Federal aid rules would set college enrollment limits and safeguards

A school would have to meet the listed rules to qualify as a college under federal higher education law. A school could enroll no more than half its students in distance courses, more than a quarter as incarcerated students, or more than half without a high school diploma or equivalent. Certain bankruptcies and specified misconduct by a school or its leaders would also disqualify it. Schools that are public or nonprofit technical institutions or career training schools are exempt from the distance-learning enrollment limit. Programs using federal student aid to award certificates or other nondegree credentials must prepare students for jobs in recognized occupations.

The Education Secretary would require some people who control a college to assume personal liability for specified financial losses. The losses may affect the federal government, student aid recipients, and other program participants. The Secretary would determine which people exercise substantial control over the college. Liability applies to losses resulting from a loan discharge because the college closed or from a successful borrower defense claim.

The Education Secretary would review governance at colleges involved in transactions that may indicate private inurement. The review concerns a college’s governance. The Secretary would decide which transactions or arrangements may indicate private inurement, meaning improper private benefit from an organization’s assets or income.

The Education Secretary would approve qualifying colleges’ conversions to nonprofit status and bar unapproved nonprofit claims. These rules cover colleges seeking to convert to nonprofit status. A college must apply and show that it meets the listed nonprofit, asset-value, governance, tax, and control rules. The application must be published for public comment before approval. Marketing as nonprofit also requires final federal, accreditor, and applicable state approval, plus tax-exempt approval. Approved converting colleges would remain subject to rules for for-profit colleges for at least five years. The Department of Education would have to establish an office to monitor nonprofit integrity within one year after enactment.

The proposed text would apply a federal payment restriction to certain payments by colleges to outside service providers. The provision concerns payments by colleges to outside service providers. The restriction covers a payment to an unaffiliated person or organization that provides a set of services including recruitment, when the payment amount depends on tuition generated through those services.