Negotiations on Program Integrity and Improvement Remain Contentious

Negotiators on the U.S. Department of Education's Program Integrity and Improvement (PII) negotiated rulemaking committee made progress on several important topics during the third round of negotiations (April 21-23), but remained deeply divided on a number of other issues. The most contentious are rules on state authorization for distance education and those governing disbursement of federal aid and sponsored bank accounts. A fourth round of meetings has been added for May largely to provide more time to address changes to the rules governing adverse credit findings for parent PLUS Loans, although agreement seemed closer on those.

The group reached tentative consensus on three of the six issues on the table, including state authorization for foreign locations of domestic institutions which had originally been more controversial. ED softened its position on the need for authorization to provide postsecondary education overseas, agreeing to limit the requirements to situations in which 50 percent or more of an educational program was offered at a foreign location. This is likely to exempt most study-abroad programs. Language describing authorizations was also changed to be less prescriptive. (Note that these rules would not apply to partnerships with foreign institutions or programs offered abroad to foreign nationals.) The committee also agreed with draft language for regulations on two lesser issues: retaking coursework and clock-to-credit-hour conversions.

Distance Education

When ED first addressed state authorization for distance education in a final rule issued on October 29, 2010, an institution was required to seek authorization to provide distance education to state residents if the state mandated that it do so. Many states have no requirements or offer exemptions based on accreditation or on the level or type of operations in the state. This rule was subsequently stayed by a court on procedural grounds since it was introduced in the final rule stage in response to a public comment on the proposed rules and had not been vetted in a negotiated rulemaking process. In the meantime, the attention focused on the issue has raised awareness among institutions (and state regulators) about existing state requirements and the need to comply regardless of federal rules. In response, the four regional state compacts for higher education have spent the last two years developing the recently launched State Authorization Reciprocity Agreement (SARA).

The drafts that ED has put forth at the negotiating table have taken the notion of state authorization for distance education much further: In order for students to be eligible for Title IV aid for distance education courses, the institution must be authorized by the state in which the student resides. ED softened its stance somewhat at the April meetings by proposing to limit the mandate to programs where 50 percent or more of the program is or will be offered by distance education and later by proposing a trigger of 30 students residing in a state before the authorization requirements would kick in. In a major point of contention between ED and distance education experts and institutional representatives, however, ED insisted that states could not exempt institutions from authorization requirements solely on the basis of accreditation, years of operation, or physical presence tests.

NACUBO is concerned, as are others representing higher education institutions, that the rule as currently drafted would put a major burden on both institutions and states. More than half the states do not currently require institutions to register to provide distance education. They would need to pass legislation and develop bureaucratic capacity to do so, potentially for more than 1,000 institutions. In addition, institutions would be faced with either trying to register in 50 states or restrict the states in which students can live and receive federal aid. SARA would obviously be a huge help for both sides, but time is needed for states to pass necessary legislation and join (seven states have applied so far). A complicating factor is that ED doesn't regulate the states. It regulates institutions and some question whether out-of-state institutions have much leverage to get states to take action.

Cash Management

ED dropped its early proposal to require institutions to maintain separate bank accounts for Title IV funds in its revised draft of the cash management rules, provided before the start of the April meeting of the PII committee. The prohibition on sweep accounts was also removed, although current provisions allowing funds to be maintained in an investment account are gone so Title IV funds would have to be in insured bank accounts.

Smaller caucuses are sometimes quite helpful in forging compromises on difficult issues. Representatives of banks and other financial service providers devoted hours at the April meeting to developing a compromise version of draft provisions on making direct payments to students and sponsored accounts, including meetings with student/consumer representatives. The resulting proposal then formed the basis for much of the discussion of these issues. At meeting's end, some progress had been made but ED signaled its continuing concerns about several of the proposals. Key points of debate remain the definition of a sponsored account and the extent to which accounts that are unrelated to Title IV credit balance disbursements should be subject to the regulations, sharing student information with servicers, and mandated fee schedules for sponsored accounts.

Next Steps

The PII committee will hold its final meeting May 19-20. At the end of that time, negotiators will be asked to come to consensus on draft rules for the entire package, comprised of the six issues on the agenda. If consensus (defined in this case as an absence of dissent) is reached, ED will be bound to formally propose the rules as agreed. If not, ED will be free to determine what rules to propose. There will be opportunity for public comment when the proposal is officially published.

Resources

ED is maintaining a web page where most of the documents provided to the PII committee are posted. Note that the drafts of regulatory language are those that were provided to the committee prior to the April meeting and do not reflect revisions made during the course of the meeting.