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March 7, 2018

The Higher Education Act Reauthorization: The Top 10 Policy Issues Congress is Facing

Advisory

Several years before I left the US Senate, my colleagues and I passed the Higher Education Opportunity Act of 2008, which was signed into law by President Barack Obama. Now, ten years later, both chambers of Congress are drafting a reauthorization of the legislation, significantly modifying the US higher education system.

This Advisory presents what we believe are some of the top issues facing Congress in the Higher Education Act (HEA) reauthorization.

For each issue, we analyze the approach taken by the House Education and the Workforce Committee in its introduction of the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act (H.R. 4508), as well as provide an expected outlook in the Senate where lawmakers are currently negotiating a separate bill.

The House Education and the Workforce Committee passed its version of the reauthorization bill, the PROSPER Act, out of committee by a party-line vote on December 12, 2017. Since then, Chairwoman Virginia Foxx (R-NC) has been in talks with House leadership to bring the bill to the floor for a vote by this summer. The PROSPER Act attempts to simplify and streamline federal student aid and place a greater emphasis on career readiness and workforce development. The House bill also focuses on expanding innovation in higher education through competency-based education, for example, and creating accountability systems for all institutions.

Following a month of weekly hearings, Senate Health, Education, Labor and Pensions (HELP) Committee members and staff, under the leadership of Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA), are currently in negotiations attempting to draft a bipartisan bill. Efforts to shape the Senate bill are well underway, as the HELP Committee has been soliciting HEA policy priorities and holding discussions with outside stakeholders and legislative staff for them to present their recommendations.

Frustrations with the Department of Education's implementation of the Every Student Succeeds Act, and the potential for a shift in party control of at least one chamber of the Congress with the upcoming midterm elections, could play a role in the timing of negotiations and passage of the legislation. However, Senate HELP Committee Chairman Alexander and Ranking Member Murray have a longstanding reputation of working in a bipartisan manner. Should the Senate succeed in passing a bipartisan bill in the coming months, the next challenge will be how to reconcile potentially dramatic differences between the Senate bill and the House PROSPER Act.

Our analysis of the top 10 policy issues below addresses potential HEA modification measures that could, depending on the outcome of the congressional debate, alter federal student aid, increase transparency and accountability, encourage innovative learning, place a greater focus on campus safety, eliminate some student support programs and federal regulations, and redefine and reduce the federal government's role in higher education.

I encourage you to reach out to our team with questions you may have about the HEA reauthorization and the potential impact on your organization and community.

Thank you,
Senator Christopher J. Dodd

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THE Top 10 POLICY ISSUES

#1: Financial Aid Application Simplification and Counseling

Lawmakers agree that a simpler financial aid process is a necessity for reauthorization. However, the question remains how to create an application process that awards the appropriate amount of aid based on a student's need and does not create an additional burden on institutions that could shift limited resources away from students.

The PROSPER Act instructs the Department of Education to make the Free Application for Federal Student Aid (FAFSA) form available through a mobile app, which must be developed and maintained using consumer testing. To reduce the complexity for aid applicants, the Department must make every effort to allow applicants to use the current Internal Revenue Service (IRS) data retrieval tool to reduce the amount of original data entry. The Department already is moving forward to create a mobile app and is accepting feedback and participation from stakeholders to refine and improve its plans.

In the Senate, Chairman Lamar Alexander has called for simplifying the FAFSA to a two-question postcard. His bipartisan Financial Aid Simplification and Transparency (FAST) Act (S. 108 in the 114th Congress) would require applicants to submit their name and address, social security number, date of birth, and income and family size (which will be retrieved from the IRS).

The PROSPER Act also requires institutions to provide annual aid counseling in person, online, or through a new online counseling tool. Many financial aid administrators caution that the extra counseling is a complex compliance requirement that could be better targeted and effective if administrators were granted more flexibility. Several bipartisan bills have been introduced in the Senate related to enhanced financial aid counseling and some HELP Committee members also are weighing options to promote better financial literacy for student borrowers.

