NASFAA submitted a package of burdensome, duplicative, and unnecessary Title IV regulations to the Advisory Committee on Student Financial Assistance on Friday.
NASFAA provided the list of burdensome regulations in response to a request by the Advisory Committee for public comments on regulations that are duplicative, no longer necessary, inconsistent with other federal regulations, and/or overly burdensome. The request was part of a review and analysis of federal regulations affecting higher education mandated by the Higher Education Opportunity Act of 2008.
NASFAA conducted a systematic review of current federal regulations to determine which regulations meet those criteria. NASFAA also encourages institutions to submit comments to the Advisory Committee.
"Complex regulations add a tremendous amount of cost to both schools and students," NASFAA's Interim President and CEO Joan Crissman wrote in a letter to the committee. "In a perfect setting, student aid laws should clearly specify Congressional intent while remaining broad and general enough to permit federal agencies and practitioners the discretion they need to meet the evolving needs of students. By their very nature, regulations should provide the context needed to apply and carry out the laws, but still should be flexible wherever possible."
NASFAA highlighted Satisfactory Academic Progress (SAP) as a good model of how legislation and regulations can provide intent, context, and parameters while still leaving enough flexibility for schools to meet students' needs. Unlike SAP, too often regulations attempt to prescribe rules, policies, and procedures in a way that takes away the flexibility that financial aid administrators need to adequately meet the needs of students.
This approach may make assessing compliance easier, but the rigidity ultimately harms students because no law or regulation will adequately cover every situation that NASFAA's members face in trying to responsibly award funds to deserving students, according to the comments submitted by NASFAA. These prescriptive tendencies create undue, burdensome hardships for both schools and students. Aid administrators often spend more time shuffling paperwork or going through overly complex processes than meeting with students.
The Following is a list of burdensome regulations highlighted by NASFAA.
The most often-cited burden is the requirement to prorate annual loan limits for undergraduates who are in a final period of enrollment that is less than an academic year in length or in a program of less than an academic year in duration. Proration of loan limits is not only administratively difficult for institutions, but problematic for students as well. Full loan limits are inadequate to student needs, as demonstrated by the troubling reliance on less favorable private loans; prorating annual limits only exacerbates that problem.
For schools, proration entails complex rules imbedded in an already-complicated program, that require the institution to determine when a period of enrollment is the student's last, whether it is less than a full academic year, and the number of hours the student will enroll for within that period. The only thing that is uncomplicated is the simple fact that student behavior is unpredictable, especially in traditional programs.
Simplifying this regulation in both the schools' and the students' favor by eliminating proration of loan limits would require a change in statutory wording.
In addition to proration of loan limits, delayed disbursement requirements also prove burdensome for both schools and students. The targets of delayed disbursement (first-year first-time borrowers) especially suffer ill effects of holding back loan funds until they have been enrolled for 30 days. Although Congress reinstated waivers for low default-rate schools, withholding funds from students at any school only exacerbates the possibility of withdrawal due to financial constraints.
Certain multiple disbursement requirements also create difficulties: single-term loans, for example, must be disbursed in two installments, the logic of which is lost on borrowers. Changes to delayed disbursement and multiple disbursements of single-term loans would require statutory changes.
When a student withdraws, the institution must determine whether any of the student's federal financial aid must be rescinded and returned to the Title IV programs. This determination is simple in principle, but complicated in execution. Essentially, the law allows a student to retain aid based on the percentage of the payment period completed, through the first 60% of the period (once the 60% point has been passed, the student is permitted use of all of the aid disbursed for that payment period). Since aid can be disbursed either by crediting the student's account to pay institutional charges or by direct payment to the student to use for non-institutional educational costs, the return process includes a mechanism for determining how the responsibility for paying "unearned" Title IV funds is attributed between the school and the student. Returned funds are credited to the Title IV programs from which the student was aided in an order specified by law and regulation.
