Washington Update: Student Debt, Omnibus, and Regulatory Changes: Changing Higher Ed Podcast 137 with host Dr. Drumm McNaughton and Guest Tom Netting
Higher education is facing a whirlwind of legislative and regulatory changes that college and university presidents should stay apprised of in the coming year. Although in effect, the Biden administration’s student loan forgiveness plan currently faces litigation issues that could impact how the effort will develop in 2023, causing delays in critical campus processes. Additionally, the recent passage of the Omnibus Appropriations Bill contains critical details on what areas of higher education received additional funding, which will inform campus leaders on what areas they can expand upon. In addition to delays in upcoming regulations, changes in Congress will also affect higher education policies and procedures in the new year.
To discuss these recent and upcoming developments, Dr. Drumm McNaughton reconvened with CEO Tom Netting of TEN Government Strategies, a company that provides federal legislative and regulatory higher education policy support, for The Change Leader Consulting Firm’s 137th podcast episode.
Litigation Complications for Biden’s Student Debt Cancellation Plan
The floodgates have opened in response to the Biden administration’s three-prolonged initiative on student debt cancellation. Litigation of more than six different suits from six GOP-led states have been filed against the administration and its efforts to provide students’ loan relief.
The White House’s three-pronged approach intended to (1) restructure the debt into earnings, (2) assess and enforce the compliance of all acknowledging institutions reinstituting regulatory oversight of the Enforcement Committee, and (3) establish the student borrower relief program. The program was meant to cancel $10,000 to $20,000 in student debt depending on whether the recipient earned a Pell Grant or was on a means-tested level between 125 and 250.
As of now, Chief Justice Amy Coney Barrett has reviewed and dismissed two of the six filed suits on student requests without providing any dialogue. Meanwhile, two other pieces of litigation will receive oral arguments from the Supreme Court by February 28, 2023, after having circulated through the Fifth and Eighth Circuit Courts of Appeal.
The first case involves a legal challenge from six Republican states led by the Attorneys General of Nebraska and Missouri. A conservative group filed the second lawsuit on behalf of Texas borrowers who feel they didn’t receive enough relief. Lastly, the Higher Education Loan Authority of the State of Missouri (MOHELA), a major contractor with the Department of Education that services direct loan programs, also filed a lawsuit because the administration’s initiative could harm its profitability and implicate MOHELA’s constituents. Overall, the two pending lawsuits, along with the majority of Republicans in Congress, are asking if the Biden administration has the ability or the authority to cancel student debt legally.
“Traditionally, it would have been Congress’ responsibility to answer these questions, but for reasons related to the economy, COVID, the Hope Act, and the greater authority that has been granted to the president, the Supreme Court believes they have the authority to adjudicate this decision,” says Netting.
What Proponents and Opponents are Saying
Proponents of the administration’s efforts note that excessive student debt is preventing graduates from gaining high-paying jobs and from purchasing a house, the price of which has increased significantly over the past five years. Opponents, however, view the administration’s move as a political ploy to purchase more votes. Others point to the fact that students took on the responsibility of paying the loan when they enrolled in the institution. Moreover, the White House’s plan shifts the responsibility that students agreed to bear to the taxpayers or the federal government.
“There are also people who say, ‘Hey, I repaid my student debt’ or ‘I never had student debt’ or ‘Wait a minute. This is a one-time proposal. So if I come after this, I’m not going to receive any of these benefits,’” says Netting.
On the other hand, concerns regarding the accrual of interest rates and extraneous circumstances that complicate a graduate’s ability to pay off their loan quickly have led to Democrats and Republicans working together to either cap the overall interest rate or to limit the overall expense of student loans in other capacities.
How This Impacts Campus Presidents and How They Should React
Presidents, as well as the entire higher ed community, need to keep an eye on this developing story because of how it will not only affect student debt now but how it will likely lead to future loan repayment delays, which has already been pushed back from January to the middle of 2023.
Presidents should encourage all current borrowers to ensure their student aid data is timely and accurate at studentaid.gov, just as the Department of Education has been suggesting. Between now and July 1, the lending community can assist students with transitioning back into repayment and provide more information on their responsibilities.
Although there are nearly 30 million borrowers with pending applications, presidents can ensure their students are in the system and that their information is up to date so the department knows the right point of contact.
Luckily, most higher ed presidents have already learned from their FSA departments that cohort default rates for fiscal year ’19 decreased for all institutions after two and a half years of borrowers’ lack of repayment responsibility. This trend will likely continue for up to three more marking periods.
“We all need to work very diligently to ensure that individuals, especially those who were previously in default, have a fresh start and to not revert back to old bad practices during this two-and-half-year window, so we don’t see a huge spike up in defaults four to five years from now,” says Netting.
Higher Education Gains from Omnibus Appropriations Bill
On December 20, the Senate Appropriations Committee released the Fiscal Year 2023 Omnibus Appropriations bill, which gave roughly $79.8 billion to education out of the $1.7 trillion. The total falls short of what the Biden administration requested, which also affects staffing.
A major benefit from the bill includes a $500 increase in the maximum Federal Pell Grant, bringing the total to $7,395 for the upcoming academic award year of 2023-24. The administration initially requested to double Pell grant funding. Additional funding also went to campus- and needs-based aid, The Federal Supplemental Educational Opportunity Grant (SEOG) trio and other grant-assistant programs, HBCUs, Tribal institutions, and Hispanic-serving colleges and universities.
