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On February 26, 2013, Secretary of Education Arne Duncan held a conference call to address the impact on education programs as a result of the impending March 1, 2013 sequestration cuts. He called the cuts a “manufactured crisis” that were supposed to be too painful to implement and were enacted in order to force Congress to work together on a plan to reduce this country’s deficit. Secretary Duncan said that he was increasingly pessimistic that a solution could be found in time to avoid cuts. As a result, Secretary Duncan said that about 70,000 students could lose access to grants and work-study programs on the higher education side of the budget. He urged stakeholders to contact their congressional delegation to convey how they stand to be impacted by the roughly $85 billion in mandatory cuts.
Other representatives from the Department of Education who were on the call provided more specifics but there was no representative on the call from the Office of Postsecondary Education or from Federal Student Aid.
It should be noted that Pell Grants and Veterans Benefits are exempt from sequestration.
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On March 1, 2013, the Department of Education issued guidance on the impact of sequestration on the Title IV student financial aid programs. The budget cuts that go into effect are as follows:
- For both the 2012-2013 and the 2013-2014 award years, the annual Pell Grant awards will remain the same since the Pell Grant Program was exempt from sequestration;
- The allocations for FWS and FSEOG Programs will remain the same for the 2012-2013 award year; however, for the 2013-2014 award year, both the FWS and FSEOG Programs will be reduced by $86 million. The reduced amounts will be reflected in the institutional allocations that will be released in the Spring 2013;
- The annual and aggregate loan limits are not changed for the Direct Loan Program; however, the loan fees are increased for first disbursements of Direct Loans made after the sequester takes effect:
- Loan fees for Direct Subsidized and Unsubsidized Loans will increase from 1 percent to 1.05 percent; and
- Loan fees for Direct PLUS Loans will increase from 4 percent to 4.20 percent;
- Iraq – Afghanistan Service Grants are subject to the across-the-board cuts under the sequestration law. More guidance will be provided for the first disbursement made after the sequester goes into effect; and
- The TEACH Grant Program is also subject to the across-the-board budget cuts.
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On March 6, 2013, the House approved, by a vote of 267-151, a six-month Continuing Resolution that will prevent a government shutdown and continue government operations until the end of the fiscal year on September 30, 2013. H.R. 933 will extend funding for all government agencies at last year’s funding levels (FY 2012), except for the Departments of Defense and Veterans Affairs, which will receive additional funding. However, the funding with the CR is subject to sequestration of about $982 billion, the level required by the sequestration order.
Chairman of the House Appropriations Committee Hal Rogers (R-KY) said: “The legislation will avoid a government shutdown on March 27th, prioritize DoD and Veterans programs, and allow the Pentagon some leeway to do its best with the funding it has.”
H.R. 933 will now go to the Senate for their consideration.
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On February 12, 2013, in the State of the Union address, President Obama outlined a series of proposals to address the rising costs of college and making colleges more accountable.
“Now, even with better high schools, most young people will need some higher education. It’s a simple fact that the more education you have, the more likely you are to have a job and work your way into the middle class. But, today, skyrocketing costs price too many young people out of a higher education, or saddle them with unsustainable debt. Through tax credits, grants, and better loans, we’ve made college more affordable for millions of students and families over the last few years, but taxpayers can’t keep on subsidizing higher and higher costs for higher education. Colleges must do their part to keep costs down, and it’s our job to make sure they do. So, tonight, I ask Congress to change the Higher Education Act so affordability and value are included in determining which colleges receive certain types of federal aid. And, tomorrow, my Administration will release a new College Scorecard that students and parents can use to compare schools based on simple criteria: where you can get the most bang for your educational buck.”
The day after the State of the Union address, the White House released an interactive College Scorecard, which will supply students and families the critical information they need to make informed decisions about where to enroll for higher education. The College Scorecard, which is part of the President’s continued efforts to hold colleges accountable for cost, value, and quality, includes five basic pieces of data about an institution: net price, graduation rates, loan default rates, student loan debt and earnings potential. Some of the data is currently available from the College Navigator site, but some of the information is not yet available. It does not currently have information on student loan debt and earnings potential. The College Scorecard is also an interactive tool so students and families can tailor the indicators based on their individual needs, including location, size, campus setting, and degree and major programs.
The White House is advocating the merits of the College Scorecard and little focus is on the Net Price Calculator, which was included in the Higher Education Opportunity Act of 2008 (HEOA). Using the Net Price Calculator, students can identify their likely cost of attending different institutions and can examine their alternatives by going to the colleges’ websites. However, studies have shown that Net Price Calculators are not easy for prospective students and their parents to find, use, and compare. One reason is that many colleges post their Net Price Calculators in obscure web pages, according to a report issued by The Institute for College Access and Success (TICAS) in October 2012. The HEOA did not create a centralized system based on the individualized net price concept and did not compel institutions to adopt a specific Net Price Calculator. Thus, there are a dozen different calculator types with hundreds of variations. For more information, please go to .
