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On July 29, 2012, Senator Tom Harkin (D-IA), Chairman of the Health, Education, Labor and Pensions Committee, released a report titled “For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.” The report, which is about 800 pages, including the appendices, summarizes the results of a two-year investigation by Senator Harkin of the for-profit college sector. The report states that the Federal taxpayers invest billions of dollars a year ($32 billion in the most recent year) in for-profit colleges, yet more than half of the students who enrolled in the 2008-2009 award year left without earning a degree or diploma. The report notes that for-profit institutions “devote tremendous amounts of resources to non-education related spending,” such as “marketing, advertising, recruiting and admissions staffing.”
The report identified three main areas needing improvement:
- Enhanced transparency through the collection of relevant and accurate information about student outcomes:
- Require that the Department of Education collect relevant and accurate information about student outcomes;
- Establish a uniform and accurate methodology for calculating placement rates; and
- Increase the regulation of private lending.
- Stronger oversight of the $155 billion Federal financial aid investment to curb fraud and abuse:
- Tie access to Federal financial aid to meeting minimum student outcome thresholds;
- Prohibit institutions from funding marketing, advertising and recruiting activities with Federal financial aid dollars;
- Improve cohort default rate tracking by expanding the default reporting rate period beyond 3 years;
- Require that for-profit colleges receive at least 15 percent of revenues from sources other than Federal funds; and
- Use criteria beyond accreditation and State authorization for determining institutions’ access to Federal financial aid.
- Meaningful protections for students:
- Create an online student complaint clearinghouse, managed by ED, for the collection and referral of student complaints;
- Prohibit institutions that accept Federal financial aid from including mandatory binding arbitration clauses in enrollment agreements;
- Enforce minimum standards for student services that include tutoring, remediation, financial aid, and career counseling and job placement; and
- Extend ban on incentive compensation to include all employees of institutions of higher education, and clarify that this ban extends to numeric threshold or quota-based termination policies.
The report states that for-profit colleges have an important role to play in higher education and, in theory, are better equipped to meet the needs of the “new American majority” of nontraditional students. The ability of for-profit institutions to accommodate to the nontraditional students coupled with insufficient capacity at nonprofit and public institutions gives the for-profit sector “an important role to play in higher education.” However, “Congress has failed to counterbalance investor demands for increased financial returns with requirements that hold companies accountable to the taxpayers for providing quality education, support, and outcomes.”
The Report was not officially endorsed by the other Democrats on the HELP Committee and was submitted by Committee staff. The Report was met with opposition from the Republican minority members of the HELP Committee. The Republicans challenged the scope and accuracy of the investigation particularly the Committee’s decision to focus only on the for-profit sector.
Former Congressman Steve Gunderson, the President and CEO of APSCU, responded to the release of the Report by stating: “Unfortunately, Senator Harkin’s report continues in the tradition of ideology overriding reality. The report twists the facts to fit the narrative, proving that this is nothing more than continued political attacks on private sector colleges and universities.”
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On July 31, 2012, Senate Majority Leader Harry Reid (D-NV) and House Speaker John Boehner (R-OH) reached an agreement on a six-month Continuing Resolution prorated at the top level of $1.047 trillion (the level set for FY 2013 by the Budget Control Act) and void of any riders. The agreement to fund the federal government through March 2013 is endorsed by President Obama. The legislation will be written during the August recess so that it can be passed by the House and Senate in September and sent to President Obama for his signature. The agreement will provide the House and Senate with the time to work on the FY 2013 appropriations measures.
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On July 19, 2012, the House Labor/HHS/Education FY 2013 appropriations bill was reported out, by a vote of 8 to 6. It allocates $70 billion for the Department of Education programs, $1.1 billion less than the current year and $2.9 billion less than the President’s budget request. The bill provides sufficient funding for the Pell Grant program to increase the annual maximum grant of $5,635 for the award year 2013-2014. Campus-based programs, such as Federal Supplemental Educational Opportunity Grant and Federal Work-Study, would receive the same level of funding as the current award year. The bill will next move to the full House Appropriations Committee for consideration where it is expected to pass.
