Higher Ed’s Last Call on Federal Funding Regulations

Five of the regulatory topics negotiators worked on over the past year are being delayed until late spring of 2023. These topics are ability to benefit, administrative capability standards, financial responsibility, change of ownership or control, and most importantly, gainful employment.

Thanks to Arnold Ventures for supporting this work.

We’ve seen the story too many times now: Predatory schools lure students like Jennifer Wilson into low-quality programs, where they take out thousands of dollars in federal student loans only to eventually discover that their programs are worthless — while their debt grows and grows.

The regulation of federal financial aid programs has been under review for the past year as part of the U.S. Department of Education’s negotiated rulemaking, or NegReg. It’s now hit third base and is heading for home with the Notice of Proposed Rulemaking (NPRM) and comment period, which should begin this month.

The Notice of Proposed Rulemaking (NPRM) is the official notice of the agency’s plan to create a final regulation — in this case a draft set of rules on federal financial aid that will impact students, higher education institutions, and taxpayers. Before the draft becomes official rule, the Department of Education will hold a final call for public comments on the proposed regulations.

What is NegReg?

NegReg is a laborious process required whenever the Department of Education intends to change any regulations that affect Title IV of the Higher Education Act.

Who’s Involved: The Department of Education convenes a negotiated rulemaking committee composed of representatives from public, for-profit, and private nonprofit institutions of higher education; financial aid administrators; legal aid organizations that assist student loan borrowers; accreditors, service members and veterans; consumer protection organizations; civil rights groups; State Attorneys general, and students. 

What They Do: The committee discusses proposed changes to regulations and negotiates with the Department of Education to craft a final proposed rule.

The Result: If the committee reaches a consensus (unanimous agreement) on language, the rule is published in an NPRM using the language negotiators agreed to. If the committee fails to reach a consensus, the Department of Education has the freedom to craft its own proposed rule in the NPRM, though often that rule will consider proposals made during negotiations. This NPRM on federal financial aid is a result of a year of hard work from two committees.

What do these regulations do?

The regulations address concerns surrounding affordability and student loans, and they verify that institutions eligible to distribute federal financial aid are held to minimal standards — schools must meet a level of quality via accreditation so that students receive degrees with value. Without that level of quality, students are left worse off than if they hadn’t enrolled.

Given the range of often competing interests, the NegReg committee members reached consensus on only six of the rules. The draft language for those six rules will be the same in the NPRM as it was at the conclusion of NegReg. The rest of the rules were put into draft language by the Department of Education and may have changed between the end of NegReg and publication of the NPRM. All of the rules now go through public comment and review before being finalized. The goal is to create regulations that balance all affected parties’ interests — while also ensuring that the new rules match what Congress intended when passing laws related to how institutions manage federal financial aid.

Which six issues reached consensus during NegReg?

During 2021 – 2022, there were two sessions of NegReg.

In the first session, four of the issues reached consensus:

• Loan discharges for student borrowers with a total and permanent disability
• Loan discharges for borrowers whose schools falsely certified that the student was eligible for the loan
• The elimination of interest capitalization on some student loans
• The restoration of Pell Grants for students in prison education programs

In the second session, two issues reached consensus:

• The 90⁄10 rule involving how the G.I. Bill is counted as federal student loan aid
• Changes to eligibility for federal financial aid for students without a high school diploma who are enrolled in a career pathway program

Even though these rules reached consensus, the Department of Education will still receive and respond to feedback about them. There is still room for changes before final regulations are issued.

The comment period

The rules will not be finalized until the public has a chance to comment and the Department of Education reviews and responds to those comments. The public comment process gives the opportunity for all concerned voices to be considered as the federal government crafts regulations. It also guarantees that regulations impacting millions of students and thousands of institutions are as well written as possible before they go into force.

During the comment period following the release of the NPRM, higher education professionals, policy advocates, and the general public can weigh in to help ensure the regulations improve the higher education system and offer robust consumer protection to students and protect taxpayer dollars. These public comments are the last opportunity to modify the regulations before the Department of Education writes them in final form.

The Department of Education is legally required to review and respond to every substantive comment made during the period, so every comment counts. Public comments can bring attention to unhelpful or poorly crafted regulations or strengthen the resolve of policymakers at the Department of Education when they are concerned that they might be creating overly strict rules. Public comments in favor of particular regulations can help counterbalance opposition to them from institutional interests.

While there was also a period of public comment during NegReg, the NRPM comment period has allows for more in-depth feedback. Commenters can provide more detailed written statements than was possible during NegReg committee meetings, where public oral comments were limited to 30 minutes per day. Without time limitations, the NPRM comment period gives advocates the opportunity to highlight additional research and analysis that can help improve final rules.

Once public comments are closed, the Department of Education will review, consider any changes to the proposed regulations, and submit the rule for final publication in the Federal Register. Providing they are finalized by November 1, 2022, these regulations will go into effect in July 2023.

What gives the department of education the power to make rules?

Government agencies have the power to issue regulations based on the authority granted to them by Congress through statute.

Whenever a government agency wishes to create new regulations or adjust old ones, it must adhere to a formal process. This process includes gathering expert and public feedback, engaging with those who the proposed regulations will most affect, and then issuing a proposed rule for review through an NPRM.

The Department of Education’s process for creating regulations contains the additional step of NegReg.

What federal student aid issues are at stake?

The issues for the NPRM were originally going to be published in two sets. They will now be released in three sets with delayed rules coming from both the original two groups of regulations that were under consideration. As noted at the top of this piece the delayed rules will be released in the spring of 2023. These rules are Ability to Benefit, Administrative Capability Standards, Financial Responsibility, Change of ownership or Control, and most importantly, Gainful employment.

The first set relates primarily to higher education affordability and protection for students. These issues cover how and when student borrowers can have their loans forgiven if their school closes. The committee also worked to create a new, more generous, income-driven repayment (IDR) plan and to fix problems with the Public Service Loan Forgiveness (PSLF) Program. Finally, the committee considered banning pre-dispute arbitration clauses that prevent students from suing their institutions or forming class actions in student enrollment agreements. 

The second set of issues focuses on rules that hold institutions accountable for providing students with the education they promise as well as helping ensure that students leave higher education with the ability to earn more than they would have with a high school diploma. These rules cover the Program Participation Agreements (PPAs) colleges sign to participate in Title IV aid programs. They check that career-training programs properly prepare students for gainful employment and regulate how institutions’ ownership changes are handled, especially when they convert from for-profit to nonprofit status. Lastly, the committee considered what standards institutions need to meet to be considered financially responsible and avoid precipitous collapses that harm students. Institutions must also demonstrate they can adequately administer Title IV aid programs. At the core, these are the rules that try to prevent students from spending time and money on worthless degrees.

Most of the second set of issues are related to what is known as the program integrity triad, which is meant to protect consumers and make sure standards of academic quality are upheld for institutions receiving federal financial aid. They have the potential to strengthen the Department of Education’s ability to effectively oversee thousands of institutions receiving billions in federal dollars based on the promise of providing students with a quality education. Without this oversight, students can be left with low-quality education and high debt while taxpayers continue to fund institutions that are failing students.

The purpose of negotiated rulemaking and the comment period following the NPRM is to give voice and credence to students, schools, civil rights representatives, researchers, advocates, and experts. While the process may seem long and bureaucratic, the goal is to make rules that take into consideration the perspectives of those who will be most affected by them. 

Get involved

If you would like to submit comments, visit reg​u​la​tions​.gov to submit a comment on the proposed regulations. This is the last opportunity to affect rulemaking via comment period. The Department of Education will post responses to comments as part of the final regulation notice in the Federal Register.

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