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Gainful Employment Notice Published

Posted in Department of Education, Gainful Employment, Higher Education News, Higher Education Policy

Dennis Cariello

As promised, here is the pre-publication version of the gainful employment rule, complete with Preamble (the informal text of the Rule was published earlier) as will be published int eh Federal Register tomorrow.  I suggest you pack a lunch if you are going to read it – the file comes in at 945 pages strong.  Of course, we will do the hard work so you don’t have to – stay tuned to the blog for further updates.

Department of Education Releases Gainful Employment Rule – Eliminates Proposed Programmatic Cohort Default Rate

Posted in Department of Education, Gainful Employment, Higher Education News, Higher Education Policy, Uncategorized

Dennis Cariello

As most readers of this blog probably know by now (around 8:00 am on the east coast), the Department of Education (“Department”) will publish the “gainful employment” rule (“GE Rule” or “Rule”) later this morning.  The informal text of the rule has been made available, although the full draft notice has not been published yet on the Department’s GE website.  In sum, the Rule seeks to impose a return on investment metric to higher education programs at proprietary colleges and on one-year programs at any school (regardless of tax status).  Early reports on the Rule (from Inside Higher Ed and the Chronicle of Higher Education) indicate at least one major variance with the draft rule published in March 2014 – the new programmatic cohort default rate has been eliminated.  The proposed debt-to-income metrics have not been changed.  As this fact sheet explains, the Department estimates approximately 1,400 programs – effecting 840,000 students will be effected.

We will discuss these issues more later this morning when we review the draft text.  In the meantime, here are a few interesting comments/whitepapers that came out of the notice and comment period on the rule:

  • APSCU presentation that reviews the rule and synthesizes the Charles River Report;
  • Mark Kanterowitz’s white paper on the GE Rule;
  • Chris Ross of the Parthanon Group did an analysis of the rule form a student characteristic perspective;
  • Mark Schneider’s report of the American Enterprise Institute on how public and private; and non-profit schools would perform under the GE Rule’s metrics.

New Incentive Compensation Decision

Posted in Department of Education, Higher Education News, Incenitve Compensation, Litigation News

Dennis Cariello

Yesterday, the DC District Court issued an opinion in the continuing saga of the U.S. Department of Education’s 2010 Program Integrity regulations.   The case rejected the Department’s rationale (we discussed this preamble previously) for banning graduation/retention rate bonuses and its explanation on the effect the ban on incentive compensation would have on diversity enrollment.   This Court remanded the issue back to the Department to better justify the reasons for the incentive compensation ban prohibiting these bonuses and to better explore the effect of the ban on minority enrollment.

Interestingly, the Court appeared to reject the Department’s view that everything is a proxy for enrollment when it relates to incentive compensation:

The “proxy” argument is advanced by the Department’s lawyers on summary judgment (in response to an invitation from the Circuit, but is not reflected in the Amended Preamble. Moreover, if graduation rates could be used as a proxy for recruitment numbers, graduation rates would need to serve as a nearly identical substitute for enrollment figures.  Nothing in the administrative record suggests the Department performed such an analysis, even after remand. What the Department stated in the Amended Preamble is the common-sense and irrefutable proposition that “compensation for securing program completion requires the student’s enrollment as a necessary preliminary step.” It cannot be gainsaid that enrolling in a postsecondary program—of any kind—precedes completion; in other words, one cannot end what one has not begun.

If accepted, this rationale would allow the Department to ban all incentive-based compensation in higher education, as enrollment is always a necessary predicate to any assessment of program success or student achievement. Congress specified that postsecondary institutions are prohibited from providing commissions, bonuses, or other incentive payments based “directly or indirectly on success in securing enrollments . . . .” 20 U.S.C. § 1094(a)(20) (emphasis added). Had Congress intended to proscribe all incentive-based compensation, it would have expressly done so by enacting a general ban on incentive payments, not limited to enrollments.  The fact that Congress chose to ban only enrollment-based incentives indicates that any regulatory prohibitions must be reasonably tied to enrollment, without permeating the entire postsecondary education process. (Citations omitted).

Also, it seems the Department will have a tough road in convincing that a graduation-based incentive is inconsistent with the Higher Education Act: Continue Reading

Department of Education Deputy Secretary James Shelton Reportedly Leaving at the End of the Year

Posted in Department of Education, Higher Education News, K-12 News

Dennis Cariello

As reported by EdWeek, U.S. Deputy Secretary of Education Jim Shelton is planning to resign at the end of this year.  “Before being promoted to deputy secretary, Shelton was the assistant secretary for innovation and improvement, where he managed a portfolio of high-profile competitive-grant programs targeted at improving teacher quality, public school choice, and education technology—including the nearly $1 billion Investing in Innovation contest.”  Dep. Sec. Shelton has been a real friend to innovation and technology and a frequent participant and presenter at the GSV Advisers EdInnovations conference.

Also, EdWeek reports that on Wednesday, September 24, Robert Gordon, who has been nominated to succeed Carmel Martin as assistant secretary for planning evaluation and policy, joined the Office of the Secretary as a consultant and senior advisor to Duncan. In this role, Gordon will advise Duncan on top administration priorities and initiatives while his nomination remains pending in the Senate.”

