Washington News Brief

By Sharon H. Bob, Ph.D., Higher Education Specialist, Powers Pyles Sutter and Verville, PC

White House releases detailed budget request for FY 2018

On May 23, 2017, the White House released the President’s budget for FY 2018, which includes reductions in federal spending by $3.6 trillion over the next 10 years. With the exception of the Departments of Defense, Veterans Affairs, and Homeland Security, the FY 2018 budget proposal calls for cuts across all federal agencies. The proposal would reduce the Department of Education’s budget by $9.2 billion or 13.6 percent of the funding level approved by Congress earlier last month. The Department’s budget proposal would include the following:

• Pell Grants: The proposal would support a maximum Pell Grant of $5,920 and supports year-round Pell Grants allowing students to earn an additional 50 percent of their regular Pell Grant. The budget proposal would recall $3.9 billion of the Pell Grant surplus.
• FSEOG and FWS: The proposal would eliminate FSEOG calling the program duplicative of Pell Grants. Funding for FWS would be reduced from $1.1 billion to $554 million and FWS would be reformed to target FWS funds to undergraduate students.
• Perkins Loans: The budget proposal would not authorize any additional Perkins Loans after its current sunset of Sept. 30, 2017.
• Other Programs: The budget proposal requests $808 million for the TRIO programs down from $900 million in FY 2016 and $898 million in the FY 2017 Continuing Resolution. GEAR UP would receive $219 million, representing a decrease of $103 million.
• Student Loan: The budget projects that $104.8 billion in Direct Loans will be made in FY 2018 excluding Consolidation Loans.

The budget proposal would replace the five current Income Driven Repayment (IDR) plans with one IDR plan in an effort to streamline and simplify the repayment plan for borrowers. The new IDR plan would apply to borrowers who take out their first loan on or after July 1, 2018. The new single IDR plan would cap payments at 12.5 percent of discretionary monthly income and eliminate the “standard repayment” cap. The repayment term would be limited to 15 years for borrowers with undergraduate debt only and 30 years for borrowers with any graduate debt. Remaining balances after these periods would be forgiven. Payments for married borrowers filing separately would be based on the combined Adjusted Gross Income (AGI).

The budget proposal would eliminate Subsidized Stafford Loans as of July 1, 2018. However, borrowers continuing to borrow for their current course of study would continue to be eligible for Subsidized Stafford Loans.

The budget proposal would also eliminate the Public Service Loan Forgiveness program and would apply to loans made on or after July 1, 2018.

Office of Management and Budget Director Mick Mulvaney said “This is, I think, the first time in a long time that an administration has written a budget through the eyes of the people who are actually paying the taxes. We’re no longer going to measure compassion by the number of programs or the number of people participating in those programs, but by the number of people we help get off of those programs. We are not going to measure compassion by the amount of money we spend, but by the number of people that we help.”

Chairman of the Health, Education, Labor and Pensions (HELP) Committee Lamar Alexander (R-TN) reminded the public through a press release: “The president has suggested a budget, but, under the Constitution, Congress passes appropriations bills. As a member of the Senate Appropriations Committee my priorities are national defense, national laboratories, the National Institutes of Health and national parks. We will not balance the budget by cutting discretionary spending.” Ranking Member of the HELP Committee Patty Murray (D-WA) said that the proposed cuts to health care, education and jobs programs are “draconian.”

Virginia Foxx (R-NC), Chairwoman of the House Education and the Workforce Committee, said: “Students, workers, and small businesses cannot succeed in an economy that is crippled by too much government and too much debt…Hardworking taxpayers were burdened by new programs they couldn’t afford, yet they never experienced the prosperity they were promised. The president’s budget proposal reflects the consequences of this failed approach, as well as the urgent need for tough choices and bold solutions to pursue a more responsible course.” Ranking Member of the House Education Committee Bobby Scott (D-VA) said: “We’ve been able to keep the doors to college open regardless of income…it would be a disgrace if we turn the clock back.”

