While brinkmanship—and a government shutdown—defined the path to a final FY14 federal budget agreement, policy makers in Washington have set the stage for a smoother pathway to FY15’s budget and a process that may, more or less, follow regular order. Significant budget uncertainty was set aside when Congress agreed in December to a top-line spending number of $1.014 trillion, temporarily avoiding the severe sequester-mandated cuts; and, in February, voted to lift temporarily the federal debt ceiling.
This year’s budget process began on March 4, when the White House released its annual budget request. The document lays out FY15 budget priorities and many economic and social policy goals of the Obama administration. The budget request is typically released the second week of February, but was somewhat delayed because of the late compromises on the debt ceiling, sequestration, and FY14 spending.
It is evident that the president remains committed to a number of higher education policy goals introduced in the past year: making a college education more affordable, encouraging students to complete their degrees on time, and ensuring that student debt remains affordable. With the FY15 budget, the president renews a call for reforms to campus-based aid programs, requests funding for the development of a new college ratings system, and asks for new money for a “State Higher Education Performance Fund” and a “College Opportunity and Graduation Bonus.”
Process and Priorities
The president’s budget request is simply that, a request. The House and Senate appropriations committees take the White House proposals into consideration as they hold hearings and draft and mark up their own respective versions of the FY15 budget. Congress and the White House must agree on a budget by the end of the federal fiscal year, September 30, or—if they cannot reach agreement by that date—pass temporary continuing resolutions to keep the government operating, or face a government shutdown until they can find a resolution.
Some Republican lawmakers immediately called the request “dead on arrival.” While many provisions of the budget will go unrealized in the FY15 budget process, it is possible that some of the higher education proposals will be considered by Congress as it works on reauthorization of the Higher Education Act, including the following:
- Student loans. Under Obama’s Pay As You Earn Repayment Plan (PAYE), eligible borrowers will have their loans forgiven after 20 years of making payments tied to their income level and family size. Certain borrowers, who do not yet qualify for PAYE, are required to make 25 years of payments. The new plans are also more generous in determining whether a borrower demonstrates a partial financial hardship, thus qualifying for the plan, and in calculating the amount of monthly payments.
In the FY15 request, the president calls for expanding eligibility for the repayment program to all student borrowers, regardless of when they took out their loans. Under current law, only borrowers who took out loans after Oct.1, 2007, and meet the hardship qualifications, are eligible. Students who opt for certain government and nonprofit jobs can have their debt forgiven after 10 years. The budget request also addresses some concerns about the program being a windfall for high-income, high-debt borrowers.
- Pell Grant awards. The president seeks a $5,830 maximum Pell Grant award for academic year 2015–16, a $100 increase over the 2014–15 maximum. However, it should be noted that the increase is due to an automatic, mandatory increase in funding scheduled for the Pell Grant program. The White House budget does not request any additional discretionary funding for FY15, but adds language that would strengthen academic progress requirements in the Pell Grant program to encourage students to complete their studies on time.
Ambitious Requests for Key Goals
Other budget requests reflect the president’s continuing support for the administration’s higher education goals.
- Campus-based aid. As in the FY14 request, this budget plan again calls for the distribution of federal campus-based aid—the Federal Supplemental Educational Opportunity Grant (FSEOG), the Federal Work-Study (FWS) program, and Perkins Loans—to tie to three principles: keeping down net tuition; providing good value; and serving low-income students effectively, although these principles are not thoroughly defined.
The administration contends that “current allocation practices tend to reward schools for high-tuition prices; ignore the population of Pell-eligible students attending the institutions; and fail to take into account whether institutions offer a good value to students.” The White House seeks to target funding to institutions that “enroll and graduate higher numbers of Pell-eligible students, provide an affordable education, and offer quality education and training such that graduates can repay their educational debt.” Funds for Perkins Loans would grow from the current $1 billion to $8.5 billion, but loan administration would no longer be campus-based; instead, it would be managed by the federal government.
- College Opportunity and Graduation Bonus. A proposal for $7 billion to be spent over 10 years ($647 million in FY15), calls for new grants, “to reward colleges that successfully enroll and graduate a significant number of low- and moderate-income students on time and encourage all institutions to improve their performance.”
- State Higher Education Performance Fund. Similar to last year’s call for a Race to the Top for Higher Education, the White House seeks $4 billion for a State Higher Education Performance Fund that would provide a dollar-for-dollar matching grant program to provide “multi-year (4-year) competitive grants to states to support (1) the successful implementation of performance-based policy and funding reforms that encourage and reward college attainment and affordability, as well as institutional innovation and reforms; and (2) maintaining state expenditures on higher education in states with a strong record of investment, or increasing state support in low-investment states.”