Restructuring in Higher Education

Posted in Bankruptcy, Higher Education News, Higher Education Policy

Dennis Cariello

Since 2011, there have been an increasing number of restructurings in higher education.  What may have started with the foreclosure and sale of ATI Schools and Colleges has continued this year with last month’s conversion of $400 million in debt to equity in the case of Education Management Corporation. Indeed, as Joe D’Angelo from Carl Marks explains, lower profits, increased regulations and lower student enrollment have caused an increase in higher education restructurings in the last three years.

We have handled a number of these restructurings and one legal issue that surprises people is that Title IV institutions cannot file for bankruptcy and remain a Title IV institution.  Section 102 of the Higher Education Act (20 USC 1002) provides that an institution shall not be eligible for the Title IV programs is “the institution, or an affiliate of the institution that has the power, by contract or ownership interest, to direct or cause the direction of the management or policies of the institution, has filed for bankruptcy.”  This restriction is also codified in regulation.  Moreover, although sparse, case law has consistently held that these provisions trump any powers of the bankruptcy court or the non-discrimination provisions of bankruptcy law (the government’s brief in the Lon Morris bankruptcy matter has a good discussion of the legislative history concerning this provision).

Removing bankruptcy from the equation changes the restructuring equation dramatically.  Unlike a typical restructuring, in higher education the institution and its creditors have to come to grips with the reality that creditors are essentially in the position of equity rather than of traditional lenders.    Indeed, creditors must be as concerned about maintaining the institution as a going concern as the institution is.  This is even more the case with for-profit higher education providers.  While non-profit institutions often have substantial assets (such as land and buildings) that it may sell off to pay debts, proprietary schools typically lease space and equipment, thus leaving the institution with only one “asset”: the ability to disperse Title IV funds. As a result, while bankruptcy is a theoretical possible vehicle through which a non-profit school could satisfy its debts (if the parts are truly greater than the sum of the whole), that will almost never be the case for a proprietary school.

As a result, instead of more traditional restructurings, we have seen far more schools and their creditors utilize liability management, cost cutting, shutting down campuses, and consolidation as means of creating liquidity to pay down debt.  In the most problematic cases, however, parties have engineered sales of all or some of the institution as a means of paying down the debt.  So far, three models for doing so have emerged:

1. Debt to Equity Swaps;

2. Foreclosure Sales (including where the creditor(s) purchases the institution through credit bidding); and

3. Pressured Sales (such as with Anthem Education).

Obviously there are various permutations on these and each method has its own positives and negatives and need to be carefully considered.  Also, regulators will need to be involved in approving these transactions which unfortunately will take time.  In the end, however, such transactions can leave institutions with far less debt (or debt-free) and much better able to serve its students.

Great Article of the State of Things with the College Rating System

Posted in College Rankings, Higher Education News, Higher Education Policy

Dennis Cariello

As we have reported a few times, the U.S. Department of Education (Department) is currently working on college rating system. Libby Nelson, formerly of Politico and now the education reporter with Vox, has a great new piece up on the Obama Administration’s attempt at adding college ratings to the College Scorecard.  It provides a nice summary of where things for those new to the issue.  As she explains, the formula for the ratings is expected to be released later this Fall and “will probably be based at least in part on graduation rates, debt levels, and some information on graduates’ earnings.”  [Note – the current College Scorecard reports data  on Average Net Price, Graduation Rate, Loan Default Rate, Median Borrowing and self-reported employment statistics.]  She also discusses a number of the problems with the proposal, not the least of which is the likelihood – given the experience with the lists of colleges with the highest tuition and largest tuition increases – that students won’t consider the information.

While I am generally in the “more information is better” camp, I think there is good reason to think that this doesn’t add much to what is out there.  The Department can only focus on objective data in determining quality and, while those factors should be in the mix (and are considered in many other ratings formats), choosing a college is a fairly subjective process.  The best graduation rates in the world won’t mean much if the school is a bad fit for a particular student.  A definitive grade based on such criteria will, however, raise the potential of turning students off to schools that really would have been a good fit for them, despite not scoring well on Department criteria.

Moreover, although Ms. Nelson reports that the Department plans to address concerns that less selective colleges will be harmed in the scorecard because the student bodies in those colleges are more likely to dropout and take on debt, it seems hard to imagine how the Department will do so – without just awarding points for serving a large percentage of Pell-eligible students.  Such a reward would greatly benefit proprietary schools, which would be a very surprising outcome given this administration’s criticisms of that sector.

New California Law Requires Publication of Accreditation Documents

Posted in Accreditor News, Higher Education News, Higher Education Policy, State Authorization

Dennis Cariello

On September 17, 2014, California Governor Jerry Brown approved Assembly Bill No. 2247. As explained by the Senate Bill Digest, this law “requires all campuses of every public and private postsecondary education institution in California that receives state or federal financial aid funding to make available on the institution’s Internet Web site” specified final accreditation documents.

