ROSE LAW PARTNERS LLP

Massachusetts Department of Education Publishes Proposed Regulations Regarding

Financial Review and Monitoring of Private Institutions of Higher Education

By Sammy Nabulsi and Judith Sizer

How did we get here?

In May 2018, following the abrupt closure of Mount Ida College, the Massachusetts Board of Higher
Education (BHE) formed a working group to investigate, principally, the risk of harm to students and
other stakeholders when a private, nonprofit institution of higher education closes. The Transitions in
Higher Education: Safeguarding the Interests of Students (THESIS) working group was tasked with
developing methods to determine and monitor an institution’s financial health and approaches that will
mitigate the risks and interruptions in services when an institution is at risk of imminent closure.

THESIS Recommendations
On January 22, 2019, the THESIS working group presented its findings and recommendations to the
BHE. The THESIS working group’s key recommendation was that the Department of Higher Education
(DHE) conduct annual screenings of institutions’ financial health. The annual screening would employ a
proprietary algorithm called the Teachout Viability Metric (TVM) to determine whether an institution
has sufficient resources to sustain its operations in the current academic year and the subsequent
academic year as of December 1st each year. The annual screening would result in a score.

Institutions that did not meet a certain threshold TVM score would enter DHE’s active monitoring. If
the DHE determined, through active monitoring, that the institution has not demonstrated that it can
sustain its operations for the 18-month period, the DHE would require the institution to submit transfer
and teach-out contingency plans and notify current students, admitted students, and students with
pending applications that the institution is at risk of having insufficient resources to sustain its operations
for the current and subsequent academic years.

The BHE accepted the THESIS recommendations and authorized the DHE to promulgate regulations
consistent with the THESIS recommendations and to do so on a timeline that would allow new
regulations to be in effect for the 2019-2020 academic year.
DHE’s Proposed Regulations, 610 Code Mass. Regs. 13.00
./t54

On July 12, 2019, the DHE published its proposed regulations in the Massachusetts Register for public
review and comment. Importantly, the proposed regulations are applicable only to institutions that are
subject to the DHE’s jurisdiction or accept state financial aid. The following are summaries of key
provisions:

Annual Screening
Under existing regulations, the DHE is authorized to review and consider an institution’s past, present,
and future financial stability. The proposed regulations subject institutions to mandatory annual
screenings of institutions’ financial health. The proposed regulations authorize the BHE to develop
procedures for the screening process in consultation with institutions, but the regulations do not provide
details regarding such procedures or metrics that may be used during the screening. Instead, the
proposed regulations provide that the procedures may include use of financial information from publicly-
available sources, credit ratings, and any information obtained from other “regulatory, oversight, or law
enforcement entities,” including accreditors, such as NECHE, and the United States Department of
Education, which issues annual Financial Responsibility Scores. From the screening, the DHE
Commissioner will determine which institutions are at risk of imminent closure. Consistent with the
THESIS recommendations, the proposed regulations characterize institutions as at “Risk of Imminent
Closure” if the DHE determines that an institution is unable to sustain operations or substantially fulfill
its obligations to enrolled and admitted students for the balance of the current and subsequent academic
year as of December 1st each year.

Monitoring and Risk Mitigation Plans

If, after the DHE’s initial inquiry of an institution identified as at Risk of Imminent Closure, the DHE
continues to be concerned with an institution’s financial health, the institution must submit a Risk
Mitigation Plan. The Risk Mitigation Plan will outline and substantiate the institution’s plans and initiatives
to sustain its operations for the 18-month period. As part of the DHE’s monitoring, it may request
periodic reports from the institution. The regulations do not describe reporting requirements or
whether the reports must include financial statements, auditors’ notes and opinions, or other sensitive
financial information. If the DHE is satisfied with the institution’s Risk Mitigation Plan, the DHE will
continue to monitor the institution’s implementation of the plan until the DHE’s concerns have been
resolved and the institution has mitigated the Risk of Imminent Closure.

