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HEA Reauthorization Bill Heading to House Floor in New Year

January 4, 2018

On December 12, the House Committee on Education and the Workforce approved H.R. 4508, the Promoting Real Opportunity, Success, and Prosperity through Education Reform (PROSPER) Act by a 23-17 vote along party lines after spending 12 hours considering various amendments. The bill would reauthorize the Higher Education Act (HEA), the primary statute laying out the federal government's role in postsecondary education. Democrats complained that committee chair, Virginia Foxx (R-NC) was rushing the markup without providing sufficient time for members to review the 542-page bill, which was first released less than two weeks earlier. Foxx has promised to keep the bill moving and intends to take it to the full House for a vote early this year.

The Senate Health, Education, Labor and Pensions (HELP) committee, on the other hand, has not yet released a reauthorization bill. Chair Lamar Alexander (R-TN) has been working on a bipartisan effort with Patty Murray (D-WA), ranking member, and has suggested that a draft would be released later this winter.

Key provisions of the PROSPER Act include replacing the Federal Direct Loan program with a Federal ONE Loan program, repeal of the Federal Supplemental Education Opportunity Grant, TEACH Grant, and LEAP programs, and changes to the funding formula for the Federal Work-Study program. Other changes that business officers should pay close attention to include disbursing aid "like a paycheck," a new schedule for return of Title IV funds, replacing the cohort default rate measure with a loan repayment rate measure, and changes to the financial responsibility standards for institutions. 

Loans
Most notably, the House bill would reorganize the key federal aid programs, eliminating a number of current programs and replacing the Federal Direct Loan program, including PLUS loans for parents and graduate students, with a new Federal ONE Loan program. Origination fees would be eliminated but interest costs would no longer be subsidized, even for low-income students. Annual and aggregate loan limits would be higher in most cases than for Direct Loans, which would make up some of the shortfall left by the elimination of Perkins Loans. But, whereas a parent could borrow up to the cost of attendance for a dependent undergraduate student under the Direct PLUS Loan program, the ONE loan would be limited to $12,500 per year. Graduate students would face a limit of $28,500 per year.

Student borrowers in repayment would have two repayment options, a standard 10-year repayment plan or an income-based repayment plan (IBR). Payments under the IBR plan would be capped at 15 percent of adjusted gross income over 150 percent of the poverty line, with a $25 per month minimum. Instead of time-based loan forgiveness as in Direct Loan repayment plans, a loan would only be forgiven once the borrower had repaid an amount equal to the total principal and interest that would have been due under the standard 10-year plan.

Employment-based deferments, with a few exceptions for military service and medical internship or residency programs would go away, along with various loan forgiveness provisions.

Grants
The Federal Pell Grant program would remain the cornerstone of the Title IV aid programs, but several other programs, most notably the Supplemental Educational Opportunity Grant (SEOG) would be eliminated. Pell would continue to be financed through a mix of mandatory and discretionary funding. Short-term programs running for as few as 300 credit hours or eight semester hours over at least a 10-week period would become eligible for Pell Grants. A new Pell bonus award of $300 per year would be available to students taking more than a full-time workload.

Federal Work-Study
The PROSPER Act would introduce a new funding formula for the Federal Work-Study program, provide a significant boost to its funding authorization, restrict participation to undergraduate students, and increase the non-federal match from 25 percent to 50 percent. A new "fair share" formula for distributing funds among institutions would look at an institution's Pell funding and undergraduate need relative to other FWS institutions. For institutions that stand to lose funds, the fair share amount would be phased in over five years. Twenty percent of appropriated funds would be directed to institutions with the highest or most improved completion rates for Pell recipients, with no non-federal match required.

FWS would be refocused on work-based learning, and the current emphasis on community service would be eliminated. There would be no cap on private sector employment (currently limited to 25 percent) and funds could also be used for full-time internships for cooperative education programs.

Cash Management
Federal grant and loan funds would have to be disbursed to students in substantially equal weekly or monthly installments over the course of the period of enrollment. This provision, known colloquially as "aid like a paycheck," could add considerably to the work of the business office but may help students budget their funds. Adjustments would be allowed for unequal costs such as upfront costs for tuition and fees. The first installment could be made as early as 30 days prior to the beginning of the term, but must be made no later than 30 days after the start.

Return of Title IV Funds
Over the last few years, as Congress has contemplated HEA reauthorization, one of the ideas that has had the most traction has been increasing the stakes for institutions in the success of their students often referred to as "skin in the game" or risk sharing. In the PROSPER Act this takes the form of changes to the rules on return of Title IV funds (R2T4) when students withdraw.
Under current rules, if a student withdraws prior to completing 60 percent of a term or period of enrollment, Title IV aid is considered "earned" proportionally to the number of days attended. A student who attends for at least 60 percent of the period, is entitled to all Title IV aid awarded. The House bill would instead stretch the withdrawal period through the entire period of enrollment and aid would only be earned in quarters. No aid would be earned unless the student attended for at least 25 percent of the term or period of enrollment, and 100 percent of Title IV aid would only be earned by students who attended the entire period.

HEA Reauthorization Bill Heading to House Floor in New Year

Source: NACUBO

Within 60 days of the determination that a student withdrew, the school would be required to return to ED the amount of grant or loan assistance under Title IV that was not earned. The student is not, however, required to return funds that have not been earned, but the institution may require the student to pay it up to 10 percent of the funds returned to the Department of Education. The bill includes language saying that nothing in this provision should be construed to prevent the institution from enforcing its own refund policies, but it is not clear how the interplay between the 10 percent limitation and the institution's policies might work.

In a reverse of current policy, Title IV funds returned to ED would go first to repay grant aid rather than to pay down a student's loan balances.

Loan Repayment Rate
For more than 20 years, the federal government has used institutions' cohort default rates (CDRs) as a measure of institutional effectiveness. The Obama administration introduced a new metric in its gainful employment rules that looked at the converse-whether former students are making progress in repaying their loans rather than only if they have defaulted. It argued that with the advent of various income-based repayment plans, along with hardship and other deferments, there were too many borrowers who could avoid default but had increasing rather than decreasing loan balances. The repayment rate looked at whether the borrower had repaid at least $1 of the loan principle.

The PROSPER Act would replace the CDR with a loan repayment rate calculated separately for each program offered by the institution. A program with a loan repayment rate of less than 45 percent for three years would lose Title IV eligibility. Loans would be counted as in positive repayment status if they were in repayment and less than 90 days delinquent, paid in full (except by consolidation), or in deferment.

Financial Responsibility
The PROSPER Act would rewrite the statutory language on financial responsibility of institutions participating in the Title IV programs, including a number of recommendations made in 2012 by a task force led by the National Association of Independent Colleges and Universities. (NACUBO participated in that effort.) Institutions would have additional ways to demonstrate fiscal health including bond ratings or expendable net assets equal to or greater than 50 percent of potential annual liabilities for Title IV funds. Provisions requiring ED to follow more timely and transparent procedures, with clear avenues for appeal are also included.

Contact

Anne Gross
Vice President, Regulatory Affairs
202.861.2544
E-mail

Liz Clark
Senior Director, Federal Affairs
202.861.2553
E-mail