HEA Re-Authorization – OpEd

HEA Reauthorization – Student Loan Reform OpEd

It seems the never ending discussion continues on the re-authorization of the HEA.  While there appears to be no imminent action by the House Education and Workforce Committee there are some ‘common-sense’ student loan reforms that should be included in discussions at schools and among policy-makers.  Ultimately theses reforms need to be voiced to the Committee.

 

Disclosures

Unfortunately for borrowers, and unlike private student loans, loan disclosure information for federal loans is not actually given to borrowers until their loan money is disbursed.  As a result of lack of loan disclosure, borrowers are committed to many years, even decades of debt.  The information should be required and provided in  simple and effective ways that is easy for borrowers to comprehend.

 

Loan Limits

Generous federal loan limits and lending policies/regulations contribute to sometimes, un-necessary over-borrowing and subsequent debt repayment challenges. Under the current system, federal loans are available to students, and their parents, for amounts up to the total school cost of attendance, minus other aid.  Schools should be permitted/encouraged, even required, to perform prudent (pre-loan application) guidance/counseling to minimize borrowing and also required to conduct borrower financial literacy instruction.

 

Repayment Plans

The alarming number of delinquencies and defaults on federal student loans continue to rise with nearly half of new borrowers unable to put a dent in their principal balance within three years of entering repayment. This is, in part, due to high enrollment in repayment plans, some of which are tied monthly payments to earnings and/or loan forgiveness after a specified number of years. While these plans might be the right fit for some struggling borrowers, they also unknowingly (to uninformed borrowers) prolong repayment and increase overall interest costs, while placing taxpayers increasingly on the hook for unpaid debt.

 

These low/no cost reforms continue to provide access to higher education financing, reduce taxpayer liability, and ensure students and their families know exactly what they are getting into when borrowing for college.

 

James Gathard, Principal

National Consulting Services, LLC

Next Generation Students

Next Generation Students

Adapting to a changing student population and how to effectively communicate to them presents challenges for all college administrators, including FAAs.  A recently released compendium of articles offers some insights you may find useful.

Full report (free) can be accessed at: (download may require you provide email address and other information.

https://www.insidehighered.com/system/files/booklets/IHE_The_Next_Generation_of_Students.pdf

BDTR & GE Delay

On October 2, 2018, the U.S. Department of Education (ED) announced that proposed regulations in regard to Borrower Defense to Repayment (BDTR) and Gainful Employment will not be published by the November 1, 2018 deadline in order for these proposed regulations to be effective as of July 1, 2019. ED indicated that it was unable to review the comments related to the proposed regulations.

As a result, this has an immediate impact for post-secondary institutions. As to BDTR, the regulations passed by the Obama administration in 2016 may become law depending on the ruling on October 12, 2018 in a case before the U.S. District Court for the District of Columbia before judge Randolph Moss. If the Obama-era 2016 BDTR regulations become effective, post-secondary institutions would be subject to the ban on pre-dispute arbitration agreements. In addition, the mandatory and discretionary triggers related to standards of financial responsibility which were in the 2016 regulations would become effective. This would include the undefined and subjective triggers such as high dropout rates, significant fluctuations in Title IV funding, anticipated borrower defense to repayment claims, etc.

In regard to the Gainful Employment regulations (GE), the current Obama-era regulations would continue to be in effect. As such, post-secondary institutions need to continue to comply with the GE regulations. ED has indicated that an information sharing arrangement with the Social Security Administration (SSA) expired in May of 2018. Thus, ED doesn’t have access to the earnings data which would enable it to compute year 2 debt-to-earnings (D/E) rates under the GE regulations. The GE regulations would require a rule change to enable ED to obtain the data from another agency, such as the Internal Revenue Service. In our opinion, ED could be subject to lawsuits from advocacy groups or state attorney generals forcing ED to reinstitute the data sharing agreement with SSA in order to issue year 2 D/E rates. As a reminder, for programs which failed the year 1 D/E rate and are still being taught, post-secondary institutions need to continue to comply with the GE warning requirements.

ED could issue the proposed BDTR and GE regulations in the 4th quarter of 2018 or early 2019 and allow the regulations to be early adopted instead of having to waiting until July 1, 2020 as described in the federal calendar. This is solely conjecture on our part and we don’t have any specific insight as to ED’s thought process. The overriding conclusion of the delay of the proposed BDTR and GE regulations is that ED has created significant uncertainty in the near future. We recommend that post-secondary institutions discuss the ramifications with their regulatory counsel and CPAs especially once the Obama-era 2016 BDTR lawsuit ruling occurs on October 12, 2018.