Codified as Section 66014.8 of the California Education Code, the law specifically requires publication of the final version of any:

  • accreditation visiting team reports;
  • accreditation agency action letters following an accreditation agency’s action relating to an initial accreditation, reaffirmation, comprehensive review, special visit, or
  • any sanction or adverse action taken against an affiliated institution.

An earlier version of the bill also required publication of a institution’s self-study, a provision that was strongly opposed by the Association of Independent California Colleges and Universities (AICCU).

The law applies to public colleges and universities in California, as well as “Private Postsecondary Education Institutions” (a “private entity with a physical presence” in California that “offers postsecondary education to the public for an institutional charge”) and “Independent Institutions of Higher Education” (“nonpublic higher education institutions that grant undergraduate degrees, graduate degrees, or both, and that are formed as nonprofit corporations in this state and are accredited by an agency recognized by the United States Department of Education”).  Some consumer advocates, such as Robert Shireman, the former Deputy Undersecretary of Education at the US Department of Education, have previously called for increased disclosure of accreditation documents for all institutions of higher education.

National Association for College Admission Counseling Issues Guide on International Recruiting

Posted in Higher Education News, Higher Education Policy, Incenitve Compensation, International News

Dennis Cariello

In May 2013, the National Association for College Admission Counseling (NACAC) issued a report considering claims of abuse in the recruiting of international students and the propriety of using commission-based recruiters in that setting.  As a follow up to that report and a decision to permit its member institutions to continue to pay incentive compensation to international recruiters, on September 12, 2014 NACAC issued “International Student Recruitment Agencies: A Guide for Schools, Colleges and Universities” which details concrete steps institutions can take to engage with agencies responsibly.

In the guide, NACAC recommends that institutions that work with international student recruitment agencies should take the following steps:

  • Consult with critical campus constituents to address campus impacts;
  • Develop     a     unified     or     coordinated     institutional     policy     concerning international student recruitment agencies;
  • Communicate     the     institution’s     agency     policy     to     international students and their families, via the institution’s Web site;
  • Develop    a    contract,    involving    campus    legal    counsel,    risk    management and affiliated departments;
  • Identify    and    vet    prospective    agency    contractors;
  • Commit     to     delivering     regular     trainings     and     other     elements     of rigorous, continual quality assurance; and
  • Provide    international    student    support    services    commensurate    with the expected growth and diversification in enrollments.

Department of Education Extends CDR Relief to Schools With Borrowers Facing “Split Servicing”

Posted in Cohort Default Rate, Department of Education, Education Data & Statistics, Higher Education News

Dennis Cariello

In advance of the release of the official FY2011 Cohort Default Rate (CDR) data, the U.S. Department of Education (Department) announced that the Department has “adjusted how it calculates CDRs for any institution that otherwise would have been subject to potential loss of eligibility with the release of the FY 2011 rates.”  The Department, in response to the increased “incidence of borrowers with loans held by multiple lenders and serviced by more than one servicer” (“Split Servicing”) attempted to remove any penalty to institutions occasioned by Split Servicing.  The Department explained:

The adjustment to the calculation excludes from the CDR numerator certain borrowers who defaulted on a loan but who had one or more other Direct or FFEL Program loans in a repayment, deferment, or forbearance status for at least 60 consecutive days and that did not default during the applicable CDR monitoring period. The 60 consecutive days must have been between the date the loan on which the borrower defaulted entered repayment and the date when the borrower defaulted on that loan.  A borrower was only excluded from a CDR numerator if there were one or more non-defaulted loans that met the above criteria for each of a borrower’s defaulted loans.

The Department has made these Split Servicing adjustments for all “three of the most recent official three-year official CDRs (FY 2009, FY2010, FY2011) for any institution that otherwise would have been subject to potential loss of eligibility with the release of the FY 2011 CDRs.”  While these adjustments apparently allowed institutions that would have lost Title IV eligibility due to high CDRs, it is not apparent just how many institutions were effected or what type of institutions most benefited.

This adjustment – which is seen as a boost for two-year colleges – will become less meaningful over time.  This is because the loans relevant to the CDR calculation are increasingly comprised of loans serviced by one Federal loan servicer.  Thus it is doubtful whether this adjustment will be provided in future years, or whether any such adjustment will have a positive effect for institutions.

Cohort Default Rates Decrease; Proprietary School Default Rates Decrease for Third Straight Year

Posted in Cohort Default Rate, Department of Education, Education Data & Statistics, Higher Education News

Dennis Cariello

Earlier today the U.S. Department of Education (Department) released the official three-year Cohort Default Rates (CDRs) for FY 2011.  For the uninitiated, this is a measure of the number of students entering repayment in FY 2011 (entering repayment between October 1, 2010 and September 30, 2011)  that defaulted on their loans (experienced 270 or more days of delinquency on their loan payments). Previously, the Department utilized a two-year CDR metric and merely published three-year CDRs for information purposes.  Of course, if an institution’s 3-year CDR exceed 30% for three consecutive years (or exceeds 40% in any one year), that institution is no longer eligible for Title IV.

