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Business Officer Magazine

Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark, Bryan Dickson, and Anne Gross

Federal Sequestration Order Takes Shape

Regardless of size or sector, higher education institutions—as well as the college students they serve—will be affected in myriad ways by current reductions in federal spending. Unable to come to an agreement with Congress to halt or further delay implementation, President Obama issued a sequestration order on Friday, March 1, as mandated by the Budget Control Act of 2011. The federal government must now cut spending by $85 billion in FY13, resulting in across-the-board reductions of 7.8 percent for defense programs, and 5 percent for nondefense programs, which include those in higher education.

During the year, the sequester may be modified by giving some agencies limited flexibility in how they achieve the required savings. The situation remains fluid, but large-scale relief from these across-the-board cuts does not appear to be in the offing.

On March 1, Office of Management and Budget Deputy Director Jeffrey Zients issued a memorandum with some guidance to federal agency heads in managing the sequester. While it will take some time for all the specific details to emerge, here are some particulars college and university business officers should be aware of:

    • Student aid. The Pell Grant, among a select few programs with special treatment, is protected—for one year only (FY13)—from sequester cuts. However, by and large, all other federal student aid programs will be cut. The Supplemental Educational Opportunity Grant (SEOG) and the Federal Work-Study program each will be cut across the board. The origination fee of 1 percent for Stafford student and parent loans will be raised by 5 percent (to 1.05 percent) for all loans first disbursed after the sequester took effect. Note that sequestration is applied at the program level, not at the grantee level. Because the campus-based aid programs are allocated by a formula, campuses will not necessarily see a straight percentage cut to their allocation for Federal Work-Study and SEOG programs. Because federal student aid budgets are forward-funded, students will not see any changes to their allocations for the academic year 2012–13. However, uncertainty about federal funding levels has made it difficult for student aid offices that are in the midst of awarding aid for the 2013–14 academic year.

Sequestration is applied at the program level, not at the grantee level. Campuses will not necessarily see a straight percentage cut to their allocation for Federal Work-Study and SEOG programs.

  • Post-9/11 GI Bill. All veterans programs, including the Post-9/11 GI Bill, are exempt from sequester cuts in FY13. This exemption includes both benefits and Veterans Administration administrative expenses.
  • Department of Defense (DOD) Tuition Assistance. DOD's Tuition Assistance program, which helps active-duty service members pay for higher education expenses, is not exempt from the sequester. The program will be cut an estimated 7.8 percent, although, as noted earlier, the sequester is applied at the program level, not at the grantee level. In early March, the Marine Corps halted new enrollments in the Tuition Assistance Program because of the sequester. The U.S. Army made a similar announcement on March 8, freezing all new applications for service members' tuition assistance.
  • Research. Most federal research budgets at agencies such as the National Institutes of Health, National Science Foundation, and Department of Energy will see a 5 percent budget reduction, but defense research is subject to a 7.8 percent reduction. The various agencies are likely to manage programs differently. NIH announced that it "likely will reduce the final FY13 funding levels of noncompeting continuation grants and expects to make fewer competing awards, to allow the agency to meet the available budget allocation."
  • National Institute of Food and Agriculture (NIFA).  The United States Department of Agriculture is not exempt from the sequester cuts; programs will be cut by 5 percent across the board. Note that because some NIFA programs, like Smith-Lever and Hatch Act funds, are formula-driven, campuses many not see a straight 5 percent cut to their allocation. Additionally, research programs could see their cuts handled in any number of ways, including, but not limited to, reduced funding levels and fewer awards.
  • Build America Bonds. On March 4, the Internal Revenue Service announced that payments to issuers will be reduced by 8.7 percent of the amount budgeted. Campuses that have issued Build America Bonds should review provisions that may allow issuers to call bonds under certain circumstances, such as the sequester, because of the reduction in federal subsidy payments.
  • Federal agency processing and service delays.Thousands of furlough notices were expected to be distributed to federal employees across the federal government in mid-March, with temporary layoffs likely to begin sometime in April. This scenario could result in loan processing delays for students, delayed distribution of monetary awards to grantees, and limited availability of federal employees across the government.  

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553

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VA Committee to Review GI Bill Processing

On February 14, the Economic Opportunity subcommittee of the House Committee on Veterans Affairs held a hearing focusing on the processing of Post-9/11 GI Bill claims. Specifically, the hearing addressed the VA's Long Term Solution (LTS), the information technology system developed to handle the complex Post-9/11 claims process.

