Trying Again on 'Gainful'

WASHINGTON -- The Education Department announced Monday that it would seek to rewrite controversial regulations on for-profit colleges, tighten underwriting standards for some student loans and introduce new rules on using preloaded debit cards for financial aid -- a wide-ranging regulatory agenda for the first year of President Obama’s second term.

When the department begins the process to write or rewrite those rules this spring, it will be only the beginning of its attempts to set higher education policy through regulations. The notice, published in today’s Federal Register, also indicated that the administration intends to bring its regulatory authority to bear on broader issues of college access, affordability and completion.

In the coming months and years, the notice said, the department will use the regulatory process known as negotiated rule-making to pursue a “long-term agenda” that will take “several years to complete.”

If the Education Department follows through on that agenda, the administration will be using regulation on terrain usually reserved for legislation. The traditional venue for enacting long-term changes to help students afford, attend and graduate from college would be the Higher Education Act, the massive law governing federal financial aid programs that is periodically rewritten to account for changing times or to pursue new policy goals.

Usually, negotiated rule-making comes after the revised act is signed into law, to wrangle with details and write more precise regulations to put a legislative vision into practice. The Education Department convenes a panel of stakeholders -- representing different sectors of higher education as well as some advocacy groups -- to hammer out new regulations for colleges to follow.

The Obama administration has proposed several new higher education policies that most expect to see in a proposal to renew the Higher Education Act, including a plan to expand some smaller federal financial aid programs -- the Perkins Loan and federal work-study -- and use the money to reward colleges that offer “good value” and punish those that do not. The regulatory process couldn’t allocate money to federal programs, so any new money for financial aid programs will still have to come from lawmakers. Some observers suggested that the intent to pursue a long-term agenda of new regulations reflected a lack of confidence from the administration in a deeply divided Congress’s ability to accomplish reauthorization, not necessarily a lack of interest from the administration in pursuing legislative change.

Beginning with the Bush administration's push on accreditation in 2007, the Education Department has used the regulatory process to promote policy changes it would like to see, whether or not those changes were necessitated by a change in the law. Still, the Obama administration has already gone further than its predecessors in expanding the role of rule-making in higher education policy, and Monday's announcement signaled that it planned to continue that approach.

The “gainful employment” regulations published in 2011, for example, determine whether vocational programs can take part in federal financial aid programs based on student loan repayment rates and debt-to-income ratios. Those regulations are based on a slight phrase in the Higher Education Act: that such programs must prepare students for “gainful employment in a recognized occupation.” When the administration convened another rule-making panel last year to define “quality” in teacher preparation programs, some argued that the Education Department was overstepping its bounds.

The Education Department’s announcement was published as Congressional committees in both the House and Senate gather today for hearings on federal financial aid programs. Those committee meetings are the first small steps toward the next revision of the law, which expires at the end of 2013.

Department officials said Monday they would pursue both legislation and regulation. “The notice builds upon last year’s regulatory work and lists potential topics that outline the challenges we have encountered to ensure successful day-to-day management of student financial aid programs,” department officials said in an e-mail to Inside Higher Ed. “As we continue this work to protect taxpayer funds and ensure that all students are able to access and afford a quality education, we look forward to engaging in a larger conversation with Congress, the community, and students and families about the next generation of the Higher Education Act.”

But using regulation instead of legislation, or attempting to use both to shape policy in tandem, could backfire, observers said Monday. One possible outcome could be similar to what happened with the “gainful employment” regulation, the last attempt to use negotiated rule-making to craft a major new policy. The rules encountered fierce resistance from for-profit colleges, and some portions were overturned in court -- requiring the new rounds of rule-making announced Monday.

Another possible precedent, they suggested, could be the Elementary and Secondary Education Act -- the major law better known as No Child Left Behind. The law officially expired on Sept. 30, 2007, but has stayed nominally in effect as the Education Department has reshaped elementary and secondary education policy through waivers to the law, new regulations and competitive grants. Now almost six years overdue, the act is unlikely to be renewed this year.

Observers, including former Capitol Hill and Education Department staff members, also cautioned that pursuing policy changes through rule-making rather than through reauthorization of the Higher Education Act could alienate Congress and undermine transparency. While the negotiated rule-making process is largely open to the public, it tends to fly under the radar in Washington compared to well-publicized Congressional hearings. And negotiators are appointed rather than elected.

“If indeed you can do these kinds of major things through the regulatory process, it really takes a lot of the transparency of the legislative process out of the picture, “ said Rick Jerue, the former president of the Art Institute of Charleston, a for-profit college, and a former aide for House and Senate education committees. “Essentially, you can appoint as rule makers anyone you want. The pressures, the political pressures that sort of come with the legislative process don’t exist any longer. You can basically, in many ways, almost control the outcome.”

‘Gainful,’ PLUS Loans, State Authorization

An attempt by the department to rewrite two regulations thrown out in court -- the gainful employment rule, and another regulation that required colleges that provide distance education to get permission to operate from every state from which they enroll students -- was expected. Monday’s announcement offered a timeline -- the department will hold hearings next month, and hopes to begin rule-making in September -- but offered few details about what new rules could look like.

Only one portion of the gainful employment rules was invalidated in July, when a federal judge ruled that requiring vocational programs to have a student loan repayment rate of at least 35 percent was arbitrary and insufficiently justified. But due to the way the regulations work, that invalidation set off a domino effect, making enforcing the rule effectively impossible. In its notice Monday, the department said it was seeking the best measures to define successful and unsuccessful programs, as well as suggestions for the thresholds between success and failure.

The state authorization rule was thrown out in a separate court case in 2011, a decision upheld in 2012. A federal judge found the Education Department had issued the rule without providing enough notice to review and comment on it. While the Education Department quietly announced in August that it would no longer enforce the rule for distance education programs, work has continued on reciprocity agreements that would allow states to accept each others’ authorization without the need for further paperwork and red tape.

In the notice Monday, the department said it also would seek to expand the state authorization rule to foreign locations.

Regulators will also seek to tighten underwriting standards for PLUS loans, loans to graduate students and parents that have grown rapidly in recent years. There is a credit check for the federal loans, but it looks only at the past 90 days of credit history. Beginning in October 2011, the federal government began looking at charge-offs and bankruptcies within the past five years. The stricter standards hit especially hard at historically black colleges and universities, where administrators say enrollments have dropped as a result. In Monday’s notice, the Education Department said it would seek to redefine “adverse credit” for the purpose of PLUS loan eligibility.

The department is also seeking new regulations to govern the use of debit cards for financial aid refunds, first put forward as an area for additional regulation last year, as well as new requirements for colleges based on the Violence Against Women Act of 2013. The act requires colleges to report dating violence and stalking and strengthen policies intended to prevent sexual assault. Regulators will also seek to clarify questions on the conversion from clock hours to credit hours when awarding credit.

The department will hold hearings in May in Washington, D.C., Minneapolis and San Francisco, and expects to convene the rule-making panel in September.