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President to President

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President to President
Molly Corbett Broad's weekly email newsletter to higher education leaders.

President to President, May 30-June 3, 2011

Vol. 12, No. 20

  • ED Releases Final Gainful Employment Rule; Senate to Hold For-Profit Hearing June 7
  • Update on Libyan Scholarship Students in the United States
  • Presidents Support Patent Reform
  • IN BRIEF: Coalition Sends Letter on Private Student Loan Bankruptcy Fairness Act; Associations Call for Repeal of 3 Percent Withholding Provision; ACE Webinar: Are We Academically Adrift?; AAU Welcomes President Hunter Rawlings

The Department of Education (ED) released its long-awaited final rule on gainful employment yesterday. As you likely have read, the reaction to the regulations has ranged from measured to highly critical of ED for removing the teeth from the rule. Market prices for publicly traded for-profit schools increased sharply yesterday as one market analyst pronounced ED had "gutted the regulation."

The gainful employment rule is an effort by ED to ensure students who enroll in some higher education programs—especially those at for-profit schools—will earn enough money to repay their student loans. In general, the regulation applies to all programs at for-profit schools and to all non-degree programs at traditional colleges and universities.

This regulation was part of a large package of rules that ED began to develop in 2009 to enhance "program integrity." Most of the new regulations were published in final form Oct. 29, 2010, and will take effect July 1, 2011. The release of the gainful employment provisions was delayed to allow ED to analyze the more than 90,000 comments it received on the draft plan.

While we are still analyzing the changes made to the draft rule released in July 2010, our overall impression is that the department has created a highly complex regulatory framework that will be difficult to fully evaluate until we see it in action.

More specifically, the rule applies to individual programs at a college or university, not to the entire institution. According to our calculations, there are more than 50,000 gainful employment programs, with approximately 40,000 at public and private non-profit institutions. This means multiple calculations will be required at many schools and every program will be evaluated as a unique entity.

Under the new regulations, effective July 1, 2012, gainful employment programs must demonstrate that: (1) at least 35 percent of student borrowers are repaying their loans; (2) the annual loan repayments will not exceed 12 percent of total income; and (3) the student loan repayment will not be more than 30 percent of discretionary income. In applying the "debt-to-earnings" test under either (2) or (3), the education secretary will use actual earnings data received from the Social Security Administration for students from the program and will base the calculation on either mean or median income, whichever number is higher. The sanctions imposed will increase in severity for each year in which the program fails any one of the above tests. A program that fails any of these tests three times over a four-year period will lose federal student aid eligibility for at least three years.

ED made a number of adjustments to the final regulations in response to the many comments received. Among the changes: (1) No program will lose eligibility for at least three years after the regulation takes effect (i.e., not before July 2015); (2) More of the data used to evaluate programs under the three-part test will now be prospective than was the case under the draft rule; and (3) The restricted "yellow zone" category has been replaced with a system of increasing disclosures and warnings for programs that fail for a first or second time to meet any of the tests laid out above.

ED estimates that 8 percent of all postsecondary education programs will be sanctioned under this plan and that 2 percent of programs will lose eligibility. The biggest impact of the regulation will be on for-profit institutions with 18 percent of the programs expected to be sanctioned and 5 percent likely to lose eligibility. Unfortunately, however, there is very little data that will permit the department's plan to be modeled so it is impossible to know for sure what the impact will actually be.

Clearly, this is a very complicated regulation that will require ED to compile and analyze data from its own National Student Loan Data System, the Department of Labor, the Social Security Administration and institutions. In general, advocates for students are concerned the regulation does not, in its revised form, go far enough, while advocates for for-profit schools think the regulation far exceeds ED's statutory authority. The only thing we can say for sure is this issue will remain contentious and, now that ED has issued final rules, action may well move to Congress and the courts.

We have been involved with this issue since the department began the rulemaking process and will continue to follow it closely.

For a more detailed summary of the final regulation, click here.