As the chart below shows, the CDR has gone down from last year’s 14.7% mark to 13.7%.  Importantly, each school group – save for the 43 private non-profit 2-year colleges — have improved on the previous years’ CDR.   Also, proprietary schools have accomplished their third straight year of declining 3-year CDRs – and have seen CDRs fall from 22.7% in FY2009 to 19.1% in FY2011.

(Click to Enlarge)

It is also interesting that the highest default group remains the 2-year and 2-3 year colleges no matter the sector (public, private non-profit or proprietary).  I would be interested in hearing explanations for this discrepancy and, in particular, why 2-3 years schools have such high default rates.  Indeed, public 2-3 year schools actually have higher default rates than their proprietary peers.  What is it about those schools that make them so susceptible to higher default rates?

Of course, any schools suffering loss of Title IV due to high default rates (there were 21 schools subject to this sanction this year) may appeal for a host of reasons.  The deadlines for doing so are very short – and institutions must advise the Department of the intent to appeal within five business days after the official CDRs are released to the public.

A Look at Higher Education Bills in the House of Representatives

Posted in Higher Education News, Higher Education Policy, News from the Hill, Uncategorized

Dennis Cariello

The House of Representatives has seen a lot of action on the higher education front this year.  Not only has Committee on Education and the Workforce (Ed and Workforce) Chairman John Kline passed a number of bills out of committee that were ultimately passed by the House, but there has been a flurry of other activity in the lower chamber.  Indeed, in addition to “Expanding Opportunity in America,” a proposal put forth by Budget Chairman Paul Ryan that has a number of higher education proposals (and was discussed in our Education Alert last week), the House has seen a broad number of bills to address a host of higher education issues.

The following bills have passed the House:

Advancing Competency-Based Education Demonstration Project Act – H.R. 3136

On September 19, 2013, Representative Matt Salmon (R-AZ) introduced the Advancing Competency-Based Education Demonstration Project Act to the House. The bill passed the House on July 23, 2014 by a vote of 414 to 0, and enjoyed 10 bi-partisan co-sponsors (including Ed and Workforce Chairman John Kline and Ranking Member George Miller).  The bill would create a competency-based education initiative.  Specifically, the bill would

  • Implement competency-based education demonstration projects at up to 20 volunteer institutions.
  • For the pilot programs, allow the Secretary of Education to waive current statutory and regulatory requirements (i.e. seat time and credit hours) to receive funding
  • Require an annual evaluation of each demonstration project to determine successes and obstacles for competency-based education programs going forward.

Strengthening Transparency in Higher Education Act – H.R. 4983

On June 26, 2014, higher Education Subcommittee Chairwoman Virginia Foxx (R-NC) introduced the Strengthening Transparency in Higher Education Act to the House. The bill passed the House by a voice vote on July 23, 2014, and enjoyed 16 co-sponsors (including Reps. John Kline and George Miller). The bill would streamline higher education information disclosures and require publication of those disclosures via one College Dashboard website.

Empowering Students Through Enhanced Financial Counseling Act – H.R. 4984

On June 26, 2014, Rep. Brett Guthrie (R-KY) introduced the Empowering Students Through Enhanced Financial Counseling Act to the House. The bill passed the House on July 24, 2014 by a vote of 405-11, and enjoyed 16 co-sponsors (including Reps. John Kline and George Miller).  The bill would:

  • Ensure yearly interactive counseling for all borrowers (not just first-time borrowers) tailored to their individual borrowing circumstances. Counseling can be either online or in-person to suit the borrower’s needs.
  • Require borrowers to consent each year before receiving federal student loans.
  • Require annual counseling about Pell Grant program.
  • Create a consumer-tested, online counseling tool for institutions to act through when providing counseling.
  • Remove “sample information showing the average” from borrowing explanations, and replace with info based on the borrowers actual outstanding balance.

In addition, the following bills have also been introduced in the House: Continue Reading

New Jersey to Consider Price Caps on Higher Education

Posted in Financial Issues, Higher Education News, Higher Education Policy

Dennis Cariello

There are many possible responses to the problem of the increasing cost of higher education.  Once such response is to impose price controls on colleges and universities.  Last week, the committe on higher education in the New Jersey Assembly voted 6-0 (with 2 abstentions) to approve a bill (A2807) that would prohibit all four-year colleges and universities — public and private (except for Princeton University) — “from raising the tuition of undergraduate students who are from New Jersey for nine continuous semesters after they enroll.”

The bill, sponsored by Assemblyman Joseph Cryan (D-Union), would except Princeton University (or any institution with an endowment of $1 billion or more) from coverage.  In addition, “students who take a leave of absence of more than one year would have to pay the new tuition rate.”

An article on the measure notes that a number of representatives of college an universities opposed the measure.  Indeed, “Michael Klein, executive director of New Jersey Association of State Colleges and Universities, said a tuition freeze could hurt schools’ bond ratings, making it more expensive to borrow money. And he said the state bears responsibility for continually underfunding higher education.”

For the bill to become law, it must pass the New Jersey Assembly and Senate, and then be signed by the Governor.

