Neg Reg Day 3: Committee Tackles Gainful Employment, Financial Responsibility

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

By Owen Daugherty and Hugh T. Ferguson, NASFAA Staff Reporters

As the Institutional and Programmatic Eligibility Committee hit the midpoint of the week's negotiations, members wrapped up discussions concerning the Department of Education's (ED) gainful employment (GE) issue paper and began work on the financial responsibility regulatory text.

At the outset of the day's conversation Brad Adams, a negotiator on behalf of proprietary institutions, took issue with the amount of time ED has allocated to the issue of GE and urged the department to remove it from the agenda so that negotiators could consider regulatory text for "at a minimum" another week. 

ED committed to getting through the timeframe it designated for the issue paper, which began during Tuesday's session, but said it would take Adams' comments back to leadership.

Adams reiterated his deep concerns over the designated time for GE and said the process was too rushed and could lead to court challenges that would enable bad actors to continue operating in the higher education space.

Marvin Smith FAAC®, representing four-year public institutions of higher education, had a clarifying question over ED's new proposed small program rates. He expressed concern that, because all of an institution's small programs at one credential level would be combined to arrive at a single small program debt-to-earnings (D/E) rate, that the difference in debt and earnings between disciplines would be lost, raising questions about the value of the rate. Federal negotiator Gregory Martin indicated agreement that rolling up all small programs into a single metric provides no detail about individual programs, but reminded the committee that the small program rates would not be used to deny program eligibility and that this information was strictly informational.  

For this section of the issue paper the committee recorded a negative temperature check on the Determination of the D/E rates.

As a reminder, temperature checks are the committee members' opportunity to express their tentative agreement with the content of issue papers as written. A thumbs up indicates that a member has no reservations with the regulatory text, and a sideways thumb indicates a member has some reservations or concerns, but could support updated text — both of which would indicate a positive temperature check. A thumbs down indicates that a member has significant concerns and would not be able to support the regulation moving forward without a significant re-write. If any single member has a thumbs down, it indicates that the temperature check was negative and the threshold for achieving consensus in the final session could face obstacles. Negotiators are not bound by temperature checks; consensus checks taken in the final week of negotiations are the only votes that signify a negotiator's final opinion of the rule. 

ED then walked through the "Consequences of D/E rates" section of the issue paper, highlighting the content of the student warning, and program restrictions if a program fails to meet standards determined by the department.

Yael Shavit, an alternate representing state attorneys general, voiced appreciation for the addition of warnings to current and prospective students when a program could become ineligible for Title IV aid in the next award year due to failed GE metrics, but had concerns about the new required student attestation, which would need to be completed prior to the institution enrolling, registering, or entering into a financial commitment with the student. Those concerns related to future borrower defense to repayment claims or closed school discharges and the fear that the attestation could be used to deny such claims. ED indicated that it was not their intention to limit access to relief and indicated they would consider language changes to account for this.

Committee members also expressed concern over the fact that warnings would be required  after a single year of failing the GE metrics, noting the possibility that one bad year could lead to students making decisions that could affect the rest of their lives by leaving a program that is otherwise sound.

Negotiators recorded a negative temperature check on this section, with Adams as the lone thumbs down.

ED then walked through the section concerning "Reporting requirements for GE programs" and after minimal discussion, negotiators reached a negative temperature check, with Emmanual Guillory, representing private nonprofits, as the sole thumbs down.

The committee then turned to the issue paper's "Supplementary performance measures" section, which ED noted was a new section of the regulations and was not a part of the 2014 regulations. 

Here, ED added a provision that would permit the department to factor when considering a school's Program Participation Agreement (PPA) certain measures including withdrawal rates, D/E rates, small program rates, job placement rates, and institutional spending on instruction, advertising, and administration. Notably, this provision would apply to all programs at all institutions.

A pair of negotiators recorded a thumbs down on this section, resulting in a negative temperature check.

ED then moved to the "Certification requirements for GE program" section, which the department underscored was a part of the 2014 rule. Following a very brief clarifying comment, negotiators recorded a positive temperature check. 

Under the regulatory text concerning "Institutional and programmatic information," ED outlined GE disclosure requirements, another area that would apply to all programs at all institutions and not be limited to GE programs, as in 2014. Items to be disclosed are similar to the 2014 rule and include loan repayment rate, median debt and earnings, and program completion rates. Disclosures would appear on an ED-controlled website and institutions would provide students with links to the site. 

Negotiators recorded a negative temperature check, with dissenters expressing concern over ED's vague reference in the language to "other disclosures" that ED might require beyond the list included in the proposed rule, as well as ED's unwillingness to calculate a D/E rate for all programs to be posted on the disclosures site.

ED then concluded discussions on the gainful employment paper by flagging a series of directed questions on how to address programs that lead to low earnings, but also have low debt amounts, sparing them from loss of eligibility due to failure of the D/E metrics.

