Deferred Tuition Arrangements in Enrollment Agreements

This Policy Guideline sets forth minimum standards for enrollment agreements that propose to include a deferred tuition arrangement (DTA) as a method of payment of student tuition.

A deferred tuition arrangement is a method of payment under 8 NYCRR § 126.7(b)(9) of the Commissioner’ regulations (“regulations”), which subjects the student to a tuition liability. The tuition liability is deferred until after the student completes the program and ideally finds a job in their field of study, provided that the student is earning an agreed upon yearly income.

A deferred tuition agreement is an education financing contract that can take various forms such as:

• the student pays little or no upfront tuition but agrees to pay back a set tuition to the lender upon program completion, in fixed installments for a fixed period of time; or
• the student pays little or no upfront tuition but agrees to pay a percentage of their future salary to the lender, after program completion, until either they have repaid a defined amount and/or a specified time period has elapsed. This is commonly known as an income share agreement (ISA) or income share loan (ISL).

For this Policy Guideline, any form of deferred tuition arrangement, whether between a student and the lender or between a student and the BPSS licensed school, will be referred to herein as a DTA. Use of DTA require prior approval by BPSS.

Deferred tuition arrangements may appeal to students who cannot afford to pay for their education upfront or while enrolled and/or may not qualify for other traditional types of funding. HOWEVER, students seeking a deferred tuition arrangement should exercise caution prior to contracting with a lender. Students can refer to the Consumer Financial Protection Bureau for guidance: https://www.consumerfinance.gov/ask-cfpb/how-should-i-decide-if-an-income-share-agreement-is-right-for-me-to-pay-for-my-education-en-2106/. Income Share Agreements have widely varying terms. Students must thus read the fine print carefully. Plus, a student should also consider that if their deferred tuition contract is based on a percentage of their future, unknown salary, the student earning a high future salary may be required to pay a large amount in monthly tuition.

BPSS schools utilizing DTA/ISA (“collectively DTA”) must be advised that any amounts should be disbursed pursuant to the requirements of New York Education Law (“Education Law”) §5002(1)b-1(2). Further, under Education Law §5002(1)b-1(3), no school may enter into any contract or agreement with or receive any student loan or financial aid funds from private entities, including, but not limited to, banks, financing companies, and any other private lending sources unless the private entity has a disbursement policy that, at a minimum, meets the requirements of Education Law §5002(1)b-1(2).

BPSS does not approve the specific terms and conditions of the lender’s DTA. Rather, BPSS ensures that the tuition refund policy, also known as the tuition liability policy,[1] conforms with the law and regulations. Further, BPSS approves how the school is representing the DTA in the documents that BPSS by law and regulation does approve: the school’s enrollment agreement, catalogue,[2] and the mandated disclosures[3] to provide to students; documents which the school by law utilizes when enrolling students. In addition, when reviewing DTA and how it is represented on the documents that BPSS approves, tuition liability and total cost to the student must be clearly stated, as BPSS considers §126.2(c)(4) of the regulations, which provides that enrollment of students shall not be sought by misrepresentation of the cost of instruction.

DTA should be phrased as simply as possible and, where feasible, should be no lengthier than necessary to convey to a prospective student what his or her obligations under the arrangement will be.

As per Education Law §5002(1)(b)(5), the commissioner has set forth in regulation standards governing the form and content of the student enrollment agreement or contract and as per Education Law §5002(1)(b)(6), the methods of collecting tuition.

