institutionalfinance

For-Profits' Suit Challenges Borrower-Defense Rules

A group of California for-profit colleges filed a lawsuit in federal court this week seeking to block the implementation of borrower-defense rules finalized last fall.

The regulations, which would go into effect July 1, expand on and clarify existing federal statute to spell out how borrowers who were the victims of fraud or misrepresentation by their institution can have their student loans discharged.

Many expected that GOP lawmakers would kill the Obama era rules using the Congressional Review Act. But Congress took no action and the Trump administration has yet to indicate what approach it will take toward implementation. Education Secretary Betsy DeVos told a House appropriations subcommittee Wednesday that the department would have "something further to say" on borrower defense in the next few weeks.

The for-profits' lawsuit, which names DeVos and the department as defendants, argues that the borrower-defense provision in federal statute was never intended to be used to make an affirmative case for debt relief by student borrowers.

The regulations, the suit argues, "turn a defense into a novel affirmative cause of action that will expose schools to massive liability."

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As lawmakers examine improper payments, record of former FSA chief under scrutiny

Republicans in Congress press issue of improper payments by Department of Education and suggest possible subpoena of former student aid chief.

Westminster Backers Propose Splitting From Rider

A group dedicated to keeping Westminster Choir College at its longtime campus in Princeton, N.J., says it has armed itself with a well-known attorney and entered talks to spin the institution off from Rider University.

The Coalition to Save Westminster Choir College in Princeton Inc. announced Wednesday that it has met with Rider University leadership about the idea of turning the choir college into a freestanding institution. The coalition’s representatives were asked to submit a written proposal for consideration by Rider’s Board of Trustees and expects to meet again with the university’s leaders within 30 days, it said.

Facing budget gaps and financial pressure, Rider has considered several options for Westminster. The choir college, which became a part of Rider under an agreement in the early 1990s, is located about seven miles away from the university’s main campus in Lawrenceville. Rider first considered moving Westminster to Lawrenceville. After that idea was met with opposition from students, faculty and alumni who said the Princeton campus was specifically suited to host a choir college and a unique part of its institutional identity, Rider announced it would instead try to sell Westminster.

Rider’s leaders said they preferred to sell Westminster and its land as a package. But they also said they would consider selling them separately, which would likely require Westminster to relocate its operations.

The Coalition to Save Westminster Choir College in Princeton has retained Bruce Afran, a lawyer who recently settled property tax litigation brought by homeowners against Princeton University. Afran questioned in a Wednesday statement whether Rider has the right to sell Westminster’s campus under the agreement that brought the institutions together.

“The 1991 agreement was intended to preserve the historic Princeton campus and maintain Westminster’s ‘separate identity,’” Afran said. “The merger agreement did not give Rider the right to benefit financially from the sale of the campus.”

The coalition did not share any financial details about its spin-off proposals.

“We have had a frank and productive discussion with Rider’s leadership and have proposed that, instead of litigation, Rider and the coalition begin discussions to return Westminster to its former status as an independent educational institution,” coalition member Howard McMorris said in a statement. “We believe good-faith discussions like this can aid Rider in its financial future while preserving Westminster Choir College as an independent, world-class cultural institution.”

(Update: Rider provided a statement Thursday morning.)

The coalition asked for a meeting, and Rider's leaders listened to the group's concerns, said Kristine Brown, university spokeswoman, in a statement. Rider agreed to consider a spin-off proposal, which it is now waiting to receive.

"We appreciate the interest of the coalition and others in the future of Westminster, while at the same time the process to identify other interested parties to acquire Westminster continues," Brown said. "Our goal remains the same: to find an institution willing to acquire Westminster and maintain its important legacy."

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Wheeling Jesuit Sells Campus to Diocese

Wheeling Jesuit University in West Virginia announced Tuesday a deal in which it sold its campus in order to cut costs and get out from under long-term debt. The university sold its campus to the Roman Catholic Diocese of Wheeling-Charleston and will subsequently lease back that campus. In exchange, the diocese paid off the university’s bond debt.

It is the second cost-cutting move Wheeling Jesuit has pursued of late. The university earlier this year offered early retirement to faculty and staff members. About 40 of its nearly 400 employees took the offer.

The moves are part of an effort to balance Wheeling Jesuit’s roughly $30 million annual budget, said its president, Debra Townsley. She is working to balance the budget within two years.

Trustees asked the diocese for help lowering operating costs earlier this year. An analysis showed annual payments on the university’s long-term debt were not sustainable. The debt was largely from building construction over time, Townsley said.

Townsley and the university did not release financial details of the transaction with the diocese. Wheeling Jesuit’s most recent federal tax forms, for the year ending in June 2015, showed the university with slightly less than $12.1 million in tax-exempt bond liabilities.

“This is certainly a substantial chunk of relief,” Townsley said. “The diocese has asked me not to speak about the specific financials of this transaction, and given how generous they’ve been to us, I am going to abide by their wishes.”

