September 22, 2026 · Episode 330
Washington Update: Title IV Risk, Neg Reg, and the Midterms
38 Min · By Dr. Drumm McNaughton
Washington Update: how dormant-loan default rates, OB3 earnings rules, the AIM Neg Reg, and the 2026 midterms put your college's Title IV eligibility at risk.
For many colleges and universities, the most immediate threat to Title IV eligibility over the next two years is a number no one on campus controls. Student loan default and repayment rates have continued to be calculated through years in which collections stopped and borrowers were told they did not have to pay. Those rates drive eligibility decisions for every institution of higher education. They are running considerably higher than normal, and no regulatory accommodation has been made for them.
That exposure sits on top of a federal agenda moving on several fronts at once. The One Big Beautiful Bill (OB3) regulatory packages are final, including an earnings accountability metric that reaches every program at every institution. The Accreditation, Innovation, and Modernization (AIM) negotiated rulemaking has produced proposed rules that rewrite transfer of credit and the accreditor’s role in the triad. The Department of Education’s responsibilities are being redistributed to other agencies. The November midterm elections will change the makeup of every congressional committee that governs higher education, whichever party holds the majority.
In this Washington Update episode of the Changing Higher Ed® podcast, Dr. Drumm McNaughton speaks with Tom Netting, President of TEN Government Strategies, who has spent more than 35 years advocating before Congress, federal agencies, and state governments on behalf of private institutions of higher education and postsecondary education companies. The conversation covers the final OB3 rules, the AIM Neg Reg proposals, the default rate problem facing institutions, the diffusion of the Department of Education, and how the midterms could reshape the committees that write higher education policy.
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Quick Overview
- Default and repayment rates have kept being calculated through years with no collection activity, and Tom Netting warns some institutions could see single-year default rates above 40 percent, putting their participation in federal student aid programs at risk.
- Some borrowers who enrolled in 2017 or 2018 have not paid dollar one on their loans, and OB3 eliminates zero-dollar payments once the transition to standard repayment or the Repayment Assistance Plan takes effect.
- The OB3 earnings accountability metric applies to every program at every institution, and the Department has invited early implementation.
- Nursing’s exclusion from the professional loan limit ($200,000 versus $100,000 for graduate programs) is in litigation, and the Department currently cannot enforce the limit for those programs.
- The AIM proposed rules essentially prohibit institutions from refusing comparable transfer credits from Title IV peers, with CIP code and core content as the practical test.
- Accreditors will be responsible for outcomes assessment, including earnings accountability, and for assessing legal compliance in areas such as DEI, the First Amendment, and antitrust.
- Fourteen interagency agreements have moved Department of Education functions to Labor, Treasury, HHS, and Justice, but the Office for Civil Rights has not moved.
- After the midterms, regardless of outcome, the Department plans another round of negotiated rulemaking covering change of ownership and control, administrative capability, and financial responsibility.
Default Rates Calculated on Dormant Loans Put Title IV Eligibility at Risk
Netting laid out the scale. More than nine and a half million student borrowers are in default, and close to nine million more are delinquent. Within the $1.7 trillion federal student loan portfolio, more than $233 billion is in default, with roughly twice that amount in delinquency. Collection was supposed to restart last October alongside the OB3 transition to two repayment paths: a standard repayment plan and the new Repayment Assistance Plan (RAP). According to Netting, that transition has not really begun.
As Under Secretary Kent reminded participants during the negotiated rulemaking on student loans, a borrower who enrolled in a four-year program a year or two before the pandemic may have gone from 2017 or 2018 to 2026 without making a single payment. Many borrowers assumed their loans would be written off. OB3 also eliminates zero-dollar payments, so every borrower will owe something once the transition takes full effect. For households that built budgets around paying nothing, that is a significant new obligation, and the administration is expected to launch campaigns to bring borrowers back into repayment.
The institutional problem is that default and repayment rates kept being calculated while collection sat dormant. Netting warned that unless the Department recognizes and accommodates this in regulation, which has not happened, some institutions could find themselves with single-year default rates above 40 percent and potentially out of the federal student aid programs. He was emphatic that institutions bear no fault for this. He and others are pressing the Department and the administration for an accommodation so institutions are not penalized for something they had no control over.
McNaughton described the potential financial impact as a sledgehammer. Netting’s assessment was blunter: a wrecking ball. McNaughton observed that if the goal were to put a third to half of higher education institutions out of business, this would be the way to do it. For boards, this belongs in enterprise risk planning now, not after the rates are published.
OB3 Earnings Accountability Extends Program-Level Scrutiny to All of Higher Ed
The final rules for loan servicing, Workforce Pell, and earnings accountability have all been published. Netting considers the earnings accountability metric the most consequential for institutions. It assesses the earnings of every program at every institution in relation to student debt, looking at potential earnings four years out.
The regulations include a transition period, and the Department, as it often does, offered the option of early implementation. Netting expects most institutions to take the time they are allowed, but he believes the Department is hoping institutions will move early. Institutions that lived through gainful employment and financial value transparency have seen versions of this before. What is new is that institutions across the entire spectrum of higher education now have to get used to accountability at the programmatic level, regardless of the program.
The metric also shows up in the accreditation proposals, which assign accreditors responsibility for earnings accountability and other outcomes-based assessments. For provosts and boards, program-level earnings data becomes a question for academic portfolio decisions, not only for the financial aid office.
The Graduate and Professional Loan Limit Split Is Now in Litigation
OB3 changed the PLUS loan programs and set new limits on graduate and professional borrowing. The distinction between a graduate program and a professional program matters, Netting explained, because it is the difference between a $100,000 and a $200,000 upper borrowing limit.
