Department of Education Public Hearing

Committee Meetings - 01/20/22

DEPARTMENT OF EDUCATION

OFFICE OF POSTSECONDARY EDUCATION

INSTITUTIONAL AND PROGRAMMATIC

ELIGIBILITY COMMITTEE

SESSION 1, DAY 3, MORNING

January 20,

2022

On the 20th day of January, 2022, the

following meeting was held virtually, from 10:00 a.m.

to 12:30 p.m., before Jamie Young,

Shorthand Reporter

in the state of New Jersey.

Committee Meetings - 01/20/22

P R O C E E D I N G S

MR. ROBERTS: Good morning, and

welcome back to day three of session one of this round

of the Department of Education's negotiated rulemaking.

My name is Brady Roberts, part of the FMCS facilitation

team. We are going to jump right back into discussion

after roll call. So, let's dive right into that. If

folks just want to turn on their camera to let folks who

are viewing on the live stream see your face, and we can

jump right back into discussion. So first off,

representing accrediting agencies, we have our primary

Ms. Jamienne Studley.

MS. STUDLEY: Good morning, and thank

you for the opportunity to see the sunrise, something I

rarely do.

MR. ROBERTS: Good morning, Jamie, and

she's joined by her alternate, Dr. Laura Rasar King.

DR. KING: Good morning.

MR. ROBERTS: Morning. Representing

consumer advocacy organizations, we have our primary Ms.

Carolyn Fast.

MS. FAST: Good morning.

MR. ROBERTS: And her alternate Mr.

Jaylon Herbin. We're still waiting for Jaylon to join.

Representing civil rights organizations, we have Ms.

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Amanda Martinez.

MS. MARTINEZ: Present here, thank

you. Good morning.

MR. ROBERTS: Morning, Amanda.

Representing financial aid administrators at

postsecondary institutions, we have Samantha Veeder.

MS. VEEDER: Good morning, everyone.

MR. ROBERTS: Morning, Sam. And she's

joined by her alternate, excuse me, I lost my place, Mr.

David Peterson. Morning, David.

MR. PETERSON: Morning.

MR. ROBERTS: Representing four-year

public institution. I was muted, sorry, we have Mr.

Marvin Smith, our primary for four-year public

institutions.

MR. SMITH: Good morning.

MR. ROBERTS: Morning. And Deborah

Stanley his alternate.

MS. STANLEY: Morning.

MR. ROBERTS: Representing legal aid

legal assistance organization organizations that

represent students and/or borrowers, we have Johnson

Tyler.

MR. TYLER: Good morning.

MR. ROBERTS: And his alternate,

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Jessica Ranucci.

MS. RANUCCI: Hi.

MR. ROBERTS: Morning. Representing

minority serving institutions, we have our primary Dr.

Beverly Hogan, who is not able to join us this morning,

but we are joined by her alternate Ms. Ashley Schofield.

MS. SCHOFIELD: Good morning,

everyone.

MR. ROBERTS: Representing private

nonprofit institutions of higher education, we have

Kelli Perry.

MS. PERRY: Morning.

MR. ROBERTS: And her primary, Mr.

Emmanual Guillory. Still waiting for Emmanual to join

us. Representing proprietary institutions of higher

education, we have Bradley Adams.

MR. ADAMS: Good morning.

MR. ROBERTS: Morning, Brad. And his

alternate Michael Lanouette.

DR. LANOUETTE: Good morning.

MR. ROBERTS: Morning. Representing

state attorneys general, we have Adam Welle.

MR. WELLE: Present, good morning.

MR. ROBERTS: Morning, Adam. And his

alternate Yael Shavit.

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MS. SHAVIT: Hi, good morning.

MR. ROBERTS: Morning. Representing

state higher education executive officers authorizing

agencies and/or state regulators of higher education

and/or loan servicers, we have Debbie Cochrane.

MS. COCHRANE: Morning.

MR. ROBERTS: Morning, Debbie. And her

alternate, Mr. David Socolow.

MR. SOCOLOW: Good morning.

MR. ROBERTS: Good morning.

Representing students and student loan borrowers, we

have Ernest Ezeugo.

MR. EZEUGO: Morning.

MR. ROBERTS: And his alternate,

Carney King.

MR. KING: Good morning.

MR. ROBERTS: Good morning.

Representing two-year public institutions of higher

education, we have Dr. Anne Kress.

DR. KRESS: Hello. Good morning.

MR. ROBERTS: Good morning. And her

alternate, William Durden.

MR. DURDEN: Good morning, nice to be

here.

MR. ROBERTS: Rounding out our main

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negotiators, we have represented U.S. military service

members veterans or groups representing them, Travis

Horr.

MR. HORR: Good morning.

MR. ROBERTS: And his alternate Barmak

Nassirian.

MR. NASSIRIAN: Morning.

MR. ROBERTS: Good morning.

Negotiating on behalf of the Department of Education, we

have Mr. Greg Martin.

MR. MARTIN: Good morning.

MR. ROBERTS: Good morning. And he is

joined by a number of folks with the Office of General

Counsel, I believe we are joined today by Mr. Steve

Finley.

MR. FINLEY: Yep, good morning.

MR. ROBERTS: Morning, Steve. We are

also joined by two expert advisors. We have for

compliance auditor, Mr. Dave McClintock.

MR. MCCLINTOCK: Good morning. Happy

to be here again.

MR. ROBERTS: Morning, Dave. And our

labor economist, Dr. Adam Looney. We're still waiting

for Professor Looney to join us, but we will announce

him when he does. Alright. Now, Greg, I believe we are

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still on 668.171 subparagraph B. Just as a quick

reminder, we do ask the folks, try to hold their

comments to three minutes per comment and try to not

repeat what has already been said. I have from our order

from yesterday, Kelli and Barmak had raised their hands,

so if you'd still like to make your points, Kelli and

Barmak, the floor is yours with Kelli being first. And

just as a reminder, we have Yael in on behalf of state

AGs and Ashley here on behalf of minority serving

institutions.

MS. JEFFRIES: And Brady, and maybe I

missed this, I just wanted to make note that Jaylon has

joined.

MR. ROBERTS: Okay great. Good

morning, Jaylon. Brad, I see your hand. I think you're

on mute right now, Brad.

MR. ADAMS: Yes, sir, I was just

falling in line behind Kelli and Barmak, so they can go

first.

MR. ROBERTS: Oh, gotcha, Okay. And

just as another note, we do have Jessica on behalf of

legal aid organizations, but Kelli, do you want to pick

us up with where we left off yesterday?

MS. PERRY: Sure. I think are we we're

talking about B right now. I think if we're on B, I will

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pass until we get to C.

MR. ROBERTS: Okay, understood.

Barmak, did you want to speak to B?

MR. NASSIRIAN: I did. I am

struggling, and this may just be my lack of

understanding. I'm struggling with romanette two, the

withdrawal of owners’ equity, and the exception under

capital letter A that reads “or is the equivalent of

wages in a sole proprietorship or partnership or a

required dividend or return of capital.” And I have two

issues with that. One of which is, I don't know, I mean,

almost anything could be declared to be equivalent to

wages. So, I don't know that creating an exception that

large is advisable. But more importantly, I don't

understand what a required dividend is, who would

require the payment of dividends except the controlling

board of directors or the controlling individuals?

MR. MARTIN: I, you know, don't feel

comfortable answering that, right at this moment, I want

to make certain that I get you a good response on that.

I'll take that-- we'll take that back to our team.

Steve, do you want to address that or should we?

MR. FINLEY: I think we'll get some

internal clarification first.

MR. ROBERTS: Thank you, and Dave, I

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see your hand as well. Brad, is it okay if I just jump

to him as our advisor, great, okay. Yeah, Dave, go

ahead.

MR. MCCLINTOCK: I would just provide

my thoughts. Oftentimes, there could be required

dividends for pass-through entities, so the entity

itself does not pay taxes. It passes through to the

owners, and there's operating agreements that require

the dividends to be paid out to cover those taxes, and

that's how it's often been addressed in these

regulations, I believe, but I'm sure Greg and Steve will

have further information.

MR. ROBERTS: Okay, thank you, Brad,

go ahead.

MR. ADAMS: Yes, good morning. Can I

go back to the previous page, it would be one romanette

one A regarding debts and liabilities incurred from

settlements. I may have missed us going through that

yesterday. I would be on page 13 of the red line at the

very bottom. We're good? So, conceptually, I do not have

a problem with providing the Department with material

settlements, but my read of this is there's no

definition of materiality. So, I just want to confirm

with the Department, the Department expects every

immaterial lawsuit or settlement or anyone that has a

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settlement debt to be reported to the Department with

[inaudible] threshold, so every trip and fall, every

mild settlement from an employee, any severance

agreement, and then the Department is going to take

those dollars and recalculate the composite score every

single time at every single institution in all sectors?

I just feel as though that seems like a very large

administrative burden, and especially through the

larger, private and private nonprofit and public

institutions that have these settlements all the time. I

just want to confirm that the Department's expectation

that if we had 100 dollars settlement, we have to report

that within 10 days of incurring that payment is that

how I read this?

MR. MARTIN: Right now, there is no

minimum associated with it. Are you suggesting that

there be a threshold?

MR. ADAMS: I do, I think that's

administrative [inaudible] yes, yes, sir. I think that's

an administrative [inaudible] both on the school and on

the Department to report every single settlement,

regardless of materiality. I would make that as a

recommendation.

MR. MARTIN: Any comments on that?

MR. ROBERTS: And I do see, Dave, I

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see your hand is up, but your video’s off, so you're not

in the queue right now, but feel free to turn your

camera on and if you want to weigh in on that.

MR. ADAMS: I thought Kelli was

raising her hand on the video.

MR. MCCLINTOCK: That's, I turned,

that, I just didn't lower my hand, sorry, Brady.

MR. ROBERTS: Okay. Apologies. Kelli

was your point to Brad's?

MS. PERRY: Oh, sorry, and maybe I'm

not reading this the right way, but I am reading this as

you only need to report if one of these things is

affecting your composite score. So, if you have, there's

a doubt or likely that as a result of these things and

your composite score is below at this point, it says

one, then that's when you have a report. Not that you're

reporting every debt and liability. Is that correct?

MR. ADAMS: I'm reading it as you have

to recalculate to see if the composite score would be

less than one. Not that you only have to do it if you

are less than one.

MR. MARTIN: Let me get a

clarification on that.

MR. ROBERTS: Okay, I just want to

note that Professor Adam Looney has joined us, one of

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our advisors, so with that Barmak, please.

MR. NASSIRIAN: I was going to comment

on my previous point, which I will do, but let me also

comment on Brad's observation. You know, the definition

of materiality, whatever it may be before accountants

under FASB is in fact what the Department articulates

here. Things become material insofar as participation in

title IV is concerned based on whether an institution

can satisfy the composite score threshold under the

Department's regulations. And I believe it was Carolyn

who observed that that 1.5, by the way, is the right

threshold, something that I do agree with. So, I, you

know, if it needs some wordsmithing great, but the

concept is to say that if any of these events result in

crossing the minimum threshold, that becomes actionable.

So that's my comment on Brad's point. With regard to the

observation on pass throughs and required payments, that

is the way organizations get looted. The Department

doesn't have any control over entities beyond the LLC

participating in the program. You can only regulate that

LLCs conduct. You know, if there's taxes due, you know,

reach into your own pockets and pay it. If the

participating school is going to be out of compliance, I

would strongly recommend that language on their capital

letter A at the end be struck.

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MR. MARTIN: Okay. We'll note that

recommendation.

MR. ROBERTS: Alright, Carolyn, I see

your hand next.

MS. FAST: Thank you. I echo Barmak

concern about that language and would like a little bit

of clarification as to its meaning as well, but I would

like to sort of return to the point that I was speaking

yesterday, as I think it is relevant to this provision

as well, that this provision would only apply to a

proprietary institution with a score below 1.5 and would

look only at whether the event created a recalculation

where the school's composite score dropped below one. I

think that it would be important to extend this

provision to all proprietary schools, not just those

who start off with a zone score, because this seems to

create a situation where a school could be doing

perfectly fine, but then have an incident that would

result in a failing score, but would not be captured by

this trigger, which seems like a really big hole in this

in this protection. So, I would argue that that should

not be limited to scores below 1.5 for proprietary

schools. I also think in returning to my comment from

yesterday that it's a problem that there is no

consequence for any school that where the triggering

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event puts them from good standing into the zone rather

than to below one. So, I understand that this is aimed

at requiring a letter of credit, but in order narrowly,

there would be other protections that would come into

place for schools in the zone, such as placement in a

provisional certification. And it seems to me that these

triggers should mirror the traditional, you know, that

structure so that if there was a problem that caused a

trigger caused a significant change so that a school

went from being in passing status to zone status, that

there should be consequences, or rather protections, in

place for those schools. So, I think that there needs to

be a little bit of a modification to these provisions

that relate to calculation of scores.

MR. MARTIN: Okay, thank you.

MR. ADAMS: I'll just add to it since

I'm next in the queue. Anyways, I believe and correct me

if I'm wrong, Greg, this pronouncement is not just

proprietary schools. So, Carolyn, are you asking for a

change to the language to only apply it to proprietary

schools? This impacts everybody.

MS. FAST: I was looking at the

language of perhaps I may have been looking at a

different provision than you were looking at, but I was

looking at the provision that has that is romanette two

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MR. ADAMS: Got it, got it, I'm sorry,

I'm in the section before. My fault.

MS. FAST: Yeah, no, I know it's

confusing because we're talking about two sections,

sorry.

MR. ADAMS: On section, so on

romanette one C above, I would like to just make a

clarification here on the Borrower Defense. So, my

understanding number one, is I liked that have a

measurable concrete tool here to use at the 5 percent

threshold, so thank you for giving us something to know

what the number is, but my understanding that Borrower

Defense is a two-step process. Step one is that the

staffer decides whether or not to discharge the loan.

