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The Trump administration will no longer automatically enforce an accountability measure for the owners of private institutions that consumer advocacy groups say is critical to protecting students and taxpayers.

The regulation was originally put in place by the Biden administration, first as guidance and then in regulations. Under the policy, primary owners of for-profit and nonprofit colleges were required to sign onto a contract, known as a Program Participation Agreement, in order for their institution to access federal student aid. The aim of requiring the individual or corporation who owns an institution to sign onto the PPA signature requirement was to hold them accountable for unpaid debts, misuse of federal funding and compliance with federal aid law.(PPAs still have be signed by the president or CEO of the institution.)

But now, according to a Jan. 16 announcement, the owners will not always have to assume personal liability after ED voluntarily settled with a Missouri Christian college that challenged the requirement. The education secretary does, however, reserve the right to require signatures on a case-by-case basis if necessary to “protect the financial interest of the United States.”

Education Under Secretary Nicholas Kent said the change will maintain liability standards as much as possible while abiding by the law, which limits the department’s authority to force owners to assume personal liability to circumstances when “institutions have financial problems.” The department intends to further clarify how it will conduct case-by-case evaluations through a rule-making session but did not clarify when that session will be held.

“The Biden Administration’s regulation was over broad as it required all private institutional owners, including at faith-based colleges, to sign program participation agreements,” Kent said in a statement to Inside Higher Ed. “Moving forward, the Trump Administration will adhere to the law … This approach will protect taxpayers while not creating undue burden on institutions.”

Student and taxpayer advocates, however, view the decision as a major mistake—particularly because it extends beyond nonprofit religious institutions like the one behind the lawsuit, granting more flexibility to for-profit institutions as well.

“Taking the blanket signature requirement away does nothing to protect students. It does nothing to protect the taxpayer interest. Really, the only people with benefits are those who could be held financially responsible,” said Dan Zibel, vice president and chief counsel of Student Defense, a legal advocacy group.

He cited news coverage and research reports as evidence that the owners of some for-profit institutions can access federal aid and take advantage of students. But when those owners were forced to sign a PPA contract, they could be less freely inclined to defraud students, he explained.

It forced them to “acknowledge their own skin in the game,” Zibel said. So by halting the enforcement of these contracts, particularly for for-profit owners, the department “is sorely misguided and makes it harder, not easier, for the department to protect students and taxpayers.”

Hannibal-LaGrange University and its sponsor, the Missouri Baptist Convention, argued in the lawsuit that the department’s requirement exceeded the agency’s statutory authority and violated the Religious Freedom Restoration Act. Other private institutions and their lobbyists have also pushed back, saying many of LaGrange’s arguments extend to nonreligious institutions and corporate owners.

Jordan Wicker, Career Education Colleges and Universities’ senior vice president of legislative and regulatory affairs, called the change “a meaningful course correction” for “unintended consequences” and institutional burdens created by the regulation.

“The 2023 rule … made the risk to institutions significantly greater when it comes to routine recertifications, acquisitions, ownership changes, any corporate restructuring or even simple business financial transactions,” Wicker said. “Particularly for proprietary institutions, you’re looking at a dampening effect of the market, or the devaluation of schools because of hesitancy for new capital to enter that space.”

“[Signing on for liability] is an extraordinary risk in the world of business and operations, and so it created a hesitancy,” he added.

Lawyers at Duane Morris LLP, a law firm that represents public, private, nonprofit and proprietary colleges, said the decision was “significant for institutions and their owners, sponsors, investors and lenders because it responds to significant adverse effects” of the rule.

In a breakdown of the announcement, the firm noted that while ED is now requiring officials to sign the agreements only when necessary, the department only has the authority, in their view, to allow individual owners to take on liability—not full corporate entities.

As a result, “the market effects will likely persist to some extent unless the issue is fully resolved through final, legally sustainable regulatory action,” the firm stated.

But Zibel argued that the fact businesses are wary of taking on liability shows why this regulation is necessary and conforms with the law.

“For-profit companies have been able to make sizable profits and scam students, which has cost the federal government and cost taxpayers billions of dollars, with no one at the end of the day held financially accountable for this,” he said. “The federal government should be doing everything in their power to make sure that doesn’t happen.”

Zibel also believes that the way in which the department terminated enforcement of this policy is illegal. Federal law requires the department to go through a specific process, known as negotiated rule making, to both create and repeal regulations. That process includes opportunity for public comment as well as a discussion between representatives of multiple constituent groups and the department. None of those steps were followed in this case.

“Doing things by settlement is not how this is supposed to happen,” he said.