This fairly straightforward theory has grown in complexity and difficulty. The administrative burden associated with the Return of Title IV Funds is partly due to the proliferation of program formats and partly due to the specificity of the law and regulations. The complexity of the process results in parallel complexity in keeping students apprised of their rights and responsibilities. The specificity of the law and regulations impedes the ability of the aid community from adjusting policy quickly to altered circumstances. For example, the order in which funds must be returned to the Title IV programs seeks to protect student interests by requiring programs be repaid in the following order: unsubsidized Stafford student loans, subsidized Stafford loans, Perkins loans, Direct or FFEL parent loans, Pell Grants, FSEOG, other Title IV assistance. This statutory order did not take into account the possibility of new programs being authorized that might fit better in the order than at the end. The TEACH Grant Program, for example, becomes a loan if the recipient is unable to fulfill the service agreement, which is more likely to occur for students who withdraw, yet regulations require funds to be returned to parent loans, Pell Grant, ACG, SMART, and FSEOG before being returned to TEACH.
The Return process includes such diverse functions as readmission of students, leaves of absence (drawn in such a way as to exclude traditional schools), and school policy decisions such as defining the withdrawal process and when it starts, and documentation of attendance. A school's discretion over whether to make late disbursements of loans to students who have withdrawn before receiving all of the aid calculated as "earned" based on time enrolled was also removed as a regulatory interpretation of statutory language.
We recognize that some of the regulations and sub-regulatory guidance is a result of questions asked by institutions and their representatives. However, the degree to which guidance increases specificity rather than allows institutional discretion has become overbalanced in the Return of Title IV Funds rules.
The treatment of nontraditional program formats is scattered throughout the regulations; historically, they have had the unfortunate fate of being square pegs forced into round holes. Although the Department had over several years been receptive to efforts to construct principle-based rules that can be extrapolated to cover the many creative structures of educational formats, no satisfactory approach was uncovered. Perhaps it is time to pull out all of the regulations that deal with non-standard-term and non-term formats and examine them as a whole to see if a more suitable set of rules can be designed.
Examples of program administration affected by nontraditional program rules include Pell Grant payment calculation formulas (and payment calculations in other programs based on the Pell model -- ACG, SMART, and TEACH), return of Title IV funds calculations, determination of payment periods, and disbursement rules.
Related to this area of concern is distance education. An eligible institution, other than a foreign institution, must be located in a state (600.4, .5, and .6). ED considers the determining factor to be the physical location of the main campus or place of instruction. However, the law does not seem to address whether the institution's "location" in a state has to be physical, or can be subsumed into the state licensing criterion. Perhaps it is time for Congress to re-examine the concept of virtual campuses and clearly express an opinion and intent regarding their eligibility.
The ACG/SMART Grant regulations are collectively among the most burdensome we have ever seen. We realize this program will sunset soon, so we won't go into details, but there are a couple of overarching principles associated with these regulations that are instructive.
First, the placement of the language authorizing these programs, in the same section of law as the Pell Grant Program, caused the Department of Education to interpret congressional intent as tying participation together: an institution participating in Pell is required to participate in ACG/SMART. An institution that has ACG/SMART-eligible programs could lose its eligibility to participate in the Pell Grant Program if it does not participate in ACG/SMART. We find this tie both unsupportable and undesirable. Institutions must be free to assess the implications of participation in any individual program, and act accordingly. Mandatory participation in a program does not encourage reasonable regulations. An expression of congressional intent in this regard would also have been helpful, and we encourage adoption of a clear legislative standard that does not impose participation in one program as a condition of participating in another.
A second principle for which a need is illustrated by these programs concerns grandfathering student eligibility. In its short life, two major overhauls of the program administration left students in circumstances where their progression through the award levels in these programs was arrested, reversed, or accelerated, and no accommodation could be made for grandfathering a student's status. Institutions need some flexibility to decide whether to adopt a new eligibility model for prior recipients or continue them in their current progress, or allow some other transitional approach.
In and of itself, a standard of acceptable behavior with regard to ethics is certainly not objectionable. A clear exposition of expectations and prohibited inducements that provides guidelines for institutions and other participants in the student aid process is a responsible way of safeguarding public funds.
However, the proliferation of differing standards at the state level, imposed on the administration of federal funds, carries the potential of schools being subject to 50+ individual codes of conduct. State codes should not be superimposed on federal law and regulations; a clear statement of precedence should clarify that federal rules supersede state rules, with respect to use and administration of federally-funded student aid programs. This issue was raised during the latest negotiated rulemaking, but it was not taken up (see Appendix C).
