Congressional Leaders Reaffirm Support for Legislation to Extend ECASLA

WASHINGTON UPDATE

Congressional Leaders Reaffirm Support for Legislation to Extend ECASLA

Senators Mike Enzi (R-WY) and Lamar Alexander (R-TN) and Congressmen John Kline (R-MN) and Brett Guthrie R-KY) “wrote college and university presidents regarding their legislation that would preserve critical student loan options for another year,” according to a press release of December 15, 2009.” The press release noted that “The Members are working to extend the Federal Family Education Loan (FFEL) Program, which has successfully helped millions of Americans realize the dream of a college education since 1965.”

Last November, Senators Enzi and Alexander and Congressmen Kline and Guthrie introduced S. 2796/H.R. 4103, a bipartisan, one-year extension of the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA).The letter sought to remind college and university presidents that bipartisan support does exist in Congress for choices and options for students and parents through the federal loan program, as well as assure them that Congress can act quickly to enact an extension of ECASLA, as they have in the past.

The letter criticizes the “pressure” schools have received by the Department by stating that “…we write to help clear up any confusion you may have about the legislative outlook for the future of the Federal Family Education Loan (FFEL) program. Contrary to recent statements by the Department of Education, the elimination of the FFEL program is not imminent. There remains widespread, bipartisan support in Congress to continue the FFEL program during these difficult times.”

Three House Democrats (Allen Boyd (D-FL), Stephanie Herseth-Sandlin (D-SD) and Michael McMahon (D-NY) sent a letter to Secretary Duncan on December 2, 2009, expressing concern regarding “the Department’s aggressive outreach to institutions regarding the Direct Loan program despite the lack of Congressional direction on this issue.” They noted that given the legislation’s uncertainty in the Senate, they were concerned that on October 26, 2009, the Secretary sent a letter to some 3,000 campuses urging them to prepare for the transition to the Direct Loan program.

An editorial from the November 30, 2009 Washington Timesentitled “Schoolyard Bullies” expressed concern over the Department of Education’s recent letters to schools that urged them to take steps to become “Direct Loan ready” before legislation has been enacted to allow for such a switch. The editorial says that “Despite the fact that the scheme is not yet law, Department of Education officials began writing letters as early as July to college presidents about how to transition to the Direct Loan program, as if the existing private option already were dead. The Department already has begun domestic training ‘webinars’ and even has started planning webinars for foreign colleges to teach them how to make the change.” The editorial concludes that “This is outrageous. It puts pressure on colleges to withdraw from the private lenders regardless of what happens with the legislation. In effect, the government is bullying private lenders out of business even without benefit of law.”

IG to Investigate the Department’s Endorsement of the Direct Lending Program

On December 14, 2009, Mary Mitchelson, the Acting Inspector General responded to Congressman John Kline’s (R-MN) request that the Office of the Inspector General (OIG) review statements made by the Department officials regarding the proposed elimination of the Federal Family Education Loan program, including the misuse of federal money. According to the letter, the Department’s OIG “will conduct a review of this matter and will provide findings once work is completed.” The OIG noted that resources are limited due to work demands on several initiatives, including theAmerican Recovery and Reinvestment Act of 2009 and the Ensuring Continued Access to Student Loans Act, but that the OIG was committed to completing the work “in as timely manner as possible.”

This letter comes after Congressman Kline, the Ranking Member of the House Education and Labor Committee, requested House Education and Labor Committee Chairman George Miller (D-CA) for an immediate subpoena of documents and information from the Department of Education on its outreach to schools concerning the proposed transition to the Direct Loan Program.

Congressman Kline’s letter stated that “In recent months I have grown increasingly concerned by reports that Department of Education officials are improperly using taxpayer resources to advocate for the Administration’s proposal to eliminate the Federal Family Education Loan program. House and Senate Democrats have likewise questioned the Administration’s “aggressive outreach,” and the Wall Street Journal reported on December 5, 2009, that the leader of a large university recently refused to discuss the Administration’s tactics, ‘fearful that the feds are taking names.’ Regardless of your position on the Administration’s student loan proposals, I hope you will agree with me that such tactics by Administration officials are deeply troubling and warrant Congressional oversight.”

Congressman Kline wrote that he has also heard reports that Administration officials are calling institutions to advocate for an immediate conversion to the Direct Loan program. Congressman Kline pointed to the July 8, 2009 letter from the Department’s Chief Operating Officer of Federal Student Aid William Taggart to college presidents that outlined the steps the Department has made to ensure a successful transition to the Direct Loan program without mentioning that Congress has not yet passed legislation mandating conversion to the Direct Loan program.

Duncan Addresses FSA Conference with Focus on Direct Loan Transition

On December 1, 2009, Secretary of Education Arne Duncan addressed the attendees at the 2009 Federal Student Aid conference where he discussed the Obama Administration’s higher education agenda, including plans for improving college completion. Secretary Duncan stated that “this is our chance for dramatic reform” and acknowledged that the Department of Education has been part of the problem in affecting change as it is a large bureaucracy that is compliance driven. He noted that this was an extraordinary time for education and that it is necessary to “break through and make fundamental changes.”