Contingency Planning for Closure and Public Notification

If the DHE determines that an institution continues to be at Risk of Imminent Closure or that the
institution’s Risk Mitigation Plan has not resulted or is unlikely to result in satisfactory resolution of the
DHE’s concerns, the DHE may require the institution to submit a contingency closing plan and inform
current students, accepted students, students with pending applications, faculty, staff, and “other relevant
stakeholders” that the DHE has determined that the institution may not be able to sustain operations
for the current and subsequent academic year. The regulations do not prescribe what is required in a
contingency closing plan or, in the event of notice, which “other relevant stakeholders” are entitled to
notice. The DHE may convene an advisory committee to participate in the review of an institution’s
financial health at any stage of the screening, monitoring, or contingency planning processes. An
institution may similarly request that an advisory committee be formed if the institution is required to
submit a Contingency Plan for Closure and notify the public of its financial health.
Sanctions
Institutions that do not cooperate with the DHE during the screening, inquiry, monitoring, contingency
planning, or notification processes, or otherwise fail to submit Risk Mitigation Plans that sufficiently
demonstrate that the institution will mitigate its Risk of Imminent Closure through the balance of the
current academic year and the subsequent academic year may be subject to any of the following DHE
sanctions: (1) termination of eligibility for state aid; (2) suspension or revocation of degree-granting
authority, but only after notice and an opportunity to address and correct the DHE’s concerns; and (3)
referral to the Office of the Attorney General.

Confidentiality
The DHE’s proposed regulations contain a provision regarding confidentiality. Under the regulations,
the DHE shall protect from disclosure all information made or received by the DHE under the screening,
monitoring, and contingency planning processes to the extent permissible under state law. Under the
regulations, the DHE states that it will rely on the Massachusetts Public Records Law’s policy-deliberation
and investigatory exemptions.

The proposed regulations are not intended to inform institutions regarding the Public Records Law.
There are, however, key considerations regarding the DHE’s statement in its regulations regarding
confidentiality. At present, there is no existing statutory exemption for records and sensitive financial
information belonging to an institution under existing laws, and exemptions to the Massachusetts Public
Records Law may not be created by regulation. While the DHE states in the proposed regulations that
it will maintain sensitive institutional financial information confidential, its statement will have little or no
effect under the Public Records Law. Any third-party requester that disagrees with the DHE’s
withholding of certain institutional records may appeal the records denial to the Commonwealth’s
Supervisor of Records, who will determine whether the records may be withheld. This determination
whether an institution’s financial and other information must be produced to a third-party requester is
made on a case-by-case basis. Previously, the DHE, the University of Massachusetts, and the Office of
the Attorney General have relied with mixed results on the policy-deliberation and investigatory
exemptions under the Public Records Law to withhold institutions’ sensitive financial information.

What’s Next?
The DHE’s proposed regulations are not yet in effect. The proposed regulations do not adequately
address criticisms concerning an institution’s ability to challenge determinations within the DHE, sources
of information and metrics used to determine whether an institution is at Risk of Imminent Closure, and
the concern that the BHE may be creating a self-fulfilling prophecy that will threaten many institutions
absent confidentiality. Under the Massachusetts Administrative Procedure Act, all proposed regulations
must first be published in the Massachusetts Register and undergo a public comment period of at least
21 days. The public comment period is currently open and the DHE is accepting written public comment
until Friday, August 9, 2019. The DHE is also holding three public hearings to allow any interested or
affected individuals and entities to testify. The public hearings will be held in Springfield, Worcester, and
Boston. After the public hearings and the public comment period has closed, we expect the BHE will
vote to approve and finalize regulations.

If you have any questions, you may always contact us at (617) 536-0040 or reach Sammy Nabulsi by e-
mail at ssn@rose-law.net or Judith Sizer at jrs@rose-law.net.
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