institutionalfinance

Higher ed's nuanced strategy gives it options for navigating tax reform debate

The higher ed lobby has singled out specific provisions of Republicans’ proposed tax overhaul instead of taking on the idea that loopholes should be closed to pay for lower corporate taxes. Leaders say that’s the right strategy, even though polling shows the bill is widely unpopular.

Democrats Seek Full Relief for Defrauded Borrowers

Congressional Democrats called on Education Secretary Betsy DeVos Tuesday to grant full student loan relief to borrowers who were defrauded or misled by their colleges.

In a letter signed by 26 Senate and House lawmakers, the Democrats said they were concerned over reports that the Department of Education is considering granting partial relief to defrauded student loan borrowers. Officials at the department have had discussions about whether and how to grant partial relief to some borrowers based on the amount of harm they suffered.

DeVos in June suspended an Obama administration student loan protection regulation, known as borrower defense, that provided a new federal framework for processing loan relief claims. While the department has pursued a negotiated rule-making process to arrive at a new rule, it's said it will process thousands of pending borrower-defense claims under a 1995 regulation that used violation of state law as a basis for approving a claim.

The Democrats said using earnings data from the Social Security Administration to calculate harm could not be done unilaterally by the department. They asked DeVos, among other questions, to confirm whether such conversations are taking place and whether the department has been instructed by the White House or Department of Treasury to limit the budgetary impact of loan relief claims.

About 95,000 borrower defense claims are currently pending resolution, acting Under Secretary James Manning told panelists negotiating a new borrower-defense regulation Tuesday. About 65 percent of those claims were filed by former students of for-profit Corinthian Colleges institutions.

Many borrowers have waited for resolution on those claims for two years or more. Manning said in his comments to negotiators that the department will forgive interest that accrues on loans when a borrower-defense application takes more than a year to resolve. He also said that as it has worked to process claims, the department has found that some loans "fully or partially" fell outside the applicable statute of limitations in their state, making them ineligible for discharge.

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Many Trustees See Faculty as Barrier to Change

College and university trustees widely agree that the public’s perception of higher education has been eroding and that higher education’s business model needs to change -- but many see significant barriers to putting changes in place.

More than half of trustees, 57 percent, agreed that the general public perception of higher education in the United States has declined in the last decade, according to a survey conducted for the Association of Governing Boards of Universities and Colleges and released today. Forty-one percent of respondents agreed with the statements. Another 16 percent agreed strongly.

Nearly all respondents, 92 percent, said college and university business models need to change. More than half, 58 percent, called for moderate changes, and 34 percent said the business model should change drastically. Many trustees, 57 percent, said most colleges are able to change their business models. But only 38 percent said most colleges are willing to change.

Asked about the biggest barrier to changing higher education’s business model, 28 percent of respondents pointed to a lack of support from faculty members. The lack of faculty support was by far the most popular answer, followed by a lack of confidence among institutional leaders in making changes, cited by 19 percent of trustees, and a lack of consensus among leaders, cited by 16 percent.

The survey also asked trustees about their top three concerns for higher education’s future. More than two-thirds, 68 percent, pointed to the price of higher education for students and families. Other top concerns included student debt, named by 41 percent of trustees; the ability of higher education to respond to changing student and employer needs, named by 33 percent; and higher education institutions’ business model, named by 33 percent.

Just 22 percent of trustees said preparing graduates for the work force is the most important role higher education fills. A large majority agreed with the statement that liberal arts education should be included in all undergraduate programs -- 56 percent strongly agreed, and 29 percent agreed. Yet nearly all trustees, 92 percent, said the general public does not understand the notion of a liberal arts education very well.

AGB is in the middle of an effort to involve college and university trustees in public discussion about the value proposition of higher education. Where public policy is concerned, at least, there may be work to be done. Only 23 percent of surveyed trustees said they had personally contacted a member of Congress about a higher ed policy issue in the last year.

The new polling is the first in a set of three surveys AGB plans in order to gauge trustee perspectives. It includes responses from about 1,400 AGB members who participated in online surveys between March 20 and April 18.

“The story that they share in their responses is both candid and straightforward, but also, in some respects, it’s somewhat sobering,” said Rick Legon, AGB president, during a conference call to discuss the findings.

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N.Y. Private Colleges See In-State Enrollment Decline

Many of New York State’s private nonprofit colleges that rely heavily on in-state students are taking enrollment hits this fall, the first in which the state’s Excelsior Scholarship offering free tuition to many students at public universities is in place.

The statewide association representing private nonprofit college leaders in New York, the Commission on Independent Colleges and Universities, surveyed its members about their enrollment in August and September. It received responses from 80, or three-quarters of its total membership.

Of those 80 institutions, 48 have student bodies made up of 65 percent or more New York State residents. And of those 48 institutions, 30 reported enrollment declines in the fall of 2017.

Among all 48 institutions whose student bodies were at least 65 percent New York State residents, in-state first-time freshmen enrollment fell by 6 percent from the fall of 2016 to the fall of 2017. Total undergraduate enrollment dropped by 2 percent. Half reported fewer incoming transfers this fall.

Among only those 30 institutions reporting enrollment declines this fall, New York resident first-time freshmen enrollment dropped by 8 percent. Total undergraduate enrollment fell by 5 percent. A majority of the institutions, 60 percent, reported fewer incoming transfers this fall.

In total, the 30 institutions enroll about 60,300 undergraduates.