Nursing drew the most attention, both in comments on the proposed rule and from the nursing professions on Capitol Hill, because it was excluded from the professional category. Other professions also did not make the list of 12. When the pushback did not change the final rule, opponents pivoted to litigation. That litigation has taken hold, and the Department is currently unable to implement or enforce the regulations for those programs. Institutions with affected programs are in limbo until the courts resolve it. McNaughton noted how hard these limits hit the health professions, where the cost of a medical degree routinely exceeds even the higher cap.
The AIM Neg Reg Rewrites the Accreditor’s Role in the Triad
The AIM Committee produced what Netting called a complete reworking of the Higher Education Act provisions governing accrediting agencies and their role in the triad. As with the other OB3 packages, the negotiators reached consensus with the Department of Education, an outcome many observers did not expect going in. The Department published the Notice of Proposed Rulemaking (NPRM) in the Federal Register on August 20, with comments due September 21. At the time of recording, more than 1,400 comments had already been filed.
The context matters. The distinction between regional and national accreditors has already been abolished. Netting noted the Trump administration’s surprise that regulatory changes in the first term, meant to make it easier for institutions to change accreditors, produced little movement. McNaughton pointed out that institutions do not change accreditors idly. The administration is now using executive orders to encourage more mobility, and states such as Florida already require institutions by law to change accreditors periodically. For institutions working through accreditation strategy, the proposals change both what accreditors will review and how much leverage institutions have in choosing them.
Transfer of Credit: Institutions Lose Latitude to Refuse Comparable Credits
The most sweeping change in the AIM proposals concerns transfer of credit. Institutions must still explain their transfer policies and how they implement them, now with greater specificity. The larger shift is that the ability to refuse similar credits is essentially prohibited going forward.
McNaughton asked whether an accredited institution would have to accept credits from a non-accredited one. Netting was careful not to overstate the answer. Peer to peer within Title IV, institutions will have to accept the credits. He was less certain about credits coming from non-Title IV or unrecognized institutions, though he thought the same principle would likely stand.
McNaughton raised the concern for the Christian colleges and universities his firm works with, many of which do not participate in Title IV. Netting’s view is that the regulations are constructed to be student-centric. If a credit comes from the same program by CIP code with the same core content, a receiving Title IV institution will be hard-pressed to deny it, particularly because accreditors will now be more focused on transfer policies and procedures. The administration’s stated rationale is to reduce college cost, increase student mobility, and shorten time to completion.
Accreditors Take On Outcomes, Legal Compliance, and Independence Tests
Beyond transfer of credit, the proposals significantly enhance the assessment of institutional and programmatic outcomes, with accreditors responsible for the OB3 earnings accountability metric and other outcomes-based measures.
The proposals also put pressure on accreditors to assess legal compliance, including First Amendment and antitrust issues and areas such as DEI. Netting expects this area to drive further regulatory changes and assessments.
The third issue affects programmatic accreditors in particular. Since the 1992 reauthorization, the law has required accrediting bodies to be separate and independent from any trade association or professional association. The Department is now saying some of those relationships are too close. McNaughton knows of several programmatic and institutional accreditors going through gyrations to build a Chinese wall. Netting noted this could be hard for smaller programmatic accreditors, because the affiliated association is often the support structure that keeps them sustainable.
The Department of Education Is Being Diffused, Not Yet Dismantled
President Trump gave Secretary McMahon a clear mandate to put herself out of a job by dismantling the Department of Education. Netting prefers the word diffuse, because the partnerships are still in place. Through fourteen interagency agreements, considerable portions of the Department’s work have moved:
- Career, technical, and adult education programs, along with a growing number of other higher education programs, are moving to the Department of Labor.
- Student loan programs are moving to Treasury.
- Nursing and some other grant programs have moved to HHS, and still others to Justice.
The Office for Civil Rights, one of the major hot-button issues, has not been moved yet and remains a target of debate on Capitol Hill.
Congress is split, even within the Republican majority. The House put forward a series of ten bills to give the dismantling a statutory basis. The Senate HELP Committee went the opposite direction on a bipartisan basis and firmly rejected the idea. Netting does not expect either set of bills to reach its full floor before the midterms and the lame duck session. The standoff shows that Congress still asserts the right to decide whether the Department is fully eliminated. In practice, responsibilities are now shared in a collaborative arrangement between the Department and other agencies.
The Midterms Will Reshape the Committees That Write Higher Education Policy
This year, 35 Senate seats are on the ballot, two more than usual because of two special elections. Netting is tracking all of them in a weekly election scorecard through November, which will also be posted on the Career Schools Private Education Network website.
On the Senate HELP Committee, Republicans hold 12 seats and Democrats 11. Four Republicans will not return, including Chairman Bill Cassidy, who Netting noted was primaried out, and Tommy Tuberville. Four more Republicans are on the ballot, and two of them, Susan Collins of Maine and Jon Husted of Ohio, are in races the pundits currently rate as toss-ups. The two Democrats on the ballot, John Hickenlooper and Ed Markey, hold safe seats.
On the Senate Veterans’ Affairs Committee, three of the ten Republicans are not returning, and Dan Sullivan of Alaska is in a toss-up race. On Appropriations, where, as Netting put it, whoever controls the gold controls the rules, seven Republicans and seven Democrats are either leaving or on the ballot. Dick Durbin, Jeanne Shaheen, and Mitch McConnell are retiring, and Gary Peters is not returning. Netting identified two toss-ups: Jon Ossoff of Georgia, whose race he believes leans Democratic, and Susan Collins, the current Appropriations chair.
