Would It Be Enough? Negotiators Seek Consensus during Final Work Period

Last week, negotiators serving on the Institutional and Programmatic Eligibility Committee convened for their third and final week-long work period as part of the U.S. Department of Education’s (ED) negotiated rulemaking process.

Committee members continued work on a set of revised accountability regulations, including the gainful employment rule, closing the 90/10 loophole, and strengthening financial responsibility and administrative capability for institutions of higher education. These proposals reflected input from negotiators over the last two months of negotiations. (A summary of the first work session can be found here, and the second here. An overview of the issues under consideration can be found here).

During this final work period, negotiators took consensus votes on each proposal. Consensus required zero dissenting votes across representatives from each constituency, including the Department’s negotiator. The committee reached consensus on two issues—ability to benefit and closing the 90/10 loophole—and failed to reach consensus on the remaining five issues.

Below, we provide a quick summary of where each issue stood at the end of final negotiations.

Gainful Employment (GE). After initial discussion in February’s work period of adding an earnings threshold metric to the debt-to-earnings ratio on which the 2014 GE rule was based, ED proposed an earnings metric set at the median income in a program’s state for high school graduates as an accountability threshold. Programs would have to clear both debt-to-earnings and demonstrate completers could earn more than early-career high school graduates in their fields. (Programs with more than half their students out of state would be benchmarked to the national high school graduate median earnings for 25-34 year-olds.)

Negotiators failed to reach consensus, as representatives from every institutional sector and financial aid administrators dissented from the proposed regulations. They also claimed to have concerns with limited data and time to consider the potential effects of the proposed wage threshold on program eligibility.

Dissenters voiced concerns with calculating small program rates for GE programs with fewer than 30 students, the lack of a transitional rate or “grace” period that would consider the impact of the COVID-19 pandemic on students, and that an earnings threshold is a new concept for schools.

Finally, dissenting negotiators raised the issue of an appeals process for programs like cosmetology schools. These negotiators asserted that graduates often under-report their income because of high levels of cash-based and self-employment-based earnings, including tips, and that an appeals process affords schools the opportunity to address the issue of under-reported income. ED representatives offered to take these critiques under consideration in developing the final proposed rule.

90/10 Loophole Closure. Negotiators reached consensus on the regulatory language detailing requirements for-profit colleges must meet to ensure at least 10 percent of their revenues come from non-federal sources.This step is a significant milestone in finalizing the closure of the 90/10 loophole that led to predatory recruitment of military service members, veterans, and their families.

Negotiators reached consensus through compromise and revised language by ED representatives and other committee members. Representatives from the for-profit sector agreed to support the suggested text subject to ED revising language to reflect that the federal components of revenues from Title IV-ineligible programs will count toward the 90 percent side of the equation. In turn, ED agreed to include language in the preamble that Income Share Agreements (ISAs) are considered private loans–addressing concerns from negotiators representing state attorneys general and military service members and veterans.

Financial Responsibility for Institutions. The financial responsibility discussion focused on defining events that would prompt warnings of financial problems that could indicate the likelihood of an institution’s precipitous closure. ED would use these triggers–in addition to the financial composite score currently in use–to determine if an institution was financially responsible. If a trigger is set off, an institution could be moved to provisional certification, have to provide a letter of credit to ED, or lose access to Title IV completely.

ED held firm in response to requests from the for-profit sector negotiator that it not consider two discretionary triggers to count as a mandatory trigger. ED also retained language creating a mandatory trigger if an institution received 10 percent or more of its revenue from programs failing the GE rule. The committee came close to consensus on this issue; the only no vote came from the for-profit negotiator.

Change of Ownership and Control. Two changes made to this issue paper led to significant debate and pushback from negotiators, for different reasons. The private non-profit negotiator objected to language intended to clarify the definition of a non-profit. It stated that, to be considered a non-profit institution, the institution would not enter into any kind of revenue-sharing agreements. The objection hinged on the reality that many non-profit institutions enter into various profit-sharing agreements. One example provided was food services, although it is likely that ED’s primary concern has more to do with the proliferation of profit-sharing agreements made with online program managers (OPMs).

