Washington News Brief

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

Representative Donna Shalala introduces bill to revise 90/10 rule

On June 19, 2019, Representative Donna Shalala (D-FL) introduced the Defending All Veterans in Education (DAVIE) Act, which would revise the 90/10 rule. The bill was co-sponsored by Representatives Seth Moulton (D-MA), Chrissy Houlahan (D-PA), and Gil Cisneros (D-CA). The bill would define Veterans benefits and Department of Defense Tuition Assistance benefits as federal student aid in the percent of revenue from federal student aid. It would also revise the 90/10 rule to an 80/20 rule, requiring proprietary schools to earn 20 percent of their revenue from sources other than the federal government.

Representative Shalala said: “Current federal laws permit bad actors in the for-profit education industry to take advantage of our veterans. It is unacceptable and un-American that some for-profit institutions continue to use our veterans’ hard-earned benefits to line their own pockets. We need to ensure that veterans and GI Bill recipients do not fall victim to the predatory recruitment tactics of low-quality institutions that see them as little more than the profits they provide. My bill protects our veterans from these dishonest schemes.”

A copy of the press release is found at: https://shalala.house.gov/news/documentsingle.aspx?DocumentID=1722

House Education Committee holds hearing on exploring pathways to a college degree

On June 19, 2019, the House Education and Labor Committee held a hearing titled, “Innovation to Improve Equity: Exploring High-Quality Pathways to a College Degree,” which was the House Education Committee’s fifth and possibly final hearing on the reauthorization of the Higher Education Act. Chairman Bobby Scott (D-VA) opened the hearing by stating that because of the rising cost of college and the weakening power of Pell Grants, too many low-income students either cannot afford to enroll in postsecondary institutions or cannot afford to complete their programs. He said: “Congress has a responsibility to explore innovative strategies that provide more students the support they need to complete college and reach their full potential.” Ranking Member Virginia Foxx (R-NC) said that the traditional image of a college student and of postsecondary education is no longer accurate but the federal government and the higher education sector too often continue to cater to an outdated vision. “This stubbornness in policy has resulted in mountains of debt, low student completion rates, dissatisfied employers, and a lack of accountability of poorly performing institutions.” Ranking Member Foxx went on to say: “Bold reforms are necessary to put the postsecondary system on track to meet the needs of students.”

Witnesses focused on best practice models that address early college credit in the form of dual enrollment, AP credit, or credit by examination, improving the student-advisor experience, and implementing competency-based education pathways.

Department of Justice files notice in U.S. District Court appealing ruling regarding delay in state authorization rules

On June 25, 2019, the U.S. Department of Justice filed a notice in the U.S. District Court for the Northern District of California that it was appealing the April 2019 ruling that Secretary of Education Betsy DeVos had illegally delayed the state authorization rules for distance education issued by the Obama Administration in December 2016 for implementation on July 1, 2018. The Secretary had delayed the state authorization rules until July 1, 2020, to allow ED the opportunity to conduct negotiated rulemaking. In the District Court decision, Judge Laurel Beeler struck down the two-year delay of the state authorization rules on April 26, 2019. To minimize the risk of confusion or disruption, Judge Beeler postponed the effective date for 30 days.

IRS issues tax transcript tips for students filing a FAFSA for the 2019-2020 award year

On June 25, 2019, the Internal Revenue Service (IRS) issued a notice offering tax transcript tips for those filing a FAFSA for the 2019-2020 award year. Such tips include the need for applicants to use data from their 2017 returns. Taxpayers are also advised to always keep a copy of their tax return.

A copy of the IRS notice is found at: https://content.govdelivery.com/accounts/USIRS/bulletins/24d8085

House Judiciary Subcommittee holds hearing focusing on student loan bankruptcy

On June 25, 2019, the House Judiciary Subcommittee held a hearing titled, “Oversight of Bankruptcy Law and Legislative Proposals,” which covered the overall issue of bankruptcy law and issues involving small businesses, farmers, and service members. However, much of the hearing centered on student loans and H.R.2628, the Student Borrower Bankruptcy Relief Act of 2019. Subcommittee Chairman David Cicilline (D-RI) stated that the purpose of the bankruptcy system is to give those with overwhelming debt a fresh start, but the current system is not working, specifically for student and parent borrowers. He said that Congress created the “undue hardship” provision as a way for student loan borrowers to obtain bankruptcy relief, but it has proven to be an extremely high bar to meet. In his opening statement, Committee Chairman Jerry Nadler (D-NY) endorsed H.R.2628 and stated: “Some of the student loan debt is the result of predatory lending practices that target young Americans desperate to improve their lives and contribute to society, but who do not fully understand the terms of the loans they take on. And, some of this debt is disparately borne by minorities who, on average, owe more than their white counterparts, and who are more often targets of such predatory lending practices. There is no reason that this one category of debt should be singled out for special treatment that makes relief under the bankruptcy code virtually impossible.”

