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On March 27, 2012, a letter was sent to the Government Accountability Office (GAO) Comptroller General Gene Dodaro from several House and Senate Republicans expressing concern about the Department of Education’s inefficiencies in the implementation and management of the Direct Loan program. The inefficiencies were “creating headaches for students and putting borrowers’ credit at risk.”
The letter signed by House Education and the Workforce Chairman John Kline (R-MN), Subcommittee on Higher Education and Workplace Training Chairman Virginia Foxx (R-NC), Representative Judy Bigger (R-IL), Senate Health, Education, Labor, and Pensions (HELP) Ranking Member Mike Enzi (R-WY), Senator Lamar Alexander (R-TN) and Senator Tom Coburn (R-OK) said:
“[W]e are increasingly concerned the department may not be appropriately managing student debt particularly when helping borrowers who have defaulted on their loan payments.
Under the Direct Loan program, borrowers who are in default can “rehabilitate” their loan and return their credit to good standing by making a certain number of consecutive payments on their loans. Unfortunately, we recently heard from a borrower who claims to have made the required amount of on-time payments in an effort to rehabilitate his loan, but, due to the department’s delays, is unable to remove the black mark of default from his credit report and take advantage of better repayment options.
As part of our oversight responsibilities, it is important for us to understand challenges with the Direct Loan program. Bureaucratic problems within the department that are creating additional issues for borrowers could have serious implications not only for the Direct Loan program, but also for the financial stability of all student loan borrowers.”
The Members have asked the GAO to provide them with additional information regarding direct lending by the government in order to address problems that borrowers may be facing with the new bureaucratic procedures.
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On March 20, 2012, the Senate Judiciary Subcommittee on Administrative Oversight and the Courts held a hearing entitled, “The Looming Student Debt Crisis: Providing Fairness for Struggling Students” that featured a diverse panel of witnesses who addressed the topic of student loan debt and bankruptcy dischargeability, particularly in the private student loan market. Senator Dick Durbin (D-IL) stated in his opening remarks that the nation “faces a serious problem with student debt.”
Senator Durbin noted that by some reports student loan debt outstanding totaled $1 trillion last year, outpacing credit card debt. He also noted that data from the Federal Reserve Bank of New York showed that student loan debt averaged $23,300 last year. Senator Durbin commented that private student loans are a “far riskier way to pay for education,” as they come with higher interest rates and origination fees, while offering few repayment options. Senator Durbin is the sponsor of the Fairness for Struggling Students Act of 2011 (S. 1102), legislation that would permit private education loans to be considered dischargeable debt in bankruptcy proceedings. In order to assist student borrowers, Senator Durbin urged support of S. 1102, and encouraged the Consumer Financial Protection Bureau (CFPB) to continue its work on private student loans. Much of the hearing focused on for-profit schools rather than private student loans.
One of the witnesses, Lisa Madigan, Attorney General for the State of Illinois, spoke about recent actions her Office has taken against certain for-profit institutions in her state. She argued that due to the 90/10 provision, some for-profit institutions have expanded high interest rate institutional loans. Jack Conway, Attorney General for the Commonwealth of Kentucky, described his Office’s investigations into private lending at for-profit institutions. He testified that private student loan debt has tripled in the last three years.
G. Marcus Cole, Professor of Law at Stanford University, testified that student loans are fundamentally different from other borrowing because students are borrowing against their future income, unlike other consumer borrowing, which takes into account current ability to pay. Neal P. McCluskey, Associate Director, Center for Educational Freedom at the Cato Institute, made the argument against bankruptcy protections for private student loans because it misses the root of the college borrowing problem, which is that there is too much financial aid. He testified that colleges raise prices if they know students have the ability to pay through access to low interest federal aid. Deanne Loonin with the National Consumer Law Center testified that she has found when counseling students on loan debt, that student borrowers tend to shy away from considering bankruptcy due to the credit implications.
