Takeaways from ED’s Updated Waivers & Modifications to Federal Student Aid Provisions

On December 11, the U.S. Department of Education (ED) issued a Federal Register notice updating waivers and modifications of statutory and regulatory provisions governing the Federal student financial aid programs. We have reviewed these provisions and identified the items that will have the greatest impact on our audit procedures.

Read on for a review of these topics, as well as our takeaways and commentary in the italicized sub-bullets.

Institutional Eligibility and Authorizations

• ED waived the requirement under 600.9(c) to obtain state authorization to provide educational programs through distance education. This requirement is waived for payment periods that overlap March 5, 2020, or begin after March 5, 2020, through the end of the payment period that begins after the date on which the Federally declared national emergency related to COVID-19 (COVID Emergency) is rescinded. Note that this waiver only applies to ED’s requirements and each institution needs to verify any applicable state requirements. ED waived the requirement under 668.8(m) that an institution has been evaluated and is accredited for distance education by an accrediting agency or association recognized under the Higher Education Act (HEA). This waiver also extends through the payment period that begins after the date on which the COVID Emergency is rescinded.

• • Institutions should check with their state licensure agencies and their accrediting body to fully understand any necessary requirements to ensure distance education can be maintained. It is not guaranteed that automatic approval will be sustained.

• ED is waiving 600.31(a)(2) and providing an additional six months for institutions to submit the approvals and opening balance sheet audit, as required under a change of ownership pursuant to 600.20(h)(3). ED will accept unaudited financial statements for the institution and the new owner’s most recently completed fiscal year under the timeframe in 600.20(g)(1) (10 business days after the day the change occurs), provided the submission includes the engagement letter(s) for the audited financial statements under 600.20(g)(2) that are to be completed for submission to ED. This waiver is in effect for the duration of the COVID Emergency and 180 days following the date on which the COVID Emergency is rescinded.

• • If the most recent fiscal year end audit is under an extended deadline (past the normal due date), management needs to ensure that unaudited financial statements and the audited financial statements engagement letter is ready to be submitted within the 10-days from the closing.
  • See the next bullet point for the requirement to submit annual audits which are past the normal due date.

• For audits of institutions not subject to the Single Audit Act, which were due to be submitted to ED no later than March 1, 2020, through December 31, 2020, ED is extending the submission deadline up to an additional six months. For institutions which are submitting their audits after the normal deadline, the institution must submit their audits no later than 30 calendar days after the date of the audit report. If the date of the audit report is prior to December 11, 2020, institutions have 30 calendar days from this point in time to submit their audits.

• • Thus, an institution can’t complete its audit and just hold the audit reports. ED has a fiduciary duty to the taxpayers so audit reports which are completed after the normal filing deadline need to be submitted to ED within 30 days. ED needs an institution’s audit reports to monitor financial health and assess compliance findings. The audit deadline extension is meant to provide relief to institutions and auditors who have experienced operational issues due to the COVID-19 Emergency, and not to provide an extended period from ED oversight. M&A is assuming that both audit reports have to be completed as eZ-Audit won’t allow a submission without both audit reports.
  • From our interpretation and confirmation with the Office of Inspector General, the audit extension for institutions not subject to the Single Audit Act (e.g. for-profit institutions) does not apply to institutions with a July 31, 2020 year end or after. Only institutions who had a year end of 6/30/2020 or earlier are eligible for the audit extension deadline.

• For short-term programs, ED is waiving the 70/70 requirement under 668.8(d)(3) and (e) for any award year in which the COVID Emergency was in place for at least one day in the award year. Institutions must continue to report the completion and placement rates for such award years in the compliance audit and the programs will remain eligible if the rates do not meet the 70/70 requirements. The 70/70 rates will be applicable for any award year in which the COVID Emergency did not exist for at least one day.

• • Thus, currently the 70/70 rate requirements are waived for the 2019/20 and 2020/21 award years. Note that if the COVID Emergency were to be rescinded on or before 6/30/21, the 70/70 requirements would apply to the 2021/22 award year.

 Student Eligibility and Disbursements

• Normally, an institution is not allowed to place a student on a leave of absence (LOA) during the suspension of coursework, including clinicals or internships/externships. However, ED is granting relief if the coursework suspension is due to COVID-19 circumstance and, as such, the institution can grant a LOA. The LOA may begin prior to a student’s request as long as a written request is subsequently obtained from the student. These flexibilities apply to all LOAs granted through the end of the payment period after the date the COVID Emergency is rescinded.
  • We recommend that institutions thoroughly document LOA requests and the cessation of coursework prompted by any COVID issues or local orders.