One of the witnesses was Senator Dick Durbin (D-IL), who cited a Wall Street Journal article, which reported that in 2017 only four borrowers were able to discharge their student loans by proving undue hardship. He also said that schools should have “skin-in-the-game” in order to reduce student loan delinquencies and default. The majority of witnesses supported restoring bankruptcy discharge for both federal and private student loans.

Congressman Takano introduces bill to modify 90/10 rule and holds hearing to discuss new funding restrictions on for-profit institutions

On June 26, 2019, Congressman Mark Takano (D-CA) introduced H.R. 3487, the Protections and Regulations for Our Students (PRO Students) Act, which would increase federal regulations on the proprietary school sector. Congressman Takano originally introduced the bill in 2015. The bill would:

• Require proprietary institutions to derive at least 15 percent of their revenue from non-federal student aid and ensure that military and veterans’ education benefits are included in the federal student aid calculation;
• Prohibit schools from using revenues derived from federal student aid for recruiting and marketing;
• Launch a complaint tracking system for students to report grievances;
• Establish a Proprietary Education Oversight Coordination Committee and create a framework for targeting and prioritizing program reviews by the U.S. Department of Education;
• Strengthen sanctions for violations, establish a Student Relief Fund, and bolster consumer protections for students;
• Improve the quality of and access to key information, such as student default rates, loan repayment rates, degree completion rates, and accreditation documents;
• Prohibit pre-dispute arbitration clauses in loan contracts that waive the rights available to borrowers against loans servicers; and
• Strengthen whistleblower protections for faculty and staff.

Congressman Mark Takano said in a press release: “The future of too many students across the country has been jeopardized by the reckless practices of predatory for-profit institutions.”

Representatives Susie Lee (D-NV) and Rosa DeLauro (D-CT) introduced H.R. 3512, the Preventing Risky Operations from Threatening the Education and Career Trajectories of Students Act or the PROTECT Students Act, which aims to crack down on certain proprietary schools. It is a companion bill to a bill introduced by Senators Maggie Hassan (D-NH) and Senator Dick Durbin (D-IL) in March.

A copy of Congressman Takano’s press release is found at: https://takano.house.gov/newsroom/press-releases/rep-takano-reintroduces-higher-education-regulations-to-protect-students-and-hold-for-profit-colleges-accountable

A copy of Representative Lee’s press release is found at: https://susielee.house.gov/media/press-releases/reps-susie-lee-and-rosa-delauro-introduce-bill-protect-students-predatory

On July 17, 2019, the House Subcommittee on Veterans Affairs held a hearing to discuss the legislation to discontinue what was called “this 90/10 loophole.” Congressman Mike Levin (D-CA), Chairman of the Subcommittee, said: “This loophole makes veterans a target for low-quality institutions that are unable to attract non-federal sources of funding. These institutions often use deceptive marketing techniques and are financially unstable, placing veterans at risk of losing their invested time, effort, and benefits due to a closure.” Chairman Levin said that Department of Veterans Affairs (VA) officials told the members in prior hearings that VA does not have the authority to mandate that institutions count GI Bill benefits as federal funds. Charmain Bogue, representing the Veterans Benefits Administration (VBA), testified that while it is willing to work on the bill, it has “significant concerns” with the current draft.

