Part 3 Deep Dive: Foxx’s College Cost Reduction Act Includes Risk-Sharing Agreements, Transfer Student Support, and Regulatory Overhaul

By NASFAA Policy & Federal Relations Staff

Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, earlier this month introduced the College Cost Reduction Act, which seeks to address issues around college cost, accountability, and transparency.

This article, the third in a three-part series analyzing the bill, focuses on aspects of the legislation that would create a risk-sharing program centered around direct loans, create new policies to aid transfer students in their pursuit of higher education degrees, and eliminate many of the recent regulations created during negotiated rulemaking.

Part 1 of this series covered this bill’s proposal to create a standardized financial aid offer form, update the College Scorecard, and create a new Postsecondary Student Data System. Part 2 covered aspects of the legislation that would establish a “Pell Plus” program – effectively doubling a student’s Pell Grant – replace FSEOG and LEAP programs with a new PROMISE program, and establish new loan limits and loan repayment plans.

Institutional Risk-Sharing for Direct Loans

The bill adds institutional risk-sharing as a condition for participation in the Direct Loan Program. Institutions would be required to remit annual payments to the Department of Education (ED) for a percentage of the non-repayment balance of a cohort of borrowers.

The non-repayment balance is equal to the payments due on the loans of borrowers in a cohort less the payments made. Another new concept includes “total price,” which for risk-sharing purposes would include tuition, fees, and required costs billed to the student for the program, less non-Title IV grants and scholarships. And finally, the bill adds a new “value-added earnings” calculation.

Value-added earnings would be calculated for all Title IV aid recipients who completed their program of study. Value-added earnings would equal the student’s annual earnings at one year, two years, or four years post-completion (depending on credential earned) minus 150% of the federal poverty guideline for an undergraduate credential or 300% for a graduate credential. The bill provides authority for the Secretary to extend the post-completion earnings measurement period to five years for programs that require additional postgraduate training for licensure purposes. The bill would apply a geographical adjustment to the value-added earnings figure for students enrolled primarily through in-person learning based on location of the institution. No adjustment would be made to earnings of students who attended principally through distance education.

Risk-sharing would be calculated separately for program completers and non-completers. For completers, the risk-sharing percentage would be calculated based on median value-added earnings divided by median total price. For non-completers, the risk-sharing percentage would equal the percentage of students in the award year in which the cohort is established, who did not complete their program within 150% of the program length.

The risk-sharing percentages for completers and non-completers would then be applied to the non-repayment balance for those respective groups of students in the annual cohort. Institutions would then be expected to remit payments to ED within 90 days of notification by the department of their risk-sharing payment due. Failure to make timely payment under the risk-sharing framework would be associated with penalties ranging from the addition of interest to the balance due for three-month delinquencies, up to a 10-year loss of eligibility to participate in the Title IV programs for delinquencies of two years.

Regulatory Relief

Many of the new and amended regulations issued by the Biden administration are eliminated under the bill in the name of regulatory relief. For the 90/10 rule, the bill repeals both the legislative text establishing the rule in statute and the associated regulations, eliminating the concept altogether. Also eliminated entirely are regulations related to Gainful Employment (GE) and Financial Value Transparency, with a provision that prohibits ED from issuing future GE regulations.

The change in ownership regulations issued in 2022 are also repealed, and replaced with new legislative text that, among other changes, codifies in statute the comprehensive pre-acquisition review which ED discontinued via guidance in 2022. Also included in the new statutory language are an addition to the existing list of actions that result in a change of control for conversions from for-profit to not-for-profit status, and a requirement for ED to make decisions on changes in ownership within 90 days.

Also repealed are amendments to regulations made during the Biden administration on financial responsibility, closed school discharges, borrower defense to repayment, pre-dispute arbitration, false certification, administrative capability, certification procedures, and ability to benefit. Note, regulations remain in place for these provisions; the repeal applies to the changes made in recent rulemaking, so the regulations revert to the pre-Biden era rules. The bill also repeals ED’s guidance related to personal responsibility for financial losses related to the Title IV programs. The legislation also prohibits the Secretary from implementing “any rule, regulation, policy, or executive action” for the repealed regulations unless authorized explicitly by Congress.

The bill also adds language to the incentive compensation ban exempting third-party servicers (TPS) from the ban if they provide recruiting or admissions services as part of a larger bundle of services to the institution, codifying language from previous ED guidance.

It goes on to add to the existing statutory definition of a third-party servicer to establish what is not considered a third-party servicer. Excluded from TPS are entities that engage in: marketing or recruitment, application completion assistance, administering Ability to Benefit tests, student retention activities, or providing instructional content. ED attempted to classify contractors conducting these types of activities as subject to third-party servicer rules in 2023, ultimately tabling the issue indefinitely. The bill prohibits ED from issuing new regulations on the definition of a third party servicer.

