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On October 26, 2011, President Obama delivered a speech in Denver, CO, that outlined two new student loan programs that would help borrowers manage their student loan repayments. President Obama plans to use his executive authority to launch these two initiatives. The two loan initiatives include a “Pay As You Earn” repayment plan and a short-term consolidation opportunity that will be offered through the Department of Education from January 1, 2012 to June 30, 2012.
The Press Release and the Fact Sheet are available online, as is an electronic announcement from the Department of Education.
The first initiative called “Pay As You Earn” is a program that will be available to an estimated 1.6 million students who will take out a loan in 2012. It provides for an acceleration of the enhanced Income-Based Repayment (IBR) Program, enacted by the Student Aid and Fiscal Responsibility Act (SAFRA), that takes effect for new borrowers on or after July 1, 2014, and provides for both a lower income-based payment (10% of discretionary income rather than 15%) and a shorter time until full forgiveness takes place (20 years rather than 25 years). There are currently about 450,000 current borrowers in the Income-Based Repayment Plan. By implementing the plan early, the Administration estimates that this will help more than 1.6 million students.
The second initiative is a Special Direct Consolidation Loan Program designed to assist borrowers who have loans in both the FFEL Program and either the Direct Loan Program or the federally-owned FFEL Loan Program (put loans). It is estimated that 5.8 million borrowers fall into the category of having “split loans.” Under the Special Direct Consolidation Loan Program that will begin January 2012 and last for 6 months, “borrowers would receive a 0.25 percent interest rate reduction on their consolidated FFEL loans and an additional 0.25 percent interest rate reduction on the entire consolidated FFEL and DL balance.” This program is not available to borrowers with only FFEL Loans or only Direct Loans or borrowers in default. The Administration estimates that 6 million students and recent college graduates will be able to consolidate their loans and reduce their interest rates.
On October 26, 2011, Congressman George Miller (D-CA), the Ranking Democrat on the House Education and the Workforce Committee, said the initiatives provide “real relief to student borrowers who are in or about to enter a challenging job market.” Congresswoman Virginia Foxx (R-NC), Chairman of the Subcommittee on Higher Education and Workplace, called the initiatives “another example of the Obama Administration making changes to federal education policy behind closed doors.”
On October 26, 2011, Chairman of the House Committee on Education and the Workplace John Kline (R-MN) said: “Despite the administration’s rhetoric, this plan will not create a single job, strengthen our economy, or promote fiscal responsibility. What this plan will do instead is encourage more borrowing across the board. That means more debt for students, more debt for taxpayers, and more red ink on the government’s books.” On October 27, 2011, Congressman Kline sent a letter to Secretary of Education Arne Duncan demanding more information on the true costs behind the Administration’s proposal, along with a full analysis of the taxpayer protections he intends to implement.
Senator Mike Enzi (R-WY), Ranking Member on the Senate Health, Education, Labor and Pensions (HELP) Committee, said on October 26, 2011, that while he supports efforts to help struggling graduates with their student loan debt, “he is disappointed that the President has chosen to blame Congress for failing to act before working to find a bipartisan solution.”
On October 27, 2011, Chairman John Kline sent a letter to Secretary of Education Arne Duncan seeking answers to the many questions raised by the President’s latest proposals governing student loans. He requested that the Department submit specific information about the proposals that include the following:
- A detailed list of taxpayer costs and/or savings, as well as administrative costs, associated with each of the programs or initiatives;
- An analysis of protections that will be included in the income-contingent repayment plan to prevent loss of taxpayer dollars in the event the actual loan forgiveness amounts exceed revenues;
- The legal analysis for the Department’s statutory authority to implement the proposed programs or initiatives;
- The number of borrowers the Department expects to be eligible for each of these programs and the analysis as to how the agency developed those numbers; and
- A timeline of the implementation of the new programs or initiatives.
