After about a half day of negotiations yesterday (once process stuff got out of the way) we're now back for the second and last full day of negotiations for this first session. Below are occasional updates from the morning negotiation sessions. Yesterday's liveblog is here and the afternoon session can be found here. A summary of the regulatory text under consideration is here.
Here are links to liveblogs from Day 1, Day 2 Afternooon, and Day 3.
9:15 a.m. Starting up again
John Kolotos, the Department of Education's negotiator starts us back today with a discussion of whether a marketing limitation is possible. He says that the financial statements that the Department gets now is not suffficient to determine what a school spends on marketing/advertising. That would mean having to put out new definitions of it, a new data collection (which unsaid would trigger navigating the Ridiculous Paperwork Reduction Act), and would be out of scope.
Kolotos also notes that determinations of Cost of Attendance are statutory and cannot be changed by the Department through regulation. Higher Education Act reauthorization, anyone?
Kolotos closes with saying the Department could consider an upfront pre-screening process, but needs a concrete proposal to review.
Nassirian acknowledges the Department can object to certain ideas, but reiterates that he wants a way to hold the individuals who run the school accountable while they are in the zone and not just bleed it dry.
9:20 a.m. Amortization periods
Kolotos explains the Department's proposal to judge loan payments based upon a 10-year repayment plan because most students on average take 12 years to repay, indicating that a lot of folks are on the standard option. This is a change from the 2011 final regulation, which varied the repayment period on the type of credential. This is a fairly important issue, as a longer payment period means lower annual payments and thus allows lower income to pass a debt-to-earnings test,
Brian Jones from Strayer University objects to the idea, calling it contrary to the Administration's policy message. He also notes that high-debt borrowers at Strayer are much more likely to be on some kind of extended payment period. He wants people eligible for the extended programs to be counted that way.
Editorial aside here--if you give only higher-debt borrowers the longer repayment plan, doesn't that encourage higher debt?
Marc Jerome from Monroe College in New York asks if the repayment timeframe of 12 years is the same for low-income, Pell students, says the repayment period is highly influenced by the income of students. "The current regulation would have a debt payment that is actually higher than what the students are paying," he says.
Whitney Barkley, from the Mississippi Center for Justice, speaks out in favor of the 10-year amortization period. She says just because they have so much debt that they can't pay it off after 10 years does not mean they should not be judged on it. She asks a clarifying question about who is included in the debt metrics. The answer is all students who received any Title IV aid, so a Pell recipient with only private debt is included.
Rory O'Sullivan points to Department data about the repayment plan they are on, noting that a large number of borrowers are on the standard 10-year plan (almost 10 million out of 15 million in Direct Lending).
9:30 a.m. Strong defense of 10 year plan from ED
Forceful defense of the 10-year plan from Kolotos. He says once you start extending these terms to 20 or 30 years you are increasing costs. "Students will have to spend half their life paying their loan back. That's not a position we think we should take as a default position. We're not here to create a new generation of indentured servants. we don't want to structure some sort of debt to earnings rate that anticipates students will be in a 20 year plan it's just not good public policy.
Jones from Strayer says it is not fair to be judged on the 10-year timeframe when the government makes other plans available.
Barmak Nassirian from AASCU says that the fact that the Department is giving so much on the back end with a 30 percent discretionary debt-to-earnings standard should more than balances out the concerns over the 10-year plan. He also notes that the single 10-year assumption is simpler.
Jones from Strayer says Nassirian is over complicating what these metrics are about--are they earning enough to cover their student debt for a year. Nassirian asks what does "cover" mean? Jones says we are trying to get a fix on the appropriate measure of what the student's annual debt load is. He says the amortization does matter and it should reflect what students are actually experiencing, citing that public policy is going in a different direction from the 12-year repayment timeframe.
Nassirian says the issue is not what the repayment timeframe is, but what it ought to be. He compares it to New York Fed stats that show high rates of delinquency, but we shouldn't take that as just a good thing from the state of the world. He argues in favor of simple, standard, majority repayment option on the books.
Helga Greenfield from Spelman College said she supports the 10-year amortization timeframe.
Jerome from Monroe College asks if anyone has done a study of what the debt-to-earnings ratios would look like for institutions not affected by the gainful employment requirement.
