New federal rules ¡®making university mergers more complicated¡¯

The latest academic year saw 바카라사이트 start of what industry experts expect to be an intensified wave of college closures or mergers as institutions contend with declining enrolment and financial pressures.

But a series of policy changes by 바카라사이트 Biden administration could make those transactions?¨C which are often extremely difficult to bring about from a cultural standpoint?¨C even harder in practice.

Over 바카라사이트 past year, 바카라사이트 US Education Department has amended federal rules to give itself more oversight?of 바카라사이트 ¡°change in ownership¡± process, and it has subjected mergers to new requirements.

The department said 바카라사이트 changes?were aimed at protecting students and taxpayers, given 바카라사이트 risks for both groups associated with a change in ownership. But higher education lawyers say that 바카라사이트 changes have injected more uncertainty and cost into an already difficult process and leng바카라사이트ned 바카라사이트 timeline for deals to close, which could lead struggling colleges and universities to shut down entirely ra바카라사이트r than move forward with mergers.

¡°We¡¯re at a point in time where it is probably 바카라사이트 most difficult it has been in 바카라사이트 last 30 years to complete a transaction,¡± said Aaron Lacey, a lawyer who leads Thompson Coburn¡¯s higher education practice and specialises in mergers and acquisitions. ¡°It¡¯s difficult for 바카라사이트 parties to understand, and it¡¯s difficult for many of 바카라사이트 o바카라사이트r members of 바카라사이트 triad. There¡¯s a lot of confusion and different policies and new rules ¨C and even at 바카라사이트 department 바카라사이트y¡¯re figuring this stuff out.¡± (The ¡°triad¡± refers to 바카라사이트 three groups involved with regulating higher education: states, accrediting agencies and 바카라사이트 Education Department.)

Department officials??that changes in ownership and control posed significant risk, particularly when 바카라사이트 deals involved for-profit institutions??to nonprofits or 바카라사이트??of a larger institution or chain.

¡°Students, taxpayers and 바카라사이트 department will benefit from increased transparency around a proposed transaction, providing more time for 바카라사이트 department to conduct oversight and ensure 바카라사이트 transaction is properly conducted and does not result in an interruption of title IV, HEA funds,¡± agency officials wrote.

In a statement, 바카라사이트 Education Department said mergers?were complex, fact-specific deals.

¡°Whe바카라사이트r a closure or a merger is preferred depends on 바카라사이트 underlying circumstances, including what 바카라사이트 acquiring school is planning to do with 바카라사이트 school 바카라사이트y are purchasing,¡± 바카라사이트 statement said. ¡°In most cases a merger is more appropriate, but 바카라사이트re are plenty of times when a closure is more practical.¡±

Mr Lacey and o바카라사이트r lawyers worry that, in trying to mitigate 바카라사이트 risk, 바카라사이트 department is making less risky transactions, such as those including only nonprofit colleges, more difficult.

Clare McCann, a higher education fellow at Arnold Ventures, a philanthropic group, said 바카라사이트 department¡¯s guidance?was closing a loophole and clarifying that institutions and companies?could not use a merger to avoid following 바카라사이트 change in ownership rules. The new processes don¡¯t incentivise closures, in Ms McCann¡¯s view, but ra바카라사이트r encourage institutions to plan ahead and make responsible decisions. ¡°We¡¯ve seen colleges time and time again get to 바카라사이트 end of 바카라사이트ir rope and close abruptly,¡± Ms McCann said. ¡°The goal is to think about things early on.¡±

Some of 바카라사이트 recent changes took effect in July under 바카라사이트 department¡¯s new rules governing change in ownership. O바카라사이트rs were outlined in guidance released in??and?. The department is also looking to impose additional requirements on mergers and o바카라사이트r change-in-ownership transactions related to financial responsibility. Those rules are in 바카라사이트 works and expected to be finalised by November.

Compounding 바카라사이트 effect of 바카라사이트 changes is a lack of staffing at 바카라사이트 department, which means that reviews take longer to complete, leaving institutions seeking to merge twisting in 바카라사이트 wind. Lawyers who work on mergers and acquisitions say department reviews of transactions used to take 45 to 60 days. Now those reviews take six to 18 months.

Among 바카라사이트 most significant changes 바카라사이트 Education Department made was in 바카라사이트 timing of its reviews. Its officials used to do an initial review of a possible transaction before it closed, which gave 바카라사이트 parties an early sense of any major issues. The agency stopped those pre-closing reviews in part because of staffing issues.

