{"id":100457,"date":"2026-01-20T17:24:14","date_gmt":"2026-01-20T22:24:14","guid":{"rendered":"https:\/\/www.mcguirewoods.com\/?post_type=insight&p=100457"},"modified":"2026-01-20T17:24:16","modified_gmt":"2026-01-20T22:24:16","slug":"federal-student-aid-pauses-enforcement-of-parent-liability-rule-for-now-posing-questions-about-whats-next","status":"publish","type":"insight","link":"https:\/\/www.mcguirewoods.com\/client-resources\/alerts\/2026\/1\/federal-student-aid-pauses-enforcement-of-parent-liability-rule-for-now-posing-questions-about-whats-next\/","title":{"rendered":"Federal Student Aid Pauses Enforcement of Parent Liability Rule for Now, Posing Questions About What\u2019s Next"},"content":{"rendered":"\n

On Jan. 16, 2026, Federal Student Aid (FSA) announced <\/a>that it will no longer enforce a rule requiring ownership entities, including corporations and limited liability companies, to sign a Program Participation Agreement (PPA) and assume joint and several liability for the acts or omissions of the school. This rule, 34 C.F.R. \u00a7 668.14(a)(3)(ii), commonly called the \u201cParent Liability Rule,\u201d had been criticized by some for chilling capital investments in education, particularly investment in private nonprofit institutions and trade schools. Whether and when FSA will require an owner-entity to sign a PPA remains an open question for a future negotiated rulemaking.<\/p>\n\n\n\n

Any institution of higher education that receives federal financial student aid under Title IV of the Higher Education Act of 1965, as amended (Title IV), must enter into a PPA with the U.S. Department of Education. A PPA conditions eligibility to receive federal financial student aid on compliance with certain statutory and regulatory requirements. The Parent Liability Rule requires that, for all proprietary or private nonprofit institutions, \u201can authorized representative of an entity with direct or indirect ownership of an institution must sign the institution\u2019s PPA.\u201d<\/p>\n\n\n\n

FSA\u2019s decision not to enforce the Parent Liability Rule arises from a settlement agreement with a private nonprofit institution that sued the U.S. Department of Education, challenging application of the Parent Liability Rule. That institution\u2019s lawsuit argued, among other things, that FSA lacked authority under Title IV to promulgate the Parent Liability Rule and that the rule\u2019s adoption violated the Administrative Procedure Act. The Department has published the school\u2019s complaint <\/a>and the parties\u2019 settlement agreement<\/a> along with the electronic announcement that FSA would not enforce the Parent Liability Rule.<\/p>\n\n\n\n

FSA, however, reserves the right to \u201crequire an authorized representative of an entity that directly or indirectly holds a substantial ownership interest in the institution [to] sign that institution\u2019s PPA on a case-by-case basis, in a manner consistent with 20 U.S.C. \u00a7 1099c(e)\u201d to protect the United States\u2019 financial interest. Whether and when the Secretary of Education will require signatures of an ownership-entity or a specific individual remains an open question and likely will be addressed during a future negotiated rulemaking. Questions and answers about this development follow:<\/p>\n\n\n\n

When will FSA require an owner-entity to sign a PPA?<\/strong><\/p>\n\n\n\n