§ 1099c.
(b)
Single application form
The Secretary shall prepare and prescribe a single application form which—
(1)
requires sufficient information and documentation to determine that the requirements of eligibility, accreditation, financial responsibility, and administrative capability of the institution of higher education are met;
(2)
requires a specific description of the relationship between a main campus of an institution of higher education and all of its branches, including a description of the student aid processing that is performed by the main campus and that which is performed at its branches;
(3)
requires—
(A)
a description of the third party servicers of an institution of higher education; and
(B)
the institution to maintain a copy of any contract with a financial aid service provider or loan servicer, and provide a copy of any such contract to the Secretary upon request;
(4)
requires such other information as the Secretary determines will ensure compliance with the requirements of this subchapter with respect to eligibility, accreditation, administrative capability and financial responsibility; and
(5)
provides, at the option of the institution, for participation in one or more of the programs under part B or D.
(c)
Financial responsibility standards
(1)
The Secretary shall determine whether an institution has the financial responsibility required by this subchapter on the basis of whether the institution is able—
(A)
to provide the services described in its official publications and statements;
(B)
to provide the administrative resources necessary to comply with the requirements of this subchapter; and
(C)
to meet all of its financial obligations, including (but not limited to) refunds of institutional charges and repayments to the Secretary for liabilities and debts incurred in programs administered by the Secretary.
(2)
Notwithstanding paragraph (1), if an institution fails to meet criteria prescribed by the Secretary regarding ratios that demonstrate financial responsibility, then the institution shall provide the Secretary with satisfactory evidence of its financial responsibility in accordance with paragraph (3). Such criteria shall take into account any differences in generally accepted accounting principles, and the financial statements required thereunder, that are applicable to for-profit, public, and nonprofit institutions. The Secretary shall take into account an institution’s total financial circumstances in making a determination of its ability to meet the standards herein required.
(3)
The Secretary shall determine an institution to be financially responsible, notwithstanding the institution’s failure to meet the criteria under paragraphs (1) and (2), if—
(A)
such institution submits to the Secretary third-party financial guarantees that the Secretary determines are reasonable, such as performance bonds or letters of credit payable to the Secretary, which third-party financial guarantees shall equal not less than one-half of the annual potential liabilities of such institution to the Secretary for funds under this subchapter, including loan obligations discharged pursuant to
section 1087 of this title, and to students for refunds of institutional charges, including funds under this subchapter;
(B)
such institution has its liabilities backed by the full faith and credit of a State, or its equivalent;
(C)
such institution establishes to the satisfaction of the Secretary, with the support of a financial statement audited by an independent certified public accountant in accordance with generally accepted auditing standards, that the institution has sufficient resources to ensure against the precipitous closure of the institution, including the ability to meet all of its financial obligations (including refunds of institutional charges and repayments to the Secretary for liabilities and debts incurred in programs administered by the Secretary); or
(D)
such institution has met standards of financial responsibility, prescribed by the Secretary by regulation, that indicate a level of financial strength not less than those required in paragraph (2).
(4)
If an institution of higher education that provides a 2-year or 4-year program of instruction for which the institution awards an associate or baccalaureate degree fails to meet the criteria imposed by the Secretary pursuant to paragraph (2), the Secretary shall waive that particular requirement for that institution if the institution demonstrates to the satisfaction of the Secretary that—
(A)
there is no reasonable doubt as to its continued solvency and ability to deliver quality educational services;
(B)
it is current in its payment of all current liabilities, including student refunds, repayments to the Secretary, payroll, and payment of trade creditors and withholding taxes; and
(C)
it has substantial equity in school-occupied facilities, the acquisition of which was the direct cause of its failure to meet the criteria.
(5)
The determination as to whether an institution has met the standards of financial responsibility provided for in paragraphs (2) and (3)(C) shall be based on an audited and certified financial statement of the institution. Such audit shall be conducted by a qualified independent organization or person in accordance with standards established by the American Institute of Certified Public Accountants. Such statement shall be submitted to the Secretary at the time such institution is considered for certification or recertification under this section. If the institution is permitted to be certified (provisionally or otherwise) and such audit does not establish compliance with paragraph (2), the Secretary may require that additional audits be submitted.