Notably, the bill didn’t include multiple requests from the White House, including funding to transition the new federal student financial aid program, the infrastructure, work and contacts with the lending, servicing, collection, staffing, and other administrator communities. The government has been attempting to transition the program for upwards of nine years, and the transition from the Trump to Biden administrations shifted that overall dynamic. The Biden administration also looks to reestablish the oversight and enforcement division within the department.
In addition to not receiving additional staffing for the FSA and the Office of Policy Planning and Innovation, the administration had to shelve half of its 2021-22 Negotiated Rulemaking process due to lack of staffing.
The following was included and will be subject to implementation on July 1:
- borrower defense to repayment
- total and permanent disability
- closed school discharge
- false claims discharge
- interest capitalization
- the 90/10 rule
- Pell grants for prisoners
- A number of regulatory revisions
That said, the Biden administration doesn’t appear to have enough funding for a new Neg Reg for 2023, leaving many items off the table that need to be there.
Notice of Proposed Rulemaking
Under the Office of Management and Budget (OMB), the Office of the IRA’s unified calendar reveals that the Notice of Proposed Rulemaking (NPRM) is pending publication until April 2023 but will include financial aid and administrative, financial responsibility and capability regulations, and revisions to and reconstitution of the gainful employment regulations, certification procedures and the Ability to Benefit (ATB).
NPRM is the precursor to the final regulation. After the negotiated rulemaking (Neg Reg) has taken place, the Department of Education reviews input from the community internally. If a consensus had been reached, the department publishes the consensus proposal. If there’s no consensus, as is the case now with the exception of the ATB, then the department writes the regulations itself in the NPRM. All interested parties then have time to reflect on the notice during a comment period. As the NPRM is Title IV related, the final draft is later published by the department on or before November 1 of the preceding year before it goes into effect on July 1 of the subsequent year.
“Although the big news for presidents is the Pell grant increase of $500 and additional funding options for financial aid, I wouldn’t lose sight of the fact that the NPRM’s financial responsibility revisions and regulations are things that the school community wants to see changed, especially private nonprofit institutions since they need help on the regulatory front,” says Netting.
“The good news is that the department could allow early implementation of final regulations, so higher ed could have the benefits between November and July of next year rather than by July 1 at the earliest. But some presidents will be frustrated by the fact that their regulations will be less defined during this time period. I don’t think anybody, quite honestly, is going to lose any sleep over the fact that the final form of gainful employment, which has been so hard to implement and is such a frustrating issue for all sectors of higher ed, hasn’t been published yet. But they’re going to be paying attention once that NPRM comes out.”
Upcoming Regulatory Policy Changes
If Washington gains enough appropriation funding, another round of Negotiated Rulemaking could occur, which would allow Congress to address the accreditation TREO, other needs-based aid programs and revisions, and additional federal student aid delivery program revisions.
Higher can also expect an enhanced continued focus on cybersecurity, whether it’s through FTC safeguard rules or actual Department of Education revisions that go beyond The Gramm-Leach-Bliley Act and NIST 801-71.
“These are technical terms, but quite honestly, presidents should spend more time with IT because the compliance fines and issues, if you’re not in compliance, are significant and substantial,” says Netting.
Once the oversight and enforcement group is established, presidents should pay attention to what this group prioritizes, which will likely include information on misrepresentation, advertising, and recruitment. Also important are the upcoming Title IX regulation revisions that could appear sometime midyear.
Political Changes Will Cause Complications
With the Republicans taking control of the House of Representatives, the Education Committee, which is currently referred to as the Education and Labor Committee, will likely revert to using the terms of the Education and Workforce Committee. Republics will also most assuredly lead a number of hearings that will discuss the legality of the student loan debt cancellation plan and the development and revisions to the student loan program system.
The Department of Education is also expected to implement FAFSA Simplification Act statutory changes at some point in 2023 or 2024 after being enacted into law at the end of December 2019. These revisions require regulations to award needs-based aid on salaries and employment data rather than estimated family contributions. Higher ed can also expect changes to published final regulations on borrower defense to repayment and questions on the direction of regulations that haven’t been negotiated or published.
Because the Democrats kept control of the Senate, Senator Murray will likely step down as chairwoman of the Senate Health Committee to chair the Full Appropriations Committee. Senator Bernie Sanders could very well replace her. Also, Senator Rand Paul will likely become the ranking member of the HELP Committee following Senator Burr’s retirement.
Potential Common Ground in Congress
Although very few agree, the concerns around student cost, debt cancellation, borrowing, and the failure to reauthorize the ATA in the normal six-year period could likely push Congress to work together to reauthorize the Higher Education Act. Education and Labor Committee Republican Leader Virginia Foxx’s REAL Reforms Act could also pass as it shares many Republican values on student loan programs.
Top three takeaways for presidents:
- Work with financial aid departments to ensure that all borrowers are aware of the repayment transition on July 1. Current students don’t have to start their repayment, but they should be up to date on studentaid.gov. Ensure alumni have the benefits to reduce their overall indebtedness.
- Spend some time looking at the IT department and compliance issues. The FBI recently put out major notices about ransomware. Many bad actors have used various credentials to breach college or university systems and cause real damage.
- Keep up to date with how the new Congress changes student loan programs. It’s important not only for students but for program administrators to share the positives and negatives of the various proposals.
About the Host
Dr. Drumm McNaughton is a Higher Education Consultant, CEO of The Change Leader Consulting Firm, and an international leader in transformational change for Higher Education.
About the 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.
