HEAA: Senate Democrats Propose Changes to Institutional Eligibility and Responsibilities

Reauthorization - Masthead  

By Joan Berkes, Policy & Federal Relations Staff 

Tom Harkin (D-IA), chairman of the Senate Committee on Health, Education, Labor and Pensions (HELP), introduced a comprehensive Higher Education Act reauthorization bill on June 25. The Higher Education Affordability Act (HEAA), which includes several provisions for which NASFAA has been advocating, takes the form of a discussion draft and marks the HELP Committee’s first step toward reauthorization of the Higher Education Act. This article is the fourth in a series that will examine various provisions proposed by this bill. 

The Harkin discussion draft bill contains provisions that would affect several measures of institutional eligibility and responsibility. A few of these changes are sector-specific, but most impact all institutions, regardless of type. This article summarizes the following provisions of the Harkin bill: 

  • Repayment rates
  • Centralized complaint resolution and tracking system
  • Code of conduct in affiliated consumer financial products and services and ban on certain activities
  • Marketing restrictions
  • Default measures: default prevention plans, student default risk, and default manipulation
  • 85-15 Rule for proprietary institutions
  • Proprietary school oversight

Repayment Rates

The Harkin bill proposes to establish two additional measures of institutional outcomes, which would be used for informational purposes only, as opposed to eligibility thresholds—at least for now: a repayment rate based on dollar volume (as opposed to borrower-based) and a “speed-based” repayment rate that measures how quickly borrowers repay their loans.

A school’s general loan repayment rate would be calculated by dividing the dollar volume of FFEL and Direct loans that have been or are being repaid by the total original outstanding balance of loans—essentially the opposite of default rate. Original outstanding balance would include accrued and capitalized interest as of the date the loan entered repayment. For any given year, the repayment rate would be calculated using loans in their third and fourth years of repayment. Loans made to borrowers in graduate or professional programs requiring a medical internship or residency would not be included until their sixth and seventh years of repayment. Loans discharged due to death or disability would be excluded. To determine what year of repayment the loan is in, in-school deferment periods are excluded (provided the program of study for which the deferment was granted is at least 6 months in length), but other periods of deferment or forbearance are not. To determine whether a loan qualifies as one in repayment (and therefore may be included in the numerator of the calculation), it must never have been in default, and it was either paid in full or the payments made during the most recently completed fiscal year reduced the outstanding balance of the loan (exceptions are made for borrowers who are in the process of qualifying for public service forgiveness). Loans that were consolidated are not considered paid off until the entire consolidation loan is repaid – the underlying loans are included in the appropriate cohort for repayment rates.

This dollar volume-based repayment rate is quite similar to the repayment rate that was devised by the Department of Education (ED) as a measure of gainful employment in 2011. Those regulations were voided as a result of a lawsuit (based on process, not authority). The most recent proposed regulations for gainful employment do not include a repayment rate as a condition of program eligibility, but do propose a borrower-based repayment rate as a disclosure to students.

The second rate is a speed-based repayment rate and is meant to provide an estimate of the annual rate at which student borrowers at an institution of higher education are repaying their FFEL and Direct loans and the total expected time it takes student borrowers to repay their loans. This rate would be calculated by determining the percentage that has been paid of the total original outstanding balance of all loans in the cohort, and then dividing that percentage by the average number of years in repayment for those loans. The average number of years in repayment would be weighted based on the dollar amount of the current loan balance of each cohort loan. Separate speed-based rates would have to be calculated for each of an institution’s gainful employment programs, and for all professional degree programs.

The bill would require ED to publish loan repayment rates on College Navigator and on the website of the National Center for Education Statistics (NCES), and speed-based repayment rates on College Scorecard on ED’s College Affordability and Transparency Center website. In addition, ED would be directed to project the expected time for the average borrower to complete repayment, and to use the speed-based rate to compare similar institutions (on some basis other than sector), using "understandable terms, such as ‘quickly’ and ‘slowly’, to indicate the relative significance" of an institution's rate.

Comparisons and other posted information would have to be consumer-tested, and ED would be given authority to alter the calculation of the speed-based rate.

