Where Do We Stand After ED’s Latest Negotiated Rulemaking Session?

By David B. McClintock, CPA | April 7, 2022

The latest negotiated rulemaking session featuring the Department of Education’s (ED) Institutional and Programmatic Eligibility Committee concluded March 18 — and I appreciated the chance to be a part of it.

As a committee advisor representing compliance auditors who work with institutions that participate in Title IV, I was able to learn more about the negotiated rulemaking process and the various perspectives that play a role in it.

The last session held a welcome development as ED and negotiators reached consensus on two issue papers — the 90/10 rule and ability to benefit. While the other issue papers failed to reach consensus, the discussions provided insights into what is expected to be included in ED’s Notice of Proposed Rulemaking (NPRM) and comments they should expect to receive from various constituencies.

Read on for a brief look at the topics:

90/10 rule (consensus reached)

The biggest change in this issue paper was mandated by a law passed in 2021 that requires all Federal education assistance funds to be included in the numerator beginning in 2023. Military benefits are the most significant program that will now be included in the numerator. As a result of the negotiations, institutions are also required to identify the portion of state grants funded with federal money and allocate that portion to the numerator. The final issue paper provided by ED also limited types of revenue generated by institutions for non-Title IV eligible programs from the denominator. The compromise language permits institutions to continue to count revenue from non-Title IV eligible education and training programs offered by the institution and taught by one of its instructors at its main campus, one of its approved locations or an employer facility. It also maintained revenue for training required to uphold state licensing requirements. However, institutions may not count revenue where it is only providing facilities for test preparation courses, acts as a proctor or oversees a self-study course. Additionally, the language introduced limits on the amount of revenue generated by an income share agreement or other alternative financing agreements that can be included in the denominator.

Ability to benefit (consensus reached)

ED heard the concerns of several negotiators and compromised on two key points in order to create consensus. Early in the week, ED conceded to change the ability to benefit enrollment cap from 1% of enrolled students to be 1% of enrolled students or 25 students, whichever is higher. As Negotiated Rulemaking was about to end, ED came back to the table with a concession to lower the proposed success rate institutions must demonstrate to continue participating in the state process alternative from 95% to 85%.

Administrative capability (1 vote against consensus)

A variety of Negotiators raised issues with sections of the final issue paper provided by ED.  Financial Aid Administrators and others expressed concerns about new disclosure requirements regarding aid types, especially regarding “deadlines for accepting, declining, or adjusting award amounts,” as their experience indicates disclosures like this often lead to more confusion instead of clarity. Many Negotiators expressed concern about language that ties administrative capability to institutions providing “adequate career services,” because no definition has been provided about just what that means. Additional concerns centered around additional criteria that include undefined terms, such as “aggressive recruiting” and “high rates of withdrawals attributable to delays in disbursements”.

Gainful employment (6 votes against consensus)

Many Negotiators expressed frustration about the limited time given to consider Gainful Employment (GE), given it was a standalone session in the past. In addition, several were concerned about the limited time provided to review data shared by ED, which was provided less than two days before discussions in final session and the data was required to be updated after initially being provided. During the first two weeks of negotiations, the Negotiators supported using the 2014 GE standards as the foundation, but the new version has notable differences, leading to questions and concerns from a wide range of constituencies. Other concerns included the impact small program rates could have on an Institution’s Program Participation Agreement, lack of transitional rates (especially considering Covid’s potential impact on initial years of earnings being utilized), inclusion of Parent PLUS loans in median debt calculations and lack of safe harbor for programs that fail the GE debt metrics to demonstrate success via a repayment rate. We expect the number of comments related to GE as part of NPRM could exceed any we’ve seen in the past, due to lack of time to review data provided by ED, combined with limited time to vet the issues during negotiated rulemaking and the number of Negotiators who expressed concerns.

Financial responsibility (1 vote against consensus)

The lack of consensus for this issue paper centered around a few issues. Several Negotiators questioned the provision requiring ED to determine an Institution is not financially responsible based on two or more discretionary triggers. These concerns centered around the validity of some of the discretionary triggers, along with uncertainty for how an Institution would be able to clear triggers. Additional concerns centered around “high annual dropout rates,” as the term is undefined, and having only 10% of an institution’s programs failing GE constituting a mandatory trigger, as this could easily represent a single program failing.

Changes of ownership/changes in control (9 votes against consensus)

Aside from ED’s support, there was a nearly unanimous “no” on this topic. New language regarding the definition of “nonprofit institution” was the center of the debate, with ED’s proposal allowing contractual and debt service relationships with former owners if arrangements are at fair market value. Concerns were also raised about new language that would require distance education programs to be associated with an institution’s main campus, due to the time and effort likely to be required for this to be completed and the need for this to occur seeming uncertain.

Certification procedures (6 votes against consensus)

ED’s issue paper for certification procedures led to significant discussions regarding a wide variety of concerns for negotiators. ED’s proposal to cap Title IV eligibility for certain programs that lead to licensure to the median clock hours required by states if at least 25 states have minimum requirements caused many Negotiators to express opinions. They expressed concerns centered around the fact that required clock hour minimums are set by states, not institutions, and the neediest students would now have a gap between their Title IV eligibility and the cost of the program. ED did agree to adjust language requiring programmatic accreditation to include pre-accreditation status to account for the fact that some programs require a program to graduate its first class before receiving programmatic approval. Many Negotiators also expressed concerns about new language that would require an institution to comply with consumer protection laws in each state the institution is located or has students. This wording essentially eliminates the benefits of state reciprocity, primarily via the National Council for State Authorization Reciprocity Agreements (NC-SARA).

Going forward

It’s not possible to capture three months of negotiations into a single article. McClintock & Associates soon will be providing full breakdowns on the various issue papers and what they mean for institutions. For the issue papers that reached consensus, this will mean outlining what the changes mean and what institutions must do to comply. For issue papers without consensus, we will provide our expectations for what will be in the NPRM based on the issue papers provided and discussions surrounding them, highlighting the most significant aspects to help institutions draft comments to participate in the process.

As always, for any questions you have regarding Title IV, reach out to our team today.

Questions about FSA regulations?

Our team of experts are here to help. Reach out and let us know how we can help!