July 22, 2025 · Episode 269
Washington Update: Higher Ed Overhauled Under Budget Reconciliation—Loan Limits, Pell Expansion, Earnings Accountability, and Accreditation Upended
37 Min · By Dr. Drumm McNaughton
Sweeping federal law rewrites loans, Pell, accountability, and accreditation. What higher ed leaders must know now—and what’s coming next.
In this episode of Changing Higher Ed: Washington Update, Dr. Drumm McNaughton welcomes back Tom Netting, president of TEN Government Strategies and a frequent guest known for his decades of strategic policy work in higher education advocacy. Together, they unpack the far-reaching implications of the July 2025 federal budget reconciliation package—nicknamed the “One Big Beautiful Bill”—and how it is reshaping nearly every facet of higher education regulation, finance, and oversight.
Though not officially branded as a reauthorization of the Higher Education Act of 1965, the legislation includes more substantive structural changes than the 1992, 1998, and 2008 reauthorizations. Passed under fiscal pressure and a tight deadline, the bill ties accountability to graduate earnings, reinstates Pell access for short-term programs, restructures loan limits, and opens the door to a fragmented accreditation system. For higher ed leaders, this moment marks the beginning of a volatile multi-year period filled with negotiation, reinterpretation, and implementation challenges.
The “One Big Beautiful Bill”= Massive HEA Revisions Without Formal Reauthorization
The bill originated as a budget reconciliation measure intended to meet fiscal targets and extend tax-related provisions. Yet embedded within it are the most consequential higher education provisions in nearly two decades. As with the 1989 reconciliation bill that introduced cohort default rates, this legislation bypasses typical policy debate and instead imposes dramatic shifts through financial levers.
As Netting points out, these changes were not the result of policy consensus but of revenue-offset negotiations. Despite that, the practical effect is the near-complete overhaul of institutional accountability, student loan programs, and access mechanisms for postsecondary education.
A New Federal Accountability Regime: Low Earnings Outcomes Assessment
One of the most impactful provisions introduces a statutory low earnings outcomes assessment that will apply to all degree-granting programs—from associate to professional degrees. It does not apply to undergraduate certificate or diploma programs, which were explicitly excluded in the statute.
This new accountability measure replaces the existing gainful employment-style regulatory framework with a statutory construct. Institutions will be required to assess median earnings for program completers against a national cohort of working adults aged 24 to 35. The comparison benchmark varies based on degree level:
- For associate and bachelor’s programs: compared to high school graduates in the same age cohort
- For graduate and professional programs: compared to bachelor’s degree holders
Unlike past Department of Education regulations that relied on IRS data, the new system will source earnings data from the U.S. Census Bureau—a first in federal higher ed accountability. This raises significant concerns about data integrity, methodology alignment, and operational feasibility. Institutions will need to adapt quickly to new definitions, timelines, and compliance requirements once rulemaking is complete.
Implementation is scheduled for July 1, 2026. However, under the HEA master calendar, final regulations must be published by November 1, 2025. With negotiated rulemaking yet to begin, a delay or transitional rule phase-in is likely.
Pell Grants for Short-Term Workforce Programs Return—with Guardrails
The legislation revives Pell eligibility for short-term programs—those between 150 and 599.999 clock hours or equivalent. Known as the Workforce Pell program, this provision includes multiple safeguards:
- Programs must meet 70% completion and 70% placement thresholds
- Eligible programs must be tied to high-wage, high-demand occupations as determined by state workforce boards
- Institutional eligibility requires Title IV participation and accreditation
- Programs must be reviewed and approved by state oversight entities
Notably, this provision encompasses for-profit institutions and distance education programs, but excludes correspondence education. These inclusions and exclusions reflect negotiated compromises in Congress, particularly between the House and Senate versions of the bill. Notably, the House version would have allowed unaccredited institutions to participate—a proposal struck down in the Senate version that ultimately passed.
Institutions intending to launch or expand short-term Pell programs will need to align their offerings with state-level workforce priorities and demonstrate sustained outcomes to maintain eligibility.
Student Loan Reform: Caps, Consolidation, and Expanded Professional Judgment
Major reforms to federal loan programs are included in the bill, signaling a broader federal effort to reduce overborrowing and create downward pressure on college costs. Key changes include:
- Grad PLUS loans are eliminated
- Parent PLUS loans are capped at $20,000 per student per year, with a $65,000 lifetime cap per dependent student
- A lifetime aggregate loan cap of $257,500 now applies across all federal loan programs
- All income-driven repayment plans will be phased into a single standardized repayment plan between 2026 and 2028
These changes reflect mounting concern in Congress over rising student debt burdens. The elimination of uncapped Grad PLUS loans and the imposition of lifetime borrowing ceilings are intended to rein in total loan exposure and create new incentives for institutional cost containment.
In a long-anticipated move, institutions are also granted expanded authority for professional judgment. Under the new law, financial aid officers may define student cohorts and limit borrowing eligibility below statutory maximums for that entire cohort. This allows institutions to package aid based on actual cost of attendance or program needs rather than full loan availability—marking a shift toward debt minimization strategies.
However, institutions must clearly define cohorts and apply limits consistently. They retain discretion to revise cohort definitions over time, but must be prepared to justify any changes to federal reviewers or auditors.