The press release released by the Department of Education on May 23, 2017 is found at: https://www.ed.gov/news/press-releases/education-budget-prioritizes-students-empowers-parents-saves-taxpayer-dollars

House Oversight Committee holds hearing that addresses improper payments within student aid

On May 25, 2017, the House Oversight and Government Reform Subcommittee on Government Operations and the Subcommittee on Intergovernmental Affairs held a hearing titled, “Improper Payments in the Federal Government: Student Aid.” Chairman Mark Meadows (R-NC) noted the last-minute switch in witnesses from Jim Runcie, Federal Student Aid’s (FSA) former Chief Operating Officer, who abruptly resigned on May 23, 2017, over the testimony he would give in this hearing, to Jay Hurt, FSA’s Chief Financial Officer. Ranking Member Val Demings (D-FL) criticized Secretary of Education Betsy DeVos’ recent actions that rescinded the three memoranda issued under the Obama Administration that were designed to streamline the current student loan servicing procurement process. Congresswoman Demings also said that loan servicers “have a record of taking advantage of the students who rely on them.” Member Gerry Connolly (D-VA) focused on “unethical abuse and predatory actions” by student loan companies identified in the Inspector General’s September 2016 report.

Mr. Hurt testified that FSA must balance the need to make the federal student aid delivery process simple and efficient for students and their families with the need to protect taxpayer dollars. He said that FSA created a highly automated and integrated aid delivery process with hundreds of controls to combat improper payments. He pointed out that the Pell Grant and direct loan programs are susceptible to improper payments. He explained why FSA has failed to comply with the OIG’s audits of the Improper Payments Elimination and Recovery Improvement Act (IPERA) for the past three years, stating that it was due to missed improper payment rate estimate targets as well as an improper payment estimation methodology. Mr. Hurt said that FSA has since developed “robust internal controls to prevent, detect, and, where appropriate, recover improper payments. In designing controls, FSA strives to strike the right balance between providing timely and accurate payments to students and ensuring that the controls are not too costly and burdensome for students, families, and institutions.”

Justin Draeger, President of the National Association of Student Financial Aid Administrators (NASFAA), testified that the causes behind improper payments are either fraud or error and the greatest concern was organized fraud rings. But he noted that detection of fraud rings is difficult and prevention requires a concerted effort by many entities. He noted that the improper payment rates reported for FY 2016 are significantly higher than those reported in prior years, which is in part due to changes in the methodology over the past couple of years. Mr. Draeger testified that the shutdown of the IRS Data Retrieval Tool (DRT) in March 2017 deprived the federal financial aid system of a major tool to prevent error.

Inspector General Kathleen Tighe testified that “The Department reports that one of the root causes of improper payments in Pell and Direct Loan programs in FY 2016 was inaccurate self-reporting of an applicant’s income on the FAFSA that leads to incorrect awards. One of the Department’s prior corrective actions to address this root cause is to promote the usage of the IRS DRT. However, the DRT was disabled in March due to fraudulent activity.”

Congressman Meadows was reported to have said after the hearing that the committee wants further answers on many issues impacting FSA and could subpoena Mr. Runcie.

House Subcommittee holds hearing on balancing the need for better student data and protection of student privacy

On May 24, 2017, the House Education and the Workforce Subcommittee on Higher Education and Workforce Development held a hearing titled, “Empowering Students and Families to Make Informed Decisions on Higher Education.” The hearing focused on the need for complete and accurate information to ensure students and their families are making informed decisions and to help policymakers hold federal student aid programs accountable. They also examined the importance of balancing the need for transparency and accountability while protecting student privacy. Chairman Brett Guthrie (R-KY) stated in his opening remarks that much of the data available today is no longer pertinent and that data gathering and reporting is expensive and time consuming for postsecondary institutions. Ranking Member Susan Davis (D-CA) agreed that the profile of today’s college student looks much different from 10 years ago. She said that “we need comprehensive information that accurately portrays today’s students.”

The witnesses agreed that the Integrated Postsecondary Education Data System (IPEDS) is cumbersome and outdated, with data elements that are no longer useful or pertinent. For instance, IPEDS only tracks first-time, full-time students that leave out almost 80 percent of college participants.

