It's a stark contrast from how the negotiation process proceeded the last time. Then, each successive version of the rule instituted greater complexity in the name of carving out ways for programs still to pass. Now, the complexity is back, but all the tweaks and additions would definitively benefit students and hurt unsuccessful programs.
More accountability metrics means more chances to failThe first proposal released in August would have only judged programs based upon how they fared on two measures of the total amount of student loan payments made each year compared to the earnings of graduates. Though a good measure of accountability, some parties had argued that focusing only on the results for graduates made it possible for programs that have high dropout rates to avoid any sanctions.The new proposal addresses this issue by adding in two new measures: a program cohort default rate (pCDR) and a loan portfolio repayment rate.
The pCDR was announced at the first negotiation session in September and would function in a similar way to the existing institutional cohort default rate: a program is ineligible if its pCDR is more than 40 percent in one year or over 30 percent for three straight years. This means programs with extremely bad pCDRs lose eligibility immediately--the only accountability metric with a penalty that swift.
The repayment rate appeared only as a disclosure metric in the first version because of concerns about picking a threshold that could have sufficient legal justification before a court. It's now back as an accountability measure, but in a slightly different way. Instead of judging the percentage of borrowers or their loan dollars being repaid, it looks at whether the total amount of all outstanding principal owed on federal student loans at the end of an award year is larger or smaller than it was at the start of that year. If the total principal balance owed at the end of the year is larger than it was at the start, then the program fails the loan repayment test. If a program's loan balance is negatively amortized for three straight years, it loses eligibility.
This loan portfolio repayment rate idea is very similar to what I suggested last week in "Improving Gainful Employment," but knowing the timeframe for policy development, this is more a case of a "great minds think alike" scenario.
The table below summarizes what the different metrics and thresholds would be for the three accountability measures:
[table id=41 /]
Keep Them SeparatedThe final rule issued in 2011 had connected measures. That mean a program only had to pass at least one in order to avoid failing. The measures here are separate. In other words, if a program has an excessively high pCDR in one year, it is ineligible for federal student aid, regardless of how it performs on other measures. It's a much stronger statement that the institution bears the burden of proof of showing its success in multiple ways and is not being given as much of the benefit of the doubt.
The effect of adding two separate accountability measures, means that in any given year there are three different ways for a program to end up failing: the two debt-to-earnings tests, the pCDR, and the loan portfolio repayment rate. Or to put it another way, the program must now show its students have reasonable debt compared to their earnings, are not defaulting on their loans, and are repaying their loans, all to avoid failing.
Borrower ReliefBy far the largest change among consequences is a new provision that any program at risk of losing eligibility in the next year must provide relief to borrowers--a huge win for consumer advocates. The idea behind this provision is for programs to provide enough money to bring graduates' average debt down to the point where the program could pass the debt-to-earnings ratio. For example, if the current debt-to-earnings rate was 15 percent because average annual debt payments were $3,000 and average annual earnings were $20,000, then the school would have to provide funds to get the average debt payment down to $1,600. The actual cost of this change would vary depending on the difference between the average and median debt.
Programs would have three ways to provide this relief to borrowers. It could be done either through a letter of credit, a set aside agreement, in which the Secretary withholds the necessary amount of loan dollars from payments to the school while the school still credits the borrowers account like the dollars were received, or a pledge of the full faith and credit by the state. Schools can reduce the penalties here if it can show that currently enrolled students are borrowing less and it sets up the letter of credit or set-aside agreement. Programs that are at risk of losing eligibility on two or more measures must provide whichever form of relief is the largest.
While some elements of this proposal do look like a suggestion from Marc Jerome of Monroe College, a for-profit institution in New York, to allow failing programs to reduce debt levels, there's one important difference. In Jerome's proposal, this debt reduction would allow a program to pass. Here, the financial penalty only kicks in if the program fails and loses eligibility. This prevents the possibility of allowing a school to use a ponzi-scheme type method to keep passing, whereby it could reduce past students' debts using funds obtained by having current students take on more debt.
An Emphasis on Proper ApprovalThere's an inherent loophole in the current accreditation structure that governs participation in the federal student aid programs. An institution can be accredited, which allows all its eligible programs to receive federal aid. But a given program may lack the necessary programmatic accreditation that actually allows its graduates to sit for licensing tests. The best example of something like this would be going to a law school that's not accredited by the American Bar Association (ABA)--sure you can earn a law "degree" but you can't actually sit for the bar exam in the vast majority of states.
The new proposal tries to get at this issue in two ways. First, new programs hoping to join the aid programs will have to address whether they have any necessary programmatic or state approval in order to have graduates sit for any required tests. This should help ensure that new programs can't enter the aid programs and offer courses of study that are guaranteed to not lead to the promised jobs.
But more importantly, the proposed language would require all existing programs to attest that their graduates can sit for relevant tests as well. The proposal would have all institutions amend the document they use to participate in the aid programs to attest that all programs have necessary approval and accreditation and that students completing these programs will be able to get necessary licensing. It's an immediate check (due by September 1, 2015) that could potentially shut down large numbers of programs that had been taking students' money to enroll in programs where they could tell even from the beginning that ultimate licensure was impossible.
This provision does, however, rest on the Department's enforcement willingness to ensure that information on the participation agreement is accurate and take action when it is not.
New ProgramsThe Department's last proposal indicated it wanted a process for new programs and asked for ideas. This version includes language around what it would take for new programs to start up. Under this language, programs would have to apply for approval if they met any of the following conditions:
- Were previously ineligible or had been failing or in the zone and shut down voluntarily.
- The institution had a failing program in the same set of instructional codes within the past three years.
- The institution does not offer any programs in the same family of instructional codes.
Despite the strong reporting requirements, it's not clear how onerous the actual approval may be. The language suggests that any program that fills out the required application and doesn't have outstanding issues with the aid programs is approved. There's no provision that talks about whether the Secretary could deny an application based upon just its contents.
Rejected concessionsThe negotiators representing for-profit colleges had asked for a number of changes to the rule that would have made it very similar to the 2011 version. But very few of these have made it in. Among the requests not included:
- Eliminate the middle zone of performance on the deb-to-earnings rate (it's still there)
- Allow debt used in the debt-to-earnings rate to be capped at tuition and fees (any student debt of any sort is included)
- Calculate student loan payments on different timeframes depending on the type of credential, such as 10 years for a certificate and 15 years for a bachelor's degree (it's 10 years for everything)
- Make the repayment rate connected to the debt-to-earnings rates so that passing one could absolve a program's performance on the other (failing one means you fail regardless of the other)
- Give 180 days to complete the earnings survey instead of 60 (it's still 60 and only 45 to appeal)
- Require students only to be in school for 30 days instead of 60. (still 60)
- Provide a year of rates that are only available for informational purposes. (Not only do schools not get this extra year, they have to provide data on four cohorts of students from 2010 to 2014 within 30 days of the rule going into effect on July 1, 2015.)
But not all requests from the consumer group negotiators were honored either. Most notably is that negotiators requested that borrowers cite a program failing the gainful employment tests as grounds for not having to pay loans. The Department not only rejected that idea, but suggests specifically writing into the law that having a program fail cannot be grounds on which to argue that a loan should not be repaid.