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Following steady pressure from the White House, Republicans and Democrats on both sides of the aisle agreed to provide a one-year extension to the 3.4 percent interest rate on undergraduate Subsidized Stafford Loans, but they cannot agree on how to pay for it. If there is no legislation, as of July 1, 2012, the interest rate on undergraduate Subsidized Direct Loans will increase to 6.8 percent. The President pushed to prevent the scheduled increase in the interest rate in his Radio Address of April 20, 2012, stating that Americans now owe more in student loans than they do on their credit cards, with an average debt load of $25,000. “If Congress does not act, on July 1, interest rates on some student loans will double, with nearly seven and a half million students owing more on their loan repayments,” said President Obama. “That would be a tremendous blow and it’s completely preventable.” The extension of the 3.4 percent interest rate is estimated to cost $6 billion.
In 2007, the Democrats enacted the College Cost Reduction and Access Act (CCRAA) to reduce the burden of student loan debt. CCRAA reduced the fixed interest rates on newly originated undergraduate Subsidized Stafford Loans from 6.8 to 6 percent in 2008-2009, to 5.6 percent in 2009-2010, to 4.5 percent in 2010-2011, and to 3.4 percent 2011-2012. The phased-in cuts permitted Congress to provide some relief to the debt burden and remain budget neutral with the savings created by cuts to the lender subsidies.
On April 27, 2012, the House of Representatives narrowly approved, by a vote of 215 to 195, the Interest Rate Reduction Act (H.R. 4628), introduced by Congresswoman Judy Biggert (R-IL) on April 25, 2012, which would provide a one-year extension of the 3.4 percent interest rate. Under H.R. 4628, the extension would be paid for by eliminating the Prevention and Public Health Fund, a disease prevention fund created by the Affordable Health Care Act, which would provide $5.9 billion to pay for maintaining the interest rate of 3.4 percent. A total of $11.9 billion is allocated for the Fund under the health care reform law. The House-passed bill would use the remaining $6 billion in the Fund for deficit reduction.
John Kline (R-MN), Chairman of the House Education and the Workforce Committee, issued the following statement:
“No one wants to see interest rates on federal subsidized Stafford Loans double in a few short months. Unfortunately, President Obama and his Democrat allies in Congress have failed to put forward a responsible plan that can extend current rates without raising taxes or adding to the deficit. Once again, Democrats have demonstrated a failure of leadership by favoring short-term political gain over responsible long-term solutions.”
[It should be noted that the Democrats stated that the Republican plan will “hurt women and children.” President Obama supported slashing the Prevention and Public Health Fund twice in the past. First, the President proposed using $3.5 billion of the Fund to pay for his proposed American Jobs Act. Six months later, the President introduced his FY 2013 budget blueprint which included a $4 billion cut from the Fund.]
On April 25, 2012, Ranking Member of the House Education and the Workforce Committee George Miller (D-CA) introduced the Stop the Rate Hike Act of 2012, a bill that would provide a one-year extension of the 3.4 percent interest rate by eliminating tax breaks for the oil and gas industries.
On April 24, 2012, Senate Majority Leader Harry Reid (D-NV) introduced the Senate Democrat’s version of the Miller legislation. However, S. 2343, Stop the Student Loan Interest Rate Hike Act of 2012, would provide for the one-year extension of the 3.4 percent interest rate by making changes in the tax treatment of S corporations. Those with incomes over $250,000 would need to include, for the purpose of employment taxes, income received from an S Corporation or a limited partnership in a professional services business. S. 2343 was opposed by the U.S. Chamber of Commerce and other business groups. Senator Lamar Alexander (R-TN) introduced the Republican alternative, the Interest Rate Reduction Act (S. 2366), which is identical to H.R. 4628, the bill that passed the House. On May 8, 2012, Senate Republicans blocked final consideration of S. 2343 with a motion to end debate receiving only 52 votes, which is short of the 60 votes needed to proceed to a vote on passage. Majority Leader Harry Reid (D-NV) failed to agree to a scheduled revote on May 10, 2012.
Republicans and Democrats agree that the student loan interest rate should be held at 3.4 percent for another year, but they cannot come to consensus on how to cover the $6 billion cost. The Administration released a Statement of Administration Policy on May 7, 2012 supporting S. 2343. Ranking Member of the Senate Health, Education, Labor and Pensions Committee (HELP) Senator Mike Enzi (R-WY) asserted in a press release of May 7, 2012 that “[u]nfortunately, Democrats prefer to pick a fight rather than help students during these tough economic times.” Chairman of the HELP Committee Tom Harkin said that “Republicans are choosing to play politics with the financial well-being of millions of students.” A National Journal article of May 8, 2012 concluded the Democrats and Republicans are spending their time pointing fingers, calling each other’s proposals unreasonable. “Democrats accuse Republicans of squeezing the middle class to the point where they can’t afford college. Republicans accuse Democrats of pandering to voters with an easy complaint about the soaring cost of college.”