And that does not mean the school is liable at that

point. The second step is a hearing official at the

Department that hears the case to determine whether or

not the school is liable. So, the trigger in C here be

based on the determination of the liability being

incurred and not the initial step one with a staffer

decides whether or not to discharge the loan.

MR. MARTIN: It's my understanding

that it's when the, as it says here, once the claim has

been adjudicated in favor of the barrower where such

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that the school would now owe it. But I will clarify, I

will clarify that.

MR. ROBERTS: Steve, I see your hand.

MR. FINLEY: Yeah, I'll clarify that.

This issue is about determining at the stage at which

it's appropriate to get additional financial protections

from the school because of a of an identified increased

risk. And so, you're right, this is at the stage where

the loans are discharged but prior to the establishment

of that liability against the institution. It's a tenant

of liability at that point, that could be that the

Department could seek to establish against the

institution.

MR. ADAMS: My request would be way to

apply that because we're talking about financial

responsibility into the liabilities incurred. It was

very similar to the comment I made yesterday on B. Just

because a lawsuit has been initiated does not mean

there's going to be a liability that is actually

incurred to the school to impact the financial

responsibility. So again, this is for all schools, too,

this is not any one sector. So, I just want to make sure

that just because a student has a loan discharged does

not require that the school is financially liable to

impact their financial responsibility. That would be my

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request to make that change.

MR. MARTIN: We'll take back that

request. I would point out that that it's equal to or

greater than 5 percent of the total title IV HEA program

funds. And they think you're going back to what Steve

said we're looking at situations here that, you know,

put the Department at risk for loss. So, and this is

always about, you know, identifying at what point that

occurs and taking some action in time to actually for,

stall that or to get the financial protection necessary,

if that looks like that's going to occur. And we

wouldn't be talking about one Borrower Defense claim

here, you know, 5 percent, I think is a significant

volume. But we'll definitely take back the comment.

MR. ROBERTS: Okay, Jamie, I see your

hand, but I just briefly want to welcome Emmanual to our

day today. Morning, Emmanual. But Jamie, please go

ahead.

MS. STUDLEY: I think I'm taking us

back briefly to capital A, the debts liabilities issue.

I think there may be a drafting improvement because it's

hard to read. I know this is regulatory language, but

whether I believe it sums up that you have to know

whether it will change your score to know whether you

need to report those items. And some of us may not know

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whether the school can calculate its composite score

itself or whether the Secretary's determination might be

different from what the school’s is. What if I had a 1.5

or 6 score that I recalculate my liabilities to know

that it would fall below and therefore I needed to tell

you. Or do I need to tell you so that the Department can

recalculate it and know if it's fallen below 1.5? I just

think it's not something we can rewrite as a group, but

are you asking people to make that judgment and know if

they need to tell you or to tell you about them so the

Department can determine if that change was made, and

that could relate to whether you're reporting a lot of

separate little ones, whether you'll know what the

difference is. I think the spirit is that you do need to

know them, they could have an effect. I agree with the

1.5, but I plus one to Brad's point about not having

because I thought it was report each one of these and

the Secretary will tell you if it's caused a change

seemed burdensome across all kinds of institutions, but

that may not be the mechanism that's created here. So, I

think the Department should just walk through what it

wants in what form and in what and whether the

institution can know that it has that obligation because

the change has happened that would solve the

materiality, the $100 item any school would be able to

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say no, no go or whoa we've had many hundreds and indeed

we have shifted.

MR. MARTIN: Yeah, I agree that the

language is written is not clear on that in that regard.

So, we are we are seeking clarification on that. So as

soon as I as soon as I get that from our staff I'll

convey that to you. But I agree that as written, it's

not as clear as it might be. So, it does require

clarification.

MR. ROBERTS: Steve, I see your as

well.

MR. FINLEY: I just want to point out,

we're certainly open to the comments. What gets reported

is actually addressed in Section (f)(1). So, perhaps the

comment should be addressed to that Section because that

I think this calculation is referring to the

Department's calculation based on what gets reported.

MR. ROBERTS: Great, Jessica, I see

your hand next.

MS. RANUCCI: Thanks, I'd like to make

two points. First, as to previous when Carolyn and

Barmak and others were speaking about the withdrawal of

equity. I just want to underscore how important this is

to students and the school situation that I described

yesterday. The school wasn't paying its rent, wasn't

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paying its teachers, it wasn't paying its health

insurance premiums for its teachers, it was taking money

from students, and guess who it was paying, its

principal, right? The students paid out of pocket. They

never saw that money again. The chapter seven bankruptcy

trustee said it's gone, we can't touch it. And, so, I

think this is really an important protection as schools

lie down and I just want to emphasize that. And I want

to briefly respond to Brad on B and C under romanette

one. I think that the settlements in the Borrower

Defense claims are material to financial responsibility

in two respects. One, is the direct causation that you

are identifying, which is that it could require the

school to incur a liability that could itself affect the

school's financial status, but there's also an indirect

way that there's a causal link there. I think that a

school that has a tremendous amount of Borrower Defense

claims is that financial risk for a number of indirect

reasons as a school against whom the Department has made

findings that there is misrepresentation or fraud.

That's a school that's likely to have, for example,

state law enforcement actions that might result in a

judgment at the school that might have bad press so that

the enrollment drops at the school that might have

individual private lawsuits that might result in

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judgment. So, I think it's very reasonable for the

Department to have financial triggers that come at an

earlier stage of that process because we're not just

talking about the direct impact on the bottom line,

we're also talking about indirect impacts on the bottom

line. And I think the same thing would be true for

subsection B regarding federal and state settlements.

And I think to a certain extent, A regarding other

judgment.

MR. ADAMS: May I respond to the

question? You know, there is a standard in accounting

language that goes in addition to materiality. The

likeliness to incur. There's no likeliness to incur here

language, whether or not you'd know is likely that you

would have a debt that might be incurred that threshold,

an accounting is typically over a 50 percent likelihood.

And there's just no definition here in either scenario

of how likely is it, and how material is it to be a

mandatory trigger? A discretionary trigger, you know,

maybe it makes sense to move down below. But we’re

talking about a mandatory trigger on something that may

not be likely and may not be material.

MR. ROBERTS: Okay, thank you. Yael,

please.

MS. SHAVIT: I agree with the comments

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that Jessica just made, and I want to frame them a

little bit differently. I think, Brad, you may be

inaccurately characterizing these triggers, or at least

speaking about them in language that suggests that

they're punitive rather than protective. The goal here

isn't to punish schools for any type of conduct covered

in these provisions. It's to address what are real risks

of financial instability. And I think that the

triggering events have been written in a way that I

think that captures that. But to do that well, the

Department really can't wait until these types of

liabilities are incurred. They need to be able to

identify the risks, or the liabilities are incurred,

ignoring these types of threats. In the case of an

enforcement action by a federal or state agency, for

example, or after successful Borrower Defense claims

have already been adjudicated at a significant

percentage of funding would result in basically an

entirely deficient assessment of an institution's

ability to meet its financial obligations. And it would,

I would note, also prevent the Department from securing

financial protection against losses until the point

where the school would be considerably less likely to

obtain [phonetic] the funds that it would need to

provide that option.

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MR. ROBERTS: Greg, I see your hand

up, do you want to respond?

MR. MARTIN: Yeah, I'll take that that

comment. I wanted to respond to Jamie's previous

question for clarification and then following up on what

Steve said about reporting requirements. So, if you look

in the reporting requirements under F, it does say in

accordance with we’re not there yet, but in accordance

with the procedures established by the Secretary, an

institution must notify the secretary of the following

events or actions. And under romanette one, it says for

liability incurred under C one, romanette one A of this

section, which is what we were just discussing "no later

than 10 days after the final written notification of the

judge to the institution of the judgment or final

determination.” So, it appears the way it's written, it

would require notification, even though the actual

triggering event is the recalculated composite score of

less than 1.0. That the triggering event is the actual

notification that the event would trigger, but the event

that would require the school to notify the Department

is the actual notification to the institution of final

judgment or determination. So then there's nothing there

now that would put a de minimis amount and so that

appears to be the way it's written currently, but I know

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that there was some objection to that, so we'll take

that back and discuss it.

MR. ROBERTS: Alright, thank you.

Amanda, I see your hand next, but I just want to welcome

Johnson to the table on behalf of legal aid. So, Amanda,

please go ahead. You're muted right now, Amanda, sorry.

MS. MARTINEZ: Sorry about that.

Clearly not enough days or a time with technology, still

not learning can make mishaps. But this is more so a

question and query as I’m reading this Section. I think

my question kind of comes from this idea of if the

policy goal is to ensure the financial stability of

institutions, and you're trying to insert triggers-- for

me, I'm hoping that these triggers come at the right

opportune time to actually catch the institutions, you

know, like whether or not they're financially healthy or

potentially ending up at a point that's going to end up

in a downturn for students. So, I'm hoping that these

the changes actually come at that right time. And I

think figuring out that right time is probably hard to

do. But I think these are creative ways in which you're

trying to ensure those triggers are put in place at that

right time. So, I'm wondering with this question of

timeline involved so that these regulations are really

targeting at the right time for you all to then conduct

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action against the institution in part C, given that,

you know, by the time Secretary has adjudicated claims,

it seems as if it takes a long time, a lot of the burden

is on the student to produce the evidence, and by the

time it's actually happened that process has ended up in

the Department's hand students have had years of, you

know, trying to issue their claim that burden. And I'm

just wondering do you think this trigger is really

helpful at that point that says adjudicated claims in

favor of borrowers, it's really taken a long time from

what we know in the past and what we have cases

currently to get. So, I'm wondering how useful you think

that part of the timeline and Borrower Defense claims is

the right time period, I just want to know what your

internal thinking was there as a form of a triggering,

you know, triggering tool. And then second, in that

part, C and you state is equal to you want to make sure

that the amount of loans discharged by that specific

date is equal or greater than 5 percent. I'm wondering

how you came up with the 5 percent and why you thought

that that floor was the right amount to actually make

use of this trigger? Based on past claims, you know, I

just want to make sure there's use in this in this

regulation to protect students and to make your tools

actually work out a trigger.

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MR. MARTIN: So, I think so. Just your

question about, you know, at what point with respect to

lawsuits where it becomes a trigger. I think we've tried

in constructing these regulations, these proposed rules

to strike a balance between what's fair to institutions

and what the Department really reasonably needs to know

or reasonably needs to include in determining whether or

not to seek a surety from that school. And you'll note

that with, for instance, the Qui Tam lawsuits or those

brought by the by the state, we have determined that

those are usually significant enough proportions to not

wait until the until there's been a judgment or a

settlement. We do understand that other lawsuits there

are, you know, there are entities sued all the time that

there could be instances where many times the students

aren't successful. So, I mean, this was somewhat of a

balancing act. And that's where we came down on it.

Regarding the 5 percent, I think I might have Steve

comment on that. I think that’s a sort of a valid

percentage that we use in some instances. I know we use

the 5 percent for determining when institutions have

passed the threshold for not making timely returns of

title IV funds for and we've used 5 percent pretty

frequently, but I don't I don't know that I know exactly

why 5 percent was chosen in this in this circumstance,

Committee Meetings - 01/20/22

except that it's we do have precedent for using for

using 5 percent. But Steve can you address that?

MR. ROBERTS: You're muted right now,

Steve.

MR. FINLEY: Under the Financial

Responsibility Regulations, establishing liability and

administrative liability greater than equalto 5 percent

of an institution's annual funding triggers a past

performance failure, the financial responsibility

standards. So that's also the other reason that that's

tied here is the financial risk of failing those

standards triggers the need for surety.

MR. ROBERTS: Okay, Johnson, go ahead.

MR. TYLER: Hi, good morning. I just

want to expand a little on what Amanda said. My concern

is, you know, doing a Borrower Defense application is a

huge amount of work and most students don't even know

about it until the school is closed. So, if you really

want see to have any useful application as a trigger for

action by the Department of Education, I think you have

to think of a different number percentage. I think 5

percent is way too high, honestly. I mean, just think

about if you have a very large for-profit, there's one

that has 100,000 students in it, you would need to

adjudicate 5,000 claims before that would happen. That's

Committee Meetings - 01/20/22

a lot of resources by the Department of Education, and

that puts the burden on the students to even know about

this and to be able to navigate all the barriers of

filing a Borrower Defense claim. It's not an easy thing

to do. You've got to go online. You've got to fill out a

lot of stuff. There are a lot of questions that are

asked. I just don't see this ever achieving the laudable

goal that the Department of Education wants here, which

is to use Borrower Defense to inform them. I mean, I

think more likely, what will happen if it stays like

this is Borrower Defense will just be informing the

Department of ED or the States as to when to sue. And

this will be sort of an actor always looking in the

rearview mirror rather than something that's being used

prospectively. And you might want to consider, honestly,

just the filing of so many claims. I mean, I don't know

how you would adjudicate that many involving a large

institution in a timely manner. You have to adjudicate

all of them, over 300,000 claims out there right now

that still need to be adjudicated, so, or maybe it's 250

I'm not sure what the number is, but there are a lot of

claims that are standing there that need to be

adjudicated.

MR. ROBERTS: Oh, sorry, go ahead,

Greg. Sorry.

Committee Meetings - 01/20/22

MR. MARTIN: I just want to make sure

that what you're suggesting is that that it be based on

just a number of filed file claims or a percentage based

on filed claims?

MR. TYLER: It could be that, Greg, or

it also could be, I mean, you could look and see what

you think is a trigger that really gets everyone's

attention and bring it down below that within the

Department of Education. I mean, I don't think,

honestly, I’m not sure this would protect any students

whose schools have closed recently. You know, I

understand there’s a history of Borrower Defense being

litigated and what the rule is and how to apply the rule

in different administrations and so forth. But I just

don't think you're ever going to meet that threshold of

5 percent until, you know, every news article in the

country is slamming the school. I think it's a very high

rate. It's an easy bar that for schools for not actually

have to deal with. It's just there's too much burden

here. So, either way, but I think if you look at the 5

percent number, you would probably see that the

Corinthians and all that would never have, I mean,

Borrower Defense didn't exist back then. I'm not really

sure that this would be a useful benchmark.

