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Resistance on Debt Proposal

January 26, 2010

WASHINGTON -- A team of negotiators representing all sectors of higher education on Monday forcefully opposed a U.S. Department of Education proposal to determine whether vocational programs prepare their students for “gainful employment” by establishing a maximum ratio between recent graduates’ debt repayment loads and their annual salaries.

On the same day that the Obama administration announced its plan to restrict borrowers' maximum annual student loan repayments to 10 percent of a graduate’s discretionary income, panelists representing colleges, administrators and students began a third round of negotiated rule making aimed at preventing abuses in federal financial aid programs by taking up the issue most closely related to the White House’s proposal.

Picking up where they left off at the end of round two, in early December, many panelists continued to question the department’s statutory authority to enact what some saw as “price controls.” They also voiced new concerns about the feasibility and hastiness of the department’s draft regulatory language.

In the draft, released to negotiators on Jan. 15, the department stepped back from its suggestion to link programs' tuitions with the salaries of their graduates, instead choosing to develop a potentially less-explosive rule centered on debt and salary. As proposed, the rule would require that the annual debt repayment load for recent graduates of vocational programs and most for-profit offerings be no more than 8 percent of the salary of a recent graduate working in the field for which a program had prepared a student.

Though Fred Sellers, a senior policy analyst in the Office of Postsecondary Education, insisted Monday that it was not the department’s intention to create price controls, Elaine Neely, senior vice president of regulatory affairs for Kaplan Higher Education, said she wasn’t convinced.

The primary representative of for-profit institutions and a vocal opponent of the department’s ideas on this issue in the first two rounds, Neely was quick to express disappointment with the proposed regulation. “I know it comes as no surprise to you that I won’t be thanking the department for issuing the draft language,” she said.

The Obama administration’s budget proposal would cap annual student loan repayments at 10 percent of disposable income -- likely a far smaller dollar amount than 8 percent of a graduate’s overall net income – and Neely, for one, said she thought the issue ought be left to the president and Congress. “President Obama has the good sense to maybe send a message to the department that it’s a legislative issue, not a regulatory issue, and that he proposes a law to do this, not a regulation.”

Other panelists not only wondered about the department’s authority, but also listed plenty of other “unintended consequences” as they argued for the proposal to be scrapped. The department promised revised language, or a decision to hold off on a gainful employment plan, before the end of this week's negotiations.

The primary representative of college presidents, Terry W. Hartle, senior vice president for government and public affairs at the American Council on Education, said the proposal was “not a small change in federal student aid policy” and could result in “a cure worse than the disease.”

Hartle and other negotiators voiced concerns about the new costs that colleges would face in collecting data and determining whether their programs were compliant under the general rule and, if not, under one of the proposed exemptions. “This would be enormously labor-intensive,” he said. “That changes the cost structure of the institutions.”

The primary representative of nonprofit, four-year institutions, Todd Jones, of the Association of Independent Colleges and Universities of Ohio, said he saw the potential for a decade’s worth of litigation against the department.

“A number of good firms in this town make a good deal of money going through the process of administering proceedings to protect colleges, no matter their shape, when the department has taken a position and they disagree,” he said. “I can’t think of the number of lawyers who are going to get to do very interesting legal work around teasing out whether they’ve met some of the standards here, the economists that are going to get hired.”

Joan Zanders, of Northern Virginia Community College, said she worried there would be a disincentive for institutions to enroll new students who already have student loan debt and choose to go back to school to become employable. “Are we then going to impede them from entering those programs where they might actually get a job because they have existing debt and those programs could be at risk if we allow them into it?”

The proposal, Hartle said, amounted to “social engineering,” something to which he said he was not inherently opposed. (He noted that he advised Sen. Edward M. Kennedy on education policy, to laughs from panelists and gathered observers.)

“But I don’t think this is very well-designed social engineering. It is a big change and even if you have the legislative authority to do this you should not be doing this through the regulatory process in a proposal that has just emerged with a very brief time for people to analyze it and try to get it right.”

Along the same lines that were drawn early on in the rule making process, the strongest support for the department’s proposal came from the representative of consumer advocates, Margaret Reiter, a former California deputy attorney general, and Rich Williams, the U.S. Public Interest Research Group’s higher education associate, who represents students on the panel.

Reiter acknowledged the possibility for loopholes and unintended consequences but said neither “is the kind of thing that should stop us from moving forward” in regulating a definition of gainful employment for vocational programs. “This is the crux we’ve got to deal with.”

Williams echoed Reiter’s resolve to come out of this week’s negotiations with regulations to keep debt levels down. “We need to leave this table with something to help students…. Right now the burden is on students and we need to alleviate that.”

 

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