Financial Viability

Number: 
53-1104
Date Issued: 
11/04/2021

Current law and regulation require licensed private career schools (LPCS) and certified English as a Second Language (ESL) schools to submit annual financial statements to the Commissioner of Education. Annual financial statements are used for the purposes of school licensure determinations, establishing fees or assessments pursuant to the New York Education Law (Education Law), as well as to determine a school's financial viability.

New regulations adopted by the New York State Board of Regents became effective on September 29, 2021. These regulations, outlined at 8 NYCRR § 126.8, create a framework and process for the Department to assess the financial viability of all licensed private career schools and certified ESL schools. In addition, the Department can take measures to protect student tuition dollars, such as probation or requiring schools with low financial viability to establish a performance bond to be utilized in the event of a school closure.

Summary of Section 126.8:

  • Establishes clear criteria for assessing the financial viability of schools: schools will be considered financially viable if:
    • (i) the schools’ equity, primary reserve and net income rations yield a composite score of at least 1.5; and
    • (ii) the school is able to meet all of its financial obligations and provide the administrative resources necessary to comply with all licensure or certification requirements.
  • Identifies triggering events that may indicate financial viability concerns. Schools must notify the Department within five days of any such triggering event.
  • Establishes alternative standards of financial viability. A school that is determined not to be financially viable may be eligible to continue operation by meeting one of the following alternate standards:
    • Zone alternative. A school that does not meet the general standards of financial viability solely because the composite score falls below 1.5 will be eligible for the zone alternative for no more than 3 years if its composite score falls between 1.0 and 1.4.
    • Probation. A school that does not meet the general standards of financial viability and does not qualify for the zone alternative may be placed on probation. By the conclusion of the probationary period, the school must demonstrate that it is financially viable by meeting one or more alternative methods demonstrating financial viability. If the school cannot, and the Commissioner determines that the school’s financial condition continues to threaten its ability to educate students and/or jeopardize student tuition funds, the Department shall schedule a hearing that may result in suspension or revocation of the school’s license.
  • Provides that the Commissioner may deny, suspend, revoke or decline to renew any license or certification if the Commissioner determines that a schools’ financial condition may result in the interruption or cessation of instruction or jeopardize student tuition funds pursuant to Education Law § 5001(5)(c)(3).
  • Establishes financial reporting requirements for initial and renewal licensure or certification applications, including the submission of audited financial statements, and requires schools to submit annual financial statements. Previously such requirements only applied to licensed private career schools; the adopted amendment expands such requirements to include certified ESL schools.

The text of the regulations is pasted below. It sets forth general standards of financial viability that schools must maintain, defines when a school will not be considered financially viable, and defines the events that will trigger the Commissioner’s determination that a school is not financially viable. When the Commissioner determines that a school is not meeting financial viability standards, the Commissioner may permit a school that is not financially viable to continue its licensed or certified operation by meeting one of the alternate standards. The alternate standards are set forth below as the zone alternative and probation. Schools that don’t qualify for the zone alternative may be placed on probation for a period of up to one year. Further, the regulation details the administrative actions that the Commissioner may take when schools are unable to meet the alternate financially viability standards. Finally, regardless of alternate standards, the Commissioner may deny, suspend, revoke or decline to renew any license or certification if the Commissioner determines that a school’s financial condition may result in the interruption or cessation of instruction or jeopardize student tuition funds pursuant to section 5001(5)(c)(3) of the Education Law.

Section 126.8 Financial Viability and Reporting

All schools shall meet and maintain the standards of financial viability and reporting set forth in this section as a requirement and condition of licensure or certification. For the purposes of this section, school shall mean school as it is defined in subdivision (p) of section 126.1 of this Title and shall additionally include Certified English as a second language schools as defined in subdivision (x) of section 126.1.