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On April 18, 2012, Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, and Senator Kay Hagan (D-NC) introduced a bill titled Protecting Financial Aid for Students and Taxpayers Act, which aims to maximize federal financial aid by prohibiting the use of Pell Grants, Federal loan programs, the Post-9/11 GI Bill, and other federal education program funds by colleges and universities for advertising, marketing, and recruitment purposes. This bill is similar to the current law that bans the use of federal funds for lobbying activities.
The legislation singles out for-profit institutions as targets, but the prohibition would apply to all institutions. The press release made when the bill was introduced stated: “While the majority of colleges and universities devote a small percentage of their revenue to advertising, marketing and recruiting, the HELP Committee investigation of the for-profit higher education industry led by Chairman Harkin has revealed that several colleges with high dropout rates and low graduation rates devoted as much as 30 percent of their revenue to advertising, marketing, and recruiting.”
The bill has been referred to the Senate HELP Committee.
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On April 27, 2012, President Obama and his wife Michelle visited Fort Stewart in Georgia where the President signed an Executive Order designed to limit deceptive and misleading practices by educational institutions that target veterans and service members and their families. While the President recognized that members of Congress have introduced legislation to address these issues, the Administration believes that it must do all it can do administratively to protect veterans and service members. The Executive Order will ensure that Federal military and veterans educational benefits programs are providing service members, veterans, spouses, and other family members with the information, support, and protections they deserve. The Executive Order will:
- Help Ensure that Military and Veteran Students Have the Information They Need: Colleges will have to provide more transparent information about their outcomes and financial aid options for students.
- Keep Bad Actors Off of Military Installations: The Department of Defense will be required to establish rules for how educational institutions will gain access to military installations in the first place so that service members are not targeted by institutions known for a history of poor behavior in recruiting.
- Crack Down on Improper Recruiting Practices: The VA will be directed to register the “GI Bill” so that external websites and programs are not deceptively and fraudulently marketing educational services and benefits to program beneficiaries.
- Provide Veterans with a Complaint System: The VA, DoD, and ED, in consultation with the CFPB and Department of Justice, will create a centralized complaint system for students receiving military and veterans’ benefits.
- Improve Support Services for Service Members and Veterans: Colleges participating in the military and veterans’ education benefit programs will be required to do more to meet the needs of military and veteran students by providing clear educational plans for students, academic and financial aid counseling services with staff that are familiar with the VA and DoD programs, and the ability of service members to more easily re-enroll and/or receive a refund if they must withdraw for service-related reasons.
- Provide Students with Better Data on Educational Institutions: The VA, DoD, and ED will be required to develop improved outcome measures, such as completion rates for veterans.
- Strengthen Enforcement of Student Protections: The VA and DoD will be required to strengthen the enforcement and compliance functions of the VA and DoD working in conjunction with ED, DoD and the CFPB to effectively act on complaints of improper activity.
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On May 11, 2012, the Department of Education issued Gainful Employment Electronic Announcement #35 - Gainful Employment Operations Manual Now Available, which announced the posting of the “Gainful Employment Operations Manual.” Included in the GE Operations Manual is the new Gainful Employment Backup Detail Report (GEDR) record layout.
On May 16, 2012, the Department will hold a Webinar on the topic “Gainful Employment: How to Read Your GE Back-up Detail Report.”
These activities are in preparation for the release of the FY 2011 GE Informational Rates. While the FY 2011 GE rates are for information only, the GE Informational Rates will be made public.
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On April 25, 2012, the Department of Education issued an electronic announcement providing notification that it will be publishing a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee to prepare proposed regulations for the Federal student aid programs. The proposed regulations will be designed to prevent fraud and streamline the campus-based programs. The first topic is in response to the report issued in September 2011 by the Office of Inspector General on the increase in fraud in distance education programs. The Department is considering regulatory changes related to the disbursement of Title IV funds, particularly electronic funds transfers (EFTs) made directly to a student’s bank account and available to the student via debit or another bank-provided card. With respect to the second topic, the Department is seeking proposals to improve the administration and efficiency of the campus-based programs while reducing regulatory burden. This is a continuation of the Department’s “Plan for Retrospective Analysis of Existing Regulations” which was issued in 2011.
The notice will announce two public hearings at which interested parties may suggest issues that should be considered. The public hearings will be held on May 23, 2012 in Phoenix, AZ and on May 31, 2012 in Washington, DC. To register to speak at a public hearing, send an e-mail to email@example.com.