MR. ROBERTS: Steve, do you have

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anything to add?

MR. FINLEY: And to just to add to

what Greg said, these are mandatory triggers, right? So,

if this threshold is crossed, the institutional would be

required to post a letter of credit. There's also a

discretionary trigger that will be covered when we go

further through the document that says that when the

secretary has identified a common group of pending loan

discharge claims, the Department could require the

institution to post surety at that point, as well. We're

certainly open to ideas on not just a comment saying the

threshold should be different, but coming up with a

suggestion of what that threshold should be and why

would also help our discussions and deliberations on

these issues.

MR. TYLER: I'll think about whether

we can come up with some other threshold that might make

sense. I take that as an invitation. Thank you. And I

[interposing] going to come back to the scene, thank

you.

MR. ROBERTS: Gotcha. Thank you,

Johnson. Kelli, please.

MS. PERRY: Thank you. First, I would

like to say that the importance of financial

responsibility, I think, is very important from a number

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of reasons. One, students should never be in a situation

where their school closes. And that's what we're talking

about here. Measures of how you determine whether or not

a school is going to close. And I think, what we think,

what we talked about yesterday a little bit was that the

calculation has a score in these triggers are not

necessarily doing the job that they need to do in order

to determine whether those schools are going to close.

And, so, as I think about these triggers, whether they’d

be mandatory or discretionary, the question that I would

have is, you know, is there evidence that the Department

can share that shows that these are the right triggers,

whether they be mandatory or discretionary, and maybe

they should just be triggered in general? Maybe there

shouldn’t be two different classes of them that would

show that the schools that have closed recently or in

the past, but these were issues that those schools had.

You know, this is important for students, but it’s also

important for institutions, as well, from the

perspective of they may be financially responsible in

the definition of they're not going to close and they

could potentially be getting caught up in some of these

triggers, whether it's mandatory or not, that could be

very costly for institutions. You know, in reading

through this, there's, you know, and we'll get to it

Committee Meetings - 01/20/22

eventually. I didn't see necessarily any changes, but in

the section, as it relates to reporting, there's this

whole concept of a preliminary determination by the

Department, where a school has the ability to provide

information as it relates to any of these triggers that

shows that they are financially responsible before that

final determination is made. And I hope that that's

happening in in the cases as it relates to these

triggers. Because it's hard, I think it's hard, at least

for me, it's hard for me to provide any real substantive

examples or rationale for some of these, because I don't

know if this is the reason that schools are closing. So,

I think I guess in summary, I guess my question is, is

there any evidence that shows that these are the

triggers that would show that the schools have closed or

are closing?

MR. MARTIN: I don't I don't know what

data, you know, whether we have data on this to publish

as, you know, that could actually tie school closures to

one of these events. These are events that that we are

aware of through our compliance activities that have

caused instability at institutions. And I think, you

know, we need to bear in mind what we're trying to do

here is to try to find ways of identifying where schools

may be financially unstable, you know, in time to get

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some type of surety from them, you know, before a school

would go to go under or close. I don't know that any one

of these is, you know, certainly we see, for example,

withdrawal of owner equity being a problem at schools

where they are financially unstable, where that has

caused, where they've taken money out of the school. But

if you're asking me, do we have actual data where

there's been a study done on that, I don't think we have

that. But I would throw it out to the negotiators. If

you have suggestions for other, you know, other types of

triggers that you feel may help the Department identify

where a school is stressed or in danger of closing, we

would be open to hearing what those are. These are the

ones that have identified that we think would. Again, I

don't think anything is perfect. I don't think there's

any way we can find a mechanism to, in every case,

identify that the school might be on the verge of

closing or that if a school does close was the actual

reason was, it could have been precipitating events. So,

I'm not sure that we can we can do that. What we're

trying to do is come up with the best identifier as

possible. We think we've done a pretty good job here.

But again, we are open to hearing from the committee any

other solutions or ideas you might have.

MS. PERRY: Thank you, Greg. And I

Committee Meetings - 01/20/22

just, you know, just to repeat what I said yesterday, I

do think that based on that response, and the fact that

this is not working all the time, and I’m not saying

that it’s ever going to work all the time, because it

won't. But the importance of really looking at the

composite score in these triggers as it relates to

schools that have closed in the past and why that's

happening. And, so, I guess, you know, if I were to be

making a recommendation, I think I would I would say

that the triggers are important. I don't know if the

distinction between a mandatory trigger and a

discretionary trigger is necessary, so I would possibly

recommend combining them just into triggers with the

thought that they are preliminary determinations, and

that schools do have the ability to provide data that

that shows that they are financially responsible.

Because not all schools are bad actors, and some of them

do get caught up in this and end up having to pay

substantial amounts of money for letters of credit that

could be used elsewhere. I mean, I realize that there

are bad actors, and I get that, and I'm hopeful that

those will be identified, but I'm just looking at the

other side of it where, you know, as a mandatory

trigger, if it's a situation where, you know, definitely

need clarification on A when it talks about debt and

Committee Meetings - 01/20/22

liability. Because if it is, in fact, that any debt or

liability that you incur as a result of that needs to be

reported to the Department, that is extremely burdensome

and not something that institutions are going to be able

to do. I can understand it if that is material enough to

affect your score that you would report it to the

Department, but every single one of those colleges and

universities get those every day. And, just, there's no

way that they would be able to provide that information

to the Department on a regular basis.

MR. MARTIN: Thank you.

MR. ROBERTS: Thank you. I see Brad's

hand next, go ahead.

MR. ADAMS: Thank you, and I agree

with Kelli's point 100 percent. And going back to what

Mr. Finley just mentioned, that we're talking about

mandatory triggers that allows the Department to require

a letter of credit. So, the way I read this is just by

filing a lawsuit that may not result in a material, or

likely result of a material finding, would allow the

Department to require an institution to post a letter of

credit. Letter credits are expensive, and frankly, they

put small, nonprofit schools out of business relatively

quickly. So again, posting a letter of credit is not

something that every institution can just immediately

Committee Meetings - 01/20/22

do, especially when it's a 10 percent threshold of title

IV revenues. So, I just want to be clear that having no

definition in here of what is material to an institution

and then having a letter of credit having to be posted

is a big deal.

MR. ROBERTS: Thank you. I see

Barmak's hand next.

MR. NASSIRIAN: I want to just make

some general comments in response to Brad and Kelli's

points. There's a great line in the Sun Also Rises,

where one character asks the other one, how did you go

bankrupt? And the answer is two ways: gradually and then

suddenly. And if I were to characterize what the

Department has done historically, and is attempting to

do here, the composite index, the composite score is the

Department's attempt at detecting going bankrupt

gradually. It has done a terrible job of it, and I have

enormous empathy for Kelli and so many nonprofit

institutions that pose absolutely no risk, and just by

virtue of the fixed assets they have to their students

or to the taxpayers of this country that are then

burdened by an artificial and rather problematic

calculation that forces them to post letters of credit

and makes life expensive for them. The triggers we're

talking about here, these are frankly belated indices of

Committee Meetings - 01/20/22

going bankrupt suddenly. The hill to die on for the

nonprofits is the substance of the calculations that

generate the composite score. All of the practices that

are that are now proposed as triggers, all the events

that are being proposed as triggers here, are almost

exclusively concentrated in the most predatory segments

of the for-profit sector. And candidly, I find them, I

mean, posting a 10 percent letter of credit. Yeah, it's

expensive, but guess what, 90 cents on the dollar will

have to be covered by the taxpayers when the institution

ends up collapsing. So, I wouldn't worry too much Kelli

about this stuff. I do think you have legitimate concern

with regard to the to the overarching practices that

determine financial responsibility. But these are the, I

mean, again, let's not make the theoretical the paradigm

here. In practice, what we've seen is that these are

practices that prevail in the worst segment of the for-

profit sector.

MR. ROBERTS: Thank you. I'm not

seeing any other hands and recognizing we did jump

around a little bit. Greg, do you want to do you want to

tee up for just a quick check on the reg text as it

exists now so we can move on?

MR. MARTIN: Well, I know we have a

couple of outstanding questions. Hopefully, some of

Committee Meetings - 01/20/22

them, at least I tried to address the philosophy behind

what we were doing here. And again, I want to throw out

the invitation to if you have, because we've heard a lot

of discussion here about the extent to which these

triggers identify at risk institutions, and obviously

the Department doesn't have a hammerlock on knowledge of

all of those, so if you have ideas, we like to hear

them. What I'd like to do is walk through the remainder

of the mandatory triggers. And then when we're done with

that, we can have a discussion of the remainder of those

triggers just so we can get through this subparagraph.

If that's alright?

MR. ROBERTS: So, Aaron, would you

like to bring up that document: issue paper number four?

MR. MARTIN: So, we're going to start

with teach out plans.

MR. ROBERTS: And that is romanette

three.

MR. MARTIN: Romanette three. There we

go. So, I'll walk through these through the end of the

of the mandatory triggers and then we can entertain

comments and questions at that point. So again,

continuing with the mandatory triggers, the institution

is required to submit a teach out plan or agreement for

reason described in 602.24(c)(1) that covers the closing

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of the institution or its branches or additional

locations for state actions. If the institution is cited

by a state licensing or authorizing agency for failing

to meet state agency requirements and the agency

provides notification that it will withdraw or terminate

the institution's licensure or authorization if the

institution does not take any steps to come into

compliance. And then we moved on to romanette five for

publicly traded institutions. Publicly traded

institutions are subject to one or more of the following

events, and we made a few changes there with respect to

these are technical changes, and you can see here that

we put in SEC actions. Actions that the Security and

Exchange Commission might take. I made a couple of

changes to make sure the terminology is correct, you can

see there under exchange actions, the National

Securities Exchange on which the institution's

securities are listed notifies the institution it is not

in compliance with the exchange exchange's listed

requirements or its securities are delisted. So just

some clarification there. And also SEC reports the

institution failed to require a file that required an

annual or quarterly report with the SEC within the time

period prescribed for that report or by any extended due

date under the applicable regulation cited there. Under

Committee Meetings - 01/20/22

romanette six, on nonfederal education assistance funds.

The most recently completed fiscal year the proprietary

institution did not receive at least 10 percent of its

revenue from sources other than federal educational

assistance, as provided in 668.28 and those are the

90/10 regulations. The surety provided under this

requirement will remain in place until the institution

passes the 90/10 revenue test. And this was, you might

recall, this was once a discretionary trigger that would

be moved onto the into the mandatory triggers. We've

also moved the cohort default rate to mandatory trigger.

And that remains what it was just moved to the main

triggers part. And we have a new mandatory trigger

related to contributions and distributions. This mirrors

a particular kind of financial manipulation we have seen

from proprietary institutions. In past cases, owners

have made contributions to an institution near the end

of one fiscal year and then withdrawn those

contributions at the beginning of the next fiscal year

in an effort to inflate the school's finances before the

fiscal year ends. This trigger would apply if the

removal of that contribution would mean the school would

have a composite score of less than 1.0. So, you can see

that reflected there, if the institution made a

contribution in the last quarter of the fiscal year and

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then made a distribution during the first two quarters

of the next year. So, put in the money and then took it

out. The removal of such contribution up to the

distribution results in a recalculated composite score

of less than 1.0. And finally, here, after the end of

the fiscal year in which the Secretary has most recently

calculated the institution's composite score when the

institution is subject to two or more discretionary

triggering events as defined in paragraph D, those

events become mandatory triggers. And this is a

technical edit to clarify the timing of the existing

regulatory requirement, which says that the institution

is subject to two discretionary triggers, becomes

subject to them automatically as a mandatory event. So

that takes us through the end of mandatory triggers.

I'll entertain any comments or questions now before we

move on to paragraph D, discretionary triggering events.

MR. ROBERTS: Yeah, Greg, I see some

hands already, and I just want to note Brad and Jamie's

comments that as much as negotiators can, just because

this is a lot of information, if folks can as best to

their ability to withhold comments on later romanettes,

so that we can progress through in roughly order as they

appear in the document. So, with that, if folks want to

maybe start with romanettes three and four, teach out

Committee Meetings - 01/20/22

plans and state actions, I am happy to open it up.

Aaron, would you bring down the document? Thank you. So,

with that, Jamie, please.

MS. STUDLEY: Yes. Simple suggestion

on concern about teach out plans as a mandatory trigger.

If an institution by choice wisely decides to close a

branch or additional location, for example, it has to do

a teach out plan to show how students will be served

either by other programs of theirs or by shifting to

other institutions. It can be completely innocent. It

can be a very wise thing done by a thriving institution.

To make that a mandatory trigger, I think is overbroad

and could have the kinds of effect Barmak was just

talking about that are not related to financial health.

It's possible that the solution is to put it into

discretionary triggers, or to distinguish teach outs

that are related to closing obviously belongs there. But

closing of a branch or additional location can be a

prudent thing done by a healthy institution. It should

not trigger to not be a mandatory trigger.

MR. MARTIN: I do want to point out

that so where we say that the institution is required to

submit a teach out plan or agreement for its for reason

listed in 34 CFR 602.24(c)(1), that covers the closing

of any of the branches or additional locations. And just

Committee Meetings - 01/20/22

to clarify-- I don't know what this addresses your

entire comment or not, Jamie, but those conditions are

for a private institution. The institution's auditor

expresses doubt about the school's ability to operate as

a going concern or indicates that an adverse opinion or

finding of material weakness exists, or the accreditor

places the institution on probation or equivalent

status, and or the Secretary places the institution on

provision of program participation agreement and

requires submission of a teach out as a condition of

that change of status. So, it is limited to those.

MS. STUDLEY: So I should have started

my comment by asking what 602.24(c)(1) was?