#2: Student Loan Program Reform

There is bipartisan consensus that the federal student loan program is overly complicated for students and a contributing factor in the overall ballooning of student debt in recent years. A key issue in the policy debate is how to discourage students from over-borrowing and still provide adequate financial support and access to a postsecondary degree for all students.

Consistent with a desire to streamline federal loans, the PROSPER Act creates a new Federal ONE Loan program, thereby terminating the Federal Direct Loan program, including its in-school interest subsidy option for undergraduates, PLUS Loans for graduate students and parents, and the Public Service Loan Forgiveness Program. The PROSPER Act takes several steps to reduce the amount of debt borrowers take on by eliminating loan origination fees, imposing new annual and aggregate loan limits for students and parents, and allowing institutions to set lower caps for certain students. Whereas community colleges may support these caps on student borrowing because cost of attendance is typically lower, the graduate school community opposes the limits as they may decrease access for some. The loan limits are intended to bring down institutions' cost of attendance, but advocates worry that students will be forced to take on more private loans, which provide fewer protections and are not as widely available for low-income students.

Chairman Alexander's FAST Act would apply similar annual and aggregate limits, with the exception of parent borrowers who would still be able to borrow up to the cost of attendance. Under the FAST Act, part-time students would have their loans prorated by enrollment status. Additionally, for graduate students' aggregate limit, the FAST Act would not include any debt that the student incurred as an undergraduate, but it also does not specifically outline certain professional program (e.g., dentistry) limit increases provided for in the PROSPER Act. Whether the Senate will preserve the in-school interest subsidy remains less certain.

The PROSPER Act also changes the way students pay back their loans by simplifying the number of repayment plans to two options: 1) a standard repayment plan; and 2) an income-driven repayment plan (with a minimum monthly payment of $25 and no loan forgiveness). The Senate will consider a streamlined approach to repayment plans, though likely with more of a focus on preserving aid and access for low-income and loan-averse borrowers.

#3: Federal Student Aid Grant Programs

The PROSPER Act seeks to streamline the process for needy borrowers and proposes several reforms to student aid grant programs, including the three following campus-based aid programs:

  • Federal Work-Study. Proposes significant reforms to the Federal Work-Study allocation formula and eliminates graduate student eligibility under the program.
  • TRIO Program. Proposes several changes under the TRIO program: (1) establish a 20 percent matching requirement; (2) create a 10 percent set-aside for new awardees; and (3) authorize a new IMPACT grant to improve access and completion rates for individuals from disadvantaged backgrounds.
  • Federal Supplemental Educational Opportunity Grant (FSEOG) Program. Repeals the FSEOG Program, which provides grants to low-income undergraduate students with exceptional needs to help finance the costs of their education.

The PROSPER Act also reauthorizes Pell Grant funding through FY 2024 at the current maximum award amount and amend the program to: (1) establish a new Pell Grant bonus of up to $300 per year for eligible students who take a workload of not less than 30 credit hours; (2) make disbursement of payments monthly or weekly (with exceptions); (3) expand eligibility for shorter-term programs and certificates; and (4) establish new annual reporting requirements for students on their remaining eligibility.

While Chairman Alexander's FAST Act proposes to eliminate FSEOG, there is bipartisan support among HELP Committee members, including Sens. Susan Collins (R-ME) and Tammy Baldwin (D-WI), to protect the program. The Federal Work-Study program and expansion of Pell eligibility for short-term programs also enjoy bipartisan Senate support. Additionally, Senate Democrats will push to make Pell Grant funding mandatory, increase the maximum grant award, and index the value of the award based on inflation to ensure its spending power is not eroded.

As the Senate HELP Committee moves forward with its bill, the Pell Grant program is likely to be the focus among the campus-based aid and grant programs, given the Committee's emphasis on reforming and simplifying student financial aid.