(6)
(A)
The Secretary shall establish requirements for the maintenance by an institution of higher education of sufficient cash reserves to ensure repayment of any required refunds.
(B)
The Secretary shall provide for a process under which the Secretary shall exempt an institution of higher education from the requirements described in subparagraph (A) if the Secretary determines that the institution—
(i)
is located in a State that has a tuition recovery fund that ensures that the institution meets the requirements of subparagraph (A);
(ii)
contributes to the fund; and
(iii)
otherwise has legal authority to operate within the State.
(d)
Administrative capacity standard
The Secretary is authorized—
(1)
to establish procedures and requirements relating to the administrative capacities of institutions of higher education, including—
(A)
consideration of past performance of institutions or persons in control of such institutions with respect to student aid programs; and
(B)
maintenance of records; and
(2)
to establish such other reasonable procedures as the Secretary determines will contribute to ensuring that the institution of higher education will comply with administrative capability required by this subchapter.
(e)
Financial guarantees from owners
(1)
Notwithstanding any other provision of law, the Secretary may, to the extent necessary to protect the financial interest of the United States, require—
(A)
financial guarantees from an institution participating, or seeking to participate, in a program under this subchapter, or from one or more individuals who the Secretary determines, in accordance with paragraph (2), exercise substantial control over such institution, or both, in an amount determined by the Secretary to be sufficient to satisfy the institution’s potential liability to the Federal Government, student assistance recipients, and other program participants for funds under this subchapter; and
(B)
the assumption of personal liability, by one or more individuals who exercise substantial control over such institution, as determined by the Secretary in accordance with paragraph (2), for financial losses to the Federal Government, student assistance recipients, and other program participants for funds under this subchapter, and civil and criminal monetary penalties authorized under this subchapter.
(2)
(A)
The Secretary may determine that an individual exercises substantial control over one or more institutions participating in a program under this subchapter if the Secretary determines that—
(i)
the individual directly or indirectly controls a substantial ownership interest in the institution;
(ii)
the individual, either alone or together with other individuals, represents, under a voting trust, power of attorney, proxy, or similar agreement, one or more persons who have, individually or in combination with the other persons represented or the individual representing them, a substantial ownership interest in the institution; or
(iii)
the individual is a member of the board of directors, the chief executive officer, or other executive officer of the institution or of an entity that holds a substantial ownership interest in the institution.
(B)
The Secretary may determine that an entity exercises substantial control over one or more institutions participating in a program under this subchapter if the Secretary determines that the entity directly or indirectly holds a substantial ownership interest in the institution.
(3)
For purposes of this subsection, an ownership interest is defined as a share of the legal or beneficial ownership or control of, or a right to share in the proceeds of the operation of, an institution or institution’s parent corporation. An ownership interest may include, but is not limited to—
(A)
a sole proprietorship;
(B)
an interest as a tenant-in-common, joint tenant, or tenant by the entireties;
(D)
an interest in a trust.
(4)
The Secretary shall not impose the requirements described in subparagraphs (A) and (B) of paragraph (1) on an institution that—
(A)
has not been subjected to a limitation, suspension, or termination action by the Secretary or a guaranty agency within the preceding 5 years;
(B)
has not had, during its 2 most recent audits of the institutions conduct of programs under this subchapter, an audit finding that resulted in the institution being required to repay an amount greater than 5 percent of the funds the institution received from programs under this subchapter for any year;
(C)
meets and has met, for the preceding 5 years, the financial responsibility standards under subsection (c); and
(D)
has not been cited during the preceding 5 years for failure to submit audits required under this subchapter in a timely fashion.
(5)
For purposes of
section 1094(c)(1)(G) of this title, this section shall also apply to individuals or organizations that contract with an institution to administer any aspect of an institution’s student assistance program under this subchapter.