MR. MARTIN: Yeah, and I'll take the

blame. Maybe I should have clarified that when I was

going through it, but I but I didn't, so I'll take the

blame for that.

MS. STUDLEY: If those are the

conditions, then that's perfectly reasonable. I thought

when you summarize that you were saying that it covered

[audio]. That responds to my concern.

MR. MARTIN: Thank you.

MR. ROBERTS: Thank you. Jessica,

please.

MS. RANUCCI: Thanks. This might un-

Committee Meetings - 01/20/22

respond to your concern, Jamie, but I think that the

Department should consider some of the triggers that are

in C two. I think these might have been a part of the

last neg reg that I was on, I have a vague memory of

them, but I think that some of the triggers in C two are

things that would make sense. Like the agency acts to

withdraw [inaudible] suspend the accreditation of the

institution. So, I just I don't think it's necessarily

worth us talking through each one of those, but I think

the Department should look at C two and see if any of

those should be considered in addition to C one.

MR. MARTIN: We will note that

consideration in C two, thank you.

MR. ADAMS: Hello, everyone. Romanette

four, again, this is similar to my comment on the

previous federal lawsuit, comment is once again if

there's an issue between a school and a state, many

times the state works closely with the institutions on

modern and moderate compliance challenges, and so there

be no materiality threshold here or likely to occur

threshold, this proposal gives state regulators federal

power. An aggressive state regulator that wants to put

an institution out of business that understands this

provision would basically just be able to issue a

compliance finding and, all of a sudden, there's a

Committee Meetings - 01/20/22

mandatory trigger that require a letter of credit. So

again, just because the state has issued some sort of

notice should not require a potential letter of credit

for being posted. It needs to be likely and needs to be

[audio]. Thank you.

MR. MARTIN: I think the Department's,

you know, when we look at this, our position is, in

reading this, the institutions have been cited by the

state licensing or authorizing agency for failing to

meet state agency requirements and that agency provides

notice it will withdraw or terminate the institution's

licensure. I'm not saying I don't appreciate your

comment on where you're coming from, I think that when

you have a situation like this where notice has been

provided that a state intends to withdraw or terminate

the institution's licensure or authorization, that means

at that point that that school is automatically no

longer eligible to participate. So, I think that we have

a huge interest in in looking at when something like

this happens, this is a very serious, this isn’t just a

run of the mill action by the state, this is a pretty

serious event. So, it's something that, though I take

your point that it might not ultimately result in that,

there is a clear indication that that's a very good

possibility. So, I think that we need to be proactive

Committee Meetings - 01/20/22

here and in a position where we’re’ securing the

interests of the federal government and also the

interests of students attending that institution.

MR. ADAMS: To me, I’ll respond. So,

you know, the state attorney general is outside of

higher education. So, things have gotten pretty

political on other issues. And there's all kinds of

lawsuits that have been filed with the federal

government on various things. So, the concern here is if

you have one state AG that gets aggressive to terminate

an institution's license for who knows what, they could

then be required to post a letter credit. So, again, it

is, giving states a lot of power here under this the way

this is written.

MR. MARTIN: I would just add, you

know, I'm not, certainly every viewpoint here is

welcome, I think that we're not we're not making any

judgment here as to the motivations of an attorneys

general. We're simply saying that if this occurs, that

the occurrence of it, irrespective of motivation or

anything else, is an indication that that school may

have its licensure revoked. And that that's going to be

a loss of eligibility that we need that we need to be

aware of and be able to take action. So, I just want to

clarify that, but thank you for your comment, we've

Committee Meetings - 01/20/22

noted it.

MR. ROBERTS: Thank you. And thank

you, Emmanual, for clarifying what the reference to

romanette three was in chat but Carolyn, please go

ahead.

MS. FAST: Thank you. First, I wanted

to echo Greg's point that the determination by the state

agency is going to affect whether a school can continue

in title IV regardless. So, this is a really, I think, a

critical kind of trigger because pretty much the school

is going to is risking losing state authorization,

that's an indication of an enormous risk for that the

school is going to be become ineligible for title IV. I

also wanted to make one further point, which is that all

of these triggers are important and significant steps

forward in improving the overall system of trying to

detect financial problems before they happen. I think

they're all useful, but in the general comment, they are

all only as useful as protections that are going to be

put in place once the trigger happens, which I sort of

mentioned before. Those triggers, as I understand it,

are set out in a different regulation, and they provide

for the Department to require a letter of credit when

these triggers have been triggered to move the minimum

of 10 percent of the school's title IV for the year

Committee Meetings - 01/20/22

before. If I'm understanding this correctly, please

correct me if that's not right, and my concern is that

that is not always enough and does not look at things

like Borrower Defense potential liabilities, which can

span more than one year. They could span a longer period

of time, meaning that the taxpayer the potential

liability and cost is of the school closing [inaudible]

is quite a bit larger than just looking at the, you

know, a small percentage of the title IV for the year

before. So, what I'm suggesting is that it would make

sense to build into the requirements for a letter of

credit that that the Department based the letter of

credit decision not only on one year's worth of title IV

for the previous year, but also what are the Borrower

Defense liabilities? What are closed school discharge

liabilities looking like? Are there other outstanding

liabilities? Because this 10 percent of one year's title

IV might not do it, especially when you're talking about

a trigger of like 5 percent of Borrower Defense, you

know that's already been adjudicated. That's all I

wanted to say. Thank you.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay great. Barmak.

MR. NASSIRIAN: Several points. One of

them to go back to Jamie's observation and even earlier

Committee Meetings - 01/20/22

than that to Kelli's concerns, it seems to me that

posting a letter of credit is entirely unnecessary, even

when alarming circumstances may otherwise trigger it. If

the entity in question has sufficient net identifiable

assets exclusive of goodwill to cover its liabilities,

and there is no reason if a campus may be required to

post a teach out. But if it has sufficient land and

buildings and other assets, why force it to go out and

post a letter of credit when you already know you have

enough to go after should something bad happen. That

allays some of the sort of unnecessary costs that may

push somebody over the line. So that's one issue. I

wanted to talk about the publicly traded language here.

With regard to SEC actions, I really would encourage the

Department to contemplate far less severe adverse

actions by the SEC than revoking registration. Again,

revoking registration is the final nail in the coffin,

basically. But if you're tying your wagon to that horse,

I mean, you know that by the time that happens. Odds are

the entity’s already collapsing without much by way of

recourse. So, I would suggest there are other adverse

actions that may be earlier harbingers of trouble that

may be better indices for you to act. And with regard to

exchange action again, being delisted from an exchange

is oftentimes sort of one of the final steps in the

Committee Meetings - 01/20/22

collapse of the publicly traded company. If you recall,

ITT was trading on pink sheets before it collapsed. What

I suggest in its place would be to require some kind of

market capitalization threshold vis-à-vis the federal

dollar. Frankly, the unearned tuition dollars at risk.

That would be a better index of where an entity may be

in extreme trouble than being delisted by the exchange.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay. Debbie, please.

MS. COCHRANE: I wanted to comment on

the state action piece in particular. And to highlight a

couple of things that other folks have already said, it

feels like what this provision is really getting at is

the loss of state authorization, which would

automatically trigger a loss of title IV eligibility,

and Barmak just described that as the final nail in the

coffin. To pick up on something I said yesterday related

to gainful employment rule and stability, states are the

closest to the ground when it comes to school closures.

States as a matter, state agencies are not looking to

close institutions because they know exactly what that

means for the students and for the other surrounding

institutions. So I, you know, I do want to push back a

little bit on the notion that Brad brought up about

states being kind of, maybe, anxious to go there. I just

Committee Meetings - 01/20/22

don't see that in my experience. That said, I do think

that there are other state agency actions that should be

considered in here. States may have misrepresentation or

fraud based on the severity of the findings. They may be

able to compel refunds for students, and none of those,

it would take a lot for those to get to the point where

there's a real threat of loss of state authorization on

the table. But I do think, and I completely I do agree

with Brad that there are some state actions that are

just not relevant for this purpose, you know, late fee

payments or improperly formatted documents, those kind

of things. But if the goal here is really to identify

markers of serious problems as soon as we can, so that

way we can take appropriate action. I think you need to

consider a broader array of state actions here.

MR. MARTIN: Thank you.

MR. ROBERTS: Alright. Kelli, please.

MS. PERRY: My comment has to do with

the new section contributions and distributions. Greg,

when you introduced this, you specifically mentioned

that this had to do with proprietary institutions. So, I

would request that that actually be added [phonetic] in

this. Only because I'm concerned that nonprofits and

publics don’t get pulled into this. So, for example, I

mean, it talks about an institution making a

Committee Meetings - 01/20/22

contribution and then it being dispersed, but if you

were to apply it to a nonprofit, for example, and it's

not the institution making a contribution, but if you

had a donor that made a contribution or a pledge, you

could potentially be recording that. And then, God

forbid, this doesn't happen very often but if there was

something that that pledge had to come off the books,

then you potentially could read into this. I just want

to make sure that this is not the intention of what

you're trying to get to here, because you did explain it

as a proprietary issue.

MR. MARTIN: I want to point out that,

when I described it, I didn't set the regulation limit.

We put the regulation in there because of practices

we've noted at proprietary institutions where owners had

put money in and pulled it out. So that's why we did it.

So, you're saying you think there should be

clarifications here for other types of institutions? I'm

not certain.

MS. PERRY: Well, when if you're

talking specifically about a contribution being put in

and then pulled out, I mean, that's not something a

nonprofit would do. But you would have a situation where

you could potentially have a donor that would give a

pledge or which would be a pledge, right, and for some

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reason, that has to come off the books at a later period

of time. Or you could have a situation where you know a

donor does make a contribution and then that that

contribution is dispersed in the next quarter. So, I

just I don't think that the intent of what you were

trying to do here relates to that, but I just want to

make sure that there's not ambiguity as it relates to

that.

MR. MARTIN: In the instance you just

pointed out, I don't know what the effect of that would

be. I'll have to take that back with me.

MR. ROBERTS: Alright. And again, just

to remind folks, if we can keep feedback in an

approximate order, I think that's probably most helpful

for the Department. But please, Yael.

MS. SHAVIT: Thanks. This feels now

like ages ago, but I do need to respond to something

Brad said. Brad [audio] referring to romanette four, I

believe, but referenced numerous times actions by state

attorneys general. So, I want to clarify that my

understanding of that provision is that it doesn't

relate to state AG actions, but to state higher

regulatory actions. And with respect to those agencies,

I do want to emphasize that there are considerable due

process requirements for state licenses or other actions

Committee Meetings - 01/20/22

like that taken. These actions were not taken

arbitrarily. They're not taken for political reasons.

And I think it's important to emphasize that. I do want

to note that to the extent that Brad's comments were

intentionally referring to actions taken by state AGs

relevant to the discussion of romanette one. I want to

state again, state AGs have been on the forefront of

[inaudible] conduct by for-profit schools, and we've

needed to take these actions, not because they're

political, but because they're an imperative for

protecting students where federal regulations have not

gone far enough. Hopefully, we can help remedy that in

this committee. But we have numerous examples of

enforcement actions brought against schools that schools

have drawn out for years before declaring bankruptcy at

the moment that a judgment is affirmed. And to the

extent that the committee needs this, or the Department

does, I'm happy to offer those examples, but they

certainly confirmed the necessity of mandatory triggers

related to enforcement actions being filed by state AGs.

Thank you.

MR. ROBERTS: Brad, please.

MR. ADAMS: Yes, if it's okay, I'll go

to point six. But Yael is accurate, I misstated AGs on

point four when it was about state agencies, but my

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comment around materiality of the state action with the

state agency still stands. So, thank you for pointing

that out. On item six, moving past four, if that's okay

on the 90/10? Or would you like to stay through point

four at this point, Brady?

MR. ROBERTS: Well, I'll turn to the

committee. Does anyone have any anything they'd like to

add on romanettes three or four? Otherwise, please Brad,

feel free. I'm not I'm not seeing anyone immediately

raise their hands or reacts, so go ahead.

MR. ADAMS: Okay, thank you. On point

six, around 90/10, there's currently regulations already

in place that include sanctions for institutions that

fail 90/10, specifically at 668.29 paragraph C. Further,

the failure to comply with 90/10 is a proxy, and the

failure to make 90/10 does not necessarily mean you are

not financially responsible. You could be having a very

strong financial year and fail 90/10. It does not

represent any certain measurable impact on the school's

financial responsibility, so I believe this should be

moved to a discretionary trigger.

MR. MARTIN: Obviously, the Department

feels that it that it belongs as a as a mandatory

trigger. I do take your points. The failure of 90/10,

though it may not be indicative of a of severe financial

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problems on the part of the school, is an indication

that the school may be in danger of losing eligibility

due to 90/10. So that is why we've placed it in here

because again, these are all indicators of when a school

ceasing to operate would or it could be imminent, and so

a failure of 90/10 is one of those circumstances, so we

believe that that it is appropriate to have it as a

mandatory trigger. We will take your objection to that.

And I would ask if anybody else has opinion about that.

It's the Department's position that it belongs as a

mandatory trigger.

MR. ROBERTS: And then Steve, I see

your hand up. If you want to add anything. You're muted.

MR. FINLEY: Thank you. An institution

that fails 90/10 for one year may pass the next year, or

it may not. If it doesn't, it loses eligibility. At the

point it loses eligibility, the Department doesn't get

letters of credit from ineligible institutions. Letters

of credit represent surety that the Department can use

to try to recoup some of the losses that are likely to

be associated with an ineligible institution. So, the

time to require the letter or credit is leading up to

that year where an institution at least is at risk of

losing eligibility. And that's the logic underpinning

this.

Committee Meetings - 01/20/22

MR. ROBERTS: Okay, Barmak.

MR. NASSIRIAN: Steve made a very

compelling explanation, which is what I would have also

tried to offer, not quite as well. But I want to go back

to Kelli's point about contributions and distributions.