126.8(a) General standards of financial viability

126.8(a)(1) The commissioner shall consider a school to be financially viable if the commissioner determines that:

  • 126.8(a)(1)(i) the school’s equity, primary reserve, and net income ratios yield a composite score of at least 1.5, using the methodology set forth in federal regulation 34 CFR section 668.172. The composite score shall be calculated at the highest level of ownership; and
  • 126.8(a)(1)(ii) the school is able to meet all of its financial obligations and provide the administrative resources necessary to comply with all licensure or certification requirements. A school is deemed unable to meet its financial or administrative obligations pursuant to this paragraph if:
    • 126.8(a)(1)(ii)(a) the school does not have sufficient operating cash flow and liquidity, as determined by the commissioner; or
    • 126.8(a)(1)(ii)(b) the school is subject to any of the triggering events set forth in subdivision (b) of this section and the commissioner determines such triggering event is likely to have a material adverse effect on the financial condition of the school or indicates a distressed financial condition.

126.8(a)(2) No school shall be considered financially viable pursuant to this subdivision where a school owner

  • 126.8(a)(2)(i) owes an outstanding liability to the department for the school or any other licensed or certified school, previously licensed or certified school, or unlicensed school for which the owner has or previously had an ownership interest and fails to demonstrate that such liability is being paid in accordance with law, regulation, order, settlement, or other written agreement with the department; or
  • 126.8(a)(2)(ii) owes a liability to the department for any violation of Article 101 of the Education Law or this Part and fails to demonstrate that such liability is being paid in accordance with law, regulation, order, settlement, or other written agreement with the department.

126.8(b) Triggering events

  • 126.8(b)(1) The commissioner may determine that a school is not able to meet its financial or administrative obligations upon occurrence of any of the following triggering events and a subsequent determination by the commissioner that such event is likely to have a material adverse effect on the financial condition of the school or indicate a distressed financial condition:
    • 126.8(b)(1)(i) the school’s financial statement, regardless of the school’s composite score, contains any adverse, qualified, or disclaimed opinions, or any disclosure in the notes to the financial statement that there is substantial doubt about the school’s ability to continue as a going concern in accordance with United States generally accepted accounting principles;
    • 126.8(b)(1)(ii) failure to timely and completely pay any assessments that may be due pursuant to sections 5001(9), 5007(10)(d), and 5007(10)(e) of the Education Law, and section 126.10(j)(11) of this Part;
    • 126.8(b)(1)(iii) failure to timely and completely submit any financial statements that may be due pursuant to section 5001(4) of the Education Law and section 126.10(j)(11) of this Part;
    • 126.8(b)(1)(iv) failure to timely pay a student refund where a school is required to pay such refund pursuant to Article 101 of the Education Law and this Part, or under any other law, regulation, or accreditation standard, or any failure to timely pay such refund;
    • 126.8(b)(1)(v) the school has an unacceptable level of annual student dropout/withdrawal rates, as determined by the commissioner;
    • 126.8(b)(1)(vi) the school demonstrates a precipitous decline in student enrollment or gross tuition income, as determined by the commissioner;
    • 126.8(b)(1)(vii) violation of a provision or requirement in a security or loan agreement with a creditor;
    • 126.8(b)(1)(viii) failure to make a timely lease, rent or other debt service payment; or any notice of eviction, order to vacate, or any other event or action that may impact a school’s ability to operate at its licensed location;
    • 126.8(b)(1)(ix) issuance of a notice or order by a school's accrediting agency, such as an order to show cause or similar action, that, if not satisfied, could result in the withdrawal, revocation or suspension of institutional accreditation for failing to meet one or more of the agency's standards;
    • 126.8(b)(1)(x) if the school is publicly traded, any material adverse action taken against the school by the United States Securities and Exchange Commission, including but not limited to revocation of registration, delisting, or sanction for untimely or incomplete filing of required reports;
    • 126.8(b)(1)(xi) any notice, order, or action taken by the United States government or an agent or instrumentality thereof that could result in the withdrawal, revocation, or suspension of a school’s federal Student Exchange Visitor Program certification; or
    • 126.8(b)(1)(xii) any substantial withdrawal of owner equity from the school by any means that results in, or that the commissioner determines will likely result in, the school’s composite score falling below 1.0.
  • 126.8(b)(2) Schools must notify the department in writing, within five days of the occurrence of any action or event identified in subparagraphs (vii) through (xii) of paragraph (1) of this subdivision. Upon receiving such notice, the commissioner may require the school to provide additional information and reports, and may require the school to notify students and provide students with information and guidance regarding the potential implications of the action or event on student enrollment status, continued instruction, tuition funds and refunds, as well as all transfer options.

