Foreign Colleges and U.S. Student Aid

Final rules published by Education Department toughen requirements for foreign colleges and med schools whose students get U.S. financial assistance.
November 1, 2010

Given the vast amount of attention paid to the Education Department's aggressive regulation of for-profit colleges, it's no surprise that some of the agency's other initiatives have flown beneath the radar. But its efforts to safeguard the integrity of federal student aid programs have extended to the flow of funds outside the United States, culminating today in the release of final regulations that are expected to make it harder for students to qualify for U.S. financial aid at some foreign colleges and medical schools.

The rules, which carry out changes made by Congress in 2008's Higher Education Opportunity Act and are published in today's Federal Register, include some significant changes from the preliminary rules governing foreign institutions that the department published in July.

Most notably, in response to criticism from a wide range of foreign universities, including such high-profile institutions as the University of Oxford, Montreal's McGill University, and the University of Melbourne, the Education Department softened a requirement that would have required public and nonprofit independent institutions whose students received at least $5 million in American financial aid to submit audited financial statements each year that met not just their own countries' accounting principles, but the U.S. government's standards as well. The tougher standard would apply to all foreign for-profit institutions.

Amid complaints that such a requirement would be enormously expensive to the institutions -- and, "in the worst case scenario,... might have the unforeseen consequence of limiting the numbers of U.S. students recruited ... in other countries," as the Irish Universities Association warned -- the Education Department changed its final regulation to raise the floor at which the annual requirement would kick in for nonprofit colleges to $10 million.

Under the final rule, foreign institutions whose students receive between $3 million and $10 million a year will be required to submit such a statement only every three years, but will continue to have to submit audited financial statements annually that meet their own countries' accounting standards.

"[T]he Department acknowledges that the audit expense to have an institution's home country audit translated to U.S. GAAP, particularly for the initial engagement, may be significant, but believes it is justified, particularly in light of the tiered audit submission requirements that reduce audit cost and burden for institutions with smaller Title IV, HEA program fund volumes," the department said in its final rules.

But "[i]n consideration of the concerns expressed about the expense for foreign institutions to submit audited financial statements prepared in accordance with U.S. GAAP, the Department is raising the threshold from $5,000,000 to $10,000,000 in annual federal student aid funding amounts to determine when a foreign institution must submit U.S. GAAP audited financial statements annually. We believe that this tiered approach for the audit submission requirements will support the goal of providing international education opportunities for U.S. students."

The department also made a meaningful but not transformative change to its approach to carrying out one of the other most controversial proposals in the new higher education law, one aimed at ensuring that foreign medical schools are successfully preparing their graduates to practice medicine in the United States. Congress's concerns about the quality of foreign medical schools were reinforced, in the eyes of critics at least, by a June report by the Government Accountability Office.

As in the department's proposed rules in July, the department will require that at least 75 percent of a foreign medical school's graduates pass each step of the U.S. Medical Licensing Examination for the institution to continue to qualify for federal student aid for its graduates.

Several commenters on the proposed rule urged the department to approve institutions if 75 percent of their students passed the licensing exam overall, rather than on each step of the test, while others asked the department to phase in the requirements or expand the number and types of institutions that might be exempt from the requirement.

The department rejected all those compromises, but it did make a change that some institutions had advocated: that the calculation of the pass rate include all students taking the exam for the first time, rather than only American citizens or those with permanent residency. Department officials said statistics showed that foreign students score better than American students at foreign schools on two of the three steps of the licensing exam. "The Department believes that the inclusion of U.S. and non-U.S. students provides a fair evaluation of a foreign graduate medical school's program, while reducing burden on schools by not requiring the separation of pass rates by citizenship," the agency said in its notice of final regulations.

The rules put forward by the department will also make it much more difficult for students to receive federal loans to attend nursing schools in other countries, among other things.


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