Section 126.7 of the regulations detail requirements for the enrollment agreement, which may not be transferred or assigned to a third party. Some of these requirements include:

• “all conditions for enrollment in or completion of a curriculum or course shall be set forth in an enrollment agreement[.],” § 126.7(a)
• an enrollment agreement of a licensed private career school shall specify, respectively, “the amount of the tuition fee” that a student must pay, “the total cost of the course of instruction,” and “the method or methods of payment” by which students will pay tuition, § 126.7(b)(6), § 126.7(b)(8), and § 126.7(b)(9)
• licensed private career schools are permitted to include in their enrollment agreements “such reasonable rules, regulations and conditions as the school may desire to set forth in the agreement[.],” § 126.7(b)(12)
• the refund a school will make in the event a student fails to enter, withdraws, or is discontinued from instruction consistent with the provisions set forth in subdivision 3 of section 5002 of the Education Law and subdivision (d) of this section [.], §126.7(b)(15)

In conjunction, § 126.7(b)(14) of the Commissioner’s regulations requires that, when a student of a licensed private career school signs an enrollment agreement, the student must also execute a “separately signed acknowledgment . . . that he or she has received the disclosure material, as required by section 5005 of the Education Law[.]”

In turn, Education Law §5005 provides guidance on the disclosures a school must provide to its students (relevant excerpts below):

• a schedule of tuition payments, fees and all other charges and expenses necessary for completion of the course or program, § 5005(a)(3)
• the tuition refund and contract cancellation policies, § 5005(a)(4)
• the process for obtaining a tuition refund from the tuition reimbursement fund[4] and the availability of loan forgiveness in the event the school closes while the student is in attendance, § 5005(e)

Further, § 126.2(b) of the regulations provides that a licensed private career school shall “charge the same tuition rates and other fees or charges to all student [sic] or groups of students in like circumstances, unless otherwise approved by the Commissioner.” Thus, BPSS, acting on behalf of the Commissioner, has determined that is educationally appropriate and beneficial for students to be charged the same amount for the cost of instruction and that it is not educationally appropriate for students to pay different amounts of tuition (even if deferred) for the same program. Thus, BPSS will not approve enrollment agreements where the method of payment, as represented through the DTA, subjects students to different tuition liabilities.

In addition, because BPSS is required to collect tuition assessments from its licensed schools,[5] BPSS requires that all schools utilizing DTA provide a fixed cost of instruction (standard tuition cost per pupil) as necessary for calculating annual assessments on the school’s gross tuition income,[6] as well as to determine the student’s tuition liability should the student withdraw from the school prior to program completion.

For students which pay through a DTA, the amount of tuition in dollars that will be refunded (or in this case, what tuition liability will be adjusted) if the student withdraws within a pre-specified period must be identified. The refund/tuition liability policy should include a full or partial release from the students’ payment obligations under the DTA based on the refund percentages that conform with Education Law § 5002(3).

BPSS has a policy guideline which prohibits language with respect to arbitration.  Policy guideline #48-0207 provides guidance to schools regarding arbitration.  Enrollment Agreements submitted with an DTA as a method of payment will not be considered if language in the contract or financial agreement is contrary to this policy guideline.

In sum, BPSS schools that seek to utilize a DTA as a payment method must:

• Briefly and clearly identify the DTA as a payment method on the approved Enrollment Agreement for the course
• Identify the total fixed costs of instruction in the Enrollment Agreement, separate from (exclusive of) any post-graduation financing costs that will be realized through the DTA
• Agree to report the total fixed cost of instruction for each signed DTA as gross tuition income on the annual financial statement for the year in which the DTA is signed by the student and school
• Accurately disclose the weekly tuition liability / refund policy for the program in the school’s approved course catalog, irrespective of whether students have paid in advance. The liability / refund policy should include a full or partial release from the student’s payment obligations under the DTA based on the refund percentages provided. (For example, if a student signs a DTA and then drops out of the course after any number of weeks, what tuition liability will the student incur, if any?)
• Agree to submit additional data to BPSS, no less than annually at the request of the Bureau

Other important points:

• Given the parameters outlined herein, in approving the use of the DTA, BPSS must simultaneously approve:
  • an amended enrollment agreement, for each course that seeks to identify the DTA as a method of payment
  • an amended course catalogue representing tuition liability by weeks of instruction
  • A statement on both documents specifying that although the Bureau is approving the DTA as a method of payment, the terms contained therein are not under the authority of BPSS, except for any terms that are not aligned with the BPSS Policy Guideline against binding arbitration clauses.