20 U.S.C. § 1099c — Eligibility and certification procedures

(a) General requirement. To qualify institutions for programs under this subchapter, the Secretary must decide whether each institution has legal authority to operate in a State, is accredited, and has the required administrative capability and financial responsibility, using this section’s requirements. This section does not define the quoted terms “legal authority to operate,” “administrative capability,” or “financial responsibility.” (b) Single application form. The Secretary must prepare one application form that— (1) asks for enough information and documents to decide whether the institution meets the requirements for eligibility, accreditation, financial responsibility, and administrative capability; (2) asks for a specific description of the relationship between the institution’s main campus and all branches, including which student-aid processing is done at the main campus and which is done at branches; (3) requires (A) a description of the institution’s third-party servicers and (B) the institution to keep a copy of every contract with a financial-aid service provider or loan servicer and give a copy to the Secretary on request; (4) asks for other information the Secretary decides is needed to ensure compliance with this subchapter’s eligibility, accreditation, administrative-capability, and financial-responsibility requirements; and (5) lets the institution choose to participate in one or more programs under part B or part D. (c) Financial responsibility standards. (1) The Secretary must decide whether an institution has the financial responsibility required by this subchapter by deciding whether it can (A) provide the services described in its official publications and statements, (B) provide the administrative resources needed to comply with this subchapter, and (C) meet all financial obligations, including institutional-charge refunds and repayments to the Secretary for liabilities and debts from programs the Secretary administers. (2) Even so, if an institution does not meet the Secretary’s criteria for financial-responsibility ratios, it must give the Secretary satisfactory evidence of financial responsibility under paragraph (3). The criteria must account for differences in generally accepted accounting principles and required financial statements that apply to for-profit, public, and nonprofit institutions. The Secretary must consider the institution’s total financial situation when deciding whether it meets these standards. (3) The Secretary must find an institution financially responsible despite its failure to meet the criteria in paragraphs (1) and (2) if— (A) it gives the Secretary reasonable third-party financial guarantees, such as performance bonds or letters of credit payable to the Secretary. The guarantees must equal at least one-half of the institution’s yearly potential liabilities to the Secretary for funds under this subchapter, including loan obligations discharged under section 1087, and to students for refunds of institutional charges, including charges paid with funds under this subchapter; (B) its liabilities are backed by the full faith and credit of a State, or the equivalent; (C) it satisfactorily shows the Secretary, supported by a financial statement audited by an independent certified public accountant under generally accepted auditing standards, that it has enough resources to prevent a sudden closure, including enough to meet all financial obligations, refunds, and repayments to the Secretary for program liabilities and debts; or (D) it meets financial-responsibility standards set by the Secretary by regulation that show at least the financial strength required by paragraph (2). (4) If an institution offering a two-year or four-year program that awards an associate or baccalaureate degree does not meet a criterion imposed under paragraph (2), the Secretary must waive that particular criterion if the institution satisfactorily shows that (A) there is no reasonable doubt about its continued solvency and ability to provide quality education, (B) it is current on all current liabilities, including student refunds, repayments to the Secretary, payroll, trade creditors, and withholding taxes, and (C) it has substantial equity in facilities occupied by the school and acquiring those facilities directly caused its failure to meet the criterion. (5) Whether an institution meets the financial-responsibility standards in paragraphs (2) and (3)(C) must be decided from an audited and certified financial statement. A qualified independent organization or person must perform the audit under standards established by the American Institute of Certified Public Accountants. The institution must submit the statement when it is considered for certification or recertification. If it is certified, provisionally or otherwise, and the audit does not show compliance with paragraph (2), the Secretary may require more audits. (6)(A) The Secretary must set requirements for institutions to keep enough cash reserves to repay required refunds. (B) The Secretary must create a process to exempt an institution from those requirements if the institution is in a State with a tuition-recovery fund that ensures the requirement is met, contributes to that fund, and otherwise has legal authority to operate in the State. (d) Administrative capacity standard. The Secretary may (1) set procedures and requirements for institutions’ administrative capacities, including (A) considering the past performance of institutions or people controlling them in student-aid programs and (B) keeping records, and (2) set other reasonable procedures that the Secretary decides will help ensure an institution complies with the administrative capability required by this subchapter. (e) Financial guarantees from owners. (1) To protect the United States’ financial interest, the Secretary may require (A) financial guarantees from an institution participating or seeking to participate in a program under this subchapter, from one or more people who substantially control it, or from both, in an amount sufficient to cover the institution’s possible liability for program funds to the Federal Government, student-assistance recipients, and other program participants; and (B) one or more people who substantially control the institution to accept personal liability for financial losses involving those funds and for civil or criminal monetary penalties authorized by this subchapter. (2)(A) The Secretary may find that a person substantially controls an institution if the person (i) directly or indirectly controls a substantial ownership interest, (ii) represents, alone or with others under a voting trust, power of attorney, proxy, or similar agreement, people who together have a substantial ownership interest, or (iii) is a director, chief executive officer, or other executive officer of the institution or of an entity holding a substantial ownership interest. (B) The Secretary may find that an entity substantially controls an institution if it directly or indirectly holds a substantial ownership interest in it. (3) For this subsection, “ownership