More on the Higher Education Legislative Proposals from the Senate

Posted in Higher Education News, Higher Education Policy, News from the Hill

Dennis Cariello

Continuing in our series of reviews of higher education bills that may be influencing the upcoming Higher Education Act reauthorization.  Please be sure and look at the first part in our review of bills, and the Alert we distributed last week that kicked this series off.

Higher Education Reform and Opportunity Act – H.R. 4612 / S. 1904

On January 9, 2014, Senator Mike Lee (R-UT) introduced the Higher Education Reform and Opportunity Act of 2013 (Rep. Ron DeSantis (R-FL) introduced a related bill to the House on May 8, 2014.) In a move to encourage innovation, this bill would allow states – through an agreement with the Secretary of Education – to create alternative accreditation process for institutions of higher learning.  Like currently existing forms of accreditation, state-created accreditation processes would be a gateway to Title IV participation by the accredited institution.

Importantly, these new alternative accreditators could confer accredited status on, among other things, any “postsecondary education course or program offered at an institution of postsecondary education, a nonprofit organization, or a for-profit organization or business” so long as the “entity provides credit that will apply toward a postsecondary certification, credential, or degree.”  In sum, companies like StraighterLine and the various MOOCs in existence can become Title IV eligible.

CREATE Graduates Act – S. 2506

On June 19, 2014, Senator Kay Hagan (D-NC) introduced the Correctly Recognizing Educational Achievements to Empower (CREATE) Graduates Act to the Senate. The bill would:

  • Authorize grant funding to institutions that will locate and award degrees to former students in the workforce who have enough accumulated education credits for an associate’s degree, but  never received one
  • Provide outreach to students within 12 credits of obtaining an associate’s degree and implement procedures to help future students receive degree audits and other important information about graduation requirements.
  • Establish partnerships between 2-year and 4-year institutions to help students transition into a bachelor degree program after earning an associates degree.

Student Right to Know Before you Go Act – S. 915 / H.R. 1937

On May 9, 2013, Senators Ron Wyden (D-OR) and Marco Rubio (R-FL), and Rep. Duncan Hunter (R-CA), introduced the Student Right to Know Before You Go Act to both houses of Congress. The bill would provide for more accurate and complete data on student retention, graduation, and earnings outcomes at all levels of postsecondary enrollment. To accomplish this, the bill would, among other things:

  • “Replace existing IPEDS reporting requirements with a state-based and individual-level system which excludes any personally-identifiable data.”
  • Require the new data systems to match individual transcript data to post-graduation employment and earnings outcomes
  • Further support a federal Statewide Longitudinal Data System
  • Make the data system – which would be disaggregated and not include personally-identifiable data – available for research.

Creating Higher Education Affordability Necessary to Compete Economically Act – S.2374 / H.R. 4902

On May 21, 2014, Senator Mary Landrieu (D-LA) introduced the Creating Higher Education Affordability Necessary to Compete Economically Act. (Rep. Loretta Sanchez (D-CA) introduced an identical bill to the House on June 19, 2014.)  The bill would:

  • Increase maximum Federal Pell Grant for 2014-2015 academic year, and award additional Pell Grants to students who have already received the grant.
  • Raises the period in which students may receive Pell Grant funding from 12 semesters to 15 semesters.


Senators Harkin and Merkley Introduce “Protecting Students from Worthless Degrees Act”

Posted in Higher Education News, Higher Education Policy, Marketing and Recruiting, News from the Hill, State Authorization

Dennis Cariello

As part of our review of currently pending higher education legislation, we wanted to let you know about a recently introduced bill that was introduced after the release of our Education Services Alert last week.  On September 19, 2014, Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Senator Jeff Merkley (D-OR) introduced the “Protecting Students from Worthless Degrees Act,” which is designed to “crack down on worthless degrees peddled by unscrupulous academic institutions.”  Although the bill text was not immediately available, it is likely that the bill would closely resemble a bill introduced by Senators Harkin and Merkley (and Senator Barbara Mikulski) under the same name in 2012.

In short, the bill would require that institutions offering programs that lead to licensure or the ability to sit for a licensure exam to meet the standards to allow graduates to obtain such licensure in the state in which the institution is operating – including obtaining any programmatic accreditation.  Additionally, the institution must disclose to any potential student if the program does not qualify a graudate to obtain licensure or sit for a licensure exam in a state in which the student is located.


Our Thoughts on the Current Higher Education Legislative Proposals

Posted in Higher Education News, Higher Education Policy, News from the Hill

Dennis Cariello

Late last week we released an Alert entitled,”Congress and the Higher Education Act: what’s on the table? What’s to come? Our look at the major proposals,” which summarizes our views on where things stand legislatively in higher education.   In it we try to do some trend spotting while summarizing the various bills out there dealing with higher education, as well as review the proposal from Budget Committee Charmian Paul Ryan, who issue a detailed paper on his proposed reforms, albeit not in formally introduced legislative language.

