Massachusetts Issues First-of-Their-Kind Regulations for Financial Screening of Private Colleges

In the latest attempt to address the financial challenges facing higher education, the Massachusetts Board of Higher Education (BHE) has issued new regulations that for the first time establish a state program for annual assessment of the financial stability of independent colleges, universities and other schools required to be licensed by the BHE. The regulations implement the financial stability screening law (General Laws Ch. 69, Section 31B) enacted at the end of 2019 in the wake of several college closings. Under the new law, private institutions subject to the BHE must be screened annually to assess financial stability and to identify whether they are at risk of imminent closure. The regulations can be found at 610 CMR 13.00 and on the BHE website.

Screening to Begin Later in 2020

Although the new regulations are effective now, institutions will not be evaluated until the BHE approves internal procedures for processing the annual screenings. Draft procedures are currently under review. The BHE expects to have the procedures in place sometime this spring. Screenings are expected to begin shortly thereafter.

Three-Step Assessment

Step 1: Preliminary Screening. Using publicly available data, credit ratings and metrics developed by the regional accreditor, the New England Commission of Higher Education, the Massachusetts Department of Higher Education (DHE) will perform an initial screening to determine if an institution is potentially at risk of imminent closure in the current or subsequent academic year. Risk of imminent disclosure, for screening purposes, means that an institution is "unable to continue operations or substantially fulfill its obligations to enrolled or admitted students." Institutions failing the initial screen will be notified and given the opportunity to review the screening process and submit additional relevant information.

Step 2: Risk Mitigation Plan. If, after Step 1, the DHE determines that a risk of imminent closure remains, then the DHE will provide the institution with a summary of the basis for its determination and require that the institution submit a risk mitigation plan. The plan must identify any known liabilities and financial challenges, and must outline how the institution plans to address those risks in a manner that will sustain its operations. The request for a risk mitigation plan will be sent to the institution's chief executive officer and governing board chairs. The DHE will also direct the institution to prepare a contingency closure plan.

The DHE will evaluate the risk mitigation plan and advise the Commissioner of Higher Education, who will determine whether the institution has successfully mitigated the risk of imminent closure. If successful at this stage, an institution can expect the DHE to monitor implementation of the risk mitigation plan. If an institution is unsuccessful, the DHE will require further contingency planning for closure and, after notice and an opportunity to cure, internal and public notification.

Step 3: Contingency Planning for Closure and Public Notice. Institutions determined to be at imminent risk of closure must submit to the DHE, in a form yet to be prescribed by the DHE, comprehensive contingency closure plans. The plans must include, among other items, budgets for adequate resources through closure, notice to "relevant stakeholders," information on the rights of student loan borrowers and refunds of deposits, transfer and articulation agreements for students to complete their academic programs at other institutions, plans for the long-term maintenance of student records, and consideration of the impact on faculty, staff and other "key constituencies."

The DHE will maintain a public listing of institutions at imminent risk of closure. Those institutions will be required to post a public notice, in a form acceptable to the DHE, of the determination that the institution's "financial stability is sufficiently uncertain such that the [DHE] cannot confirm that the [institution] will be able to sustain operations or substantially fulfill its obligations to enrolled and admitted students for both the current and the subsequent academic year." Notice must also be given to students, employees, local government officials and other "relevant stakeholders." The DHE will continue to monitor the institution until the risk has been sufficiently mitigated or the institution has closed.

Institutions required to post public notice and submit contingency plans for closure may request that the Commissioner convene an advisory committee. The advisory committee may participate in evaluating the financial condition of the institution and make recommendations to the Commissioner.

Sanctions for Non-Compliance

The Commissioner may sanction institutions that fail to cooperate with the DHE in any stage of the process. Sanctions include termination of state aid, suspension or revocation of degree-granting authority, and/or referral to the Office of the Attorney General for prosecution of civil claims.

Confidentiality Protected

One of the many important concerns raised by the new regulations is the confidentiality of the financial information reported to the DHE. The misuse of such information could cause serious harm and exacerbate financial hardships. The regulations promise that the BHE and DHE "shall protect from disclosure and shall maintain as confidential all information submitted to or developed by" them during the screening process "to the maximum extent permissible under state law." The legislature, acknowledging the importance of confidentiality in this context, expressly included certain safeguards in the authorizing statute. Specifically, information submitted to or developed by the BHE for this screening process is not a "public record" and is exempt from disclosure under the state public records law. The exemption is intended to promote full and candid cooperation with the BHE screening program.

Conclusion and Considerations

The BHE's financial screening regulations effect a major intensification of the state's oversight of private institutions of higher education. Although the full extent of the new regulations' impact remains to be seen, institutions are well advised to regularly and methodically evaluate their financial plans and resources, incorporate internal or external expert assistance, and seek guidance from legal counsel on compliance with new and developing regulatory requirements.

For more information about the BHE regulations or addressing financial exigencies, please contact the author or another member of Holland & Knight's Education Team.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.