McNaughton expects the Senate to land at 51-49 or 50-50, with the majority uncertain. Netting noted that either result is well short of the 60 votes needed to stop a filibuster and move legislation.
In the House, the Committee on Education and the Workforce has three Republican departures and two tight races: Kevin Kiley of California, whose race Netting believes now leans Democratic after California’s redistricting, and Ryan Mackenzie of Pennsylvania. On the Democratic side, Frederica Wilson is retiring and Haley Stevens is leaving. Leadership is also in play. Bobby Scott of Virginia, the top Democrat on the committee since George Miller’s departure, now faces a challenge from Jahana Hayes of Connecticut for the leadership position in the 120th Congress, whether in the majority or the minority. Netting framed it as the old guard against a newer, more progressive wing.
On the House Veterans’ Affairs Committee, half of the Republicans are departing or in toss-up races, including Mariannette Miller-Meeks, Derrick Van Orden, Jen Kiggans, and Tom Barrett. On House Appropriations, nine Republicans are departing or in toss-ups, along with four Democratic toss-ups and three Democratic departures. In more than thirty years in Washington, Netting said, he does not remember this level of potential change. Whoever holds the majority, the complexion of these committees will be significantly different.
What Changes If Democrats Win the House
Asked about the implications of a Democratic House, Netting expects immediate efforts to pass legislation unwinding the OB3 and accreditation regulations and other administration actions. Those bills would not survive a presidential veto. He also expects Democrats to call Department officials to explain the rationale for what they are doing and not doing, building on letters already sent by House and Senate members about civil rights reviews, borrower defense to repayment, and loan relief carried over from the Biden and Obama administrations.
More is still coming from the Department, including a Title IX regulatory package that will address transgender issues. In the Senate’s final weeks before adjourning for the campaign, Majority Leader Thune and others are weighing whether a bipartisan college sports bill can pass. Even if it clears the Senate, Netting does not expect the House to take it up.
McNaughton’s conclusion was at least two more years of gridlock. Netting agreed, but argued that these debates still matter because they drive current and future decisions even when they do not become law. McNaughton drew the parallel to strategic planning: the plan matters, but the discussions around it and what institutions put in place as a result matter more.
The Next Neg Reg: Change of Ownership, Administrative Capability, and Financial Responsibility
Netting gave the administration credit for doing a yeoman’s job with webinars and office hours that let institutions get compliance and implementation questions answered directly by the Department. Those questions will keep coming as institutions work through the new regulatory packages.
He also forecast the next round. After the midterms, regardless of the outcome, the Department plans another negotiated rulemaking, which Washington insiders call the Christmas tree negotiations. Change of ownership and control, administrative capability, and financial responsibility are likely to be on the table, with negotiations expected around November through January 2027. For institutions considering mergers, acquisitions, or strategic alliances, or those already under financial responsibility scrutiny, these sessions will set the rules for the next several years.
Three Takeaways for University Presidents and Boards
- Model default and repayment rate exposure now. Rates calculated during years of dormant collections are running well above normal, and no accommodation exists in regulation yet. Institutions with large borrower populations should know their projected rates, their proximity to eligibility thresholds, and their contingency plans before the numbers become official.
- Review transfer credit policies and program outcomes before accreditors do. The AIM proposals essentially prohibit refusing comparable credits from Title IV peers and make accreditors responsible for outcomes assessment, including earnings accountability. Transfer articulation and program-level earnings data are becoming accreditation issues, not only registrar and financial aid issues.
- Do not wait on the midterms. A shift in House or Senate control is unlikely to overturn OB3 or the accreditation rules given the veto, and the Department has already planned post-election negotiated rulemaking on change of ownership, administrative capability, and financial responsibility. Institutions that treat the election as a reason to pause are betting that conditions will revert on their own. That is not a defensible strategy.
About Our 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.
Connect with Tom Netting on LinkedIn→
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.
Connect with Drumm McNaughton on LinkedIn→
Read the Podcast Transcript →
Transcript: Changing Higher Ed podcast 330 – 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.
[00:00:31] Welcome Back Tom Netting
Drumm McNaughton: Thank you, David.
Today, I welcome back one of my favorite guests, Tom Netting, president of TEN Government Strategies. Tom has worked in the public policy arena for over 35 years, advocating before Congress, federal agencies, and state governments on behalf of private institutions of higher education and post-secondary education companies.
Tom knows public policy. He knows the government like nobody else I know, and it’s great to have him come back and give us an update on what’s going on in Washington Tom, welcome back to the program. It’s great to see you, my friend.
Tom Netting: Drumm, it’s great to be back with you. Congratulations on your move, and I’m happy that we’re still together even in San Diego.
Drumm McNaughton: Absolutely. I have been looking forward to getting back here. We’re gonna have a great conversation today. There’s been so much going on in Washington. Frankly, I don’t know where to start.
Tom Netting: Well name your pleasure. We can start on the regulatory side or we can start on the legislative side. I’d probably start on the regulations and then move over into the midterms and congressional on the back end.
Drumm McNaughton: Take it away. I mean, there’s been three major regulatory actions that have happened as a result of the O-B cubed, or whatever they call it back there in Washington. OB3, okay. Eh, eh, not to be confused with Obi-Wan, I guess.
Tom Netting: Or Odell Beckham Jr. if you’re a football fanatic and from New York these days with him coming back. Sorry, I digress.