There is a lot out there and as you would imagine, we had to condense things a bit.  As a result, we will be releasing our somewhat longer summaries on the blog, in case you are interested. Today, we turn our attention to two Senate bills — also recently discussed by American Council on Education Senior VP for Government Relations, Terry Hartle — one from the outgoing Chairman of the Committee on Health Education Labor and Pensions (HELP) and one from the current Ranking Member of that committee – who will likely be the Chairman is the Republicans take control of the Senate.  Continue Reading

September 5 Deadline to Sign New MOU for Department of Defense Tuition Assistance Programs

Posted in Higher Education News, Military Education

Patricia V. Edelson

On May 15, 2014, the Department of Defense (“DoD”) published to the Federal Register Change 2, DoD Instruction 1322.25   “Voluntary Education Programs,” that establishes policy stating the eligibility criteria for tuition assistance (“TA”) and the requirement for a memorandum of understanding (“MOU”) from all educational institutions providing educational programs through the DoD TA Program.

Change 3 to the DoD Instruction 1322.25, “Voluntary Education Programs,” was issued on July 7, 2014. Change 3 requires aLL educational institutions to sign the DoD MOU by 11:59 p.m. EST on September 05, 2014. If you have already signed the May 23rd version of the DoD MOU you must acknowledge the Change 3 revision by signing a certification statement acknowledging that you have reviewed Change 3 and accept all modified terms of the agreement.

The program is designed to improve oversight of the educational programs offered to our service members and their families by establishing new uniform rules that ensure a quality DoD’s Tuition Assistance Program to increase protections to service members and their families through an enhanced MOU partnership with educational institutions. The initiative is part of the president’s Executive Order for Principles of Excellence released April 27, 2012.

The Executive Order stated that we owe the same obligations to this generation of service men and women as was afforded previous one under the GI Bill. This is the promise of the Post-9/11 Veterans Educational Assistance Act of 2008 (title V, Public Law 110-252) (“Post-9/11 GI Bill”) and the continued provision of educational benefits in the DoD’s TA to provide our service members, veterans, spouses, and other family members the opportunity to pursue a high-quality education and gain the skills and training they need to fill the jobs of tomorrow.

DoD policy requires educational institutions that wish to participate in the DoD TA program to sign an MOU conveying the commitments and agreements between the educational institution and DoD prior to an educational institution receiving funds from a service’s TA program. The memorandum can be found at  The TA program provides opportunities for service members to realize their educational goals but includes oversight of taxpayer dollars. Continue Reading

Department of Education to Release Gainful Employment Rule Tomorrow Morning

Posted in Gainful Employment, Higher Education News, Higher Education Policy, Uncategorized

Dennis Cariello

Politico has just reported that the Department of Education will be releasing the gainful employment rule tomorrow morning.  From the reports, it appears that the rule is substantially similar to the one discussed at the December 13, 2013 negotiated rule making session.   The rule should appear on the Department’s website Friday morning.

Department of Education Sends Proposed Gainful Employment Rule to the Office of Management and Budget

Posted in Gainful Employment, Higher Education News, Higher Education Policy, Uncategorized

Dennis Cariello

As reported on the website for the Office of Management and Budget (OMB), on January 30, the Department of Education (Department) sent its version of the gainful employment (GE) rule to OMB (specifically, the Office of Information and Regulatory Affairs (OIRA)) for review.  Pursuant to Executive Order 12866, this review process typically lasts up to 90 days, with a possibility of a 30 day extension – although it is possible for this process to take longer.

For those that haven’t been following the ins and outs of the GE negotiated rulemaking, in late August/early September the Department proposed a “gainful employment” rule designed to impose a return on investment calculation for programs that are designed to lead to gainful employment in a recognized profession (namely, nearly all programs at proprietary schools, and certificate programs at nonprofit schools).  This proposal was very similar in form to the rule it published in 2011, containing debt-to-income and debt-to-discretionary income measures, but without the repayment rate that was invalidated by a judicial decision in June 2012.  In November, it greatly modified that proposal, including a programmatic cohort default rate — that is, applying the institutional cohort default rate regulations to each program — and added a repayment rate metric, which requires that the relevant cohort of borrowers (all students that left a program in their third and fourth years of repayment) have reduced the principal amount of the loans owed during the cohort period (the portfolio cannot be “negatively amortized”).  In December, however, the Department further revised the proposal, including eliminating the repayment rate metric.  For those interested, the Department maintains a website that has all the proposals from the Department and the negotiators, as well as additional data and analysis.

Given the fairly quick turnaround from the last session (December 16, 2013), my guess is the GE rule at OMB now is fairly consistent with the rule proposed prior to the December 16 negotiation session.  This would mean that a few of the December changes to the rule — (1) the lack of  a repayment rate; (2) a programmatic cohort default rate of 40% or more is no longer grounds for immediate loss of Title IV eligibility; (3) programs can avoid failing by providing students with institutional scholarship to reduce their debt burden; (4) programs are only charged with the debt incurred by students up to the level of tuition and fees charged – would likely be in this version.  It is unclear what the Department would do with other ideas expressed at the negotiation table, but for which there was a lack of data or time to evaluate.  One such proposal was exempting “exceptional performers” — schools with a three-year Cohort Default Rate below 10% — from having to comply with the rule.