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On October 26, 2011, the Department of Education announced that it is working with the Consumer Financial Protection Bureau (CFPB) to launch a new “Know Before You Owe” project aimed at creating a model financial aid disclosure form, the Financial Aid Shopping Sheet, which colleges and universities could use to help students better understand the types and amounts of aid they qualify for and easily compare aid packages offered by different institutions. The form would make clear the total costs and risks of student loans before a student enrolls in an educational institution. See the shopping sheet on the Bureau’s web site:
The current model disclosure form as a “thought starter” and not the final format includes:
- Total cost for full-time attendance broken down into components;
- Total grants and scholarships;
- The amount the student will pay for one year (the difference between the total cost and grants and scholarships);
- Loan and work-study options;
- Estimated monthly federal loan repayments and estimated monthly private loan repayments;
- Total estimated debt and estimated monthly payments for all loans;
- Institutional default, graduation, and retention rates; and
- Institutional costs for the student compared to the average cost at that institution and the average costs at institutions in other sectors.
The CFPB is seeking feedback from college students and their families on how to improve the form.
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On October 14, 2011, House Committee on Education and the Workforce John Kline (R-MN) sent a letter to Deficit Reduction Committee Co-Chairs Jon Hensarling (R-TX) and Patty Murray (D-WA) praising the work of the Committee and acknowledged its difficult task. While the Committee did not submit formal recommendations, Congressman Kline addressed the need for “thoughtful reform” of the Pell Grant program and a “leaner, more efficient government.” “Funding for Pell Grants has grown substantially over the last five years and is expected to cost approximately $31.7 billion in Fiscal year 2012 – an amount almost equal to the entire discretionary budget of all other K-12 and higher education programs run by the U.S. Department of Education. Accordingly, I advise the Joint Committee to review the Pell Grant program reforms contained in the recent draft Labor, Health and Human Services, and Education funding bill. These proposals represent a responsible way forward to ensure Pell Grants are available for low-income students for generations to come.”
The draft Labor-HHS-Education appropriations bill would maintain the current $5,550 maximum Pell Grant, but it would revoke Pell eligibility for students who are less-than-half-time; restrict Pell Grant eligibility in order to reduce program costs by $3.6 billion next year; and reduce lifetime eligibility to 6 years down from 9 years for all Pell Grant recipients (no grandfather rule).
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On October 25, 2011, the Subcommittee on Higher Education and Workforce Training held an oversight hearing, chaired by Congresswoman Virginia Foxx (R-NC), to examine the Department of Education’s implementation of the Direct Loan Program. Last year, the FFEL Program was replaced with 100 percent Direct Lending, in which the Department originates and oversees every student loan in the country.
Chairman Foxx said in her opening statement: “Any time the federal government assumes control over a private sector industry, there can be national implications. As the sole provider and grantor of federal student loans, the Department of Education is now one of the largest banks in the nation. In fiscal year 2012, it is expected to originate $124 billion in student loans. We have responsibility to conduct proper oversight to ensure the Direct Loan program is meeting the needs of higher education institutions, students, and taxpayers.”
During the hearing, Subcommittee members were advised of the challenges institutions encountered during the transition to the Direct Loan program, including complaints of poor customer service, concerns about insufficient student data, and an overall decline in important programs to assist loan holders and financial aid administrators with debt counseling and default management.
House Committee on Education and the Workforce Chairman John Kline (R-MN) expressed concerns about the ability of the Department to provide a high level of customer service. Congressman Kline also asked ED’s Office of Federal Student Aid Chief Operating Officer James Runcie about a recent security breach on the Direct Loan website that exposed thousands of students’ personal and financial information. Mr. Runcie acknowledged that users who logged on saw account information of others that had logged on, and he estimated that it impacted about 5,000 individuals. Mr. Runcie was also asked by Congresswoman Foxx about the report in The Wall Street Journal about the President’s plans to make changes in the Direct Loan program when Congress has not acted on it. Ms. Foxx asked him to explain the Department’s authority to implement this administrative action, and Mr. Runcie responded that he could not explain it.
Another issue both Republicans and Democrats addressed during the hearing was whether the statutorily mandated 6.8% fixed interest rate was too high. Chairman John Kline noted that the high interest rate acts as a “slush fund” to pay for the Administration’s Healthcare law.
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On October 27, 2011, the Department of Education published a Notice in the Federal Register inviting institutions to participate in one or more new experiments under the Experimental Sites Initiative (ESI), as authorized by Section 487A(b) of the Higher Education Act (HEA). Applications to participate in any experiment must be received by the Department no later than December 12, 2011. Under the Secretary’s waiver authority, an institution may be able to test whether a proposed change to current requirements improves the administration of the Title IV programs.