#4: Student Aid Disbursement

The PROSPER Act changes the way student aid is delivered to eligible students, making disbursements more regularly (like a paycheck) instead of once or twice during a term. The bill would require that loan disbursements be made (1) within 30 days before or after the first day of class and (2) in equal monthly or weekly installments. However, institutions may make unequal installments, if necessary, to adjust for certain upfront costs such as tuition and fees or estimated financial assistance by the student. Institutions with a loan repayment rate of less than 60 percent are prohibited from disbursing loans to a first-year student until 30 days after the borrower begins a course of study.

The House bill also outlines requirements for disbursing loan credit balances, with four delivery options: (1) an electronic transfer of funds to the borrower's financial account; (2) a check for the amount payable to, and requiring the endorsement of, the borrower; (3) a cash payment for which the institution obtains a receipt signed by the borrower; or (4) an access device (which requires an agreement with a third-party servicer for the delivery of funds requiring disclosures and protections for borrowers).

Proponents of disbursing aid like a paycheck argue students would better manage their limited aid throughout the term and that financial aid would be more cost effective by ensuring that aid is distributed to students while maintaining their enrollment. However, many institutions argue that implementing such a system would place a burden on financial aid offices and could cause major cash flow issues, while also withholding critical resources to some students.

It is unclear if the Senate will initiate similar disbursement requirements, but given stakeholder pushback to the House proposal, it is unlikely to do so.

#5: Risk-Sharing and Accountability Measures

The PROSPER Act changes the Return of Title IV Funds program into a risk-sharing program and places the burden of repaying the unearned aid on institutions to incentivize student completion. The calculation of earned aid is based on four periods within which the student withdraws during the semester. A student earns no aid if the student fails to complete at least 24 percent of the semester, meaning the institution bears the full risk. After the 24 percent threshold, institutions do not take on the full risk. If a student withdraws within 25-49 percent, 50-74 percent, and 75-99 percent of the semester, the student earns 25 percent, 50 percent, and 75 percent of aid, respectively. A student must complete 100 percent of the semester to earn all of the financial aid.

Many institutions argue this approach would create an undue burden and a perverse incentive for institutions to be more selective of their students. Open access institutions articulate they would be disproportionately penalized as they take on a greater number of students who are more likely to withdraw because these institutions cannot have a selective enrollment process.

The PROSPER Act also phases out the cohort default rate as an accountability metric. The bill moves to a program-level repayment rate where institutional programs that fall below a 45 percent repayment rate would be ineligible for federal aid.

In the Senate, there is bipartisan support for adopting accountability programs; however, there is partisan dissension on whether one program should apply to both non-profit and for-profit institutions. Democrats argue for separate accountability programs. In terms of metrics, both parties are reviewing the effectiveness of current metrics. Republicans are looking to eliminate certain current requirements (e.g., cohort default rates) and focus on a framework that adopts principles where the federal government should: (1) not promote access to programs and institutions where students leave with excessive or unmanageable debt; and (2) look beyond institutional eligibility standards for participation in federal grants and loans and elevate effectiveness at the program level.

Senate Republicans may push for the elimination of the 90-10 rule and gainful employment rules, which the PROSPER Act repeals. They also will look to the bipartisan Student Protection and Success Act (S. 1939 in the 114th Congress) and the Hamilton Project proposal as the basis for drafting its accountability provisions.

In their discussions about increasing accountability for institutions, some lawmakers call attention to the lack of accurate and transparent data on student outcomes. The crux of this issue rests with the current ban on a federal data system to track student employment and graduation outcomes. Democrats and Republicans have called for lifting the ban through legislation, but leaders in both chambers have resisted such a move, citing student privacy concerns. The College Transparency Act (S. 1121/H.R. 2434), which would overturn the ban, has received bipartisan support but faces an uphill battle to gain the approval of leadership necessary for its inclusion in the HEA bill.