Pursuant to Executive Order 12866 (as amednded by Executive Order 13563), OIRA must provide the public with “meaningful participation in the regulatory process.”  This typically means that persons or entities effected by a proposed rule may attempt to schedule time with OIRA to discuss the rule.  This can be a useful meeting, as OIRA typically reviews proposed regulations with a different perspective than the issuing agency.  However, a log of such meetings is publicly available (non-federal employee attendees are listed) and documents provided to OIRA can also be made available to the public.

Article on OCR’s Letter Regarding Rights of Disabled On Rights of Disabled Students to Participate in Extracurricular Activities

Posted in Athletics, Civil Rights & the Constitution, Department of Education, Higher Education News, Higher Education Policy

Dennis Cariello

A few months back, we discussed a dear colleague letter the Department of Education’s Office for Civil Rights published related to the rights of of disabled students to participate in extracurricular activities.  Subsequently, we had the opportunity to publish a longer article in Bloomberg/BNA Law Week.   As always, your comments are most welcome.

In the Tax Reform Crosshairs: The Advertising Deduction

Posted in Higher Education News, News from the Hill, Tax Issues

Dennis Cariello

Under current law, advertising costs are fully deductible as an ordinary business expense. As our DLA Piper colleagues Evan Migdail and Bruce Thompson write in a new client alert: “Both the House and Senate Tax Committee chairmen are considering proposals to limit the deduction for advertising expenses.”

As they report, Senate Finance Committee Chairman Max Baucus (D-Montana) has released a detailed discussion draft on business tax reform which includes a proposal to limit the advertising deduction to 50 percent, with the balance amortized over 5 years.  In that proposal (see page 104),  an “advertising expenditure” is defined (starting on page 105) as any expenditure paid or incurred for the development, creation or placement of advertising, or for any similar activity with respect to advertising. “Advertising” is defined as any message or other programming material which is broadcast or otherwise transmitted, published, displayed or distributed and which promotes or markets any trade or business, service, facility or product.  Importantly, “any amounts paid to employees and contractors for performing sales functions” are excluded from the definition of advertising.

Crucially, “House Ways and Means Committee Chairman Dave Camp (R-Michigan) is said to have a similar provision in his tax reform plan – which has yet to be released – limiting the deduction to 50 percent, with the balance amortized over 10 years.”  Given the apparent agreement on this point (at this time), this proposal must be treated as serious.

It remains to be seen, however, whether certain functions – such as online lead generation – will be classified as “advertising” or whether amounts paid for lead will be classified as “amounts paid to . . . contractors for performing sales functions.”

For more, please look at the client alert.

According to New NCES Study, Proprietary Higher Education Reduces Costs for Students by Over 10% Since 2007-08

Posted in Department of Education, Higher Education News, Uncategorized

Dennis Cariello

Yesterday, the National Center for Education Statistics released the 2011-2012 National Postsecondary Student Aid Study.  This report focuses on the average price of attendance paid by students to attend institutions of higher education (price of attendance includes tuition, fees, books and materials, housing, food, transportation, and personal expenses), and also specifies the “net price” (price of attendance, less grants) and the out-of pocket expenses (price of attendance, less grants and other aid, such as loans or work study).

There are a few findings of note, as we try to show below, which is derived from Tables 1-3 in the study:

2011-12 – Full Time Undergraduate Students

Institution Type

Public 2-year Public 4-year Private Nonprofit 4-year Private For-profit 2-year Private For-profit 4-year Private For-profit 2-year or more
Annual Price of Attendance $15,000 $23,200 $43,500 $29,700 $29,200 $29,200
Net Price $7,100 $14,300 $23,000 $18,600 $16,600 $17,100
Net “Out of Pocket” $6,000 $9,600 $15,000 $12,400 $9,000 $9,900

2007-08 – Full Time Undergraduate Students

Institution Type

Public 2-year Public 4-year Private Nonprofit 4-year Private For-profit 2-year or more
Annual Price of Attendance $13,600 $20,400 $38,800 $32,900
Net Price $6,400 $13,200 $22,300 $20,300
Net “Out of Pocket” $5,600 $8,800 $14,200 $11,500

From the chart below, what we see is that while higher education overall has increased the cost of attendance over the last four years, for-profit institutions have actually reduced the cost of attendance:

Institution Type

Public 2-year Public 4-year Private Nonprofit 4-year Private For-profit 2-year or more
2011-12 Annual Price of Attendance $  15,000.00 $  23,200.00  $  43,500.00  $  29,200.00
2007-08 Annual Price of Attendance $  13,600.00 $  20,400.00  $  38,800.00 $  32,900.00
Difference  $    1,400.00  $    2,800.00  $    4,700.00  $  (3,700.00)
Percentage Change





2011-12 Net Price of Attendance  $    7,100.00  $  14,300.00  $  23,000.00 $  17,100.00
2007-08 Net Price of Attendance  $    6,400.00  $  13,200.00  $  22,300.00  $  20,300.00
Difference  $        700.00  $    1,100.00  $        700.00  $  (3,200.00)
Percentage Change





Note, I have not considered students as a whole because part time students, which are disproportionally located at for-profit and 2-year public colleges, would have the effect of lowering the average and net price price.  So, by looking at full-time student, we get a fairly apples-to-apples comparison.


