Colleges in the US may be required to open more letters of credit (L/Cs) to guarantee performance and cover possible closure costs if proposals from the Department of Education (DoE) come to fruition.

The DoE wants to extend the requirement for colleges to post irrevocable L/Cs when the department becomes concerned that schools will be unable to pay back money it has provided for federal aid.

L/C usage

According to the DoE, it has required L/Cs from colleges on more than 2,700 occasions in the last five years.

These include individual institutions that have been required to put up several L/Cs over that period.

New requirements

Now the department is proposing and expanded set of reasons why a college might be required to post an L/C.

Reasons will include situations where a college is at risk of losing accreditation or institutional eligibility for federal student aid funds.

The department may also require L/Cs to guarantee against high student dropout rates or if an insufficient number of students find gainful employment at the end of their studies.

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