Several consumer advocate negotiators objected to the qualifying language that ED had added regarding provisions meant to limit continued financial arrangements with owners of for-profit institutions that convert to non-profit status. The new language allowed for continued financial arrangements, such as leasing facilities space, providing the deals were at fair market value. Multiple negotiators pointed out that there are very few comparisons available to help determine fair market value, and these changes would provide safe harbor for problematic business arrangements. All of the negotiators representing student and consumer interests urged the department to return to the language in the session two paper. ED’s negotiator gave the only vote approving this proposal.

Standards of Administrative Capability. Last session, many of the student and consumer advocates pressed ED to craft language that would hold institutions accountable in providing clear information to students about cost and aid, adequate career counseling, and not engaging in misrepresentation. ED’s proposal this session included stronger financial aid counseling that would require institutions to be clearer about any deadlines for aid eligibility, as well as transparency surrounding cost and aid.

There continued to be some agreement at the table that the career services counseling requirements were too vague to uphold. One negotiator urged ED to focus on developing text that addresses the most concerning area of abuse: those institutions that, in order to encourage enrollment, make career promises that they cannot deliver.

As with the last session, the for-profit negotiator took issue with the misrepresentation provisions, wanting a clearer definition and maintaining that only “significant” misrepresentation should be a flag. The committee ultimately did not reach consensus on this topic, with the for-profit representative being the sole dissenting vote over provisions related to career services, withdrawal rates, and the definition of misrepresentation.

Certification Procedures. After significant pushback from the for-profit negotiator during the second work period, ED removed language allowing the Department to place an institution into provisional certification status for repeated audit findings of noncompliance. However, ED added language allowing the Department to move a school to provisional certification if it was deemed at-risk of closing. The community college and for-profits negotiators raised concerns about limiting Title IV funds for programs that require more training hours than the national average for licensure in a particular field. They noted that states, not institutions, control the hours needed for licensure.

Negotiators had a vigorous exchange about regulations governing access to Title IV aid for programs in pre-accreditation status. According to the for-profits and accrediting agency negotiators, the proposed rule not allowing for pre-accreditation status would make starting new programs very difficult since full accreditation is possible only after a program has started graduating students.

Student and consumer advocate negotiators succeeded in getting ED to consider transcript withholding even though it was not on the original agenda. ED added a provision barring institutions from withholding transcripts for institutional debts if the debt resulted from an error made by the institution. Many negotiators did not consider this provision strong enough. However, ED officials held the position that the Department can regulate transcript holds only where they relate to the direct administration of Title IV aid and cannot enact the sweeping ban advocate negotiators sought.

Ability to Benefit. One of the biggest sticking points last session was that ED’s language did not go far enough in ensuring that eligible career pathways programs are evidence-based. The negotiator representing state regulators and loan servicers who flagged this as an issue applauded changes that ED made between sessions that will prevent confusion on what constitutes an eligible program.

At the beginning of the week, the community college negotiators were concerned that the 95 percent success rate threshold requirements set by ED were too high, so consensus was not reached. At the end of the week, however, negotiators revisited the proposal with a lower threshold of 85 percent. With this change, the committee reached consensus.

What Comes Next?

Based on input from these working sessions, later this year the Department will publish in the Federal Register proposed regulatory language, known as the Notice of Proposed Rulemaking (NPRM). For the two issues where negotiators reached consensus, the rule will be published as agreed upon.

For the remaining issues that did not reach consensus, ED may use regulatory language developed during the negotiations as the basis for its NPRM or develop new regulatory language for all or a portion of its NPRM, without necessarily adhering to what committee members discussed during negotiations.

In the meantime, interested parties and stakeholders will meet to share their perspectives on proposed rules with representatives from the Office of Management and Budget (OMB), who play a significant role in evaluating the effectiveness of any program, policy, or procedure.

Once the NPRM is published in the Federal Register, ED will have to respond to substantive issues raised by stakeholders and publish final regulatory text by November 1, 2022 in order for these regulations to take effect on or before July 1, 2023.

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