While no temperature check was taken on this aspect of the paper, Adams noted his frustration with ED allotting 10 minutes for a "major issue" and only inviting written comments on the topic, rather than having a discussion.

Facilitators also indicated that, time permitting, the committee could return to some gainful employment discussions during Friday's session.

The committee then turned to the financial responsibility issue paper, pouring over ED's draft regulatory text. ED broke up the issue paper into several subtopics to help negotiators discuss individual items and take temperature checks as needed. 

The group started with ED's language on compliance audits and audited financial statements, and negotiators had no comments and quickly came to a tentative agreement by way of a temperature check with no thumbs down before moving on to the general portion of the issue paper. 

As the committee dove into the general financial responsibility regulations, Adams took the opportunity to argue that financial responsibility should not be addressed without ED revisiting the composite score, which ED did not include on the slate of topics for this negotiating committee. Johnson Tyler, a negotiator on behalf of the legal aid community, weighed in on a separate topic, asking the committee to consider adding language to the financial responsibility regulations that an institution that withholds transcripts for relatively small unpaid debts should constitute a lack of financial responsibility. 

For that reason, Tyler recorded a thumbs down during the committee's temperature check, resulting in lack of tentative agreement. 

The committee then moved on to discussing mandatory triggering events, starting with debts, liabilities, and losses. Multiple negotiators asked for clarifications from ED officials on this section as it deals with financial audits, calculating and re-calculating an institution's composite score, a lawsuit being filed against an institution, and what happens when an owner withdraws their equity from an institution. 

Adams said he would like the section on lawsuits being filed against an institution be removed, noting that lawsuits are filed often and should not result in a mandatory trigger. 

Greg Martin, a negotiator for ED, said the provision is for lawsuits from a state or federal entity and not for small lawsuits brought by individuals.

There was also discussion over new language that would create a mandatory triggering event 60 days after an institution is subject to a second unresolved discretionary trigger in a fiscal year. Martin said ED would review the language and see if adjustments were needed after negotiators expressed some confusion over what would be considered a resolved discretionary trigger, and concern about the possibility that the two discretionary events could be minor and yet lead to a mandatory trigger. 

A temperature check on this section of the issue paper did not yield tentative agreement, as Adams was the only negotiator who recorded a thumbs down. 

Discretionary triggers outlined in the draft language were covered next, with ED describing events that might lead the department to conclude that an institution is not able to meet its financial or administrative responsibilities if they were "likely to have a material adverse effect on the financial condition of the institution."

Those events include several new discretionary triggers, including actions by an accrediting agency, significant fluctuation in Title IV volume, high annual dropout rates, pending borrower defense claims, and the closure of locations, among others. 

Adams asked that ED define some of the terms and discretionary triggering events with greater specificity. Amanda Martinez, a negotiator on behalf of civil rights organizations, said some of the issues discussed regarding discretionary triggers could be addressed by considering low completion rates since research links low completion rates to institutional financial instability.

Adams was the only negotiator who issued a thumbs down on the discretionary triggers section when a temperature check was taken. 

Tentative agreement was reached on the section regarding recalculating an institution's composite score after very little discussion, so the committee then turned to the section on reporting requirements. 

ED noted several instances in which an institution must notify the department if an action or event occurred, such as withdrawal of owner's equity or the loss of eligibility for another federal educational assistance program.

A temperature check was taken which did not yield tentative agreement. The group then briefly discussed reporting requirements for public institutions in addition to audit opinions and disclosures, reaching tentative agreement on a temperature check with no thumbs down recorded. 

The final temperature check of the day before moving on to public comment was regarding past performance, with this topic generating no comments and the negotiators quickly coming to tentative agreement. 

Ernest Ezeugo, a negotiator on behalf of students and student loan borrowers, reminded the committee that despite the highly technical nature of the day's conversations, it's important to center students and their experiences when considering the regulations. 

"This session of negotiated rulemaking has been extremely technical, particularly some of the discussions around financial responsibility," he said. "I want to applaud the direction that both this regulation, financial responsibility, and gainful employment are moving in, which are about protecting students."

On Thursday, negotiators will finish discussions on financial responsibility and then move on to certification procedures and change of ownership.

Stay tuned to NASFAA's Today's News for more coverage of negotiated rulemaking sessions throughout the week, and read up on our previous rulemaking coverage


Publication Date: 2/17/2022

James C | 2/17/2022 10:12:17 AM

The only part of gainful employment that makes sense is the new program approval process whereby institutions must provide information there is a need for that career in their local economy. for certificate programs. I don't understand why institutions must go through all this GE reporting when every loan origination contains a school code and CIP code and the Department can track loan defaults and loan repayments based on school and cip codes. GE rules and regulations should put tougher sanctions on schools and programs with high default rates and low repayment rates but that is not politically popular because many four year institutions would face sanctions.

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