#6: Strengthening Institutions Program

The PROSPER Act would significantly change institutional aid under Title III. First, the bill eliminates the Strengthening Institutions Program (SIP), which provides grants to help institutions become self-sufficient and expand their capacity to serve low-income students. SIP funds can be used for planning, faculty development, establishing endowment funds, construction and maintenance, and a variety of academic success programs for students. The SIP designation also allows institutions to waive the federal matching requirement for other Department of Education grant programs. The elimination of that waiver will make these institutions less competitive or ineligible for receiving federal grant funding.

Additionally, the PROSPER ACT groups the existing Minority-Serving Institutions (MSIs) (i.e., Historically Black Colleges and Universities (HBCUs), Hispanic-Serving Institutions (HSIs), Tribal Colleges and Universities (TCUs), etc.) under a new statutory heading which broadens authorized grant activities of the original SIP program. The new heading includes: community outreach programs to K-12 schools, improvement of career and technical education (CTE) programs, alignment of CTE programs with programs of study at the four-year level and beyond, expansion of dual or concurrent enrollment programs, and pay for success initiatives that improve time to completion and graduation rates. Moreover, it reauthorizes program funding levels through FY 2024 at FY 2017 levels and requires institutions to have a graduation or transfer rate of at least 25 percent to be eligible. HBCUs and TCUs are exempted from the completion rate requirement.

It is unlikely that a bipartisan Senate bill will eliminate the SIP program or require a strict 25 percent completion rate for SIP funds, given analysis done on the states and schools that would lose out, in addition to stakeholder pushback.

#7: Competency-Based Education

HELP Committee members are excited about the opportunity to allow students who enroll in competency-based education (CBE) programs to be eligible for Title IV funding. Committee members are having serious discussions on quality assurance measures, data collection, and the pace and scale to implement such programs.

Currently, there is no statutory definition for CBE and there is considerable debate about what quality assurance measures should be included in the definition. Many CBE advocates argue the definition should require: (1) programs to assess credit or clock hours to minimize challenges, such as how to assess credits when a student transfers from a CBE program to a credit hour program; (2) faculty interaction and support; and (3) knowledge, skills, abilities, and intellectual behaviors demonstrated by a student in a subject area. According to some CBE advocates, the PROSPER Act addresses all three of these provisions, but makes them optional instead of required.

The PROSPER Act also adopts limited reporting requirements from the Advancing Competency-Based Education Act of 2017 (H.R. 2859) that focus on quality assurance without burdening institutions. However, some CBE advocates argue for full adoption of H.R. 2859's requirements. These advocates believe the PROSPER Act's CBE definition rapidly scales up CBE programs, invites bad actors into the market, and places students at risk. There also is concern that more data is needed to inform the scaling of innovative programs such as CBE, though how much should be collected is debatable. One Senator keenly focused on the issue of data is HELP Committee member Sen. Todd Young (R-IN). He has introduced the Innovation Zone Act (S. 2342), which would require the collection of data from experimental site initiatives. We expect to see some of the Senator's bill provisions incorporated into the Senate's HEA reauthorization measure.

Some CBE advocates support the idea of authorizing a smaller scale demonstration project. However, Republicans, including Chairman Alexander, are concerned that authorizing too small of a demonstration project would limit innovation in this area, particularly given the length of time it would take for Congress to reauthorize the next HEA. Overall, Chairman Alexander is seeking the "sweet spot" of scaling CBE programs that allows for innovation, while also maintaining quality assurance and limiting abuse of Title IV funding by bad actors.

#8: Teacher Preparation Programs

The PROSPER Act eliminates Title II, Teacher Quality Enhancement, under current law. The title governs teacher preparation programs and authorizes the Teacher Quality Partnership Grant Program to provide competitive grant funding for teacher residencies and other clinically-focused teacher preparation programs. While not under Title II, the bill also repeals the TEACH grants, which are provided to students who commit to teaching in schools serving low-income families for a minimum period of service.

Additionally, the bill repeals reporting requirements for teacher preparation programs that serve as benchmarks for quality assurance, according to some education stakeholders. However, Republicans assert the repeal aligns with their agenda to reduce burdensome regulations governing institutions of higher education. In March 2017, Republicans repealed the Obama Administration's controversial teacher preparation regulations that required each state to issue annual ratings for teacher preparation programs and threatened the loss of certain federal student aid eligibility for poor performing programs.

