Throughout 2017, both the House Education and the Workforce, and the Senate Health, Education, Labor, and Pensions (HELP) committees held hearings exploring various policy proposals—including affordability measures, accreditation, and free speech—as they began contemplating the next reauthorization of the Higher Education Act. The last reauthorization occurred in 2008.
In December 2017, the House Education committee, chaired by Virginia Foxx (R-NC), introduced the Promoting Real Opportunity, Success, and Prosperity Through Education Reform (PROSPER) Act (H.R. 4508). Just two weeks later, the committee approved the bill by a 23–17 vote along party lines, after spending 12 hours considering various amendments.
At press time, the PROSPER Act had not come to the House floor for a vote by the chamber. That said, NACUBO is monitoring any new developments, while closely examining provisions in the PROSPER Act that could make their way into a Senate bill.
“Aid Like a Paycheck”
One of the more interesting provisions in the House bill addresses the timing of aid disbursement. The PROSPER Act would change the way federal loans and grants are disbursed, outlining a process known colloquially as “aid like a paycheck.” Rather than students receiving all their aid at once, under this proposal, aid would be disbursed throughout the term in smaller amounts. The provision allows for unequal disbursements to enable students to meet upfront obligations for tuition and fees, books, and other early expenses, and then requires remaining Title IV aid to be disbursed periodically, providing smaller credit balance refunds to the student much like a paycheck. Supporters of this proposal argue that this would help students better budget their funds.
However, the proposal raises many questions, including:
- How would such disbursements interplay with other aid received by students? Currently, aid is disbursed once per term and a credit balance refund, if available, is issued to the student. A credit balance is the amount left in the student’s account after all payments—institutional aid, state aid, and payments from other sources, including loan proceeds—have been applied to institutional charges. Not all aid comes from Title IV; under long-standing policy a credit balance is only considered a Title IV credit balance if the student’s Title IV aid exceeds institutional charges—regardless of other sources of funds.
Thus, unless students and schools voluntarily decided to disburse all credit balances under the same scheme, for those with payments from multiple sources, it could be quite confusing to both parties to disburse Title IV aid on different schedules.
- Because the PROSPER Act eliminates subsidized loans, when would interest on unsubsidized loans be charged? In comments submitted to the HELP committee, NACUBO asked whether the interest would begin to accrue for each disbursement when it was made, or would it begin to accrue for the full loan amount when the first disbursement was made.
- What would happen in cases where students need their entire credit balance refund at the beginning of a term? It is not uncommon for some students to have housing or other large expenses that they need to address early in a semester. On the other hand, if the remaining credit balance is relatively small, it makes little sense to pay out $200 in four installments. If the amounts of aid to disburse are standardized for all students, some may be left without sufficient funds when they are needed. If schedules are individualized, costs and complexities to the institutional offices charged with making payments to students may well be overwhelming.
In the comments submitted to the HELP committee, NACUBO acknowledged that “aid like a paycheck” may be a useful tool for some students while at the same time encouraging the committee to provide it as an option for schools and students to use at their discretion, rather than mandate a new student account procedure.
Other Provisions to Watch
A number of other issues regarding student aid are at play.
Federal ONE Loan. The Federal Direct Loan program, including PLUS loans for parents and graduate students, would be replaced with a new program. Origination fees would be eliminated for these new loans but interest would no longer be subsidized. Parents would be limited to borrowing $12,500 per year, while graduate students would be limited to $28,500. Two repayment options would be available to borrowers, a 10-year plan and an income-based repayment (IBR) plan. IBR plan payments would be capped at 15 percent of adjusted gross income above 150 percent of the poverty line. A loan would only be forgiven once the borrower had repaid an amount equal to the total principal and interest that would have been due under the standard 10-year plan.
Repeal of several programs. The Federal Supplemental Education Opportunity Grant, TEACH Grant, and LEAP programs are eliminated in the House proposal.
Pell Grants. Short-term programs—running for as few as 300 clock hours or eight semester hours over at least a 10-week period—would become eligible for Pell Grants. Additionally, a new Pell bonus award of $300 per year would be available to students taking more than a full-time course load.
Federal Work Study. A new funding formula was proposed for the Federal Work-Study program. The PROSPER Act would provide a significant boost to the program’s funding authorization, restrict participation to only undergraduate students, and increase the nonfederal match from 25 percent to 50 percent.
Return to Title IV. The PROSPER Act would allow Title IV aid to be earned only in quarters. Under current rules, if a student withdraws prior to completing 60 percent of a term or period of enrollment, Title IV aid is considered earned proportionally to the number of days attended. A student who attends for at least 60 percent of the period is entitled to all Title IV aid awarded. Under the proposal, no aid would be earned unless the student attended for at least 25 percent of the term or period of enrollment, and 100 percent of Title IV aid would only be earned by students who attended the entire period.
Within 60 days of the determination that a student withdrew, the school would be required to return to the Department of Education (ED) the amount of Title IV aid that was not earned. The student would not, however, be required to return funds that had not been earned. The institution could require the student to repay up to 10 percent of the funds returned to the Department of Education. The bill states that it would not prevent institutions from enforcing their own refund policies, but it is not clear how the interplay might work between the 10 percent limitation and institutions’ policies.
Finally, in a reverse of current policy, Title IV funds returned to ED would go first to repay grant aid, rather than to pay down a student’s loan balances.
Cohort Default Rates. The PROSPER Act would replace the CDR with a loan repayment rate calculated separately for each program offered by the institution. A program with a loan repayment rate of less than 45 percent for three years would lose Title IV eligibility. Loans would be counted as “in positive repayment status,” if they were in repayment and less than 90 days delinquent, paid in full—except by consolidation—or in deferment.
Financial responsibility standards. The PROSPER Act would rewrite the statutory language on financial responsibility of institutions participating in the Title IV programs. Institutions would have additional ways to demonstrate fiscal health, including bond ratings or expendable net assets equal to or greater than 50 percent of potential annual liabilities for Title IV funds. Provisions requiring ED to follow more timely and transparent procedures, with clear avenues for appeal, are also included.
Senate Explores Accountability Measures
The Senate HELP committee has not yet introduced a bill, though one could be brought forward in the coming months. To begin the conversation, the chairman of the committee, Lamar Alexander (R-TN), published a white paper in February that outlines accountability principles for higher education institutions.
The first proposal would move from a cohort default rate system to a loan repayment rate system in which an institution’s Title IV eligibility would be based on the percentage of students who fail to pay down at least one dollar of their principal loan balance within three years.
The white paper also described a loan repayment rate calculated separately for each program offered by an institution. Programs with repayment rates of less than 45 percent for three years would lose Title IV eligibility.
The final proposal could create a new cohort repayment rate. The government would calculate the percentage of federal student loan dollars that have been repaid by borrowers five years after they leave school. If there was a cohort repayment rate below 20 percent, the institution would be required to pay part of the difference to ED.
NACUBO CONTACT Bryan Dickson, senior policy analyst, 202.861.2505