126.8(c) Alternative standards of financial viability

The commissioner may permit a school that is not financially viable under the general standards set forth in subdivision (a) of this section, to be licensed or certified or continue its licensed or certified operation by meeting one of the alternate standards set forth in this subdivision.

  • 126.8(c)(1) Zone alternative. A school that does not meet the general standards of financial viability solely because the commissioner determines that the composite score for its most recent fiscal year falls below 1.5 may nevertheless be found financially viable if: (1) the commissioner approves a plan, submitted by the school, which adequately details the actions the school is taking to improve its financial viability and to mitigate any risk to the interruption or cessation of instruction and to student tuition funds; and (2) maintains a composite score of between 1.0 and 1.4 or higher for each of its two subsequent fiscal years.
    • 126.8(c)(1)(i) The commissioner shall notify any such school in writing that it is eligible for the zone alternative.
    • 126.8(c)(1)(ii) The plan shall be received no later than sixty days from the date of the commissioner’s notice to the school of its eligibility for the zone alternative.
    • 126.8(c)(1)(iii) A school may qualify for this alternative for no more than three consecutive years.
  • 126.8(c)(2) Probation. A school that does not meet the general standards of financial viability and does not qualify for the zone alternative may be placed on probation, in the discretion of the commissioner, for a period of no more than one year. Such probation may include additional monitoring, inspections, limitations on enrollment, teaching out some or all of a school’s present students, or temporary cessation of instruction.
    • 126.8(c)(2)(i) A school placed on probation shall submit reports on its financial condition as directed by the commissioner. Such report shall be on a form and shall include content prescribed by the commissioner and shall be reviewed by the commissioner to determine the school’s financial viability. The commissioner may require that this report be completed by an independent auditor.
    • 126.8(c)(2)(ii) During the probationary period, the school and the department shall make efforts to resolve the problems at the school, through the school’s demonstration of alternative methods of financial viability acceptable to the commissioner. Alternative methods of demonstrating financial viability may include:
      • 126.8(c)(2)(ii)(a) the school securing a performance bond payable to the department, in a form and manner determined by the commissioner, and in an amount appropriate to eliminate any liability to the tuition reimbursement account should the school cease operation;
      • 126.8(c)(2)(ii)(b) the school limiting its collection of tuition funds until each student completes their program of study;
      • 126.8(c)(2)(ii)(c) establishing a trust account for the sole and exclusive benefit of students, pursuant to section 5008 of the Education Law; or,
      • 126.8(c)(2)(ii)(d) any other means acceptable to the commissioner.
      • 126.8(c)(2)(iii) By the conclusion of the probationary period, the school must satisfactorily demonstrate to the commissioner that it is financially viable by meeting one or more alternative methods of demonstrating financial viability set forth in this subdivision, or the general standards set forth in subdivision (a) of this section. If the school cannot demonstrate to the commissioner that it is financially viable by one or more methods set forth in this subparagraph, and if the commissioner determines that the school’s financial condition continues to threaten its ability to educate students and/or jeopardize student tuition funds, the commissioner shall schedule a hearing pursuant to subdivisions (2) and (3) of section 5003 of the Education law, to consider suspension or revocation the school’s license.
  • 126.8(c)(3) The commissioner may require applicants for initial licensure or certification that are newly formed and that have not completed any fiscal years from which to determine a composite score to establish a performance bond, trust account, or other means acceptable to the commissioner as an alternative to the requirement set forth in paragraph (a)(1) of this section, provided that the applicant meets the standards set forth in paragraphs (a)(2) and (a)(3) of this section.

126.8(d) Administrative actions

The commissioner may deny, suspend, revoke or decline to renew any license or certification if the commissioner determines that a school’s financial condition may result in the interruption or cessation of instruction or jeopardize student tuition funds pursuant to section 5001(5)(c)(3) of the Education Law.

Questions and Concerns

Any questions or concerns regarding financial viability requirements may be directed to: bpssschoolreviews@nysed.gov

Authority:

Education Law Section 5001(4)(b)(iv)(4); 5001(5)c, 5001(6)
Commissioner’s Regulations set forth at 8 NYCRR Part 126.8