• ED has also provided relief in regard to an LOA’s maximum time frame, which is normally 180 days. ED’s relief extends the maximum number of days from 180 days (in any 12-month period) to allow a LOA to be extended to December 31, 2020.
  • Thus, ED has not provided relief for LOAs to extend past 180 after December 31, 2020.

• As part of verification procedures, institutions are permitted to waive the requirement for a parental signature in the event it can’t be obtained, or accept a document signed and photographed which was sent by email or text message attachment. This is allowable for any verification document required to validate a student’s Title IV eligibility. This waiver expires at the end of the payment period that begins after the date the COVID Emergency is rescinded.
  • As a best practice, the institution may want to document why the parental signature was unable to be obtained (local shutdown orders, limited interaction due to social distancing, unwillingness to visit the institution, etc.).

• Regarding the payment of Title IV credit balances, ED is waiving 668.161(a)(2)(iv) which requires an electronic funds transfer (EFT) to be an automated clearing house transaction (e.g. a direct deposit transaction). ED is allowing institutions to use any type of EFT under the Treasury Department regulations in 31 CFR 208.2, including person-to-person payment methods such as Zelle and PayPal. This waiver expires at the end of the payment period that begins after the date in which the COVID Emergency is rescinded.
  • Institutions are required to notify their auditor of this change. M&A is assuming that the use of a person-to-person EFT transaction does not create a Tier 1 or Tier 2 servicer arrangement. However, an institution must ensure that it complies with all other disbursement requirements under the cash management regulations. If any type of contract is initiated by the institution with the person-to-person payment vendor, you should provide this to your auditor, as well.

• Continuing with cash management, ED is permitting institutions on HCM1 under 668.162(d)(1) to submit a request for funds (via G5) without first paying the credit balances to the students for whom those funds are being requested. Institutions must pay credit balances within three calendar days after receiving funds. This waiver is for requests submitted between March 2020 and the end of the payment period that begins after the COVID Emergency is rescinded.
  • Title IV disbursements still need to be posted to the student’s ledger before the request for funds is made. Also, note there are three calendar days, not three business days, to pay the credit balances. Since this waiver was previously not communicated and it extends back to March 2020, institutions could review this guidance if a potential finding is raised during an audit.

• ED waived the Federal Work Study (FWS) community service requirement in 675.18(g) for at least the 2019/20 and 2020/21 award years, and institutions do not need to apply for a waiver for either year, it will be administratively granted to all schools. This waiver expires at the end of the award year that begins after the COVID Emergency is rescinded.
  • Under 675.18(g), 7% of an institution’s initial and supplemental FWS allocations for an award year must be used to compensate students employed in community service activities. This waiver will enable additional FWS to be paid to eligible students who don’t meet the community service requirement or for transfer and use in the Federal Supplemental Education Opportunity Grant (FSEOG) program. 
  • From our interpretation, this waiver would seem to already apply to the 2021/22 award year.

• ED waived the provisions of 690.63(a)(1)(ii)(B)(3) and permits an institution to treat as a standard term any academic calendar comprised of semesters, trimesters or quarters that overlap. For all academic years that include the later of December 31, 2020, or the end date for the COVID Emergency, the existence of overlapping standard terms will not result in a program being considered non-term. Additionally, a standard semester or trimester may consist of as few as 13 weeks of instructional time and a standard quarter as few as nine weeks of instruction time without being considered a non-standard term program. 
  • From our interpretation, the change in standard terms do not have to be consistent and can vary by educational program at an institution. An institution needs to have clear support for the changes in any term structure. This is important if an institution has changes to multiple programs and the changes vary by program. 
  • Ensure these changes are discussed in-depth with your auditors so they understand the Title IV structure prior to student file testing.

Reporting

• ED extended the October 1 deadline in 668.41(e)(1) for institutions to distribute their Annual Security Reports and Annual Fire Safety Reports (required under 668.46(b) and 668.49(b), respectively) to December 31, 2020. Similarly, the Equity in Athletic Disclosure Act disclosures (required under 668.47(c)) is extended to December 31, 2020.
  • You must still be prepared to prove to your auditor that the disclosures were provided by December 31, 2020. 
  • M&A would recommend that if these items are completed prior to December 31, 2020, that they are distributed since the disclosures are informative information for the recipients.

Institutions should read through this Federal Register notice and discuss the implications with regulatory counsel and their auditors. Institutions should be certain to have clear documentation of when payment periods begin and end to provide support for the COVID Emergency relief provisions. This will be critical in 2021, when, hopefully, the COVID Emergency ends. As always, the experts at McClintock & Associates are available to assist you in implementing and understanding these changes.