United States: Gainful Employment Reporting: Institutional Debt And Unpaid Charges

As REGucation readers know, on July 1, 2015, the U.S. Department of Education's new "gainful employment" or "GE" regulations finally took effect. Among other things, the new rules require institutions to report a wide range of data to the Department for each student who was enrolled in one (or more) of the institution's GE programs during a designated period.

As we've previously discussed in our five-part blog series, the reporting requirements, located at 34 C.F.R. 668.411, are considerable. Moreover, this reporting burden has increased significantly in 2015 due to the fact that schools are required, for this year only, to report data for multiple periods. By July 31, 2015, institutions must report data for award years 2008-09, 2009-10, 2010-11, 2011-12, 2012-13, and 2013-14. And by October 1, 2015, institutions must report data for award year 2014-15.

With the reporting deadline approaching fast, we've been fielding an increasing number of inquiries from clients seeking guidance on some of the more opaque elements of the reporting scheme. One such element that has arisen on several occasions is the reporting of institutional debt, and specifically, the treatment of unpaid charges.

Pursuant to 34 CFR 668.411(a)(2)(iii), institutions are required to report the total amount of institutional debt accumulated by each GE student who withdrew or completed during the applicable award year. The term "institutional debt" is defined at 34 CFR 668.404(d)(1)(iii) as follows:

"The amount outstanding, as of the date the student completes the program, on any other credit (including any unpaid charges) extended by or on behalf of the institution for enrollment in any GE program attended at the institution that the student is obligated to repay after completing the GE program, including extensions of credit described in clauses (1) and (2) of the definition of, and excluded from, the term ''private education loan'' in 34 CFR 601.2."

Institutions attempting to parse this definition for reporting purposes have noted that it is unclear whether all fees and other charges assessed to a student's account should be included in the institutional debt number. On the one hand, the regulation plainly states that "any unpaid charges" a student is obligated to repay as of graduation should be included, suggesting that the regulation does not draw any distinction based on the type of charge. On the other hand, the regulation does limit the universe of applicable charges to those incurred by the student "for enrollment in any GE program." This language at least suggests the possibility that charges incurred by the student while in attendance, but unrelated to his or her enrollment in the GE program, might be properly excluded.

In the Frequently Asked Questions (FAQ) section of its Gainful Employment page, the Department offered some additional, but ultimately inconclusive, commentary on this topic (see question R-Q11). Responding to a request for more guidance on the subject of institutional debt, the Department observed:

"[I]n addition to institutional loans and other forms of institutional financing, institutional debt also includes debt arising from any other outstanding obligations the student owes at the time the student withdraws from or completes the GE program. Examples of these other financial obligations include library fees, graduation or withdrawal fees, laboratory fees, etc."

There is no question that the Department intends for institutions to include unpaid charges resulting from various institutional fees. It is notable, however, that each of the Department's examples appear to be fees that would be required of every student enrolled in a GE program, and that relate directly to the student's enrollment in the program. It thus remains unclear whether institutions are required to include charges that may appear on a student's ledger, but which are not required of every student, and which, at least arguably, are unrelated to the student's enrollment. Examples of this type of charge might include parking fees, late return fees, optional recreational facility fees or meal plans, or immunization and other medical services.

At times these fees can be significant. We worked with one client that makes expensive professional equipment available to students during their final term. The institution has a strong relationship with the maker of the equipment, and arranged for its students to have the option to purchase the equipment from the institution at a discounted cost. The equipment is not required for the program, is not purchased by many students, and is not even available until the final weeks of the program. But many professionals in the field ultimately own such equipment, and each term a handful of students take advantage of the opportunity. Because students actually purchase the equipment from the institution, it can be rolled into their student payment plan and appears on the student ledger. This significant charge is not incurred "for enrollment" in the program, but it is an "unpaid charge" owed at graduation.

At this point, absent further guidance from the Department, we have counseled clients to take a conservative approach toward excluding any unpaid charges from their student's institutional debt totals. Based on the language of the regulation, it certainly is conceivable that select charges could properly be excluded. But we expect the Department generally would take the view that such charges are few and far between.

Institutions can, however, proactively evaluate whether there are charges that presently appear on student ledgers, and that can easily be removed (and as such, improve the debt-to-earnings rates for future periods). For example, for immunization and other services, institutions might require students to pay vendors directly. Similarly, the client we noted above is arranging for students to pay the manufacturer, instead of the school, for the professional equipment. We appreciate that institutions permitted students to charge many such services to their student accounts as a convenience to the student. But the reality of the gainful employment regulations is that any fee charged to a student by the institution likely has a negative impact on the school's debt-to-earnings ratios.

With regard to parking, late fee, and other such charges, institutions also may wish to consider requiring that any such charges be cleared prior to the student completing and graduating from the program (recall that the definition of institutional debt only includes debt outstanding as of the date the student completes the program). Many institutions already have such policies in place. In addition to generally reducing bad debt, such policies also will ensure that fees of this sort are not rolled into students' institutional debt totals for gainful employment reporting, thereby decreasing debt-to-earnings ratios.

Looking for more information on the new Gainful Employment rules?

In an effort to assist the many institutions working to review and digest the new gainful employment regulations, Thompson Coburn's Higher Education practice offered a two-part webinar series discussing the new rules. Both webinars are free and available on demand. The first webinar, titled " Getting a Grip on Gainful," aired on November 18, 2014. The webinar offers a complete overview of the new gainful employment rules, including reporting, certification, and disclosure requirements. The second webinar, " Projecting Debt-to-Earnings Rates," aired on December 9, 2014, and discusses and expand upon the step-by-step process for estimating D/E rates covered in our desk guide, How to Project Gainful Employment Rates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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