U.S. Department of Education Places Harvard University on Heightened Cash Monitoring for Financial Responsibility Concerns

Today, the U.S. Department of Education (the Department)'s Office of Federal Student Aid (FSA) announced that it has placed Harvard University (Harvard) on Heightened Cash Monitoring (HCM) status following growing concerns regarding the university's financial position. HCM status requires Harvard to use its own funds to disburse federal student aid before drawing down funds from the Department. Students will continue to have access to federal funding, but Harvard will be required to cover the initial disbursements as a guardrail to ensure Harvard is spending taxpayer funds responsibly.

In conjunction with the HCM designation, FSA will require Harvard to post an irrevocable letter of credit for $36 million or provide other financial protection that is acceptable to the Department. This financial protection serves as a financial guarantee to cover potential liabilities and ensure that Harvard meets its financial obligations to both students and the Department.

Today's actions are a result of three triggering events under the Department's financial responsibility standards, including a determination by the Department of Health and Human Services that Harvard is in violation of Title VI of the Civil Rights Act, which prohibits discrimination based on race, color, and national origin. In addition, Harvard risks losing access to all federal student aid funding due its noncompliance with requests from the Department's Office of Civil Rights.

Moreover, the Department is concerned that Harvard has taken steps to issue over $1 billion in bonds to fund its operations. In public bond documents published earlier this year, Harvard indicated that recent developments at the federal level could have a "material adverse effect on the current and future financial profile and operating performance of the [u]niversity." The Department believes the issuance of these bonds is likely to have a significant adverse impact on the financial condition of Harvard. The face value of the bonds amounts to roughly 15 percent of Harvard's annual revenue. Taking on the additional debt may make it materially more difficult for Harvard to satisfy any liabilities with the Department in the event that it loses access to federal funding. The institution also carried out multiple layoffs beginning in the summer, coming on top of university-wide hiring and salary freezes instituted in the spring.

These three triggering events call into question the ability of Harvard to meet its financial responsibility obligations under the Higher Education Act of 1965, as amended, (HEA) and the Department's implementing regulations.

"Today's actions follow Harvard's own admission that there are material concerns about its financial health. As a result, Harvard must now seek reimbursement after distributing federal student aid and post financial protection so that the Department can ensure taxpayer funds are not at risk," said U.S. Secretary of Education Linda McMahon. "While Harvard remains eligible to participate in the federal student aid program for now, these actions are necessary to protect taxpayers."

Background

Under 34 C.F.R. § 668.162, the Secretary of Education has the sole authority to determine the method of payment for federal student aid programs administered under Title IV of the Higher Education Act of 1965 (Title IV). The default method of payment for institutions to access Title IV funds, where no financial risks are presented, is the Advance Payment Method. Under Advance Payment, the institution receives initial Direct Loan authorizations in late spring or early summer (prior to July 1), the amount of which is based on a school's net accepted and posted disbursements from the previous award year, and the institution can then access the funds at its discretion. Where a financial risk is presented, however, the Department can make the method of payment more restrictive for an institution, including placing an institution on HCM status.

The Department's financial responsibility standards at 34 C.F.R. § 668.171 require an institution to demonstrate to the Secretary that it is financially responsible. Under 34 C.F.R. § 668.171(d), the Department may require financial protection from institutions if an institution experiences a discretionary triggering event. The financial protection shall be not less than 10 percent of the total Title IV, HEA funding received in the prior fiscal year. If more than one discretionary triggering event occurs, the Department may require separate financial protection for each individual trigger. Here, Harvard has three discretionary triggering events, and the Department is requiring it to post 30 percent of its total Title IV, HEA funding in the prior fiscal year.

Contact

Tags