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Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark and Mary Bachinger

Election Results Portend Challenges and Opportunities Ahead

College and university business officers will likely see a significant shift in how federal lawmakers approach issues affecting colleges and universities in the coming years. But, much is still to be determined in the coming weeks as President-elect Donald Trump builds his transition team and as nominees to executive appointments become apparent.

GOP Control

Republicans will have control of the Senate, the House of Representatives, and the White House after January 20, but many different forces will shape the landscape ahead, presenting both challenges and opportunities for institutions of higher education. And, although single-party control of Congress and the White House can pave the way for speedier change in Washington in some respects, other forces will influence the ability to swiftly enact Republican Party platform goals.

First, Senate rules allow any individual senator to block movement of legislation in the Senate with a filibuster—unless 60 senators vote to block that filibuster. With only a 52-vote majority, Republicans are going to have to work with Democrats to enable passage of almost all legislation, with one important exception, budget reconciliation legislation.

Republicans will have control of the Senate, the House of Representatives, and the White House after January 20, but many different forces will shape the landscape ahead.

Through the budget reconciliation process, President Trump and congressional Republicans will have an opportunity to enact comprehensive budget legislation—bills that could include tax and infrastructure spending priorities. The budget reconciliation procedure, among other things, limits Senate debate, and prevents any senator from filibustering.

Another challenge facing GOP leadership is intraparty rancor, an ongoing challenge that has resulted in conflict between moderate pro-business Republicans and the more conservative flank of the party (embodied principally in the House Freedom Caucus).

Further, Trump was such an unconventional candidate; it will often be difficult to predict where his support will fall on issues that are contentious within the range of GOP perspectives.

Priorities for Higher Education

Before the end of September, Trump said little on the campaign trail about higher education. However, during speeches in late September and again in October, Trump offered his ideas on how to make colleges more affordable. In those speeches, he floated a number of proposals, from pressuring institutions with large endowments to spend more on students to reshaping the way students repay federal loans.

Trump also declared that he would compel colleges to cut tuition and said that they could eliminate the "tremendous bloat" in their administrations. However, he also blamed federal regulations for creating burdens and costs.

  • Federal financial aid. The outlook for federal financial aid is currently unclear. Regarding annual appropriations, moderate Republicans have been inclined to support maintaining current-year levels of funding, while conservative members have been arguing strongly for deeper cuts in discretionary spending. The return of year-round Pell seemed possible—the Senate expressed support in the current draft, but the House did not—but now seems unlikely. As Congress reconvenes for its lame duck session in Washington, we hope to have a better understanding of how Republican leaders are reading Election Day results and which direction they are likely to take with federal spending.
  • HEA reauthorization. It will also take time for a Higher Education Act reauthorization package to emerge, as Trump will want his administration to influence the shape of such legislation. However, colleges and universities should prepare for legislation that (1) proposes decoupling accreditation and federal financing; (2) encourages new systems of learning to compete with traditional institutions; and (3) establishes a new "risk sharing" structure among students, banks, and colleges around student loans.
  • Department of Education leadership. It is too soon to identify the individuals on Trump's short list for Secretary of Education. Early reports indicated that the transition team is considering Williamson M. Evers, an education expert at the Hoover Institution.
  • Other issues. During his tenure, President Obama has been both a tremendous supporter of higher education and one of its sharpest critics, with a focus on access and affordability. A GOP-controlled Washington will continue to raise concerns about college costs.

Republicans will also likely sharpen other critiques, including concerns about liberal bias on college campuses. For example, the House Ways and Means Oversight Subcommittee held a hearing in March examining whether tax-exempt colleges and universities "are suppressing the free exchange of ideas on campus" and encouraged students and faculty to report incidents of campus restrictions on their freedom of speech. These concerns could well gain traction in the new environment in Washington.

In recent years, racial tensions on college campuses have resulted in protests, administrative turnover, and renewed investments in creating environments where all students can feel less anxious, more welcome, and focus on being students. At the NACUBO 2016 Annual Meeting in Montréal, during a session on diversity and inclusion, Ray Suarez, journalist, author, and speaker, said "we had no idea just how timely the conversation would be. This country is standing on the knife's edge, with campus unrest bubbling and many of our communities uneasy or already smoldering or recovering from destructive violence."

No matter the outcome, the 2016 Election Day results would probably have forced this conversation on race and diversity to continue. Therefore, institutions of higher education must continue to invest in promoting discourse that spans the divides that were made so evident in America on Election Day.

Tax Reform

House Majority Leader Paul Ryan (R-WI) made clear early this year that tax reform is a top priority. He asked House Ways and Means Committee Chairman Kevin Brady (R-TX) to lead a task force charged with developing a tax reform blueprint. Coupled with Trump's interest in tax reform and infrastructure spending, proposed reforms are anticipated to move forward swiftly during the budget reconciliation process.

While detailed drafts are not yet available, NACUBO is preparing to respond to a wide-ranging scope of proposed changes to higher education that could impact students and their families, the higher education workforce, and the fundamental business operations of colleges and universities.

College and university business officers should be prepared to respond to proposals expeditiously when they emerge.

Regulatory Burden

Colleges and universities will face a somewhat friendlier reception in the administration and in the GOP-controlled Congress when making the case about costs and burdens associated with regulations. There will be calls to eliminate the Department of Education, but such drastic reform would be difficult to achieve. On the other hand, the public's concern with college costs complicates just how much red tape lawmakers will consider removing from the sector. What is clear is that there will be more opportunity to revisit rules and regulations that institutions of higher education find unhelpful to students, families, and colleges.