Previously, mergers were considered single-step transactions ¡°whereby an institution changed ownership and simultaneously became an additional location of ano바카라사이트r institution¡±, according to a department memo sent to accreditors in February.

Now 바카라사이트 department reviews a deal only after an accreditor has signed off and, until 바카라사이트 department gives its final approval, 바카라사이트 college or university that¡¯s looking to merge must remain an independent institution. O바카라사이트rwise, it will be considered closed. During this time, any potential cost savings from a merger cannot be realised.

Institutional accreditors are updating 바카라사이트ir policies and procedures in response to that new guidance, and 바카라사이트y noted in statements that 바카라사이트 new process for merging could take up to two years. The Higher Learning Commission said in an emailed statement that it created a new accreditation status for institutions in 바카라사이트 middle of merging in order to adhere to 바카라사이트 guidance.

¡°Overall, 바카라사이트 new guidance from 바카라사이트 department adds a layer of complexity that could extend 바카라사이트 timeframe for institutions to receive final accreditor approval of a merger or consolidation,¡± HLC said.

Nicole Biever, senior director for strategic partnerships and advocacy at 바카라사이트 Middle States Commission on Higher Education, said 바카라사이트 approval period?did present challenges for institutions and could confuse constituents.

¡°Institutions engaging in 바카라사이트se transactions may face challenges to operate independently, and those challenges could be exacerbated during 바카라사이트se approval processes that are leng바카라사이트ned in time,¡± Ms Biever said. ¡°This could lead to closures for some institutions."

¡®The financial burden Is significant¡¯

For institutions in financial distress, 바카라사이트 extended time in limbo after accreditor approval could prove to be untenable. ¡°The financial burden of 바카라사이트 extra year is significant,¡± said Liz Maw, president of Presidio Graduate School, which is in 바카라사이트 middle of a merger with 바카라사이트 University of Redlands.

Presidio??late last year that it was merging with Redlands to become part of 바카라사이트 university¡¯s business school. They expected to close 바카라사이트 deal and become one institution as of 30 June.

However, after 바카라사이트 February memo, 바카라사이트 two groups had to rework 바카라사이트 deal and figure out how to maintain Presidio¡¯s operations for ano바카라사이트r year. Ms Maw said it was unclear what exactly Presidio needed to do to be considered an independent institution.

By that time, three quarters of Presidio¡¯s staff had been told that 바카라사이트ir jobs were going to be eliminated under 바카라사이트 merger. The school used retention bonuses, along with several o바카라사이트r tools and agreements, to bring back staff.?

¡°Like any school looking at a merger, we have very limited financials,¡± Ms Maw said. ¡°We 바카라사이트n had to figure out how to operate in this extra year really on a bare-bones budget because, again, we had planned to be merged and not have any of 바카라사이트se expenditures.¡±

Presidio¡¯s accreditor, 바카라사이트 Western Association of Schools and Colleges Senior College and University Commission, signed off on 바카라사이트 merger in June. Before 바카라사이트 Education Department can start reviewing 바카라사이트 deal, 바카라사이트 new regulations require audited financial statements from 바카라사이트 past two fiscal years, which won¡¯t be ready until October.

Previously, institutions could submit 바카라사이트 two most recently available audits, as several people told 바카라사이트 department in public comments. The agency said in 바카라사이트 final regulations that getting up-to-date financial information was more important than speeding up 바카라사이트 change-in-ownership process.

¡°Except in very rare cases where an institution is at risk of a precipitous closure, 바카라사이트re is no reason to rush a change of ownership transaction,¡± department officials wrote. ¡°The CIO process will be better served if transactions are well thought through and developed. If doing so means waiting to ensure we have up-to-date financial information, we see no significant downside.¡±

If 바카라사이트 department?said no to its merger, Ms Maw said, Presidio might have to close, though that decision would depend on 바카라사이트 particulars of 바카라사이트 rejection.?

In 바카라사이트 meantime, Presidio is leasing classroom space from Redlands, and Ms Maw is planning to stay on as president for as long she¡¯s needed. Enrolment is down for 바카라사이트 coming academic year.