Kevin Jensen from the College of Western Idaho asks if the Department would allow challenges of the repayment timeframe through the challenge process. Kolotos says probably not.
9:45 a.m. On to interest rates
Now a question is asked about the interest rate being chosen and whether the new rates, which vary each year. Kolotos says maybe they should choose a rate to standardize it since the rates would change over time, meaning that what the students are paying in interest will change. A quick refresher of the new interest rate regime that passed Congress this summer follows. The facilitator wants to table the issue, but is overruled.
Kolotos suggests that ED use a five-year average. Nassirian asks why they can't just use the actual rates. Kolotos says it is because ED does not know the rates for the private debt, which are also included. Nassirian persists that ED does know the underlying rates on the federal debt? Jeff Baker, the policy guru from the Office of Federal Student Aid says they do know the interest rate on each particular loan, but not the payment rate.
Nassirian argues that if you know the actual rate, it should be used and that the non-federal debt should be based on some kind of survey, not a number pulled out of thin air.
Rory O'Sullivan from Young Invincibles asks if the Department uses the same interest rate for graduate and undergraduate loans. Kolotos says yes.
Whitney Barkley asks if they would adjust the private loan interest rate to reflect that loans may not be getting prime rates.
Jerome says his school has no private debt, but says making tweaks on the numbers could mean that his students' payments are $1,500 but show up as $2,000, which does not reflect the actual reality for his students.
Editorial note: the final regulation in 2011 also did not reflect the actual rates, but varied it based upon credential level. The problem is the way the repayment plans work now is that more debt can get you a higher repayment timeframe. So varying it based upon amounts could encourage excessive borrowing. What's less clear is if basing the repayment timeframe on the level is any closer to reality.
10 a.m. Loan debts
Kolotos notes that the loan debt looked at is the same as before--it includes Federal
of all types FFEL or Direct Loans, private, does not include loan debt from another institution.
Richard Heath from Anne Arundel Community College asks what happens if a student starts in a gainful program, moves into an associate degree program, which is not subject to gainful employment, and completes it. He wants to know if the debt from that initial gainful employment program is counted or not.
Kolotos says if they enrolled in an AA program at a public school, that program is not included in the gainful employment rule so it would not have a rate. But the certificate program would have a rate. In response to a follow up, he notes that the student who is taking a long time to finish an AA would not be calculated in the certificate program because they would be treated as in-school. However, if they finished the AA degree in two years they may be calculated since they would not be in an in-school deferment status anymore.
O'Sullivan from Young Invincibles asks about why debt from institutions under the same control aren't automatically included. Kolotos says that the Secretary wants some flexibility so that it cannot be assumed that something nefarious is going on.
Margaret Reiter, who represents consumer advocacy organizations, reiterates desire for bright lines and asks Department to reconsider using mean or median. She also asks if Perkins loans should be included. Kolotos says Perkins is probably not relevant for these programs, but will reconsider.
Barkley returns to question of related campuses and talks about issue around transfer of credit from proprietary institutions to non-proprietary ones.
Raymond Testa from Empire Education Group, which is a set of beauty schools, wants to talk about the cap on institutional charges. He wants to make clear that the Department understands that concern. Testa says he knows they cannot limit borrowing, but he thinks its important to keep recognizing this and can't ignore it. But the Department can limit the amount of debt that the school is accountable for and would like it taken further to cap borrowing of tuition and fees net of Pell aid. He also brings up the mean and median issue to say that they are close for large cohorts, but not for smaller ones where they may be a difference, so argues to keep using it.
Nassirian asks where the definition of a private student loan is. Kolotos says it is the definition from the Truth in Lending Act (TILA).
10:15 a.m. Exclusions
Kolotos goes through the exclusions, which are the same categorically as the last rule, but now require a 60-day period for the military or in-school exclusions. For in-school it has to be half-time for at least this period. He says this is necessary to make sure that individuals cannot work their normal job, whereas the 2011 rule allowed people in a school for a day could have been excluded.
O'Sullivan asks why not make the in-school exclusion something based on a semester or 120 days or more. Kolotos says ED is open to suggestions.
Reiter agrees with O'Sullivan saying she is concerned about gaming or churn.