While not asked to testify at the hearing, NACUBO representatives took the opportunity to submit written testimony for the record to comment on the challenges its members have faced in processing Post-9/11 GI Bill benefits. NACUBO specifically called for:

  • Uploading batch uploads. School personnel are hampered by a system that requires manual input of all data. This time-consuming, error-prone method is contrary to the robust student information systems that colleges and universities use to securely hold student data.
  • Defining a "term." The VA's current definition of a "term" does not provide the needed flexibility for modular classes. Individual classes that start after the calendar week in which other classes begin a term have their own start date and are considered a separate term, meaning they have to be separately certified. At term-based institutions, the VA should treat a term as a unit.
  • Improving communications. The VA needs to develop more robust communication channels with veterans and schools, across the agency, and with other agencies. Specifically, the VA lacks a secure means to share sensitive data electronically with schools. A secure, Web-based portal, similar to the one used by the Department of Education (ED), would help streamline and improve communication. Additionally, the VA could develop an RSS feed and a dedicated, regularly updated Web site—like ED's Information for Financial Aid Professionals Web site—to ensure that everyone can access the latest guidance and nonsensitive communications.
  • Halting debt collections via the Treasury Offset Program. In late 2012, the VA began referring school debts to the Treasury Offset Program. Most of these debts were the result of a VA policy change in January 2011 that then instructed institutions to submit benefit overpayments back to the administration. Prior to 2011, benefit overpayments were refunded directly to student veterans. Colleges and universities report seeing offsets to federal grants and other federal payments unrelated to the GI Bill that are the results of processing delays, obvious mistakes, or are currently under dispute. NACUBO does not believe that current VA processes ensure that referred debts are valid.
  • Maintaining current policy to exempt tuition and fee payments from offset. In early 2012, NACUBO learned that the VA was considering reinstating a policy that would allow the VA to offset veteran debts against Post-9/11 GI Bill tuition and fee payments. On April 9, 2012, NACUBO and 13 other higher education associations sent a letter to VA Secretary Erik Shinseki asking him to maintain the existing tuition and fee exception. While a response from the secretary's office indicated that the VA was analyzing the issue, no change in policy has been enacted. While NACUBO recognizes the fiduciary responsibility the VA must uphold in collecting any nontax debts owed to the federal government, the association maintains the position that the VA should continue to exempt tuition and fee payments from offsets. 

Witnesses at the February 14 Economic Opportunity Subcommittee hearing included representatives from the Student Veterans of America (SVA) and the National Association of Veteran's Program Administrators (NAVPA), who shared experiences from the perspective of veterans and institutions. Kim Hall, vice president of NAVPA and veterans program administrator at Humboldt State University, Arcata, California, delivered testimony that addressed many of NACUBO's concerns.

NACUBO recognizes the fiduciary responsibilty the VA must uphold in collecting any nontax debts owed, but the assoication maintains that the VA should continue to exempt tuition and fee payments from offsets.

Michael Dakduk, executive director of SVA, expressed a concern over the lack of real-time information being provided to student veterans. SVA has repeatedly requested the development of a "secure, Web-based, single-portal system that allows student veterans to see the status of their GI Bill claims in real time." SVA repeated NAVPA's request for a more streamlined certification process.

During the hearing, Chairman Bill Flores, a Republican congressman from Texas and chair of the Economic Opportunity Subcommittee, asked several of the witnesses, including Robert Worley, director of the VA's education services, if transitioning to a payment method similar to that used under the Montgomery GI Bill—in which benefits are paid on a monthly basis directly to the veterans—would make it easier to administer the program. Worley commented that it would simplify the debt issue, and that he would be "willing to work with the committee on a proposal along those lines." Others were not sure whether such a change would be helpful or might cause other problems.

NACUBO CONTACT Bryan Dickson, policy analyst, 202.861.2505

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OMB Proposes Circulars Reforms

On February 1, the Office of Management and Budget proposed sweeping changes to the federal grants management circulars. The proposal aims to supersede and streamline into one document the requirements from eight existing OMB circulars. The notice follows an advance notice of proposed guidance (ANPG) published on Feb. 28, 2012, which floated numerous reform suggestions. NACUBO, along with several other higher education associations, offered comments on the suggested proposals in the ANPG.

In addition to a number of other modifications to existing policy, OMB proposes to combine, and codify in Title 2 of the Code of Federal Regulations, the following circulars:

Administrative Requirements, including:

  • A-89, Catalog of Federal Domestic Assistance.
  • A-102, Grants and Cooperative Agreements with State and Local Governments.
  • A-110, Uniform Administrative Requirements for Grants and Other Agreements with Institutions of Higher Education, Hospitals and Other Non-Profit Organizations.

Cost Principles, including:

  • A-21, Cost Principles for Educational Institutions.
  • A-87, Cost Principles for State, Local and Indian Tribal Governments.
  • A-122, Cost Principles for Non-Profit Organizations.

Audit Requirements, including:

  • A-133, Audits of States, Local Governments and Non-Profit Organizations.
  • A-50, Audit Follow-up.

Comments on the new proposed guidance are due to OMB by May 2. After the comment period ends, OMB will review all comments received and will issue final guidance, including effective dates. Institutions are encouraged to share their concerns with NACUBO as it develops the association's comments.

NACUBO CONTACT Anne Gross, vice president, regulatory affairs, 202.861.2544

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