- Regulatory delays and rulemaking conflicts
- Medicaid and agency funding clawbacks
- Endowment tax changes
- Accreditation shifts in Florida and beyond
- Civic education grant emergence
- A fully expanded “What Higher Ed Leaders Need to Focus on Now” section
- And a Quick Overview at the end
Regulatory Relief Deferred, Not Repealed: Borrower Defense and Closed School Discharge
While the House version of the bill aimed to repeal several Biden administration regulations—Gainful Employment, Borrower Defense to Repayment, Closed School Discharge, and 90/10 revenue requirements—the Senate intervened. Instead of repeal, implementation of two major regulations was delayed by ten years:
- Borrower Defense to Repayment
- Closed School Discharge
These regulations remain in effect but are suspended in practice. This creates a holding pattern for institutions, especially for-profit colleges, which now operate under rules that are technically still on the books but unenforceable for a decade. Meanwhile, Gainful Employment and 90/10 changes were not included in the final version of the bill.
Institutions must still comply with current reporting deadlines for financial value transparency and gainful employment metrics—particularly those tied to consumer information and program eligibility—until new guidance or rescissions are issued by the Department.
Clawbacks and Medicaid Cuts: Funding Instability Beyond Higher Ed Titles
Beyond the education provisions, the reconciliation package includes funding clawbacks and rescissions that threaten institutional partnerships and health-related program funding. These clawbacks target:
- Previously approved NIH and USAID grants
- Community development funds
- Medicaid reimbursements, particularly for rural and university-affiliated hospitals
The Medicaid cuts are likely to disproportionately affect teaching hospitals and medical schools in rural areas, raising operational and financial risks for institutions involved in clinical education and public health.
These cuts have already impacted programs in New Mexico and across the country. Institutions dependent on federal research or health-related partnerships should monitor program-level funding streams and prepare for contingency planning.
Endowment Taxation: Codified With Exceptions and Political Tension
The bill codifies new federal tax rates on large institutional endowments. While some exemptions appear targeted to institutions with specific missions or student populations, others have been criticized as political favors. This formalization of endowment taxation reflects a growing bipartisan skepticism toward wealth accumulation in higher education, especially when tuition continues to rise.
Some lawmakers question whether large endowments are being used sufficiently to reduce student costs or expand access. Institutions with significant endowment assets should expect greater scrutiny, reporting expectations, and policy conditions tied to how those funds are managed and deployed.
Accreditation Developments to Watch: Florida’s New Accreditor, NACIQI, and NC-SARA
While not part of the July 2025 reconciliation bill, changes in accreditation policy were discussed in the episode because they overlap with emerging federal oversight concerns. Florida recently approved a new state-based accreditor, which is expected to seek federal recognition through the National Advisory Committee on Institutional Quality and Integrity (NACIQI). If approved, this could mark a major shift in how accreditation is granted—and who qualifies to offer Title IV–eligible programs.
This move comes at a time when the Department of Education is reducing staffing, and long-standing roles within the federal triad (states, accreditors, and the Department) are under pressure. It also raises questions about reciprocity agreements—especially for institutions offering distance education.
One critical area of concern is NC-SARA, which governs how institutions are authorized to offer online programs across state lines. If institutions become accredited by new or nontraditional agencies, it’s unclear whether all SARA-participating states will recognize those accreditors for reciprocity purposes. This creates compliance uncertainty for institutions operating nationally through distance education.
Though these changes aren’t directly tied to the new federal law, they affect the same compliance landscape. Institutional leaders should track how accreditor recognition decisions and changes to NC-SARA participation could impact multi-state operations, financial aid eligibility, and future regulatory alignment.
Civic Education Grant Emerges Without Warning
A new Department of Education grant program focused on civic education appeared without prior public discussion. The program’s intent, funding level, and targeting remain unclear. However, its existence signals a growing federal interest in shaping curriculum and program development tied to civic outcomes.
Tom Netting notes that many in the policy community, including himself, were caught off guard by its announcement. Institutions should remain alert to new federal initiatives that may come with reporting or curricular conditions, especially those that appear to align with political or social agendas.
What Higher Ed Leaders Need to Focus on Now and What to Expect Next
September 13, 2025 – Reporting Deadline
Institutions must submit data to the Department of Education for both Financial Value Transparency and Gainful Employment by this date. These are separate metrics: FVT applies to all programs and is used for consumer information, while GE applies to proprietary and some associate programs and affects Title IV eligibility. Unless guidance changes, institutions will be reporting under both frameworks while preparing for the statutory low earnings outcomes assessments coming in 2026.
90/10 Rule Now Includes Distance Education
Recent guidance expands the definition of what counts toward the 90 percent federal revenue cap for proprietary institutions. Distance education programs—previously excluded—are now included. Institutions must review their program classifications and financial models to ensure compliance with the updated interpretation.
Professional Judgment Expanded for Cohorts
Institutions can now limit loan amounts not just by individual student needs but by entire student cohorts. This can be defined by program, enrollment period, or other consistent factors. Used properly, this allows financial aid offices to reduce overborrowing and manage cohort default risk, but it requires documented definitions and justification for any caps imposed.
