Let the Rule Making Begin

Education Department kicks off months-long negotiating process to hammer out new rules on PLUS loans, state authorization, and campus debit cards, among other issues. 

February 20, 2014

WASHINGTON-- A 15-person panel appointed by the U.S. Education Department on Wednesday began a months-long negotiating process aimed at developing a package of regulations relating to student aid programs.

Negotiators began to tackle an ambitious regulatory agenda, first announced by the Obama administration last year, that includes new rules for distance education, Parent PLUS loans and campus debit cards.

Meeting for the first time Monday, members of the panel and department officials began to explore those issues in broad discussions, which will continue for the rest of this week. Lawyers from the department said they would then draft proposed rules before the panel reconvenes for three more days in March. Another three-day session of negotiations is scheduled for May.

Several consumer advocates on the panel also sought Wednesday to add two more issues to the agenda. Suzanne Martindale, a staff attorney at Consumers Union, proposed adding a discussion of regulations to prevent colleges’ manipulation of their loan default rates, and of banning mandatory arbitration clauses in contracts between students and institutions.

Education Department officials rebuffed that request, saying that while they viewed those issues as “important,” they had neither solicited public feedback on those topics nor provided any notice to constituencies who would be affected by those issues.

Even for the existing items on the agenda, though, negotiators are likely to face an uphill battle in reaching consensus. The panel will have to come to unanimous agreement on all six of the wide-ranging topics in order to satisfy the definition of consensus under the rule making process. If that consensus is reached, the department would be bound to the panel’s final proposal. The department would otherwise have the freedom to draft regulations as it wishes.

In opening Wednesday’s rule making session, the department for the first time provided additional details about what it plans to address within the six topics it outlined:

Clock to Credit Hour Conversion

Among the more technical regulations that the panel will address are arcane rules governing how academic programs based on clock hours convert those measurements to credit hours.

Department officials said Wednesday that the goal of the rule is to keep a level playing field and make sure that students are eligible for the same amount of aid for equivalent workloads. But the way that clock and credit hour requirements fit into other state and federal requirements has been a source of confusion and criticism. The department said it wants the panel to explore ways to clarify and simplify the regulations.

State Authorization of Distance Education Providers

The department also wants to rewrite a regulation on institutions providing distance education programs outside the state in which they are headquartered. At issue is whether universities offering online programs should have to seek approval from regulators in each and every state where they enroll students.

The administration first put forward that state authorization requirement in 2010, but the department stopped enforcing the rule in 2012 after a federal appeals court upheld a lower court’s decision to strike down the rule on procedural grounds.

Both for-profit colleges (which filed the lawsuit that was successful in blocking the rule) and nonprofit institutions have fought against the state authorization requirement for distance education. The House of Representatives passed legislation in 2012 that would have blocked the Education Department from enforcing such a requirement. (A similar effort in the current Congress has cleared the House education committee but hasn’t made it to the floor.) The administration says the rule is needed to maintain the integrity of financial aid programs and stop fraud, waste and abuse.

Seeking to streamline the process for online programs that want to enroll students in multiple states, a group of higher education associations have since formed an organization to create reciprocity agreements. (Even in the absence of the U.S. Education Department’s state authorization rule, online programs still face a patchwork of state laws with different requirements.)

In rewriting regulations on state authorization for distance education, the department said it wants negotiators to consider, among other things, how state reciprocity agreements should be treated under the new rule, and whether blended courses and joint degree programs should be addressed.

State Authorization of Foreign Locations of Domestic Institutions

Department officials are also interested in expanding the same state authorization concept to U.S. institutions that operate additional locations outside the country. Previous state authorization rules have not addressed the foreign outposts of domestically-based universities.

Campus Debit Cards

Members of the rule making panel will also try to hammer out new regulations on campus debit cards. Colleges and third-party providers, like Higher One, offer those products to give students access to the money left over from their grants and loans after paying tuition and other fees. But consumer advocates, several Democrats in Congress, and other federal agencies have criticized and questioned a range of practices in the campus debit card industry.

A Government Accountability Office report released last week urged the department to tighten the rules on campus debit cards and require disclosure of the agreements colleges have to provide the products.

In the list of questions it posed to negotiators on the debit card issue, the department floated numerous ideas, including the feasibility of a “federally provided stored-use card” or whether the government should prohibit certain campus marketing tactics or the types of revenue-sharing agreements that colleges may enter into with debit card providers.

Retaking Coursework

Negotiators will also address whether federal student aid should flow to graduate and professional students who are retaking coursework. That benefit is currently available only to undergraduates.  

Separately, the panel will consider whether provide student aid to a student -- regardless of academic level -- who fails one course but needs to repeat an entire term’s coursework because of the program’s structure, as is the case with medical and dental programs, for instance.

PLUS Loans  

The panel is likely to clash over eligibility standards for PLUS loans to parents of dependent students. The department has said that it is willing to reconsider the criteria for who may receive one of those loans.  

The administration’s decision to tighten the standards for obtaining a Parent PLUS loan in October 2011 resulted in a wave of loan denials and backlash from the leaders of historically black colleges and universities, whose students disproportionately rely on the loans. Students at for-profit colleges also depend heavily on access to PLUS loans.

Under pressure from black college presidents and members of Congress, the department said last year it would consider appeals from parents who were originally denied the loans.

The criticism of the administration’s decision also prompted an apology from Education Secretary Arne Duncan, who said his agency botched how the changes were communicated to families.

Acting Under Secretary of Education Jamienne Studley reiterated that sentiment in her opening statement at Wednesday’s rulemaking session.

“We sincerely regret that the process was not more transparent,” she said in remarks to the panel. “We believe this negotiated rulemaking provides an opportunity to revisit our regulations in an open and transparent manner.”

Consumer advocates and some think tanks have called for tighter eligibility requirements for PLUS loans. Historically black and for-profit colleges have strongly fought against that approach, arguing that it will cut off college access for low-income and underserved students who don’t have access to other credit. 


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