On a related note, the Senate Health, Education, Labor and Pensions Committee announced this week that it would hold another hearing on for-profit schools. Drowning in Debt: Financial Outcomes of Students at For-Profit Colleges is scheduled for June 7 at 10:00 a.m. EDT, and Education Sec. Arne Duncan is expected to be among the witnesses. The Republican members of the committee have stated they do not intend to participate in the event because they think it is biased against for-profit schools. This suggests the partisanship surrounding this issue will continue.

I wanted to give you a brief update on the effort to assist the 2,500 Libyan nationals participating in the Libyan-North American Scholarship Program who have been in financial limbo since the United Nations Security Council froze Libyan assets in February.

The Canadian Bureau for International Education (CBIE), which manages the Libyan-North American Scholarship Program and has spearheaded efforts to address this situation, believes its application to the UN Security Council to allow bank transfers from the frozen off-shore account is moving forward and will soon be finalized. CBIE has been in communication with relevant Libyan authorities in Tripoli, who say they are making every effort to expedite the transfer of funds but are facing technical difficulties. However, funds should be successfully transferred very soon, at which point the June monthly living allowance will be sent to these students.

CBIE also continues to be in active dialogue with the U.S. State Department and Canadian Department of Foreign Affairs and International Trade with respect to how to best resolve the current technical challenges for transferring the required funds.

For those of you with Libyan students on your campus, we appreciate your outreach and assistance and hope you are able to continue to help until the funds transfer process begins. We will continue to push forward on this issue.

Five research university presidents sent a letter this week to House Judiciary Committee leaders to express their support for the America Invents Act (H.R. 1249), which goes to the House floor the week of June 13.

H.R. 1249, approved by the committee on April 14, would move the U.S. patent system from a first-to-invent to a first-to-file system, which most other countries currently use. It also would authorize the United States Patent and Trademark Office, which is dealing with an overwhelming backlog of patent applications, to set its own fees. We strongly support the bill along with our colleagues in the Patent Reform Coalition.

Signing the letter were Mary Sue Coleman, president of University of Michigan; John Hennessy, president of Stanford University (CA); Richard Levin, president of Yale University (CT); Holden Thorp, chancellor of the University of North Carolina at Chapel Hill; and William Powers, president of the University of Texas at Austin.

For those who would like to express support, see our memo from last month that lists ways in which the pending legislation is an improvement over current law for both universities and the patent system generally, along with a comparison of key provisions in H.R. 1249 and the Senate-passed bill (S. 23). You might also take a look at this Wall Street Journal piece, which gives an overview of the current support and opposition to the bill.


ACE signed on to a letter May 25 to House and Senate Judiciary Committee leaders to signal our strong support for the Fairness for Struggling Students Act of 2011. Sens. Dick Durbin (D-IL), Sheldon Whitehouse (D-RI) and Al Franken (D-MN) joined with Reps. Steve Cohen (D-TN), Danny Davis (D-IL), George Miller (D-CA) and John Conyers (D-MI) to introduce this legislation in the Senate and the House that addresses the ability to discharge private student loans in bankruptcy.

ACE joined a group of higher education associations last week in submitting a statement to the House Small Business Subcommittee on Contracting and Workforce that calls for repealing the so-called 3 percent withholding provision. The subcommittee held a May 26 hearing to review problems with the provision, which would require federal agencies, states and certain local governments—including state universities—to withhold for taxes 3 percent of nearly all of their contract payments for goods and services. Congress enacted the provision in 2006 but delayed implementation of the provision for six years, and the IRS has delayed implementation further to 2013.

I hope you or a member of your leadership team are planning to join us June 15 for our webinar on the recent book, Academically Adrift: Limited Learning on College Campuses. Authors Richard Arum and Josipa Roksa will be joined by Gary Rhoades, general secretary of American Association of University Professors, for this event, which will be moderated by ACE Senior Vice President Terry Hartle. See the ACE website for more information and to register.

Lastly this week, I would like to welcome Hunter R. Rawlings III, who has joined the Association of American Universities (AAU) as its president, to Washington and the higher education association community. Hunter replaces Robert Berdahl, who retired last month. We will all miss Bob's leadership tremendously, but I know that under Hunter's tenure, AAU will be in committed, experienced hands.

Molly Corbett Broad
President of ACE