Prepare for New Rulemaking Cycles
Every major provision in the reconciliation bill requires negotiated rulemaking. Most are scheduled to go into effect by July 1, 2026, meaning the Department must finalize rules by November 1, 2025. Given the complexity, delays or transitional policies are likely. Institutions should designate staff now to monitor draft rules, engage in comment periods, and revise policies as final regulations emerge.
Watch for Policy Shifts in Civic Education
A new Department of Education grant focused on civic education appeared with little warning. Details are still emerging, but institutions should watch closely. Federal funding tied to civic engagement or general education requirements could signal a new regulatory or reporting layer.
Review Cybersecurity Compliance Under NIST 800-171
Institutions receiving federal funds are subject to NIST SP 800-171 cybersecurity standards. These rules govern the handling of controlled unclassified information. IT and compliance teams should review protocols now to avoid funding risks tied to noncompliance.
Expect a Technical Corrections Bill or Second Reconciliation Round
Because the bill was pushed through under tight political and procedural constraints, another round of legislation is likely. This could take the form of technical corrections to address conflicts and unclear language, or a follow-up reconciliation bill to reintroduce tabled provisions. Either way, institutional leaders should treat the law as a live process and build flexibility into planning and compliance.
Wrapping Up
The Budget Reconciliation Bill introduces sweeping changes to higher education without going through the traditional HEA reauthorization process. It establishes new graduate earnings-based accountability using Census Bureau data, eliminates Grad PLUS loans, caps lifetime borrowing, reinstates Pell for short-term workforce programs with new guardrails, and delays key accountability regulations. Institutions must prepare for dual accountability regimes, changing definitions in 90/10 compliance, and expanded professional judgment. Accreditors and the federal triad are shifting, and cybersecurity compliance remains critical. Expect additional rulemaking, corrections, and federal initiatives in the year ahead.
About Our Podcast Guest
Having spent all of his professional career devoted to higher education policy oversight and implementation, Tom Netting has an extensive knowledge of the laws and regulations governing all aspects of higher education. His considerable background and experience have afforded him the opportunity to view the development and implementation of federal higher education and workforce development policy in their entirety – including issues related to higher education and workforce development, health care, veteran affairs policies, and the procurement of federal appropriations.
About the Host
Dr. Drumm McNaughton is the founder, CEO, and Principal Consultant at The Change Leader, Inc. A highly sought-after higher education consultant with 20+ years of experience, Dr. McNaughton works with leadership, management, and boards of both U.S. and international institutions. His expertise spans key areas, including accreditation, governance, strategic planning, presidential onboarding, mergers, acquisitions, and strategic alliances. Dr. McNaughton’s approach combines a holistic methodology with a deep understanding of the contemporary and evolving challenges facing higher education institutions worldwide to ensure his clients succeed in their mission.
Read the Podcast Transcript →
Transcript: Changing Higher Ed podcast 269 – with host Dr. Drumm McNaughton and guest Tom Netting
Introduction to Changing Higher Ed®
Welcome to Changing Higher Ed®, a podcast dedicated to helping higher education leaders improve their institutions. With your host, Dr. Drumm McNaughton, CEO of The Change Leader, a consultancy that helps higher ed leaders holistically transform their institutions. Learn more at changinghighered.com. And now, here’s your host, Drumm McNaughton.
[00:00:20] Introducing Tom Netting
Drumm McNaughton: Thank you, David.
Our podcast today welcomes back one of my favorite guests, Tom Netting, president of TEN government strategies. Tom has worked in the public policy arena for over 30 years, advocating before congress, federal agencies, and state governments on behalf of private institutions of higher education and post-secondary education companies.
He’s a leader in strategic policy development and advocacy, and he joins me today to talk about the “one big, beautiful bill” act that just passed Congress, plus a couple of other tidbits that we all need to know about.
Tom, welcome back to the show.
Tom Netting: Drumm, it’s a pleasure to be back and a pleasure to be with you as always.
Drumm McNaughton: Thank you sir. Likewise. I can’t remember the last time we did one of these. It’s got to be at least three or four months.
Tom Netting: Three or four months, you mean like three or four years? As fast as things have been moving these days, it seems like time has accelerated, at least in my world anyway.
Drumm McNaughton: I was about to get real geeky and go into the Einstein special theory of relative relativity. As mass increases, speed decreases, et cetera, et cetera. We don’t need to go there.
Tom Netting: No, don’t take me down rabbit holes or wormholes. We’ll focus on all of the important stuff at hand. How’s that?
Drumm McNaughton: Yeah. And trust me, we can both go down that rabbit hole very easily.
Tom Netting: Yes sir. We could.
Overview of the ‘One Big Beautiful Bill’ and Its Impact on Higher Education [00:01:43]
Impact on the Higher Education Act of 1965
Drumm McNaughton: So higher ed is going through massive changes. We had the “one big boastful bill”. I mean, sorry, “one big beautiful bill” come up. It got passed about two weeks ago. I’m hearing people talk about this as they have redone the Higher Education Act of 1965 without calling it new HEA.
Tom Netting: This is certainly probably a bigger reauthorization than we’ve had going all the way back to 2008, which was the last reauthorization of the Higher Education Act. Congress is a little bit tardy, and I say that with a considerable amount of sarcasm, when it’s supposed to happen every five to six years, and we’re sitting here in 2025.