In May 2012, the Senate Appropriations Committee approved $158.8 billion for the FY 2013 Labor/HHS/Education appropriations bill, which allocates $68.52 billion in discretionary funds for the Department of Education.
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On July 19, 2012, the Senate Health, Education, Labor and Pensions (HELP) Committee held a hearing on promising practices and strategies to improve college affordability. Committee Chairman Tom Harkin (D-IA) opened the hearing by saying that students and families continue to struggle to pay for rising tuition costs, and student debt outstanding is now higher than total credit card debt. Senator Harkin said that one of his priorities as Chair is to address the college affordability crisis and look for ways to curb college costs.
Senator Mike Enzi (R-WY), Ranking Member of the HELP Committee, said that college has become too expensive and there are no signs of college tuition costs getting cheaper anytime soon. “If this trend does not change, it will be almost impossible for us to achieve the President’s recent challenge to again become first in the world in college graduates.” Senator Enzi also stated that “Maintaining the Pell Grant program in the short-term has come at the expense of other low- and middle-income students. We must address the long-term sustainability of Pell Grants sooner rather than later as we discuss college affordability.”
Dr. Don Heller, Dean of the College of Education at Michigan State University, testified that college tuition continues to rise more than three times faster than inflation and median income. Dr. Heller encourages states and institutions to focus financial assistance on truly needy students to ensure access. Dr. Steven Leath, President of Iowa State University, indicated that obtaining a college degree continues to be a worthy endeavor, and policy discussions must continue to focus on keeping tuition costs down. In addition, Dr. Leath said that institutions should provide better financial counseling and offer financial options. Institutions should be more creative in helping students find lower cost pathways to a college degree.
Thomas Snyder, President of Ivy Tech Community College, spoke to the various strategies his institution employs to keep students from shouldering tuition hikes. They include: capping the number of textbooks required for classes, simplifying the enrollment and registration process, streamlining administrative offices and ramping up degree acceleration programs that fast-track degree completion. Dr. Jim Murtaugh, President of Tallahassee Community College, testified that academic advising and planning is the key to helping students persist and take the correct courses to obtain their degree. Dr. Carol Twigg, President and CEO of the National Center for Academic Transformation, stated that the primary driver of rising college costs is declining state appropriations for higher education. She suggested that colleges pursue course redesigns using technology so that they can achieve quality enhancements as well as cost savings.
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On July 18, 2012, the House Subcommittee on Higher Education and Workforce Training held a hearing titled “Keeping College Within Reach: Exploring State Efforts to Curb Costs” that brought together witnesses to discuss various state initiatives to address rising college costs. According to an overview of the hearing issued by the Subcommittee, National Association of State Budget Officers Executive Director Scott Pattison stated that state funding for higher education will be “different from the past” due to budget restrictions.
Dr. Joe May, President of the Louisiana Community and Technical College System, discussed the newly adopted articulation agreements, which make it easier for students to transfer credits between state institutions. Indiana Commissioner for Higher Education Teresa Lubbers described her state’s pay for performance, where additional state resources will be provided to high-performing postsecondary institutions with the best retention, completion, and placement rates. Common themes included the need to provide states with flexibility, the importance of statewide transfer programs, and the importance of not only access but completion.
Chairman Virginia Foxx (R-NC) and Ranking Member Ruben Hinojosa (D-TX) offered similar closing comments, and pointed out that it is not about the money but about where the money is invested. Money should produce better results.
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On July 30, 2012, the Consumer Financial Protection Bureau (CFPB) issued its second semi-annual report covering the period January 1, 2012 – June 30, 2012. According to CFPB Director Richard Cordray, “We are working to root out unfair, deceptive, or abusive practices. Consumers deserve to be treated fairly, and to have someone stand on their side when they are not.” The report highlights the CFPB’s efforts to understand consumer challenges in obtaining financial products and services through the use of roundtables, town hall meetings, field hearings, and the “Tell Your Story” feature on the CFPB website.
