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On January 1, 2013, President Obama signed into law the American Taxpayer Relief Act (H.R. 8), which is P.L. 112-240. Earlier in the day, the House voted 257 to 167 to approve the compromise package avoiding the fiscal cliff that would extend the current tax rate for most Americans, delay automatic sequester cuts for two months and extend the popular tax breaks. The Senate had approved the compromise package in the early morning by a vote of 89 to 8.
Among the many provisions, the American Taxpayer Relief Act calls for:
- Permanently extending current tax policy for income up to $400,000 for individual filers and $450,000 for married filing jointly;
- Raising taxes on capital gains and dividends for income over $400,000 for individual filers and $450,000 for married filing jointly up to 20 percent from 15 percent;
- Permanently indexing the Alternative Minimum Tax (AMT) for inflation;
- Turning off sequester for two months paid for with a reduction in the discretionary spending cap for 2013 and 2014, and expanding eligibility for Roth conversion;
- Allowing temporary payroll tax cut to expire;
- Keeping federal debt limit at its current limit of $16.394 trillion; and
- Extending unemployment insurance for long term jobless and the “doc fix” for one year.
The Education Incentives included in P.L. 112-240 are as follows:
- Temporarily extending the American Opportunity Tax Credit (AOTC) for five additional years through 2017. (Created under the ARRA, the AOTC is available for up to $2,500 of the cost of tuition and related expenses paid during the taxable year.);
- Permanently extending the student loan interest deduction. (Certain individuals who have paid interest on qualified education loans may claim an above-the-line deduction for such interest expenses up to $2,500. Students and families may claim the interest deduction beyond the 60 months.);
- Permanently extending the Coverdell Accounts. (The Coverdell Education Savings Accounts are tax-exempt savings accounts used to pay the higher education expenses of a designated beneficiary. The annual contribution is increased from $500 to $2,000.);
- Permanently extending the exclusion for employer-provided educational assistance. (The employee may exclude from gross income up to $5,250 for income and employment tax purposes per year of employer-provided education assistance.); and
- Permanently extending from income amounts received under certain scholarship programs. (Scholarships for qualified tuition and related expenses are excludable from income.)
A fact sheet detailing the provisions is available online.
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On December 12, 2012, eight Democratic Senators (Frank Lautenberg (NJ), Tom Harkin (IA), Richard Durbin (IL), John D. Rockefeller IV (WV), Richard Blumenthal (CT), Al Franken (WI), Jack Reed (RI), and Barbara Boxer (CA)) urged the Department of Education to investigate the tactics used by some for-profit colleges to lower their cohort default rate and to “take swift action to stop their use and abuse.” In a letter sent to Secretary of Education Arne Duncan, the Senators identified two practices used by for-profit colleges that are described as manipulation tactics that are “harmful to students and taxpayers.” One of the tactics was to encourage or harass borrowers to delay payments through deferments or forbearances on their loans in order to reduce default rates. Another tactic used is to merge the Postsecondary Education Identification (OPE-ID) to avoid sanctions, such as loss of federal financial aid eligibility.
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On December 17, 2012, Congressman Tom Petri (R-WI) introduced the Earnings Contingent Education Loans Act of 2012 (ExCel), H.R. 6674, which would replace and restructure the Direct Loan Program. The new loans would be unsubsidized and would require income contingent repayment (ICR) for all borrowers through a system of payroll withholdings from earnings through the Internal Revenue Service (IRS), similar to federal tax withholdings. This approach would shift federal benefits from the front end through subsidized loans to the back end by providing relief for borrowers who need it based on their circumstances during repayment.
Some of the provisions in the bill include:
- The new loan program replaces Subsidized Stafford, Unsubsidized Stafford, and GradPLUS loans;
- For undergraduates borrowing up to the current loan limit, the interest rate would be based on the 10-year Treasury rate plus 3 percent. For graduate students, the interest rate would be based on the 10-year Treasury rate plus 4.1 percent. The rates would be fixed rates;
- The repayment plan would be 15 percent of discretionary income and a cap would be placed on the amount of interest that could accrue over the life of the loan equal to 50 percent of the total loan amount when the borrower enters repayment. There would be no cap on the number of years of repayment and no loan forgiveness.
According to Congressman Petri, “This approach protects borrowers from the financial ruin that comes with student loan default. And it protects the taxpayers who currently have to spend a lot to collect defaulted loans.”
H.R. 6674 is not likely to progress through Congress any time soon, but is likely to be debated during the reauthorization of the Higher Education Act.
