Gainful Employment Liveblog Day 2

After about a half day of negotiations yesterday (once process stuff got out of the way) we're now back for the second and last full day of negotiations for this first session. Below are occasional updates from the negotiations.

9:15 a.m. Starting up again

John Kolotos, the Department of Education's negotiator starts us back today with a discussion of whether a marketing limitation is possible. He says that the financial statements that the Department gets now is not suffficient to determine what a school spends on marketing/advertising. That would mean having to put out new definitions of it, a new data collection (which unsaid would trigger navigating the Ridiculous Paperwork Reduction Act), and would be out of scope.

Kolotos also notes that determinations of Cost of Attendance are statutory and cannot be changed by the Department through regulation. Higher Education Act reauthorization, anyone?

Kolotos closes with saying the Department could consider an upfront pre-screening process, but needs a concrete proposal to review.

Nassirian acknowledges the Department can object to certain ideas, but reiterates that he wants a way to hold the individuals who run the school accountable while they are in the zone and not just bleed it dry.

9:20 a.m. Amortization periods

Kolotos explains the Department's proposal to judge loan payments based upon a 10-year repayment plan because most students on average take 12 years to repay, indicating that a lot of folks are on the standard option. This is a change from the 2011 final regulation, which varied the repayment period on the type of credential. This is a fairly important issue, as a longer payment period means lower annual payments and thus allows lower income to pass a debt-to-earnings test,

Brian Jones from Strayer University objects to the idea, calling it contrary to the Administration's policy message. He also notes that high-debt borrowers at Strayer are much more likely to be on some kind of extended payment period. He wants people eligible for the extended programs to be counted that way.

Editorial aside here--if you give only higher-debt borrowers the longer repayment plan, doesn't that encourage higher debt?

Marc Jerome from Monroe College in New York asks if the repayment timeframe of 12 years is the same for low-income, Pell students, says the repayment period is highly influenced by the income of students. "The current regulation would have a debt payment that is actually higher than what the students are paying," he says.

Whitney Barkley, from the Mississippi Center for Justice, speaks out in favor of the 10-year amortization period. She says just because they have so much debt that they can't pay it off after 10 years does not mean they should not be judged on it. She asks a clarifying question about who is included in the debt metrics. The answer is all students who received any Title IV aid, so a Pell recipient with only private debt is included.

Rory O'Sullivan points to Department data about the repayment plan they are on, noting that a large number of borrowers are on the standard 10-year plan (almost 10 million out of 15 million in Direct Lending).

9:30 a.m. Strong defense of 10 year plan from ED

Forceful defense of the 10-year plan from Kolotos. He says once you start extending these terms to 20 or 30 years you are increasing costs. "Students will have to spend half their life paying their loan back. That's not a position we think we should take as a default position. We're not here to create a new generation of indentured servants. we don't want to structure some sort of debt to earnings rate that anticipates students will be in a 20 year plan it's just not good public policy.

Jones from Strayer says it is not fair to be judged on the 10-year timeframe when the government makes other plans available.

Barmak Nassirian from AASCU says that the fact that the Department is giving so much on the back end with a 30 percent discretionary debt-to-earnings standard should more than balances out the concerns over the 10-year plan. He also notes that the single 10-year assumption is simpler.

Jones from Strayer says Nassirian is over complicating what these metrics are about--are they earning enough to cover their student debt for a year. Nassirian asks what does "cover" mean? Jones says we are trying to get a fix on the appropriate measure of what the student's annual debt load is. He says the amortization does matter and it should reflect what students are actually experiencing, citing that public policy is going in a different direction from the 12-year repayment timeframe.

Nassirian says the issue is not what the repayment timeframe is, but what it ought to be. He compares it to New York Fed stats that show high rates of delinquency, but we shouldn't take that as just a good thing from the state of the world. He argues in favor of simple, standard, majority repayment option on the books.

Helga Greenfield from Spelman College said she supports the 10-year amortization timeframe.

Jerome from Monroe College asks if anyone has done a study of what the debt-to-earnings ratios would look like for institutions not affected by the gainful employment requirement.

Kevin Jensen from the College of Western Idaho asks if the Department would allow challenges of the repayment timeframe through the challenge process. Kolotos says probably not.

9:45 a.m. On to interest rates

Now a question is asked about the interest rate being chosen and whether the new rates, which vary each year. Kolotos says maybe they should choose a rate to standardize it since the rates would change over time, meaning that what the students are paying in interest will change. A quick refresher of the new interest rate regime that passed Congress this summer follows. The facilitator wants to table the issue, but is overruled.

Kolotos suggests that ED use a five-year average. Nassirian asks why they can't just use the actual rates. Kolotos says it is because ED does not know the rates for the private debt, which are also included. Nassirian persists that ED does know the underlying rates on the federal debt? Jeff Baker, the policy guru from the Office of Federal Student Aid says they do know the interest rate on each particular loan, but not the payment rate.

Nassirian argues that if you know the actual rate, it should be used and that the non-federal debt should be based on some kind of survey, not a number pulled out of thin air.

Rory O'Sullivan from Young Invincibles asks if the Department uses the same interest rate for graduate and undergraduate loans. Kolotos says yes.

Whitney Barkley asks if they would adjust the private loan interest rate to reflect that loans may not be getting prime rates.

Jerome says his school has no private debt, but says making tweaks on the numbers could mean that his students' payments are $1,500 but show up as $2,000, which does not reflect the actual reality for his students.

Editorial note: the final regulation in 2011 also did not reflect the actual rates, but varied it based upon credential level. The problem is the way the repayment plans work now is that more debt can get you a higher repayment timeframe. So varying it based upon amounts could encourage excessive borrowing. What's less clear is if basing the repayment timeframe on the level is any closer to reality.

10 a.m. Loan debts

Kolotos notes that the loan debt looked at is the same as before--it includes Federal of all types, private, does not include loan debt from another institution.

Richard Heath from Anne Arundel Community College asks what happens if a student starts in a gainful program, moves into an associate degree program, which is not subject to gainful employment, and completes it. He wants to know if the debt from that initial gainful employment program is counted or not.

Kolotos says if they enrolled in an AA program at a public school, that program is not included in the gainful employment rule so it would not have a rate. But the certificate program would have a rate. In response to a follow up, he notes that the student who is taking a long time to finish an AA would not be calculated in the certificate program because they would be treated as in-school. However, if they finished the AA degree in two years they may be calculated since they would not be in an in-school deferment status anymore.

O'Sullivan from Young Invincibles asks about why debt from institutions under the same control aren't automatically included. Kolotos says that the Secretary wants some flexibility so that it cannot be assumed that something nefarious is going on.