Higher Ed Watch

As we wrote last week, the incoming Republican leaders of the House of Representatives have assured for-profit college lobbyists that they plan to go to bat for the industry in the next Congress. But these leaders -- such as the soon-to-be House Speaker John Boehner (R-OH) and House education committee chairman John Kline (R-MN) -- have also made clear that their willingness to do so could be tempered by further revelations of abuses in the sector.

“I get told every time I’m around Boehner or Kline or whoever that ‘we’re going to make certain all sectors get a fair treatment if we’re back in control, but we will not give you cover if you’re doing the wrong thing,’” Bruce Leftwich, a top lobbyist with the group formerly known as the Career College Association, said during a post-election wrap-up the organization held with its members.

The question we have at Higher Ed Watch is how much evidence of abuses do they need?

The latest salvo has been fired in a long-running debate over the in-school interest benefits on federal student loans. Yesterday the National Commission on Fiscal Responsibility and Reform, a bipartisan panel President Obama created to identify policies that will improve the country’s fiscal situation, issued its draft proposal to shrink the deficit. The proposal includes eliminating the in-school interest benefit on federal student loans which would save $5 billion a year. This is one of over 50 suggestions that would achieve nearly $4 trillion in deficit reduction through 2020. The commission joins a wide range of stakeholders who have suggested that this benefit is just not good public policy.

At issue is a subsidy provided to a subset of students who take out federally-backed student loans, called Stafford loans. Remember, all federal student loans are subsidized. Undergraduate and graduate students from any income background can get loans with below-market interest rates and generous repayment plans – including deferrals, forbearances, interest-only and income based plans – courtesy of the government. But for undergraduates from lower income families and graduates students who have low incomes themselves, these loans also are interest free while they are enrolled in school. For the rest of students, their loans accrue interest every month when they are enrolled in school (albeit at the standard below-market rate), but it does not compound, and then is added to their loan principal when they leave school.

The upshot of the in-school interest rate benefit is that borrowers who qualify for it leave school with a lower loan balance. Practically speaking, these borrowers will make slightly lower monthly payments during 10 to 30 years of repayment.

So what’s not to like about this benefit? There must be something judging by the number of times and places policymakers and student aid experts have suggested getting rid of it.

Republicans swept back into control of the House of Representatives this week on a promise of shrinking the federal government and reducing budget deficits. But in terms of higher education policy, are they willing to face the political fallout that would inevitably accompany any plan to roll back the maximum Pell Grant award?

The new House leadership may not have much time to make up its mind. Here’s why: The current Congress has yet to pass any of the 12 separate fiscal year 2011 appropriations bills that will finance about one-third of the U.S. government over the next year. (Fiscal year 2011 began on October 1, 2010.) Instead, Democratic Congressional leaders decided to bring up the bills in a lame-duck session following the mid-term elections. In the meantime, Congress passed a Continuing Resolution through December 3 that is financing all programs and agencies subject to annual appropriations at fiscal year 2010 levels. Democrats may try to take one last crack at getting these bills done while they still control both branches of Congress, but Republicans have already begun to demand that they back down and simply extend the Continuing Resolution into next year.

If this happens, House Republicans will surely be tempted to push the Senate and the Obama administration to keep the resolution in place for the entire year to avoid any spending increases at least in non-defense programs. But maintaining discretionary spending on Pell Grants at its 2010 level of $17.5 billion would force a substantial reduction in the current maximum award of $5,550 – one credible estimate suggests that grant would fall to $4,670. This is because money from the 2009 stimulus programs helped support the Pell award of $5,550 in fiscal year 2010, but that money will all be used up come fiscal year 2011. So to prevent a cut in the grant, Congress will have to come up with the $17.5 billion plus an additional $5.7 billion.

To be fair, Congressional Democrats have not exactly shown leadership on this issue. As Higher Ed Watch contributor Jason Delisle has reported, Democrats in both the House and the Senate have employed all sorts of budget tricks to try to keep the maximum Pell Grant at its current level without having to provide the money through the regular budget and appropriations process.

We assume that House Republican leaders, who have returned to power on the promise of restoring fiscal discipline in Washington, won’t have any appetite for such gimmicks. So that will leave them with two choices: hold their noses and work with the Obama administration and Senate Democrats to find billions of dollars in additional spending for Pell Grants  or decline to do so and instead propose a significant cut in the maximum award.

On Thursday, the Obama administration took decisive action to try and stop for-profit colleges from continuing to engage in illegal recruiting practices by eliminating, once and for all, the "safe harbors" that Bush administration officials put in place to help these institutions skirt a long-standing federal law that prohibits colleges from compensating recruiters based on their success in enrolling students. The U.S. Department of Education included this change as part of a broader set of regulations it finalized this week that aim to improve the integrity of the federal student aid programs.

“The Department’s experience has demonstrated that unscrupulous actors routinely rely upon these safe harbors to circumvent the intent” of the law, these officials wrote in the preamble to the regulatory package it released on Thursday. “As such, rather than serving to effectuate the goals intended by Congress … the safe harbors have served to obstruct those objectives and have hampered the Department’s ability to efficiently and effectively administer” federal financial aid.

As faithful readers of Higher Ed Watch well know, Congress in 1992 prohibited colleges from providing “any commission, bonus, or other incentive payment based directly on success in securing enrollments” to admissions officers. The ban on incentive compensation for college recruiters was included as part of a broader effort by lawmakers to crack down on for profit colleges that were set up to reap profits from the Title IV federal student aid programs. With reports rampant that these schools were enrolling unqualified low-income individuals to get access to Title IV funds, policymakers believed it was important to bar post-secondary-education institutions from paying recruiters on the basis of how many students they admitted.

A decade later, Bush administration officials with close ties to the for-profit college sector set out to undermine the prohibition. At first, they worked closely with allies in Congress to try to push through legislation that would have gutted the law. But after that effort sputtered, they decided it would be easier to take matters into their own hands.

Under their leadership, the Education Department issued new regulations creating 12 loopholes for colleges that wished to provide incentive payments to their admissions employees. Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to twice a year, as long as the adjustment was “not based solely on the number of students recruited, admitted, enrolled, or awarded financial aid.” In other words, the Department’s leaders allowed colleges to expressly violate the law, which bars schools from providing any commission-based compensation to their recruiters.

In explaining their action at the time, these officials said that the out-right ban included in the Higher Education Act (HEA) was no longer needed because the most unscrupulous schools had already been shut down, and the Education Department had other tools in place to prevent a repeat of these types of abuses.  “We do not agree…that the safe harbors will allow unscrupulous institutions to engage in the kinds of improper recruiting activities that took place during the 1980s and early 1990s,” they wrote in the preamble to the 2002 regulations. “… During that period, institutions would recruit ability-to-benefit students who were not qualified to enroll in their institutions and keep the Title IV, HEA program funds those students received. That result is no longer possible today.”

Could they have been more wrong?