OMB introduces new information security audit objectives for higher education institutions

On July 1, 2019, the Office of Management and Budget (OMB) published a notice of availability in the Federal Register of the 2019 OMB Compliance Supplement. The notice provides an opportunity to comment on the 2019 Supplement. The 2019 Supplement includes, for the first time, audit objectives for colleges and universities concerning compliance with the Safeguards Rule of the Gramm-Leach-Bliley Act (GLBA). The newly added GLBA audit objectives are significant because they are the first time that compliance with information security requirements has been expressly included as part of the Title IV audit process. As explained in the 2019 Supplement, the Federal Trade Commission (FTC) considers higher education institutions that receive Title IV funds to be “financial institutions” subject to the GLBA. Program Participation Agreements signed between higher education institutions and the Department of Education also incorporate the Safeguards Rule and require institutions to protect student financial aid information.

The 2019 Supplement can be found at:
https://www.whitehouse.gov/wp-content/uploads/2019/07/2-CFR_Part-200_Appendix-XI_Compliance-Supplement_2019_FINAL_07.01.19.pdf

House Democrats send letter to Education Secretary DeVos expressing concern over FWS experimental site initiative

On July 2, 2019, House Education and Labor Committee Members Suzanne Bonamici (D-OR) and Joe Morelle (D-NY) sent a letter to Secretary of Education Betsy DeVos stating their concern over the Department of Education’s experimental site initiative on the Federal Work-Study (FWS) Program. In May 2019, Secretary DeVos announced that a new pilot program would allow a limited number of institutions of higher education to more easily subsidize the wages of students employed by private businesses by waiving some rules on how FWS funds are used. The Department said at the time that more students could have an opportunity to use FWS funds while working in internships, apprenticeships, and other “work-and-learn” arrangements. The Representatives said that while they agree that the FWS program is in need of significant reform, the Department’s proposal will “remove statutory guardrails from the program and will allow federal financial aid to flow to private employers without needed transparency.” They felt further scrutiny was required and asked the Secretary to respond to a series of questions by July 16, 2019.

A copy of the letter is found at: https://bonamici.house.gov/sites/bonamici.house.gov/files/documents/2019_07_02_Letter_to_ED_re_FWS.pdf

Bob King confirmed as Assistant Secretary for the Office of Postsecondary Education

On July 11, 2019, the Senate confirmed Robert King to serve as Assistant Secretary for Postsecondary Education. The Senate Committee on Health, Education, Labor and Pensions (HELP) first approved Mr. King’s nomination on Nov. 29, 2018. Secretary of Education Betsy DeVos congratulated Mr. King on his confirmation.

A copy of Secretary DeVos’ press release is found at: https://www.ed.gov/news/press-releases/secretary-devos-congratulates-bob-king-senate-confirmation-assistant-secretary-postsecondary-education

Senate and House Democrats send comments to Department of Education on NPRM on accreditation

On July 12, 2019, House Democrats on the House Committee on Education and Labor sent a letter to the Department of Education commenting on the Notice of Proposed Rulemaking (NPRM) on changes it proposes to make on accreditation standards. All 28 members of the House Committee said that the proposed rule undermines the Department’s ability to conduct adequate oversight of accreditors; opens the door to untested accreditors without demonstrated experience; reduces transparency during the accreditation recognition and re-recognition process; reduces institutional accountability; and exposes students and taxpayers to significant risk.

The Senate Health, Education, Labor and Pensions (HELP) Committee sent a letter commenting on the NPRM saying that “there is inadequate evidence to justify these expansive and expensive changes. We strongly urge the Department to abandon the proposed rule to avoid risk to both taxpayers and students and instead maintain current regulations while Congress works to reauthorize the Higher Education Act.”

A copy of the letter obtained from NCHER’s website is found at: https://cdn.ymaws.com/www.ncher.us/resource/resmgr/daily_briefing/House_letter.pdf

House passes the NDAA that includes amendment impacting proprietary schools; for-profit schools voice opposition

On July 12, 2019, the House passed H.R. 2000, the National Defense Authorization Act for FY 2020, to authorize programs under the Department of Defense (DoD). Before passing H.R.2020, the House adopted an amendment offered by Representative Donna Shalala (D-FL), which would require the DoD to audit proprietary colleges that fail the U.S. Department of Education’s financial responsibility standards. The amendment would also require DoD to publish an annual list showing how much funding each college receives through the DoD’s Tuition Assistance Program. The amendment passed by a vote of 251-178, with 20 Republicans crossing party lines.