But this certainly has been the largest sets of revisions and modifications to the statute that we’ve seen. Drumm, I’ve been doing this for 30 plus years, and this overtakes true reauthorizations that took place in ’92 and ’98 just because of the issues that were on the table. I think it’s important from the outset to remind all of your listeners that this was not a policy discussion as much as it was a fiscal exercise. And fiscal, I mean monetary. You’ll recall that this whole process was part of budget reconciliation, which was an attempt to find offsets and savings, and also the ability to then promote the extension of tax related issues that required money in order to be able to bring them forward.
Drumm McNaughton: Yes, but …
Tom Netting: Yes but similar to the 1989 budget reconciliation, which is where cohort default rates came about, it didn’t come through the normal higher education reauthorization process. We now see some of, literally, the most significant changes in both the student loans and also regulatory relief accountability, which obviously I think will be one of the first things we talk about. A new accountability regime for all institutions of higher education at the degree level. Again, another important distinction. But yeah, this is a significant change in higher education that everybody in the community, even though it’s now two weeks in arrears is still trying to wrap their heads around.
Drumm McNaughton: Oh, absolutely. Let’s just jump right in.
[00:04:00] Accountability Changes in Higher Education
Drumm McNaughton: Accountability. What’s changed?
Tom Netting: Accountability has changed considerably with the advent of low earnings outcomes assessment for degree programs and higher. I want to emphasize, once again, the statute makes very clear that this new process starts at the undergraduate degree level and proceeds all the way up to master’s and professional degrees.
What is intriguing in that is that undergraduate certificate and diploma programs, specifically as presented in the statute, are excluded from this assessment. And what I mean by this assessment is essentially what has happened is a significantly modified, but nevertheless similar, version of the earnings premium, which currently exists in regulation, under financial value, transparency, and gainful employment, has now been modified and applied only with regards to assessment of earnings of individuals, post departure from institutions, in comparison to a cohort of “working adults”, which are individuals age 24 to 35, a pretty significant time period, that either you assess their earnings as high school graduates for baccalaureate and lower degrees, or the earnings potential of baccalaureate individuals for professional and master’s degrees. We could do literally a full podcast on the nuances and the devil of the details of this. But it looks back over a four year horizon to assess the institutional accountability side and looks at a period for those working adults for a short window in the present and then looks at the two, one contrasting to the other, to see if there is good performance. The major issues that are there, say nothing of the devil of the details of:
Do you count individual students that are still enrolled in institutions or are working versus not working on the workforce, adult working adult side?
What the calculation methodology is for your student cohorts of the institution?
But also the data that’s going to be utilized for this, the median earnings data, is going to come from the Census Bureau.
We have never seen the Census Bureau be the point of contact for the data. In the past, in all of the Department of Education’s previous regulations, it’s been the IRS. So we’ve got all new variables in terms of this, both from the definition calculations to the data assets that will be used that are now the focus of the entire higher education community as we look to see how this law is going to then be brought forward.
Drumm McNaughton: Yeah, and this goes into effect July 1st, 2026. Right?
[00:06:47] Negotiated Rulemaking (Neg Reg) Timeline Crunch
Tom Netting: That is correct. Which brings up another major question. This would be and is subject to federal negotiated rulemaking. There’s, under the master calendar, which is another part of the HEA, regulations that are to go into effect July 1 of the following year, must be completed by November 1st of the preceding year in order to give time for transition.
I can say with pretty much clear confidence in benediction, there is no way to complete a negotiated rulemaking on this complex and important an issue between July 17th and November 1st of this year. There’s going to have to be something done to either push back the time horizon or pushback for transition or eligibility, or there’s going to have to be some type of transition period, Drumm.
Drumm McNaughton: Ah, that’s got me …
Tom Netting: That’s just one facet of this bill.
Drumm McNaughton: So let’s move on because my head’s already spinning.
[00:07:46] Pell Grant Eligibility Updates
Drumm McNaughton: Pell Grant eligibility. This was huge.
Tom Netting: Pell Grants are still eligible. What you need to be mindful of with regard to the Pell Grants is number one, Congress made very clear that Pell Grants, which are not an entitlement program, and all of the funds have always been funded to the students, but it’s not an entitlement program. Without getting too wonky, what this means is that the program is allowed to run either at a surplus or a deficit every year under federal fiscal policy, under the appropriations and the spending of funds. The years that it runs at a shortfall the federal government has to find a way to fill up that bucket or make sure that the federal government is made whole for all the funds that they just administered to all of the eligible Pell Grant recipients. In recent years, that program has run at a deficit, so the federal government put considerable, sizable amounts of additional funds into funding that shortfall for the foreseeable future.
What it also did was something that Congress has been working on for quite a number of years now, literally two to three administrations. And know what I said there, administrations, not necessarily congressional sessions, and that’s short-term Pell. They have brought back the opportunity, and I say brought back the short-term Pell had eligibility back, literally four to five decades ago, and it was abused so Congress did learn from that as well as the individuals that were supporting bringing it forward. And they have put up significant guardrails around a new Workforce Pell program. That costs additional funding. So again, another reason why some of the Pell Grant certainty needed to be propped up.
But the good news here is that programs between 150 and 599.999 clock hours or their equivalents will now have eligibility, for those students seeking those programs, will now have eligibility for Pell Grants. If the institutions that seek to provide those programs meet a number of various important guardrails.
