By Karen McCarthy, NASFAA Policy and Federal Relations Staff
Editor’s Note: This article is the fifth in a series that delves into Title IV-related issues contained in the Promoting Real Opportunity, Success and Prosperity Through Education Reform (PROSPER) Act released by House Republicans on Dec. 1, 2017. These articles follow up on a brief overview of the bill provided in Today’s News on December 4.
Programmatic Loan Repayment Rates
The PROSPER Act proposes replacing cohort default rate (CDR) as a metric to determine institutional eligibility with program-based repayment rates. A program at an institution would lose its Title IV eligibility for three years if its loan repayment rate is less than 45 percent for each of the three most recent fiscal years.
For programs with 30 or more borrowers entering repayment in the fiscal year, the repayment rate for this purpose is defined as the percentage of borrowers who enter repayment in the fiscal year and who are in positive repayment status at the end of the second fiscal year after entering repayment. For programs with fewer than 30 borrowers entering repayment in the fiscal year, repayment rate is the percentage of borrowers who enter repayment in any of the three most recent fiscal years and who are in positive repayment status at the end of the second fiscal year after entering repayment.
Loans are in positive repayment status if they are:
In repayment and less than 90 days delinquent
Paid in full (but not through consolidation); or
For Federal ONE Loans, in deferment;
For other loans, in a deferment or forbearance status that is comparable to a deferment allowed for ONE Loans
An institution who is notified of the loss of eligibility for a program may appeal based on an inaccurate loan repayment rate that if calculated correctly, would be 45 percent or higher, or a participation rate index of .11 or less for any of the three most recent fiscal years.
Institutions with a program with a repayment rate of less than 45 percent for one or two consecutive fiscal years must take formal steps to improve the rate, including the establishment of a repayment improvement task force and improvement plan, which must be submitted to the Department of Education (ED) for review.
Similar to the current CDR process, ED would provide schools with draft loan repayment rates for each educational program and offer the opportunity for schools to challenge the draft rate. Once final, ED would publicize repayment rates.
Return of Title IV Funds
The bill would also make significant changes to the return of Title IV funds (R2T4) process. Under the bill, the percentage of aid earned would be based on a quarterly assessment of the payment period rather than a day-by-day reckoning. Depending on the range of percentages within which the student's withdrawal date occurs, the amount earned would be zero, 25, 50 or 75 percent of aid, as explained in an earlier stand-alone bill released by the House. Under the bill, the institution would be responsible for returning all unearned aid, thus introducing a concept of risk-sharing where the institution takes on the full risk of student withdrawals through the first 25 percent of the payment period.
The PROSPER Act would also:
Narrow the definition of "schools that are required to take attendance"
Restore some discretion to schools in paying post-withdrawal disbursements
Change the order of distribution of returned funds
Increase the amount that must be returned in most cases
Shift responsibility for repaying unearned funds to the institution
Distinguish between changing enrollment status as opposed to withdrawing in the case of modules
At the FSA (Office of Federal Student Aid) Training Conference last month, ED announced its mobile FAFSA initiative. The PROSPER Act would mandate a consumer-tested mobile FAFSA.
The importance of the IRS Data Retrieval Tool (DRT) is emphasized in the bill, with language mandating that ED allow married taxpayers filing separately to use the DRT and biannually report to Congress on progress of simplification efforts using the DRT.
Related to the current prohibition on sharing FAFSA data for purposes other than the application, awarding, or administration of federal, state, or institutional aid, the bill would permit such sharing with “scholarship granting organizations” with the student’s written consent. NASFAA had encouraged resolution of this issue in a letter to ED last month.
The PROSPER Act creates a new section in the Higher Education Act (HEA) addressing ED’s contracts for loan origination, servicing, and collections. ED would be required to allocate new borrower loan accounts to contractors on the basis of the performance of each contractor using common performance metrics determined by ED and the capacity of each contractor compared to other contractors performing similar work. ED must also consult with contractors and to the extent practicable, develop a guidance manual for loan servicing that provides best practices to ensure borrowers receive adequate and consistent service from all contracted loan servicers. NASFAA’s Servicing Issues Task Force had previously recommended a “common manual” for loan servicers.
The PROSPER Act makes several changes to the HEA designed to provide regulatory relief, including a new section that generally prohibits ED from:
Promulgating any regulation that exceeds the scope of the explicit authority granted to ED by the HEA
Defining any term in the HEA, through regulation or otherwise, in a way that is inconsistent with the scope of the HEA
Imposing any requirement on an institution or state that exceeds the scope of the requirements explicitly set forth in the HEA
More specifically, the PROSPER Act also includes the following regulatory relief provisions:
Repeal of the regulatory definition of credit hour
Repeal of all gainful employment regulations
Repeal of borrower defense regulations issued on Nov. 1, 2016, which would effectively restore the borrower defense regulations that were in place prior to the issuance of the Nov. 1, 2016 rules
Repeal of state authorization regulations that established minimum standards of state authorization that an institution must demonstrate to maintain Title IV eligibility
New statutory language that specifies that the requirement to be legally authorized by a state applies only to states in which the institution maintains a physical location
Prohibition on any future regulations on gainful employment, credit hour, or state authorization
Prohibition on the creation of an institutional ratings system
Repeal of the 90/10 rule applicable to for-profit institutions
Restoration of the Quality Assurance program
New statutory language that specifies that institutions do not need to supply any additional information regarding private loans except for what is explicitly included in the HEA and a prohibition on any requirements related to an institution’s lender list beyond what is included in the HEA.
FSA as Performance-Based Organization
The PROSPER Act solidifies the performance-based organization (PBO) nature of FSA. Many of the provisions in the PROSPER Act related to accountability and transparency at FSA come from recommendations provided by NASFAA last May.
Specifically, the PROSPER Act strengthens stakeholder engagement, streamlines the strategic planning process, improves the evaluation of senior managers, and creates a seven-member advisory board tasked with evaluating the performance of the agency. The advisory board would monitor strategic direction and report annually on the progress and opportunities for improvement at FSA. The advisory board members would be appointed by the Secretary.
Other ED Mandates
In addition to structural and administrative changes at FSA, the PROSPER Act dictates other mandates to ED, including:
Strict deadlines related to the program review process, including a 90-day deadline for ED to issue the initial report, a 90-day deadline for issuance of the final report after receipt of the school’s written response, and a conclusion of the entire program review process within two years. NASFAA made similar recommendations in its report, “Improving Oversight and Transparency at the U.S. Department of Education’s Office of Federal Student Aid: NASFAA Recommendations.”
A shift to earlier deadlines in the master calendar to accommodate the implementation of prior-prior year in application processing. Most notable of these is the change in deadline for the release of Pell Grant Payment and Disbursement Schedules from February 1 to November 1.
A requirement that ED make special efforts to notify students of their federal aid eligibility no later than their sophomore year in high school, rather than their junior year as is currently in statute.
Creation of an online platform that stakeholders can use to share best practices in disseminating early awareness information.
Creation of a consumer-tested online and mobile estimator tool that allows an individual to receive non-binding estimates of potential federal aid eligibility and the net price for various income categories for specific institutions.
In the interest of greater data transparency, quarterly publication of information on the performance of the student loan programs, including specific data on repayment time frames, use of forbearance and deferment statuses, borrowers with zero monthly payments in an income-driven repayment plan, and the Public Service Loan Forgiveness (PSLF) program.
Changes to the negotiated rulemaking process, including increased congressional involvement through required notice and comment periods, a general public comment period of 90 days for Notices of Proposed Rulemaking, and a required independent assessment of burden and viability of any rules before publication as final.
Publication Date: 12/21/2017
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