Centralized Complaint Resolution and Tracking System

The Harkin bill would direct ED to establish a complaint tracking system with a toll-free telephone number and a website to facilitate collection of, monitoring of, and response to complaints or inquiries regarding the educational practices and services, and recruiting and marketing practices, of all postsecondary educational institutions. The new office established to administer this system would act as a single point of contact for students, their families, their third-party representatives, and institutional employees, and would work with the Student Loan Ombudsman.

Responses to complaints or inquiries would have to describe steps taken by ED, responses to ED from the institution, and actions taken or planned by ED. An institution would have 60 days to respond to ED’s notification that a complaint or inquiry had been received; the institution would have to describe the steps it has taken itself to respond to the complaint or inquiry, all responses received from the complainant, and any actions it has taken or plans to take as a result. ED would be authorized to follow up with further investigation, but limits would be set to comply with privacy provisions and protect nonpublic or confidential information or information related to fraud prevention and detection.

ED would have to publish on its website information on the complaints and inquiries received for each postsecondary institution, including the number and types of complaints and inquiries and information about resolution. ED would have to report about the tracking system annually to Congress, including whether particular types of complaints are more common in a given sector and the schools with the highest volume of complaints.

Code of Conduct and Ban on Certain Activities

The Harkin bill would require any institution that is affiliated with a consumer financial product or service to develop a code of conduct that prohibits conflicts of interest, requires individuals associated with the affiliation to act in the best interests of students, and bans the following activities:

  • Revenue-sharing between the financial and educational institutions
  • Gifts from the financial institution
  • Compensation for consulting or other services provided by institutional employees associated with the affiliation to or on behalf of the financial institution
  • Staffing assistance by the financial institution to any institutional office or call center
  • Compensation (other than reasonable reimbursement for incurred expenses) to an institutional employee associated with the affiliation for serving on an advisory board, commission, or group established by the financial institution.

An affiliation is established when the name, emblem, mascot, or logo of the institution is used with respect to the product or service, or when some other word, picture, or symbol readily identified with the institution is used in the marketing of the consumer financial product or service in any way that implies that the institution endorses it. However, an affiliation would not be construed if the association is solely based on an advertisement by a financial institution that is delivered to a wide and general audience consisting of more than enrolled students at the educational institution. The bill broadly defines individuals who are considered associated with the affiliation.

An institution’s eligibility to participate in Title IV would be conditioned on the development of a code of conduct and compliance with it. Note that very similar code of conduct requirements currently apply to preferred lender arrangements, as described in federal regulations under 34 CFR 601.21.

Marketing Restrictions

Current law prohibits use of funds received under the Higher Education Act (HEA) for certain lobbying activities. The Harkin bill would expand that restriction to prohibit use revenues derived from Federal educational assistance funds for recruiting or marketing activities. The institution would have to file an annual report of its expenditures on advertising, marketing, and recruiting, and include verification by an independent auditor that it is in compliance with the prohibition.

Default Measures

The Harkin bill creates or expands certain requirements relating to the impact of student loan default on institutional eligibility and functions.

Default Prevention Plan 

Current law requires an institution with a cohort default rate (CDR) of 30% or greater to establish a default prevention plan. The Harkin bill would require institutions to summarize the plan in language geared to students, and to make that summary available to the public and provide it to its students.

Student Default Risk 

The bill would add a new measure of institutional performance called “student default risk,” calculated by multiplying the institution’s most recent CDR by the percentage of enrolled students receiving a Title IV Federal student loan during the previous academic year. It is unclear from the language of the bill whether this percentage is intended to include Perkins loans (which are Title IV loans), since the CDR used for the risk calculation is for FFEL and Direct loans. ED would publish the student default risk on the NCES website.

Schools that have a student default risk above the national average would have to require student borrowers to undergo additional online or in person loan counseling sessions at the beginning of each academic year. (The various loan counseling provisions of this bill will be detailed in a subsequent article.)

An institution with student default risk of 0.1 or greater would have to provide a minimum 2-week waiting period before accepted students could be required to enroll, pay tuition charges, or sign a master promissory note for a Title IV loan. The institution would be prohibited from making financial aid, incentives, or other benefits contingent on confirming enrollment before the end of the waiting period, and would also have to notify students of all financial aid determinations by at least one week prior to the enrollment confirmation deadline. The school would have to inform the student of the reason for his or her right to the waiting period and disclose the student’s ability to file a complaint through the complaint tracking system (described above). The bill would allow ED to replace the student default risk with a loan repayment rate threshold for purposes of the waiting period requirements.

