By: Nick Michiels, Dan Brozovic, and Ryan Spraker
The U.S. Department of Education (“ED”) recently increased scrutiny of postsecondary institutions’ compliance with existing legal obligations to report certain gifts, contracts, and ownership interests involving foreign sources. On November 13, 2020, ED published a Notice in the Federal Register (“Notice”) explaining its position that institutions may be subject to fine, limitation, suspension, or termination actions for violating these reporting obligations.[1]
Background
Section 117 of the Higher Education Act (“HEA”) requires higher education institutions participating in Title IV, HEA student assistance programs (“Title IV Programs”) to disclose gifts received from any foreign source, contracts with a foreign entity, and any ownership interests in or control over the institution by a foreign entity to ED.[2]
ED believes institutions have consistently failed to disclose foreign gifts and contracts. Secretary Betsy DeVos stated that “[ED’s] initial investigations catalyzed disclosure of approximately $6.5 billion in previously unreported foreign funds.”[3]
On June 22, 2020, ED published an electronic announcement reminding institutions of the Section 117 obligation to report gifts received from, or contracts entered into with, a foreign source with a value of $250,000 or more. ED also noted that the threshold amount may be met by a single gift or by a combination of gifts from the same source within a calendar year. ED developed a new reporting system, available at https://partners.ed.gov/ForeignGifts, for submitting Section 117 information. Among other requirements, institutions must name the source and amount of the gift or contract. Institutions must also provide a description of any restrictions or conditions placed on the institution by accepting the foreign gift or contract. To assist institutions in determining what gifts or contracts must be reported, ED also published Appendix A (Information to be Reported) and Appendix B (Responses to Public Comments).
According to ED, the new reporting system has increased disclosure of foreign gifts and contracts. Approximately sixty of the institutions that filed a report through the new reporting portal are “new filers,” meaning that between 1986 and June 2020 these institutions had not submitted any reports. These “new filers” disclosed more than $350 million in foreign gifts and contracts.[4]
Enforcement Actions for Foreign Gifts and Contracts Noncompliance
ED has conceded that “[u]ntil recently, [it] took no action to […] enforce the law against resisting institutions.”[5] Going forward, however, ED intends to impose sanctions that could put institutions’ Title IV eligibility in jeopardy.
In the November 13 Notice, ED takes the position that failure to report foreign gifts and contracts may result in fines or impact the institution’s eligibility to participate in the Title IV Programs.[6] ED bases its interpretation on Section 117 of the HEA, as incorporated in the 1986 and 1998 amendments to the HEA.[7] ED offers the following rationale for its interpretation:
- The HEA, as amended, requires institutions to enter into a Program Participation Agreement (“PPA”) to participate in the Title IV Programs. 20 U.S.C. § 1094(a).
- The PPA requires institutions to “complete surveys conducted as a part of the Integrated Postsecondary Education Data System (IPEDS) or any other Federal postsecondary institution data collection effort, as designated by the Secretary, in a timely manner and to the satisfaction of the Secretary.” 20 U.S.C. § 1094(a)(17) (emphasis added); see also 34 C.F.R. § 668.14(b)(19).
- The Section 117 foreign gifts information collection is a “Federal data collection effort, as designated by the Secretary,” as referenced in Section 1094(a)(17).
- If an institution fails to report Section 117 information timely and accurately, the institution has failed to comply with its reporting obligations under 20 U.S.C. § 1011f and therefore failed to comply with a requirement in its PPA.
- Failure to meet the requirements of the PPA may result in a range of corrective measures by ED, including fines or termination of the institution’s Title IV participation. See 20 U.S.C. § 1094.[8]
Comments on ED’s interpretation must be submitted by December 14, 2020.
Institutions have the right to challenge ED fines and Title IV limitation, suspension, and termination actions, including any such actions imposed as a result of purported noncompliance with the foreign gift and contract disclosure rules.[9] The enforcement action begins by ED providing notice of the intended penalty to the institution. Generally, institutions have 20 days from the receipt of ED’s notice to appeal the penalty.[10] ED has the burden of persuasion in the appeal hearing in front of the agency’s Office of Hearings and Appeals[11]—that is, it must establish that the violations occurred and prove that the penalty is appropriate.[12] The unsuccessful party may further appeal to the Secretary of Education.[13]
Powers is monitoring ED’s actions relating to foreign gifts and contracts reporting. This announcement is provided as a summary of ED’s recent publication and is not intended as legal advice. For specific compliance questions, or assistance drafting comments to ED or in responding to an enforcement action, please contact the Powers attorneys or professionals with whom you regularly work, or one of the attorneys or professionals listed below.
Sherry Gray, Principal – Sherry.Gray@PowersLaw.com
Joel Rudnick, Principal – Joel.Rudnick@PowersLaw.com
Sharon Bob, Higher Education Specialist – Sharon.Bob@PowersLaw.com
Sean Beller, Principal – Sean.Beller@PowersLaw.com
Nick Michiels, Principal – Nick.Michiels@PowersLaw.com
Dan Brozovic, Principal – Dan.Brozovic@PowersLaw.com
Katherine Demedis, Counsel – Katherine.Demedis@PowersLaw.com
Ryan Spraker, Associate – Ryan.Spraker@PowersLaw.com
[1] 85 Fed. Reg. 72,567 (Nov. 13, 2020).
[2] See 20 U.S.C. § 1011f.
[3] Betsy DeVos, Secretary of Education, Remarks at Department of Education Event “No Strings Attached? Tracing Foreign Funding in U.S. Higher Education” (Oct. 20, 2020), recording available here.
[4] See U.S. Department of Education, Office of the General Counsel, Institutional Compliance with Section 117 of the Higher Education Act of 1965 at 1 (October 2020).
[5] Id. at 5.
[6] See 85 Fed. Reg. 72,567 (Nov. 13, 2020).
[7] See Higher Education Amendments of 1998, Pub. L. No. 105-244, § 101, 112 Stat. 1581, 1593–1595 (1998) (adding HEA Title I, sec. 117); Higher Education Amendments of 1986, Pub. L. No. 99-498, § 1206, 100 Stat. 1268, 1577 (1986) (adding HEA Title XII, sec. 1207) (then codified at 20 U.S.C. § 1145d).
[8] Additionally, the notice reminds institutions that ED has the authority to administratively subpoena information under 20 U.S.C. § 1097a and 34 C.F.R. § 668.24.
[9] See 34 C.F.R. § 668.81, et. seq. (commonly referred to as “Subpart G”).
[10] See 34 C.F.R. §§ 668.84, 668.85, 668.86. The institution may request a hearing or submit written materials.
[11] See 34 C.F.R. § 668.89(b)(3)(ii).
[12] See, e.g., In the Matter of Pro. Career Training Inst. (TX), Dkt. No. 19-55-ST (July 14, 2020).
[13] See 34 C.F.R. § 668.91.