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Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark

Lawmakers Continue to Focus on College Costs, Completion

In the upcoming year, not only is there a political race for the White House, but all 435 members of the House of Representatives are up for reelection, and 33 of the 100 United States Senate seats will be contested. American voters remain concerned with a still-struggling economy, and approval ratings for both the president and the Congress are abysmal. That said, election-year politics will be the primary force that shapes and molds the legislative agenda for the second session of the 112th Congress.

Related News:
Ten Significant 2011 Federal Policy Actions Influencing Higher Education

  • Post-9/11 Veterans Educational Assistance Improvements Act of 2010 is signed into law, January 2011.
  • Effort to rescind swipe-fee rule fails and Federal Reserve issues final rules, June 2011.
  • Administration announces final gainful employment rules, June 2011.
  • U.S. District Court rejects state authorization rule, July 2011.
  • Budget Control Act of 2011 addresses Pell Grant program shortfall, protects Pell Grants from sequestration, August 2011.
  • America Invents Act, patent-reform legislation, is enacted into law, September 2011.
  • To ease student loan repayment, President Obama unveils Consumer Financial Protection Bureau's new “Know Before You Owe” project, October 2011.
  • Legislation to repeal the burdensome 3 percent withholding requirement passes, November 2011.
  • President Obama invites a small group of presidents and chancellors to the White House to discuss college costs and completion, December 2011.
  • Congress agrees to maintain maximum Pell Grant at $5,550, but implements certain program restrictions, December 2011.

On Capitol Hill, the state of the economy, the high unemployment rate, and several other events—including the Occupy Wall Street movement—have brought significant attention to American higher education. Policy makers have raised concerns about college completion, the cost of college, state investments in public higher education, federal student aid, and even federal higher education tax benefits. The first session of the 112th Congress set the stage for a closer look at these issues in 2012.

2011 Legislation's Influence on Higher Education

Despite repeated accusations of a “Do-Nothing Congress” in 2011, House and Senate members completed action on a number of items affecting the business of higher education.

Maintain Pell Grant maximum. High on that list was the passage of the final FY12 federal budget, which maintains the maximum Pell Grant award at $5,550. This is a notable success for college students at a time when overall federal domestic discretionary spending has been cut approximately $31 billion compared to last year.

However, to find the budgetary savings to maintain the $5,550 award level in a growing program while still contributing to overall federal deficit reduction efforts, Congress and the White House enacted several reforms to the Pell Grant program and tapped other student aid programs for savings.

The Budget Control Act of 2011, the legislation that lifted the federal debt ceiling last year, provided $17 billion to help fill a shortfall in the Pell budget, but did so by eliminating the in-school interest subsidy for graduate student loans.

The final FY12 budget package, passed in December, made several modifications to the Pell Grant program itself:

  • Students will be eligible for Pell Grants for a total of only 12 semesters (six years), down from 18 semesters (nine years). This provision is prorated for part-time students.
  • The zero Expected Family Contributions (EFC) income level is cut back from $32,000 to $23,000. This is the maximum amount a family can earn before being required to contribute to paying for undergraduate education. The ability-to-benefit test as an option for eligibility has been eliminated—a high school diploma, GED, or home-school completion is now required. Current students will be grandfathered in and will not have to take a GED exam.

To receive the minimum grant, students must be eligible for 10 percent of the maximum grant, instead of the earlier requirement of 5 percent. Protecting the Pell Grant maximum award was a top policy priority for NACUBO in 2011 and will continue as such in 2012. NACUBO engaged in several advocacy efforts to help achieve that goal, including organizing an advocacy day for members of the association's constituent councils representing research universities and comprehensive and doctoral institutions, and contributing to the efforts of the Student Aid Alliance.

Repeal the 3 percent withholding requirement. In November, President Obama signed into law legislation that repeals the 3 percent withholding requirement that was set to take effect in 2013. This was another top priority for NACUBO in 2011, as the burdensome law would have required scores of public colleges and universities to withhold 3 percent of payments made for the purchase of certain goods and services.

Reform the patent system. Also in 2011, President Obama signed the Leahy-Smith America Invents Act, legislation reforming the current patent system. The act implements a new first-to-file system and a new post-grant opposition procedure, which were recommendations of the National Academies Press report, “A Patent System for the 21st Century.” At the bill-signing event, the president highlighted university efforts to promote economic development, noting the positive impact the patent reform law will have on university technology-transfer activities.

Quick Responses Necessary in 2012

While 2011 included a number of legislative accomplishments, Congress left behind several items of unfinished business. Consequently, the soaring federal deficit and uninspiring economic outlook for 2012 leave federal student aid programs vulnerable to cuts, further reform, or even elimination. The year ended with many questions about the direction and focus of President Obama's interest in college costs and college completion and how that interest will take shape as public policy.

Many in Washington believe the president's FY13 budget proposal will include a new higher education program along the lines of the K-12 “Race to the Top” program.