The requirements to link FSEOG awards to Pell Grant eligibility and to use "lowest EFC order" in making those awards have been problematic since they were instituted. Although there is a statutory basis for these rules, the interpretation of the statutory language is quite narrow. The law requires FSEOG to be awarded first to "students with exceptional need" and defines that term as "students with the lowest expected family contributions at the institution." The Department interpreted that language as requiring schools to award FSEOG in strict order starting with zero EFCs and moving upward from there, rather than, for example, setting a cutoff encompassing low EFCs generally. This interpretation makes automation very difficult. The statutory language itself places severe restrictions on the concept of a "campus-based' program and precludes any other consideration of what might constitute "need."
Overpayment tolerances vary among the Title IV programs, and consequently students may be treated differently from one another based on the make-up of their student aid packages. We would like to see a standard overpayment tolerance that includes all Title IV programs (other than Pell Grant, which is not subject to an overpayment provision).
We also believe that the assessment of liabilities for overpayments should be re-examined and standardized. There are circumstances in which student actions, or failure to act, results in institutional liability. For example, an institution may make an interim disbursement to a student selected for verification, who is in need of funds to begin or continue attendance while documents are gathered. If the student fails to submit documents or otherwise complete verification, the institution is held liable rather than the student.
Information that must be provided to students has mushroomed to the point where it is more confusing, duplicative, and voluminous than helpful. Methods of distribution are inconsistent. Attached (Appendix D) is a document we use in our neophyte training program that illustrates the reporting and disclosure requirements institutions must meet.
The verification regulations are in general outdated and in need of overhaul; this has already been recognized and ED has expressed the intent to address this need in the next upcoming round of negotiated rulemaking. Although progress is apparently being made in the quest for an ED-IRS match to reduce burden and inaccuracies, there are still limitations to the conditions set by IRS for the use of match results.
The treatment of transfer students in all programs remains an area dense with complexity. Determination of loan limits, processing of Pell Grants when payments have been made by both the former and new schools, eligibility for programs that require monitoring of grade point averages (such as ACG and SMART) all become far more entangled when it comes to rules dealing with transfer students.
Although the Department made significant strides when it created the cash management section of regulation, there are still inconsistencies among programs and processes. Timeframes for returning money, for example, could be made more consistent. Disbursement requirements also differ by program, most significantly for Stafford loans due to statutory language.
A particularly burdensome provision concerns payment of prior year charges, Although financial aid must be based on current year charges, students sometimes have outstanding charges from the prior year that could prevent the student from continued attendance. Minor amounts of prior year charges can be paid with current year funds as long as doing so does not prevent the student from covering current year expenses. The interpretation of prior year, however, includes payment periods that cross over July 1, even though that payment period may otherwise be considered part of the upcoming year.
Regulations govern conditions under which institutions must notify the Department of changes (such as personnel, institutional information, or programs offered), some of which are fairly mundane and easy to overlook, and many are not really related to financial aid operations although the requirements reside in Title IV rules. It would be helpful if ED would send out annual or biennial reminders of changes that require notification from schools. The process of notification itself, using the electronic application to participate, is straightforward.
It takes several pages of regulations to detail the total and permanent disability discharge process, which includes a 3-year conditional period after which loan collection can be reinstated or permanently discharged. These provisions are not only administratively difficult, but burdensome to borrowers as well.
Although most program requirements are the same or parallel, there are still some provisions that differ. Certain loans, for example, show interest rate disparities, which is a statutory problem. The regulations also have different requirements for imposing late charges [682.202(f) and 685.202(d)].
When these formulas were designed there were more traditional and fewer nontraditional approaches to academic program formats. Although ED has adjusted use of the formulas to ease constraints somewhat, the regulations remain complex, and it is time to review them with financial aid community input. Several other grant programs are modeled on this aspect of the Pell Grant Program, and a reduction in complexity would benefit those programs as well.
The administrative costs allowance has been inadequate for quite some time in the face of ballooning regulatory requirements and new statutory programs that are not encompassed by administrative allowances.
The ACG, National SMART, and, in some cases, the TEACH Grant Program have specific GPA criteria for student eligibility. For ACG, the GPA requirement is a one-time measurement that is good for the entire second year of receipt. For National SMART Grant and TEACH Grant (where a GPA is applicable), monitoring is required on a term-by-term basis. Requirements for monitoring GPAs on a term-by-term basis are very complex and difficult.
Publication Date: 7/31/2009