Holding the PROSPER Act Accountable

The PROSPER Act may get its name from how the bill treats for-profit colleges, giving them even more access to taxpayer dollars. Under the bill, there’s a near-total erosion of any distinction by sector. Rather than retaining the separate definition of an eligible college for proprietary institutions, the bill proposes to consolidate all institutions under a single heading. Gone are any mentions of “gainful employment.”  Instead, the bill repeals the Obama Administration’s rule to define gainful employment and prohibits the Department from ever regulating on the issue again. (Secretary DeVos’ Education Department began its first day of negotiated rulemaking on gainful employment yesterday.) The bill would also eliminate a long-standing requirement that for-profit institutions receive no more than 90 percent of their revenue from federal student aid -- a far cry from ongoing efforts by veterans’ groups to toughen the standard by having military and veterans’ educational benefits included in the 90 percent figure.

And while for-profit colleges have long argued their treatment under the law is unfair, these provisions show a concerning disregard for history. For-profit colleges contribute a high--and disproportionate to their enrollment--share of all student loan defaults. They have been found responsible for decades of abuse of taxpayer dollars, including wave after wave of predatory practices toward veterans and low-income students. And with a recent resurgence in high-profile closures of for-profit colleges like Corinthian Colleges and ITT Tech, it’s clear that the danger is far from over.

So should all colleges be held accountable? Absolutely. But do all colleges present the same level of risk to taxpayer dollars? Not by a longshot.

The PROSPER Act’s proposals on data can be described, in a word, as underwhelming. Echoing the language from a bill Rep. Foxx (R-N.C.) introduced in 2014, the bill would create a College Dashboard to serve as a replacement for the existing College Navigator, designed to provide consumer information to prospective students and their families. But while it would require the addition of program-level metrics for average debt and typical earnings (excellent additions, both), it prohibits the Department from ever regulating about the website, so it would be impossible to add or modify metrics on the website without Congressional intervention, which could quickly mean an outdated website unresponsive to changing consumer needs. Moreover, it wouldn’t make the changes to the law that would be necessary to make those data comprehensive. Specifically, it leaves intact a ban placed in 2008 on the collection of student-level data that could replace and simplify the existing aggregate IPEDS data reporting system. That ban has come under substantial fire in recent months, with a bill called the College Transparency Act (CTA) headed by Democrats and Republicans on both the House and Senate education committees. While the bill has been gaining steam, the chair of Ed and Workforce--the original author of the ban--remains out of touch with her members cosponsoring the CTA and seemingly unaware of the realities of today’s students. Without it, for instance, students who pay their own way through college won’t be counted in the data; and even in California, at the nation’s largest community college system, about three in four students don’t receive federal student aid and would be excluded from the data. This switch to the College Dashboard--with no mention of any plans for the College Scorecard--is little more than tinkering.

The concept of “risk-sharing” in higher education has gained significant traction in recent years. But while the PROSPER Act claims to implement such a proposal, it falls well short of that. As previously discussed, the current all-or-nothing system of higher education accountability incentivizes colleges to push borrowers into options that keep them current on their loans even if they are not making payments, staying safely within the thirty percent cohort default rate threshold. Under most risk-sharing proposals, however, the goal is to remove the temptation to skirt a single, highly consequential threshold, instead assessing penalties on a sliding scale for low-performing colleges, typically defined as those with below average student loan repayment rates. It’s a promising idea to increase accountability and boost schools’ focus on student outcomes.

The PROSPER Act’s so-called “risk-sharing” provision actually only makes changes to an existing set of laws that describe the process a college must follow to repay federal aid to the Department of Education when a student drops out before completing the term, though. Called Return to Title IV (R2T4), the policy already requires that an institution repay a percentage of federal funding for poor student outcomes (in this case, when a student fails to complete the term). But the proposed changes to it in the PROSPER Act do not constitute a risk-sharing scheme.  

For starters, while the changes to R2T4 that are outlined in the PROSPER Act would require that institutions repay aid for students who drop out even later than they do now, it is unclear how much extra federal funding these changes would actually recoup. R2T4 currently requires institutions to calculate the amount of unearned aid that must be returned to taxpayers with some precision in accordance with the percentage of the term that a student has completed, but there’s one big exception to that. Once a student completes sixty percent of the term, the institution is no longer liable for returning any Title IV funds; the student and the institution are considered to have earned all the federal aid available. The PROSPER Act would require schools to return payments all the way up through the end of the program--albeit with somewhat less precision in the amount of aid to be repaid.