A successful experiment would be one that:
- Results in improved services to students or reduces burden on students and institutions, or both;
- Supports the statutory or regulatory intent of the original requirement; and
- Maintains (or increases) the financial and programmatic integrity of the Title IV programs.
The notice states that institutions selected to participate in the experiments must have a strong track record in the administration of the Title IV student assistance programs. The Secretary will consider all information available about an institution including evidence of programmatic compliance, cohort default rates (any institution whose last cohort default rate is 25% or more will not be considered), financial responsibility ratios and, for for-profit institutions, “90/10” results (institutions having 90/10 calculations at 85% or higher will not be considered). Further, experiments will be limited to one location should an institution have many.
The following are the 8 experiments:
- Federal Pell Grant Program: Eligibility of students who have bachelor’s degrees who enroll in vocational or career programs. The objective is to determine if providing Pell Grants to low-income students who have earned a bachelor’s degree but who are unemployed or underemployed improves the student’s employment status. The experiment should also minimize the use of student loan funds to finance vocational/career education for such students.
- Federal Pell Grant Program: Eligibility of students enrolled in certain short-term training programs. The objective is to determine if providing Pell Grant funding to support unemployed or underemployed persons enrolled in short-term vocational training programs offered by community colleges and postsecondary vocational institutions increases employment rates or wages of those persons.
- Direct Loan Program: Single disbursement of a one-term loan for study abroad students. The objective is to determine if providing needed early loan funding for students studying outside of the United States increases participation in foreign educational experiences for students without increasing the risk that the students will not complete the loan period.
- Direct Loan Program: Early disbursement for students participating in approved study abroad programs and students enrolled in foreign institutions. The objective of this experiment is to determine if providing early disbursements of Direct Loan proceeds to students whose academic program includes studying in a foreign country increases the number of students who participate in such programs. It will also determine if participating students are academically successful in their programs because of the financial relief the early disbursement provides.
- Direct Loan Program: Unequal disbursements: The objective is to determine if providing more up-front loan proceeds when the educational expenses are higher at the beginning of the loan period increase the enrollment and program completion of low-income students. The experiment does not encompass unequal Pell Grant disbursements.
- Direct Loan Program: Limiting unsubsidized loan amounts. This experiment waives the case-by-case approach to reduction or denial of loans. A participating institution will have to establish a written policy under which it would, for students enrolled in a particular program or on some other categorical basis (i.e., students living at home or first-time freshman), reduce by at least $2,000 the amount of an unsubsidized Direct Loan that the otherwise eligible student would receive, or eliminate the unsubsidized Direct Loan completely. Subsidized loans are not included in the experiment. This experiment encompasses three issues:
- Over-borrowing by students;
- Lack of loan availability at institutions, particularly community colleges, that have chosen not to participate in the Federal student loan programs, in part because they are concerned that high cohort default rates could jeopardize the Pell Grant eligibility of their students; and/or
- Unintended consequences at for-profit colleges, resulting in higher tuition charges to avoid running afoul of the 90/10 rule and admission of fewer financially needy students. Along with reductions in students’ annual unsubsidized loan eligibility of at least $2,000, schools will have to reduce tuition by the same amount.
- Direct Loan Program: PLUS Loans for parents of students with intellectual disabilities. Students with intellectual disabilities who are currently enrolled in an approved comprehensive transition and postsecondary program are currently eligible to receive funding from Pell. FWS, and FSEOG programs, notwithstanding that the students are not enrolled in an academic program that leads to a postsecondary educational credential. The objective is to determine if providing this financing option to some parents results in more students with intellectual disabilities enrolling in and completing an approved transition program. Another objective is to reduce the parents’ debt burden caused by higher interest rates from non-Federal financing.
- Student Eligibility: Eligibility of students with intellectual disabilities who are also enrolled in high school. The objective is to determine if, by providing Title IV aid to otherwise eligible students with intellectual disabilities who are enrolled in an approved transition program while also enrolled in high school, the transition process for the students can be improved without placing financial burdens on their families.