Overall enrollment had been relatively stable among the state’s private institutions in recent years, according to CICU. The association did not note any specific types of institution that were more likely to have experienced enrollment declines. Institutions across the state and with student bodies of various sizes saw enrollment drop.

Many private nonprofit presidents have said they struggled to hold prospective students’ interest after New York Governor Andrew Cuomo announced he wanted to create the Excelsior Scholarship in January.

“Our presidents would tell us they were having a pretty good year in terms of interest, and then things started drying up,” said Mary Beth Labate, CICU president.

A spokeswoman for the governor’s office said that high tuition costs and rising student debt have caused enrollment declines at private colleges. The state created an enhanced tuition award for private colleges, she pointed out in an email, also urging private institutions to work with the state to make college more affordable.

Many private colleges decided not to opt into the Enhanced Tuition Award Program. Presidents balked at residency and work restrictions placed on students after graduation, as well as requirements that participating colleges and universities match state funding and freeze tuition for award recipients.

The governor’s office has said about 45,000 students are attending the State University of New York or the City University of New York after being deemed eligible for Excelsior Scholarships this fall. More than 23,000 have their tuition covered by existing programs like the state’s Tuition Assistance Program, Pell Grants and other sources of financial aid. About 22,000 more have their tuition covered by the scholarship, which is structured as a last-dollar program covering costs after other sources of funding.

New York is rolling out the free tuition program over three years. In the current academic year, students from households with incomes up to $100,000 are eligible. Next year the income limit will jump to $110,000, and it will increase again to $125,000 in 2019-20. The program requires students to be in college full-time and complete 30 credits per year. It also includes controversial residency and work requirements after graduation.

CICU argues that private, nonprofit colleges should be more involved in efforts to improve higher education in New York, framing the issue as one of student choice.

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Gainful-Employment Negotiators Named

The Department of Education on Monday released the names of 16 negotiators and their alternates who will look to reach agreement on a new gainful-employment regulation.

An Obama administration regulation, the gainful-employment rule was written to hold career education programs accountable for producing too many graduates not making progress paying off their student loans.

The department released the first gainful-employment data in January, showing a wide disparity in performance between public and for-profit institutions. But in June Betsy DeVos said she would launch a negotiated rule-making process to overhaul the regulation.

The list of negotiators includes representatives of a wide mix of constituent groups, including two-year and four-year institutions, business and industry groups, consumer advocates, accreditors, for-profit colleges, and others. The panel's first negotiating session will run from Dec. 4-7.

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2 Borrowers Sue Over Forgiveness of Student Loans

Frustrated with the slow resolution of loan forgiveness claims at the Department of Education, two borrowers have filed a lawsuit against Education Secretary Betsy DeVos and loan servicing company Navient in federal court.

The lawsuit, filed Sunday by two former students of for-profit college Sanford-Brown Institute, cites federal and state law in seeking forgiveness of their federal and privately held loans.

 

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Senate tax plan would add new taxes on college royalties

Senate Republicans’ plan would tax colleges on royalties from licensing income and create regulation for business activity unrelated to core mission.

Public Colleges Expected to Feel Tuition Pressure

Private colleges and universities are expected to grow tuition revenue faster than public institutions in 2018, breaking from recent trends, according to an annual survey of colleges rated by Moody’s Investors Service.

Median net tuition revenue growth at surveyed private universities is expected to notch 2.4 percent. Median net tuition growth at public universities is only expected to come in at 2 percent.

The projected growth is still relatively low, Moody’s noted. Universities face a competitive environment and slow growth in total enrollment, constraining their power to raise tuition.

Private universities are expected to see their highest net tuition growth since the 2014 fiscal year, when it was 2.9 percent. They are being boosted by overall enrollment stability and a median annual sticker price increase of 3.7 percent. Still, tuition discounting is continuing to grow, offsetting that sticker price increase when net tuition revenue is calculated. Differences also emerge based on institutional location and size. Comprehensive private universities are expected to do much better than small institutions.

Public universities are facing median tuition growth that has consistently slipped since 2015. High competition for students, political constraints on raising tuition and an affordability focus are behind the slow growth. Small public universities are feeling the most pressure.

Exhibit 1. Private universities’ aggregate net tuition revenue growth is projected to be higher than public universities’ growth in fiscal 2018, bucking historical trends. Line graph shows change in aggregate net tuition revenue at private and public universities from 2006 to (projected) 2018. Public begins around 9 percent, rising to near 15 percent in 2011 before dropping to just over 2 percent in 2017. Private begins just under 8 percent, rises above 8 percent in 2009, drops to 4 percent in 2010, rises above 6 percent in 2011 before steadily declining to about 2 percent in 2017.

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St. Gregory's University announces plans to end operations

St. Gregory’s, an Oklahoma institution founded in 1875, will cease operations at the end of the semester.

University Endowments and Offshore Investments

Some university endowments use offshore investments to avoid certain taxes or controversy over holdings, The New York Times reported, citing information from a trove of leaked documents, dubbed the Paradise Papers.

For example, endowments have created so-called blocker corporations to skirt federal taxes that apply to private equity and hedge fund holdings, the newspaper reported.

"Establishing another corporate layer between private equity funds and endowments effectively blocks any taxable income from flowing to the endowments, the reason they are called blocker corporations," according to The Times. "The tax is instead owed by the corporations, which are established in no-tax or low-tax jurisdictions like the Cayman Islands or the British Virgin Islands."

Republicans in the U.S. Congress are mulling a proposed excise tax on relatively large endowments owned by private colleges.

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