Biden-Harris Administration Releases Final Rules that Strengthen Accountability for Colleges and Consumer Protection for Students

The Biden-Harris Administration today announced final regulations to significantly enhance oversight and accountability for institutions of higher education and strengthen consumer protections for student borrowers. The new rules will strengthen the U.S. Department of Education’s (Department) ability to protect students and taxpayers from the negative effects of sudden college closures, will restrict colleges from withholding course credits paid for with Federal money from students’ transcripts, and require colleges to clearly communicate to students how much financial aid they will receive—a common source of confusion and error. The regulations, which will go into effect July 1, 2024, directly answer President Biden’s agenda to make college more affordable, hold colleges accountable, and protect taxpayers and consumers.

“Too many students have been abandoned by shady colleges that close their doors and leave borrowers with unaffordable debt and little hope of completing their educational journeys and embarking on rewarding careers,” said U.S. Secretary of Education Miguel Cardona. “With these final rules, the Biden-Harris Administration is fixing a broken system, which failed to protect students and families, and addresses abuses in higher education that have cost taxpayers billions of dollars in recent years. We are raising the bar for accountability and making sure that when students invest in higher education, they get a solid return on that investment and a greater shot at the American dream.”

In particular, the rules address the Department’s concerns about the substantial number of colleges that have closed abruptly, the largest of which were private for-profit institutions, leaving students in the lurch with few if any options to complete their programs elsewhere and taxpayers on the hook for student loan discharges. Beyond abrupt closures, there have also been many instances in which students struggle to find employment due to their programs not meeting licensure requirements or providing inadequate career services.

The final rules cover four areas. (1) Financial responsibility, which relates to situations where the Department can more swiftly obtain financial protection like a letter of credit when a college exhibits warning signs. (2) Administrative capability, which lays out additional areas where institutions must show they have sufficient resources and procedures in place for areas like career services and financial aid communication to participate in the Federal student aid programs. (3) Certification procedures, which addresses the conditions the Department can place in the written agreements it has with colleges to participate in the Federal student aid programs, and (4) Ability to benefit, which lays out a process for States to approve postsecondary programs that serve students who do not have a high school diploma.

“Today’s regulations prioritize students and taxpayers and continue our work to fix a broken student loan system,” said Under Secretary of Education James Kvaal. “They will help prevent fly-by-night colleges from leaving students and taxpayers holding the bag for shoddy educations. They will give students some common-sense protections like clear information on the true cost of college and access to their transcripts when their courses were federally funded.”

The final regulations make the following changes:

• Financial Responsibility: The final rules establish warning signs from colleges that make it easier for the Department to secure letters of credit or other forms of upfront financial protection. These include situations such as an institution showing financial risk due to paying a debt, lawsuits by Federal or State actors, or being in danger of losing access to Federal student aid due to having a high cohort default rate. Such changes are critical to both dissuade risky behavior and ensure taxpayers are better protected from the cost of sudden closures. From 2013-2022, the Department sought more than $1.6 billion in liabilities from institutions, but collected only $344 million from institutions during that time period.
• Administrative Capability: The Department is responsible for ensuring that institutions have the administrative capability to effectively administer the Federal student aid programs. However, when an institution exhibits problems, the Department often lacks the ability to hold institutions accountable. The final rules add several requirements for colleges including: clearer, more comparable information on financial aid, including distinguishing between scholarships and loans that must be repaid; prohibiting colleges from withholding transcripts for Federally funded courses; requiring adequate career services; and limiting the employment of individuals with a history of risky management of the Federal student aid programs.
• Certification Procedures: The final rules lay out additional conditions the Department can place on institutions when they exhibit warning signs, such as requiring a teach-out plan or agreement or limiting the addition of new programs and locations. The rules also take steps to ensure that student aid is only available for career-training programs that are no longer than State requirements for certification or licensure, including through reciprocity agreements or provisional licensure. Finally, the rules require that institutions certify that institutions operating through distance education will abide by any State laws related to the closure of postsecondary institutions, such as rules for teach-outs, record retention, and tuition recovery or surety bonds.
• Ability to Benefit: The final Ability to Benefit rules establish clearer processes for access to Federal aid for students who do not have a high school diploma or its recognized equivalent. The rules will increase access to postsecondary education for more students.

Today’s announcement builds on the Biden-Harris Administration’s ambitious efforts to hold colleges accountable, protect students and taxpayers, and ensure that all students can afford to get the education and skills they need after high school. Earlier this month, the Department revitalized the gainful employment rule to ensure institutions do their part to deliver real financial value to students and taxpayers. The Department has also approved $127 billion in relief for nearly 3.6 million students, including record amounts of relief for borrowers whose colleges took advantage of them or closed suddenly. President Biden has also championed the largest increase to Pell Grants in a decade and is fighting to put the grant on a path to doubling the maximum award by 2029, while proposing tuition-free community college and new tuition assistance at Historically Black Colleges and Universities and Minority-Serving Institutions.

The Department developed these final rules in response to public comments received following the publication of the draft rules in May. The final regulations was published in the Federal Register on October 31, 2023. View the official copy of final regulations here and a fact sheet on the final rule can be found here.