Those guardrails include not only 70% completion and 70% placement rates, but also a major focus of this is once again on workforce demand. It must be based on state oversight and review, high wage, high demand occupations. So this is going to be a very limited, but nevertheless, I think, and Congress has saw it certainly in the House and the Senate for many years, a valuable new tool for the workforce portion of the higher education community.
The important thing to do as I close this particular discussion is it does include distance education programs. It does include the for-profit community, which were two of the major sticking points over all of the deliberations on this. It does not include correspondence education. So again, there are limits placed on who is eligible to apply, but then based on that application they must show continued quality in terms of outcomes measures down the road to continue to provide the program with Pell access to the students.
[00:10:40] Accreditation Requirements for Pell Eligability
Drumm McNaughton: And the programs have to be delivered by an institution that is accredited. In the house version of this it could have been anybody. The Senate version, which is the one that ultimately was signed, said that the programs have to be delivered by institutions that are accredited.
Tom Netting: Correct. Under the triad it has to be Title IV eligible. They remove the opportunity for unaccredited institutions to be a part of it. You’re absolutely correct.
Drumm McNaughton: That’s a really key point with all that.
[00:11:10] Student Loan Reforms and Lifetime Caps
Drumm McNaughton: Next, student loans, big changes here.
Tom Netting: Major changes both in terms of the programs themselves. Removing over a transitional period away from several different income based and income contingent repayment programs down to one, in a transition from 2026 through 2028. And also the utilization of one standard repayment program. That is the construct behind major changes in terms of loan access and loan eligibility. The most noted of which is in the PLUS program. The federal government has now chosen to eliminate Grad PLUS, meaning that parents, on behalf of their dependent individuals, no longer have access to loan assistance for the PLUS program. Within undergraduate programs, parents now have a cap for any individual year, as well as aggregate cap. It’s $20,000 per dependent student per year. With a overall cap of $65,000 in total for purposes of PLUS loan eligibility per individual dependent student for each family member.
Another major thing that most people haven’t spent a lot of time on, but there is also a lifetime loan cap as well at two hundred fifty seven thousand five hundred dollars. If you think about it overall, even with the access for undergraduate and graduate and professional programs and caps they placed on $100,000 and $200,000 for graduate and professional programs as well, people could run into a point where some people bump up on that threshold. Taking away the PLUS loan area for grad programs, which had no upper end limit, again, is certainly a showing by this Congress and these individuals that they are trying to do things to put downward pressure on overall student indebtedness and borrowing.
Drumm McNaughton: You just read my mind. I was wondering what’s the intent behind this? And that’s certainly, limiting the student borrowing, student debt, et cetera. But is also, is it trying to put downward pressure on the cost of higher ed?
Tom Netting: Absolutely. Absolutely. And again, there are a lot of people that consider that some of that goes hand in glove, that caveat emptor and the like, you let the buyer beware, and let the system do what the system will do.
One other thing that I think it’s very important to note here, Drumm, is the fact that one thing that the higher ed community has been seeking for, literally, decades is the ability for the expansion of professional judgment. What that entails is that the financial aid individuals at the institutions of higher education heretofore have had to provide access and information to every borrower of all of the amounts of borrowing that they’re eligible to receive, not what they need in order to truly pursue their education, but all of what is available to them that they can avail themselves of. Whether it is needed or necessary or not.
What this legislation does do is put into place, based on consistency, across cohorts of students that, again, important to note, “across consistency” of the cohort of students within a specific program or enrollment set group, that they can educate the borrowers and they can limit borrowing below the overall amount or maximum amount of eligibility in order to, once again, try and keep borrowing constrained and therefore also potentially deal with some of the overall program costs as well.
Drumm McNaughton: Question comes to mind along these lines. Who develops the boundaries for a cohort? Is it the Department? Is it the individual institution? How do you define a cohort?
Tom Netting: It’s the institution, and that’s important, Drumm, because again, the institution is also the one that is capable of packaging individual students with all of the grant support and with all of the loan support and all of the other information that individuals bring to the table, so to speak, in the development of their individual packages. So again, that opportunity for professional judgment and the autonomy of the school to be able to set a lower limit for everybody and then work within that to package students is what they are being provided the opportunity to do.
Drumm McNaughton: That’s important. And it puts the onus, in many respects, on the institution to define things appropriately. Once they’ve defined them can they be changed? I would say yes. But how do they justify it?
Tom Netting: Well, and keep in mind, heretofore you always had all of that same packaging capabilities. But if the student said to you, “look, I want all of my loan eligibility on top of what you’ve packaged for me”, they couldn’t say, “no”.
Drumm McNaughton: Makes sense.
[00:16:03] Regulatory Relief and Medicaid Cut’s Impact on Higher Ed
Drumm McNaughton: Moving along, regulatory relief.
Tom Netting: Some nuanced issues here. They didn’t repeal, as was intended by the house, two key provisions that were part of the Biden Harris administration, closed school discharge for institutions, and also the borrower defense to repayment issue over from the house was supposed to include gainful employment in 90/10. The Senate chose not to include either of those. And with regards to borrower defense to repayment and closed school discharge instead of repealing the provisions outright, after discussions with the parliamentarian and negotiations throughout the Senate, what they did was they basically extended implementation and the action of those two provisions for a 10 year period.