I understand the concern about, you know, the sort of

ambiguity of the term contribution. But even if you

consider donations as contributions, certainly refund of

donations wouldn't count as distributions. This is

clearly related to for-profit capitalization practices.

And if the Department wants to satisfy everybody by

adding that in the case of for-profits, that's fine. But

I wouldn't significantly alter this because this is one

of the ways in which people game the system. I would

also argue that the threshold should be 1.5 not 1.0, for

what it's worth. Finally, and I don't know when the

right time for this is, in this enumeration of triggers,

there is a significant item missing, which is loss of

eligibility for other federal programs due to

noncompliance, particularly those programs that would

have consequences for title IV, say, the GI Bill. So, at

some point, I don't know if that's captured somewhere

else or whether you need to add it. But that's a

particularly good trigger because it tends to be smaller

amounts and can serve again as an early warning system

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for bigger trouble coming down the road. So, acting on

those triggers may be helpful to the Department.

MR. MARTIN: Thank you.

MR. ROBERTS: Brad, please.

MR. ADAMS: Okay. So, on romanette

eight, contributions and distributions, just want to ask

if the Department has thought about the fact that

privately held S corporation's taxes flow through an

owner’s personal income tax return and not through the

school's income statement like a C Corp? Thus, S

corporation owners are required to pay quarterly IRS tax

payments in order to be in compliance with the IRS law.

So, not allowing contributions to be taken or to pay

taxes and then being in trouble with the IRS does not

seem appropriate. To confirm, and then I also want to

confirm with the Department, that's question one.

Question two is again, no threshold of materiality here.

So, to confirm, us as school, all schools, not just

proprietary, but all schools are required to notify the

Department every time there is a contribution or

distribution in quarter four or subsequently in quarter

one or quarter two? We don't have to report anything in

quarter three. But if we make an infusion equity

infusion in quarter one, how do we know yet if we're

going to make a distribution for quarter one or quarter

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two at that time? Practically speaking and this kind of

goes back to the notification of every single lawsuit, I

am not understanding how the Department is going to be

able to, from a burden point of view, keep up with every

single in and out without a materiality threshold here.

Is the Department really going to recalculate a

composite score every time equity infusion or equity

distribution for 9 months out of the year occurs within

a school? That happens thousands of times, potentially

at some institutions.

MR. MARTIN: The provision here is

it's necessary to stop instances of gaming that we've

seen quite frequently with the contributions being made

in the last quarter. And just to make certain the

institution passes and then and then and then withdrawn

in the next quarter. So, the reason it's here is to

address the ongoing concern that we have over what has

become a practice that is not at all rare. And so we

feel the need to address that and have a mechanism in

place to control for that. We're not we're not saying in

these regulations that an institution cannot make a

contribution and then remove it. The trigger is the

removal of such contribution up to the amount for

distribution results in recalculated composite score of

less than 1.0. So, I would disagree that it precludes

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any types of distributions, rather contributions and

then removals. It's to address a certain a certain

element of a certain practice of gaming.

MR. ADAMS: And who is responsible for

the recalculation of the composite score? Can you

clarify that because it's not written as is. It’s only

to cover gaming to quote you. As it is written, my read

is any contribution or distribution made in 9 months out

of a fiscal year has to be reviewed, and I just want to

make sure I'm reading that correctly. So maybe I'll

defer to Steve on this.

MR. MARTIN: Yeah, Steve has his hand

up. I'll yield to Steve.

MR. ROBERTS: You're muted, Steve.

MR. FINLEY: Thank you. There is a

more detailed description of what the reporting

requirements are for this provision in section F. And

so, I suggest taking a look at those and then we would

welcome input on fine tuning them from everyone.

MR. ROBERTS: Barmak, go ahead. Sorry,

sorry, Brad, go ahead.

MR. ADAMS: Section F does not specify

thresholds, am I accurate in that it doesn't specify

anything on the dollar amount? So, a $10 distribution or

infusion is required to be reported. Is that correct?

Committee Meetings - 01/20/22

MR. FINLEY: I think it's prepared in

a different way to trigger the reporting requirements in

certain circumstances. We welcome suggestions on ways

that you might like to see that modified.

MR. ROBERTS: Barmak, please.

MR. NASSIRIAN: Yeah, just a quick

point that that nothing in this reg prevents anybody

from paying their taxes. What they can't do is they

can't loot the company to pay their taxes. They should

pay their taxes out of pocket like the rest of us. The

notion that somehow it's an entitlement for a subset of

institutions, just because of their corporate form, to

use school resources derived from title IV to pay taxes

is just laughable. I mean, I just feel like you owe

taxes, pay your taxes. You just can't take the money

from the school if it results in a deterioration of its

financial circumstances below the threshold, which, by

the way, is overly generous here, I again emphasize 1.5

not 1.2. But again, it just struck me as kind of a false

choice to say you either pay your taxes or comply with

this reg.

MR. ADAMS: Barmak, I think that was

directed to me? S Corp's don't work that way, sir. They

don't. The taxes generated from income from the school

will run through the owner's personal tax return, and

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they are required to take equity distributions to pay

those taxes incurred from schools income. So, that is a

factual statement that owners have.

MR. NASSIRIAN: Can they not add new

contributions at that point to cover those taxes?

MR. ADAMS: The taxes were incurred

because the school had a net profit. The school makes a

million dollars that requires seven or $300,000 in taxes

just to keep the numbers round. That $300,000 has to be

taken out as an equity distribution unless they just

have an extra $300,000 in a personal investment

somewhere. But that has to come from the school as an

equity distribution. And we do have to pay, those owners

do have to pay quarterly estimated tax payments on that.

MR. NASSIRIAN: And if that weakens

the institution's finances, you think the taxpayers

should take that risk?

MR. ADAMS: No, I ask for a

materiality threshold, sir.

MR. NASSIRIAN: $300,000 sounds pretty

material to me on a million bucks, no?

MR. ADAMS: Well, there's $700,000

there, hopefully remaining, right? So again, I don't

want to debate that, but at the end of the day, a C

Corp, the taxes are paid directly from the school. In S

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Corp, they're paid through the individual. That's the

point of the comment.

MR. MARTIN: Well, the debate's

interesting, but we need we do need to move on. So, I

would say, Brad, if you want to, you know, write up

something for us to take a look at about how you feel

that that's that situation is problematic regarding the

contributions and distributions. We would be glad to

take a look at that.

MR. ROBERTS: Okay, not seeing any

other hands on through romanette eight. Greg, do you and

Aaron want a tee us up just for a quick check if that's

helpful for the Department? I know there's a lot that is

going to be invited in terms of soliciting new feedback

and guidance. But I did want to give the committee an

opportunity just to briefly offer their support or lack

of support with a temperature check. I just got a

message. Sorry. I see Jamie's hand. Emmanual, I see your

hand as well as up and I don't have your video on right

now so you didn't appear immediately.

MR. MARTIN: I didn't see that. I'm

sorry.

MR. ROBERTS: No, I didn't see it,

it's my fault. Emmanual, please go ahead.

MR. GUILLORY: I just want to make a

Committee Meetings - 01/20/22

comment that we are all here to make sure as we're

looking at financial responsibility, that institutions

are not precipitously closing and impacting students.

And obviously, we want to take care of the bad actors

and want to make sure that those institutions that don't

have the best interests of students in mind no longer

exist. But we don't want to, by default, punish the good

actors who care about students and who want to make sure

students have access to postsecondary education, make

sure they have access to a quality program, make sure

they're able to go out and get that job and achieve

whatever their dreams are. And with that being said, as

I look back to the 2016 rule, 2019 rule, what's being

proposed, the Department has used the 1.0 threshold

because even though technically if you are under 1.5,

you are not financially responsible, that is technically

correct. There is a zone alternative. An institution can

be a part of between 1.0 and 1.4 and they have to do

certain things such as heightened cash monitoring, those

other metrics like that. But they do not have to post a

letter of credit. If you're under 1.0, then you have to

post a letter of credit of 10 percent of your title IV

HEA funds. However, according to the language here, if

you meet a mandatory trigger or discretionary trigger,

or if you are not financially responsible and subsection

Committee Meetings - 01/20/22

B of the section that we're talking about, then you have

to post a letter of credit that is no more than half or

not less than half of your title IV funds. And so I

believe the Department used the 1.0 composite score

threshold because, I can't speak on behalf of the

Department I don't work there, but I want to say the

intent is not to close the institutions down. So, the

Department doesn’t want to shut the doors. The

Department, I would think, wants to get rid of the bad

actors. And so, if we move that threshold up to 1.5,

then you're asking an institution that has under 1.5 to

then post letter of credit that is no less than half of

their title IV HEA program funds when they don't have to

do that under the regular composite score calculations.

In addition to that, I wanted to also share that within

the private nonprofit sector. We do have 339

institutions, or around that number, that have under 250

students. So let's remember that there are institutions

out there that are really good actors that are small,

that are tuition dependent and that could get, as my

colleague Kelli had mentioned with clarifying some of

the language under contribution, contributions and

distributions. So, I know that we don't want to penalize

institutions by literally shutting them down when we

have these additional layers of credit being added.

Committee Meetings - 01/20/22

Thank you.

MR. ROBERTS: Thank you. And Jamie,

Imthink your comment is relevant because I think what

we're going to move on to next is this discretionary

trigger events, so please.

MS. STUDLEY: Okay, thank you. Number

two strikes me as interesting and dangerous. It reads,

although I'm not the poet that Barmak is, as two rights

do not equal wrong. I can so easily imagine two

discretionary triggers that the Secretary and his or her

discretion would determine were not areas of concern

about an institution. It doesn't seem logical for them,

because of the fact that they both happen in a cycle, to

become a mandatory trigger for risk protection. For

example, we've seen enrollment drops in institutions

around the country after natural disasters like

hurricanes, fires and in our case, typhoons, and an

institution could also have a planned closure and teach

out that is fully intentional in a very constructive

action in which there is no risk and no students were

hurt. To have the combination of those become a

mandatory trigger when the Secretary is determined that

they are each innocent, seems odd. And in those cases, a

trigger, I understand unless a triggering event is

resolved before a subsequent event, but you can't

Committee Meetings - 01/20/22

resolve the effect of the typhoon on enrollment. You can

continue to manage the institution effectively. So, in

the absence of those being problems, I'm puzzled. Maybe

I should just do it as a question to the Department.

What were you trying to accomplish with two

discretionary triggers creating a mandatory trigger? And

I realize that some of this language is old and maybe

you have experience with its implementation.

MR. MARTIN: Thank you. This is not a

new one. We did make some clarifying changes to it. You

know, a multiple discretionary trigger is an indication

of their being, they are discretionary triggers, but

they are nonetheless indicative of problems. So, you

know where more than one exists, it's our belief that

that raises it to a different level. But we'll certainly

take back your concerns and comments about that.

MS. STUDLEY: Yeah, I guess the

question is should the Secretary have the discretion to

determine whether those two, each one by itself, would

not be a problem, but as a matter of discretion,

determine whether it becomes a mandatory problem?

MR. MARTIN: Okay, thank you.

MR. ROBERTS: Okay. Thank you,

everyone. Greg, is it helpful now just to briefly

requeue the document again with the acknowledgment that

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there is a lot of back and forth. I just think it might

be helpful so the Department.

MR. MARTIN: Yeah, Aaron, can queue it

up.

MR. ROBERTS: Great. Thank you, Aaron.

Alright, is everyone clear on what the Department is

soliciting your expression of approval or lack of

approval on this temperature check? I don't think we're

there quite yet, unless, Greg, do you want to move to

discretionary or do you want to take a quick check on?

MR. MARTIN: No, let's do a check on

mandatory discretion. That's an awful lot going through,

let's just do mandatory and then we'll move on.

MR. ROBERTS: Yeah, it's a lot.

Alright, so if everyone wouldn't mind just a brief show

of thumbs again. Thumbs up, is support, sideways, you

can live with it, thumbs down, serious reservations.

Just a quick read on where the committee is on this this

section on mandatory triggering events. The center of

the frame as much as possible. Alright, I’m seeing a

number of thumbs down. We have heard folks’ objections,

but you are welcome to come off of mute if you have

anything new to add for the Department to consider when

they take back this document.

MS. PERRY: I know I've said this

Committee Meetings - 01/20/22

already, but my only reservation, and maybe it's just

that I didn't necessarily understand the clarification,

has to do with the debt liabilities and losses, and just

making sure that it's not having to report every single

one of those unless it affects the composite score.

MR. ROBERTS: Alright. Appreciate it.

So, with that, Greg, are you ready to go and Aaron ready

to go to the next section, which would be discretionary

triggering events, that would be subparagraph D?

MR. MARTIN: Yeah. Yes. Just to

reiterate, we're going to look at discretionary

triggering events. There are a number of them. And what

I propose to do is to go through them all. As I said,

there are quite a number of them, but in the interest of

time, I'll go through them all and then we'll have an

opportunity to comment on them or for any questions, any

other type of discussion. I would like to go back to

something Brady suggested that when we do that, we try

to go through it in order and the order that they appear

in the proposed regulatory text. That way we can keep

some order and it's, I think, a lot easier for the

people at the Department who are taking notes on all

this to keep that straight. And if you have comments

about something later on, you know, make a note of those

and make those comments when we get down to that, when

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the discussion moves to that section. So, with that,

I'll start and go through these. So, looking at the

discretionary triggers. We see the first change here is

the accrediting agency actions. We're revising an

existing discretionary trigger for accrediting agency

actions. While probation actions would technically be

covered by the teach out agreement and the mandatory

triggers, we include both probation and show cause or

equivalent actions because not all agencies use

consistent terminology. So, the institution was placed

on probation or issued a show cause order or placed on

an accreditation status that poses an equivalent or

greater risk to its accreditation by its accrediting

agency for failing to meet one or more of the agency's

standards. Moving down to two. It is a violation of a

loan agreement. And this is maintaining an existing

discretionary trigger related to violations of loan

agreements, so I won't go into that one. You'll note

that the state authorization and 90/10 triggers have

been moved to mandatory triggers, so they are removed

from the text related to discretionary triggers.

