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On January 16, 2026, the U.S. Department of Education issued an Electronic Announcement, "Program Participation Agreement Signature Requirements" (GEN-26-04), addressing the general circumstances under which an owner-entity of a Title IV-eligible institution may be required to sign a program participation agreement (PPA) under Section 498 of the Higher Education Act (HEA), codified at 20 U.S.C. § 1099c. The announcement was issued in connection with the Department's settlement of litigation in Hannibal-LaGrange University v. U.S. Department of Education, 2:25-cv-00042 (E.D. Mo. 2025), which challenged the legality of the Department's 2023 amendment to 34 C.F.R. § 668.14(a)(3)(ii).
In that litigation, Hannibal-LaGrange University challenged the Department's requirement that its sponsor organization, the Missouri Baptist Convention, must sign an amendment to the institution's PPA in connection with a request for approval of new educational offerings. As amended in 2023, Section 668.14(a)(3)(ii) requires that PPAs for proprietary and private nonprofit institutions be signed not only by an authorized institutional representative, but also by authorized representatives of majority owners and other controlling parties of the institution.
As part of the settlement, the Department agreed not to enforce the owner-entity signature requirement in the manner set forth in the regulation and replaced the prior automatic approach with a discretionary, case-by-case framework grounded in Section 498 of the HEA. The Department also indicated that it intends to revise 34 C.F.R. § 668.14(a)(3)(ii) in the future consistent with the settlement agreement.
This announcement is significant for institutions and their owners, sponsors, investors and lenders because it responds to significant adverse effects resulting from the Department's 2023 signature rule. That rule materially altered the risk profile of both routine recertifications and transactions—including acquisitions, restructurings and financings—by exposing owner and sponsor entities to expansive, retroactive Title IV liability and by conditioning continued Title IV participation on extraordinary financial guarantees.
Key Takeaways
Elimination of Automatic Owner-Entity Signature Requirements
The Department has agreed not to enforce the automatic owner-entity signature requirement "in the manner set forth" in 34 C.F.R. § 668.14(a)(3)(ii), moving away from a blanket signature requirement to a risk-based approach tied to Section 498 of the HEA. As a result, PPAs will be signed by the institution's authorized representative in the ordinary course, with any owner-entity signature requirement determined on a case-by-case basis as described below.
Case-by-Case Discretion Retained by the Department
The Department reserves the right to require an authorized representative of an entity that directly or indirectly holds a substantial ownership interest in the institution sign the PPA on a case-by-case basis, in a manner consistent with 20 U.S.C. § 1099c(e). Under that statute, the Secretary may impose such a requirement where the Secretary determines that the signatures are "necessary to protect the financial interest of the United States." The Department explains that this may include situations where the owner-entity has sufficient assets to make a guarantee warranted, but it will not generally impose this requirement where the owner-entity has no or de minimis assets, absent circumstances where the Secretary finds that assets were withdrawn by the parent owner in a pretextual manner to intentionally evade liability.
Statutory Constraints on Owner-Level Guarantees
The Department expressly acknowledges that any owner-level signature or comparable financial undertaking must follow an individualized determination under 20 U.S.C. § 1099c(e)(1) that such action is "necessary to protect the financial interests of the United States." This is instead of the current rule's categorical presumption based solely on ownership structure.
Even where necessity is found, the Department stated that it will not require a financial guarantee from an institution or the assumption of personal liability by one or more individuals exercising substantial control where the institution meets the conditions in 20 U.S.C. § 1099c(e)(4)(A)–(D). Specifically, where the institution: (A) has not been subjected to a limitation, suspension or termination action by the Secretary or a guaranty agency within the preceding five years; (B) has not had, during its two most recent compliance audits, an audit finding that resulted in the institution being required to repay an amount greater than 5 percent of the Title IV funds the institution received for any year; (C) meets and has met the Title IV financial responsibility standards for the preceding five years; and (D) has not been cited during the preceding five years for failure to timely submit its annual audits.
Alternatives to Signatures
On a case-by-case basis, the Department may determine that an owner-entity signature is unnecessary for other reasons, including where alternative protections are sufficient to minimize risk, such as a letter of credit or other acceptable financial protections. Presumably, the Department's determination will be guided by the language in Section 498(e)(2) of the HEA that the financial guarantee from owners be only "to the extent necessary to protect the financial interests of the United States." (Emphasis added.)
Effective Date, Transition and PPA Renewals
The new signature policy applies to PPAs issued on or after January 16, 2026, and the Department will not entertain a request to remove an owner-entity signature from a PPA that is currently in effect. The Department also states that it intends to apply this guidance prospectively, including upon renewal of a PPA.
Statutory Gap Regarding Authority to Require Entity Signatures Remains
The 2023 signature regulation conflicts with the U.S. Supreme Court decision in Loper Bright Enters. v. Raimondo, 144 S. Ct. 2244 (2024), which requires agencies to act within the bounds of clearly delegated statutory authority, in three significant aspects. The Department's announcement addresses two of those conflicts with Section 498 of the HEA. First, the Department agrees that it will impose a signature requirement only where the Secretary determines that such a signature is "necessary to protect the financial interest of the United States." Second, the Department agrees to adhere to the safe harbor set forth in Section 498. Neither limitation was set forth in 34 C.F.R. § 668.14(a)(3)(ii).
