Panel Nears Agreement on New Standards for PLUS Loans

May 20, 2014

The latest round of the U.S. Education Department’s negotiated rule-making process for consumer-protection issues began with a tentative agreement on Monday on proposed regulations of PLUS loans. The rest of the day found negotiators divided over proposals regarding state authorization of online education and college-affiliated debit cards, a day before they are supposed to vote on final proposals.

The department’s latest proposal on PLUS loans, which are available to graduate students and parents of dependent undergraduate students, was the subject of gentle debate during the morning hours. Under the department’s proposal, delinquent debt of $2,085 or less would not disqualify potential borrowers from the program.

That’s a substantial change from the existing rule, under which borrowers with any amount of debt in collection or "charged off" on their credit histories during the preceding five years could be disqualified. Those standards caused a rash of loan denials when they were introduced, in 2011, especially among the families of students who attend historically black colleges, prompting outrage as well as talk of a lawsuit against the department.

Much of the discussion on Monday centered on allowing the $2,085 debt exemption to be adjusted for inflation in the future, using the annual Consumer Price Index, or CPI. Some negotiators suggested that the CPI was too "volatile" for adjusting the exemption and that it would lead to many incremental annual changes. But Chuck Knepfle, the financial-aid director at Clemson University, said that tying the exemption to the CPI could bring up the debt exemption "a little at a time—that’s the purpose of indexing."

David H. Swinton, president of Benedict College, an HBCU, was one of several negotiators who suggested using an average of a few years of the CPI to "smooth out volatility."

The department rejected any specific solution for adjusting the debt exemption, but its negotiator, Pam Moran, suggested that language be inserted into the rule that would allow the exemption to "be adjusted over time" as determined by the secretary of education.

Negotiators agreed to support that solution, and the proposed rule will come up for a final vote alongside the other issues under consideration on Tuesday, which is scheduled to be the last day of negotiations over "program integrity and improvement" rules.

Mr. Swinton, of Benedict College, said that the revised PLUS-loan rule was "as good as we can get" and that "the department did a pretty good job of satisfying the concerns" of the various constituencies represented at the table.

Discord on Other Issues

There was less harmony at the table regarding a proposed new "state authorization" rule and regulations governing college-affiliated bank accounts and debit cards.

The state-authorization proposal would require institutions whose online programs enroll students living in other states to obtain approval to operate in each of those states. Programs could not receive federal student aid for students in states where they were not approved. Consumer advocates on the negotiating panel argued that such regulation was critical for the good of students and their access to quality programs online.

Much of the debate regarding the rule pertained to a paragraph that specifies that institutions would not be exempt from state approval "based solely on accreditation, years in operation, or other comparable exception." The proposed rule would not go into effect until 2018 at the earliest, but institutions that now operate in some states under such exemptions could request a one-year extension to the deadline if they could "present evidence" that they were engaged in "an active process" to replace the exemption with legal approval.

The provisions regarding exemptions and deadlines led some negotiators to complain about red-tape burdens for institutions and states alike.

Russell Poulin, deputy director for research and analysis at the Western Interstate Commission for Higher Education’s Cooperative for Educational Technologies, said that section of the rule had gotten "negative feedback" from states.

And states are not the only ones skeptical about the rule. Department officials circulated a letter at the meeting addressed to Education Secretary Arne Duncan from the presidents of 11 elite research institutions, including Harvard, Johns Hopkins, and Stanford Universities, and the Universities of California and Michigan. In the letter, the presidents write that they are "deeply concerned that the proposed federal regulation will impede our progress in online education by setting unprecedented federal mandates for states to regulate our academic programs."

Another point of protracted debate involved a provision that institutions must disclose to students that their online programs may not qualify the students to practice or pass licensure examinations in their home states. While negotiators seemed in agreement that such disclosures were necessary to protect students, there was considerable difference of opinion on how such disclosures might operate.

The most contentious of Monday’s discussions took place as the day drew toward a close, when the negotiators took up college-affiliated bank accounts and debit cards.

Consumer advocates, policy makers, and the department’s inspector general have all expressed concern that such arrangements can subject students to hidden fees and unclear marketing practices.

The current proposal attempts to define "sponsored accounts"—any financial account or access device that is included within the scope of a contract or arrangement between an institution and any outside entity—and to specify how such accounts must be disclosed. Negotiators seemed at an impasse and will take up the subject again on Tuesday, before the scheduled votes on all three proposals.