Bipartisan group of Senators introduces bill to end ban on collecting student-level data

On May 15, 2017, a bipartisan group of Senators from the Senate Health, Education, Labor, and Pensions (HELP) Committee introduced the College Transparency Act of 201, S. 1121, which would put an end to the ban on collecting student-level data under the Higher Education Act. Senators Orrin Hatch (R-UT), Elizabeth Warren (D-MA), Bill Cassidy (R-LA), and Sheldon Whitehouse (D-RI), who co-sponsored the bill, would allow the federal government, states, institutions, families, and prospective students to obtain more accurate and more comprehensive data about a particular college. The bill also addresses concerns about lifting the ban that was inserted into the Higher Education Opportunity Act in 2008, which prohibited the federal government from collecting student-level data. The bill calls for a new “security, privacy-protected postsecondary student data system” that would be managed by the National Center for Education Statistics (NCES). The bill restricts how the federal government could use the data and includes provisions designed to ensure student privacy. In addition, a federal college ratings or rankings system would be prohibited.

The bill would address the shortcomings of the current system by ensuring accurate and complete reporting on student outcomes including enrollment, retention, completion, and post-collegiate outcomes across colleges and majors and taking appropriate steps to ensure that student privacy is protected. A companion bill was introduced in the House on May 16, 2017, as H.R. 2434, College Transparency Act of 2017, by Paul Mitchell (R-MI) and Jared Polis (D-CO).

A copy of the Fact Sheet on S. 1121 is found at: https://www.warren.senate.gov/files/documents/2017_05_15_College_Transparency_One_Pager.pdf

A copy of the press release on H.R. 2434 is found at: https://mitchell.house.gov/media/press-releases/mitchell-and-polis-introduce-college-transparency-act-2017

Four Democratic Senators introduce bill that resets lifetime eligibility limits for Pell Grants

On May 16, 2017, Senators Elizabeth Warren (D-MA), Mazie Hirono (D-HI), Sherrod Brown (D-OH), and Chris Murphy (D-CT) re-introduced S. 1135, the Pell Grant Restoration Act, which would amend the Higher Education Act, to clarify the duration limits for Pell Grant recipients who had attended institutions of higher education that closed or committed fraud. Senator Warren said: “This legislation would ensure that students who have been cheated can hit the reset button on their Pell Grant eligibility so that they can have the chance to go back to school.” The bill was first introduced in 2015 and has received support from many organizations.

A copy of the Fact Sheet from 2015 when the bill was first introduced is found at: https://www.warren.senate.gov/?p=press_release&id=1606

Senate Democrats propose changes to strengthen Pell Grant program

On May 16, 2017, Senators Mazie Hirono (D-HI) and Patty Murray (D-WA) and Representatives Susan Davis (D-CA) and Bobby Scott (D-VA) introduced the Pell Grant Preservation and Expansion Act, which is part of a campaign led by House Democrats aimed at improving college access, affordability, and completion (see article below). The bill calls for an immediate $500 increase to the maximum Pell Grant, which is currently $5,920 and would increase the value of the Pell Grant over time by permanently indexing the annual amount to inflation. It would also extend the lifetime Pell eligibility from the current 12 semesters to 14 semesters and would enact a 35 percent increase to the income protection allowance for working students, which would protect more of their income. It would also expand Pell Grant eligibility to a number of students who currently do not have access to the Pell Grant program such as:

• Reinstating eligibility to defrauded students;
• Extending eligibility to undocumented students;
• Restoring eligibility for incarcerated students;
• Reinstating eligibility for students with drug-related offenses; and
• Extending eligibility to students enrolled in short-term job training programs.

According to a Fact Sheet on the bill, many of the provisions are aimed at combating the 43.9 billion in cuts to the Pell Grant program included in President Trump’s FY 2018 budget proposal. The Fact Sheet stated: “Instead, the Pell Grant program must continue to be a reliable source of funding for aspiring students, their families, and future generations.”