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On October 28, 2011, the Department published a notice in the Federal Register on its intent to establish a negotiating rulemaking committee to prepare a Notice of Proposed Rulemaking (NPRM) governing the student loan programs and is seeking nominations for negotiators. Nominations are due by November 26, 2011. The committee will meet for three sessions in January, February, and March 2012. The Committee is likely to address a number of topics that include:
- Loan discharges based on total and permanent disability;
- Repeal of unnecessary regulations in the FFEL Program and modification of corresponding requirements in the Direct Loan Program regulations;
- Modifications to the Income-Based Repayment Plan and the Income Contingent Repayment Plan in the Direct Loan Program;
- Closed school loan discharge 90-day period for borrowers;
- Loan rehabilitation in the Direct Loan and FFEL Loan Programs;
- Satisfactory repayment arrangements for defaulted borrowers;
- Perkins Loan only issues; and
- Minimum loan period for transfer students in nonterm programs and certain non-standard term programs.
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On October 20, 2011, the Department of Education issued a Dear Colleague letter (GEN-11-17) to provide guidance to address potential fraud in the Federal student aid programs at institutions of higher education that offer distance education programs. The DCL provides an overview of the fraud schemes that the Department’s Inspector General (IG) detected and recommends immediate steps that institutions can take to detect and prevent fraud.
On September 26, 2011, the Department’s IG issued a report titled “Investigative Program Advisory Report on Distance Education Fraud Rings” (Control No. ED-OIG/L42L001), which describes the numerous investigations of fraud involving distance education programs over the last six years. The results of the investigations have identified a “serious vulnerability in distance education programs.”
The DCL recognized that some of the fraud was detected as a result of vigilant efforts pursued by institutions that have “implemented comprehensive internal controls and fraud detection measures.” However, the DCL states that more needs to be done by all institutions. The DCL also points out that accrediting agencies are required to review the policies and procedures institutions have in place to verify the identity of the students enrolled in those courses and programs (34 CFR 602.17(g)). The DCL points out that detecting fraud before federal funds have been disbursed is the best way to prevent fraud, and the Department advised schools to take the following additional actions to identify and prevent fraud:
- Implement automated protocols that monitor information in your student information data system to identify instances where a number of students –
- Use the same Internet Protocol (IP) address to complete and submit an admissions application.
- Use the same IP address to participate in the on-line academic program.
- Use the same e-mail address to submit an admissions application.
- Use the same e-mail address to participate in the on-line academic program
- Appear to reside in a geographic location that is anomalous to the locations of most students in the program.
- Modify your disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive. Institutions have the authority to:
- Delay disbursement of Title IV funds until the student has participated in the distance education program for a longer and more substantiated period of time (e.g., until an exam has been given, completed, and graded or a paper has been submitted).
- Make more frequent disbursements of Title IV funds so that not all of the payment period’s awards are disbursed at the beginning of the period.
In addition, the DCL reminded schools that the program integrity rules included two additional requirements that would help identify potential fraud. First, institutions are required to have procedures in place to address fraudulent claims of high school completion (34 CFR 668.16(p)). Second, in the recently revised verification regulations found in Subpart E of 34 CFR Part 668, the Department may in its annual verification notice specify certain additional items that would need to be verified, including high school diploma information and applicant identity for all or some of the institution’s Title IV applicants who are participating in distance education.
The Department stated that schools contact: FraudTaskForce@ed.gov or call 202-377-4340 if they have comments or suggestions that address fraud rings or have specific concerns. The anti-fraud ring task force is chaired by Jeff Baker, Director, Policy Liaison and Implementation in Federal Student Aid.
Congressman George Miller, the ranking Democrat on the House Education and the Workforce Committee, praised the Department’s actions in a letter to Secretary of Education Arne Duncan: “The Department of Education made the right move today by asking the higher education community to pay particularly close attention to the disbursement of aid only to eligible students.”
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On October 20, 2011, the Treasury Inspector General for Tax Administration (TIGTA) unveiled a report titled “Recovery Act: Billions of Dollars in Education Credits Appear to Be Erroneous,” which discloses that the Internal Revenue Service (IRS) awarded an estimated $3.2 billion in undeserved American Opportunity Tax Credits.
