Negotiators working to help the Department of Education draft new regulations on state authorization, cash management, and adverse credit determinations for PLUS loans ended their meetings without reaching consensus after failing to find middle ground.
In the end, the Program Integrity and Improvement (PII) negotiated rulemaking committee agreed with draft rules on four of the six issues on its agenda, but could not compromise on two of the more divisive issues: state authorization for distance education and cash management rules on sponsored bank accounts.
No Happy Medium
As with prior meetings, there was considerable discussion at the final session held May 19-20 on both state authorization for distance education and the cash management rules for sponsored accounts, with little movement on either. The key sticking points on state authorization were ED's insistence that each state had to have an active process for approving an institution to provide distance education that took into account factors in addition to accreditation, history, physical presence, etc., and a provision requiring institutions to provide specific information on whether programs met licensing or certification requirements and collect affirmations from students that they understood possible limitations.
A small subcommittee, including NACUBO's representative, Joan Piscitello from Iowa State University, met for more than four hours on the final day to try to find a compromise on the cash management issues. The definition of sponsored accounts and the restrictions that would be imposed on them were the primary points of contention. (See this earlier article for more discussion of these issues.)
For sponsored accounts unrelated to credit balance disbursement processes, banking and institutional representatives were ready to accept requirements related to transparency, a clear duty to negotiate deals in the best interest of students, and providing information in a clear and neutral manner. They balked, however, at extending specific fee restrictions on such accounts and an ED proposal that would require institutions to specifically call out such accounts as a separate option as part of their credit balance disbursement process. Most representatives of third-party service providers and financial institutions were also opposed to a proposed requirement that, in addition to banning monthly service fees and a number of other account fees, would have required that students be provided two free out-of-network ATM withdrawals per month.
Compromise Reached on PLUS Loans
The fourth and final meeting of the PII committee was added to the schedule primarily to allow sufficient time to consider changes to ED's rules on the criteria it uses in making adverse credit determinations for Parent PLUS loans. Efforts to provide the committee with requested data had slowed progress on this issue in relation to the others on the agenda.
Several years ago, ED instituted more stringent standards for measuring creditworthiness of applicants for Parent PLUS loans and loan denials rose sharply. This caused an outcry, particularly from institutions serving large numbers of low-income and minority students such as historically black colleges and universities that saw the move as limiting access for students with few financing alternatives.
The group agreed to draft rules that compromised between institutional representatives arguing for more lenient standards and consumer representatives concerned about overborrowing. The draft rules would narrow the definition of an adverse credit history to debts with a combined balance greater the $2,085 (to be adjusted over time) that are 90 or more days delinquent, placed in collection, or charged off during the preceding two years. Further, the rules would allow parents to borrow despite an adverse credit history if they can document extenuating circumstances and complete PLUS loan counseling offered by ED.
Where Do Things Stand?
Under the protocols for the negotiated rulemaking process, consensus is defined as the absence of dissent. Although the group indicates its tentative consensus on each issue separately, in the end, all of the issues are considered together in determining whether there is consensus on the regulatory package. If the negotiated rulemaking committee reaches consensus, ED is bound to propose the rules as agreed. If not, ED is free to draft proposed rules on its own. The department usually honors compromises reached on issues where agreement was reached, but is not legally bound to do so.
The master calendar provisions in the Higher Education Act require final rules to be promulgated no later than November 1 in order to take effect the following July. This means that, as a practical matter, ED needs to issue a proposed rule for public comment probably no later than mid to late July.