On the pending Student Aid and Fiscal Responsibility Act (H.R. 3221), Secretary Duncan spoke positively of the bill, underscoring the $87 billion in new money that would fund two-thirds of President Obama’s proposed higher education agenda. He called the legislation “a once in a lifetime opportunity” and said that approving the legislation is the “right thing to do.”

Regarding the concern by some members of the financial aid community on the ability of the Department to transition to Direct Lending by July 1, 2010, Secretary Duncan stated that the Department has the capacity for 100 percent Direct Lending and has already brought on 500 new schools this year and funded 80 percent of FFELP loans through ECASLA,which gave the Department the authority to purchase student loans from lenders. Secretary Duncan sited recent surveys that indicated that Direct Lending is as good as or better than FFELP and found that institutions have not experienced any transition problems.

Department Issues Three-Year Cohort Default Rate Preview Data

On December 14, 2009, the Department of Education released data regarding the three-year cohort default rates (CDR), which tracks borrower repayment for three years instead of two years, which is the current practice. According to the data released by the Department, defaults under the three-year CDR increased by 75 percent. According to the Department, the data is intended to assist institutions in understanding the impact of the new three-year CDR calculation on their institutions, by being able to view their unofficial three-year CDRs for fiscal years 2006-2008. The Department said that the rates are for information only and are only “preview data,” and no benefits or sanctions apply.

The three-year CDR is the percentage of borrowers entering repayment on loans in a fiscal year and defaulting in that fiscal year or the two subsequent fiscal years.

A week earlier, on December 7, 2009, the Department of Education had issued guidance on the impending release of trial three-year CDRs as authorized by the Higher Education Opportunity Act.The announcement explained changes in the modified CDRs so that institutions could understand how the new calculation will affect their rates. The guidance clarified that the FY 2009 CDRs (borrowers who entered repayment between October 1, 2008 and September 30, 2009) will be the first CDR calculation under the new three-year calculation. These first official three-year CDR rates will be provided to institutions in September 2012.

Concerning the transition period, the Department will continue to calculate and publish two-year CDRs until three sets of three-year CDRs are published. The last of the two-year CDRs will be for the FY 2011 cohort and will be released in 2013. Beginning in 2014, only three-year CDRs will be published.

Department of Education Holds Second Session of Negotiated Rulemaking on Program Integrity Issues

The negotiated rulemaking committee on program integrity held its second session on December 7-11, 2009 to discuss proposed revisions to 14 rules. One of the most contentious proposals offered by the Department was the proposal to eliminate the 12 safe harbors adopted by Department in 2002 to a provision included in the Higher Education Act of 1992 that prohibited the payment of commissions, incentives or bonuses to those persons indirectly or directly involved in recruiting or in making financial aid decisions. Both nonprofit and for-profit colleges opposed the Department’s proposals. Elaine Neely, Senior Vice President of Regulatory Affairs at Kaplan Higher Education, said that she was “flabbergasted” to see the Department propose to remove the safe harbors from the regulations. Terry Hartle, Senior Vice President for Government and Public Affairs at the American Council on Education, asserted that colleges and universities have faced 27 lawsuits on incentive compensation issues and without any safe harbors, institutions will not know what is legitimate to do and what is not. The consumer rights advocates and groups like the National Association for College Admission Counseling had expressed concerns on incentive compensation and had called for the elimination of the safe harbors. A number of nonfederal negotiators expressed concerns about another one of the proposals made by the Department, which would require institutions to assess the performance of vocational programs at nonprofit institutions and most programs at for-profit institutions by linking prices they charge to their graduates’ salaries. Both the nonprofit and for-profit sector representatives asserted that Congress has declined to provide the Department with price control authority. The final meeting of the negotiated rulemaking committee will be held January 25-29, 2010.

Inspector General Threatens HLC

On December 17, 2009, the Office of Inspector General (OIG) issued an Alert Memorandum to the Assistant Secretary for Postsecondary Education Dan Madzelan, recommending that the Office of Postsecondary Education (“OPE”) should determine whether the Higher Learning Commission of the North Central Association of Colleges and Schools (“HLC”) is in compliance with the regulations found in 34 C.F.R. Part 602 and, if not, take appropriate action to limit, suspend, or terminate HLC’s recognition by the Secretary. The action is the result of the OIG’s review of HLC’s standards for measuring credit hours and program length. The OIG questioned the accrediting agency’s decision to approve the accreditation of American InterContinental University, which was previously accredited by the Southern Association of Colleges and Schools (“SACS”).

Obama Signs Omnibus Spending Bill

On December 16, 2009, President Obama signed into law the $447 billion appropriations bill providing appropriations for the Departments of Commerce, Defense, Education, Health and Human Services, Housing and Urban Development, Justice, Labor, State, Transportation, Treasury, and other agencies. The FY 2010 appropriations bill for education includes a maximum Pell Grant for the 2010-2011 award year of $5,550.

Sharon H. Bob, Ph.D.

Powers Pyles Sutter & Verville, P.C.

Seventh Floor

1501 M Street, NW

Washington, DC 20005

202-872-6772

December 22, 2009

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