Rule-Making Panel Fails to Find Consensus on 2 Key Issues

May 21, 2014

The federally appointed negotiators who have been working since February on a package of proposed consumer-protection regulations for the U.S. Department of Education failed to reach consensus on Tuesday, their final day of talks.

That means any actions on new rules—covering such matters as college-sponsored bank cards, the terms under which PLUS loans can be denied, and requirements for colleges that operate distance-education programs beyond their own state borders to receive specific authorization from other states—will be left to the discretion of the department to develop or not.

Had the negotiators reached agreement on all of those matters, and three less-controversial issues also discussed during the latest round of negotiated rule-making, the department would have been bound by their agreement.

On Monday the parties did find common ground on the PLUS-loans issue. But two big sticking points left them divided on Tuesday: state authorization and bank cards.

On state authorization, the department and several negotiators representing student and consumer groups remained insistent that distance-education programs could be eligible for federal student aid only if they were approved by a state with an "active process" for authorizing them—a process that went beyond passively approving programs merely if they were accredited or had been operating in the state for a long time.

"We’re not willing to walk away" from that position, said Pam Moran, representing the department.

The department said it wouldn’t dictate specifically what such an "active process" must entail but would suggest in a preamble that it might include such criteria as a review of the institution’s financial viability and its student-refund policy.

Negotiators representing colleges and accreditors, who throughout the talks have criticized the proposal as burdensome and bureaucratic, called that "a deal-breaker." They said the proposal would leave many colleges and their distance-education students at the mercy of states.

"I’m from a state that doesn’t do anything" to actively authorize, said Brad Hardison, the financial-aid director at Santa Barbara City College, in California. "Who’s it going to hurt? It’s going to hurt students."

Elizabeth Hicks, executive director of student financial services at the Massachusetts Institute of Technology, was one of several negotiators who asked the department to hold off on issuing a state-authorization rule until it could consult with state regulators, who were not represented among the 31 negotiators from outside the department.

"Many of us feel you are trying to leverage institutions to regulate states," said Ms. Hicks. "That’s disingenuous."

‘Walking Into a Buzz Saw’

Ms. Moran noted that under the terms of the negotiated-rule-making process, the secretary of education would have the authority to decide not to issue a rule on state authorization if there were no consensus.

If the department does choose to issue a rule, colleges may find some relief by joining the State Authorization Reciprocity Agreement, a new organization that has established standards for distance-education programs by which its member states agree to abide.

The state-authorization rule that the department had proposed would have specifically exempted colleges operating under SARA. Seven states have adopted SARA, and that number could reach 20 by the end of 2014, according to Marshall A. Hill, a negotiator and executive director of the National Council for State Authorization Reciprocity Agreements, the body that oversees it.

While a state-authorization rule might be a boon to SARA, Mr. Hill said the department shouldn’t issue one now. "They’re just walking into a buzz saw," he said during a break in the negotiations. "I don’t want SARA to succeed because it’s an alternative to bad policy. I want it to succeed alongside good policy."

On the bank-card issue, negotiators were unable to find agreement after bank representatives deadlocked with consumer and student advocates over the definition of what kind of accounts would be classified as "sponsored accounts" from the colleges, and would therefore be subject to the proposed rule’s limits on ATM fees and disclosure requirements.

Negotiators representing banks pressed for a rule that would exempt certain accounts, tied to student ID cards, that could be converted to debit cards even if they were not used for refunds of student aid. But consumer groups said those cards carried risks for students and should be subject to the rule.

"We didn’t want to see a carve-out," said Suzanne Martindale, a staff lawyer with Consumers Union.

While the department is not obligated to adopt any of the many measures that the negotiators did agree upon, more often than not it does issue rules that comport with areas of consensus.