What Comes Next? Accountability Issues in Negotiated Rulemaking

Last week, members of the Institutional and Programmatic Eligibility Committee began their work as part of a new round of U.S. Department of Education (ED) negotiated rulemaking. Negotiations on key accountability and institutional quality regulations have the potential to strengthen ED’s oversight of institutions of higher education receiving government funding. They can also strengthen protections for students and taxpayers from schools that fail to provide a quality education and economic security. These sessions follow the fall 2021 negotiations on affordability and student loans, and they will continue through mid-March of 2022.

Before getting to work on the initial proposals from ED, the committee added Amanda Martinez of UnidosUS as a representative of civil rights organizations. Martinez participated in a negotiated rulemaking in 2019 and brings a strong voice for student equity to the current committee.

Gainful Employment. Since the previous administration rescinded the 2014 gainful employment (GE) rule in 2019, ED has lacked a baseline accountability measure to hold poor-performing career education programs accountable for saddling their students with unmanageable loan debt and unacceptably low earnings. Rather than present proposed regulatory text for restoring GE, ED presented a set of guiding questions for discussion among negotiators.

Except for the negotiator representing for-profit schools, committee members generally agreed that ED should use the provisions in the 2014 rule as the baseline for a new regulation and consider additional accountability metrics.

Initial discussions also exposed familiar fault lines on GE, including the for-profit representative urging application of the rule to all schools and programs, despite the Higher Education Act specifying that only career education programs (generally all programs at proprietary institutions and non-degree programs at public or private, nonprofit institutions) fall under GE. When the 2014 rule was in place, nearly 98 percent of failing programs were at for-profit institutions. None were at HBCUs.

90/10 Loophole Closure. As part of the American Rescue Plan Act, Congress moved to close a loophole that allows for-profit colleges to skirt a requirement that at least 10 percent of their revenues come from non-federal funds. ED’s proposal to implement this change includes provisions that would designate any resources for students sent directly to an institution or to students themselves as federal educational assistance funds; disallow counting the sale of receivables, including from institutional loans, as non-federal educational assistance revenue; and require for-profit colleges to disburse funds to eligible students prior to the end of the institution’s fiscal year.

The for-profit negotiator repeatedly voiced opposition to the 90/10 rule, but other negotiators provided support for cleanly closing the loophole, including evidence of the relationship between the quality of an institution and its funding. As an example, ED’s negotiator noted the Department has documented instances of disbursement delays by schools in attempts to avoid violating the 90/10 threshold. Negotiators underscored the importance of recognizing any federal funds within the 90 percent side of the equation, regardless of the agency or program sending them to institutions.

Financial Responsibility for Institutions. The negotiator representing consumer advocacy organizations began this discussion by underscoring the need for strong financial responsibility rules to protect students and taxpayers and prevent sudden closures of institutions—often for-profit entities. Several committee members focused on broadening the definition of problematic behavior by schools in the regulations and highlighted the need for metrics that would serve as early warning signals. Such signals include the beginning of an investigation into risky behavior, loss of eligibility for other federal programs, and poor completion rates.

ED’s negotiator indicated that, although the focus of this rulemaking would be on preventing precipitous college closures, the Department was not open to making changes to the composite score–one of the primary mechanisms for measuring financial responsibility. Throughout the discussion, however, negotiators largely agreed that the composite score was outdated, flawed, and often not predictive of closures.

Standards of Administrative Capability. The Department proposed including additional standards in the rule requiring that institutions of higher education be administratively capable to maintain eligibility to receive Title IV funds—and to ensure that schools monitor and manage ongoing problems. These standards include providing adequate career services and externship opportunities, disbursing funds to students in a timely manner, not engaging in misrepresentation, and verifying high school completion status for students that institutions suspect may not have the appropriate credential.

Some negotiators suggested that ED broaden proposed language on what constitutes problematic behavior and risky past performance, including preventing individuals who led institutions that collapsed from managing other schools. One committee member also noted that ED could require schools to demonstrate administrative capability in financial aid counseling by requiring institutional transparency to students about college costs and eligibility for financial aid. The for-profit representative pushed for clarity and measurable metrics while ED representatives indicated the Department’s intent to maintain its discretion.

Certification Procedures for Title IV Participation. Negotiators considered revised regulations to ensure that ED’s procedures for certifying institutions to participate in the federal aid programs were rigorous and would protect students and taxpayers. Several participants focused on ensuring that ED has processes in place to flag early warning signs of school closure; provide heightened oversight, especially of institutions that have demonstrated they are risky for students; guarantee programs satisfy professional licensure requirements in each state in which they are offered; and establish stronger thresholds for monitoring the control over institutional decision-making.

Several negotiators also supported additional entities sharing information about program eligibility, including state attorneys general. Institutional representatives pushed for more concrete timing and communication from the Department about certification-related decisions and clearer language about providing licensure requirements.

Change of Ownership and Change in Control of Institutions. Department representatives noted that, in recent years, ED has seen a growing number of institutions applying for high-risk changes in ownership. Many of these transactions result in a change in control, and some also seek a conversion from proprietary to nonprofit or public status. Most negotiators supported ED’s efforts to provide a clearer process for assessing and overseeing changes in ownership and ensuring colleges seeking such changes comply with the law.

Negotiators representing consumer advocacy organizations and state attorneys general advocated for further clarifying the definition of a nonprofit institution while keeping it sufficiently broad to ensure that former for-profit owners do not continue to benefit financially after a conversion. The representative of military service members and veterans groups noted that ED also needs to ensure it has adequate time to investigate complex ownership changes and assess outside entities or groups that have control of or play a major role in institutional decision-making.

Ability to Benefit. “Ability to benefit” is the process through which students without a high school diploma or its equivalent become eligible to receive Title IV student aid to enroll in an eligible career pathway program. Discussion of this proposal addressed ensuring career pathways are robust, partner-based programs that encourage coordination among state and local entities plus institutions providing and overseeing adult education, workforce preparation activities, and occupational training.

Most negotiators generally agreed with the terms put forth by ED, but the negotiator representing state regulators and loan servicers underscored the importance of ensuring programs are truly multi-system partnerships that provide access to a high school diploma and postsecondary credential. The community college representative noted how high-quality, integrated education and training (like the I-BEST program) can be a critical part of state and institutional equity goals.

At the end of the week, negotiators noted a common thread throughout the discussions: Schools should be prevented from withholding transcripts–which can prevent students from transferring schools or applying for jobs–when students owe money to the institution. At the very least, negotiators pushed to require that schools identified as being at risk of closure release transcripts and establish record retention plans.

As with other negotiated rulemaking committees, protocols require unanimous approval of regulatory language for each issue. Based on the initial work period and the discussions described above, consensus will be elusive on (at least) GE and 90/10.

During the next two work sessions, scheduled for February 14-18 and March 14-18, negotiators will engage with ED on revised regulatory text and propose language of their own to help ED meet its oversight and accountability goals. Each day of each work period, members of the public can make comments on any or all of the issues before the committee. Anyone interested in making a public comment should email ED.

Later this year, ED will publish proposed regulatory language based on input from these working sessions.

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