So the Biden Harris administration regulations, they’re not proposals, they’re enacted regs or promulgated regs, are still on the books, but the implementation for them is 10 years down the road.
Drumm McNaughton: That’s one way of doing it.
Tom Netting: It is.
Drumm McNaughton: One that I just read about today with the Medicaid cuts. That is going to affect, especially rural hospitals, but teaching universities, teaching hospitals based with universities, that could be a significant impact there.
Tom Netting: Another one of those areas that we’re just starting to peel back the layers of the potential impact. Similar to the accountability provisions, and again, Drumm, I come back to a lot of this was not well thought out, long discussed and deliberated policy. It was, these numbers met the overall objectives of financial impact.
And now the real impact, real world impact, on both education and healthcare in this particular case, are yet to be determined. This is one where I will tell you probably we need to wait until one of the next conversations, whether it be a week or a month or a couple of months from now that we delve in with a little bit more detail. Because right now there’s a great deal of concern and a great deal of conjecture and not a lot of answers.
Drumm McNaughton: And on top of that, Congress is trying to claw back funding that’s already been approved and signed into law. They’re trying to claw that back. Who knows what’s going to end up happening with all this stuff.
Tom Netting: Or withholding the money that has literally already been allocated for a number of different programs across a number of different cabinet level agencies. I was just on the phone talking with somebody about the Boys and Girls Clubs and the fact that while you may have ideological concerns, helping Boys and Girls Clubs doesn’t seem to me to be, and I guess I’m showing a little bit of my colors here, doesn’t necessarily be the place where withholding funds that were already committed and promised necessarily should be. There are a lot of those kind of conversations taking place on a number of different levels and a number of different, important issues and concerns at the same time as this administration and the executive orders and the efforts of the GOP and the House and Senate continue to push the agenda that they believe very much is in the best interest of the country.
Drumm McNaughton: This is affecting a number of my friends and colleagues throughout the country, but even here in Albuquerque with certain programs that were funded by USAID, that were funded by National Institutes of Health, et cetera. It’s very painful to see all these cuts.
Tom Netting: And again, to see the toing and froing of it, and some of it I still earnestly believe will ultimately be released. This is the art of negotiation in this day and age. Love it or hate it. This is where we sit in terms of some of the negotiating tactics that are being utilized on a number of different levels.
[00:19:49] Endowment Taxes and Higher Education Funding
Drumm McNaughton: Endowment taxes. This has changed.
Tom Netting: Speaking of …
Drumm McNaughton: Exactly.
The bill codifies new endowment tax rates, and they’ve carved out exemptions, which I think they should have in some cases, and others, it’s like, “seriously?” This is a nice what did they used to call ’em? Kickbacks,
Tom Netting: Favors.
Drumm McNaughton: Favors. There you go.
Tom Netting: This is another one of those areas where we, yet again, and I’m not trying to punt here, Drumm, but certainly this is another area where the full impact and the full circumstances, it’s a misnomer to think that all those monies are just set upon without guidance and without other statutory and regulatory requirements around them.
So some of this, again the reality gets lost in a lot of the rhetoric. But yes, this is another area where, c ertainly higher education and traditional academia is being questioned in manners that they have not been questioned since time immemorial. I don’t think these type of discussions or dialogues on, there’s been questioning in the past of the size and the scope of the funding that are in various endowments and who holds them and what it’s being used for, but never to the degree to which we’ve seen.
Now the reality is go back to some of the former discussion. With so much in Congress right now being fiscally focused, and as you so eloquently noted, both, not only student borrowing but also college cost, there is a questioning by many, and even some on the Democratic side of the aisle, of where is the line that is too much and what can be done to try and help students? And is this in some form or fashion, a portion of packaging that needs to come into play more so than it has?
Now, again, there is a lot more nuance to this and another one of those things and I don’t profess to be anywhere near an expert, and I’m not a fool away from home, so I’m not even going to try to be, in terms of the expertise around endowments and what those requirements are and aren’t. But certainly it is again, something that has been brought forward in the questioning and the querying of traditional academia.
Drumm McNaughton: It’s interesting because as we’re talking about this, my mind goes to different tax rates and different taxes between a corporation, a C Corp, and an S-corp. An S-corp is just a pass through to the personal and it gives you the protections that you would have with a regular corporation.
A C Corp, you’re taxed on your earnings, which are also taxed on your retained earnings, how much cash you do. So people will talk about this as being double taxation. And this, in some ways, this kind of reminds me of that. Taxing endowments you’re finding a way to tax nonprofits.
Tom Netting: Again, and there are people that will tell you that’s exactly the intent is that they are sitting on large sums of money that there are people that believe more could be done with that money than what has or is being done with that money. And if it’s not going to be utilized, then they’ll find ways to draw some of it back.
Drumm McNaughton: Which brings us to a bigger question, which we won’t go into, is who can control a university? Is it the board? Is it the government? Is it the accreditor? Is it the regulator? Not going to go there, but it brings in deeper philosophical questions.
Tom Netting: And is it all of that and more? And I’m not being flippant with you. And again, you’re absolutely right. That’s another one of those ones to peel back the layers of that onion, Drumm, would be multiple podcasts.
