NASFAA Reauthorization Task Force Preliminary Recommendations

General Provisions—Part G

Issue 1:  Institutional Eligibility [Section 481(e)(1)]

Recommendation: Removing the connection between an institution's eligibility regarding the percentage of incarcerated students enrolled at the school.

Rationale: Current statute makes ineligible any postsecondary institution that has more than 25% of its enrollment made up of incarcerate students. When the Congress eliminated Title IV eligibility for incarcerated individuals serving time in federal and state penal institutions, it did not address this issue. Consequently, while inmates are Title IV ineligible, if a school wished to develop a program for prisoners, the schools faces loss of participation eligibility if its inmate enrollment is over 25%.

Many distance education programs propose to reach out to new and underserved audiences for higher education. These can include prisoners in federal, state, or local facilities. A college may feel that serving prison populations is a worthy educational mission and may unknowingly reach out to such constituents unaware of the 25% cap on the number of enrolled incarcerated students.

NASFAA believes schools, and the majority of their student bodies, should not lose eligibility if schools wish to serve, or are directed by their state government to serve, an incarcerated population over 25% of enrollment. Since inmates are ineligible for Title IV funds, the federal government has no interest in this matter. Therefore, removing this requirement from the program eligibility section of the Act would meet any possible congressional concerns and not unfairly punish students or schools.

Issue 2:  FISAP Schedule [Section 482(a)(2)(B)]

Recommendation: Establish October 1 as the date for submission of the FISAP.

Rationale: NASFAA's recommendation would prevent the Department from setting too early a date for completion of FISAPs and would allow schools adequate time to complete this form. The current statute states the final date for submission is by October 1. This wording could become subject to interpretation that an earlier deadline could be set.

Issue 3:  Toll-Free Information [Section 483(d)]

Recommendation: Retain current law.

Rationale: NASFAA believes the toll-free number is a useful aid and should be retained to continue providing services for students, families, high school guidance counselors among others.

Issue 4:  FAFSA Preparation. [Section 483(e)]

Recommendation: FAFSA preparer information should only be required of individuals who are paid a fee to complete the form.

Rationale: NASFAA recommends that only those paid by an applicant to complete a FAFSA should provide the required preparer's information. This requirement should not apply to financial aid administrators, unless such an individual was working in a private capacity and received compensation for the preparation of a FAFSA. Current statute requires any individual who assists a filer in completing the FAFSA to provide preparer information. This requirement applies whether the individual is a paid preparer or a high school guidance counselor or financial aid administrator who provides such services in the performance of their usual duties.

Issue 5:  Student Eligibility [Section 484(d)]

Recommendation: Permit a student to meet the Ability to Benefit requirement by successfully completing, with the equivalent of a grade of C or better, at least six units of college courses that are applicable toward a degree or certificate.

Rationale: The Ability to Benefit regulations were established as a measure to determine if a student who had not earned a high school diploma or its equivalent has the ability to understand and be successful in his or her program of study. Data from a recent experimental site project show that students who do not have a high school diploma or its equivalent but who pass at least six units of college courses have grades and retention rates that are equal to or higher than students with high school diplomas.

Issue 6:  Selective Service Data Base Matching [Section 484(n)]

Recommendation: Eliminate the provisions that require schools to track Selective Service registration.

Rationale: NASFAA recommends eliminating the provisions related to Selective Service registration from the Higher Education Act and repeal section 1113 of P.L. 97-252 (50 U.S.C. sec. 462(f). If the government believes that Selective Service registration is useful, it should use means other than the Title IV programs to force compliance. NASFAA recommends that compliance can be attained in more cost effective ways and with less paperwork and bureaucracy than through use of the Title IV programs. NASFAA recommends retaining section 484(n), however, if the Congress does not repeal the statute requiring Selective Service registration.

Issue 7:  I-9 Employment Eligibility Verification [Section 484(g)(2)]

Recommendation: Include the results of data base matches as acceptable in lieu of documents used to establish employment eligibility.

Rationale: The current practice requires the collection of copies of social security cards, alien registration cards, citizenship documents, or passports when citizenship, social security and INS matches are performed in the application process. NASFAA's recommendation would vastly simplify this process without compromising the law's intent of verifying identity and eligibility for employment.

Issue 8:  Elimination of Drug-Related Suspension [Section 484(r)]

Recommendation: Eliminate requirement to suspend or terminate a student's eligibility for Title IV funds based on drug-related convictions.