Fluctuations of title IV volume, and there's a

significant fluctuation between consecutive award years

or a period of award years in the amount of direct loan

or federal Pell Grant funds, or a combination of those

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funds, received by the institution that cannot be

accounted for by changes in those programs. And this is

a discretionary trigger that's been added back

previously included in the 2016 Borrower Defense rules

related to fluctuations. We feel these fluctuations may

be indicative of significant enrollment declines, which

have often preceded college closures or may be

associated with aggressive recruiting practices that

would manifest themselves in great increases in numbers.

The next one is four, which is high dropout rates. High

annual dropout rates is calculated by the Secretary. We

have maintained a discretionary trigger on high annual

dropout rates, an element included in the HEA related to

selection of institutions for program reviews. We often

see precipitously high withdrawal rates from schools

that are on the verge of closing. Five is interim

reporting. This is a new discretionary trigger which

allows the Department to seek financial protection on

the basis of additional and interim financial reporting,

which schools may be required to do if they are in

certain statuses with the Department and have concerns

about the school's financial circumstances or compliance

with financial responsibility rules. So, for an

institution required to provide additional financial

reporting to the Department due to a failure to meet the

Committee Meetings - 01/20/22

financial responsibility standards in subpart L, or due

to a change in ownership, there are negative cash flows,

failure or of other liquidation ratios, cash flows that

significantly missed the projections submitted to the

Department, or withdraw rates that increase

significantly. Moving on to six. The Secretary has

pending claims for borrower relief discharge under

685.206 and has formed a group a process to consider

those claims under 685.402. And this is a restored and

revised discretionary trigger related to a large number

of outstanding Borrower Defense claims. This revision

means that Secretary may utilize this claim when he has

opted to form a group process to consider Borrower

Defense claims, indicative of a sufficient number of

claims. The group process was negotiated in the

Department's rulemaking that wrapped up last year, and

the details will be forthcoming in the in the NPRM. An

institution discontinues a significant share of its

academic programs. And finally, or the institution

closes most of its locations or obtains approval from

the Department to close most of it most or all of its

ground-based locations while maintaining its online

operations. We’ve added this discretionary trigger for

discontinuation of a significant share of academic

programs, which may occur prior to the closure. And the

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second element there relates to closure of ground-based

locations while still maintaining an electronic or an

online process. And again, these actions may precede the

closure of large chain institutions, so we’re concerned

about the instances where that occurs, and the

Department would utilize both claims on a discretionary

basis. So that is those are all the elements of

discretionary trigger. So, at this point, we'll open up

the floor for discussion or questions. Thank you.

MR. ROBERTS: Yeah. And Aaron, if you

wouldn't mind bringing down the document. And Brad, I

appreciate your suggestion for the mandatory triggers.

If folks want to maybe focus on one and two right now.

And feel free to post in chat just so I can remember, I

have a comment on four or five or something like that.

Just keep us roughly in order. But with that, Jamie.

MS. STUDLEY: Thank you, Mr. Roberts.

Accrediting agencies, I believe that the first item is a

wise change. This moves from show cause as the baseline

for an accreditor action that would be a discretionary

trigger to an earlier in the process or a more it less

even less rigorous than show cause by moving one step

forward toward probation or equivalent action. We think

that makes sense. Accrediting agencies have the job of

looking forward. Financial responsibility and composite

Committee Meetings - 01/20/22

scores audits and ratios are by definition, historic.

Accreditors take very seriously our responsibility for

looking at financial sustainability, looking forward and

at risk and student protections, and we can look at

things like governance and board expertise, financial

plans, plans for debt, realistic enrollment projections

or unrealistic enrollment projections, history and

trends for the institution and what's happened to other

institutions that we think, may help us understand what

the trajectory of an institution might be. Accreditors

have been adding new financial tools and frequency.

WASC, for example, takes an annual look at financial

issues for all of our accredited institutions. But the

combination of what the Secretary can do on the

financial responsibility scores, plus the ability to

take into account on a discretionary level probation and

other sanctions makes sense, as the Department is so

actively seeking ways to get out ahead of and predict

when financial risk exists.

MR. MARTIN: Thank you.

MR. ROBERTS: Alright, thank you.

Jessica, please.

MS. RANUCCI: Thanks, Jamie. I just

wanted to make a point that's largely in line with that,

but just at one level up, which is, I think that, these

Committee Meetings - 01/20/22

discretionary triggering events are very important. I'm

very glad that the Department has given more of them,

and I just want to point out two things. One is

discretionary is discretionary. Obviously, the

Department at any time, if these become nonsensical, can

decide not to use them as a triggering event, right? So,

the Department is just giving itself discretion to move

against, I think we're calling bad actors, your school's

likely to precipitously close. Including in

circumstances that we might see in the future, that

would be covered under here. And I would note also that

the subsection B itself that we skipped over that and

just went into the subsections has some limiting

language there so that it looks to me as if the

Department has to make a finding that the event is

likely to have a material adverse effect on the initial

condition. I think again, that should assuage some of

these are the discretion is cabined, then it would be

applied in ways that make sense. And I think, Jamie, I

haven't read this before you made your last point, but

that might go to your last point about the combination

of discretionary factors. And if something similar to

that would be able to written into the combination of

two discretionary equals and mandatory, then I think

that might exclude the situation that you're talking

Committee Meetings - 01/20/22

about. So, there might be an easy fix there for the

Department.

MR. ROBERTS: Jamie, I see your hand's

up, is it a holdover from your prior comment? Okay.

Okay, not seeing anything else on one and two. Any

comments from the committee on fluctuations in title IV

volume or biannual dropout rates. Marvin, please.

MR. SMITH: Yeah, I think Emmanual was

first.

MR. ROBERTS: Oh, was he? I apologize

Emmanual, please.

MR. GUILLORY: Thanks, Marvin. I was

just going to say a concern here is the two mandatory or

two discretionary triggers equaling the mandatory

trigger. I do appreciate the language that says likely

to have a material adverse effect on the financial

condition. However, if the Department hasn't had the

opportunity to determine whether or not it actually has

that, and an institution happens to fall into two of the

discretionary triggers, then it's automatically

mandatory. And then they may have to post a letter of

credit that at least half of their title IV HEA funds.

And I think that’s problematic. So, hopefully the

Department can just explain a little bit more of when

they make that determination and how that then equates

Committee Meetings - 01/20/22

with the two discretionary equals mandatory. And another

thing I'd like to highlight, and what we're going to get

to this later, is in section 668.175 subsection C.

There's a language that arguably contradicts the two

discretionary triggers equals one mandatory because of

this language here in the section , it does say that one

of any of the following in the mandatory trigger section

in discretionary trigger section will then mean it is

not financially responsible. So, I want to highlight

that, but I know we'll talk about that later. Thanks.

MR. ROBERTS: And Steve, I see your

hand if you want a response.

MR. FINLEY: No, I was just going to

ask Emmanual for some clarification. Where are you

seeing the reference to the mandatory 50 percent?

Because I just want to make sure we're not talking

apples and oranges here? Failing financial

responsibility triggers usually just triggers a letter

of credit of at least 10 percent. And there is a

provision that says you can post a 50 percent letter of

credit or higher to demonstrate that you are financially

responsible. But that's usually a separate issue.

MR. GUILLORY: Yes, Steve. That's a

great question. It's on page 21, section 668.175

subsection C, financial protection alternative for

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participating institutions. It reads that a

participating institution that is not financially

responsible because it does not satisfy one or more of

the standards of financial responsibility. And it lists

section 668.171, B, C, or D. So that is literally the

mandatory triggering section or the discretionary

triggering section or the section before that, that just

explains financial responsibility, it says that that

institution then would have to submit an irrevocable

letter of credit that is acceptable and payable to the

Secretary for an amount determined by the Secretary that

is not less than one half of title IV HEA program.

MR. FINLEY: Right. So this is an area

where we can clarify this issue. 175 institutions that

meet the standards in 175 are financially responsible.

Failing the financial responsibility triggers and

participating with a letter of credit of at least 10

percent with provisional certification is the option

available for institutions that fail the financial

responsibility standards. So, everything we’re talking

about this morning is a letter of credit at least of at

least 10 percent, right? If you meet 175, you are

financially responsible, you can qualify to be fully

certified, and you're posting a letter of a credit of at

least 50 percent.

Committee Meetings - 01/20/22

MR. GUILLORY: Exactly. So, in order

to be financially responsible, if you do not satisfy one

or more of the standards that includes mandatory

standards or discretionary standards, then you have to

post a letter of credit to be considered.

MR. FINLEY: And that's been that way

for years. That's nothing new.

MR. GUILLORY: So, I'm bringing that

up with the committee because as we're talking about

mandatory triggers, which is not, so mandatory triggers

and discretionary triggers came up in 2016 Obama

regulations. Before that, there were no triggers. So

that's why people were so upset in 2016 because of the

idea of triggers, and it was new to people. But now this

has been on the books for quite some time. So, with this

language here and talking about triggers and the fact

that two discretionary would equal one mandatory, and if

that is the case, in order for an institution to then be

considered financially responsible, they have to post a

letter of credit because of those triggers and meeting

them of at least 50 percent. That is concerning.

MR. FINLEY: Or they can, I just want

to make sure we all understand. They may also

participate as an institution that's provisionally

certified with a much smaller letter of credit. So, this

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doesn't mean this is the only option available to them.

And that's what I was afraid some people were

understanding earlier based on your remarks.

MR. GUILLORY: Okay, can you just

correct me if I'm wrong though, the provisional

certification piece is only if they fall below 1.0 of

the composite score set alone.

MR. FINLEY: No. If you hit a trigger,

you can be provisionally certified and provide a letter

of credit of at least 10 percent, as well. You fall in

the category of an institution that's not financially

responsible.

MR. GUILLORY: But that's only if you

recalculate the composite scores below 1.0.

MR. FINLEY: No.

MR. GUILLORY: Okay.

MR. FINLEY: You can have an

institution that hits a trigger like past performance,

which has nothing to do with the composite score. It's a

mandatory failure of the financial responsibility

standards. And that one cannot be cured by posting a 50

percent letter of credit because it's a mandatory

failure. But all these other things we're talking about

could be cured by posting a 50 percent letter of credit,

but the institution will have the option to be

Committee Meetings - 01/20/22

provisionally certified with a letter of credit of at

least 10 percent. So, it's not the cliff effect you're

describing unless it's very important that the

institution want to be financially responsible. And, you

know, meet that separate criteria. And if that was

confusing, I apologize, but I hope it was clarifying the

issue.

MR. GUILLORY: Thank you.

MR. ROBERTS: Okay, thank you. Marvin,

now I see your hand, please.

MR. SMITH: Yeah, I was just curious

about fluctuations in title IV volume, and do

fluctuations mean increases or decreases? And is there a

percent you have in mind or a dollar amount you have in

mind, or are you trying to be deliberately vague about

that? And then I wonder if changes in enrollment could

impact fluctuations, and whether you should be specific

on that in that statement. But it just that paragraph

confuses me.

MR. MARTIN: Well, it's an

acknowledgment of the reality that large fluctuations

from year to year in in the amount of loans and title IV

volume in general can be indicative of there being

problems at the institution. And, you know, so either

significant enrollment declines or increases. We keep it

Committee Meetings - 01/20/22

to title IV because that's principally what we're what

we're interested in is, you know, the administration of

the title IV programs and title IV volumes. So we keep

to that. But yes, I think that certainly an increase or

decrease, and we'd be looking to either one could

certainly tie to increases in enrollment or decreases in

enrollment, but we have we have kept it to volume. We

don't give any specific percentage increase or decrease

that would cause us to invoke this this trigger. If

there is any interest in the floor on far from the floor

of proposing something or suggesting that we should have

something else here, we would be willing to entertain

that. However, we do feel that we need to have this

discretion to look at where these large fluctuations

occur. And then, you know, because they don't just occur

in a vacuum, there's generally something behind a large

fluctuation in volume like this.

MR. ROBERTS: Barmak, please.

MR. NASSIRIAN: With regard to

fluctuations, you know, some of these enrollment changes

may be attributable to external causes, the macro

economy, pandemic, et cetera, et cetera. So, you may

want to you may want to sort of limit it to anomalous

fluctuations or fluctuations that may be attributable to

external factors but that have a material adverse effect

Committee Meetings - 01/20/22

on the finances of the institution for what that's

worth. I actually had a question with regard to the

letters of credit, and it's a sort of somewhat

hypothetical because obviously you have to assume that

the composite score is actually adequate that it's

sufficiently predictive of stability or lack thereof as

to serve the purpose for which it was devised. The

question becomes why you would create a path of least

resistance for an otherwise unqualified entity to come

into the casino with 50 cents on the dollar and be fully

certified or worse yet, allow an otherwise on ineligible

unqualified entity to come in with 10 cents on the

dollar? It just strikes me as really, really risky. It's

unbelievable to me. And more importantly, I would point

out that there seems to be no adjustment over time.

[Inaudible] was on provisional for a full decade I

understand on the basis of a 10 percent letter of credit

from a decade earlier. I mean, that's just it. I just

need some explanation of why it is, we talk about

standards of financial responsibility. To put it very

plainly, I suspect, and it's too bad that Congress tends

to invent terms. But financial responsibility has to

have a meaning. And I suspect the plain English meaning

of it is credit worthiness for the totality of the

liabilities, including unearned tuition, not just

Committee Meetings - 01/20/22

federal tuition, just unearned tuition on the books. So

again, assuming that the composite score, which I know

it doesn't quite do this, but if the composite score

were to be deemed an adequate predictive tool, why would

the Department satisfy itself with 50 cents on the

dollar for a full satisfaction and 10 cents on the

dollar for provisional satisfaction of financial

responsibility?