The reduction in cost of attendance at for-profit schools, relative to the industry, is fairly dramatic.  Looking at net price – which is fairer to private non-profits which commit substantial sums to institutional scholarship – we see a significant reduction in the cost gap between for-profit schools and public colleges.  In fact, on average, a four-year public college will only cost $2,300 less (net price) than one at a for-profit 4-year college.

There are, no doubt, reasons for all of this.  Declining state expenditures on higher education have forced public institutions to raise tuition.  On the other hand, proprietary schools, and to a lesser extent, private non-profit institutions, have had reasons to reduce price or commit to large institutional scholarships to attract students in the face of declining student demand.  It is, however, a positive story that proprietary institutions have responded to consumer demand and reduced price.  I do wonder how much further price would be lowered if the 90/10 rule were repealed.

Notes from the FSA Conference Day 1

Posted in Department of Education, Financial Aid (Loans & Grants), Higher Education News, Higher Education Policy

Patricia V. Edelson

As usual, the it is a well attended conference Federal Student Aid (FSA) Conference here in Las Vegas is well attended.  It is nice to catch up with so many friends from schools and the Department of Education.  It is also a great opportunity to here about the upcoming initiatives for FSA and what FSA thinks schools should be focusing on.

The first day of the conference opened with a General Session and welcome.  The presenters for this session were FSA COO Jim Runcie, Jeff Baker, and Lynn Mahaffie.   They provided various updates concerning Department of Education’s Title IV activities and initiatives.  They also mentioned that there will be an experimental site announcement in an upcoming federal register.  Also, FSA encouraged schools to adopt the Shopping Sheet that was introduced last year.  While it is still not a requirement except for military students, currently 19,000 schools have signed up to use it.

One hot topic was the impact of the unconstitutionality of the Defense of Marriage Act (DOMA) on student aid. As you may recall, last term, the Supreme Court overturned DOMA and, as a result, the federal government must recognize marriages between same sex couples for federal benefit purposes.  For aid purposes, this means that if a student (or parent of a dependent student) is legally married they would file the FASFA as married, regardless of gender. This is effective in the current year and appropriate language will be included in the 2014/2015 FAFSA. Students (or parents) who are in a same sex marriage, but who already filed their 2013/2014 FAFSA, but could have filed married at the time they filed, may now correct their ISIR and file married. They may correct marital status, but are not required to. New filers must file married and a DCL will be coming out early next week with guidance. “Legally married” applies regardless of State of current residence. Conversely, if parents aren’t married but living together they will be required to report both incomes.

New on the verification horizon, the Department has eliminated the verification group V2, which required verification of SNAP benefits and added a new Group V6 that will require verification of income in cases where income and household size are inconsistent.

The upcoming negotiated rulemaking sessions were also discussed, and special note was made of the upcoming sessions related to VAWA and the Clery Act regulations, as well as the use of third parties to disburse Title IV aid.


Supreme Court Declines to Hear Liberty University’s Challenge to Affordable Care Act Suit

Posted in First Amendment, Health Care, Higher Education News

Dennis Cariello

As reported by multiple sources on Monday, the U.S. Supreme Court  declined to wade into the constitutionality of the Affordable Care Act’s (ACA) employer mandate.  Liberty University, a Christian university in in Lynchburg, Virginia, challenged the law’s employer coverage requirements, individual mandate and contraception coverage requirements as violative of the commerce clause.  Of particular note was Liberty University’s argument that the ACA and its implementing regulations violated the university’s religious rights by forcing Liberty University and its officials to fund abortions and to provide contraceptives.  While a lower court upheld the law in Liberty’s case, the Supreme Court took two other cases, brought by the Hobby Lobby craft-store chain and Conestoga Wood Specialties, that focus specifically on the law’s contraception coverage requirement and these for-profit companies’ claim of religious exemption.

On December 3rd, House Subcommittee to Discuss Proposals to Strengthen Pell Grant Program

Posted in Financial Aid (Loans & Grants), Higher Education News, Higher Education Policy, News from the Hill

Dennis Cariello

On Tuesday, December 3rd at 10:00 a.m. in room 2175 of the Rayburn House Office Building, the Subcommittee on Higher Education and Workforce Training, chaired by Rep. Virginia Foxx (R-NC), will hold a hearing entitled, “Keeping College Within Reach: Strengthening Pell Grants for Future Generations.”  The hearing will be webcast for those not able to attend.

The witnesses for the hearing will be:

Mr. Justin Draeger
President and CEO
National Association of Student Financial Aid Administrators
Washington, D.C.

Dr. Jenna Ashley Robinson
Director of Outreach
John W. Pope Center for Higher Education Policy
Raleigh, North Carolina

Mr. Michael Dannenberg
Director of Higher Education and Education Finance Policy
The Education Trust
Washington, D.C.

Mr. Richard C. Heath
Director, Student Financial Services
Anne Arundel Community College
Arnold, Maryland