The bill institutes a time limit on program review activities by the department, introducing several intermediary deadlines throughout the process and imposing a two-year overall cap on the entire program review process, unless ED determines the program review to be so complex as to not allow a full review in that timeframe. In such instances ED would be required to notify institutions of both the reason behind the delay and a date by which it expects to complete the review. 

Limitation on Authority of ED

ED would be prohibited under the bill from proposing new draft regulations that would result in an increase in a subsidy cost. The department would further be prohibited from issuing new proposed or final rules, or executive actions, if they were determined to be economically significant (having an annual effect on the economy of $100,000,000 or more), or that would result in an increase in a subsidy cost.

Office of Federal Student Aid

The bill establishes federal preemption over state laws or other requirements related to disclosure requirements, loan communications with borrowers, and loan servicing and collection. It also requires ED to issue contract modifications to student loan servicers through official channels such as Dear Colleague Letters, change orders, or Electronic Announcements.

Accrediting Agency Recognition

The bill makes several changes to accrediting agency recognition related to ensuring members of accreditor decision-making bodies are free from conflicts of interest. New language also requires accreditors to respect institutions’ religious missions, and creates an appeal process for institutions who believe they have been subject to adverse accreditor action because of their religious mission.

It adds as a condition for ED recognition that accreditors consider the new value-added earnings figure as a factor in evaluating institutional success with respect to student achievement outcomes.

The legislation also introduces language to make it easier for institutions to switch accreditors when required to do so under state law.

National Advisory Committee on Institutional Quality and Integrity (NACIQI)

Similar to new statutory language related to accreditor boards, the bill adds language disqualifying individuals from serving on NACIQI if they have significant conflicts of interest, which would include being a current regulator. 

Quality Assurance Experimental Site Initiative

The bill authorizes a new experiment under the Experimental Sites Initiative (ESI) that would waive the requirement that an IHE or non-IHE education provider be accredited in order to participate in the Title IV student aid programs. Evaluation of the five-year experiment would include examining value-added earnings and other student achievement outcomes as compared to students not included in the experiment.

Student Success Grants

The proposal amends the section of the HEA that addresses the Fund for the Improvement of Postsecondary Education (FIPSE), eliminating a number of existing programs underneath the FIPSE umbrella and codifying an amended version of the existing Postsecondary Student Success Grant program. The bill would provide $45 million in funding for the Postsecondary Student Success Grant program for each year beginning in fiscal year 2025 and ending in fiscal year 2030. The competitive grant program would provide grants to institutions and other eligible entities to “provide student services to increase participation, retention, and completion rates of high-need students,” which includes students from low-income backgrounds, first generation college students, students with disabilities, and students who stopped out before completing, among others. The bill also requires that 2% of funding be reserved for services geared towards supporting high-need students at tribal colleges and universities (TCUs).

Reverse Transfer Efficiency

This bill would also amend the FERPA statute to add to the list of entities with whom institutions of higher education can share student education records without the student’s parent(s)’ written consent. That authority would be extended to institutions of higher education to share records of postsecondary credits earned for purposes of applying those earned credits toward a postsecondary degree or credential. Student consent would still be required to authorize such data sharing.

Transfer Credit Policy

This bill would amend the HEA to require any higher education institution that receives Title IV funding to publicly disclose their policy for accepting and denying the transfer of credits between institutions. Institutions would also be prohibited from establishing a policy that denies the transfer of credits from another institution simply because of that institution’s accreditation source (so long as that institution’s accreditor is recognized by ED).


Publication Date: 1/23/2024

Ben R | 1/24/2024 8:13:59 AM

If risk sharing is about the "amount due", what's the share if the amount due is zero under an IDR plan? Does the school get a free pass or do you hold them accountable for the entire loan?

Peter G | 1/23/2024 11:52:33 AM

I know it's not what they are envisioning, but from a community college perspective, we already have a high risk-sharing $$ stake via R2T4.

Lisa N | 1/23/2024 11:42:23 AM

Doesn't make sense to make a geographical adjustment if students attend IHE away from home. If institutions have to pay for balances, those costs will be funneled to current students. If students take loans it should be on them, just like any other loan. Schools should not be responsible for borrowers who may not be able to make payments by no choice of their own, such as some sort of hardship. But this is just a bill, that will be whittled down.

Sarah F | 1/23/2024 10:47:58 AM

I hope OTC will be clarifying and sharing examples of the Institutional Risk-sharing for Direct Loans mentioned above.

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