With regard to student loans, the report states that consumers are concerned about “the inability to refinance, consolidate, or pay their private student loans.” Student loan complaints are summarized by the following categories:
- Repaying your loan (fees, billing, deferment, forbearance, fraud, credit reporting) – 65%;
- Problems when you are unable to pay (default, debt collection, bankruptcy) – 28%;
- Getting a loan (confusing terms, rates, denial, confusing advertising or marketing, sales tactics or pressure, financial aid services, recruiting) – 4%; and
- Other – 3%.
The report addresses the CFPB’s Know Before You Owe: Student Loans project, which helps students and families make informed decisions about the level of debt associated with choosing a college. The Bureau continues to offer the Student Debt Repayment Assistant tool for graduates to help them better understand the existing programs to manage their student debt repayment options. In cooperation with the Department of Education, the Bureau developed a financial aid comparison tool, the Shopping Sheet, which is required to be used by schools to provide award information to recipients of military and veterans education benefits and which may be used by schools for all financial aid recipients. In March 2012, the Bureau began accepting complaints from the public on student loans and the CFPB’s Student Loan Ombudsman works with Consumer Response, the Department of Education, and institutions of higher education, lenders, and others to assist borrowers with complaints on private education loans. Most recently, the CFPB and the Department of Education issued its report to Congress on Private Education Loans.
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On July 20, 2012, the Consumer Financial Protection Bureau (CFPB) delivered its report on “Private Student Loans” to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor and Pensions, the House Committee on Financial Services, and the House Committee on Education and the Workforce. In the Report, the CFPB and the Department of Education seek to highlight key attributes of the private student loan marketplace, as well as consumer protection issues, which policymakers may wish to address.
Here are some of the findings:
In the last decade, private student loan origination rapidly grew and then precipitously declined. In 2001, the private student loan market was less than $5 billion. In 2008, it grew to over $20 billion, and in 2011, it contracted to less than $6 billion.
Many borrowers might not have clearly understood the differences between federal and private student loans. Many private student loan borrowers did not exhaust their federal Stafford Loan limits before borrowing private student loans.
Some groups of borrowers used private student loans more than others. In 2008, 42 percent of undergraduates at for-profit colleges took out a private student loan, while only 14 percent of all undergraduates took out a private student loan.
Many borrowers are struggling to repay their private loans. In 2009, the unemployment rate for private student loan borrowers who started school in the 2003-2004 academic year was 16 percent. Ten percent of recent graduates of four-year colleges have monthly payments for all education loans in excess of 25 percent of their income. Cumulative defaults on private education loans exceed $8 billion and represent over 850,000 distinct loans.
Richard Cordray, the Director of the CFPB, said that: “Our findings reveal that students were yet another group of consumers that were hurt by the boom and bust of the crisis…Too many student loan borrowers are struggling to pay off private student loans that they did not understand and cannot afford. Moving forward, we must do our best to leave the next generation in a better place than we are today, rather than buried under a mountain of debt.” Mr. Cordray recommended that Congress enhance the role of schools in the private student loan origination process, examine the appropriateness of the bankruptcy discharge standard, and modernize the regulatory framework to ensure a competitive, level-playing field where consumers fully understand their debt obligations and lenders have appropriate data to make underwriting decisions.
Arne Duncan, Secretary of Education, said that: “Subprime-style lending went to college and now students are paying the price…We still have some work to ensure that students who take out private student loans have the same kinds of protections offered by federal loans. In the meantime, if you have to take out a loan to pay for college, federal student aid should be your first option.” Secretary Duncan recommended that Congress require institutions of higher education and private education lenders work proactively to protect and inform private student loan borrowers, work with the Department of Education and the CFPB to determine how to afford greater flexibility and relief to private student loan borrowers who are experiencing financial distress, and amend the definition of private education loan to exclude other Federal education loans, such as Health and Human Service (HHS) student loans made under Title VII and Title VIII.
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On July 23, 2012, the Department of Education formally unveiled the final version of the Obama Administration’s model financial aid “Shopping Sheet,” which is an award letter to help students understand the type and amount of aid that they qualify for and to help students and families easily compare aid packages offered by different institutions.
