s proposed rules regarding financial responsibility would establish new mandatory triggers that would allow the Department to seek financial protection or recalculate the institution’s financial composite score to determine whether an institution’s financial condition has materially weakened. The proposal would also establish new discretionary triggers that would result in the Department conducting case-by-case analysis to see if additional protection is needed. In general, institutions would be required to report triggering events within 10 days of occurrence. According to the proposed rule, such triggering events may result in a financial protection requirement that would most likely take the form of a letter of credit or cash escrow and provisional certification to participate in Title IV. Additionally, the Department described that its proposed changes to administrative capability regulations would strengthen how the Department administers requirements that institutions demonstrate they are capable of administering Title IV funds. Under the proposed rule, institutions would be required to offer adequate services to students, including financial aid counseling and career services support. The proposed language also includes a new requirement that institutions provide students with geographically accessible clinical or externship opportunities as required for licensure. The Department described that its proposed changes to certification procedures would strengthen the Department’s ability to assess and in some cases impose additional conditions on institutions undergoing the recertification process. Among other things, the Department would consider withdrawal rates, gainful employment rates, licensure passage rates, and instructional and advertising spend when making institutional eligibility determinations. The Department has also proposed that the Secretary be required to sign off on all marketing materials in cases where the institution is provisionally certified and is alleged to have engaged in misrepresentation or aggressive recruitment. Additionally, the Department has proposed changes regarding licensure- track programs, including limits on program length and a student’s ability to access federal financial aid funds in cases where a program doesn’t meet educational prerequisites for licensure in the state in which the student is located. The Department accepted public comments on the proposed rules through June 20, 2023. Borrower Defenses to Repayment On March 16, 2022, Federal Student Aid (“FSA”) announced that it is monitoring complaints and borrower defense to repayment (“BDTR”) applications from veterans, service members and their family members who report claims of deceptive recruitment and enrollment practices, including misrepresentations related to cost, financing, and application of military and veteran benefits. The Department indicated that it will seek all appropriate corrective measures pursuant to the BDTR regulations if it finds that an institution has engaged in substantial misrepresentation or fraudulent conduct, and that it will share information and complaints with the Department of Defense and Department of Veterans Affairs. On March 14, 2023, the Department of Education announced that the Office of Enforcement of FSA will use “secret shoppers” to monitor post-secondary institutions’ compliance with the laws and regulations governing participation in federal student aid programs. The Department indicated that secret shoppers will evaluate recruitment, enrollment, financial aid, and other practices of post-secondary institutions to help identify potentially deceptive or predatory practices used to recruit and enroll students. The Department noted that findings from secret shopping may serve as evidence in ongoing investigations and reviews or serve as the basis for opening new investigations and reviews. The Department further noted that, where appropriate and permissible, FSA may refer secret shopping findings to other offices within the Department, as well as other state and federal enforcement agencies. Accrediting Agencies and State Authorization Capella University’s accreditor, Higher Learning Commission (“HLC”), and Strayer University’s accreditor, Middle States Commission on Higher Education (“Middle States”), must periodically be reviewed by the U.S. Secretary of Education in order to maintain recognition as an institutional accrediting agency. On May 31, 2023, the Department of Education, acting on the recommendation of the National Advisory Committee for Institutional Quality and Integrity, renewed its recognition of HLC for a period of five years and required it provide a monitoring report regarding one item of substantial compliance, and continued the current recognition of Middle States for one year, requiring a compliance report regarding one item of noncompliance. State Authorization Reciprocity Agreement (SARA) Strayer University and Capella University participate in the State Authorization Reciprocity Agreement (“SARA”), which allows the Universities to enroll students in distance education programs in each SARA member state, including 49 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Each of the Universities applies separately to non-SARA member states (i.e., California) for authorization to enroll students, if such authorization is required by the state. On March 1, 2023, SARA’s coordinating entity, the National Council for State Authorization Reciprocity Agreements (“NC-SARA”), held its first of two public comment forums to seek input on potential changes to NC-SARA policies. The forum included a discussion of 63 proposed policy changes, some of which, if adopted, would significantly alter the distance education reciprocity agreements, including a proposal that NC-SARA permit states to apply more stringent standards to for-profit institutions or to eliminate the ability of for-profit institutions to participate in the agreements altogether. In addition to the public comment forums, written comments were accepted through May 17, 2023. NC-SARA’s four regional compacts and the NC-SARA board of directors will vote on each proposal presented by September 1, 2023, and October 25, 2023, respectively. We cannot predict whether NC-SARA will adopt any of these proposals. The adoption of certain proposals, including the proposal to alter standards or to eliminate the ability of for-profit institutions to participate in the agreements, could have a material adverse effect on Strayer University, Capella University, and the Company. Title IX On June 23, 2022, the Department of Education released proposed Title IX regulations for public comment. Among other changes, the proposed rule would address all forms of sex-based harassment (not only sexual harassment); clarify that Title IX’s prohibition against sex discrimination includes discrimination on the basis of sex stereotypes, sex characteristics, pregnancy or related conditions, sexual orientation, and gender identity; and eliminate the requirement for live hearings at the post-secondary level. The public comment period on the proposed rule ended on September 12, 2022, and the Department has indicated its intention to publish a final Title IX rule in October 2023. When the Department publishes the final Title IX rule, it will indicate an effective date. Third-Party Servicers Department of Education regulations permit an institution to enter into a written contract with a third-party servicer for the administration of any aspect of the institution’s participation in Title IV programs. The third-party servicer must, among other obligations, comply with Title IV requirements and be jointly and severally liable with the institution to the Secretary of Education for any violation by the servicer of any Title IV provision. An institution must report to the Department of Education new contracts or any significant modifications to contracts with third-party servicers as well as other matters related to third-party servicers. On February 15, 2023 the Department released a Dear Colleague Letter (“DCL”) (GEN 23-03) with updated guidance expanding the definition of third-party servicers and covered activities to include vendors providing student recruitment and retention services, software products and services related to Title IV administration activities, and educational content and instruction, initially requiring institutions to be in compliance with the new guidance by May 1, 2023. On February 28, 2023, the Department extended the effective date of the updated guidance and reporting requirements from May 1, 2023 to September 1, 2023. On April 11, 2023, the Department again delayed the effective date until six months after the Department publishes a new, revised final guidance letter on the topic, and on May 16, 2023 the Department formally rescinded its 2023 and prior guidance (DCL GEN-16-15 and the March 8, 2017 Electronic Announcement) prohibiting contracts between colleges and foreign-owned or operated servicers. Additionally, in March 2023, the Department indicated via Federal Register publication its intention to establish a negotiated rulemaking committee in 2023 to consider new proposed regulations on third-party servicers and related issues. Program Participation Agreement As a result of the August 1, 2018 merger, Capella University experienced a change of ownership, with the Company as its new owner. On January 18, 2019, consistent with standard procedure upon a Title IV institution’s change of ownership, the Department and Capella University executed a new Provisional Program Participation Agreement, approving Capella’s continued participation in Title IV programs with provisional certification through December 31, 2022. As is typical, the Provisional Program Participation Agreement subjected Capella University to certain requirements during the period of provisional certification, including that Capella University must apply for and receive approval from the Department in connection with new locations or the addition of new Title IV-eligible educational programs. Capella University filed its application for recertification in advance of the September 30, 2022 deadline, and on April 18, 2023, Capella University and the Department of Education executed a fully certified Program Participation Agreement, approving Capella University’s continued participation in Title IV programs through September 30, 2025.

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