Higher Education Mid-Year Update

Please note: This blog is current to the date of its publication, Wednesday, July 22. For additional updates or assistance navigating these uncertain times, please contact us or visit our SST COVID-19 resource page.

Borrower Defense to Repayment (BDTR) regulations recently went into effect on July 1, 2020, and include a reporting deadline extension for higher education institutions. Due to the COVID-19 pandemic, many schools have opted to delay financial reporting to the Department of Education (ED) until the revised deadline of Dec. 31, 2020. Below, we answer two key questions about the impact BDTR regulations will have on financial reporting for higher education institutions.

How does exercising the BTDR six-month extension affect long-term debt?

With BDTR, long-term debt must be originated in connection with the purchase of fixed assets to be included in adjusted equity in the composite score calculation. All long-term debt included in the most recent financial report submitted and accepted by the ED on or before June 30, 2019, will be grandfathered in and will be included in adjusted equity, regardless of how the proceeds of the debt were used.

If an institution delays submitting its financial audit report for six months, then the most recent financial report submitted and accepted by the ED will revert back to fiscal years ending on or before Dec. 31, 2018. A supplemental schedule of these grandfathered long-term debt amounts must be included in your 2019 financial audit report.

Long-term debt agreements entered into during the 2019 calendar year must have originated in connection with the purchase of fixed assets to be included adjusted equity in your 2019 composite score calculation.

How will BDTR affect your 2020 financial statement audit?

Great news! The lease accounting standard (ASC Topic 842) implementation date for nonpublic organizations (including schools) has now been deferred to fiscal years beginning after Dec. 15, 2021, and interim periods within fiscal years beginning after Dec. 15, 2022. Any lease amendments or new leases entered into on or after Dec. 15, 2018, will significantly affect your financial statements and composite score.

Now is the time to start planning. Contact SST today to review your leases or to discuss the composite score ramifications for your institution.

Thanks to SST Senior Audit Manager Aaron Lohman, CPA, for the content of this post. Click here to learn more about Aaron.