So it’s tough to think of R2T4 as a risk-sharing proposal. Schools wouldn’t have much more incentive to improve completion than they do today. And the proposal only applies when students drop out during the term--leaving a gaping loophole for the many students who leave college between semesters. Besides that, R2T4 dollars weren’t ever really the institution’s to begin--the school didn’t “earn” it by educating a student. Without colleges facing a penalty for students’ outcomes--outside of the dollars they never earned and are obligated to return anyway--there is no risk-sharing.

Title II of the PROSPER Act is certainly one of the greatest departures from the Higher Education Act, as postsecondary programs aimed at enhancing teacher quality are eliminated and replaced by a grant program to expand access to “in-demand apprenticeships.”

Currently, Part A of HEA Title II focuses on two areas related to programs preparing educators to work in elementary and secondary schools. The first is the Teacher Quality Partnership Grant program, which provides competitive funding to model teacher residency programs and to partnerships between schools of education at institutions of higher education (IHEs) and high-need school districts and/or high-need early childhood education programs working to institute reforms that improve the quality of teachers and school leaders entering the profession. The second is accountability for teacher preparation programs through the creation and publication of state- and institution-level report cards on programs that prepare teachers--an issue that has received significant attention over the past five years, and which many believe should be reformed to provide more meaningful information to stakeholders. Stripping a focus on educator preparation from the Higher Education Act is short-sighted given that all learners-- and future earners--are prepared for their postsecondary experiences by elementary and secondary teachers, and hence those teachers’ own education and preparation for their profession is of particular national importance.

Aspects of the PROSPER Act are little more than a reflexive, anti-Obama knee-jerk. Nowhere is that truer than in the “regulatory relief” section barely 30 pages into the bill. Three regulations issued under the Obama Administration are repealed completely under that section, and a fourth is repealed in a later section of the bill. Two of those regulations are, perhaps, unsurprising: the borrower defense to repayment rule issued in the closing months of the Obama Administration to streamline relief provided to borrowers whose schools lied to them and the gainful employment rule that took effect in 2015 to hold schools accountable for unaffordable debt accrued at vocationally focused programs. Both rules have been vocally opposed by the for-profit college industry, and it was one of Secretary DeVos’ first orders of business to stave off implementation and launch a new rulemaking on each. The Department is banned from ever again regulating on gainful employment (overkill, really, since the term would no longer exist anywhere else in the statute under this bill anyway).

The bill would also eliminate the credit hour rule and prevent the Department from ever regulating on that topic again. The rule took effect in 2011 as a solution to the problem of colleges inflating their credits to soak up additional aid. For instance, the Inspector General of the Education Department documented an accreditor’s approval of a nine-credit, 10-week course--a massive inflation over the more standard three credits for fifteen weeks. In cases like that, students spend down their aid eligibility, fork over more cash to the school--and get far less educational value out of it. And while its name might imply otherwise, the credit hour rule is not one of the hurdles to the development of innovative programs--it permits institutions to establish learning-based measures for a credit, instead of time-based measures. In other words, the rule has created some basic protections to prevent taxpayer dollars from being wasted in programs that charge more for less and that students exhaust their aid eligibility without getting a quality education. (Check out page 8 of our comments to the Department of Education for more on the credit hour rule.) Repealing it in the context of this broader bill that guts basic consumer protections is, simply put, irresponsible.  

Similarly, the PROSPER Act would jeopardize program integrity by weakening the requirements for state authorization.  The Obama Administration strengthened these requirements by ensuring the participation of the States in the approval process for institutions of higher education.  For an institution to receive such funds, it would have to be approved to offer educational programs in a particular state.  In this way, access to Title IV dollars was predicated, in part, on a State’s affirmative approval of an institution.  The Obama administration provided further clarity through regulations focused on distance education, which respected State sovereignty and ensured institutions offering educational programs in any state cooperated with state rules for doing so, regardless of physical location.  The distance education rules also recognized arrangements among states for approval through reciprocity agreements. But this bill would repeal those rules -- and further limit protections for taxpayers and students by prohibiting the Department of Education from ever regulating on it again.  In its place, the PROSPER Act would leave a hollow shell of accountability for institutions of higher education and added state protections. Institutions would be permitted to provide “evidence” to the Secretary of Education that they can operate within a State where they have a physical location.  Without the power to regulate, the Department has no control over the evidence an institution would provide, and restrictions on physical location provide further uncertainty for distance education.  As such, “PROSPER”  may be a misnomer, since these provisions would ensure that fraud, waste, and abuse in higher education abound.