On July 18, 2019, the American Association of Cosmetology Schools (AACS) sent a letter to the leaders of the House and Senate Armed Services Committee opposing the amendment offered by Representative Shalala. “The amendment as written unfairly targets proprietary schools and the active military students that some AACS member schools serve.” AACS urged the House and Senate Armed Services Committee members to drop the amendment from the final bill.

A copy of the AACS letter is found at: https://cdn.ymaws.com/www.ncher.us/resource/resmgr/daily_briefing/cosmo_letter.pdf

Bipartisan Senate bill creates framework for ISAs

On July 15, 2019, Senators Mark Warner (D-VA), Chris Coons (D-DE), Todd Young (R-IN), and Marco Rubio (R-FL) introduced S.2114, the ISA Student Protection Act of 2019, which would create a legal and regulatory framework for income-share agreements (ISAs). According to the press release, S.2114 includes the following “safeguards and consumer protections” for students:

• Individuals making less than 200 percent of the Federal Poverty Level ($24,980 in 2019) are exempt from making payments towards their ISA;
• ISA providers cannot make agreements with students that require payments higher than 20 percent of income for shorter-term contracts, with the cap decreasing to 7.5 percent for the longest contracts allowed (30 years);
• ISAs are dischargeable in bankruptcy;
• Funders must disclose to students how their monthly payments would compare under the ISA to payments on a private or federal loan for the same amount of money and number of payments;
• Applies federal consumer protection laws;
• Gives the Consumer Financial Protection Bureau oversight authority over ISAs; and
• Clarifies the tax treatment of ISA contributions for both funders and recipients.

A copy of the press release is found at: https://www.warner.senate.gov/public/index.cfm/pressreleases?ID=CCDC5D22-872B-4202-8F34-B787145B2221

The Congressional Research Service (CRS) released a fact sheet titled, “An Economic Perspective of Income Share Agreements (ISA),” which provides an overview of ISAs and compares ISAs to student loans. Several policy issues and questions are described in the paper.

A copy of the CRS fact sheet is found at: https://fas.org/sgp//crs/misc/IF11269.pdf

Department warns colleges and universities of a security risk from cyberattacks

On July 18, 2019, the Department of Education issued a security alert regarding the “active and ongoing exploitation” of a security flaw in the Ellucian Banner (Banner) system. The vulnerability only occurs in Ellucian Banner Web Tailor versions 8.8.3, 8.8.4, and 8.9 and Banner Enterprise Identity Services versions 8.3, 8.3.1, 8.3.2, and 8.4. The Department identified 62 colleges and universities impacted by exploitation of a vulnerability in technology products sold by Ellucian. According to the notice, victimized institutions indicated that at least 600 fake student accounts were created within a 24-hour period, with the activity continuing over multiple days resulting in the creation of thousands of fake student accounts. “Victimized institutions also have indicated that their implementation of the Banner system affects or influences all aspects of academic administration, including the administration of student financial aid.”

The notice indicated that institutions should contact Ellucian to receive information needed to patch or upgrade affected systems. Another notice advised colleges and universities that it has recently implemented new cybersecurity measures to further protect critical student data and ensure the security of FSA systems and websites.

A copy of the Technology Security Alert is found at: https://ifap.ed.gov/eannouncements/071719ITSecurAlertExploitationEllucianBannerSysVulnerability.html

A copy of the announcement regarding new cybersecurity measures implemented by ED is found at: https://ifap.ed.gov/eannouncements/071719InforReqtoEnsureAccesstoFSASysWebsites.html

Department announces effective date of state authorization rules

On July 22, 2019, the Department of Education issued an electronic announcement announcing the effective date of the 2016 state authorization regulations as being on May 26, 2019. On Dec. 19, 2016, the Department published in the Federal Register final regulations concerning state authorization. The original effective date was July 1, 2018, but was delayed until July 1, 2020. However, by order of the U.S. District Court for the Northern District of California in the case NEA v. DeVos, the 2016 final regulations took effect on May 26, 2019.

Included in the electronic announcement is a Q&A document addressing documentation requirements for the complaint process. The Q&A explained that the State of California does not currently participate in a state authorization reciprocity agreement and does not have a process to review and take appropriate action on complaints from attending out-of-state public or nonprofit institutions. As a result, students residing in California who are enrolled in distance education or correspondence courses at out-of-state public or nonprofit institutions are ineligible for Title IV programs until the State of California enters into a reciprocity agreement or provides institutions with an appropriate complaint process.