Drumm McNaughton: Oh, absolutely.
[00:23:34] Accreditation and the Triad
Drumm McNaughton: I have a question for you, and this is an interesting one, the Department of Education has come out with a new grant and it has to do with civic education. What’s that about?
Tom Netting: Again, something I’m just exploring. It literally caught me flatfooted. I hadn’t heard anything about that. Obviously in my position as a higher education policy advocate, I try to be up on it as many things as I can. I will tell you that, in this day and age, and with as fast as the pace is gone, again, I don’t know that anybody could fully be on top of everything. I’ve got to do some more research on it, but it is intended to, once again, almost like short-term Pell, it’s targeted at specific types of support. Again, I can’t go much deeper than that at this point, but I promise you I will do my homework between now and future conversations or share information with you to, for you to share, via either all of the hard work that you do on LinkedIn or elsewhere with the listenership.
Drumm McNaughton: Thank you. I appreciate that, because it struck me as one of those things like, okay, who are you really targeting with this new grant? And I like you, I don’t know as much about it as I need to.
Tom Netting: And it’s a, it’s like a couple of other things. One of the other things that I assume we’ll be talking about is accreditation. And certainly there is a lot going on in the realm of accreditation these days and trying to stay on top of that, on top of the many other issues, lots going on down in Florida, new recognition of an accrediting body down in Florida. Which certainly Florida is on the cutting edge of everything related to accreditation from desires to have institutions find new accreditors every other cycle, without, I think, a full appreciation of the impact of that and what it takes to go through an accreditation process.
Looking at the administration who has put forth executive orders and has put out periodical guidance on accreditation being open to new entities at the state level as well as at the entrepreneurial sector as well, is something that I think we’re going to be seeing much more of. It’ll be interesting to see how the accreditation of the group that was recognized by the board down in Florida, I think last week or earlier this week, will fare when they come forward to the National Advisory Committee on Institutional Quality and Integrity, NACIQI, which is the oversight body for all higher education accrediting bodies.
Drumm McNaughton: It will be interesting to see because before we went to institutional accreditors, there were regional and there were national. The regionals, we, all know those WASC, Middle States, North, New England, Northwest, SACs, Higher Learning Commission, and the state of New York was considered to be a regional accreditor. They got outta the accreditation business about two or three years ago. We worked with a client who made that transition. But that was one of those, when we talk about the triad, you talk about the state’s attorneys general, you talk about the Department and you talk about the accreditors. They all had a very well-defined role in the triad.
Now, New York was doing both of them, between the attorneys general and the accreditors. They got outta that business. Florida’s wanting to get into it, and with the Department being, I don’t want to use the word decimated, but with the Department and so many people being laid off, roles changing, et cetera, can the triad be effective going forward? I don’t know.
Tom Netting: I don’t know either. And again, change is interesting. It can be very helpful. Maybe there is something that needed to, spruce up or revise the triad. Certainly, I can tell you from at least my Tom Nettings point of view, the roles of the triad and their specific functions from the outset, versus what they do now, are not what they were intended to be at the outset.
Truly academic assessment was the role of the accrediting bodies. The states were responsible for protection of the consumer in basic circumstances and, protection of the state’s interest. And the federal government had the opera mater of oversight and assurances of integrity, especially when it came to the utilization of the federal funds. A lot of those roles have certainly been either commingled or pushed in different directions since the triad was formulated.
Again, what these accreditors will seek to do, and how they seek to do it with the new advent, will be interesting to see. Keep in mind, as you duly noted, regional and national accreditation, those lines are no longer distinct. They were taken away in Trump 45. So now the notion of accreditation is not regional or national, it is just accreditation period. And how that plays into, not only the oversight of institutions, but as we continue to see more and more of the advent of distance education being a major player. We have NC-SARA and all of what is entailed with the standards that are vitally important for crossing of state lines and things of that nature. And we’ve seen pushback and questions about whether or not that’s the most appropriate way to go there.
So there’s a lot in higher education policy that is being questioned these days, and I think rightfully so. Nothing should ever remain stagnant. But to your point, how it all comes back together, Drumm, is going to be something that is going to be very intriguing to be a part of, as I hope to be, but also very intriguing to see how it plays itself out and how the very interests either coalesce or don’t around what the new policy and proposals in focus of the triad and the ability to achieve the goals looks like. Probably more long-winded than you wanted, but you got me thinking, Drumm. That’s all I can say.
Drumm McNaughton: Well, that that’s a good thing.
Tom Netting: I think so.
Drumm McNaughton: It’s like that ancient Chinese curse, “May you live in interesting times.”
Tom Netting: We are certainly in the middle of that.
Drumm McNaughton: Absolutely.
[00:30:01] Final Thoughts and Future Considerations
Drumm McNaughton: Well, my friend, we got through this way faster than I thought we were going to.
Tom Netting: Yeah. But again you haven’t given me my free for all at the end. So I’ve got a couple of things to add to and add nuance to at the end.
Drumm McNaughton: Go for it.
Tom Netting: The question that you normally ask me that I had ticking around in my brain is what should your listenership be paying to right now that we hadn’t covered?
Drumm McNaughton: I was about to go there.
Tom Netting: See, I’m learning man. We’ve done this enough time where I can at least forecast that.
Drumm McNaughton: Absolutely.