MR. MARTIN: I'll take that, and then

I'll turn it over to Steve if he has anything else to

add. I would point out that these are long established

thresholds that we don't propose to change in these

regulations, which in and of itself doesn't, you know,

is not necessarily indicative of anything. But they are

established. I just disagree with the assertion that a

50 percent letter of credit is not a, you know, is not,

oh, you can say 50 cents on the dollar, but it's a major

thing for an institution to get 50 percent of its

volume. That's quite a lot. I don't work in that

division where they do that. But Steve is probably more

aware of how many institutions actually go that route as

opposed to seeking the other the other means available

to schools, which is the 10 percent letter of credit and

provisional certification, as Steve just described. But

I think with the latter, that is with the provisional

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certification, we do have quite a lot of leverage on the

school. Once it's provisionally certified, we can

decline to fully certify it again. So, I think that

there is a quite a lot of protection there. And then

with a 50 percent letter of credit, I do believe that's

a significant letter of credit, but I'll turn it over to

Steve if he wants to make any further clarifications

regarding that.

MR. FINLEY: I won't add a lot, except

to say that I appreciate the question being asked

periodically because it's important, and I think it's

important to understand that a letter of credit is

different than an assurance that an institution has the

resources that could be accessed if needed to pay

liabilities, right? A letter of credit is funds on hand

available on demand to the Secretary to satisfy

liabilities arising under the title IV programs. And the

smaller letter of credit, as Greg noted, is in

conjunction with the provisional certification, which

also greatly increases the Department's ability to

remove a bad actor by revoking its approval instead of

terminating its approval through a more formalized

administrative hearing procedure. Why is a 50 percent

letter of credit enough? And this was the amount that

was determined in the past as being acceptable, and as

Committee Meetings - 01/20/22

Greg notes, very few institutions actually choose this

option compared to providing the smaller letter of

credit in conjunction with the provisional

certification. But I think it's kind of like a great

bedrock question to ask about this whole structure for

financial responsibility and how the Department tries to

mitigate the financial risks.

MR. ROBERTS: Okay, thank you. Brad,

please.

MR. ADAMS: Thank you. I agree with

several of the comments in the chat, and I'll be brief

because I made the same comments in the administrative

capability section. But the vagueness in the fact that

you can't measure several of these statements, how any

school can operate under these thresholds, when two of

them require a letter of credit to be posted. Just a

couple of them here: fluctuations in title IV what is a

significant fluctuation? The definition of that high

dropout rates: what can we specify is a high dropout

rate? Do they vary by segment in our industry? You know,

discontinuation of a significant share of academic

programs. What is significant: is that greater than 50

percent, what is the definition there? Pending Borrower

Defense claims. Like I mentioned earlier, if it's

pending, there's no actual liability that's been

Committee Meetings - 01/20/22

incurred. So, we'll propose language. I did have a

broader question for the Department when we're talking

about what is in mandatory and what is in discretionary.

87an you discuss why we move triggers between the two,

and two years after the current triggers and regulations

took effect? Is there any data to support that the

triggers we put in place two years ago didn't work that

we need to make these moves? But what is the data behind

what makes it mandatory and what makes two discretionary

and how do they fall in each bucket?

MR. ROBERTS: Greg, any immediate

response?

MR. MARTIN: Well, there's no doubt

about the fact that, you know, when we look at which are

mandatory and which are discretionary. There's some

element of policy discretion there, you know, based upon

what the Department's scene out there, what we what we

feel is necessary to safeguard the interests of the

programs, taxpayers and students. I don't know that we

have, you know, was there actual statistical data on

which all of us was based? No, but certainly the

experience of people who are involved in financial

oversight of institutions that are out there in

compliance is extremely valid. And I would point out,

and I would reiterate, that with all of these that the

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position the Department's in, we have billions of

dollars of risk with these programs and we are held

accountable for instances where we did not properly, or

it's been suggested, that we didn't do enough to

determine when an institution was going to close. These

disclosures put thousands of students out of their

education, on the streets, so to speak, and create a

great deal of disruption, and require us to, in many

cases, discharge millions of dollars of loans. So, I

think that Department has a compelling interest in

having, and again, not to suggest all these are perfect,

but to have triggers that can help us to get some surety

in advance. Obviously, has been pointed out, it doesn't

it doesn't cover all of our losses or all student

losses. But, I think these are reasonable. We could

argue all day over what constitutes significant or what

constitutes high. And it's true that there is a certain

level of discretion involved here, especially with

discretionary triggers. We do say, as has been pointed

out, that we look for these to have a materially adverse

effect on the financial condition of the institution and

that that, too, is subject to discretion. But I don't

think that we can remove all of that discretion from

these regulations. We're open for any suggestions from

anyone from the table has about it. But you know, a lot

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of this is just protections we feel we need to safeguard

these programs.

MR. ROBERTS: Thank you. So, Sam, I

see your hand, and then I'll invite any feedback for the

Department on items five and six. So, Sam, go ahead.

MS. VEEDER: Thank you. I also want to

address that point about fluctuations in title IV

income. It's still unclear to me whether that includes

both increases and decreases. Also want to say I'm not

inclined to put restrictions in to make a strict

definition for that or dropout rates. I appreciate the

discretion that the Department needs to look at these

factors in combination with each other. But then I worry

now with two discretionary triggering a mandatory, this

trip up a good actor as an example. I many, many, almost

30 years ago, worked at an institution that was all

female when I started working there and made a decision

to go coed. Very small institution, still open and

viable, you know, by all definitions, a good actor and

respected regional institution. But it increased

significantly title IV when that enrollment increased by

adding male students. And, so, are increases a trigger

here on title IV, and is there an opportunity to explain

what that was for? Because I could see how it's unclear

to me if an increase is detrimental to the Department

Committee Meetings - 01/20/22

when it's advantageous to the institution. Probably so

for bad actors, but not for good actors.

MR. MARTIN: Yes. To answer your

question, it is both fluctuations involving both

increases and decreases, and the Department is not

suggesting that every fluctuation is a problem. We're

simply saying it may be indicative of a problem. So, we

take your point, and we look typically this would be

looked at, well, you know, if it was a huge fluctuation

when we might, we would look at it over the course of

years. Obviously, when the Department compliance

officials are looking at these fluctuations, they would

be in contact with the institution and looking at the

institution's explanation for why those fluctuations

occurred. So, it wouldn't be done in a vacuum. We

wouldn't just look and go, oh, there's a fluctuation.

We're going to go out and require a letter of credit.

MR. ROBERTS: Alright, thank you.

Jamie, please.

MS. STUDLEY: Since I was part of

asking those questions about the definitions, I think

Sam made a lot of my points about not wanting to take

away the secretary's ability. This is discretionary by

the Secretary to say and the Department that we see a

potentially troubling dropout withdrawal or enrollment

Committee Meetings - 01/20/22

fluctuation. So, on my part, it’s not an effort to tie

the Secretary down, but if it is something that should

be watched by multiple reviewers, like states and

accreditors, it might be useful to know how the

Secretary uses that or looks at it. Is it truly a very

individualized situation that's fairly extreme? Or if

there are charts or definitions that are used to get at

that, might there be value in sharing those or pointing

those out? But I think the fact that an institution has

the opportunity to say yes, we had a substantial

decrease, but we believe it was temporary crisis, or it

is true that upward fluctuations can can be troubling

for a number of regulatory reasons. The institution has

to have the capacity to support it, it has to fit with

what they're doing, it has to be well planned and

realistically priced in order to maintain a stable

institution. So, I think it’s appropriate that it go

both ways. So, I don't think it's a problem, but it

could be an opportunity for interchange or alerting

others of us to what might be problematic. And

institutions to know what they might need to respond to

if the Secretary triggers a question or concern.

MR. MARTIN: Thank you. Thank you.

MR. ROBERTS: Great. Thanks, Jamie.

Any other comments on discretionary triggers anything on

Committee Meetings - 01/20/22

seven or eight or anything that has not been mentioned

yet? We welcome folks to hop in. Otherwise, Greg and

Aaron. Oh, seeing Amanda, yeah, please go ahead.

MS. MARTINEZ: I know there was

questions in the chat, but I just kind of want to have

an out loud conversation and just have it in the record,

just so for those in the public who can't really see the

chat. In the discretionary section four item four, high

annual dropout rates, I'm wondering, this stipulates

that it's high annual dropout rates are calculated by

the Secretary. I'm just wondering how does the Secretary

calculate this, like what systems does it use to

calculate? And how does it define dropout rates? What is

their definition? Is that retention rates? Does that

include withdrawal rates, how broadly defined do you

make that definition of dropout rates? What is high? Is

there a threshold for that? I know there's different

questions in the chat related to this specific item, but

I just wanted to see if there was a quick response just

so that if we can provide additional recommendations

here or help with providing a definition that's clear

and potentially more suggestions on how to expand this

part so that it actually targets, it's a trigger,

especially for triggering or finding out if there are

higher dropout rates, for instance, disaggregated by

Committee Meetings - 01/20/22

race and ethnicity, or even for Pell Grant recipients or

First-Generation students. I think that's another that

would be a suggestion here that we can write on and

submit. But just on the former questions, wondering if

there's a quick response there on definitions?

MR. MARTIN: I'm not aware of the so

if what you're asking is where this has been made an

issue, what was the calculation used? I don't know.

Steve, do you know which calculation formula was used

for that? I can go back and find out for you, it's a

good question. I don't think we have any prescribed

threshold for it, but as far aswhat formula we used to

do the calculation, I'm not aware of the top of my head.

I'll have to inquire about that.

MS. MARTINEZ: No problem. Thanks,

Greg. But hopefully you'd or the Education Department

would be would say that you're inviting us to help also

maybe expand this part.

MR. MARTIN: We welcome we certainly

welcome any suggestions to us.

MS. STUDLEY: Okay, great. I just

wanted to hear that.

MR. MARTIN: Yeah. Yes, we do.

MR. ROBERTS: Always an invitation,

always. Jessica, please.

Committee Meetings - 01/20/22

MS. RANUCCI: Thanks. This is just a

minor point on number six, related to what Johnson was

talking about this morning. I think that there I really

think the Department [inaudible] strongly think about

adding a number of Borrower Defense claims as a

mandatory trigger. But if it doesn't, I think it should

consider adding that as a discretionary trigger in

addition to what is here and number six. They're

similar, right, because obviously the Secretary would

decide to do a group discharge if there has been a set

of claims, but I don't think that the Secretary should

have the discretion to make that a mandatory trigger

only if the Secretary has also used his discretion to

make it a group discharge, there might be circumstances

or a group process. There might be circumstances where

one, but not the other, makes sense. And, so, it would

just make if the Department again, I think you should

please consider doing mandatory. But if you don't, I

think that numbers should be there and include a number

of claims, maybe by enrollment, it probably doesn't make

sense to do by loan volume since there's no dollar

figure yet, but whatever makes sense.

MR. MARTIN: Okay, thank you.

MR. ROBERTS: Thank you. Yael, please.

MS. SHAVIT: Yeah, I'd like to follow

Committee Meetings - 01/20/22

up on that point. I agree, I think it adds to levels of

discretion unnecessarily, right? So, the formation of a

group process is discretionary, though I recognize if

the proposed language about state AG requests makes it

into a final rule that there's a presumption that a

group will be formed. But that aside, it seems like

given our history of how long it's taken, the Department

consider group claims submitted by state AGs, where

we've laid out in painstaking detail similarities

between students. Just taking that history for what it's

worth, the Department may spend some amount of time

considering whether or not to form a group or the bounds

by which it will decide which borrowers are in which

group that may be affected by considerations that

shouldn't affect whether or not the Department can

consider a volume of Borrower Defense claim as a

discretionary trigger. I'm thinking as well in the

context of receiving requests from state AGs that

outline a significant volume of claims in the period of

time between the Department receiving such information

from the state and actually going ahead and forming a

group under that under that section. So, I agree with

Jessica. I think there should be some language added to

allow the Department to consider a number of claims,

even in the context of a group not having been formally

Committee Meetings - 01/20/22

formed yet.

MR. MARTIN: So just make sure what's

being asked here, so currently it says the Secretary is

pending claims for discharge and has formed the group

process. So, you're suggesting even where, let's say a

group wasn't formed, that there was a certain number of

claims?

MS. SHAVIT: Potentially. I mean, just

to give an example, a group might be might be formed for

specific cohorts, right? You might pick specific

programs at an institution for specific years where the

claims are similar, right? But you might also still have

received many claims from borrowers across programs for

different cohort years. I imagine that the Department's

consideration about how to form a group may require

decisions and time that don't impact the question of

whether or not the presence of a large volume of

Borrower Defense claims is a problem that should be

taken into consideration as a discretionary trigger,

right? You might ultimately form multiple groups for the

same institution. In cases of misconduct that spans

across different programs in different cohorts. So yes,

it's to give the sort of follow along with the goal of

giving the Department discretion to consider things that

are relevant here I think the Department has a little

Committee Meetings - 01/20/22

bit more discretion in this area.

MR. MARTIN: Thank you.

MR. ROBERTS: Okay, great, thank you.

Greg, if you and Aaron want to tee up the discretionary

triggers, we can get a quick read on where the committee

is on this again with the ever present invitation for

more dialog and modifications that the Department can

consider. So, we're looking at subparagraph (c)(1)

through, I believe, eight. Alright.

MR. MARTIN: These are all in the D,

paragraph D.

MR. ROBERTS: Oh yeah, correct, sorry

not C, D. So, with that Aaron if wouldn't mind bringing

down the document. Thank you. And again, if I could see

everyone's thumbs nice and high. Alright. I see at least

one thumb down. Again, invite folks to come off with me

if there's anything new that they want to add to this

piece. Alright thanks, appreciate it. Okay, great. Thank

you for that discussion. And Greg, I'll turn it back

over to you. The following sections are there is

modifications, but it's kind of spread out. So, I'll

leave it up to you what you want to tee up for

discussion.