A copy of the electronic announcement is found at: https://ifap.ed.gov/eannouncements/072219Compliance2016StateAuthRegQandA.html

A copy of the Federal Register Notice of July 29, 2019, memorializing the effective date of the state authorization rules on May 26, 2019, is found at: https://www.nasfaa.org/uploads/documents/2019-15869.pdf

On July 29, 2019, Secretary of Education Betsy DeVos called on the National Education Association (NEA) to drop the lawsuit and to “stop standing in the way of students working to complete their postsecondary education program.” The NEA had sued the Department over its delay in implementing the state authorization rule that governed state standards for distance education. Secretary DeVos said that ED knew that not all states have the required complaint processes in place and the rule would deny federal aid to a number of students receiving distance education.

A copy of the Secretary’s press release is found at: https://www.ed.gov/news/press-releases/secretary-education-betsy-devos-calls-national-education-association-drop-lawsuit-puts-financial-aid-students-jeopardy

On Monday, July 29, 2019, NASFAA reported that California officials announced on July 26, 2019, that the State would move on Monday, July 29, 2019, to comply with the state authorization regulations. The California Department of Consumer Affairs has created a complaint system for out-of-state public and nonprofit institutions serving California residents. California already had a complaint process in place for for-profit institutions.

Senator Warren unveils details of plan to cancel student loan debt

On July 23, 2019, Senator Elizabeth Warren (D-MA) and House Majority Whip James E. Clyburn (D-SC) released a bill, called the Student Loan Debt Relief Act, which would cancel a significant amount of student loan debt for the majority of borrowers. The proposal would cancel up to $50,000 in student debt for borrowers with a household income of $100,000 or less, cancel some amount of student debt for borrowers with a household income of between $100,001 and $250,000 and provide no loan forgiveness for borrowers earning $250,000 or more.

A copy of Senator Warren’s press release is found at: https://www.warren.senate.gov/newsroom/press-releases/senator-warren-house-majority-whip-clyburn-introduce-legislation-to-cancel-student-loan-debt-for-millions-of-americans

ED provides clarification on checking high school validity

On July 23, 2019, the Department of Education issued an electronic announcement providing clarification regarding the role that institutions have in checking the validity of a student’s high school completion as required by 34 C.F.R. § 668.16(p). Final regulations issued on Oct. 29, 2010 require institutions to develop and follow procedures to evaluate the validity of a student’s high school completion if the institution or the Secretary has reason to believe that the high school diploma is not valid. The Department clarified that a process that meets a two-part process described by the Department would satisfy the requirement. The two-part process includes: “(1) receiving documentation from the secondary school that confirms the validity of the student’s diploma, and (2) confirming with documentation received from the relevant department or agency in the state in which the secondary school is located that the secondary school is recognized as a provider of secondary school education.” ED also clarified that other approaches used by institutions are still valid if they comply with the language of the rule.

A copy of the electronic announcement is found at: https://ifap.ed.gov/eannouncements/072319CheckValidityofStudentsHighSchCompletion.html

Secretary DeVos calls for review of income verification for income-driven repayment plans

On July 25, 2019, Secretary of Education Betsy DeVos released the following statement calling for a comprehensive review of income verification of income-driven repayment (IDR) plans following the publication of the Government Accountability Office (GAO) report titled, “Federal Student Loans: Education Needs to Verify Borrowers’ Information for Income-Driven Repayment Plans.” The report states that due to potential fraud or error in income and family size information, the Department of Education needs to verify details supplied by those student loan borrowers with approved income-driven repayment plans. The report found that some borrowers applying for income-based repayment plans “may have misrepresented or erroneously reported their income or family size.”

The GAO report released today further proves what I’ve long said: there is significant risk in the federal student loan portfolio. For years there have been deliberate efforts to make the maze of student aid more complex for students and less accountable to the American taxpayers who underwrite it. Today’s report is just the latest proof that many of the policy ideas previously pursued were poorly implemented.

Misrepresenting income or family size is wrong, and we must have a system in place to ensure that dishonest people do not get away with it. We didn’t create that problem, but rest assured we will fix it.

A copy of the press release is found at: https://www.ed.gov/news/press-releases/us-secretary-education-betsy-devos-calls-review-income-verification-income-driven-repayment-plans

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.