The day after the State of the Union address, the White House also released a white paper titled, “The President’s Plan for a Strong Middle Class & Strong America,” which calls for “major changes to the criteria accreditors use to evaluate colleges, asking Congress to either require accreditors to take college prices and educational value into account or to create an alternative system based on ‘performance and results.’” According to the white paper, “The President will call on Congress to consider value, affordability, and student outcomes in making determinations about which colleges and universities receive access to federal student aid, either by incorporating measures of value and affordability into the existing accreditation system; or by establishing a new, alternative system of accreditation that would provide pathways for higher education models and colleges to receive Federal student aid based on performance and results.”
Unfortunately, neither the State of the Union address nor the white paper contains many details. What is not clear is whether either the White House or the Department of Education has a plan for an alternative to accreditation. It was reported in The Chronicle of Higher Education that Judith S. Eaton, President of the Council for Higher Education Accreditation (CHEA), said that the President’s proposals to overhaul accreditation or to create a new system were completely unexpected and a concern. Earlier this year, the National Advisory Committee on Institutional Quality and Integrity (NACIQI) recommended some changes in the accreditation system, including more of a focus on student outcomes, such as graduation rates, job placements, and salaries, although a minority of NACIQI members proposed more significant reforms, including separating the accreditation process from eligibility for Title IV student financial aid.
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Senator Marco Rubio (R-FL) provided the Republican response to the President’s State of the Union address. While he advocated a smaller role for government and criticized the concept that Washington should “tax more, spend more and borrow more,” Senator Rubio was in agreement with the President with regard to higher education. Senator Rubio acknowledged that he finished school owing over $100,000 in student loans and only recently had paid off his student loans. The Senator asserted that “we must give students more information on the costs and benefits of the student loans they’re taking out.”
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On February 28, 2013, Senators Frank R. Lautenberg (D-NJ) and Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee, introduced S. 406, Students First Act, a bill to strengthen the Department of Education’s oversight of institutions of higher education. The bill is also co-sponsored by Senators Richard Durbin (D-IL) and John D. Rockefeller (D-WV). The press release said that the Senators believe that “the Department of Education does not adequately police and deter violations of federal law.” The press release went on to state that existing program reviews do not examine institutions that are “at-risk” of failing to comply with Department of Education requirements. The Department does not adequately sanction institutions that violate the requirements to continue to participate in federal student aid programs.
S. 406 would create triggers that require Department of Education program reviews. Sanctions would be strengthened and executives of institutions that receive sanctions would be held personally responsible. The press release offered some of the details of the bill that include:
- Strengthening oversight of colleges and universities:
- Requires the Department to conduct program reviews of institutions that are engaging in the most risky behavior, including engaging in serial forbearance and default rate manipulation, spending more than 20 percent of their revenue on recruiting and marketing, and deriving more than 85 percent of their revenue from federal student aid sources;
- Directs the Department to prioritize additional program reviews based on criteria, such as default rate, proportion of federal student aid revenue, increases in enrollment, student complaints, graduation rates, financial health, and profit margins; and
- Requires institutions to disclose to prospective students when and why they have been subject to a mandatory review and when they have knowingly and willfully, or with gross negligence violated federal student aid requirements.
- Enhancing existing procedures for program reviews:
- Dictates that all reviews shall assess the misuse of federal funds, incentive compensation, misrepresentation, graduation rates, student complaints, and feedback from faculty and staff as well as financial capability, administrative capability, and program integrity;
- Ensures that program review personnel receive appropriate training; and
- Ensures that final program review results are shared with the appropriate federal and state entities including accrediting agencies.
- Creating mandatory penalties against institutions that violate federal student aid provisions:
- Revokes eligibility from institutions that participate in incentive compensation, misrepresentation, or violate program integrity regulations;
- Imposes financial penalties on institutions whose eligibility has been revoked and increases fines for other Title IV violations; and
- Holds executives of schools personally responsible.
- Providing relief for students who have attended sanctioned institutions by using funds collected from penalties to provide relief to students.
- Enhancing data collection and complaint tracking.
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On February 11, 2013, Republican members of the House Committee on Education and the Workforce sent a letter to President Obama urging a fiscally responsible, long-term solution to the Stafford Loan interest rate problem. “We cannot continue kicking the can down the road, creating confusion and uncertainty for student loan borrowers,” Chairman John Kline (R-MN) said.
In 2012, Congress approved a proposal to delay for one year a scheduled interest rate increase on subsidized Stafford Loans to undergraduate students. Unless Congress takes action again, the interest rate will increase from 3.4 percent to 6.8 percent on June 30, 2013.