- First in the World fund. For the program, initiallyfunded by Congress at a level of $75 million in FY14, the president seeks $100 million to continue the First in the World competitive grant program. Run by the department’s Fund for the Improvement of Postsecondary Education, this program would offer awards to support “innovative strategies and practices shown to be effective in improving educational outcomes, including on-time completion rates, and making college more affordable for students and families, particularly for low-income students.”
President Obama remains committed to the goal of the United States achieving the highest proportion of college graduates in the world by 2020. While some of these funding proposals may not be politically feasible in FY15, expect to see these themes of spurring performance-based funding and rewarding strong outcomes for low-income students as priorities through the rest of the president’s second term, whether as a part of annual budget requests, legislative priorities, or executive actions.
Scrutiny and Rulemaking on College Debit Cards
The topic of student debit card arrangements is presently at the forefront of a negotiated rulemaking committee convened by the Department of Education (ED). The committee is to review cash management regulations, state authorization for distance education and for domestic institutions’ foreign campuses, along with several other topics.
In February, ED convened its Program Integrity and Improvement negotiated rulemaking panel that would subsequently meet for a total of nine days over the course of three months. Fifteen committee members, along with an equal number of alternates, are attempting to reach consensus on draft regulations for each of six disparate topics on the department’s agenda:
- Cash management.
- State authorization of distance education.
- State authorization of foreign locations of domestic institutions.
- Clock- to credit-hour conversions.
- The ability of students to receive aid for retaking classes.
- Credit standards for parent PLUS Loan borrowers.
Business officers and bursars are represented on the committee by Gloria Kobus, director of student accounts and university receivables at Youngstown State University, Ohio; and Joan Piscitello, treasurer at Iowa State University, Ames. In addition, a NACUBO nominee, Joe Weglarz, executive director, student financial services, Marist College, Poughkeepsie, New York, was selected as an alternate, representing private nonprofit institutions.
Cash Management Priorities
ED’s focus is largely on rules governing credit balance disbursement, but department officials also promised to update the cash management regulations to remove outdated references. During the rulemaking discussion in February, NACUBO representatives and other members of the committee defended the current 14-day time limit for disbursing Title IV credit balances, explaining that institutions use that time to ensure student eligibility and the accuracy of the amounts.
Most of the discussion on these issues has been devoted to (1) relationships between banks and institutions (including those that are not tied to student aid); (2) use of third-party servicers and various types of debit card arrangements to disburse aid to students; (3) transparency about such arrangements; (4) ensuring student choice; and (5) ensuring ATM access.
A week before the Depart-ment of Education started the negotiations, the Government Accountability Office (GAO) issued a report in response to a request from Sen. Tom Harkin (D-IA), chair of the Committee on Health, Education, Labor, and Pensions. The report (GAO-14-91), “College Debit Cards: Actions Needed to Address ATM Access, Student Choice, and Transparency,” found that 852 institutions have an agreement to provide some type of college debit card to students.
Most of those included in the report were public institutions that had either made arrangements related to disbursement of credit balance refunds or worked with financial institutions on agreements that are unrelated to student aid but involve offering bank accounts to students. Closed-loop campus cards were not included.
Importantly, the report found that “most of the college card fees we reviewed generally were not higher, or in some cases were lower, than those associated with a selection of basic or student checking accounts at national banks.” The researchers noted, however, that the schools they reviewed did not track the average yearly costs actually incurred by their students to use the card products.
NACUBO provided infor-mation to GAO in preparation of the report. The association’s recommendations, “Safeguarding Student Finances,” and data collected in a 2012 survey are cited several times.
GAO expressed concerns that the department’s regulations are not clear enough in defining what is meant by requiring that institutions offering debit cards as a way to disburse credit balances ensure convenient access to ATMs or bank branches on or near campus. The report also recommends that ED, in consultation with the Consumer Financial Protection Bureau (CFPB), develop requirements that schools and their third-party servicers provide “objective and neutral information on their options for receiving federal student aid payments.”
Inspector General Investigates
On March 10, the ED Inspector General’s office weighed in with a report, “Third-Party Servicer Use of Debit Cards to Deliver Title IV Funds.” Based on a review of four institutions and one servicer, the IG raised issues about schools’ oversight of servicers, both in monitoring regulatory compliance and in controlling the servicers’ marketing to students. The report also questioned whether financial incentives in contracts with servicers create potential conflicts of interest that could be detrimental to student interests. The investigators also looked at the gathering and exchange of personally identifiable information between institutions and servicers.
ED’s Office of Postsecondary Education agreed to consider the IG suggestions in the negotiated rulemaking effort currently under way.
If the panel comes to consensus, the department will use the agreed-upon language to issue a notice of proposed rulemaking for public comment. If no consensus is reached, ED is not bound by tentative agreements made at the negotiating table and is free to propose regulations as it wishes.
RESOURCE LINK For NACUBO’s guidance for campuses on this topic, “Safeguarding Student Finances”.
NACUBO CONTACT Anne Gross, vice president, regulatory affairs, 202.861.2544