Rationale: This requirement is unrelated to postsecondary enrollment or financial need and should not be a factor in financial aid eligibility. Additionally, it denies students a second chance to improve their lives after having made a mistake with illegal drugs. These students have already been punished by the law and should not be punished a second time.

Issue 9: Grant Forgiveness [Section 484A]

Recommendation: Eliminate the liability of a student's estate or family to repay a grant in the event of a student's death.

Rationale: Currently loans, including PLUS loans, may be forgiven in the case of the death of a student. Under current statute this forgiveness does not apply to the repayment of grants under similar circumstances. While such cases are rare, NASFAA believes this compassionate treatment should be extended when a student dies and has a grant repayment is pending.

Issue 10:  Information Dissemination Activities [Section 485(a)]

Recommendation: Update the statute to better reflect changes in technology and the realities of campus information sharing.

Rationale: NASFAA strongly believes student must be adequately informed of student financial aid procedures and policies and must understand their rights and responsibilities. NASFAA recommends rewriting this section so that consumer information is provided to students in a more cost effective and streamlined manner. The current statutory requirements are too prescriptive and forces unnecessary costs on schools that can provide such information to Title IV recipients in more effective and efficient ways than the “one size fits all” approach in the current HEA.

Issue 11:  Automatic In-School Deferments [Section 485C]

Recommendation: Permit lenders to automatically provide student borrowers an in-school deferment in the case of individuals returning to their studies who have outstanding loans.

Rationale: Many borrowers who return to school do not realize that re-enrolling in school does not automatically place them in deferment. They fail to realize that there may be additional paper work to make this possible. If the school were allowed to submit an automatic in-school deferment to the NSLDS the lender would receive notification that the student has returned to school. Upon receiving this notification the lender could contact the student to determine if he/she wishes to continue to make payments or enter into a deferred status. This change in the statute would amend the current confusing process and ensure that borrowers who return to school do not end up in technical default while waiting to file for their deferments.

Issue 12:  Provision of State Grant Assistance [Section 487(a)(9)]

Recommendation: Relocate the requirement that postsecondary institutions must provide students with information concerning state grant assistance to the student consumer information section.

Rationale: Providing information on the availability and eligibility of students for state grant assistance is not the responsibility of postsecondary institutions. Schools attempting to assemble such information find it so general as to be of little use. NASFAA recommends developing alterative and more effective means of carrying out the purpose of this section by modifying Section 485(d) that would serve students more effectively and efficiently with the Department of Education providing such sources of information for students.

Issue 13:  Distribution of Voter Registration Materials [Section 487(a)(23)]

Recommendation: Eliminate requirement to distribute voter registration materials.

Rationale: The Task Force recommends elimination of this provision. This provision and several other of a similar ilk should not be requirements in the HEA. Such provisions are tangential to the vital purposes of the authorizing law, at best, and, at worst, micromanage financial aid offices, are unfunded mandates, and such provisions purposes can be better accomplished outside the HEA.

Issue 14:  Campus Crime Reporting [Section 485(f)]

Recommendation: NASFAA should negotiate changes in campus crime reporting requirements in cooperation with its sister higher education associations.

Rationale: The Task Force believes NASFAA is best situated to work and negotiate changes in the campus crime reporting requirements with its sister higher education associations. This does not mean the Task Force does not want changes in this provision. Such changes affect a wide swath of campus offices and interests, not only the financial aid office, and, therefore, such changes to streamline, refine, and reform these requirements is better accomplished in concert with all in the higher education community.

Issue 15:  Graduation and Retention Rates. [Section 485(a)(O)(3)]

Recommendation: Modify prescribed graduation and retention rates as determination of an institution's eligibility.

Rationale: There are many students on American campuses for reasons other than obtaining a traditional education. Many need additional training for their jobs, but they don't necessarily need to finish a degree. Many balance their academic career with their jobs, families and other responsibilities. They have no practical way of completing a degree within an arbitrarily mandated period of time based on the notion of a traditional four-year, full-time student. Some students may not succeed at the school they have chosen because it is not a good match. At times the best solution is to require the student to withdraw. This may be contrary to the student's wishes, but may be in his/her best interests academically, developmentally and financially. These types of instances affect an institution's retention rates. These instances may be the result of the school successfully doing its job, e.g. training students to enter the job market, encouraging students to enter a different field of study – all goals within a school's mission, but taken out of context could be perceived as weaknesses, because completion/graduation rates appear to be low.