The Fact Sheet is found at: https://www.help.senate.gov/imo/media/doc/Pell%20Grant%20Preservation%20and%20Expansion%20Act%20Fact%20Sheet.pdf

House Democrats announce campaign to improve college access, affordability, and completion

On May 15, 2017, House Democrats, led by Representatives Bobby Scott (D-VA) and Susan Davis (D-CA) announced plans to introduce legislation through their “Aim Higher” campaign to increase college access, affordability and completion. The legislation that will be introduced will focus on making the Pell Grant program more sustainable, student loan repayment, and incentivizing states to invest in higher education.

A copy of the House Democrats’ Fact Sheet on “Aim Higher” is found at: http://democrats-edworkforce.house.gov/imo/media/doc/Aim%20Higher%20-%20Core%20Democratic%20Principles.pdf

House Oversight and Government Reform Committee holds hearing on the FAFSA data breach

On May 3, 2017, the House Committee on Oversight and Government Reform held a hearing on “Reviewing the Free Application for Federal Student Aid Data Breach” to question the officials from the Internal Revenue Service and the Department of Education about details leading up to and resulting from the IRS Data Retrieval Tool (DRT) outage, including exactly when officials became aware of a data breach and how they plan to prevent such security threats in the future. In his opening statement, Congressman Steve Russell (R-OK), who stood in for Chairman Jason Chaffetz (R-UT), stated that it took the IRS almost three months to determine that this was a major data breach incident. Ranking Member Elijah Cummings (D-MD) agreed with the Chair and called the data breach “a major incident.” He went on to express frustration with debt relief companies, which he called “unethical” and “predatory.” Congressman Cummings highlighted a September 2016 OIG report, which found that many of these companies were changing student log-on information as part of predatory schemes to access their accounts, changing regular mail and email addresses, and intercepting correspondence from students and families. Congressman Cummings went on to say: “It is unacceptable that students have to deal with predatory loan companies as well as the increased threats of identity theft.” Congresswoman Jody Hice (R-GA) said: “It appears to me at the end of the day you’re either in denial of what happened, or you’re incompetent, or you’re just untruthful in what’s happening here.”

James Runcie, Chief Operating Officer of the Office of Federal Student Aid (FSA), testified about the events that led up to the security incident that caused the IRS to disable the DRT on March 3, 2017. He also discussed the plans IRS and the Department of Education have to restore DRT functionality as well as the actions the Department of Education has taken to assist students, parents, borrowers, and postsecondary institutions who are impacted. To correct the problem, Mr. Runcie said that the IRS and FSA have agreed to pursue an encryption solution, which will encrypt taxpayer information, hiding it from the applicants’ view on the IRS DRT website, as well as on the FAFSA and Income-Driven Repayment (IDR) application websites. “While students and parents will still be able to electronically transfer their IRS tax return information into the FAFSA, the information will not be visible to would-be malicious actors.” Mr. Runcie also indicated that the DRT will be available toward the end of May for student loan borrowers who may need it to apply for IDR plans. [It was revealed that the breach affected the data of up to 100,000 people. The IRS estimated that 8,000 potentially fraudulent claims let it to issue tax refunds of more than $30 million.]

IRS officials described the timeline of events that led to the decision to take DRT offline. They said that the IRS first noted security concerns in September and notified ED in October but decided not to take any action until March 3, 2017 because, until that time, there was no concrete evidence of criminal activity occurring.

