“It Is Students’ Money”: Department of Education Begins Work to Make Higher Education Regulations More Student-Focused

Last week, the U.S. Department of Education (ED) convened a group of higher education stakeholders to begin negotiated rulemaking (“neg reg”), a process ED uses to review, discuss, and hopefully reach consensus on proposed regulatory changes. This round of neg reg centers on program integrity and institutional quality issues, including cash management, state authorization, distance education, return of Title IV funds (R2T4), and accreditation. These topics cover a wide range of higher education programs, institutions, and oversight structures, but they all touch on students’ ability to access high-quality postsecondary education.

ED is legally required to undertake negotiated rulemaking when it seeks to change regulations under Title IV of the Higher Education Act, which authorizes federal financial aid programs. During neg reg, ED presents its proposed rule changes to a committee of stakeholders representing constituencies that will be significantly affected by the regulations. If negotiators reach unanimous consensus supporting the regulatory language, ED uses that language when publishing proposed rules for public comment. If consensus is not achieved, ED can formulate its own proposed rules.

This neg reg committee includes negotiators representing student and consumer interests, including representatives from consumer advocacy and civil rights organizations, legal aid organizations, veterans groups, and current students. Institutional leaders, financial aid professionals, accreditors, and state officials also participate in negotiations alongside ED, which is represented by a federal negotiator who participates in consensus voting. During the first week, negotiators worked to refine ED’s proposals on the following issues:

Cash Management

Cash management rules govern how colleges and universities manage federal financial aid funds. ED issued several proposals to simplify cash management and make the rules more student friendly. The proposals included changes to how long colleges on heightened cash monitoring have to submit requests for final payments from ED if they lose eligibility for Title IV programs; a small increase in the amount of financial aid owed to the student that can be used to pay for institutional charges from a prior year; and more institutional flexibility for when – and for how long – a school can make late disbursement to a student.

Other changes would prevent schools from automatically billing for books and supplies without student approval. Schools may use so-called “inclusive access” models that automatically bill students for books and course materials; in cosmetology programs they can be required to buy kits provided by their school.

ED also proposed barring colleges from keeping any leftover flexible dining funds from student meal plans if the student used Title IV aid to help pay for the meal plan. Many colleges have use-it-or-lose-it requirements for student meal plans, including for what are often known as flex dollars, which essentially operate as cash that can be used at on-campus vendors. Negotiators representing students and consumer advocate groups all expressed significant support for these changes, as did several public commentators.

State Authorization

ED proposed two key changes to state authorization regulations: limiting membership on the governing boards of reciprocity agreements to state representatives and requiring institutions involved in reciprocity agreements to report student complaints to the student’s state.

Under current regulations, a state may participate in a reciprocity agreement that allows two or more states to recognize other states’ authorization processes to provide distance education programs to students in other participating states. ED is concerned that the governing boards overseeing such agreements can include representatives from accrediting agencies and institutions – the very entities regulated by these agreements. Consumer- and student-focused negotiators expressed support for ED’s proposal to ensure state authorization remains within states’ control by limiting participation in reciprocity agreement boards to state representatives and members of the public without direct institutional ties.

ED additionally proposed requiring institutions operating under reciprocity agreements to have systems for reporting student complaints to the state in which students reside. State officials and some institutional negotiators voiced concerns about the complexity of reporting complaints, but negotiators representing students, borrowers, and consumers pushed ED to go further by requiring reciprocity agreements to permit states to accept, investigate, and resolve complaints about an institution, even if the student has not yet filed a complaint with their institution.

Distance Education

To distinguish online students from their peers in brick-and-mortar programs, ED proposed creating a separate virtual location for institutions that includes all students receiving instruction primarily through distance education. This change would improve ED’s data on students enrolled in distance education and better protect students in the event of school closure.

After documenting compliance issues with clock-hour programs that require hands-on training, ED also proposed prohibiting clock-hour training programs from counting asynchronous online instruction toward federal aid requirements. Negotiators echoed ED’s concerns about the need for both improved data on distance education – possibly by creating a flag for distance education programs in the National Student Loan Data System – and stronger oversight of clock-hour programs. However, negotiators also asked ED to clarify how its proposed changes would affect existing programs upon implementation.

Return of Title IV Funds (R2T4)

R2T4s are performed by financial aid offices when a student starts a semester and then has to leave before they complete it. Students technically “earn” a small portion of their financial aid for each day of enrollment up to the 60 percent mark of the semester, after which they have “earned” all of their financial aid. If a student withdraws from a semester before the 60 percent point, they often owe some or all of their financial aid back, and the school has to perform an R2T4 to determine how much the student owes. ED’s proposal would make the process simpler for students and financial aid offices, with an overall goal of removing barriers to re-enrollment and completion for students who have to withdraw before they complete a term.

The proposed changes would allow students who never started a term but received a financial aid disbursement (schools can disburse funds up to ten days before classes start) to repay their loans under existing loan repayment terms, rather than being forced to pay everything back immediately in a lump sum. Now, students often have to repay anything they owe back immediately.

In addition, ED proposed exempting institutions from the R2T4 process if they wrote off any balance the student would owe the institution. Other changes were designed to simplify how schools calculate what a student owes back if they withdraw from a semester, and would require online-only programs to take attendance to ensure they have accurate data on when students stop attending. The proposals were met with broad support from most negotiators, with some suggestions for technical changes from the financial aid negotiators.

Accreditation

ED proposed substantial changes to accreditation regulations that the Trump administration scaled back significantly. The Department’s goals included improving the rigor of accreditation, simplifying the regulations where possible, and finding ways to focus ED’s resources on the highest-risk areas for accreditors and the institutions they oversee. ED’s proposed revisions included stricter requirements for accrediting boards' public members, so public members are not attached to the higher education industry.

ED also proposed shortening the amount of time that institutions can remain out of compliance with their accreditor; improving accreditor complaint processes; strengthening the rules for schools at risk of closure; and improving student achievement standards to ensure accreditors hold colleges accountable for low graduation and retention rates. Negotiators representing students, veterans, and consumer and civil rights groups all expressed support for the proposed changes. They also noted the proposal could be strengthened in many places, given the long history of accreditation failures that have harmed students.

The accreditation proposals faced the most opposition from negotiators representing institutions and accrediting agencies. Negotiators for these groups expressed concern that accreditation review is individualized for each institution, so setting bright-line standards was the wrong approach.

Federal TRIO Programs

ED concluded the week by convening a subcommittee to discuss changes to the eligibility requirements for some federal TRIO programs, which offer outreach and support services to students from disadvantaged backgrounds. The subcommittee members, who have expertise on TRIO programs, are distinct from the main committee and cannot vote for consensus. The subcommittee is expected to present its recommendations on TRIO eligibility to the committee during the final work period.

Public Comments

Each full committee meeting concluded with comments from interested members of the public. A number of institutional administrators recommended ED maintain schools’ ability to bill students automatically for textbooks and materials, arguing the existing opt-out model lowers costs. Some representatives of accreditors and institutions voiced concerns that proposed regulations on state authorization blur the line between states’ authorization and oversight authorities.

Negotiators also heard from many current students about the financial burdens imposed by existing regulations, including automatic billing for textbooks and institutional debt incurred following R2T4. Several student veterans spoke out about predatory misconduct they experienced at the hands of accredited institutions; they urged ED and accreditors to do more to protect students from bad-actor schools.

The full committee will reconvene for two additional work periods on February 5-8 and March 4-7. To view all materials provided to the committee and the public, visit the Department of Education’s negotiated rulemaking website.