(6)
(A)
the Secretary determines, in accordance with paragraph (2), exercises substantial control over an institution participating in, or seeking to participate in, a program under this subchapter;
(B)
is required to pay, on behalf of a student or borrower, a refund of unearned institutional charges to a lender, or to the Secretary; and
(C)
willfully fails to pay such refund or willfully attempts in any manner to evade payment of such refund,
shall, in addition to other penalties provided by law, be liable to the Secretary for the amount of the refund not paid, to the same extent with respect to such refund that such an individual would be liable as a responsible person for a penalty under
section 6672(a) of title 26 with respect to the nonpayment of taxes.
(g)
Time limitations on, and renewal of, eligibility
(3)
Institutions outside the United States
(h)
Provisional certification of institutional eligibility
(1)
Notwithstanding subsections (d) and (g), the Secretary may provisionally certify an institution’s eligibility to participate in programs under this subchapter—
(A)
for not more than one complete award year in the case of an institution of higher education seeking an initial certification; and
(B)
for not more than 3 complete award years if—
(i)
the institution’s administrative capability and financial responsibility is being determined for the first time;
(ii)
there is a complete or partial change of ownership, as defined under subsection (i), of an eligible institution; or
(iii)
the Secretary determines that an institution that seeks to renew its certification is, in the judgment of the Secretary, in an administrative or financial condition that may jeopardize its ability to perform its financial responsibilities under a program participation agreement.
(2)
Whenever the Secretary withdraws the recognition of any accrediting agency, an institution of higher education which meets the requirements of accreditation, eligibility, and certification on the day prior to such withdrawal, the Secretary may, notwithstanding the withdrawal, continue the eligibility of the institution of higher education to participate in the programs authorized by this subchapter for a period not to exceed 18 months from the date of the withdrawal of recognition.
(3)
If, prior to the end of a period of provisional certification under this subsection, the Secretary determines that the institution is unable to meet its responsibilities under its program participation agreement, the Secretary may terminate the institution’s participation in programs under this subchapter.
(i)
Treatment of changes of ownership
(1)
An eligible institution of higher education that has had a change in ownership resulting in a change of control shall not qualify to participate in programs under this subchapter after the change in control (except as provided in paragraph (3)) unless it establishes that it meets the requirements of
section 1002 of this title (other than the requirements in subsections (b)(5) and (c)(3)
1
See References in Text note below.
) and this section after such change in control.
(2)
An action resulting in a change in control may include (but is not limited to)—
(A)
the sale of the institution or the majority of its assets;
(B)
the transfer of the controlling interest of stock of the institution or its parent corporation;
(C)
the merger of two or more eligible institutions;
(D)
the division of one or more institutions into two or more institutions;
(E)
the transfer of the controlling interest of stock of the institutions to its parent corporation; or
(F)
the transfer of the liabilities of the institution to its parent corporation.
(3)
An action that may be treated as not resulting in a change in control includes (but is not limited to)—
(A)
the sale or transfer, upon the death of an owner of an institution, of the ownership interest of the deceased in that institution to a family member or to a person holding an ownership interest in that institution; or
(B)
another action determined by the Secretary to be a routine business practice.
(4)
(A)
The Secretary may provisionally certify an institution seeking approval of a change in ownership based on the preliminary review by the Secretary of a materially complete application that is received by the Secretary within 10 business days of the transaction for which the approval is sought.
(B)
A provisional certification under this paragraph shall expire not later than the end of the month following the month in which the transaction occurred, except that if the Secretary has not issued a decision on the application for the change of ownership within that period, the Secretary may continue such provisional certification on a month-to-month basis until such decision has been issued.
([Pub. L. 89–329, title IV, § 498], as added [Pub. L. 102–325, title IV, § 499], July 23, 1992, [106 Stat. 647]; amended [Pub. L. 103–208, § 2(i)(9)]–(14), Dec. 20, 1993, [107 Stat. 2479], 2480; [Pub. L. 105–244, title I, § 102(a)(6)(B)], (b)(6), (7), title IV, § 493(a)–(c)(1), (d)–(h), Oct. 7, 1998, [112 Stat. 1618], 1622, 1761–1763; [Pub. L. 110–315, title IV, § 496], Aug. 14, 2008, [122 Stat. 3327]; [Pub. L. 111–39, title IV, § 408(2)], July 1, 2009, [123 Stat. 1953].)