interest” means a share of legal or beneficial ownership or control, or a right to share in operating proceeds, of an institution or its parent corporation. The section does not otherwise define the quoted term. It may include, but is not limited to, (A) a sole proprietorship, (B) an interest as a tenant-in-common, joint tenant, or tenant by the entireties, (C) a partnership, or (D) an interest in a trust. (4) The Secretary may not impose the guarantees or personal-liability requirements in paragraph (1)(A) and (B) on an institution that (A) has not been subject to a limitation, suspension, or termination action by the Secretary or a guaranty agency in the previous five years; (B) during its two most recent audits of programs under this subchapter, has not had an audit finding requiring repayment of more than five percent of the funds it received under those programs in any year; (C) meets and has met the subsection (c) financial-responsibility standards for the previous five years; and (D) has not been cited in the previous five years for failing to submit required audits on time. (5) For section 1094(c)(1)(G), this section also applies to people or organizations that contract with an institution to administer any part of its student-assistance program under this subchapter. (6) Despite any other law, a person is liable to the Secretary for an unpaid refund to the same extent that a responsible person would be liable for a tax-nonpayment penalty under section 6672(a) of title 26 if (A) the Secretary finds under paragraph (2) that the person substantially controls an institution participating or seeking to participate in a program, (B) the person must pay, for a student or borrower, a refund of unearned institutional charges to a lender or the Secretary, and (C) the person willfully fails to pay or willfully tries to evade paying it. This liability is in addition to other penalties provided by law. (f) Actions on applications and site visits. The Secretary must ensure that the Department acts promptly on applications required under subsection (b). Department of Education personnel may visit each institution before certifying or recertifying its eligibility for any program under this subchapter. The Secretary must set priorities for visits and, as far as practicable, coordinate them with visits by States, guaranty agencies, and accrediting bodies to eliminate duplication and reduce administrative burden. (g) Time limitations on, and renewal of, eligibility. (1) After an institution’s certification expires under the schedule that applied before October 7, 1998, or when an institution not previously certified asks for initial certification, the Secretary may certify its eligibility for a program under this subchapter for no more than six years. (2) The Secretary must notify an institution at least six months before its certification expires. (3) The Secretary must issue regulations about recertification requirements for an institution outside the United States that meets section 1002(a)(1)(C) and received less than $500,000 under part B in the latest year for which data are available. (h) Provisional certification of institutional eligibility. (1) Despite subsections (d) and (g), the Secretary may provisionally certify eligibility (A) for no more than one complete award year when an institution seeks initial certification, and (B) for no more than three complete award years if (i) the institution’s administrative capability and financial responsibility are being decided for the first time, (ii) all or part of an eligible institution’s ownership changes as described in subsection (i), or (iii) the Secretary decides that an institution seeking renewal is in an administrative or financial condition that may jeopardize its financial duties under a program participation agreement. (2) If the Secretary withdraws recognition of an accrediting agency, the Secretary may continue an institution’s eligibility for programs under this subchapter for no more than 18 months after the withdrawal if the institution met accreditation, eligibility, and certification requirements on the day before the withdrawal. (3) Before provisional certification ends, the Secretary may end the institution’s participation if the Secretary decides it cannot meet its duties under its program participation agreement. (i) Treatment of changes of ownership. (1) An eligible institution whose ownership changes and control changes may not participate after the change, except as paragraph (3) allows, unless it shows that after the change it meets section 1002, other than sections 1002(b)(5) and (c)(3), and this section. (2) An action that may change control includes (A) selling the institution or most of its assets, (B) transferring controlling stock in the institution or its parent corporation, (C) merging two or more eligible institutions, (D) dividing one or more institutions into two or more institutions, (E) transferring the institution’s controlling stock to its parent corporation, or (F) transferring the institution’s liabilities to its parent corporation. (3) An action that may be treated as not changing control includes (A) after an owner dies, selling or transferring that owner’s interest to a family member or a person who already owns an interest in the institution, or (B) another action the Secretary decides is a routine business practice. (4)(A) The Secretary may provisionally certify an institution seeking approval of an ownership change based on a preliminary review of a materially complete application received within 10 business days after the transaction. (B) That provisional certification expires no later than the end of the month after the transaction. If the Secretary has not decided the application by then, the Secretary may continue the provisional certification month by month until deciding it. (j) Treatment of branches. (1) A branch of an eligible institution, as defined by the Secretary’s regulations, must be certified under this subpart before it may participate as part of the institution in a program under this subchapter. Before seeking that certification, it need not meet sections 1002(b)(1)(E) and 1002(c)(1)(C). After the Secretary certifies it as a participating branch campus, it must exist for at least two years before it may seek certification as a main campus or independent institution. (2) The Secretary may waive section 1001(a)(2) for a branch that (A) is not in a State, (B) is affiliated with an eligible institution, and (C) participated in one or more programs under this subchapter on or before January 1, 1992. (k) Treatment of teach-outs at additional locations. (1) A location of a closed institution may qualify as an eligible institution’s additional location, as defined by the Secretary’s regulations, for a teach-out under section 1094(f) if the institution’s accrediting agency approved the teach-out. (2) An institution conducting such a teach-out through an additional location may make that location permanent at the closed institution and need not (A) meet sections 1002(b)(1)(E) and 1002(c)(1)(C) for that location or (B) assume the closed institution’s liabilities.