Drumm McNaughton: He’s back. I didn’t know that.
Tom Netting: He’s now back with the Giants. But I digress.
Drumm McNaughton: Oh my gosh. Well I think the Giants actually did well.
Tom Netting: Uh, they did. They beat my Commanders this weekend.
Drumm McNaughton: Yeah. Close game.
Tom Netting: Sorry, I mean, they beat the Cowboys and the Eagles beat my Commanders.
Drumm McNaughton: Yeah, which is if, uh, I shouldn’t make any comments. Our family is not a, a big Dallas fan. I remember Dallas in their heyday. Anyway, we digress.
Tom Netting: We do. Again, it just, it’s good to be with you and it’s good to be able to talk, but yes, we probably have more pressing things to discuss.
Drumm McNaughton: And, you know, especially the listeners are going, “I hate the Cowboys. Why are they even talking about.”
Tom Netting: There you go.
Drumm McNaughton: Sorry Texas people.
Tom Netting: Let me see if I can switch it to something of more relevance for the listeners.
[00:02:44] OB3 Rules Overview
Tom Netting: On the regulatory side, Drumm, I think there’s three major topics to cover. The first, as you brought up, is OB3, the One Big Beautiful Bill law, signed by the president last July 4th, and the three regulatory packages that came out, the negotiated rulemaking that we’ve talked about in previous podcasts.
[00:03:01] Earnings Accountability Metrics
Tom Netting: We now are to the point where all of the final rules for loan servicing, workforce Pell, and the most recent and the biggest in terms of institutional focus, I truly believe, the earnings accountability metrics, the new assessment for all programs at all institutions of higher education assessing the earnings in relation to the debt of the individuals.
Those regulations, again, are the most recent that have been published. It’s now been over a month, month and a half. There is a period of transition for implementation of those regulations. But in the development and in the publication of those regulations the department gave the opportunity, as they often do, for early implementation.
And most institutions are gonna take the time necessary. But as you look at the prior gainful employment and of financial value transparency, provisions, a lot of institutions are going to start to move towards, and I think the department is truly hoping that institutions will move towards early implementation.
Drumm McNaughton: Mm-hmm.
Tom Netting: The crux of those are, as I just alluded to, institutions across the entire spectrum of higher education getting used to the notion of accountability at the programmatic level, regardless of what program you are looking at.
[00:04:24] PLUS Loan Limits And Litigation
Tom Netting: The other major issue, if I was quickly ticking them off, relates to the student loans and major, major focus on the changes that came about in statute and were followed through in regulations around issues with regard to the PLUS loan programs and, in particular, the changes that were made to the limits on the overall amount of graduate and professional student loans.
Drumm McNaughton: And there was significant pushback on those, and some of the regulatory actions were changed, correct?
Tom Netting: That is correct, and that’s why I brought it up. Uh, both litigation as well as other changes and pushback from Congress are being pursued specifically around the graduate and professional list and the distinction with the difference. And that difference is important, Drumm, because the difference between a graduate and professional program in the upper level limits of amount of loans that can be done is the difference between a hundred thousand and two hundred thousand.
And obviously, when you have programs like in particular nursing, which was the one that caught the most fire and the most attention both in terms of responding to the proposed rule before it was final and by the nursing professions up on Capitol Hill was the exclusion in the upper end levels for the nursing programs.
But there were a number of others that fall into that category as well. They pivoted. They pivoted and went to litigation. The litigation has taken hold and so now we are kind of in limbo to see what happens with specifically the nursing programs. Right now, the department is unable to implement or enforce those regulations when it comes to those programs.
Drumm McNaughton: Well, also too, it’s a major impact on medical, the medical profession, nursing being one of them. But how many medical schools can you get an MD for under $200,000? It’s just not possible.
Tom Netting: And again, not to shirk or leave out a number of other professions that didn’t make the list of 12, as it was commonly referred to on the, the, the programs. So those are kind of the biggies.
[00:06:31] Accreditation AIM Proposal
Tom Netting: And as we look at the prior OB3 regulate– regulatory packages, the most recent set of regulations and negotiated rulemaking was the AIM Committee, Accreditation, Innovation, and Modernization.
A complete, complete reworking of the portions of the Higher Education Act, Subpart H, of the Higher Education Act relating to accrediting agencies and their roles and responsibilities as part of the triad, and this administration’s efforts to bring forth new regulations in those areas. Those regulations are not final yet.
They are currently in the Notice of Proposed Rulemaking, NPRM phase. They’ve gone through the negotiations, and like the other regulatory packages, the negotiators did achieve consensus with the Department of Education, something that many people didn’t think handicapping going in was going to happen.
Nevertheless, those regulations are now open for public comment. They started and were opened on August twentieth was when the department published in the Federal Register those proposed sweeping changes, and the deadline is next Monday, September twenty-first for comments. As we sit here today, there are already over fourteen hundred comments on the accreditation regulations, and that number will certainly continue to grow as we get towards next Monday’s deadline
Drumm McNaughton: Mm-hmm. Which, this episode will go live on Tuesday the 25th.
Tom Netting: Correct. So a couple of things with regards to AIM and those regulatory packages. There are essentially five issues that I think are bear noting.
[00:08:12] Transfer Credit Changes
Tom Netting: One that we talked about just before we came on the podcast, is sweeping changes to transfer of credit. The regulations now stipulate that all institutions really don’t have a lot of latitude in accepting transfer of credits.
They have to, as was the case before, but with greater specificity, explain what their policies are and how they implement them, but the ability to prohibit similar credits is essentially prohibited going forward.
