Recent guidance from the U.S. Department of Education (ED) brings both relief and important clarification for institutions navigating financial responsibility requirements and the 90/10 rule. While some regulatory pressure has eased, the updates introduce new considerations that institutions should evaluate carefully.
This article breaks down what has changed, what it means operationally, and where institutions should focus next.
A Pause on Financial Statement Enforcement
ED announced (General-26-18) it will delay enforcement of several financial statement requirements under §668.23(d)(1) until at least July 1, 2027.
What’s Changing
The delay applies to several provisions introduced in prior rulemaking, including:
- Aligning institutional fiscal year ends with IRS reporting periods
- Expanded requirements around which entities must be included in financial statements
- Additional ED authority to request financial statements for specific fiscal years
- Disclosure requirements related to related-party transactions
During this delay period, institutions may continue using their existing fiscal year structures, even if they do not align with IRS filings.
Why It Matters
This decision reflects ED’s recognition that:
- Fiscal year alignment is operationally complex
- Many institutions maintain different tax and financial reporting year ends for valid business reasons
- Implementation would require significant time, cost, and coordination
For many institutions, this provides short-term relief and additional time to plan. However, it is important to note that these requirements have not been eliminated, only delayed. Institutions should expect further guidance or future rulemaking.
90/10 FAQ: Key Clarifications
In addition to enforcement relief, ED issued updated FAQ guidance clarifying several aspects of the 90/10 calculation. These updates provide important direction, particularly for institutions managing funding classifications and program structures.
1. Federal Funds Scope
Only federal funds identified in the Federal Register must be included in the 90/10 calculation.
This removes prior expectations that institutions identify additional federal funding sources beyond those formally listed. Based upon the guidance in the Q&A, institutions are not under obligation to seek out and identify other sources of Federal educational assistance funds not explicitly listed in the December 21, 2022 Federal Register. Our interpretation is that if an institution, in past years, Federal funds which were not included on the December 21, 2022 Federal Register that the institution no longer needs to treat these as Federal funds.
2. Commingled Funds
Institutions are not required to identify or separate commingled funds from federal agencies if those funds are not included in the Federal Register.
This reduces administrative burden and eliminates a key area of prior confusion. Similar to above, if an institution had previously identified commingled funds for a fund source not included in the Federal Register, then the Federal portion of this fund source no longer needs to be included in the numerator and the funds source can be treated as a non-Federal funds. Reminder that if the funds are received from a non-Federal entity that are comingled with Federal education assistance funds as identified in the Federal Register, the institution is required to determine the Federal portion and in the limited situation it is unable, these funds must be excluded entirely (numerator and denominator) in the calculation.
3. Program Structure and Eligibility
ED reinforced that:
- Ineligible programs should not mirror courses offered in Title IV eligible programs
- Institutions must ensure meaningful differentiation between eligible and ineligible offerings
- Online delivery does not automatically disqualify an ineligible program from inclusion in the 90/10 calculation
These clarifications emphasize program integrity over delivery method.
4. Enrollment Management Flexibility
Institutions may set enrollment limits based on funding sources, including Title IV, if consistent with their program participation agreement.
This introduces a potential lever for managing 90/10 ratios, though it may have revenue implications if enrollment mix shifts.
5. Disbursement Timing
Funds must be counted in the fiscal year in which they are applied to the student’s account, not when cash is drawn.
This has direct implications for year-end cutoff procedures and audit risk.
6. Related Entity Definition
The FAQ expands the definition of related entities, including:
- Owners and management
- Immediate family members
- Entities with control or significant influence
If uncertainty exists regarding whether a funding source is related, guidance requires excluding those funds from the calculation.
Read complete official FAQ Guidance here.
What This Means for Institutions
Taken together, these updates create a mixed landscape of reduced burden and increased responsibility.
Reduced Compliance Complexity
- Narrower definition of federal funds simplifies 90/10 calculations
- Removal of commingled fund requirements reduces tracking burden
- Delay in financial statement enforcement provides operational flexibility
Greater Emphasis on Judgment
At the same time, institutions now face increased reliance on interpretation in areas such as:
- Related entity determinations
- Program differentiation (eligible vs. ineligible)
- Enrollment strategies tied to funding sources
These are not purely mechanical decisions and may require coordination across finance, compliance, and academic leadership.
Key Risk Areas to Watch
Year-End Cutoff and Audit Risk
The clarification on disbursement timing creates potential exposure:
- Funds posted in one fiscal year but drawn in another may create inconsistencies
- Transactions near fiscal year-end are more likely to be scrutinized
Maintaining alignment between posting and drawdown activity is critical, particularly for institutions operating close to 90/10 thresholds.
Related Entity Ambiguity
The expanded definition introduces gray areas, especially for:
- Minority or passive investors
- Scholarship funds or affiliated organizations
Determining whether significant influence exists may require careful evaluation and documentation.
Enrollment Strategy Tradeoffs
While enrollment caps based on funding source are permitted, institutions should consider: - Potential revenue shifts if Title IV students are replaced
- Operational and reputational implications
- Long-term sustainability of this approach
Frequently Asked Questions
Q1: Do we still need to track all federal funding sources?
A1: No. Only federal funds identified in the Federal Register must be included in the 90/10 calculation.
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Q2: Can previously included funding sources now be excluded?
A2: If those sources are not included in the Federal Register, the updated guidance indicates they may no longer need to be included. Institutions should confirm treatment based on their specific circumstances.
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Q3: How should we handle year-end disbursements?
A3: Funds must be counted in the fiscal year they are applied to the student account. Institutions should ensure consistent cutoff practices and alignment between ledger activity and cash drawdowns.
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Q4: What qualifies as a related entity?
A4: The definition now includes owners, management, immediate family members, and entities with control or significant influence. When uncertainty exists, conservative treatment may be appropriate.
Q5: Can we limit Title IV enrollment?
A5: Yes, institutions may set enrollment limits based on funding source if consistent with their program participation agreement. However, this should be evaluated alongside broader financial and operational impacts.
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What Institutions Should Do Now
While these updates provide clarity and temporary relief, they also signal continued regulatory evolution.
Institutions should consider:
- Monitoring for future rulemaking, particularly related to delayed financial statement requirements
- Re-evaluating 90/10 calculations under the updated guidance
- Reviewing year-end cutoff procedures for alignment and consistency
- Assessing related entity relationships and documenting conclusions
- Coordinating across finance, financial aid, and academic teams to ensure consistent application of guidance
Final Thought
ED’s latest actions reflect a broader trend: balancing regulatory intent with operational realities. For institutions, the opportunity now is to use this period of clarity and delayed enforcement to strengthen processes, validate assumptions, and prepare for what comes next.
Contact us if you want help modeling your 90/10 impact.
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