The Shopping Sheet specifically aims to help students better understand the amount of grants and scholarships they would receive from a given institution, and the amount of loans an institution recommends a student take out. While use of the Shopping Sheet is not mandatory, President Obama and Secretary of Education Arne Duncan have called on college presidents to voluntarily adopt the tool as part of their financial aid awards for the 2013-2014 award year, and indicated that its standard format should be considered a best practice in helping students to compare costs across different colleges. At a White House summit in May, several university presidents agreed to endorse the Shopping Sheet. Additionally, schools that agree to the Principles of Excellence for Serving Military and Veterans will be agreeing to use the Shopping Sheet form for the 2013-2014 award year.
Secretary of Education Duncan said in an open letter to college presidents, “Today, I want to challenge every college and university in the country to hold themselves accountable to higher standards of transparency as one step toward our collective goal of meeting the President’s 2020 goal and producing the highest percentage of college graduates in the world.” He went on to say that “Having easy-to-understand information will help students and families make smarter decisions about higher education. We don’t want students and families taking on more debt than they need. We don’t want them defaulting. Worst of all, we don’t want them deciding they cannot afford college.”
The Shopping Sheet is the product of extensive feedback from the public, consumer advocacy groups, and leaders from the higher education community. Since posting a draft version of the Shopping Sheet for public comment in October of 2011, the Administration and the CFPB received and reviewed over 1,000 comments before releasing the final version. Among the changes made from the draft version of the form are revisions of the monthly loan payment estimates with more nuanced information about median debt levels and loan costs and the removal of retention rate information and information that compares costs with other institutions.
The Dear Colleague Letter released by the department can be found here.
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On July 13, 2012, the Department of Education issued a Dear Colleague Letter providing guidance to postsecondary educational institutions on implementation of Section 2 of the Executive Order 13607 – Establishing Principles of Excellence for Educational Institutions Serving Service Members, Veterans, Spouses, and other Family Members. Specifically, the Dear Colleague letter provides guidance on the use of a standardized cost form, federal aid information, aggressive and fraudulent recruiting, accreditation, readmission, refund, individual education plans, and academic and financial counseling point(s) of contact.
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On July 27, 2012, the Department of Education issued further guidance on the program integrity regulations addressing State authorization. The Dear Colleague Letter (GEN-12-13) provides additional guidance on complying with the State authorization rules, but does not make any changes to the regulations. In Question and Answer #7, the Department stated:
“The Court of Appeals upheld the requirements intended to give greater substance to the concept of State authorization by sustaining the need for an institution to be authorized by name by an appropriate State agency and affirming that this agency must have a process for reviewing and acting upon student complaints, as established in 600.9(a). The Court vacated on procedural grounds the requirement intended to clarify existing Department policy that State authorization extends to students receiving distance education in a State in which the institution is not physically located.
As a result, institutions must comply with the provisions found in 600.9(a). The Department will not enforce the requirements of 600.9(c), although institutions continue to be responsible for complying with all State laws as they relate to distance education.”
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On July 12, 2012, the Department of Education released a new online, interactive student loan management resource called the “Financial Awareness Counseling Tool,” which provides students with financial management basics such as information about their current loan debt and estimates for student loan debt levels after graduation.
The Financial Awareness Counseling Tool provides students with five interactive tutorials covering topics ranging from managing a budget to avoiding default. Students are able to access their individual loan history and receive personalized feedback that can help them better understand their financial obligations. It also allows college financial aid professionals to monitor a student’s progress in using the tool and provide assistance if necessary. Launch of the Financial Awareness Tool is part of the Department’s effort to support the Obama Administration’s goal to make college costs more transparent for education consumers.
“Managing student loan debt can be a difficult and confusing process for many borrowers. That’s why the Obama Administration has been working to unravel the mystery of college financing and arm students and parents with the information they need to make smart educational choices,” said Secretary of Education Arne Duncan.
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On July 20, 2012, the Department of Education announced a new streamlined website and several social media tools that will make it easier for students and families to navigate the financial aid process and make informed decisions about paying for college. The new website, along with the Financial Awareness Counseling Tool that was launched on July 12, 2012 (see article above), serves as the Department’s response to President Obama’s June 7, 2012 directive to enhance online and mobile resources for loan repayment options and debt management. StudentAid.gov is the first step in a multi-phase project to provide consumers with a one-stop website where they can access financial aid information, apply for federal aid, repay student loans, and navigate the college decision-making process.
