WASHINGTON -- The Obama administration is now free to move ahead with plans to more tightly regulate campus debit cards and require more aggressive state oversight of online education programs after a federal panel on Tuesday failed to reach agreement on those issues.
A rule making committee had been negotiating for the past several months over a wide-ranging package of new regulations the Education Department is seeking to develop. Broadly speaking, all of the proposals relate to how and when federal student aid can flow to students and colleges, but the committee debated six distinct issues.
Members of the panel failed reach consensus on two of those issues: campus debit cards and state authorization of online programs. Had the panel unanimously agreed on all six issues, the department would have been bound to its recommended language under federal rule making procedures. Without such agreement, the department is now free to propose whatever regulatory language it wants.
Campus Debit Cards
Consumer advocates and financial institutions disagreed on how widely new fee restrictions on student banking products should be applied. Companies that provide such products to students argued that the Education Department did not have the authority to regulate student ID cards that may not necessarily involve federal student aid dollars.
The department’s latest proposal would ban certain fees and restrict the marketing of any student account “sponsored” by an institution. Student debit cards, prepaid cards and ID cards that double as debit cards would be subject to those rules.
Paul Kundert, the president and CEO of the University of Wisconsin Credit Union, who represented lenders, community banks and credit unions on the panel, said there was a fundamental disagreement over how far the Education Department’s regulations should go.
“We came at it with a different scope of what this rule making should be,” he told the committee, noting that all of the products the Education Department wants to regulate are “fully regulated by other agencies.”
Consumer and student advocates, meanwhile, praised the department’s efforts to more tightly regulate those products.
Chris Lindstrom, the higher education program director at the U.S. Public Interest Research Group, said the department “very thoughtfully sought meaningful safeguards on these products for students.”
She said it was especially important that department officials suggested that they may develop, through its existing Integrated Postsecondary Education Data System, a centralized way for the public to see the contracts between campus card providers and colleges.
Maxwell John Love, vice president of the United States Student Association, who represented students on the panel, also praised the department’s efforts and said the disagreement stemmed from debit card providers seeking to protect their financial interests.
“The financial institutions and the banks weren’t going to agree to something that is going to hurt their bottom line,” he said.
Negotiations also broke down over the department’s proposal to rewrite a controversial requirement that all online education programs obtain permission from each and every state in which they operate. The original version of the rule was tossed out by a federal judge on procedural grounds in 2012.
The department, with the support of many consumer advocates, had sought to essentially require states to subject all distance education programs to a formal regulatory review in an effort to move away from the current practice by many states of exempting online programs from such a review by virtue of the program’s accreditation or some other reason.
In its latest proposal, the department eased up to some extent on that provision but still said that states needed to have an “active process” in place for overseeing all online programs.
Agreement on PLUS Loans
The rule making panel came to an informal agreement over new standards for PLUS loans to graduate students and parents. Under that compromise language, the department would not grant PLUS loans to parents or graduate students who have any type of debt exceeding $2,085 that is 90 or more days delinquent. The proposal would also change the look-back period for such “adverse credit” history from five years to two years.
In an attempt to account for inflation, the panel also agreed to language giving the Education Department the power to, in the future, change the $2,085 threshold for the amount of delinquent debt that is exempted from an applicant’s credit history.
The panel also informally agreed to proposals that would require the foreign outposts of American-based colleges to be approved by local authorities in order for their students to be eligible for federal aid. The state in which the main campus of the institution is located must also be able to deny the authorization of a foreign program and have a mechanism for responding to student complaints.
In addition, the panel agreed to new regulations on how clock hours are converted into credit hours, and the conditions under which students may receive federal aid for courses they need to retake.