Program Integrity Negotiated Rulemaking Session 2, Day 1

Today begins the second negotiated rulemaking session around Program Integrity at the U.S. Department of Education offices on K Street. Negotiators will meet for at least three full days from Wednesday through Friday. Periodic updates will appear below.

Opening Remarks:

The U.S. Department of Education will try to move through the first three issues on the agenda today—Clock to Credit Hour Conversion, State Authorization of Distance Education, and State Authorization of Foreign Locations of Domestic Institutions. Depending on how the conversation goes, the committee may also discuss Cash Management of Title IV aid this afternoon. There is draft regulatory language available for all issues here, except for the Definition of Adverse Credit for PLUS Loans. Instead of issuing draft language, the Department is furnishing the committee with data they requested on PLUS loans for discussion tomorrow and/or Friday. Because the committee will not receive draft regulatory language on PLUS loans until April’s meeting, there will be an added session just to discuss PLUS loans in May.

Issue 1: Clock to Credit Hour Conversion

According to the Department, the proposed change would eliminate some provisions and streamline regulatory requirements governing clock to credit hour conversions and minimize confusion among participating institutions. It will maintain the conversion formula to ensure that similar amounts of aid are paid to students for similar levels of academic work.

Commentary:

In the first session of the Program Integrity negotiated rulemaking, there was little debate on this issue due to its complex nature. I predicted back then that this issue would be the easiest to come to consensus on as no one on the committee had any substantive feedback to provide the Department. Now with the draft language in place and very little fanfare, the committee came to provisional consensus. But consensus won’t be reached as easily on many of the other issues being discussed, especially state authorization of distance education, cash management, and the definition of adverse credit for PLUS loan eligibility. It’s important to note that for consensus to be reached, the committee must come to consensus on all issues being discussed.

Issue 2: State Authorization of Distance Education

Among the numerous proposals from the Department on state authorization of distance education providers as a component of institutional eligibility, the provisions most discussed this morning were §600.9(c)(1) which provides the conditions under which an institution is considered to be legally authorized by a State to offer any postsecondary education through distance or correspondence education to students in a State in which the institution is not physically located or otherwise subject to State jurisdiction. According to the proposed language, an institution is considered to be legally authorized if 1) the State has a process to review and act in a timely manner on complaints about the institution where the final authority to resolve complaints and enforce applicable state law is with the state; and 2) the institution is legally authorized to offer distance/correspondence education in one of three ways: State-by-State, under a State-to-State Agreement, or under a state authorization reciprocity agreement.

Another hotly contested proposal is §600.9(c)(7) which provides that institutions exempted from State approval of distance/correspondence education occurring in that State based on accreditation, years in operation, or other comparable exemption would not be legally authorized.

Commentary:

Inside Higher Ed has a piece about state regulators’ concern over the Education Department’s new draft regulatory language proposal here.

The negotiators for the Department commented that states must take an active role in approving institutions and that exemption does not count as authorization. The state is expected to provide a level of oversight and to the Department, exempting does not provide sufficient oversight.

Of course, it didn’t take long for burden to enter into the conversation. Deborah Bushway of Capella University asked if the Department has considered how many states wouldn’t be able to meet this requirement at this time. According to Bushway, there are states where a legislative change would have to happen for this proposal to be implemented which would be very burdensome.

Joe Weglarz from Marist College commented that while we want to respect the consumer, he isn’t sure that there are widespread issues of people unable to make formal complaints. “If we’re not hearing a lot of complaints,” he said, “it could be an indicator that students can’t complain.” He then implied it could also be an indication that students don’t complain.

The negotiators representing consumer advocates, students, and legal assistance organizations commented that students should have avenues open to them to pursue complaints. Whitney Barkley from Mississippi Center for Justice said, “We want to ensure that stronger and consistent state laws are always enforceable.”

Another committee member provided anecdotes that the complaints students make to him are often about grades and financial aid, two areas that he has no authority over. What’s problematic is that anecdotes about the types of complaints received does not mean there aren’t serious complaints about institutional abuses. The consumer, student, and legal advocates have an important point that students should have multiple avenues available to them to complain, especially in instances where an institution made it seem like the courses they have taken would make them eligible for state licensure within the state they reside when that isn’t the case.

(Note: CFPB gave a presentation related to Issue 4: Cash Management at 1pm and then discussion continued on State Authorization of Distance Education. I was not in attendance and cannot provide commentary and analysis for what went on during this presentation and discussion.)

Issue 3: State Authorization of Foreign Locations for Domestic Institutions

The Department’s proposed regulatory change would establish authorization requirements for foreign locations by requiring 1) authorization from the foreign country unless the branch campus or additional location is located on a U.S. military base and is exempt from such authorization, 2) approval by the institution’s recognized accrediting agency, and 3) a process for student complaints in the State in which the main campus of the institution is located.