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On September 11, 2012, the House passed the Improving Transparency of Education Opportunities for Veterans Act of 2012, H.R. 4057, a bill sponsored by Congressman Gus Bilirakis (R-FL). H.R. 4057 was steered through the Senate by Senator Patty Murray (D-WA), and the Senate passed an amended version of H.R. 4057 by unanimous consent on December 19, 2012. It was then returned to the House for reconsideration, and the amended bill was passed by the House on December 30, 2012. The President signed the bill into law on January 10, 2013.
The bill’s objective is to improve outreach and transparency to veterans and members of the Armed Forces through the provision of information on institutions of higher learning by the Department of Veterans Affairs. Each institution would be required to disclose the following information for the most recent academic year:
- Whether the institution is public, private nonprofit, or proprietary for-profit;
- The name of the accrediting agency that accredits the institution;
- Contact information on the State approving agency;
- Whether the institution participates in the Title IV programs;
- The institution’s tuition and fees;
- The median loan debt from Federal student loans;
- The cohort default rate;
- The total enrollment, graduation rate, and retention rate;
- Whether the institution provides students with technical support, academic counseling, and job placement; and
- The transfer credit policies.
H.R. 4057 has received broad support from veterans’ groups, for-profit institutions, as well as the traditional higher education community.
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On December 7, 2012, the Department of Education published a notice in the Federal Register that provides for an early implementation of the new income-contingent repayment plan based on the President’s “Pay As You Earn” repayment initiative on December 21, 2012. On November 1, 2012, the Department issued final regulations for the “Pay As You Earn” repayment plan. In the preamble of the final regulations, the Department announced its intent to establish the “Pay As You Earn” repayment plan as soon as possible.
In a press release of December 21, 2012, the Department announced that borrowers can now take advantage of the “Pay As You Earn” student loan repayment plan. Secretary of Education Arne Duncan said: “We know many recent graduates are worried about repaying their student loans as our economy continues to recover, and now it’s easier than ever for student borrowers to lower monthly payments and stay on track.”
The new repayment plan, which is similar to the current income-based repayment plan (IBR), will accept enrollees who were new borrowers on or after October 1, 2007 and who took out a loan on or after October 1, 2011. Under “Pay As You Earn,” payments are capped at 10 percent of discretionary income and loan forgiveness occurs after 20 years of payments. Under the IBR program, payments are capped at 15 percent and loans are forgiven after 25 years of payments. However, in 2010, Congress modified the IBR plan to 10 percent of discretionary income and loan forgiveness after 20 years of payments with the enactment of the Student Aid and Fiscal Responsibility Act included in the Health Care and Reconciliation Act of 2010 (P.L. 11-152). These changes will go into effect on July 1, 2014.
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On January 8, 2013, the U.S. General Services Administration with the Office of Management and Budget’s Office of Information and Regulatory Affairs compiled a semiannual Unified Agenda of Federal Regulatory and Deregulatory Actions, which provides uniform reporting of data on regulatory and deregulatory activities under development through the federal government. The most recent notice as published in the Federal Register includes three initiatives of the Department of Education relating to federal student assistance:
- The NPRM for the second package of the loan program rules negotiated in early 2012, reflecting changes made in P.L. 111-152, entitled “Transitioning from the FFEL Program to the Direct Loan Program and Loan Rehabilitation under the FFEL, Direct Loan, and Perkins Loan Programs,” and is scheduled for March 2013;
- The final rule reflecting the elimination of student eligibility for two Pell Grants in an award year in accordance with P.L. 112-10, and is scheduled for February 2013 (interim final regulations were published on May 2, 2012); and
- An NPRM implementing changes made to implement P.L. 112-14 that make new borrowers, beginning in July 2013, ineligible to receive additional subsidized loans if the period during which the borrower receives such loans exceeds 150 percent of the published length of the borrower’s educational program and cutting off the interest subsidy of previous loans once the limit is reached, and is scheduled for June 2013.
The proposed regulatory initiative referenced in the Department’s May 1, 2012 notice of intent to establish a negotiated rulemaking committee to develop regulations to prevent fraud (including the use of debit cards and other banking mechanisms for disbursing financial aid) and to streamline the campus-based programs is not mentioned.
The Agenda Rule List can be found online by visiting the Office of Information and Regulatory Affairs website.