MR. MARTIN: Well, you know, let's

just go through these, there aren't that many here in

Committee Meetings - 01/20/22

these sections, the first we'll first look at E, which

is recalculating the composite score. This is not new.

We just changed we just are updating a cross reference

there. So, we have not added anything to E under

recalculation of composite scores. We can move down to

F, which is reporting requirements. So, we can take a

look at one, in accordance with procedures established

by the Secretary, an institution must notify the

Secretary of the following actions or events. And you

see romanette one and then romanette two has been added

this section, no later than 10 days after the

institution is served with the complaint and 10 days

after the suit has been pending for 120 days. And these

reporting just a little bit of background here,’we've

established several new or revised reporting

requirements to align with the changes in the triggering

events, including both discretionary and mandatory. And

these include reporting on federal, state or Qui Tam

lawsuits, contributions and distributions made to and

from a school. Updated language related to actions

against publicly traded institutions. Updated language

related to state and accredited actions which are now

combined as reporting requirement in romanette six and

discontinuation of academic programs. So, we can move on

Committee Meetings - 01/20/22

as we're working through the reporting requirements here

down to romanette four which is what you see added

there. For a contribution and distribution under

paragraph (c)(1) romanette eight not later than 10 days

following each transaction. So again, this keys back to

the to the triggering events. And under romanette five

for provisions related to a publicly traded institution

under paragraph C romanette five of this section no

later than 10 days after the date that the SEC issues in

order suspending or revoking the registration of the

institution's securities pursuant to the Exchange Act,

noted there or suspends trading of the institution's

securities on any national securities exchange. And then

we moved to B where we have some revisions there. The

National Securities Exchange on which the institution's

securities are listed, notifies the institution of

noncompliance with the rules of the relevant securities

exchange delist the securities or the institution

voluntarily delist its securities. And then we have

added here for a state or agency action under the

applicable citations of this section. Ten days after the

date on which the institution is notified by the state

or accrediting agency of the action. And we have added

under nine, romanette nine, for the discontinuation of

academic programs provision in paragraph (d)(7), no

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later than 10 days after the discontinuation of the

programs in the institution's fiscal year, affecting at

least 25 percent of the students. And then I think that

that is about it until we get to D, public institution.

So, we can stop there. We have a few minutes if we can

open up discussion and we have, what Brady, four

minutes?

MR. ROBERTS: That’s correct, yes. So,

I see Brad, and Brad I think we have time for your

comment and then maybe one more a response and then we

will head to our lunch. So, Aaron, if you wouldn't mind

bringing down the document? Brad, please go ahead.

MR. ADAMS: Okay, last comment before

lunch. At the very top, I guess this would be one double

I, the lawsuit notification 10 days after the

institution has served. I just want to confirm again, I

think I know the answer, but just to confirm, that if a

student slips on ice outside their dorm room and sues

within 10 days, every single time that happens, we are

going to be notifying the Department regardless what it

was or the materiality or anything else? Every single

lawsuit in ten days is being served going to the

Department?

MR. MARTIN: Well, I'll put

disclaimers, the words are yours. But I think that, as I

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would say this as currently written, is there de minimis

amount that under which it would not have to be reported

right now? No, but we'll certainly take that back and

look at it.

MR. ADAMS: Yeah, it's not only de

minimis, it's also within the settlement agreement with

the employee. I mean, does Department want to know that

every single time? I guess there's also the, I guess,

the merit of the case as well, is there are any.

MR. MARTIN: So, you would be

suggesting that you what you would like to see here if

it would be a de minimis amount and have settlements

with employees?

MR. ADAMS: I'll come up with

language, Greg. [Inaudible] debate here, but yeah.

MR. MARTIN: Well, yeah, whatever you

come up with, we'll certainly be willing to take a look

at.

MR. ROBERTS: Yeah, I think I saw a

hand, but it went down and recognizing, oh, Steve,

please.

MR. FINLEY: By George, I was muted. I

think this section is tied to the Qui Tam lawsuits. So,

I don't know that this would be, I think this is

distinct from the other litigation that Brad may have

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been mentioning just then. But it's a point that we can

all clarify.

MR. ADAMS: Maybe then it's single I

I'm trying to clarify then instead of double I. Again, I

have to go reference, but.

MR. MARTIN: In any event, we'll get

we'll make sure we have clarification on that.

MR. ROBERTS: Okay, great. So, I'm not

seeing any additional hands, I loath to rush us to, oh,

Kelli please. I spoke way too soon.

MS. PERRY: I didn't raise my hand

because it's going to take me longer than 30 seconds to

explain what I'm thinking, so I was hoping I could do it

when we come back from lunch.

MR. ROBERTS: Oh, I gotcha. Alright.

So we'll hold off on any checks on romanettes, what is

it, one through nine. And I guess with that, we can take

a break for lunch, and I'll see everyone back here at

1:00. Thank you so much for this morning's discussion.

MR. MARTIN: Thank you, everybody.

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Appendix

Department of Education, Office of Postsecondary Education

Zoom Chat Transcript

Institutional and Programmatic Eligibility Committee

Session 1, Day 3, Morning, January 20, 2021

From Ernest Ezeugo to Everyone:

I can see you.

From Jessica Ranucci (A)- Legal Aid to Everyone:

I am continuing on behalf of legal aids for financial

responsibility.

From Johnson (P) Legal Aid to Everyone:

Jessica is representing the legal aid community

From Travis (P) Servicemembers & veterans to Everyone:

Barmak is continuing for servicemembers and veterans

From Jamie Studley (P) Accrediting

agencies to Everyone:

+1 to Brad, some level would be prudent.

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Brad, this makes sense, there should be a

threshold of materiality.

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From Jamie Studley (P) Accrediting

agencies to Everyone:

RE liability and settlements: it seems it ay be one

report a

From Brad Adams (P - Proprietary

Institutions) to Everyone:

I suggest that there is a materiality threshold to 1

in A to reporting any and all settlements and to confirm if

the department will recalculate the composite score every

time.

From Emmanual Guillory (A)-PNPs to Everyone:

Hello everyone! I am here. Had some trouble with the

link this morning.

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

Carolyn's point is quite right: (ii)(A) should apply

to all prop schools regardless of score

From Brad Adams (P - Proprietary

Institutions) to Everyone:

Request to change C to when the liability is incurred

and not when the claim is made.

From Anne Kress (P) Comm Colleges to Everyone:

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+1 @Jamie

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

+1 on Jamie's point: ED needs to articulate what real-

time reporting institutions must provide in cases of

adverse events listed here

From Ernest Ezeugo to Everyone:

+1 Jessica

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

+1 Yael

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 to Yael

From Sam (P) Fin Aid Admin to Everyone:

+1 Yael

From Jessica Ranucci (A)- Legal Aid to Everyone:

Johnson is going to substitute in for me for a few

minutes.

From Debbie Cochrane (P), State agencies to Everyone:

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+1 Yael

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

To syncopate a point that Carolyn made earlier re

(ii)(A), all for-profit schools should be subject to this:

any school whose score would drop below the minimum

threshold (which should always be the passing score of 1.5)

as a result of withdrawal of owners' equity should be

restricted from internal practices that would allow

insiders to loot the corporate entity and hand empty

coffers back to the taxpayers

From Ernest Ezeugo to Everyone:

+1 Johnson's concerns

From Carolyn Fast (P) Consumer Advocates/Civil Rights

Organizations to Everyone:

+1 Johnson's concerns about BD claims

From Jaylon Herbin (A) Consumer Advocates Civil Rights

& to Everyone:

+1 Johnson's concerns

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

+1 on Johnson's point

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From Yael Shavit (A) -- State AGs to Everyone:

+1 on Johnson's point

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Johnson—this goes to the heart of the regulatory

goal of setting triggers and putting in place meaningful

and impactful ones

From Anne Kress (P) Comm Colleges to Everyone:

+1 @Kelli Does the dept have evidence that these

triggers worked? Provided timely and effective notice that

protected students?

From Yael Shavit (A) -- State AGs to Everyone:

+1 Barmak

From Jamie Studley (P) Accrediting

agencies to Everyone:

Materiality in a sense is answered by the test itself

-- does the debt or liability put the institution below

1.5?

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 Barmak

From Brad Adams (P - Proprietary

Institutions) to Everyone:

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can we take comments on this by letter or maybe two

letters at a time? this is a lot of information to cover

all at once.

From Jamie Studley (P) Accrediting

agencies to Everyone:

+1 to Brad's suggestion to go item by item so we don't

jump around

From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Jamie's comment

From Kelli Perry (P) - Private, Nonprofit Institutions of

Higher Ed to Everyone:

+1 to Jamie's comment

From Jamie Studley (P) Accrediting

agencies to Everyone:

The Dept is fully entitled to respect in this way the

determination by its triad partner, a state, at a level

serious enough to withdraw licensure

From Jessica Ranucci (A)- Legal Aid to Everyone:

+1 to Jamie

From Carolyn Fast (P) Consumer Advocates/Civil Rights

Organizations to Everyone:

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+1 to Jamie

From Emmanual Guillory (A)-PNPs to Everyone:

34 CFR 602.24(c)(1) refers to a teach out plan and not

a teach out agreement. The 2016 regulations also use the

term "plan" regarding this section as well.

From Emmanual Guillory (A)-PNPs to Everyone:

Also, for further clarification, the letter credit

amount for institutions that are not financially

responsible due to "one or more of the standards of

financial responsibility under Section 668.171(b),(c), or

(d), or because of an audit opinion or going concern

disclosure described under Section 668.171(h)" is one-half

of the title IV, HEA program funds and not 10 percent.

From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Barmak's first point

From Carolyn Fast (P) Consumer Advocates/Civil Rights

Organizations to Everyone:

+1 to Debbie's point that broader array of state

actions should be considered

From Brad Adams (P - Proprietary

Institutions) to Everyone:

I agree Debbie on that the significance of the state

action should be considered.

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From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

contributions and distributions refer to LLC

capitalization

From Brad Adams (P - Proprietary

Institutions) to Everyone:

Kelli is correct

From Brad Adams (P - Proprietary

Institutions) to Everyone:

it reads as she stated

From Brad Adams (P - Proprietary

Institutions) to Everyone:

Are we moving past IV now?

From Brad Adams (P - Proprietary

Institutions) to Everyone:

Yael is accurate. I misstated AGs when point IV was

about state agencies. The comment around materiality of

the state action being considered stands

From Carolyn Fast (P) Consumer Advocates/Civil Rights

Organizations to Everyone:

+1 to Barmak's comment about

contributions/distributions trigger

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From Brad Adams (P - Proprietary

Institutions) to Everyone:

Barmak unfortunately that is not the way S corps work

From Brad Adams (P - Proprietary

Institutions) to Everyone:

Emmaunual has his hand up

From Jamie Studley (P) Accrediting

agencies to Everyone:

again, the materiality question is addressed because

the test is whether it drops the school's score below

From Jamie Studley (P) Accrediting

agencies to Everyone:

my comment is about (2) -- two triggers -- not sure if

you're at that one yet, or just wrapping through (viii)

From Brad Adams (P - Proprietary

Institutions) to Everyone:

I am still not clear who recalculates the composite

score. The school, the auditor, the department?

From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Emmanual's comment

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From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Jamie.

From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Emmanual's comment

From Jamie Studley (P) Accrediting

agencies to Everyone:

good thought, Jessica, about seeing if it's possible

to align the material adverse effect language in (d)

discretionary with (2) above about two discretionary

events.

From Sam (P) Fin Aid Admin to Everyone:

+1 Marvin, and same concept related to defining (or

remaining vague) about "high" dropout rates

From Jamie Studley (P) Accrediting

agencies to Everyone:

Are there definitions of significant fluctuations or

high annual dropout rates, since those are not new?

From Debbie Cochrane (P), State agencies to Everyone:

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Agree with Jamie's question about how dropout is

defined. Also wondering if these are calculations ED makes

public and/or share with triad partners.

From Brad Adams (P - Proprietary

Institutions) to Everyone:

+1 to Jamie's comment in the chat

From Amanda Martinez (P), Civil Rights to Everyone:

+ 1 Jamie's question and is drop out defined

differently than withdrawal rates

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

these LOC provisions may be customary and traditional,

but the sad fact is that they have not worked to protect

students and taxpayers. LOCs are expensive to obtain:

that's a feature, not a flaw. The 10% LOC has become the de

facto path of least resistance for fraud.

From Brad Adams (P - Proprietary

Institutions) to Everyone:

I would like to request that the department provide

data that supports how the previous closed schools would of

been caught by these triggers and how we landed on what is

a mandatory trigger vs a discretionary trigger.

From Sam (P) Fin Aid Admin to Everyone:

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+1 Jamie - and it is possible that the

enrollment/Title IV funds increase is a result of predatory

recruitment practices.... but not always so

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

I would second Brad's data request, not because lack

of predictive efficacy would invalidate these fairly

reasonable safeguards, but because such a lack of efficacy

would point to the need for additional predictors of

institutional collapse

From Barmak Nassirian (A) Servicemembers &

Vets to Everyone:

+1 on Jessica's point re # of BD claims

From Carolyn Fast (P) Consumer Advocates/Civil Rights

Organizations to Everyone:

+1 to Jessica

From Jamie Studley (P) Accrediting

agencies to Everyone:

Thanks, Sam. Agreed

From Johnson (P) Legal Aid to Everyone:

+1 to Yael and Jessica on volume of borrower defense

claims causing discretionary trigger.

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From Jamie Studley (P) Accrediting

agencies to Everyone:

can you explain (ii) -- why? and why the second

notification?

From Jamie Studley (P) Accrediting

agencies to Everyone:

is (ii) qui tam cases?

From Johnson (P) Legal Aid to Everyone:

I think this section refers back to the earlier

section on AG, Qui Tam, fed suits.