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On April 11, 2012, the Department of Education released a plan titled “Action Plan for Improving Measures of Postsecondary Success,” which responds to a final report of the Committee on Measures of Student Success, that would broaden the graduation rate required to be reported by institutions of higher education to include part-time and other students who have previously attended postsecondary education. The Committee was created under the Higher Education Opportunity Act of 2008 to help two-year degree granting institutions comply with the law’s disclosure requirements and to develop alternative measures of student success that are comparable to completion and graduation rates. The 15-member Committee, appointed by Secretary Arne Duncan in June 2010, held five public meetings in 13 months and made several recommendations that are incorporated in the Action Plan, including having broader measures of student success implemented for four-year as well as two-year institutions.
The Action Plan also includes activities and grant opportunities to help schools and states strengthen their capacity to collect and disseminate quality data:
- Developing easy-to-use templates that institutions can use to meet the HEOA disclosure requirements.
- Making improved data collection and reporting a focus in its postsecondary initiatives and grant programs.
- Continuing to provide incentive funding to strengthen states’ data infrastructures through Statewide Longitudinal Data System grants.
- Convening a summit this year to highlight promising practices in the collection and dissemination of data related to student success.
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On April 13, 2012, the Consumer Financial Protection Bureau (CFPB) hosted a conference call that walked stakeholders through the features of the new financial aid comparison shopper web-based prototype tool launched by the CFPB on Wednesday, April 11, 2012. The comparison tool aims to provide students and their families with college cost information so that they can make informed decisions about which institution to attend.
The CFPB’s Private Student Loan Ombudsman Rohit Chopra led the conference call, explaining that the financial aid comparison shopper is the agency’s second in the series of “Know Before You Owe” projects on student loans. He described additional efforts in this area that include:
- A student debt repayment assistant;
- Student loan complaint system; and
- Ask CFPB function.
Mike Pierce, who is with the CFPB’s Office of Students, provided a step-by-step demonstration of key features of the comparison tool. He explained that the comparison tool has more than 7,500 schools and institutions in its database, including vocational schools and community, state, and private colleges and that the information given draws from publicly available data provided by government statistical agencies. Mr. Pierce noted that the comparison tool is unique as it provides a customizable search option so users can input such information as school, residency status, degree type, and specific financial aid information. The comparison tool also provides a breakdown of estimated debt upon degree completion, and lists of estimated monthly payment over 10 years.
Stakeholders on the call were asked to submit feedback on the comparison tool.
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A Washington, DC-based think-tank, Education Sector, released an analysis titled “Moving On Up; How Tuition Tax Breaks Increasingly Favor the Upper-Middle Class,” that proposes that the Federal government eliminate the American Opportunity Tax Credit and other Federal tuition, tax-break programs in order to increase Pell Grant funding. The report authored by Stephen Burd, Senior Policy Analyst of the Education Sector, examines higher education tax breaks that typically assist middle-income families.
According to the report, which used data from the Internal Revenue Service collected by the College Board, tuition tax credits have increasingly shifted away from the students and families who need them the most. Between 1999 and 2001, almost 83 percent of the higher education tax benefits went to families earning less than $75,000 per year. At the same time, no benefits went to those earning more than $100,000. However, in the last three tax years, families making between $100,000 and $180,000 received nearly 25% of the benefits.
Mr. Burd concluded: “At a time when the budget axe is falling on the Pell Grant program, providing billions of dollars in tax benefits to upper-middle income families who would send their children to college without the help is a luxury that the government can no longer afford.”
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On May 8, 2012, the National Consumer Law Center (NCLC) issued a report entitled “Borrowers on Hold: Student Loan Collection Systems Need Massive Improvement,” which asserts that the student loan debt collection process is fraught with abuse and error. In particular, the report contends that contractors do not maintain accessible complaint systems and some agencies ignore the Department’s minimum requirements for handling student grievances. The Department contracts with 23 private debt collection companies to collect overdue and unpaid student loans. The Department, which maintains its own database of complaints, recorded 1,406 complaints against its contractors during the past fiscal year, up from 966 in 2007. The number of complaints represents less than half of a percent of the 3.57 million accounts handled by the Department’s collectors last fiscal year. The Executive Summary stated that “[b]y contracting out its defaulted loan portfolio and failing to provide effective oversight, the Department has abdicated its responsibility to uphold the borrower protections in the Higher Education Act.”
NCLC offered five recommendations:
- The Department must create an accessible collect agency complaint system;
- The Department must change its commission system to incentivize quality service;
- The accessibility of the complaint system should be considered in evaluating agencies;
- There should be increased enforcement and oversight of the private collection agencies; and
- Private collection agencies must work to resolve complaints.
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