Issue 16:  Experimental Sites and Quality Assurance Programs (QAP). [Section 487A]

Recommendation: Authorize the Secretary to select institutions for voluntary participation in Quality Assurance Programs and Experimental Sites, and that this section shall not be used as a criterion for participation in any activity or program authorized by this title.

Rationale: NASFAA believes both the experimental sites and QAP authorized in Section 487A are valuable programs. NASFAA would like to add legislative language to ensure that participation in each program is voluntary and that diversity among postsecondary institutions selected is a priority of the Secretary. NASFAA recommends that continued experimentation be broadly focused and not limited to verification, among any other limitations.

Issue 17:  Experimental Sites [Section 487A]

Recommendation: Expand experimental sites authority to all sections of Title I and Title IV. Require the Secretary to establish policies and procedures for conducting the experiments and evaluation the results at the results at the conclusion of the experimental period. Require the Secretary to report annually to the Congress, including proposing changes to the regulations in the areas addressed by successful experiments or making recommendations to Congress for statutory changes.

Rationale: The purpose of experiments is to demonstrate the success or failure of different ways of doing things. If experiments prove successful these experiments should be models for modifying the law for all institutions. Experimental sites should be true experiments for new ways of doing things and not seen just regulatory relief or selective exemption from federal laws/regulations.

Issue 18:  Quality Assurance Evaluation [Section 487A]

Recommendation: Require the Secretary to evaluate the results of the Quality Assurance Program and Distance Education Demonstration Project and recommend appropriate changes to law and regulation based on the successful components of those programs.

Rationale: These programs have been in existence long enough for the Secretary to draw conclusions about what is working and what is not. Those pieces that have been successful should be incorporated into the law.

Issue 19:  Coordination with IRS [Section 484(q)]

Recommendation: Require an IRS Data-Match Demonstration Project

Rationale: There is reluctance on the part of the IRS and the Dept. of Education to begin wholesale income data matches. In order to identify the potential costs, savings, levels of error and operational benefits/pitfalls, the secretaries of Education and Treasury should set up a controlled data match demonstration project for a period of three years with plans to implement for all applicants in subsequent years if the demonstration project proves successful

Issue 20:  Transfer of Allotments. [Section 488]

Recommendation: Expand the authority of schools to be able to transfer funds between all campus-based programs.

Rationale: NASFAA believes postsecondary institutions should have authority to transfer up to 25% of funds in one campus-based program to another, rather than the more limited transfer authority in current law. Additionally, given the small appropriation for new FCC in the Federal Perkins Loan program, this expansion of authority to transfer funds would be extended to permit transfer of 25% of annual loan collections to FSEOG or FWS. NASFAA believes this is a common sense change that provides administrative flexibility allowing schools to make decisions according to institutional and student needs. This change would not increase campus-based program appropriations or increase allocations to individual schools.

Issue 21:  Administrative Expenses [Section 489]

Recommendation: Delete the word “offsetting” from subsection (b).

Rationale: The current statute sets the sole purpose of the administrative expenses is to offset the administrative costs of the Federal Pell Grant and campus-based programs. The deletion of the reference to offsetting clarifies the need for institutions to use these funds directly for financial aid administration.

Issue 22:  Funds for Administrative Expenses [Section 458]

Recommendation: Move this section from Part D to Part G in the statute.

Rationale: This section currently is in Part D pertaining to Federal Direct Loans. However, the administrative funds authorized in this section are used for payments to guaranty agencies and for the Department's financial aid systems operations. Therefore, since the funds are applicable to programs authorized under different parts of the statute, it appropriately should be written in the General Provisions part of the Act.

Issue 23:  Non-Allowable Charges [New HEA Section]

Recommendation: Permit schools to provide notice to students about their policies for paying non-allowable charges with Title IV aid and allow students to opt out.

Rationale: Experimental site studies over the past 7 years have demonstrated that advising students about an institutional policy to apply Title IV to non-allowable institutional charges and permit the student to "opt out" produces significant institutional administrative savings, with little or no negative effect on students. Institutions participating in the experiment reported improved customer service, faster delivery and improved student retention since this option enabled students to re-enroll without first paying off library, infirmary charges, transportation passes etc. NASFAA believes that requiring institutions to publish their policies and permitting students to decline this option provides sufficient consumer information protections while enhancing customer service to the student and producing administrative cost savings.