On May 1, 2017, the Department announced that the DRT will be available for use for the 2018-2019 FAFSA cycle beginning Oct. 1, 2017. A copy of the Department’s announcement is found at: https://ifap.ed.gov/eannouncements/050317StatusoftheFAFSAIRSDataRetrievalTool.html

On May 1, 2017, Senators Lamar Alexander (R-TN), Chair of the Senate Health, Education, Labor and Pensions Committee (HELP), and Patty Murray, Ranking Member of the HELP Committee, sent a letter to Secretary Betsy DeVos, expressing their concern that students, families and borrowers do not have access to the DRT and requesting an update on the IRS DRT. A copy of the letter is found at: https://www.help.senate.gov/imo/media/doc/Letter%20to%20Secretary%20DeVos%20on%20IRS%20DRT%20050117.PDF

House Education Committee hearing highlights need to improve accreditation system

On April 28, 2017, the House Committee on Education and the Workforce, chaired by Congresswoman Virginia Foxx (R-NC), held a hearing to examine the accreditation system and identify ways to improve accountability in higher education. Chairman Foxx said in her opening statement: “The accreditation system is critical to providing accountability in the higher education system. However, like many aspects of higher education, accreditation is in need of improvement. In recent years, accreditors have been forced to focus on compliance rather than promoting academic integrity, undermining the process and its purpose.”

Dr. George Pruitt, President of Thomas Edison State University, echoed these concerns: “Over the last several years, the Department of Education continually promulgated a series of increasingly intrusive, overreaching regulatory and reporting requirements and made the regional accreditors enforcers of these rules as a condition of federal recognition.”

Dr. Michale McComis, Executive Director of the Accrediting Commission of Career Schools and Colleges (ACCSC), said that accreditation “should enforce an accountability-based model that combines rigorous input standards with performance outcomes such as student learning, student assessment, and student achievement.”

Dr. Mary Ellen Petrisko, President of the Western Association of Schools and Colleges (WASC), testified: “I believe it is critical that the HEA reauthorization support the innovation necessary to serve current and especially future students.”

Chairman Foxx concluded: “If we are going to roll back rigid regulations, it’s up to accrediting agencies to take the flexibility we are working to provide and do something meaningful with it.”

Senate Democrats introduce bill to stop federal government from garnishing Social Security benefits to pay for student loans

On April 27, 2017, 12 Senate Democrats, led by Senate Finance Committee Ranking Member Ron Wyden (D-OR) and Senate Finance Subcommittee on Social Security, Pensions, and Family Policy Ranking Member Sherrod Brown (D-OH), introduced S. 959, the Protection of Social Security Benefits Restoration Act, which would prohibit the federal government from garnishing the Social Security disability and retirement benefits of borrowers to pay outstanding federal debts, including student loans. Senator Wyden said: “Americans shouldn’t see their Social Security checks ripped away because of the increasing burden of student loan debt.” Senator Brown said: “Americans work hard to earn Social Security and we cannot allow it to be stolen away by student debt. Instead of going after seniors and the disabled, the government should be working to address the skyrocketing cost of student debt.”

A copy of the press release is found at: https://www.finance.senate.gov/ranking-members-news/wyden-brown-senate-democrats-introduce-bill-to-stop-government-from-taking-away-social-security-benefits-to-pay-off-student-loans

Secretary of Education creates committee charged with overhauling Department of Education

On May 22, 2017, Secretary of Education Betsy DeVos’ Chief of Staff Joshua Venable sent a memorandum to the Department of Education’s senior leadership team announcing the formation of a 15-person committee charged with analyzing the Department’ operations and making recommendations as to how it should be reorganized, as well as how to implement a workforce reduction in the coming years. The committee’s goal is to come up with ways to “improve the effectiveness, efficiency, and accountability” of the Department. The committee will have to develop ways to “reduce redundancy, maximize employee and organizational efficiency, and reduce workforce, when appropriate.” Committee members have until June 30, 2017 to produce a report that includes a strategic plan to overhaul the Department, a proposal to “maximize employee performance,” and to identify “initial areas for workforce reduction.”

Senators Urge DeVos to maintain pilot program that makes Pell Grants available to high school students

On April 26, 2017, a group of bipartisan Senators, led by Senators Rob Portman (R-OH) and Mark Warner (D-VA), sent a letter to Secretary of Education Betsy DeVos, urging her to maintain the Obama Administration’s experimental initiative that makes Pell Grants available to high school students who are simultaneously enrolled in college courses. Last year, the Department of Education selected more than 40 colleges and universities to participate in the pilot program, which benefits an estimated 10,000 students at a cost of $20 million. The Senators asked the Secretary to: “continue this experiment and determine an appropriate mechanism for evaluating this important project.” The Senators wrote that dual enrollment programs are “effective tools for improving college access, affordability, and completion, particularly for low-income and middle-class students.”