In addition, the Department has revamped its Federal Student Aid social media sites, including Facebook, YouTube, and Twitter, to provide more options for students to learn about student aid. Secretary of State Arne Duncan said: “We want to give students and parents the information they need to make smart and affordable education choices. A big part of that is educating people on the most affordable way to finance a college education: federal student aid…This new, easy-to-understand website will help families better navigate the process of planning and paying for college. And it will help students manage their loan payments after they graduate so they avoid falling into default.”
More information is available from the Department of Education's website.
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On July 17, 2012, the Department of Education released a Notice of Proposed Rulemaking (NPRM) in the Federal Register on Income Contingent Repayment (ICR), Income-Based Repayment (IBR), and Total and Permanent Disability (TPD). According to the NPRM, the rules would implement a new Income Contingent Repayment plan in the Direct Loan program based on the President’s “Pay as You Earn” repayment initiative, incorporate recent statutory changes made to the Income Based Repayment plan in the Direct Loan and FFEL programs by the Student Aid and Financial Responsibility Act (SAFRA), and streamline and add clarity to the total and permanent disability discharge process for borrowers in the Title IV loan programs.
Comments on the NPRM are due by August 16, 2012 and final regulations are expected to be published on or before November 1, 2012 with a July 1, 2013 effective date. A second NPRM, which is not expected to be published until later this summer because of the large document (it is 400 plus pages), will include the remaining loan issues. Final regulations are not anticipated until early 2013, which would have a July 1, 2014 effective date.
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On July 12, 2012, the Department of Education published a Notice in the Federal Register that announced for the 2013-2014 award year the FAFSA information subject to, and acceptable for, verification.
The items required to be verified include the same items identified for the 2012-2013 award year. In addition, the institution may be asked to verify:
- The student’s high school diploma or recognized equivalent of a high school diploma; and
- The student’s identity and obtain a statement from the student that the Title IV funds will only be used for the 2013-2014 Cost of Attendance.
The Department of Education also issued a Dear College Letter (GEN-12-11) outlining the items and acceptable verification documents.
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On July 17, 2012, the Department of Education published a Notice of Submission to OMB in the Federal Register regarding a Pell Grant Experiments Study. The Pell Grant Experiments evaluation is a two-part, five-year demonstration study sponsored by the Department of Education that focuses on the effects of expanded access to Pell Grants on students’ employment and earnings. The primary outcome of interest is (1) The employment status and earnings of students who participate in the study while secondary outcomes include (2) students’ experiences with and participation in education and training, (3) measures of student debt and financial aid, and (4) the extent of participation in job search assistance services.
The study consists of two experiments, each of which will examine the impact of a single change to the Pell Grant eligibility criteria. The first experiment will relax the prohibition on receipt of Pell Grants by students with a bachelors’ degree. The second experiment will reduce the minimum duration and intensity levels of programs that Pell Grant recipients must participate in from 15 weeks with 600 minimum clock hours to eight weeks with 150 minimum clock hours.
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On August 2, 2012, the National Consumer Law Center (NCLC) released its report, “The Student Loan Default Trap – Why Borrowers Default and What Can Be Done.” The report is based on industry studies and an NCLC survey of 40 clients who have defaulted on their student loans. According to the NCLC survey of borrowers in default, 80 percent were unemployed, 85 percent receive Public Assistance, almost 65 percent attended one or more for-profit schools, 47 percent completed their education, and for 69 percent neither of the borrowers’ parents completed higher education. The report also found that 24 percent of those surveyed revealed a general lack of knowledge about default.
The report looked at pre- and post-default programs and attempted to gauge their effectiveness. It confirmed the Administration’s belief that default aversion efforts that inform borrowers of their choices are critical to reducing defaults. However, current efforts reach only a small number of delinquent borrowers. With respect to post-default programs, the report noted that rehabilitation and consolidation are the two main options to help borrowers break out of default. Many view rehabilitation as the superior option as it requires borrowers to make a series of payments before escaping from default status.
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