Department of Education Scales Back Enforcement of Program Participation Agreement Owner-Entity Signature Requirements

On January 16, 2026, the Department of Education (“ED”) released electronic announcement GENERAL-26-04 Program Participation Agreement Signature Requirements, which addresses the circumstances under which an owner-entity of an eligible institution of higher education is required to sign a Program Participation Agreement (“PPA”). Following settlement of litigation challenging the “co-signature” requirement, ED agreed not to enforce the PPA’s co-signature requirement where the owner-entity has no or de minimis assets, while preserving its authority to require owner-entity signatures or alternative financial protections on a case-by-case basis when necessary to safeguard federal financial interests.

ED’s Prior Enforcement of the Owner-Entity Signature Requirement

The regulations in 34 C.F.R. § 668.14(a)(3) state:

(3) An institution’s program participation agreement must be signed by—

(i) An authorized representative of the institution; and

(ii) For a proprietary or private nonprofit institution, an authorized representative of an entity with direct or indirect ownership of the institution if that entity has the power to exercise control over the institution. The Secretary considers the following as examples of circumstances in which an entity has such power:

(A) If the entity has at least 50 percent control over the institution through direct or indirect ownership, by voting rights, by its right to appoint board members to the institution or any other entity, whether by itself or in combination with other entities or natural persons with which it is affiliated or related, or pursuant to a proxy or voting or similar agreement.

(B) If the entity has the power to block significant actions.

(D) If the entity provides or will provide the financial statements to meet any of the requirements of 34 CFR 600.20(g) or (h) or subpart L of this part.

Under the Biden administration, ED began enforcing the co-signature requirement in 34 C.F.R. § 668.14(a)(3) against any group with the power to name an educational institution’s board. Without the owner-entity’s co-signature, institutions would not be able to participate in Title IV programs.

Litigation Challenging ED’s Enforcement of the Owner-Entity Signature Requirement

In Hannibal-LaGrange University v. McMahon, plaintiff, a private religious institution, alleged that it has no “owner,” only an affiliation with the Missouri Baptist Convention (“MBC”), an incorporated association of churches that selects the university’s trustees. Hannibal-LaGrange Univ. v. McMahon, No. 2:25-cv-00042-JSD, Complaint Dkt. 1 at 2 (E.D. Mo. May 28, 2025). Because MBC had the power to select board members, ED would not allow the institution to enter a new or amended PPA unless MBC co-signed the PPA. Id.

Plaintiff alleged that the co-signature requirement exceeded ED’s authority under the Higher Education Act, imposed a substantial burden on plaintiff’s religious exercise in violation of the Religious Freedom Restoration Act, interfered with plaintiff’s religious autonomy and internal governance in violation of the First Amendment’s free exercise clause and the ministerial exception, and discriminated against institutions based on denominational structure in violation of the First and Fifth Amendments. Id. Dkt. 1 at 23-39.

ED Scales Back Enforcement in Settlement Agreement

As part of a settlement agreement with Plaintiff in Hannibal-LaGrange, ED agreed not to enforce the PPA owner-entity signature requirement set forth in 34 C.F.R. § 668.14(a)(3)(ii) because requiring MBC to sign the PPA was not necessary to protect the financial interest of the United States due to MBC’s lack of assets. Settlement Agreement, dated Jan. 15, 2026, ¶¶ 4,7. ED “will not determine that requiring financial guarantees is in the financial interest of the United States if an owner of an institution of higher education has no assets, or de minimis assets, because requiring guarantees from such owners does not advance the financial interests of the United States.” Id. ¶ 7.

The settlement agreement expressly notes that nothing in the agreement shall be construed to limit ED’s authority to enforce 20 U.S.C. § 1099c(e)(1) in accordance with the limitations set forth in 20 U.S.C. § 1099c(e)(4). Id. ¶ 6.

When Owner-Entity Signature May Still Be Required and Alternative Protections

Consistent with 20 U.S.C. § 1099c(e)(1), ED reserves the right to, on a case-by-case basis, require financial guarantees or personal liability from institutions or individuals who exercise substantial control to protect the financial interest of the United States. “Specifically, the Secretary reserves the right to impose this requirement when the Secretary determines that such signatures are necessary to protect the financial interests of the United States. This may include, for example, when the owner-entity has sufficient assets that such a guarantee is warranted . . . .” GENERAL-26-04 Program Participation Agreement Signature Requirements.

Importantly, ED states that it “will not require a financial guarantee from an institution, or the assumption of personal liability by one or more individual exercising substantial control over the institution, where the institution has met the conditions specified in 20 U.S.C. § 1099c(e)(4)(A)-(D).” Id. This statutory section bars ED from imposing financial guarantees or personal liability on institutions that have not been subjected to limitation, suspension, or termination action by ED or a guaranty agency within the preceding five years; have no major audit findings in its two most recent audits; have met financial responsibility standards for the preceding five years; and have not been cited during the preceding five years for failure to submit audits in a timely fashion. 20 U.S.C. § 1099c(e)(4)(A)-(D).

ED further states that the Secretary may determine, on an individualized basis, that no co-signature is required where alternative protections, such as a letter of credit, are sufficient to minimize the risk of financial losses.

Next Steps

The Electronic Announcement explains that the policy applies only “to a PPA issued on or after the date of this Electronic Announcement.” ED will not entertain requests to remove owner-entity signatures from existing PPAs; instead, the new guidance will apply prospectively as PPAs come up for renewal.

The Settlement Agreement provides that ED will publish guidance “which will remain in place unless superseded by statute, regulation, or court order.” Settlement Agreement ¶ 8. Because the Electronic Announcement also notes that ED “intends to revise 34 C.F.R. § 668,14(a)(3)(ii) in the future,” we anticipate that this issue will be addressed in upcoming negotiated rulemaking sessions.

HMBR’s Higher Education Group continues to monitor this issue. If you have questions about the impact of this electronic announcement on your institution, please contact us via email or by phone at 312-946-1800.

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Jan 22, 2026 | By Megan Chan | On Client Alerts