The diocese originally gave the university the property in 1952. It will not be responsible for operating the university going forward. The diocese will lease back the property to the university at a nominal rate.

The transaction closed Monday. University leaders said it will help them stabilize financial operations as they seek to position the institution for the future.

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Pressure Builds From Low Endowment Returns

A growing number of universities are lowering the rates of return they expect to earn on their endowments, which could be paired with other important decisions on endowment spending policies, investment strategies and fund-raising demands, according to Moody’s Investors Service.

More and more universities are dropping their assumed nominal endowment returns to a range of 6 percent to 7 percent, Moody’s said in a report Friday. In the past, universities have typically assumed returns of 8 percent to 9 percent when crafting their spending plans.

That is changing as average endowment returns have fallen substantially below levels needed to keep up universities’ standard endowment spending rate, widely considered to be 5 percent. Over the last decade, endowments have posted an average annual return rate of 5 percent. After inflation is factored in, that would mean a 5 percent spending rate would create a shortfall of 2 percent to 2.5 percent, driving down endowment values over time, Moody’s said.

As a result of the crunch, universities could choose to reduce their annual spending levels. Some are gradually cutting spending to the 4.5 percent to 5 percent range, according to Moody’s. However, large reductions are unlikely in a current climate of political scrutiny that has included Congress making noise about taxing large endowments at colleges and universities that do not spend substantial amounts on student financial aid.

Colleges and universities could also choose to pursue strategies like moving to passive management to try to match market returns. Such a strategy would likely limit their possibility of outperforming the market, though.

Others might take on increasing risk. Some colleges and universities may turn to fund-raising and retained cash flow to shore up their long-term endowment returns.

As a result, the wealthiest universities would appear to have the most potential for future endowment health. Such universities tend to disproportionately benefit from fund-raising and cash flow because they have wealthy donors and strong brands commanding more money. They also tend to have the endowment size and flexibility required to invest in the alternative and riskier assets that could yield the highest returns.

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Trump Budget Seeks Cuts to Student Loan Programs

The White House budget proposal expected next week includes major changes to federal financial aid programs, according to details reported Wednesday by The Washington Post.

The newspaper obtained documents it said were described as a "near-final" version of the forthcoming budget by a Department of Education employee. The Trump administration's proposal calls for cutting $700 million in Perkins Loans and makes unspecified cuts to subsidized loans, possibly ending interest subsidies for new borrowers. It would also cut the Federal Work-Study program by $490 million -- almost half -- and eliminate the Public Service Loan Forgiveness Program entirely. One source with knowledge of the PSLF proposal said it would grandfather in current borrowers. 

The budget proposal would also include a new income-driven repayment program as promised by the Trump presidential campaign, raising maximum payments to 12.5 percent of income over a shortened 15-year time period.

The White House budget would also preserve dedicated funding for historically black colleges and universities -- a win for HBCUs in a document that calls for a 13.6 percent cut to the Department of Education.

As promised in the "skinny budget" released by the administration in March, the budget proposal would preserve current funding levels for the Pell Grant program. It also includes restoration of year-round Pell Grants (a policy included by congressional lawmakers in a recent 2017 funding deal), but doesn't peg the value of the grant to inflation.

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Budget Warning From Connecticut State President

Evolving proposals to fix a strapped state budget threaten to force the Connecticut State Colleges and Universities system to close campuses, eliminate student services and lay off workers, President Mark Ojakian revealed Wednesday.

Ojakian did not commit to taking any of those actions, only saying they could be considered depending on the state’s final budget scenario. But he sent a letter throughout the university system detailing the possibility of sharp cuts that would go much deeper than $38 million in reductions Governor Dannel Malloy outlined in February. Under various proposals suggested by the governor and state lawmakers, the university system could lose as much as $90 million. A cut of more than $62 million in the next biennium might be the new best-case scenario, Ojakian wrote.

Those cuts to state funding could affect a consolidation effort that is already underway as the system -- which does not include the state’s separately governed University of Connecticut flagship -- attempts to save money. Ojakian in April moved to consolidate administrative and non-student-facing personnel across the system and to consolidate CSCU’s 12 community colleges into one centrally run organization. That process, dubbed Students First, was intended to save $41 million annually.

Ojakian argued it was necessary because state funding has been falling. System enrollment has also declined in recent years, and the state of Connecticut faces a projected drop in the number of high school graduates in the future, placing pressure on tuition revenue.

But the consolidation plans proved to be controversial among faculty and staff. They prompted a vote of no confidence in system leadership from Central Connecticut State University’s Faculty Senate at the end of April and faculty protests at a Board of Regents for Higher Education meeting in May.

Nonetheless, Ojakian warned that the latest state budget information could lead to even more profound changes.

“These budget figures go well beyond the savings targets we were planning for under the Students First strategies,” Ojakian wrote Wednesday. “If our system does get a cut of this magnitude, it will force us to go back and explore options that we frankly did not want to consider, including closing campuses, eliminating certain student services and making significant work force reductions.”