One area in which the bill makes some significant progress is in increasing the use of evidence-based policymaking. For starters, the bill would require the Education Department to rigorously evaluate--and report out on interim and final findings for--experiments conducted under the Experimental Sites Initiative. For decades now, the Department has launched and almost universally failed to evaluate its experiments, using the Initiative more to provide waivers to institutions or make splashy policy announcements than to build a research base for lasting policy change, so mandatory evaluations would be a huge improvement. (Check out our recent op-ed on the issue for more.) However, the bill would also require Congressional notice and approval for any new experiment--a change that was tested once before and that effectively ended the Department’s interest in running experiments at all until Congress reversed course and eliminated the prior-approval requirement.

TRIO programs, which provide counseling and other support services to low-income and disadvantaged high school and college students, would also be modified. The bad news is that the Department wouldn’t be permitted to add priorities that aren’t included in the statute to future competitions--one path it has taken in recent years to expand the implementation of evidence-based research in new venues--and grantees will still get credit for prior experience, rather than awarding grants to the applicants with the strongest proposals. But the better news is that the bill would improve the TRIO programs in other ways. For starters, it would eliminate an existing ban on conducting randomized control trials in the TRIO programs and require the Department to rigorously evaluate them. And it would create a new “impact grant” program within TRIO, using the definition of evidence-based agreed to in the Every Student Succeeds Act, comprising at least 10% of appropriated TRIO dollars, to develop and implement evidence-based proposals at each of three levels -- grants for early innovation, grants to implement and test proposals with early signs of effectiveness, and grants to scale-up proven strategies.

And elsewhere, the bill adds language permitting grantees of TRIO programs and minority-serving institutions’ competitive grants to implement pay-for-success projects to innovate and test new ideas. Taken together, all of these ideas show a willingness to invest in new ideas and--even more importantly--the research to tell us whether those ideas are working.

Under current law, colleges are held accountable for the percentage of borrowers that default on their student loans within three years of entering repayment. If this measure, the cohort default rate (CDR), exceeds 30 percent for three consecutive years or 40 percent in a single year, it may jeopardize a college’s ability to continue receiving federal Title IV dollars. But the CDR can be easily gamed by pushing borrowers into income driven repayment plans, or forbearance and deferment options that allow students to reduce or delay repayment, meaning the measure has weakened in its effectiveness over time. For instance, while the threat of the CDR certainly worries those close to the threshold, only 11 institutions have faced sanctions since 1999. Meanwhile, the total number of student loan defaults continues to rise (outside the three year window) and student outcomes across a number of other related metrics have not budged.  

The PROSPER Act would retire the CDR’s role in accountability and would replace it with a tougher measure that instead holds colleges accountable for a different measure of student loan outcomes, the repayment rate. Programs at which the repayment rate sinks below 45 percent for three years would be ineligible for Title IV funding for a period of up to two years.

And while it’s not a repayment rate in the traditional definition (i.e., how quickly are borrowers paying down their loans?), it would be stricter than a cohort default rate. As defined in the bill, the repayment rate would include only borrowers who are less than 90 days delinquent on their debt, paid in full or who are in an in-school or military deferment. That means it would still count borrowers who are current in an income-driven repayment plan but who aren’t earning enough and making high enough payments to pay down the balance on their loans; in other words, they are only chipping away at the interest.  

Setting a program-level accountability measure will limit schools’ ability to mask poor student outcomes in one program by aggregating them with better outcomes for those in another. But that also means that there would be effectively no measure to ensure accountability for the institution as a whole -- shutting down programs with poor repayment rates is an important first step that eliminates many of the weakness that exist with CDR, but it still leaves bad schools open for business. Congress needs to ensure there’s strong accountability at both levels to protect students and taxpayers--or they’ll wind up in a never-ending game of Whac-A-Mole.