TIGTA identified that 1.7 million taxpayers received $2.6 billion in education credits for students for whom there was no supporting documentation in IRS files that they attended a higher education institution. In addition, 370,924 individuals claimed the credit and were not eligible due to attendance requirements; 63,713 taxpayers erroneously received the credit for students claimed as a dependent or spouse on another's tax return; and 250 prisoners wrongly received the education credits.
As a result of the findings, TIGTA made a number of recommendations that included reforms of the tax code, coordinating with the Department of Education to assess claims using data files in tax return processing, revising compliance programs, and working with the Treasury Department to see if legislative reforms to the program are needed.
The credit, approved as part of President Obama's American Recovery and Reinvestment Act, modified the Hope Tax Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. The tax credit was extended for 2011 and 2012 under the President's 2011 Economic Stimulus package. It also added required course materials to the list of qualifying expenses and allowed the credit to be claimed for four post-secondary education years instead of two. During the first four years of college the credit allocated $2,500 to each student, $1,000 of which was refundable.
On October 20, 2011, The Washington Post blog reported that the IRS has disputed the report's findings, noting that some of the 1.7 million allegedly ineligible taxpayers could claim the credit without filing a tuition statement, known as Form 1098-T.
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Keith Wilson, Director of Veterans Affairs, is leaving his position to serve as a regional office director for the Department. Mr. Wilson headed the Post-9/11 GI Bill roll-out. While there were many processing delays under the roll-out, many believe that Mr. Wilson was largely responsible for the program’s current success.
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The American Council on Education (ACE) announced on October 24, 2011, that six presidential higher education associations will be convening a national Commission on Higher Education Attainment. The six associations include: Association of American Universities, American Association of Community Colleges, Association of Public and Land-Grant Universities, American Association of State Colleges and Universities, and National Association of Independent Colleges and Universities. Commission members were nominated by the associations, and E. Gordon Gee, the President of The Ohio State University will chair the Commission.
The goal of the Commission will be to improve college retention and attainment, and ultimately restore the nation’s higher education preeminence. Topics to be explored include:
- The changing nature of students seeking a degree or credential;
- The ability of higher education to attract, retain, and graduate the increasing number of adults seeking a degree or credential;
- The current capacity of higher education to accommodate the large number of students who will need to enroll if we are to increase the number of graduates; and
- The opportunities to increase efficiency and enhance productivity in meaningful ways.
In a press release of October 17, 2011, ACE President Molly Broad said: “We believe the time has come for a diverse group of college and university leaders to document candidly and thoroughly the actions that must be taken to significantly boost retention and attainment, particularly at a time when resources are tight.”
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On October 26, 2011, the College Board released its annual reports, Trends in Student Aid and Trends in College Pricing. The findings indicate that tuition and fees continue to rise across the country, most significantly at public institutions that are dealing with sharp declines in state appropriations. Published in-state tuition and fees at public four-year institutions averaged $8,244 in 2011-2012, $631 (8.3%) higher than in 2010-2011. Published tuition and fees at private nonprofit four-year colleges and universities averaged $28,500 in 2011-2012, $1,235 (4.5%) higher than in 2010-2011. Estimated published tuition and fees at private for-profit institutions averaged $14,487 in 2011-2012, $447 (3.2%) higher than in 2010-2011.
With regard to student aid, the American Opportunity Tax Credit, implemented in 2008, increased the subsidies provided to students and families through the combination of education tax credits and deductions from about $7 billion in 2007-2008 to an estimated $14.8 billion in 2009-2010 and 2010-2011. In 2010-2011, $227.2 billion in financial aid was distributed to undergraduate and graduate students in the form of grants from all sources, Federal Work-Study, federal loans, and federal tax credits and deductions. In addition, students borrowed an estimated $79 billion in loans from state and private sources.
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The Department included a response in the gainful employment Frequently Asked Questions document, R-Q&A29. The Department states that it will “NOT be granting extensions to the required reporting date of November 15, 2011.” The Department stated that the rules were published on October 29, 2010, and ED has held a number of webinars. The response also stated that the Program Compliance teams will determine on a case-by-case basis, “what, if any sanctions may be imposed on an institution” who fails to submit its GE information to ED.
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