It is similarly doubtful that the Affordable Care Act will be repealed in its entirety. Trump and the GOP Congress will undoubtedly roll back portions of the legislation (possibly the much despised "Cadillac Tax"), but it will be difficult for Republicans to take away certain provisions favored by taxpayers and to offer alternatives for those who would otherwise be uninsured.

There are many legal limitations to what presidents can do with executive orders. If Trump exercises authority with this vehicle early in his term, it is likely to be focused on reversing any Obama administration executive orders.

Vis-à-vis higher education, colleges and universities should prepare for the implications of Trump reversing the Deferred Action for Childhood Arrivals (DACA) program through an executive order. Indeed, many institutions took action to provide undocumented students access to higher education even before the DACA program, but reversing this executive order will result in students becoming newly concerned about the prospects of deportation for themselves and their families.

Altering the recent regulatory changes to the Fair Labor Standards Act (FSLA) overtime rules would be more complicated. If the Trump administration revisits this rule, it may likely need to reopen the rulemaking process. Further, if Trump takes this course of action, rather than overturn the entire rule, his administration may choose to slow down or revise the automatic increases to the threshold every three years, with such increases taking effect on Jan. 1, 2020.

NACUBO will share further analysis and observations in the days and months ahead.

NACUBO CONTACT Liz Clark, director of federal affairs, 202.861.2553, @lizclarknacubo

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NACUBO Submits 1098-T Comments to IRS

NACUBO, together with 10 other higher education associations, submitted comments, on October 31, on a Notice of Proposed Rulemaking (NPRM) that calls for significant reporting changes for IRS Form 1098-T.

The proposal would implement changes mandated by the Protecting Americans From Tax Hikes Act of 2015 (PATH Act), as well as changes to section 25A enacted as part of the Trade Preferences Extension Act of 2015 (TPEA), but proposed new requirements for colleges and universities go beyond the changes enacted in 2015.

NACUBO collected survey data on 1098-T compliance from nearly 400 institutions in order to understand the potential impact of the proposed changes.

"We fully appreciate the goals of the Internal Revenue Service (IRS) and the Department of Treasury to conform the regulations to statute, to clarify rules, and to establish effective processes that both efficiently enable taxpayers to claim credits due to them and prevent individuals from claiming them erroneously," NACUBO President and CEO John Walda wrote in the letter to the IRS. However, "much of the new information you propose to collect misses the mark and will not bolster compliance efforts vis-à-vis the education tax credits."

A Few Positives   

NACUBO is supportive of parts of the IRS proposal. First, NACUBO commends the IRS for continuing the 1098-T reporting exception for noncredit classes. Second, the association agrees that the reporting exception should be eliminated for students whose qualified tuition and related expenses are paid entirely with scholarships and grants.

Numerous Negatives

However, several of the recommendations in the NPRM will serve only to increase burden and confusion and do not reflect current student financial services practices. NACUBO objected to proposals that would eliminate the current exemptions for reporting on:

  • Nonresident aliens (NRAs).
  • Students whose qualified expenses are paid under a formal billing arrangement where the institution does not maintain a financial account for the student (primarily dual-enrollment and contract education students).

As an alternative to reporting for all NRAs, NACUBO suggested that the IRS might consider requiring 1098-Ts for only those who provided a taxpayer identification number (TIN) to their institution.

  • Tracking payments. The IRS also proposed adding two new data elements to the 1098-T that it argues will help ensure accuracy and guard against fraudulent claims. NACUBO objects to both changes.

The NPRM proposes to require schools to parse out the amount paid for qualified tuition and related expenses (QTRE) related to an academic year beginning in January, February, or March of the coming calendar year. Student accounting systems do not typically identify or track payments in this manner, and most of NACUBO's survey respondents described the proposed requirement of reporting dollar amounts of payments attributable to future terms as either "difficult" or "very difficult," arguing that extensive reprogramming would be required to identify and report these amounts.

  • Defining full-time students. The IRS also proposes adding a box to Form 1098-T for the school to provide the number of months that the student was enrolled on a full-time basis. NACUBO strongly opposed this provision, as colleges and universities do not track student attendance or enrollment by month. Further, schools already face difficulty meeting disparate rules on full-time status imposed by other federal agencies: The Department of Education uses terms based on status as of a census date, while the Department of Veterans Affairs ignores terms and looks at the number of credits the student is taking on a week-by-week basis.
  • Determining payment amounts. In the letter, NACUBO also raised concerns with proposed guidance regarding how schools determine the amount of payments received for QTRE. While this IRS provision is generally helpful, it does not reflect the realities of how the protocols operate for most student account applications of payment. Further clarification of this provision is needed, as there is considerable variation in how institutions understand it. NACUBO suggested that the provision be structured as a safe harbor for institutions, rather than as a requirement.
  • Other continuing concerns. Several longstanding concerns surrounding the 1098-T in the NPRM were also addressed in the letter, including (1) how to treat payments made during the year that are attributable to an academic period that took place in a previous calendar year, and (2) the reporting obligations of foreign institutions that are eligible institutions, since they participate in the Federal Direct Loan program.

NACUBO also has concerns with the implementation of changes to reporting requirements for IRS Form 1098-T, repeating its October 31 request to delay implementation of Box 1 (Amounts Paid) reporting requirements the 1098-T for tax year 2017. "Constant changes to complicated processes are inefficient and expensive to implement. Incremental changes also complicate efforts to educate students, taxpayers, and tax preparers on how to utilize Form 1098-T when claiming education tax benefits," NACUBO noted in the letter.

Publication of the final rules is expected in 2017, but the timeline is unpredictable.

NACUBO CONTACT Mary Bachinger, director, tax policy, 202.861.2581, Anne Gross, vice president, regulatory affairs, 202.861.2544

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