In today’s higher education environment there are both challenges and opportunities that all institutions need to consider. Below is an overview of the latest reporting and compliance requirements, opportunities, and trends that are shaping the higher education sector.

Financial Value Transparency and Gainful Employment regulations

The recent changes in the Financial Value Transparency and Gainful Employment regulations are significant to how institutions report and manage their programs. These regulations aim to provide greater transparency and accountability, helping ensure that students are well-informed about the financial implications of their education choices.

On Oct. 10, 2023, the Secretary of the Department of Education published final regulations in the Federal Register (88 FR 70004). This applies to programs that are eligible to participate in the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (HEA). The Financial Transparency and Gainful Employment regulations were originally slated to be implemented on July 1, 2024, with institutions having until Oct. 1, 2024, to provide all required reporting. As of Sept. 13, 2024, the implementation has been delayed until Jan. 15, 2025.

The provisions to the Financial Value Transparency regulations aim to improve the information provided to students about the costs of enrolling in Title IV programs. They also focus on the outcomes of students who have enrolled in these programs. Under the regulations, two measures are used to calculate outcomes: the debt-to-earnings measure and the earnings premium measure. Additionally, the regulations provide benchmarks for these two measures to determine the potential negative financial impact a program might have on a student who chooses to enroll.

The Gainful Employment regulations will use the same two measures to assess whether a Gainful Employment program remains eligible for Title IV funds. This will impact only Gainful Employment programs. These regulations outline the definitions of Gainful Employment programs as well as Eligible Non-Gainful Employment programs.

For both the Financial Value Transparency and the Gainful Employment regulations, certain reporting requirements are mandated. The information to be provided is both program-specific and student-specific, as further defined in the regulations. Institutions will have the ability to start reporting this information starting on July 1, 2024, but will not be required to submit it until Jan. 15, 2025. After the initial reporting period, the deadline will be Oct. 1

What does CohnReznick think?

With the provisions of the Financial Value Transparency and Gainful Employment regulations, institutions should begin preparing now by reviewing their current programs, understanding the new reporting requirements, and assessing the potential impacts on their existing programs. Early preparation is key to facilitating compliance.

Expanded related party disclosure requirements

The U.S. Department of Education has amended regulation 34 CFR § 668 which updated its related party disclosure requirements for higher education institutions that participate in student financial assistance programs under Title IV of the Higher Education act, effective July 1, 2024. These changes are part of the broader financial responsibility regulations aimed at enhancing transparency and accountability.

Here are some key points about the new requirements:

1. Detailed disclosure: Institutions must provide a detailed description of all related parties. This includes the name, location, and a description of the related party, as well as the nature and amount of any transactions between the related party and the institution, regardless of when they occurred. 

2. Beyond GAAP: The new requirements go beyond what is typically required under generally accepted accounting principles (GAAP). This means that if a related party transaction is not material under GAAP, it still needs to be disclosed under the Department of Education rules except for certain de minimis transactions such as meals provided to board members. On Oct. 31, 2024, the Department of Education issued an electronic announcement which clarified that they will not accept an unaudited related party disclosure not covered by the auditor’s opinion, correcting previous AICPA guidance. Any submissions of the unaudited related party disclosure will be rejected by the Department of Education. 

3. No related party transactions: If there are no related party transactions, the institution is required to disclose that fact.

These changes are designed to provide the Department of Education with a clearer picture of the financial relationships and transactions that could impact an institution’s financial health and its ability to participate in federal student aid programs.

What does CohnReznick think?

Institutions of higher education need to have a process to properly identify and track related party transactions. Additionally, each institution should consult with their auditor regarding these new requirements.

Clean Energy Credits

The Inflation Reduction Act of 2022 (IRA) introduced and expanded tax credits for clean energy technologies and established a new direct pay provision. Direct pay allows exempt organizations and governmental entities to benefit from these credits by providing cash payments from the Department of Treasury for the value of the credits. On March 5, 2024, the IRS released Final Rules for elective pay, now interchangeably called “direct pay.” Colleges and universities installing solar, storage, or micro-grids may want to seek a claim for direct pay to improve the economics of such investments in their infrastructure.

Identify a project – The property identified for eligibility must be owned by the exempt organization through direct ownership, ownership through a disregarded entity, or owning “an undivided interest in an ownership arrangement treated as a tenancy-in-common or pursuant to a joint operating arrangement that has properly elected out of subchapter K under Section 761,” an IRS FAQ states. The most common types of projects that are eligible for the direct pay credits include the installation of solar panels, electric vehicle charging stations, battery storage, and heat pumps. If a project has also received grants or forgivable loans, the total amount of the credit plus any grants cannot exceed the cost of the investment itself.

The IRA has made the program available for 10 years (through 2032); however, that could change with future legislation. 

Place property in service – Each project placed in service needs to be registered separately. Multiple properties eligible for credits cannot be consolidated into a single registration. 

Pre-register through portal – To take advantage of these incentives, an exempt organization must use the portal and pre-register each property. Where there are multiple assets within one registration, each eligible asset is added separately within that registration.

File Form 990-T (or extension) and make election – Direct pay credits are claimed by filing Form 990-T with the appropriate tax election.

Await payment – The IRS issued a news release on March 19, 2024 that noted that “under the statute, a taxpayer is not entitled to the payment for the elective direct pay credit until the due date of the return, even if the taxpayer files the return before that date.” As such, they noted, in general, entities can expect payment issuance within 45 days of the due date of their annual return.

What does CohnReznick think?

With these credits available through the year 2032, institutions should explore opportunities for current and future clean energy projects.

IRS Publication 5817-D (Rev. 3-2024) provides additional guidance for tax exempt organizations.

Artificial intelligence (AI)

As AI rapidly reshapes industries and redefines the job market, the need for higher education to embrace this emerging technology is not a distant future scenario but a pressing reality. The impact of AI on employment is increasingly evident, with routine and structured tasks being swiftly automated, while jobs requiring unstructured tasks and people management are less vulnerable. Large companies like Amazon are already shifting toward upskilling current unskilled labor rather than hiring externally workers with formal degrees, reflecting a growing trend among the younger generation to prioritize skill-based education over traditional tertiary education. In this context, higher education must urgently adapt its approach to curricula and enrollment to remain relevant and practical.

Universities should expand their AI and machine learning course offerings as AI becomes more integrated into business and technical operations. These subjects should not be limited to computer science or engineering students; business students, managers, and executives must also understand AI’s capabilities and limitations. This knowledge will be critical for leaders navigating AI’s role in shaping the future of all industries.

AI, with its potential to revolutionize education, can also be used in the classroom. Studies have shown that adaptive teaching algorithms can positively impact learning outcomes. This allows students to learn at their own pace, demonstrating the practical applications of AI in education. Educators must be careful when using AI in the classroom, as it can reinforce and perpetuate biases. For example, using AI to grade subjective topics, studies have shown that students from minority backgrounds are graded lower than their non-minority classmates. 

AI has the potential to improve a university's financial and reputational standing by identifying and engaging with candidates and students who are the most compatible with the institution. This allows for customized experiences throughout the student journey, leading to improved operational efficiency, higher enrollment of students likely to succeed, and the delivery of top-notch experiences. Additionally, AI offers the advantage of time savings. By using AI to manage time-consuming tasks and streamline troubleshooting, administrative staff can focus on enhancing student experiences within their institutions.

What does CohnReznick think?

AI will have a significant impact on higher education in the coming years – if it's not already doing so. The foresight and ethical standards of the higher education system's administrators will determine whether the impact is positive or negative.