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On November 15, 2012, the National Student Clearinghouse Research Center (Clearinghouse) released the results of its latest Signature Report that demonstrate a dramatic increase in the college completion rate when nontraditional student pathways are included. Including the nontraditional students in the completion rate increases the rate from 42 percent to 54 percent. The findings also show that over 75 percent of full-time students complete college within six years, which is higher than the conclusions from previous studies. The study follows college enrollment behaviors starting in the fall 2006 through the spring 2012, focusing on first-time degree-seeking students. The authors wrote that incorporating nontraditional student pathways into the calculation of completers may ensure that institutions are held “accountable for the success outcomes not only of their full-time students but also of their part-time students as well as students who change their enrollment status during their postsecondary career.”
The key findings of the Signature Report are:
- Within six years, 12 percent of the first-time students completed a degree or certificate at an institution other than the one where the students started, which increases the overall completion rate from 42 percent to 54 percent;
- More than 20 percent of the students who completed a degree or certificate did so at an institution other than the one where they started. The authors noted that these students with successful outcomes are invisible to traditional graduation rate calculations;
- Out of the full starting cohort, 3.5 percent received a degree within six years in a state different from the state where they started, representing 6.5 percent of all completions;
- Overall, 15 percent of two-year starters completed a four-year institution within six years, and almost two-thirds of those did so without first obtaining a two-year degree. Community colleges do not receive any credit for the success of these students under traditional graduation rate measures.
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On December 13, 2012, the Department of Veterans Affairs (VA) sent a letter with suggestions to colleges and universities as to how they can assist the VA to improve the timely processing of Post-9/11 GI Bill benefits. General Allison A. Hickey, VA Under Secretary for Benefits, extended “sincere appreciation” to the institutions that have provided informal loans of money and/or books to veterans who experience benefit payment delays. The letter includes a two-page enclosure with suggestions for how institutions can assist in the process and provided a special VA Education Call Center hotline dedicated to addressing questions or problems from School Certifying Officers (SCO).
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On December 17, 2012, the Consumer Financial Protection Bureau (CFPB) published the procedures it will use in examining private student lenders. The Student Lending Examination Procedures are an extension of the CFPB’s General Supervision and Examination Manual will be used as a field guide by CFPB examiners to ensure that private student lenders comply with federal consumer financial laws.
Examiners will be looking to verify that private student lenders are complying with the requirements of federal consumer financial law, including:
- Using accurate, nondiscriminatory advertising or marketing;
- Making appropriate disclosures;
- Providing borrowers with accurate account information; and
- Handling borrower inquiries and complaints.
The examination process will be an ongoing process of pre-examination scoping and review of information, data analysis, onsite examinations, and regular communication with supervised entities, as well as follow-up monitoring. When necessary, examiners will coordinate and work closely with the CFPB’s enforcement staff to take appropriate enforcement actions to address harm to consumers.
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On October 22, 2012, the Secretary of the Federal Trade Commission (FTC) sent a response to Senator Richard Durbin (D-IL) regarding for-profit colleges that engage in deceptive and abusive recruitment practices, including their use of third-party, online-marketing companies, or “lead generators” to mislead prospective students. Secretary of the Commission Donald S. Clark stated that the FTC shares his concerns and described multiple ways that the FTC is engaged in examining issues related to the for-profit education industry. As part of Executive Order 13607, the FTC is working with a task force, including the DoD, VA, ED, Justice, and the Consumer Financial Protection Bureau (CFPB), designed to look into for-profit industry practices. The Commission staff is actively reaching out to providers of marketing services in the for-profit education industry to better understand their practices and problems. Finally, the Secretary encouraged the Senator’s constituents to file a complaint at www.ftc.gov if they have fallen victim to any unscrupulous practices.
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On December 11, 2012, the National Center for Education Statistics (NCES) released a new report titled “Enrollment in Postsecondary Institutions, Fall 2011; Financial Statistics, Fiscal Year 2011; and Graduation Rates, Selected 2003-2004,” which includes preliminary data from the spring 2012 data collection of the Integrated Postsecondary Education Data System (IPEDS) on college enrollment, graduation rates, and student financial aid.
- With respect to the enrollment statistics, in fall 2011, Title IV institutions enrolled 18.6 million undergraduate students and 2.9 million graduate students;
- By extending the time students were tracked for program completion from within 100 percent of the normal time frame to within 200 percent of the normal time frame, graduation rates for undergraduate students who were full-time, first-time students in 2007 increased from 37 percent to 60 percent at 4-year institutions; from 21 percent to 37 percent at 2-year institutions; and from 46 percent to 69 percent at less than 2-year institutions;
- In fiscal year 2011, public four-year institutions and administrative offices received 19 percent of their revenues from tuition and fees, compared with 29 percent at private nonprofit entities and 90 percent at private for-profit entities.