Notably, however, the Department's guidance does not resolve the more fundamental statutory question raised by the underlying regulation—namely, whether Section 498 of the HEA authorizes the Department to require entity-level signatures or guarantees at all. That issue was not raised by the plaintiff in the underlying litigation. Section 498(e)(1) of the HEA, codified at 20 U.S.C. § 1099c(e)(1), when addressing the imposition of personal liability and guarantees, speaks only of imposition on "individuals" who exercise substantial control. It does not provide comparable authority with respect to owner-entities, includingparent companies, sole or majority members, private equity funds or other nonindividual entities solely by virtue of their ownership. The Department expressly acknowledged this limitation in the preamble to the 2023 final rule, stating that that "HEA section 498(e) specifically addresses individual signatures and does not explicitly address entity signatures." See "Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit," 88 Fed. Reg. 74,568, 74,632 (Oct. 31, 2023). That assertion may have been an effort to shield the regulation from challenge under so-called Chevron deference. However, Loper Bright—decided after the regulation was issued—overruled Chevron.
While the guidance reflects a more restrained enforcement posture of the signature requirements, it does not resolve the remaining statutory mismatch between the regulation and the HEA. If the Department were to pursue entity-level signature authority on a durable, long-term basis, it would require statutory amendment to that effect. Absent such amendment, imposing owner-level signature requirements by regulation—where the HEA authorizes personal liability only with respect to individuals—is vulnerable to challenge under Loper Bright. That lack of statutory authorization will be an issue in any instance when the Department purports to require a signature from an owner-entity under its newly announced policy of applying the signature requirement on a case-by-case basis.
Clarity, Predictability and Process Considerations
The guidance emphasizes individualized, case-specific determinations consistent with constraints set forth in Section 498 of the HEA, but it does not articulate the procedures or criteria the Department will apply in determining when an owner-entity signature may be required or when alternative protections, such as letters of credit, will be deemed sufficient. Investors, lenders and other transaction participants rely on predictable regulatory processes to assess risk, structure transactions and ensure ongoing compliance with Title IV requirements, and the absence of such clarity can introduce uncertainty that discourages otherwise viable transactions. Additional clarity through further guidance or rulemaking regarding the applicable criteria, decision-making process and timing of these determinations, including an opportunity for review, would ensure transparency and consistency while preserving appropriate risk-based oversight under the HEA. In the context of changes of control, incorporating this determination into the Department's pre-acquisition review process would enable parties to address potential concerns in advance of closing and facilitate orderly transactions while continuing to protect the financial interest of the United States. These recommendations reflect our policy analysis rather than statements from the Department's announcement.
Conclusion
The Department's 2023 signature requirement has had a chilling effect on transactions and significantly altered the risk profile for existing owners and sponsors for both proprietary and private nonprofit institutions. As implemented, entities required to sign a PPA must agree to be jointly and severally liable for all Title IV liabilities of the institution, including liabilities incurred prior to the signatories' ownership. In addition, under the prior administration, acceptable letters of credit in lieu of signatures were often in amounts well in excess of 100 percent of the prior year's Title IV receipts, for both proprietary and private nonprofit institutions.
In the proprietary sector, the signature requirement has introduced significant market distortion. By obligating upper-level ownership entities to assume broad financial guarantees that are not authorized by statute and that are incompatible with traditional norms of limited corporate liability, the rule has created legal exposure for investors that exceeds customary market risk and materially alters transaction economics. In the nonprofit sector, a nonprofit institution seeking to acquire another nonprofit institution—typically by becoming the sole member of the acquired institution—may be required to place its entire enterprise at risk by guaranteeing the acquired institution's historical Title IV liabilities. In both contexts, owner-entity guarantees substantially alter risk modeling, deter capital investment and impede routine restructurings and mission-driven consolidations. As a result, investors, lenders and potential acquirers have delayed, restructured or declined transactions involving Title IV institutions.
The Department's announcement narrowing enforcement of the PPA signature requirement represents an important step toward addressing these concerns, but the market effects will likely persist to some extent unless the issue is fully resolved through final, legally sustainable regulatory action consistent with Section 498 of the HEA.
About Duane Morris
Duane Morris's Higher Education Group regularly advises investors, institutions and nonprofit organizations on complex mergers and acquisitions, changes of control and other strategic combinations and alliances across both the proprietary and private nonprofit higher education sectors. The group has extensive experience structuring transactions to address Title IV regulatory requirements, accreditation considerations, financial responsibility issues and risk allocation, including transactions involving private equity sponsors, nonprofit conversions, consolidations, joint ventures and affiliation models. This experience positions the group to provide practical, market-informed guidance on evolving Department of Education policies and their impact on institutional strategy and transactional execution.
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