Violation of these requirements would be considered substantial misrepresentation and would subject a school to civil penalties in an amount based in part on the student default risk.

Default Manipulation 

Current law requires ED to prevent, through regulation, an institution from evading application of a default rate determination through the use of such measures as branching, consolidation, change of ownership or control, or any similar device.

The Harkin bill expands on that requirement by directing ED to recalculate an institution’s CDR using corrected data if the school had engaged in a device or practice meant to avoid risk of CDR sanctions or student default risk sanctions. Such “default manipulation” could include branching, consolidation of campuses, consolidation or manipulation of ED identification codes, change of ownership or control, serial forbearance, or any similar device or practice identified by ED when, but for the device or practice, one or more campuses of the institution would be at risk of these sanctions.

85-15 Rule for Proprietary Institutions

Currently, a proprietary school must derive at least 10 percent of its revenues for each fiscal year from sources other than Title IV program funds; this is referred to as the 90/10 rule. Law and regulations specify in great detail how this calculation is performed. Currently, this restriction is contained in the program participation agreement section of law and regulation. An institution that violates this provision for one year may continue to participate in Title IV under provisional certification; two consecutive years of failure to make the ratio results in institutional ineligibility.

The Harkin bill would change that ratio back to 85/15, which it had been prior to October 1, 1998 (the concept of restricting an institution’s Title IV revenue derivation was introduced by legislation reauthorizing the Higher Education Act in 1992). It would require that not less than 15 percent of revenues be derived from sources other than federal funds. Among other highly specific provisions detailing the calculations, it would broadly define federal funds as “any Federal financial assistance provided, under this Act or any other Federal law, through a grant, contract, subsidy, loan, guarantee, insurance, or other means to a proprietary institution, including Federal financial assistance that is disbursed or delivered to an institution or on behalf of a student or to a student to be used to attend the institution, except that such term shall not include any monthly housing stipend provided under chapter 33 of title 38, United States Code.”

Thus, the only excluded veterans educational benefits for purposes of determining the portion of revenue derived from federal funds would appear to be the housing stipend under the post-9/11 GI bill. Currently, VA benefits are not included at all in the 90 percent of the ratio, since that is restricted to Title IV funding. The bill would also reposition the restriction from the program participation agreement section of law to the section that defines an eligible proprietary institution, and appears to eliminate the one-year grace period of provisional certification.

Proprietary School Oversight

The Harkin bill would establish a Proprietary Education Oversight Coordination Committee composed of the head, or high-level designee, of the following Federal entities:

  • Department of Education
  • Bureau of Consumer Financial Protection (CFPB)
  • Department of Justice
  • Securities and Exchange Commission
  • Department of Defense
  • The Department of Veterans Affairs
  • Federal Trade Commission
  • Department of Labor
  • Internal Revenue Service
  • At the discretion of the President, any other relevant Federal agency or department 

This committee would: 

  • Coordinate oversight to improve federal enforcement, increase accountability, and ensure promotion of quality education
  • Coordinate Federal activities to protect students from unfair, deceptive, abusive, unethical, fraudulent, or predatory practices, policies, or procedures
  • Encourage information sharing among agencies related to Federal investigations, audits, or inquiries
  • Increase coordination and cooperation between Federal and State agencies, including State Attorneys General and State approval agencies, with respect to improving oversight and accountability of proprietary institutions
  • Develop best practices and consistency among Federal and State agencies in the dissemination of consumer information regarding proprietary institutions to ensure that students, parents, and other stakeholders have easy access to such information

The committee would have to report annually to Congress, and include industry-wide data on receipt of federal aid and benefits, various outcome measures, revenue and compensation data, and other information. The report must be easily accessible by the public. In addition, the committee would have to publish an annual “Warning List for Parents and Students” comprised of proprietary institutions that:

  • A federal or state court has found to have engaged in illegal activity;
  • Have entered into a settlement resulting in a monetary payment;
  • Have had any higher education program withdrawn or suspended; or
  • The Committee has sufficient evidence against of widespread or systemic unfair, deceptive, abusive, unethical, fraudulent, or predatory practices, policies, or procedures that pose a threat to the academic success, financial security, or general best interest of students.


Publication Date: 7/16/2014

You must be logged in to comment on this page.

Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.
View Desktop Version