Issue 24:  Prior Term Institutional Charges [New HEA Section]

Recommendation: Require schools to provide notice to students about their policies for paying a maximum of $500 in prior term charges with Title IV aid and allow the student to opt out.

Rationale: Experimental site studies over the past 7 years have demonstrated that permitting students to use a portion of their current term aid to pay prior term charges has aided student retention. Students who would otherwise have been denied the ability to re-enroll due to outstanding prior term charges and no means to pay those charges, have been able to re-enroll through use of this provision. NASFAA recognizes, however, that a limit should be placed on the amount of prior term charges paid with current term aid in order to ensure that the student retains sufficient funds to successfully complete the current term. NASFAA recommends that institutions be permitted, with the student's consent, to pay up to $500 of prior term charges from current term financial aid.

Issue 25:  Overaward Tolerance [Section 442(b)(4)]

Recommendation: Establish in the General Provision a common overaward tolerance of $500, applicable to the campus-based and Stafford programs.

Rationale: Currently, there is a $300 tolerance for the campus-based programs and a limited tolerance for Stafford Loans applicable only when an overaward results from the $300 tolerance in FWS only. Thus, receipt of an additional scholarship may have a disproportionate effect on a student's awards. This recommendation seeks to ensure consistent treatment of students across the Title IV programs and simplify institutional procedures.

Issue 26:  Error Tolerance [Section 487(c) & 498A]

Recommendation: Establish a tolerance for the assessment of liabilities connected with audit and program review exceptions.

Rationale: An institution with procedures in place that are in compliance with Title IV requirements may experience a limited amount of human error that does not indicate any pattern of incompetence, fraud, or abuse. It is reasonable to allow nominal tolerances to account for simple error.

Issue 27:  Safe Harbor Provision [New HEA Section]

Recommendation: Establish a waiver of liability resulting from unclear, conflicting, or incorrect guidance from the Department of Education.

Rationale: The complexity of student aid administration is reflected not only by error on the part of institutions but also error on the part of the Department. We believe institutions should be held harmless when this occurs.

Issue 28:  Student Consumer Information [Section 485]

Recommendation: Eliminate consumer notifications that must be sent to every student/prospective student. Instead, require that this information be made available upon request and that this availability be publicized on the institution's Web site, course catalog, or other widely disseminated publication.

Rationale: Dissemination of massive amounts of student consumer information has not been demonstrated to be necessary or effective and is costly. Schools should have the information readily available upon request.

Issue 29:  Consultation and Negotiated Rulemaking. [Section 492]

Recommendation: NASFAA should negotiate changes in the Negotiated Rulemaking requirements in cooperation with its sister higher education associations.

Rationale: The Task Force believes NASFAA is best situated to work and negotiate changes in the Negotiated Rulemaking requirements with its sister higher education associations. This does not mean the Task Force does not want changes in this provision. Such changes affect a wide swath of interests and, therefore, such changes to refine and reform these NegReg is better accomplished in concert with all in the higher education community.

Issue 30:  Verification [Section 484(q)]

Recommendation: Mandate that ED and the IRS implement a verification system of student data by a date certain

Rationale: The 1998 HEA reauthorization law authorized ED and IRS to set up a system to verify student financial aid applicant data. Such data elements included adjusted gross income, Federal income taxes paid, filing status, and exemptions reported by applicants (including parents) under this title on their Federal income tax returns for the purpose of verifying the information reported by applicants on student financial aid applications. Some progress has been made in the last four years, but the earliest the Department and IRS could even begin a pilot project would be in 2004-2005. Assuming the HEA reauthorization is signed into law in 2004, the Task Force would set a statutory date for implementation of such a system no later than three years from the date of enactment of this law. Current estimates show savings of some $300 to $800 million by implementation of such a verification system. Savings that could be used to support increases proposed by NASFAA elsewhere in our recommendations for change. If the ED and IRS cannot meet this date for implementation, it could petition the Congress for an extension and explain why they cannot implement such a system nine years after Congress first authorized this verification system.

Issue 31:  Taxation of Student Aid (Modify IRS Code)

Recommendation: Eliminate the taxation of student assistance funds.

