October 21, 2019

October 21, 2019

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Higher Education Institutions under Increased Scrutiny for Foreign Contracts and Gifts

The U.S. Department of Education (the Department) in recent months has undertaken increased scrutiny of postsecondary institutions’ contracts with, and gifts from, foreign entities and individuals. Although long-required to report significant foreign contracts and gifts to the Department, in February 2019 a bipartisan report of the U.S. Senate Permanent Subcommittee on Investigations found that one Chinese entity directly provided over $158 million to U.S. colleges and universities since 2006 and that 70% of the recipient schools failed to report such funding as required by existing federal law and regulation.

On May 13, 2019, the Deputy Secretary of the Department, Mitchell M. Zais, issued a letter to postsecondary institutions reminding them of pertinent reporting obligations under Section 117 of the Higher Education Act (20 U.S.C. § 1011f). Specifically, all domestic higher education institutions that receive any Federal financial assistance (directly or indirectly) and that offer a bachelor’s degree or higher, or that offer a transfer program of not less than two years that is acceptable for credit toward a bachelor’s degree, are required to report to the Department information about (1) contracts with and gifts received from any foreign source, in either case exceeding $250,000 in any calendar year; and (2) any ownership interests in or control over the institution by a foreign entity.

The Higher Education Act defines a “foreign source” as being a foreign government, including an agency of a foreign government; a legal entity created solely under the laws of a foreign state or states; an individual who is not a citizen or national of the United States; and an agent acting on behalf of a foreign source. The term “contract” is defined by the law to include any agreement for the purchase, lease, or barter of property or services; the term “gift” includes any gift of money or property. If an institution fails to comply with the reporting requirement in a timely manner, the Department may recommend that the Department of Justice undertake a civil action in Federal District Court to ensure compliance. In addition, per the statute, the institution must reimburse the government for the full costs of obtaining compliance following a knowing or willful failure to comply.

According to press reports on June 13, 2019, the Department of Education has initiated investigations into foreign funding received through contracts and donations by two prominent universities, including requests for years of financial records related to those matters. Those inquiries are presumed to be only the beginning of a broader effort by the Department to review foreign funding received by domestic institutions, and to assess compliance with and more robustly enforce Section 117 of the Higher Education Act.

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About this Author

John Przypyszny, Drinker Biddle Law Firm, Public Education Attorney

John R. Przypyszny counsels institutions of higher education, education companies as well as accrediting agencies on the broad range of legal issues and education law related issues that impact their institutions and businesses on a day-to-day basis. He advises clients on education law matters involving the U.S. Department of Education, accrediting bodies, state agencies and other government regulators. He also has extensive experience advising institutions of higher education on the statutory and regulatory requirements of federal student financial aid...

(202) 842-8858
Jonathan Tarnow, Education and Government affairs lawyer, Drinker Biddle

Jonathan D. Tarnow advises clients on a wide range of education law matters involving the U.S. Department of Education, accrediting bodies, state agencies and other government regulators. He has extensive experience advising public, non-profit and proprietary institutions of higher education on the statutory and regulatory requirements of federal student financial aid programs under Title IV of the Higher Education Act, and has represented institutions in Title IV compliance reviews and audits, including administrative hearings and appeals related to findings of non-compliance. Jonathan is a partner in the firm's Government and Regulatory Affairs Group and a member of the Education Team and the Privacy and Data Security Team.

He frequently represents private equity funds, private investors, publicly traded and privately held education companies, and financial institutions that serve postsecondary educational institutions on transactions in the education sector. This includes purchases and sales of institutions or their assets, conversions of private institutions from proprietary to non-profit status, credit facilities to support acquisitions or ongoing operations, and other complex transactions involving colleges and universities.

(202) 354-1357