The U.S. Department of Education is just now starting to pay attention to a reporting requirement in the Higher Education Act (HEA) that harkens back to the 1980s. Penalties for failure to properly report can be stark, including imprisonment. While this Administration’s Education Department has typically engaged with the higher education community, its responses to outreach on this recently expanded requirement have been terse.

What requirement?

Section 117 of the HEA requires institutions of higher education to report to the Secretary of Education when either:

1. The institution is owned or controlled by a foreign source; or

2. The institution receives a gift from, or enters into a contract with, a foreign source for $250,000 or more.

The $250,000 value is calculated in combination with all other gifts from or contracts with that foreign source within a calendar year. Notably, although the statute sets the reporting threshold at $250,000, the Education Department’s reporting form currently seeks reporting of foreign-source gifts and contracts regardless of amount.

Why now?

Increased Scrutiny on Foreign Influence. In an era of increased scrutiny on foreign investments and foreign influence in U.S. higher education institutions, members of Congress have recently called out the Education Department for not enforcing this reporting requirement.

As a result, the Education Department has turned its attention to compliance efforts. As we reported here, the Department is currently auditing four major U.S. universities for failing to properly report. In an unusual move, the Department published its investigative letters for these universities.

Testifying in a recent U.S. Senate hearing, an Education Department official stated that less than 3 percent of U.S. colleges report receiving foreign gifts or contracts. The Department has estimated that 70 percent of all higher education institutions that receive gifts or contracts from foreign sources are not filing the proper disclosures. For those reasons, the Education Department is likely expecting an influx of Section 117 reports and will continue to increase its Section 117enforcement.

Supplemental Reporting Requirement. The Education Department has expanded on the reporting requirement. The new disclosure form that ignores the $250,000 minimum and expands on the type of institutions required to report and the type of information to report.

That form could be interpreted to require reporting on behalf of affiliates of universities, small liberal arts colleges, university hospitals, independent research foundations, hospitals, and alumni groups, and information including alumni contributions, season tickets, tuition, and confidential information, such as licenses and anonymous donors. Somewhat alarmingly, the Department’s supporting statement for the expansion of the reporting requirement merely states: “The Department makes no pledge about the confidentiality of the data because the authorizing statute makes no provision for same.” In addition, in the published investigative letters, the Department goes so far as to request records demonstrating the university’s activities taken to confirm that the foreign sources do not provide support for terrorist activities. The Department (under)estimates that this reporting will only take 10 hours.

How to Prepare

Step 1: Review Report Records and Consider Filing Missing Reports. We recommend conducting an internal audit to ensure that your university has filed the reports required by the HEA, remedy any missing reports, and implement a process to file reports going forward that meet the reporting requirement of the HEA.

Step 2: Consider Filing Comments on the Reporting Scope and Burden. The Education Department is affording the higher education community the opportunity to provide informal comment on the supplemental reporting requirement. Interested parties can file comments through November 5, 2019 here. If overbreadth is a concern of your institution, you may wish to consider filing comments.

Step 3: Consider Alerting Your Congressional Representatives. Because the Department is not formally required to make changes based on any public comments (unlike the situation in a formal notice and comment rulemaking), you may wish to consider bringing the overly broad reporting requirement to the attention of your U.S. Senators and your Members of Congress.

Step 4: Continue to Monitor the Reporting Requirement. After November 5, 2019, you should review the finalized supplemental disclosure form to ensure your reporting process addresses the finalized requirements.