[00:30:31] What Higher Ed Leaders Need to Focus on Now
Tom Netting: A couple of things that I think that the listenership should be really focused on right now are the following:
Number one is a reminder that gainful employment and financial value transparency have not gone away at this time. And September 13th is a critical deadline for all institutions to provide reporting to the Department of Education based on either financial value transparency computations, or their reporting with regards to gainful employment. In fact, the Department of Education put out guidance just a week or two ago reminding everybody of that fact.
And why this is important, Drumm, is I’ve been on a stump speech of letting everybody know and trying to remind people that unless something changes, and I do believe something will change, so bear with me for the spoiler alert at the end, but right now, under the new law and under the existing regulations, you could see all institutions having to do two separate computations. Associates degrees, and higher doing the computation and assessment and eligibility threshold under the new law, under their low earnings outcomes.
And at the same time, we still have the financial value transparency and gainful employment metrics, both debt to earnings as well as the earnings premium, keeping in mind the earning premium in a different version is what is the low outcomes earnings proposal, also having to be reported and tracked. One for consumer information, i.e. financial value transparency, and one for eligibility purposes for all proprietary institutions in their programs, and some associate’s degree programs. That still closes the loop on undergraduate certificate and diploma programs having accountability thresholds. Which may be one of the reasons the Senate wrote it the way they did.
It’s yet to be determined how all of this is going to play once the Department comes into working through all of these two distinct sets of proposals. There is one train of thought that says that now that for the first time in Congress is actually given directives on what assessment of accountability looks like, instead of using the term gainful employment in a recognized occupation, that it may be that they back away from financial value transparency and gainful employment, look to what Congress specifically stipulated and wrote, and work at that towards the regulations.
Similarly, we just had new guidance put out by the Department of Education on 90/10 for those institutions of yours that are proprietary in nature. This is new guidance that was put forward that doesn’t change the regulation, because the regulation was driven directly by the statute, but the interpretations of definitions and words matter were significantly modified with regards to what is an ineligible versus an eligible program, and counting of the 10%, and also most notably, the inclusion of distance education programs that were excluded from being counted in the 10% revenue that are now included.
I bring that example forward to come back full circle to all of higher education and say that I truly believe that there are a number of other areas of interpretive guidance from the Biden Harris administration that the Trump administration is likely to provide a new perspective on in the not too distant future. This could include a number of issues important to all of higher education. Some of the financial responsibility and administrative capability triggers, mandatory or discretionary, issues with regards to other computations and other focuses on the composite score and things of that nature, and the list goes on and on.
And so I bring that up to say “stay tuned” because there’s going to be a lot more coming.
The other thing that I would encourage institutions and the leadership of institutions to continue to focus upon, it’s one of the stump speeches you’ve heard me state before, is do not forget about NIST SP 800-171, the National Institution Science and Technologies 800-171 regulations and other IT platform related requirements and compliance issues. Those kind of creep up on people because it’s not as prevalent or as much of a focus as certainly financial aid and other issues, but those compliance triggers, and the potential impacts of non-compliance, are significantly important to all institutions and to students in the protection of the federal dollars associated with them as well.
Sorry for the rant.
[00:35:18] What’s Next: Anticipating Reconciliation Corrections
Drumm McNaughton: I appreciate the rant, my friend. It’s always great to see you. What’s next for you?
Tom Netting: What’s next is this is probably going to make all of your listenership cringe. There could be another round of reconciliation on the books. Even as the Congress is right now focusing on the rescission package, because this was so hastily done to meet a mandatory deadline that was basically established by the president of July 4th, and because the work to meet that deadline, didn’t provide for the greatest amount of thought that people would’ve liked to have had.
And for the reasons we’ve already discussed on some of the devil of the details of these issues, I think they’re going to need to be a technical corrections bill, quote unquote, or some other additional things that are either reconsidered or considered, whether it was because the parliamentarian took them away and the GOP still wants them, and if with modification they might be able to pass muster. Or just because there are other things that need to be corrected. We’re going to see more on the legislative front. And as I alluded to all of the provisions that came through the budget reconciliation, “one big beautiful bill” act, are subject to negotiated rulemaking.
Most of them are supposed to take effect July 1st, 2026. Some transition in over a longer time horizon of ’27 or ’28, like the aforementioned revision to a single repayment plan. But how they’re going to do that and how they’re going to do these negotiated rulemakings and how these incongruencies of law, master calendar requirements and law implementation dates get reconciled, pardon the pun, is going to be a very interesting dynamic that we’re going to be living in real time yet again,
Drumm McNaughton: As I said, may you live in interesting times.
Tom Netting: That Chinese curse comes back again.
Drumm McNaughton: It certainly does. Well, my friend, it’s always a pleasure to chat with you.
Tom Netting: I appreciate the time with you once again and appreciate the time to share with your listenership and I hope it’s been helpful.
Drumm McNaughton: Absolutely. Take care, my friend. Good to see you again.
Tom Netting: You too.
[00:37:22] Closing Remarks
Drumm McNaughton: Thanks for listening this week and a special thank you to this week’s special guest Tom Netting for his Washington update. Tom, it’s always a pleasure having you on the show and I look forward to the next time you get to come back and we catch up again.
For my listeners, thanks again for listening. See you next week.