Rationale: While certain scholarship and student aid funds are not taxable, certain other scholarship/fellowship/FWS assistance is taxable if such funds are used for items such as room and board, travel, research, clerical help, and equipment, etc. The Task Force strongly endorses elimination of this tax so that students have all the aid they are entitled to without having to pay taxes on a portion of it.

Issue 32:  Eliminate Hope/Lifelong Learning Benefits (Modify IRS Code)

Recommendation: Repeal the Hope/Lifetime tax credits and Tuition deduction.

Rationale: The Task Force recommends repeal of the Hope/Lifetime tax credits and recently enacted tuition deduction. We do so for several reasons. The use of tax credits during the period of postsecondary school attendance because of the significant impact on the federal budget, the trade-offs inherent in such practice, and the inefficiency and inequity of tuition tax credits as public policy.

The Task Force believes that the use of tax credits to support citizens in their postsecondary education is inappropriate, at best, and misguided, at worst. It agrees with several higher education finance experts who suggest that the use of the tax system can play an important role in helping pay the costs of a postsecondary education. They believe that use of the tax system is appropriate before entrance into a postsecondary school and after the individual leaves the institution, but use of the tax system during times of enrollment is inappropriate, inefficient, and not well targeted on those with the most need for assistance. For example, they suggest using the tax system to give tax breaks to encourage savings for college before an individual attends is an efficient method of encouraging a behavior few would object to. And, providing a deduction for interest paid on student loans after leaving school is an efficient method of reducing a borrower's debt burden. But, the use of the tax system with the array of benefits as they currently are structured for periods of enrollment, they state, is a misguided and not well-targeted policy.

Further, the Task Force recommends this position because tax-credits are not available to students when the funds are needed, e.g., during the school year when the tuition bill must be paid. The students or their parents receive the tax credits after filing their federal tax returns when the academic year is nearly completed. Thus, the tax credits do not reach the students at the appropriate time.

Since it is a non-refundable tax credit, low-income families with little or no tax liability who in fact need the most assistance with college costs cannot receive this assistance to reimburse them for any out of pocket college costs.

A major purpose behind federal support of higher education is to encourage citizens to seek higher education to their benefit and the benefit of the nation as a whole. As outlined in Reaping The Benefits: Defining the Public and Private Value of Going to College, The Institute for Higher Education Policy (IHEP) stated that some of the public economic benefits of higher education include:

• Increased tax revenues (Mortenson, 1996)
• Greater productivity (Decker, et al, 1997; BLS, 1993)
• Increased consumption (BLS, 1995)
• Increased workforce flexibility (Pascarella and Terenzini, 1991) and
• Decreased reliance on government financial support (NCES, 1996; Mortenson, 1995).

• Reduced crime rates
• Increased charitable giving/community service
• Increased quality of civic life
• Social cohesion/appreciation of diversity, and
• Improved ability to adapt to and use technology.

Tax credits reach students after the funds are needed and are thus an inefficient means of providing educational funding. In their September 2002 report, "Student Aid and Tax Benefits," the GAO reported that in tax year 1999, 6.4 million tax filers obtained about $4.8 billion in higher education tax credits” through the tax code. The government also provided direct support to the 3.7 million of the neediest students in the country through the federal Pell Grant program, expending $7.2 billion. It is well known that the Pell Grant program has been under-funded for many years, with the buying power of the federal grant losing ground since its inception. Congress has not appropriated what is necessary to fund the maximum authorized Pell levels simply because it has been too expensive to do so. However, the Task Force argues that if Congress is able to forego well over $45 billion over ten years in tax revenues through Hope and Lifetime Learning tax credits and the tuition deduction to the less needy, it should be able to fully fund and expand the Pell Grant Program and also make up past shortfalls by canceling education tax credits and using the revenues for the neediest students in the country.

Consequently, the Task Force shifting that large amount of funding from spending on tax credits and the tuition deduction to paying for improvements in the Title IV student aid programs such as making the Pell Grant Program a true entitlement with a maximum grant of $8,000, or elimination of the origination fee, or increasing loan limits or a combination of these recommendations or other positive changes that better target scarce federal resources on those most in need of such assistance.

[Return to main article on NASFAA's Reauthorization Task Force Preliminary Recommendations]

Posted October 15, 2002 on www.NASFAA.org, Web Site of the
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