10:20 a.m. Higher credential exclusions
Jerome asks about what happens with a student who completes a higher credential at the same institution. He's concerned that his better students move on to other programs, which would leave behind less academically inclined students to be measured in the lower program. He the most academic, highest earning students to not be excluded because it was not in the last regulation. He wants the same student counted twice in different programs.
Jensen from College of Western Idaho notes this is avoid duplication, but harms numbers of lower credentialed programs.
Jones from Strayer says that attributing debt to higher level credentials could encourage schools to move higher level students to other institutions. Kolotos says its the higher level program completed, not just enrolled in. Jones reiterates that it may discourage schools from moving lower level students up to higher levels.
Kolotos asks if they should essentially "un-stack" credentials and calculate separate rates that include the same student a few times.
Sandra Kinney from the Louisiana Community and Technical System says that the competitive health programs would be most affected by the stackable approach because credentials build up as a way of weeding out students who are not as successful.
Eileen Connor from the New York Legal Assistance Group asks whether the earnings for the higher credential should also be attributed, since that does not seem fair either. Said she understands why they might exclude the individuals that complete higher programs.
Della Justice from the Kentucky Attorney General's office asks if the lower credentialed programs do not pass, doesn't that show that the lower programs do not prepare students for gainful employment? Jerome says that perhaps these programs would have passed if the best students were not excluded by moving to the higher level program.
We're headed for a break. Back at 10:45 a.m.
10:55 a.m. Rates no calculated
Steve Finley, from the Department of Education says the match rate on Social Security Administration data is in the 90s.
Nassirian asks about the requirement that annual or discretionary income be more than zero. Kolotos says that for discretionary if it's a lower number then it would be negative, so the requirement is so it's clear that the requirement to have some earnings data applies to both measures.
10:57 a.m. Cohort size
Mohr from the California CC system says that moving from the minimum cohort of 30 students to 10 students is not fair because it is too small. Kolotos notes that Jack Buckley from the Institute for Education Statistics will be talking about the program size and survey issue tomorrow.
11:00 a.m. Transition period
Kolotos explains there is a 3-year period during which the Department will take the debt from the current year and use the earnings of the regular cohort, which will benefit schools to get them through to a period where the debt-to-earnings ratios are the normal standard they are operating under.
Jerome asks for more clarity, asks if 2014 data would be grads from June 2013 or June 2014.
Kolotos distributes a handout, showing how the first-year rates will be for 2014-15, which is people who finished in 2010-11 or 2011-12 and the earnings would be for the calendar year 2014. So if a school wants to adjust its rate and lower the debt for 2014 completers, then the adjustments would look at people who completed in 2014-15.
Jerome says the problem is the debt is still backwards looking. This seems to suggest he maybe wants the debt used for individuals who complete after the first set of rates are available since they could then take the results into account and make adjustments.
Kolotos says that the transition period allows for time to have a program improve while it waits for improvements in its earnings. He notes that there is fluctuation earnings among the same type of program across institutions. It says that legitimately lowering debt plus some earnings improvement provides a way to move from failing into the zone. He says the transition allows the extension of the eligibility for the program for a few years.
Jerome says some programs have industry-standard starting salaries--such as culinary programs with grads in the high teens and low twenties. He asks what if they eliminated all debt for incoming students, since they would not get credit for that. He says if the earnings are fixed, even if we lower the debt, the programs will still keep failing.
Jerome spends more time walking through the handout and how the transition period does not give his school credit for wiping out debt for new incoming students. He says they can affect the debt of students who are in school or just started, but they cannot fix it for individuals who just graduated when they receive the rates.
Belle Wheelan from the Southern Association of Colleges and Schools Commission on Colleges (SACS) argues that the Department should not use loan data for students until after the regulation is published.
Nassirian says that the generosity on the back end means that the thresholds are so generously in favor of institutions that the amount packaged would have to be completely out of line with labor market expectations to fail.
Editorial note: The Department's estimate for its proposal is that 9 percent of programs would fail and 12 percent would be in the zone. The estimate for the final rule was that 10 percent of programs would fail, though in the actual informational rates released last year 5 percent failed.
Jerome says his institution has a history of 60 years with almost no debt. They started adding debt because someone pointed out that it could increase graduation rates, which he said it did, but that they want opportunity to do the right thing.