Drumm McNaughton: Is there a criteria with that? For example, does a accredited institution, and I’m assume we’re talking about institutional accreditation at this point and not necessarily programmatic, although we may be doing both. Does a accredited institution have to accept credits from a non-accredited institution?
Is there that kind of limit built into this?
Tom Netting: I don’t want to misspeak. I know that from peer-to-peer within Title IV, they have to accept the credits. I’m not sure about non-Title IV and unrecognized to recognized. I think that would stand as well. The major focus though, as you can imagine, Drumm, with these regulations, because it’s federal regulations and it’s for institutions that are Title IV eligible, it focuses on the peer-to-peer, if you will.
Drumm McNaughton: That would make sense because in the past there was the, I don’t know if it was in regulation, but it was the practice as regional accreditors would not accept credit from national accreditors.
Tom Netting: Right. Well, and again, but keep in mind, we’ve abolished that whole notion of regional versus national. That already has taken place. And again, that was part of the negotiated rulemaking the conversations around candidly the Trump administration’s surprise that in his first term, 45th portion of the 45th and 47th, when changes were made to the regulation to allow for what they assumed was going to be greater mobility for institutions to seek different accreditors, didn’t really happen.
You know, there was discussions during the negotiated rulemaking around the reasons and rationale. It’s not an easy process, as you well know. I know all the work you do with accreditation. You don’t make those changes idly. But this administration, through the Trump’s executive orders, which he campaigned on and introduced early on in his 47, in his current presidency, provides for, and they are hoping that institutions will start to move a little bit more and be a little bit more mobile.
And then you’ve got the unique circumstances like Florida, where you’re required by state law to move every five to 10 years.So it’s gonna be interesting.
Drumm McNaughton: Before we move on from that, we work with a lot of Christian colleges and universities who do not go for Title IV approval. This is gonna create a barrier for those institutions, if they’re not Title IV approved, to transfer credit to a Title IV institution. It could, it could create a problem.
Tom Netting: It could, but I don’t think so because the way the regs are constructed is the policies, the processes, and the communication to the students are really student-centric. So even if it’s coming from a non-Title IV institution, if it’s the same program via CIP code, Drumm, and it’s the same core content, you as a Title IV eligible institution and its receiving institution, I think are going to be hard-pressed to deny that, both because the accreditors are now going to have to be more focused on these policies and procedures as it comes forward.
The whole goal here, as you can imagine, is to try and prevent college cost and the mobility and the length of time to course completion. Those were the rationales that this administration and the Department of Ed officials focused on when they promoted this particular facet.
[00:12:28] Outcomes DEI And Accreditor Independence
Tom Netting: They’ve also, in these regulations, significantly enhanced the assessment of both institutional and programmatic outcomes.
This stems from, again, the earnings accountability metric, the OB3 regulations that ask every institution at a programmatic level to do an analysis of the potential future earnings four years out in relation to student debt. The accreditors are now going to be responsible for that and other outcomes-based assessments.
Another key area of assessment that I think is something that will certainly drive regulatory changes and other assessments is a focus specifically on issues related to legal and other First Amendment and other antitrust-related issues. There is a lot of pressure in these sets of regulations for assessment of what are only legal circumstances.
This gets into areas like DEI and a number of the other issues. Again, I won’t go into that level of specificity. The one last thing in covering these, trying to be brief, but an important one and one that, again, not unlike your faith-based institutions, if you have institutions that use programmatic accrediting agencies, there is a continuation of what has been in the law since the ’92 reauthorization but is now being looked at once again for the programmatic sense specific types of accrediting bodies.
The separation of separate but independent between the accrediting body and any trade association or other affiliated organization is once again being brought to the fore. There are areas where the department is saying that those relationships are too close and are pushing for and are again re-emphasizing what has already been there which is that no trade or a trade association or professional association can be directly linked to the accrediting body.
Drumm McNaughton: Yeah. And I know of a few that are, and they’re having to go through some of these gyrations to create a Chinese wall.
Tom Netting: A-a-and yeah, and that could be hard for some of those specifically smaller programmatics, Drumm, because that is the support structure that helped them to continue to be sustainable.
Drumm McNaughton: Mm-hmm. And it’s not only the programmatic, but it’s also some institutionals.
Tom Netting: Oh, you’re absolutely right.
Drumm McNaughton: Yeah.
Tom Netting: So the regulatory front, those are part of it.
[00:15:15] Dismantling The Education Department
Tom Netting: The one other thing I would be remiss if I didn’t talk about is the continued dialogue and discussion and certainly the actions that have taken place over the last year and a half and continue to diffuse, dismantle, redistribute the roles and responsibilities of the Department of Education.
This president came in with a very clear statement and a very clear mandate to Secretary McMahon to put herself out of a job, by dismantling the Department of Education. I like to use the word diffuse because the partnerships are still there right now. But considerable portions in fourteen different inter-agency agreements have been moved to other agencies across the spectrum.
You’ve got many, many programs, not only Octave Career and Technical and Adult Education, that are over in the Department of Labor, but you’re seeing a number of other higher education programs moving over to Labor. You’ve got the student loan programs that are moving over to Treasury. I wanna talk about that at either in the question and answer or, or at some point, around student loan defaults and delinquency.
But you’ve also got other programs, other portions that are moved over to HHS, i.e. nursing and some of the other grant programs and still others that are over in Justice. Interestingly enough, one or two of the major hot button issues, the Civil Rights Department has not been moved yet. That is a big target for discussion on Capitol Hill, as are all of these decision-making policies.