Commentary:

This is new water for the Department to regulate on under State Authorization. Whereas issue 2 is about State Authorization of Distance Education, this provision has nothing to do with distance education. According to the Department, what they are envisioning is a branch location or additional campus abroad that is part of the domestic school. Their thinking was that the domestic school is the main school for the additional foreign campus and is the logical place for a student to lodge any formal complaints. Similar to issue 3, the avenue with which students could lodge complaints would be with the branch/home institution and if the complaint isn’t resolved, the student could turn to the state in which the home institution resides.

Much of the discussion on this issue had to do with the difficulty of implementation depending on the type of institution. Marshall Hill from the National Council for State Authorization Reciprocity Agreements brought up this example: Texas A&M as a public university had to go through the Texas Higher Education Coordinating Board to get authorization for it’s campus in Doha, Qatar. But if a nonprofit institution in Texas wanted to open a campus in Doha, due to the governance structure in Texas, the state would not have a role in authorizing the branch campus. “Most states can’t act on branch campuses of nonprofit locations,” he explained.

David Swinton, president of Benedict College, commented that with this regulation, the Department isn’t recognizing the role of the accreditors in determining quality. In his opinion, the federal government shouldn’t be involved. “Why is there a wish [from the Department] for the states to do this authorization?” he questioned.

The Department’s response provided important clarification. Accrediting agencies are interested in complaints that relate to their standards and there are many complaints that can fall outside an accreditor’s scope. There needs to be a layer of consumer protection that enables students to go beyond accreditors and beyond their institution.

Issue 4: Cash Management

Cash Management governs the ways that an institution requests, maintains, disburses and otherwise manages title IV aid. The Department’s proposed changes are numerous and some of the changes were discussed during today’s session with the conversation continuing tomorrow. Today, the Department looked for feedback on the draft language that pertains to the allowable methods and procedures for institutions to pay students their federal student aid credit balances. Also discussed was a provision on prohibiting fund sweeps or other practices that can expose title IV to financial risk.

Commentary:

With time running out, the very first item for discussion was about sweep accounts. According to the Department, there have been instances where institutions use an overnight investment sweep account that enables the institution to earn interest, but it’s not a 100 percent safe vehicle. The goal of the Department is that federal student aid monies are reserved for students, not used as an investment for the institution. Bottom line is that they don’t want federal student aid dollars subject to risk of loss.

Additionally, under current rules there is no separate account requirement for title IV dollars. An institution, for example, could draw federal student aid entirely into their operating funds account. The Department thinks it’s better practice to keep it separate from other funds which is why their provisions call for title IV aid to be kept in a separate account.

Gloria Kobus, director of Student Accounts & University Receivables at Youngstown State University, remarked that to maintain a separate account for federal student aid funds seems like it would be very burdensome for the school just to maintain.

Brad Hardison, financial aid director at Santa Barbara City College, also brought up that the separate account provision would be difficult for some institutions that are part of a system. There may be unintended consequences and complications if the system or district is the one who disburses student aid funds.

The Department also brought up an important point to the institutional negotiators—any account with federal money is open to review so if they put title IV aid in their operating account, that account would be open for review. So it may also be in the institution’s interest to maintain a separate title IV account from which to sweep and disburse aid dollars.

To finish the day, the last provision discussed was §668.164 Disbursing Funds. The Department has clarified that the Secretary has the authority to pay aid to a recipient directly. This is potentially good news for consumer and student advocates who have called for a government debit card option for federal student aid balances due back to students. (Read more about concerns with distributing federal student aid through debit cards here.) It’s also a very interesting prospect that the Secretary has the ability to pay out title IV aid, not just refunds, to students.

David Swinton, president of Benedict, was immediately concerned. “The Secretary shouldn’t send the check directly to students,” he said, “They won’t pay their tuition bills.” He would rather the Department remain opaque about whether the Secretary has the authority to pay aid to a recipient directly, as he doesn’t like the precedent it could set.

But according to the Department, they are just being transparent about what the Secretary can do and has always been able to do. They won’t specify any conditions in the regulations, but they won’t tie the hands of the Secretary through the regulatory process.

Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School pushed back on Swinton’s comment saying, “Institutions can be irresponsible actors just like students can be. It’s federal student aid, not federal institutional aid.”

The Department had the last word: It’s federal money and there’s nothing saying we need to give it to the school to disburse it.

That in and of itself is new and noteworthy. If the money doesn’t need to go through a school to reach a student, there could be wide repercussions for the higher education landscape. We should learn more tomorrow.

Stay tuned for day two of session 2. Or you can attend in person 1990 K Street, N.W., Eighth Floor Conference Center, Washington, DC."