At this point, the system is still moving forward with the previously announced consolidation process, however. Shortly after sending the letter on the state budget Wednesday, Ojakian posted another letter providing an update on the progress of Students First efforts.

The Connecticut State University chapter of the American Association of University Professors balked at the latest message from Ojakian.

CSCU system leaders should not make the situation worse by “engaging in educational violence,” CSU-AAUP President Elena Tapia said in a statement. She called for Ojakian and the Board of Regents to fight to tax the wealthy and raise revenue in order to make investments.

“Balancing the budget on the backs of Connecticut students and at the expense of quality public higher education is akin to shooting oneself in the foot just as the marathon begins,” she said.

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Survey Finds Race, Gender Gaps on College Staff

Racial and ethnic minorities are underrepresented among higher education staff members and are on the losing end of a pay gap, according to a new survey from an association of higher education human resources professionals that covers staff age, gender, race, ethnicity, pay and tenure.

Only 29 percent of higher ed staff members are racial or ethnic minorities, CUPA-HR’s annual Staff in Higher Education Salary Survey found. Minority staff members are better represented in some types of positions than in others, holding about 40 percent of service and maintenance positions versus only 16 percent of skilled craft positions.

They also generally earn less than their white counterparts. The pay gap between minority and white staff members is largest among service and maintenance staff members -- minority service and maintenance staff members only earn 90 cents on the dollar compared to white staff members. A pay gap exists in all types of positions except for office and clerical positions. Asian staff members are paid at or above equity levels for all positions except for service and maintenance positions, however.

Women are paid less than men in nearly all types of staff positions, with the exception of office and clerical work. The largest gender pay gap exists among women and men service and maintenance workers. Women working in that area take home just 86 cents on the dollar in comparison to men.

Higher ed staff members collect annualized median pay of $35,000. Skilled craft workers collect the highest annualized median pay, $47,000. Service and maintenance workers have the lowest, $30,000.

Over all, the median tenure in higher ed staff positions is four years. Salaries are highest in the Northeast and lowest in the South. CUPA-HR also found a lack of young skilled craft workers.

The survey was based on data for 169,358 staff members at 737 higher ed institutions.

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Minnesota Governor Includes Higher Ed Funding Bill in Glut of Vetoes

Minnesota Governor Mark Dayton included a higher education budget bill in a spate of vetoes Monday, arguing the legislation does not spend enough on the state's universities and student aid while criticizing several other provisions.

Dayton, a Democrat, is embroiled in a budget standoff with Republican leaders in charge of the Minnesota Legislature. Minnesota faces a key budget deadline in less than a week, but Dayton decided to veto appropriations bills while warning Republicans not to embed policy changes in spending measures.

In a veto letter on the higher education bill, Dayton wrote that the Legislature funded less than 39 percent of his requested $318 million investment. He specifically called out smaller investments in need-based aid than he proposed. Dayton went on to call out a “lack of investment in core mission support” at the University of Minnesota and a lack of investment in campus support at Minnesota State. Further, Dayton criticized the Republican bill for setting tuition at Minnesota State instead of leaving tuition-setting powers in the hands of appointed trustees, which, he argued, would likely lead to layoffs, fewer course offerings and diminished support services.

The governor also took issue with provisions related to health training and cybersecurity, among others.

Republicans have said they are not willing to write a blank check to the governor without policy reforms and that inserting policy provisions in spending bills is not unusual, according to the Minneapolis Star Tribune.

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Democrats Introduce Bill to Bolster Pell Grants

Democrats in the House and Senate introduced new legislation Tuesday that would permanently index the value of the grant to inflation, while making funding for the program mandatory and expanding or reinstating access for a number of student groups.

Senators Mazie K. Hirono of Hawaii and Patty Murray of Washington and Representatives Susan Davis of California and Bobby Scott of Virginia introduced the bill, the Pell Grant Preservation and Expansion Act. Murray and Scott are the ranking Democrats on their chambers' respective education committees.

The senators say the Pell Grant would remain fixed at the current maximum of $5,920 in fiscal year 2018 without additional fixes, eroding the value of the grant. And they say making funding for the program mandatory, rather than discretionary, would protect it from cuts during spikes in demand. The bill would also extend access to Pell Grants to "high-quality, short-term" job-training programs, raise the income threshold for the grant, and increase lifetime eligibility to 14 semesters. It also would reinstate or expand access for defrauded students who make successful borrower-defense claims, Dreamers, incarcerated students and students with drug-related convictions.

While Pell Grants have received bipartisan support -- evidenced by the reinstatement of year-round Pell in the 2017 omnibus funding package -- the bill will likely struggle to get Republican support. It's part of a higher ed campaign House Democrats announced Monday focused on access, affordability and completion.

Democrats launched a similar campaign last year -- called In the Red -- that went nowhere.

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