So much so that you have, even within the Republican Party, two chambers that are diametrically opposed to one another. You have the House that put forward a series of ten bills that assisted in making statutory capability for the dismantling of the department. At the same time, you had the Senate Health Committee do the exact opposite in a bipartisan fashion, saying not just no, but hell no.
That this was not going to be the favor of the Senate Health Committee. Neither of those two bills have come to their respective full floors yet and are not likely to, let’s be honest, as we go to a midterm and we go to a lame duck. But it shows that, you know, Congress still wants and still has the right to control whether or not the department is fully eliminated.
But let’s be honest, right now, those roles and responsibilities in a partnership, in a collaborative fashion, are diffused between the Department of Ed and various other agencies.
Drumm McNaughton: Mm-hmm. Then that’s– that is a major impact, especially, you know, when we talk about the student loan and those issues going through Treasury. I’ve had a number of folks approach me to talk about that, and I basically have to say, “I don’t know where it’s gonna fall out at this point. You can expect to start paying your student loans back here very shortly.”
[00:18:10] Student Loan Defaults Wrecking Ball
Tom Netting: Well, and Drumm, the interesting thing is, as we sit here today, there are over nine and a half million borrowers, student borrowers who are in default. There are another eight and eight, eight and almost nine million that are in delinquency. And as you look at that, in the $1.7 trillion portfolio of student loans, there’s currently over $233 billion that are in default.
You add in basically two times that amount in delinquency, and you’re talking about a lot of money that even as last October was supposed to be the starting point to try and reinitiate and through the new One Big Beautiful bill, transition to two different forms of student loans and collection, either a direct standard on-stream payment or the new wrap program.
As we transition to all that, they haven’t really started that process yet. So as Undersecretary Kent reminded everybody during the negotiated rulemaking on the student loan issues, you can have individuals that literally a year or two prior to the start of the pandemic, if you’re in a four-year or longer program, could have been enrolled, and as we sit here today from 2018, 2017 to 2026, 2027, have not had to pay dollar one on their student loans.
Drumm McNaughton: Mm-hmm.
Tom Netting: And yet, we’re gonna have to all work together to bring them back into the responsibility of the repayment of those student loans.
You have all the confusion of a lot of individuals thought that those loans were gonna be written off, that there was gonna be free college, and, you know, we can go through all of those different permutations. But the reality is, you’re going to start to see this administration, as they’ve already done with the 1% reduction in the student loan interest rate that they did for the auto signs this past month.
You’re going to start to see campaigns to start to bring individuals back into the recognition that, hey, you are going to have to start repaying your loans. Something that all institutions should be very aware of, and I’m sure they are, is student loan default rates and student loan repayment rates. All of these rates that have been dormant and the collection’s not happening, we’re still seeing calculations of the default rates and the loan repayment rates, which drive eligibility decisions for every institution of higher education.
And those numbers are considerably higher than normal for all the reasons I just alluded to. No collection, no efforts, no drive, and it’s gonna take a while for that to make its way back through the system. And if there’s not something done to recognize and accommodate that, which hasn’t happened yet in regulation, institutions could find themselves in some pretty precarious positions with default rates for a single year over forty percent and potentially out of the programs.
Drumm McNaughton: That was exactly what I was gonna ask is how does this impact, potentially impact, institutions? And if you’ve got the default rates or delinquency rates that high, institutions are at risk for losing Title IV dollars.
Tom Netting: Correct.
And again, this is by no fault of the institutions, no fault of anybody. I mean, you know, and if you were really a student that was on their game, you could have paid your loans off and paid on the premium if you paid during all of this dormant time. Now, people didn’t do that and recognizably so because they had other challenges or they were just basically told, “You don’t have to right now.”
But now as we bring people back into this, you know, you’ve got individuals that have developed their budgets and you’re now bringing a pretty significant payment back into your budgeting process, and the changes that were enacted in statute make it so there are no more payments of zero. Every individual would be paying some amount towards their student loans once the transition comes back in, into full effect through their WRAP program or through standardized repayment.
So there’s a lot there. And again, we could talk about that particular issue for an entire podcast, but I did wanna stress it and did wanna emphasize it because it is something that is certainly on my mind. I can tell you that I and many others are trying to convince the department and the administration that some type of accommodation needs to be made so that institutions aren’t unjustly penalized for something they have absolutely no control over.
Drumm McNaughton: Right. And that is the big concern that I have, is given what I’ve seen out of Washington, if this doesn’t happen, it’s going to have a major– It’s not gonna be a, a ball-peen hammer. It’s gonna be a major sledgehammer on the finances of higher.
Tom Netting: Drumm, it’s gonna be a wrecking ball. It’s not a hammer. It’s literally the great big wrecking ball.
Drumm McNaughton: Yeah. And if they’re looking to put a third to a half of higher education institutions out of business, this is the way to do it.
Tom Netting: But there could be things in the offing that would change all that. Hey, like changes to the leadership in the House and Senate in terms of a midterm election.
Drumm McNaughton: What a beautiful segue, Tom.
Tom Netting: You saw the way I did that, right?
Drumm McNaughton: I love the way you did that.
[00:23:50] Midterms Senate Committee Shakeups
Drumm McNaughton: So let’s talk about it because midterms at, you know, next week when this comes out, they’ll be six weeks out.
Tom Netting: Correct.