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On March 29, 2012, Senators Richard Durbin (D-IL) and Tom Harkin (D-IA) introduced a bill that would amend both the Higher Education Act and the Truth in Lending Act to strengthen requirements related to private education loans and to correct some technical flaws in the definition of private education loans. Because of the concern that many students who take out private education loans do not have full information about federal student aid, the bill would require full certification by schools of private education loans, a step promoted by many members of the higher education community. The Know Before You Owe Act of 2012 would require lenders to obtain the following information from the institution directly:
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The student’s enrollment status and cost of attendance; and
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The difference between the student’s cost of attendance and estimated financial assistance.
The institution would have 15 business days to provide either the certification or notification that it has received the certification request but needs additional time. Within the 15 business days, the school would have to determine whether the student has applied for and exhausted federal Title IV assistance and inform the student accordingly. Absent either of these actions, the lender could issue funds to the student without the school’s certification, but would have to report to the Consumer Financial Protection Bureau (CFPB) and notify the school of the amount. The CFPB would be given the authority to regulate this notification.
The bill would direct the CFPB to issue regulations within one year of enactment to become effective six months of issuance. Within two years of the issuance of regulations, the CFPB and ED would have to report jointly to Congress on compliance by both the institutions and lenders as well as the degree to which specific institutions utilize certifications to effectively encourage the exhaustion of Federal student loans and lowering private education loan debt.
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On March 8, 2012, Senator James Webb (D-VA), sponsor of the Post-9/11 G.I. Bill, introduced a bipartisan bill, the Military and Veterans’ Educational Reform Act of 2012 (S. 2179), cosponsored by Senators Tom Harkin (D-IA), Tom Carper (D-DE), Claire McCaskill (D-MO), and Scott Brown (R-MA). The bill would make critical reforms to protect the integrity of the Post-9/11 G.I. Bill and Department of Defense Tuition Assistance Programs. It would require schools participating in educational assistance programs through both the Department of Veterans Affairs and Department of Defense to meet the same educational standards currently required for other Title IV federal funding.
Senator Webb said in a press release of March 8, 2012:
“Some for-profit institutions are providing our students a great education, but with the significant federal dollars being spent, we owe it to the taxpayers and our veterans to carefully monitor and provide adequate oversight.” Senator Webb continued: “Growing concerns of abuses by some educational institutions put at risk the Post-9/11 G.I. Bill, itself, and the invaluable benefits it provides our veterans. Abuses of the World War II G.I. Bill, especially among for-profit vocational schools, led to follow-on restrictions of that program and then to even fewer benefits for those who served in Korea and Vietnam. Fixing these problems is not taking anything away from our veterans, it is preserving the greatest G.I. Bill our veterans and military members have ever had.”
Some of the provisions included in S. 2179 would:
- Require that all institutions receiving Tuition Assistance and Post-9/11 G.I. Bill funding be “Title IV” eligible. This would require accreditation from a Department of Education-approved accrediting agency, would require new schools to have an undergraduate withdrawal rate of not more than 33 percent, and would require mandated reviews by the Department of Education if a school has high dropout or default rates;
- Require State Approving Agencies to conduct outreach activities to veterans and members of the Armed Forces, to conduct audits of schools, and to report those findings to the Secretary of Veterans Affairs;
- Require the Secretary of Veterans Affairs and the Secretary of Defense to develop a centralized complaints process to report instances of misrepresentation, fraud, waste, and abuse, and other complaints against educational institutions;
- Require that all schools with 20 or more students enrolled in VA and/or DoD educational assistance programs provide support services to veteran and military students;
- Require the Secretary of Veterans Affairs and the Department of Defense to conduct a compliance review of an educational institution whenever certain quality measures are triggered;
- Increase the transparency of educational institutions by requiring them to disclose graduation rates, default rates, and other critical information to potential students to ensure they can choose the best academic program for their needs; and
- Increase interagency coordination by requiring the Department of Veterans Affairs, the Department of Defense, and the Department of Education to improve information sharing.