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On December 11, 2012, the Federal Reserve Bank of New York released its report on Household Debt and Credit for the third quarter 2012. Overall consumer debt declined by $74 billion, continuing the downward trend since the peak in the third quarter of 2008. Delinquency rates for student loans increased significantly. The percentage of student loan balances in delinquency 90 days or more increased to 11.0 percent. A footnote in the report stated: “As explained in a recent blog post, these delinquency rates for student loans are likely to understate actual delinquency rates because almost half of these loans are currently in deferment or in grace periods and therefore not in the repayment cycle. This implies that among loans in the repayment cycle delinquency rates are roughly twice as high.”
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On December 18, 2012, the National Student Clearinghouse Research Center, the research arm of the National Student Loan Clearinghouse (“Clearinghouse”), released a report titled “Current Term Enrollment Estimates,” demonstrating that for fall 2012, college enrollment decreased by 1.8 percent from fall 2011, with the largest decreases taking place at four-year for-profit institutions (-7.2 percent) and two-year public institutions (-3.1 percent). The report provides enrollment estimates based on data submitted by December 1 of each year, with subtotals by institutional sector, enrollment intensity, age group, and gender. Future reports will also include breakdowns by student level (undergraduate vs. graduate/professional). Because colleges report student-level data to the Clearinghouse several times throughout the term, the Clearinghouse is able to provide immediate metrics on the current term.
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On January 4, 2013, Secretary of the Department of Veterans Affairs Eric K. Shinseki announced that the VA has approved a memorandum of agreement between the VA and the National Student Clearinghouse. The Student Veterans of America, an organization with 700 campus chapters around the United States, helped broker the agreement. The announcement was made at the National Conference of Student Veterans of American where Secretary Shinseki said that the best measurements of success are completion rates. In June 2011, the VA had asked institutions to begin voluntarily reporting graduation rates and program-specific rates.
According to an article of January 5, 2013 in The Chronicle of Higher Education, from June 2011 to December 2012, 2,600 institutions reported on 62,000 veterans who had graduated, as well as 4,800 who had completed nondegree training programs at vocational or technical skills. Under the new agreement, the VA will provide the National Student Clearinghouse with information on up to a million beneficiaries of the Post-9/11 GI Bill and the Montgomery GI Bill. The Clearinghouse will compare the date with its own to determine how many veterans hve graduated.
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On January 7, 2013, the Institute for Higher Education Policy (IHEP) issued a white paper titled, “Making Sense of the System: Financial Aid for the 21st-Century Student,” which outlines 13 federal policy recommendations for improving the financial aid system so that more students can attend and succeed in college. The paper, which is funded by the Gates Foundation, is one of several proposals on the topic of reimaging the financial aid delivery system. Some of the policy recommendations to improve the current financial aid systems include:
- Create a system of early financial aid “accounts” that can leverage family savings and public/private resources;
- Match family college savings for low-income households through public or employer dollars;
- Make the American Opportunity Tax Credit fully refundable so it may be utilized by low-income households, and create a pilot project for early delivery of the credit;
- Communicate potential financial aid awards in a statement based on IRS information that allows families to plan;
- Maintain the Pell Grant as the centerpiece of need-based aid, and make it an entitlement;
- Reform the SEOG program to provide institutions with money for “emergency” aid to students;
- Institute a system of loan forgiveness for on-time completion for Pell Grant recipients;
- Tie campus-based aid to student debt repayment levels and degrees awarded by institutions in addition to cohort default rates; and
- Make Income-Based Repayment the default option for student loan repayment.
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On January 8, 2013, the Sloan Consortium released its 2012 Survey on Online Learning, which found that the number of students taking at least one online course now surpasses 6.7 million. The tenth annual survey was a collaborative effort between the Babson Survey Research Group and the College Board. The number of students taking at least one online course represents an increase of 570,000 students over the previous year. The survey also found that more than 7 out of 10 public and for-profit colleges are now offering full academic programs online, which is far more than a decade ago. Nearly half of private nonprofit colleges are offering fully online programs, about double the number that were doing so in 2002.
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On January 9, 2013, the National Center for Education Statistics (NCES) released its “Projections of Education Statistics to 2012,” which demonstrates that postsecondary enrollment rose by 46 percent between 1996 and 2010, and is projected to increase another 15 percent by 2021. The analysis provides national-level data on enrollment, teachers, high school graduates, and expenditures at the elementary and secondary school level and enrollment and earned degrees at the postsecondary level for the past 14 years and projections to the year 2012.