A copy of the press release and the text of the letter is found at: https://www.portman.senate.gov/public/index.cfm/press-releases?ID=E3182F41-5FD0-430C-B4BE-19BE3C8F8417

Department defends not recognizing ACICS

On April 29, 2017, the Department of Education filed a brief supporting the Obama Administration’s decision to not recognize ACICS. The Department accused ACICS of routinely approving too many discredited proprietary schools and failing to take action against some institutions. Colleges and schools accredited by ACICS have until June 12, 2017 to apply for accreditation with another agency and they must show progress on their applications by Oct. 10, 2017 to remain eligible for federal student assistance.

A copy of the Department’s brief filed on April 29, 2017 is found at: https://www.insidehighered.com/sites/default/server_files/files/USG%20Memo%20in%20Supp%20of%20Opp%20and%20Cross%20MSJ-revised%20near%20final-for%20cite%20checking%20(1).pdf

Secretary issues order forbidding department officials from mandating any page or formatting rules in grant applications

Secretary of Education Betsy DeVos and the Department of Education were severely criticized for rejecting dozens of colleges’ grant applications for Upward Bound for minor line-spacing and font-size errors. On April 27, 2017, Secretary DeVos issued an order prohibiting page limit and formatting requirements for grant applications. “Effective immediately, program offices may only establish voluntary page limit and formatting requirements for grant applications and may not reject grant applications that do not meet those voluntary requirements.

A copy of the Secretary’s memo is found at: http://www.chronicle.com/items/biz/pdf/Internal%20memo%20within%20DoE.pdf

CAPPS files complaint challenging the borrower defense to repayment rules

On May 25, 2017, the California Association of Private Postsecondary Schools (CAPPS) filed a complaint against the Department of Education in an attempt to block the implementation of the borrower defense to repayment rules that go into effect July 1, 2017. CAPPS argued that the borrower defense provision in the statute was never intended to make the affirmative case for debt relief by student borrowers. CAPPS also argued that the borrower defense to repayment rule creates a “seismic shift in multiple areas of higher education regulation without legal basis or reasonable justification.”

A copy of the complaint is found at:
https://www.republicreport.org/wp-content/uploads/2017/05/CAPPS-v-DeVos-complaint.pdf

CFPB releases report that shows that 9 in 10 of the highest-risk student loan borrowers were not enrolled in affordable repayment plans

On May 16, 2017, the Consumer Financial Protection Bureau (CFPB) released a report that showed that 9 in 10 of the highest-risk borrowers were not enrolled in federal affordable repayment plans. CFPB looked at hundreds of thousands of the highest-risk borrowers who are exiting default and may be eligible for federal programs that allow them to pay based on how much money they make. Student loan companies are responsible for informing borrowers about affordable repayment options that can help borrowers stay on track. The report found that nearly half of the highest-risk borrowers that were not enrolled in an affordable repayment plan defaulted again, compared to less than 10 percent of those who are enrolled in an affordable repayment plan. The report found that nearly one in three borrowers who exited default through rehabilitation defaulted for a second time within 24 months and over 40 percent of borrowers re-defaulted within three years. “Too many struggling borrowers fall through the cracks in a broken, outdated student loan system,” according to Director Richard Cordray.

A copy of the CFPB report is found at: http://files.consumerfinance.gov/f/documents/201705_cfpb_Update-from-Student-Loan-Ombudsman-on-Redefaults.pdf

SHARON H. BOB PH.D., Higher Education Specialist on Policy and Regulation, is a member of the Education Group at the Washington, DC law firm of Powers Pyles Sutter & Verville, PC. Dr. Bob advises all sectors of higher education regarding strategic issues pertaining to their participation in the federal student financial assistance programs, accreditation, licensure, education tax benefits, and related regulatory matters.