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On March 20, 2012, Senator Frank Lautenberg (D-NJ) and five of his Senate colleagues have introduced bipartisan legislation aimed at providing every veteran who receives educational assistance from the Department of Veterans Affairs (VA) with the counseling services needed to make informed decisions about their education. The legislation is co-sponsored by Senators Marco Rubio (R-FL), Scott Brown (R-MA), Barbara Mikulski (D-MD), Tom Harkin (D-IA), and Jeff Merkley (D-OR). Senator Lautenberg said “If we don’t follow through on the promise of the G.I. Bill and ensure our veterans are succeeding in school, then its benefits are greatly diminished.” He went on to say that “The G.I. Bill can only be fully effective if veterans have the tools needed to choose the school that is right for them. Today’s veterans have made tremendous sacrifices for our country and they deserve a quality education in gratitude for their service.”
The G.I. Educational Freedom Act of 2012 would provide comprehensive educational counseling to all veterans eligible for educational benefits. In addition, the bill would establish a tracking system at the VA for veterans to report instances of waste, fraud, and abuse at their schools to ensure veterans are receiving quality education. The bill is supported by the Veterans of Foreign Wars (VFW), the Iraq and Afghanistan Veterans of America (IAVA), and the Military Officers Association of America (MOAA).
On March 27, 2012, Senator Patty Murray, Chairman of the Senate Veterans’ Affairs Committee, along with Senators Daniel Akaka (D-HI) and Mark Begich (D-AK) introduced the GI Bill Consumer Awareness Act of 2012 (or the GI Benefit Watchdog Bill), which will give service members and veterans using the GI Bill and other VA education benefits access to information that would help them make informed decisions about the schools they attend. The bill would also require the VA and DoD to develop a joint policy to curb aggressive and misleading marketing aimed at service members and veterans using the GI Bill.
A similar bill was introduced by Congressman Gus Bilirakis (R-FL), the Improving Transparency of Educational Opportunities for Veterans Act of 2012 (H.R. 4057), which would improve outreach and transparency to veterans and service members pursuing a postsecondary education, across all sectors. H.R. 4057 was introduced in response to concerns raised in a letter from a broad coalition of veterans and postsecondary education organizations, sent to House Veterans’ Affairs (VA) Committee Chairman Jeff Miller (R-FL) and Ranking Member Bob Filner (D-CA). The House Veterans Affairs Committee, Subcommittee on Economic Opportunity held a hearing on H.R. 4057 on March 8, 2012.
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On March 29, 2012, House of Representatives passed the Republican leadership’s FY 2013 Budget Resolution that had been introduced by Budget Committee Chairman Paul Ryan (D-WI). The Budget Resolution passed by a vote of 228-191. No Democrats backed the bill and 10 Republicans opposed it. Mandatory and discretionary funding for the Department of Education would be cut by $9.5 billion in FY 2013. The following provides some of the details as related to higher education:
- Eliminates the in-school interest subsidy for undergraduate students;
- Eliminates the student eligibility expansions enacted by the College Cost Reduction and Access Act (CCRAA), including automatic-zero eligibility;
- Proposes an undefined maximum income cap for Pell Grant eligibility;
- Eliminates Pell Grant eligibility for less-than-half-time students;
- Eliminates the automatic increases in the maximum Pell Grant award above $5,550;
- Eliminates the Pell Grant and Campus-Based Administrative Cost Allowances (ACA);
- Repeals the mandatory funding for College Access Challenge Grants ($150 million in FY 2013); and
- Allows interest rates on subsidized Stafford loans to double on July 1, 2012 from 3.4% to 6.8%.
The budget proposal is largely symbolic because the Senate Democratic leadership has stated that they will not debate a budget resolution this year and will instead stick to the debt-deal reached last August to set spending caps for FY 2013.