We expect Senate Democrats, including Ranking Member Patty Murray (D-WA), to strongly negotiate for the preservation of Title II, particularly the inclusion of current reporting requirements. Sen. Murray was an avid supporter of the Obama Administration's teacher preparation rules and heavily criticized Republicans for repealing the rules last year. Therefore, it is important to her that the HEA reauthorization maintains certain reporting measures to serve as benchmarks on quality assurance and transparency for prospective teachers.

#9: Campus Sexual Assault

In recent years, the issue of campus sexual assault has increased in the public discourse and has led to a national conversation about campus safety. Given increased awareness of the issue and public debate about how to prevent and respond to incidents of campus sexual assault, this topic is likely to be one that Congress includes in its HEA reauthorization bill.

In the House, the PROSPER Act requires institutions of higher education to: (1) conduct campus climate surveys; (2) provide trained counselors to support students who are victims of sexual assault; and (3) develop a one-page form for victims with information about services and support. It also encourages institutions to establish a memorandum of understanding between law enforcement agencies to outline how to handle sexual assault in an effective and appropriate manner. While many stakeholders support these provisions, there has been pushback on a provision to allow institutions to delay or suspend a sexual assault investigation in response to a request from a law enforcement agency or a prosecutor, which stakeholders fear could harm sexual assault survivors.

The Senate is likely to approach the issue of campus sexual assault in a more bipartisan fashion, consistent with its strategy for the entire HEA reauthorization process. It is likely to take ideas from the bipartisan Campus Accountability and Safety Act (S. 856), which Sens. Claire McCaskill (D-MO) and Kirsten Gillibrand (D-NY) have championed for several years. While Democrats may push for increased requirements for universities in addressing campus sexual assault, Senate HELP Committee Chairman Lamar Alexander (R-TN) said at a previous hearing that he does not want to create additional requirements that are burdensome to universities and is interested in establishing fair procedures that "protect the due process rights of both the accused and the accuser."

#10: Deregulation

Republicans in both chambers are very interested in finding ways to limit the role of the federal government in higher education as part of HEA reauthorization. This goal aligns with President Trump's deregulation efforts in his first year in office, as well as Congress's previous efforts to decrease the amount of federal oversight in K-12 education through the passage of the Every Student Succeeds Act in 2015. We are likely to see deregulation in higher education play out in a variety of ways in HEA, including repealing specific regulations, limiting the authority of the Secretary of Education, and decreasing the number of federal programs related to higher education.

House Republicans included a number of reforms in the PROSPER Act aimed at limiting the federal government's involvement in higher education, including the regulation of for-profit institutions. The bill repeals several regulations, including the rules related to the definition of a credit hour, gainful employment, the 90-10 rule, and borrower defense to repayment. It also explicitly states that the Secretary cannot promulgate any regulations, define any term, or impose any requirements that exceed the scope of the explicit authority granted to the Secretary in the PROSPER Act. In addition, the bill eliminates over 30 federal programs in HEA, many of which Congress has not funded through the annual appropriations process for several years.

The Senate HELP Committee also plans to look at how it can provide regulatory relief to colleges and universities in HEA, particularly in light of the fact that deregulation has been one of Chairman Alexander's priority issues for a number of years. Any efforts to deregulate in the Senate HEA bill will likely reference back to the recommendations in the 2015 report from congressionally-created bipartisan Task Force on Federal Regulation of Higher Education. Chairman Alexander and Senate HELP Committee members Sens. Richard Burr (R-NC) and Michael Bennet (D-CO) served on the task force, along with higher education leaders, and reviewed all of the regulations and reporting requirements currently in law. The report provided specific recommendations on ways to consolidate, streamline, and eliminate burdensome, costly, or confusing regulations and reporting requirements.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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