Drumm McNaughton: We’ve seen the polling numbers. They’re not good for Republicans. People are pretty fed up with what’s going on. But getting down into more detail, like what we were talking about before we came on air, you’ve got a lot of folks up for re-election on the HELP Committee, seven out of 12, including two Democrats, Veterans Affair, other committees.
That’s just… You know, let’s run through the Senate and then the House and like you do with me for the end of the year episode, we’re gonna ask for some prognostications.
Tom Netting: Okay. I’ll give you my best shot at it. But yes, as, as you just alluded to, you know, wonks like me, especially as we’re looking towards the midterm elections, and I’ll share it with you, Drumm. I’m putting together an actual tracking mechanism. I call it my election scorecard. And what I do is for all 35 in this particular instance, it’s normally 33, and a third of the Senate, but there’s two special elections, so it’s 35 this year.
So tracking all 35 of those with literally for the next seven to eight weeks, I’ll do a weekly update and looking at some of the various polls to track all of those, and I’ll share it with you, and you can do with it as you like. Or can go to the C-SPEN website, which is where it’ll also be housed Career Schools Private Education Network.
But the bottom line is that in addition to the Senate, there are also a number of House races. But as you alluded to, the Senate Help Committee, right now Republicans in control of the Senate, and you have literally 12 members on the Republican side and 11 on the Democratic side. And on the Republican side, you have four individuals including the current chairman, Mr. Cassidy, who was primaried out and will not be returning, as well as Tommy Tuberville and Alan Armstrong. But you also have an additional four, Republicans and two of them in toss-up races that are part of this election midterm cycle. And as you alluded to, you also have two democrats on the Senate Help Committee, Mr. Hickenlooper and Mr. Markey, but they’re in safe seats. They’re gonna be fine. But, you know, as I’m looking at this and handicapping it, one of your statements, you know, Susan Collins, she’s weathered storms before, but she and John Husted from Ohio, as the pundits are looking at it right now, they’re in toss-up races.
You then go to the other committees that a wonk like me on behalf of the various student populations and the financing for all of our students and our institutions are important, and you look at the Veterans Committee. And again, on the Republican side, out of a group of 10 individuals on the Republican side of the aisle, three of them are, again, not coming back, and one, Dan Sullivan, is also in a toss-up race.
Nobody on the Democratic side of the aisle. So kind of interesting to track where that is going to all fall out.
Drumm McNaughton: Now which Dan Sullivan is this?
Tom Netting: It is Dan Sullivan from Alaska.
Drumm McNaughton: I’m just trying to make a little bit of a light, make a little light on a difficult subject because Alaska has two Dan Sullivans on the ballot.
Tom Netting: So get this one. And then you go to the Senate Appropriations Committee. The golden rule, he who controls the gold controls the rules, right?
You look at the Appropriations Committee, and on the Republican side, you have no less than seven individuals. On the Democratic side, you also have seven individuals, including key individuals that are no longer returning.
Dick Durbin, you know, a long-standing senior senator who is retiring. You’ve got basically two toss-ups. Everybody else is pretty much other than those that are leaving. Jeanne Shaheen is retiring. Gary Peters is going to other office. Mitch McConnell is retiring. But of the races that are left, you’ve got Jon Ossoff from Georgia, who is currently stated as a toss-up race, but it’s significantly leaning, I think democratic in the state of Georgia.
And you’ve also once again got Sue Collins, who is the chairwoman right now. And she is again, she’s in a race that the pundits are saying is close enough to where, like with her position over on health, are things that are gonna be looked at.
Drumm McNaughton: Yeah.
Tom Netting: You then look at the fact that these are all the races within the committees.
And as I think you’ll be asking me, the broader question is, are the individuals that come back or the individuals that stay going to be in the minority or in the majority? And as it’s looking right now.
Drumm McNaughton: Who knows?
Tom Netting: Who knows? But, you know, those are big questions. And then as we get over into the House there’s some interesting dynamics there as well.
I don’t know if you want me to talk about that or if you have any questions on the Senate side before we move over to the House.
Drumm McNaughton: The Senate basically to me, we’re gonna have 51/49 or 50/50 I don’t think it’s gonna be any more of a shift than that. And 51-49, don’t know if that’s gonna be a Democratic or a Republican majority.
Tom Netting: And the last time I checked, that’s less than sixty, and you need sixty to stop filibusters and move legislation.
Drumm McNaughton: Yeah. Yeah. We will have to see.
[00:29:22] House Races And Committee Power
Drumm McNaughton: Let’s go to the House and let’s do this one quickly.
Tom Netting: Okay, real quick. House not as significant in terms of the numbers, but still significant in, in the broadest context. The House Committee on Education and the Workforce. On the Republican side of the aisle, you’ve got three individuals that are departing and two that are in tight races. That includes Kevin Kiley from California.
I do not believe that Republican is going to survive with the redistricting in California and in the race that he’s in. It’s leaning Democratic. And then Ryan Mackenzie, from Pennsylvania. Those are the ones that we’re watching. On the Democratic side of the aisle, Frederica Wilson is retiring and Haley Stevens from Michigan is leaving.
The interesting thing here, Drumm, is as everybody is looking to not only get reelected but looking to see whether or not there will be a new majority, one of the things that is happening in Washington right now that is of major note, Bobby Scott from Virginia has been the chair or the ranking member on the Education Committee, God, for quite some time after the departure of George Miller.
So for quite a while, he has now got a challenger. Jahana Hayes from Connecticut has announced that she is put her name and her hat into the ring to assume the leadership, whether it be in the majority or the minority. So there will be a decision that the Democratic members in the 120th Congress will have to make about who they’re going to have as the leader of their side of the aisle in the majority or in the minority.