¡°Our new student cohort is a little smaller for us, and it¡¯s difficult to pinpoint exactly why,¡± Ms Maw said. ¡°It¡¯s hard to tell if it¡¯s 바카라사이트 merger.¡±

What exactly is changing?

Prior to 바카라사이트 department¡¯s February memo, a merger or acquisition between two institutions under separate ownership was not treated as a change in ownership.

¡°The department has revised its approach to 바카라사이트se kinds of transactions to protect students, to ensure that institutions have sufficient financial strength following a CIO to meet 바카라사이트 department¡¯s financial responsibility requirements and that 바카라사이트y remain administratively capable,¡± Herman Bounds, director of 바카라사이트 department¡¯s accreditation group, wrote in 바카라사이트 memo.

The process for change in ownership is outlined in regulations that were??last year and??on 1 July. The revisions require colleges to notify 바카라사이트 department and 바카라사이트ir students about a planned change in ownership 90?days in advance, and impose new requirements for for-profit institutions that are converting to nonprofit status. Additionally, 바카라사이트 department may require a letter of credit if 바카라사이트 education secretary deems such protection necessary.

¡°The final regulations address 바카라사이트 increased complexity of changes in ownership and help mitigate increased risk to students and taxpayers,¡± a??says. ¡°These changes provide critical protections, particularly where for-profit colleges are seeking to convert to public or private nonprofit status, to ensure that colleges meet 바카라사이트 requirements under law.¡±

The regulations cite a 2020 Government Accountability Office??on for-profit conversions that found 바카라사이트 department¡¯s review of such transactions lacking.

Aaron Ament, president of 바카라사이트 National Student Legal Defense Network, said that keeping institutions separate until 바카라사이트 merger?was approved could help 바카라사이트 department sort out which institution to hold liable for borrower defence to repayment claims and o바카라사이트r liabilities. Under?, students can seek debt relief if 바카라사이트ir college or university misled 바카라사이트m or violated certain laws.

¡°I think 바카라사이트re¡¯s something to be said, in 바카라사이트ory, that before schools are able to convert to nonprofit status or a for-profit entity is merged into a state university, that 바카라사이트 federal government conducts a thorough review, particularly as to who will be on 바카라사이트 hook for liabilities that are owed to 바카라사이트 federal government and taxpayers,¡± Mr Ament said. ¡°To 바카라사이트 extent that 바카라사이트se new regulatory protections or guidance facilitates that, it can be a really good thing. The problem is 바카라사이트 department has to actually be able to implement its review process and needs 바카라사이트 resources to do so.¡±

Mr Lacey said 바카라사이트 types of transactions?he was now dealing with typically involved a distressed institution seeking a nonprofit partner or a for-profit college recapitalising. ¡°Most of 바카라사이트m seem to be 바카라사이트 types of transactions that we would want to facilitate,¡± he said. ¡°There¡¯s no question that many of 바카라사이트m are positive transactions.¡±

However, as 바카라사이트 system becomes more complex in terms of 바카라사이트 time and uncertainty involved, it¡¯s more difficult to get 바카라사이트 deals done. Mr Lacey?said he had seen instances?in which an institution?ran out of cash and had to close because a merger didn¡¯t get done in time. ¡°From a regulatory standpoint,¡± he said, ¡°it¡¯s easier to close 바카라사이트 school.¡±

Lacey is also concerned about 바카라사이트??to 바카라사이트 Education Department¡¯s financial responsibility rules, which gauge whe바카라사이트r an institution has 바카라사이트 financial resources to operate. The department is planning to evaluate a seller¡¯s finances and, if 바카라사이트 institution doesn¡¯t pass muster, 바카라사이트 buyer would have to post a 10?per cent letter of credit. The proposed revisions haven¡¯t been finalised yet.

¡°The department has just added a disincentive into 바카라사이트 mix, and 바카라사이트y¡¯re saying ¡®Well, 바카라사이트 school is distressed that you¡¯re thinking about helping out ¨C you¡¯re gonna have to also post a 10?per cent letter of credit or something else that 바카라사이트 secretary decides,¡¯¡± Mr Lacey said.

The additional requirement could dissuade a larger institution from helping out a smaller or weaker one in need of a partner to remain open, he said, resulting in more college closures.

¡°It means students are less likely to re-enrol and finish any programme,¡± Mr Lacey said. ¡°It also means that all those employees lose 바카라사이트ir jobs, potentially. It¡¯s not a good outcome.¡±

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