Sec. 13b.01.01.19. Financial Guarantee

A. A financial guarantee required by this chapter shall be:

(1) In the form of a performance bond or an irrevocable letter of credit;

(2) Made under the terms and conditions determined by the Secretary, including the conditions that the school shall:

(a) Perform faithfully all agreements or contracts it makes with its students; and

(b) Comply with Education Article, Annotated Code of Maryland, and with this chapter;

(3) Made payable to the Secretary on behalf of the Commission, and provided to the Secretary;

(4) Between the Commission and the surety; and

(5) In the amount the Secretary requires, which at a minimum shall be:

(a) The amount prescribed by §B of this regulation, if the school is a non-Title IV school;

(b) The amount prescribed by §C of this regulation, if the school is a Title IV school;

(c) The amount prescribed by §D of this regulation, if the school is a Title IV school that has been notified by the U.S. Department of Education of an adverse, or potentially adverse, action affecting the school’s participation in Title IV; or

(d) The amount prescribed by §E of this regulation, if the school delivers its programs in whole or in part by distance education.

B. Financial Guarantee Amount - Non-Title IV Schools. A non-Title IV school shall provide a financial guarantee in an amount sufficient to cover 100 percent of the total tuition liability of the school.

C. Financial Guarantee Amount - Title IV School.

(1) Minimum Amount. A Title IV school shall maintain a financial guarantee in an amount sufficient to cover 100 percent of the total non-Title IV tuition liability of the school, unless a greater amount:

(a) Is deemed necessary by the Secretary; or

(b) Is required by the provision of this §C.

(2) During a Title IV school’s 1st through 5th years of operation, the school shall provide a financial guarantee in an amount sufficient to cover 100 percent of the total tuition liability of the school.

(3) During a Title IV school’s 6th through 10th years of operation, the school shall provide a financial guarantee in an amount sufficient to cover:

(a) 50 percent of the total tuition liability of the school, if the school does not meet financial viability requirements set forth in §F of this regulation, and if 50 percent of the total tuition liability of the school is greater than 100 percent of the school’s total non-Title IV tuition liability;

(b) 100 percent of the school’s total non-Title IV tuition liability, if the school meets the financial viability requirements set forth in §F of this regulation; or

(c) A greater amount if deemed necessary by the Secretary.

(4) After a Title IV school’s 10th year of operation, the school shall provide:

(a) A financial guarantee in an amount sufficient to cover 30 percent of the total tuition liability of the school, if the school does not meet the financial viability requirements set forth in §F of this regulation, and if 30 percent of the total tuition liability is greater than 100 percent of the school’s total non-Title IV tuition liability;

(b) A financial guarantee in an amount sufficient to cover 100 percent of the school’s total non-Title IV tuition liability, if the school meets the financial viability requirements set forth in §F of this regulation; or

(c) A greater amount if deemed necessary by the Secretary.

D. Financial Guarantee Amount - Title IV Schools Notified of Potentially Adverse Action by the U.S. Department of Education.

(1) If the U.S. Department of Education notifies a Title IV school that the school is subject to an adverse or potentially adverse action, including any action that limits, suspends, terminates, or otherwise negatively affects the school’s participation in Title IV, the school shall notify the Commission in accordance with regulation .06 of this chapter.

(2) Upon receipt of the school’s notice under §D(1) of this regulation, or on the Secretary’s own initiative, the Secretary may require the school to provide a financial guarantee in an amount deemed necessary by the Secretary to protect students, up to 100 percent of the school’s total tuition liability.

E. Financial Guarantee Amount - Schools Delivering Programs in Whole or in Part by Distance Education.A school that delivers a program in whole or in part by distance education shall provide a financial guarantee in the amount prescribed by §§B-D of this regulation, plus an amount sufficient to cover the sum of the tuition of each program delivered in whole or in part by distance education, multiplied by the maximum permissible enrollment for that program.

F. Reduced Financial Guarantees Based on Financial Viability.

(1) Upon submission of its annual report under Regulation .06 of this chapter, a school that provides a financial guarantee in an amount greater than 100 percent of its non-Title IV tuition liability may request in writing that the Secretary reduce the school’s financial guarantee amount, in accordance with the criteria set forth in §§B-E of this regulation.

(2) The school’s request shall include the two most recent audited financial statements of the school, and of any corporate parent or holding company of the school.

(3) The Secretary may grant the school’s request if the Secretary finds that:

(a) The financial statements and other relevant financial information, including external accounting reports, demonstrate that the school and its ownership meet the financial viability requirements set forth in §F(4) of this regulation, operate in accordance with sound principles of financial management, and maintain financial resources adequate for the satisfactory conduct of the school; and

(b) A reduction of the financial guarantee is appropriate under the criteria set forth in §§B-E of this regulation.

(4) Financial Viability Requirement. A school is considered financially viable if its financial statements, and those of its corporate parent or holding company, demonstrate that the school and its ownership, for each of the 2 most recent years:

(a) Had a net income that exceeded expenditures; and

(b) Maintained at least a 1:1 ratio of total current assets to total current liabilities.

(5) In no instance shall a financial guarantee of a school be reduced below an amount equal to 100 percent of the school’s total non-Title IV tuition liability.