And again, it’s an interesting set of circumstances. You’ve got the old guard, Bobby Scott, and you’ve got the new progressive and new individuals that are pushing harder and have some other views. So even within the parties you’re having interesting things that are gonna happen very, very quickly. As you look at the Veterans Committee, once again, half of the Republicans are either departing or truly in toss-up races. The three races to watch there are Miller-Meeks from Iowa, Derek Van Orden from Wisconsin and Jen Kiggans from Virginia, and Tom Barrett from Michigan on the Republican side.
And then you had three departures on the Veterans Committee from individuals that just retired. And last but certainly not least, on Appropriations, a huge committee on the House side, you’ve got no less than nine individuals on the Republican side either departing or in toss-up races, and you’ve got four toss-up races on the Democratic side of the Appropriations Committee and three departures.
Those are big numbers on key committees. I don’t remember, and I’ve been doing this for thirty-plus years, I don’t remember this level of dynamic potential for change. Regardless of majority or minority the complexion of these committees as we move forward is gonna be significantly different in the 120th Congress.
[00:32:25] If Democrats Take The House
Drumm McNaughton: From a 50,000-foot level, if the House swaps to Democratic, what are the three main implications that you see?
Tom Netting: The three main implications are immediate efforts to unravel all the regulations that I just talked about. Congress and the department will seek to. The Democrats, I think, will take very direct steps to try and pass legislation that would undo all the regulatory issues, not only on the issues that I just talked about with one big beautiful bill or accreditation, but a number of other things as well.
The reality is, they won’t make it through the veto when it gets to the president’s desk.
Drumm McNaughton: No.
Tom Netting: But I think that’ll be a lot of the actions that are taken. I do think that you will see a lot of calls for the department to come and explain the rationale for the things they’re doing and the things that they’re not doing.
You may recall, and I’m certain, I’m certain that I know a number of your listeners have paid attention to various Senate and House letters sent over to the administration of things they don’t believe that are the responsibility of the department are not getting done. Areas around civil rights and review, areas around borrower defense to repayment, and efforts to look at areas where the students should have their loans written off and have relief continued trailing from prior administrations in Biden/Harris as well as Obama. And, you know, there are going to be other things that I think that they’re going to push as well.
Drumm McNaughton: Yep. Wow, a lot to digest, my friend.
Tom Netting: And I didn’t even cover Title IX, which is another regulatory package that will be published by the Department coming out in a little bit. And again, we’ll hit on a number of issues around the transgender discussions. And the irony is right now, over in the Senate, as we look at their last two to three weeks before they adjourn to go on the campaign trail, one of the major issues that Thune and others are discussing is whether or not the bipartisan bill on college sports will make it through.
Again, even if it gets through the Senate floor, it’s not gonna be taken up in the House.
Drumm McNaughton: Yeah. So we can expect at least two more years of gridlock.
Tom Netting: I think we can, but I think again, maybe it’s the WONK in me, these are still important debates. They always have been and they always will be. And the discussions and the implications of those discussions are things that even if they don’t make it into an active law they do drive decisions and they do drive potential future decisions, as you alluded to down the road.
Drumm McNaughton: Yeah. It’s just like what we talk about when we do strategic planning with an institution. The plan is one thing. The most important thing that comes out of it are the discussions around the plan and what you put into place. It’s the discussions. So last, we’re not gonna do a three takeaways because frankly, there’s way too much there.
Just like hang onto your hat, folks. We’re in for some more interesting times.
Tom Netting: I couldn’t agree more, sir.
[00:35:40] What’s Next And Closing
Drumm McNaughton: What’s next for you, my friend?
Tom Netting: Again, a lot of focus on continuing to work. There’s a lot of questions around those regulatory packages, Drumm. I know you’re not surprised. And giving credit where credit is due, this administration has done a really, really yeoman’s job of doing webinars, having what they call office hours, and other ways in which institutions can actually communicate directly with the Department to try and get answers to questions on compliance and, implementation of all these new regulatory packages.
But as is often the case, Drumm, there’s going to be continued efforts to ask questions and make sure that people are understanding all these new regs. I would be remiss if I also didn’t forecast something that’s down the road that we all know is coming because the administration has already talked about it.
After the midterm elections, regardless of the outcome, the Department of Education is planning on another round of negotiated rulemaking. And it’s what we affectionately call here in Washington the Christmas tree negotiations. All of the issues around things like change of ownership and control, administrative capability, financial responsibility, heady issues of importance to all of your listeners to the podcast, will likely be subject or part of the discussions around November, December, January of twenty twenty-seven, negotiations.
Drumm McNaughton: Well, let’s make sure that we get back in touch with one another and do another one of these as that’s starting to get started.
Tom Netting: Absolutely. And I will. Again, I will share with you a copy of if it’s of any help or assistance to your listeners. I will at least give you access to or at least drive you to where you can monitor all of what I monitor, as we all merrily pursue the November elections.
Drumm McNaughton: Absolutely. Tom, my friend, always a pleasure.
Tom Netting: Thank you, Drumm. And again, it’s so great to be back with you. I kinda was going through a little bit of withdrawals. It’s been a while, but thank you for bringing me back.
Drumm McNaughton: You and I both, my friend. Thanks again.
Tom Netting: Take care.
Drumm McNaughton: Thanks for listening today. Special thanks to Tom. Tom, always a pleasure to work with you and have a conversation. I look forward to the next time that we get together for our usual update.
To my listeners, thanks again for tuning in. See you next week.
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