In December, President Obama invited a small group of college, university, and system presidents and chancellors to the White House to discuss college costs and completion. This followed an October 2011 White House unveiling of a plan to ease student loan repayment and the announcement of a new Consumer Financial Protection Bureau “Know Before You Owe” project focused on student loan debt.

Many in Washington believe the president's FY13 budget proposal will include a new higher education program along the lines of the K-12 “Race to the Top” program, which provides federal funds to states that incentivize certain accountability standards and establish new reforms. A higher education program might target graduation rates, reflecting President Obama's college completion agenda, as well as promoting performance-based budgeting. Details will be available upon the release of the president's budget proposal in early to mid-February.

However, it will be tough to get Congress to approve any new programs in the FY13 budget cycle. Because the Joint Select Committee on Deficit Reduction, the so-called “supercommittee,” failed to propose legislation to reduce the deficit, the FY13 federal budget will be subject to an across-the-board cut, required as part of a back-up sequestration plan inserted in the Budget Control Act of 2011. The Center on Budget and Policy Priorities estimates that this will mean 9 percent cuts to most nondefense programs. All federal student aid programs will be subject to this cut except the Pell Grant program, which was specifically exempted from sequestration.

Tax Extenders and Tax Reform

When Congress left Washington in December for a holiday recess, members departed without extending a number of tax provisions that expired on Dec. 31, 2011. Included in the list of expired provisions are (1) the above-the-line deduction for qualified tuition and related expenses and (2) the IRA charitable rollover, which permits donors who meet certain qualifications to roll over their eligible IRAs directly to eligible charities, including colleges and universities. Congress is expected to pass retroactive extensions of these provisions, but the contentious atmosphere on Capitol Hill could complicate this effort.

In addition to the provisions that expired in December, a number of other education tax benefits will expire on Dec. 31, 2012. These include the American Opportunity Tax Credit and the tax-free treatment of employer-provided educational assistance.

The Senate Finance and House Ways and Means committees are eager to take on comprehensive tax reform, most likely in 2013. But this year, as they prepare for reform efforts, they will consider ways to improve and rationalize the federal tax code, expected to be discussed in a continuing series of congressional hearings.

Also in 2012, we anticipate a final report from the Internal Revenue Service (IRS) on its Colleges and Universities Compliance Project, although it remains unclear when the final report will be issued. NACUBO also plans to respond to any proposal in President Obama's FY13 budget request, or other legislation, that limits for high-income taxpayers the charitable deduction or the exclusion of interest earned on tax-exempt bonds.

Regulatory Activities

NACUBO is awaiting action on a number of regulatory fronts in 2012. Final rules are still pending on a broad range of issues affecting college and university business offices, including rules from several federal agencies:

  • The Department of Education, through negotiated rulemaking, on teacher preparation programs and on student loans.
  • The Department of Health and Human Services, on the status of student health insurance coverage under the Affordable Care Act.
  • The Securities and Exchange Commission (SEC), on the definition of “municipal advisor.”
  • The SEC, regarding incentive compensation and the definition of “investment advisor.”
  • The SEC, regarding the transparency of swap markets and the “business conduct standards” requirement for “special entities,” which include pension funds and endowments.
  • The Federal Communications Commission, on the use of prerecorded calls to mobile phones.

In addition to providing guidance on new rules as they are promulgated by the federal government, NACUBO is also following several efforts under way in Washington to address growing concerns with the regulatory burden on college and university campuses. These activities follow the Nov. 29, 2011, release of the Advisory Committee on Student Financial Assistance's final report on streamlining, improving, and eliminating federal higher education regulations. This panel advises Congress and the Department of Education on student financial aid issues.

President Obama issued an executive order last year requiring a governmentwide initiative to review and reform existing federal regulations.

President Obama issued an executive order last year requiring a governmentwide initiative to review and reform existing federal regulations. Cass Sunstein, administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget (OMB), is responsible for responding to this request and is currently leading efforts across the federal government to streamline the regulatory process and address concerns with burdensome regulations.

Also under way is a cross-agency “Research Business Models Working Group,” known as the “A-21 Task Force.” This federal effort was undertaken by OMB and the Office of Science and Technology Policy (OSTP) specifically to examine the partnership between institutions of higher education and the federal agencies that sponsor research activities. The task force will consider revisions to OMB Circular A-21, “Cost Principles for Educational Institutions,” that would ensure responsible oversight of federal research and development investments, but seek to reduce unnecessary compliance costs and administrative burdens at institutions.

And, specific to research universities, the National Academies this year are expected to issue a report with findings and recommendations based on the specific question: “What are the top 10 actions that Congress, the federal government, state governments, research universities, and others could take to assure the ability of the American research university to maintain the excellence in research and doctoral education needed to help the United States compete, prosper, and achieve national goals for health, energy, the environment, and security in the global community of the 21st century?”

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553, @lizclarknacubo