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On February 13, 2013, the National Association of Student Financial Aid Administrators (NASFAA) released a white paper entitled, “Reimagining Financial Aid to Improve Student Access and Outcomes,” that addresses issues that should be considered as we approach the reauthorization of the Higher Education Act. The white paper examined the value of institutional and student “skin in the game”; student loan reform; streamlining and improving consumer information; and rethinking entitlement and professional judgment.
To address severe funding and efficiency programs, NASFAA recommended:
- Create a “Super Pell” to incentivize students to enroll in more credit hours;
- Use a portion of campus-based funds to incentivize schools to create an environment that fosters better-than-predicted student outcomes;
- Use a “Student Loan Eligibility Index” that would introduce minimal underwriting standards on federal loans to shield academically-unprepared students form loan indebtedness;
- Implement an automatic Income-Based Repayment plan for all borrowers;
- Make an early funding commitment to high schools through a Pell Promise to increase college-going rates and student outcomes;
- Provide predictive wage information before students enroll to decrease indebtedness and improve student outcomes;
- Provide schools with the authority to limit borrowing for groups of students while still allowing – on a case-by-case basis – students to borrow up to the federal annual loan limit.
The white paper was financed through a grant from the Bill & Melinda Gates Foundation represented emerging policy agreements among many policy groups, which is to provide better consumer information and to automatically place borrowers in income-based repayment plans.
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On February 27, 2013, the National Association of Student Financial Aid Administrators’ (NASFAA) Task Force on Student Loan Indebtedness released recommendations for controlling student loan over-borrowing. The eight recommendations include:
- Allowing institutional authority to set loan limits for certain borrowers;
- Rethinking the current structure of loan subsidies;
- Implementing a “variable, fixed” interest rate based on annual market rate;
- Separating the Grad PLUS and Parent PLUS loan programs and tighten underwriting standards for Parent PLUS loans;
- Creating a universal loan portal for students to be able to easily access information about their loans;
- Standardizing loan servicing policies and procedures;
- Shifting traditional entrance and exit counseling toward the Department of Education’s financial awareness counseling tool; and
- Revisiting institutional requirements for private lender lists.
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David Bergeron, the Acting Assistant Secretary for Postsecondary Education, will resign in March 2013 to assume a position with another organization. Mr. Bergeron has worked for the Department of Education for almost 35 years. He has been serving as the Acting Assistant Secretary when the position was vacated by Eduardo Ochoa last May. No official notice has been made to date.
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On March 5, 2013, the Department of Education announced new release dates for the draft cohort default rates. In February, 2013, the Department issued an electronic announcement announcing that it was delaying the release of the draft cohort default rates to all eligible schools, guaranty agencies, and lenders. The Department now plans to issue the cohort default rates as follows:
- On March 18, 2013, ED will release the FY 2011 2-year draft cohort default rates; and
- On March 25, 2013, ED will release the FY 2010 3-year draft cohort default rates.
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On February 27, 2013, the Department of Education issued a Dear Colleague letter (GEN-13-07) providing guidance pertaining to the Net Price Calculator requirement. As required by section 132 of the Higher Education Act, institutions must post on their website a Net Price Calculator that is designed to help current and prospective students, families, and other consumers estimate a student’s individual net price at that institution based on what students in similar circumstances paid in a previous year. Institutions must develop their own Net Price Calculator or use the template developed by the Department of Education.
Net Price Calculators are published on the College Navigator web site and, and for degree-granting institutions, on the College Scorecard released by the White House.
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On February 21, 2013, the Consumer Financial Protection Bureau (CFPB) published a notice in the Federal Register seeking suggestions about how to increase the availability of affordable repayment plans for private student loan borrowers. Comments are due by April 8, 2013.
This notice follows the release of two reports from the CFPB. The first report submitted to Congress on July 19, 2012, by both the Director of the CFPB and Secretary of Education Arne Duncan, found that the amount of private student loans that were in default exceeded $8 billion at the end of 2011, with even more in delinquency. While federal student loans offer protections, such as income-based repayment options for borrowers with a partial financial hardship, private student loans do not offer similar modified repayment options. The difference in the treatment of the loans is seen as a key factor in the high default rate for private education loans.
The second report, which was released on October 16, 2012, by the CFPB’s Ombudsman, analyzed complaints and other feedback received from private student loan borrowers and found that the many of the private student loan borrowers found that it was difficult to negotiate repayment with lenders and servicers during times of financial difficulty. Included in the report was a recommendation that the policymakers identify options to spur the availability of loan modification and refinancing options for student loan borrowers. As a result, the notice of February 21, 2013 seeks information on options to increase the level of affordable repayment options for pre-default and post-default borrowers in distress who wish to repay their loans but may be lacking near-term ability to service their obligations.
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