O'Sullivan from Young Invincibles reiterates that these are the bottom set of programs.
Reiter suggests alternative penalties in initial years to give schools time to get their act together. Suggests maybe a letter of credit or other things that has schools cover some costs. She argues for a longer transition time, but says that when it comes in, the threshold should be 8 percent or 20 percent, not the more generous levels at the moment. She wants it to ramp up for tougher measures if students are protected in the interim.
Kolotos says if you fail under the normal rates, but can get transition period to get into the zone, it gives you time to catch up by extending your eligibility for up to four years.
Heath from Anne Arundel CC says the Department is assuming that the earnings are a result of a weak academic program. He argues that for the community colleges, the certificate is based upon work with business associations, so there is little that could be done to improve the program. He says the issue is the student made bad decisions in investing too much in the certificate so that it won't pay back. Heath also asks Jerome how he can lower students' debt.
Jerome says they increase aid or lower tuition. Says this can create difficulty for the institution, but it takes time. Says his first set of debt-to-earnings were between 4 percent and 7 percent in first go around, now they look higher. So when he argues for changes, the staff at his school push back and say he is inflicting too much pain on the school with too much uncertainty since they do not know what the final regulation is yet.
Heath says they don't do tuition discounting/tuition discounting and their costs are already very low. He says theres nothing they can do to reduce debt, and based upon earlier comments, nothing he can do to boost earnings.
Jensen, from the College of Western Idaho, asks about timing--failing in first year means finding out results midway through second year of data collection. So says if it fails in first year, no time to fix program, so school needs to start shutting down program. But, he says, if it is a zone program, then there may be more time to fix it. But if the zone program comes up failing, then it is a death sentence in a year because of the timing. He asks if this is right.
Kolotos says this is correct in the initial years, but not longer term because schools know what the standards are and need to take steps to manage to the standards.
Heath says Anne Arundel CC does not package by program, it packages based upon what students are eligible for in terms of aid. He brings up the issue again of being unable to affect how much someone borrows.
Testa asks to revert back to the final 2011 rule, which required failure in three out of four-year period instead of the fail two times out of three years here. He brings up a desire to think about the Bureau of Labor Statistics data again.
11:40 a.m. Demographics = destiny?
Testa argues that the only thing that tells him about the results will be the zip code for a student. Says the results are due to students' income, whether they are dependent or independent. Says campuses with large dependent students will not fail regardless of thresholds. He says lots of independent students come in with debt from other programs. Indicates he won't open more campuses in inner cities and may have to close some.
O'Sullivan says even the programs with high numbers of low-income, minority students are underperforming the expectations for institutions that serve those types of students. He also brings up the role of institutions to influence student debt choices, citing a survey of high-debt borrowers that said the most influential factor in borrowing was financial aid officer.
Heath talks about an excessive debt review that Anne Arundel CC implemented a few years ago, which gets trigged if people have borrowed one-half of their maximum eligibility but have less than half the credits they should for that level. Said they often find that students have accumulated a lot of debt and have no credential. Give students who hit this issue one-on-one counseling, but says it costs one full-time staff member, which most colleges cannot afford.
Jones from Strayer brings up the 90-10 rule as limiting what they can do on the price side.
Editorial note: The 90-10 rule says that no more than 90 percent of revenue for a proprietary institution can come from Title IV federal student aid.
Kolotos is concerned about pace, asks for time to be assigned to what needs to get covered.
12:05 p.m. Setting the scope
We've been having a long discussion about what to do next. Plan now is to break for lunch for about an hour, come back and discuss alternative metrics for an hour, then talk through the rest of the package until the end of the day.
But before that happens, ED clarifies that it will not entertain discussions of loan discharges for students at ineligible programs for when the alternative accountability metrics discussion occurs.
Nassirian is concerned about ED drawing a line in the sand around not considering this issue. Says it would cause him to harden stance on upfront requirements to protect students from being guinea pigs. Asks for negotiators to be more flexible on cutting slack for programs if they are willing to entertain protections for students who are harmed.
Justice asks for clarification whether penalties for schools that fail would still be considered. ED says yes. But it will not entertain false certification discharges by the Department.
12:10 p.m. Lunch Break--back at 1:15 p.m.
The afternoon session is being covered in a separate post here.