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On March 21, 2012, the Department of Education issued Electronic Announcement #33 announcing the upcoming release of the Gainful Employment (GE) Informational Rates and associated enhancements to the National Student Loan Data System (NSLDS) Professional Access website. These enhancements will provide for the display of GE rates and the ability to request the associated back-up data that supports the rates.
In the spring 2012, the Department will release the FY 2011 GE Informational Rates, which uses the GE data submitted to the Department this past fall. Institutions will receive for each of its GE programs Informational Rates for the Debt-to-Earnings Annual Rate, Debt-to-Earnings Discretionary Rate, and Repayment Rate, as well as Loan Medians for Disclosures. Institutions will receive three medians for each of the institution’s GE Programs: Title IV loan debt, private loan debt, and institutional financing debt.
The FY 2011 GE Informational Rates are for informational purposes only and will not result in any sanctions or other adverse action. However, the GE Informational Rates will be made public.
The Electronic Announcement is available at: http://www.ifap.ed.gov/eannouncements/032112GEEA33.html
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On March 15, 2012, the Department of Education announced in a Federal Register Notice that October 15, 2012 is the deadline for the reporting of gainful employment (GE) program information for students who were enrolled during the 2011-2012 award year, between July 1, 2011 and June 30, 2012.
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On March 21, 2012, Rohit Chopra, the Student Loan Ombudsman with the Consumer Financial Protection Bureau (CFPB), was reported in a number of news outlets including The Wall Street Journal, Business Week, and Bloomberg News to have announced at the Consumer Bankers Association Conference, that student debt reached $1 trillion outstanding several months ago. The figure may be a preview of what is expected to be in a report on the private student loan market that the CFPB will issue this summer.
Mr. Chopra said: “Our initial findings on the size of the private student loan market are sobering. When we add in the outstanding debt in the federal student loan program, it appears that outstanding student loan debt hit the trillion dollars mark several months ago – much larger than estimates from other recent reports.” He went on to say that “Unlike other consumer credit products, student debt keeps growing at a steady clip. Students borrowed $117 billion in just federal student loans last year. And students continue to borrow private student loans, which lack the income-based repayment and deferment options of federal student loans. If current trends continue, there will be consequences not just for young people, but for all of us.”
The CFPB reported that the debt is rising for several reasons, including a surge in Americans going to college in recent years to avoid the weak labor market. In addition, tuition increases, which many colleges say are needed to offset large cuts in state spending, have many students taking out larger loans.
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The Department of Defense (DoD) has been working with many stakeholders over the past several months to revise the Memorandum of Understanding (MOU) so as to maintain its principles while clarifying language seen as problematic to the higher education community. The requirement to sign and submit the MOU to DoD in order to participate in the Tuition Assistance Program will be delayed again until sometime this summer 2012. Until that time, the DoD will maintain the status quo with Tuition Assistance benefits.
The Department of Defense issued a notice on March 30, 2012 on its website indicating that DoD has been collaborating with its partners, including the Senate Health, Education, Labor and Pensions (HELP) Committee, American Council on Education, National Association of Institutions for Military Education Services, and numerous Veteran Service Organizations and Military Service Organizations, and as stated by Robert L. Gordon, III, Deputy Assistant Secretary of Defense: “As a result, we have a stronger, clearer Memorandum.” One of the key guidelines would require schools to have in place a policy that bans aggressive marketing of military students. Another guideline would require the disclosure of all policies, including admissions, transfer of credit, residency requirements, as well as program costs, prior to enrolling any service member.
The notice can be found on the DoD website.
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On March 28, 2012, the Department of Veterans Affairs issued the revised Yellow Ribbon Agreement. The GI Bill website at provides the revised Yellow Ribbon Agreement with updated instructions, letter from the Director of Education Service, and checklist. The agreements must be returned no later than May 15, 2012.
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