Federal Policy and Legislative Update

This update is a summary of the detailed information provided during CECU’s April 30 webinar (available to CECU members here), the first in a new series of regular recurring members-only webinars in which CECU’s advocates will discuss the latest legislative, regulatory, and legal updates. These recent policy developments across all three branches of the federal government will have a direct impact on campus operations and compliance at postsecondary proprietary schools. 

Legal Update

Borrower Defense to Repayment

CCST v. Cardona – The Fifth Circuit Court of Appeals ruled against the Department of Education (Department) and continued the nationwide injunction against the implementation of the Biden administration’s Borrower Defense to Repayment (BDR) Rule, sending the case back to the District Court in the Western District of Texas for consideration of the merits. The Fifth Circuit provided extensive discussion supporting its conclusion that the Biden Rule is “almost certainly unlawful,” which will provide a strong basis for the lower court to rule against the Biden administration. CECU provides alerts and an analysis of progress in the case on this page.

While the Biden BDR Rule is prevented from going into effect, the prior version of the Rule is still in effect and schools will continue to receive BDR claims from the Department which are being processed under the Sweet v. Cardona settlement. CECU recommends responding to all claims received from the Department as it remains unclear how aggressive the Department will be in recouping forgiven debt from institutions. 
 
Gainful Employment

AACS v. Department of Ed—The American Association of Cosmetology Schools and DuVall's School of Cosmetology filed a complaint challenging the Biden administration’s new Gainful Employment (GE) Rule. The lawsuit is before Judge Reed O’Connor in the United States District Court for the Northern District of Texas, Fort Worth Division. The plaintiffs, represented by Duane Morris, are proceeding directly to summary judgment briefing under a schedule that concludes in November so a final decision on summary judgment is possible as early as the beginning of 2025. 

Ogle School Management v. Department of Ed—The Ogle School Management, LLC, and Tricoci University of Beauty Culture, LLC, also filed a lawsuit against the Department over the new GE Rule before Judge Reed O’Connor in the Northern District of Texas, represented by former U.S. Solicitor General Paul Clement. The plaintiffs in the new GE lawsuit have filed a motion for a preliminary injunction; briefing on the motion will be concluded before the end of May 2024, with a ruling on the motion anticipated before the Rule would go into effect on July 1, 2024. We hope the Ogle lawsuit will allow for a preliminary injunction against the Rule while the AACS lawsuit allows the Court to proceed to a ruling on summary judgment as quickly as possible.

Regulatory Update

Financial Value Transparency and Gainful Employment Final Rule and Guidance

The Department issued additional guidance on both Financial Value Transparency (FVT) and Gainful Employment and pushed back the initial reporting obligations for institutions from July 31 to October 1, 2024. The reporting delay is the result of concerted pressure through letters to the Department by the American Council for Education (ACE), CECU, and 22 other higher education organizations, and a separate letter by Sens. Roger Marshall (R-KS), Tommy Tuberville (R-AL), Tim Kaine (D-VA), and John Hickenlooper (D-CO) urging the Department to temporarily delay school reporting deadlines regarding the FVT/GE Final Rule. Read the Senate letter here.

The Final Rule goes into effect on July 1, 2024, unless a preliminary injunction is granted in the Ogle case (see above). CECU provided an 87-page comment letter to the Department during the regulatory process and provided members with a comprehensive analysis of the Final Rule when it was published. 

Fiscal Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit Final Rule and Guidance

On October 31, 2023, the Department published the official version of its Final Rule on Financial Responsibility, Administrative Capability, Certification Procedures, and Ability to Benefit. CECU provided a comprehensive analysis of the Final Rule to assist schools, allied members, and affected stakeholders with the compliance process and assessment of risk.

The Department issued additional guidance that emphasized the Department’s existing enforcement discretion regarding the application of the changes to the program length eligibility provision but provided little additional clarity and no real relief from the burden of the new Rule. You can read CECU’s analysis of the new guidance here. CECU is supporting legislative efforts to restore the 150% rule (detailed in the Legislative Update below). The Final Rule goes into effect on July 1, 2024.

Student Debt Relief Proposed Rule

The Department released a 279-page Notice of Proposed Rulemaking (NPRM) to provide additional student loan debt relief through waiver authorities the Department claims already exist in the Higher Education Act. 

The draft Rule includes nine separate rules that permit separate and distinct types of waivers using the Secretary of Education’s (Secretary) authority under the Higher Education Act. Eight of these are applicable to loans held by the Department, while a ninth addresses commercially held loans in the Federal Family Education Loan (FFEL) Program. 

The rule includes provisions creating debt forgiveness for students who attend low-financial-value programs. Three provisions would authorize ongoing relief for borrowers who took out debt to attend programs or institutions that failed to provide sufficient financial value. These provisions would provide relief for students who attended schools that subsequently closed or lost access to federal aid:

• Provide debt relief for borrowers whose debt came from institutions or programs that lost access to federal aid following a Secretarial action. This includes institutions or programs that lost access due to high student loan default rates, producing graduates whose debt represents too large a share of their income, graduates whose earnings are no better than those of a high school graduate, or were subject to a final agency action to terminate aid for failing to provide sufficient financial value.
• A second provision would authorize relief for borrowers whose schools or programs faced similar situations but closed before the action was finalized.
• A final provision provides relief to borrowers whose programs closed, and the Department determines their graduates had elevated levels of debt relative to earnings or insufficient earnings compared to a high school graduate.
• The Department also proposes separate provisions to assist commercial FFEL borrowers who took out loans during the period associated with high default rates that resulted in their institution losing access to federal aid.
  
  

During the negotiated rulemaking on this Rule, the Department emphasized on multiple occasions that these provisions would not create liability for schools attended by the student receiving forgiveness.

Program Integrity and Institutional Quality Negotiated Rulemaking

Negotiated rulemaking concluded in March on Program Integrity and Institutional Quality, and now the Department is drafting proposed Rules. The negotiated rulemaking covered a broad range of topics, including accreditation, state authorization and distance education, cash management, and Return of Title IV Funds (R2T4). It is the Department’s stated objective to publish an NPRM in October. 

Three topics of significant interest for CECU members are the proposed prohibition on “opt-out” arrangements for bundled books and supplies billed directly to students, the elimination of asynchronous modes from the definition of “clock hour programs,” and changes to state authorization and distance education rules that would make it more difficult for hybrid and online programs to serve students outside of the institution’s home state. CECU is working with allied organizations and members of Congress advocating for the Department to drop these proposals prior to publication of the proposed Rule later this year.

Additional Noteworthy Rules

Other noteworthy developments include the Final Rule on Title IX which goes into effect August 1, 2024, with new training, reporting, and action requirements for schools, and the Department of Labor finalized new overtime rules which go into effect on July 1, 2024.

CECU will be hosting webinars on compliance with the new Title IX Rule; sign up for our webinar with McGuireWoods LLP on May 29 here and with attorney Christine Galdston from T9Now on July 17 here.

Legislative Update

 
Chairwoman Virginia Foxx (R-NC) is aggressively pursuing consideration of her legislative agenda on the House floor. This includes the College Cost Reduction Act (CCRA) and the Bipartisan Workforce Pell Act. CECU endorsed the Bipartisan Workforce Pell Act and supports the regulatory reform language in the CCRA. 

The CCRA would repeal an extensive list of regulations CECU has long opposed, including Borrower Defense to Repayment, Gainful Employment, 90/10, and the Department’s guidance on individual liability. The bill would also vacate the new Certification Procedures Final Rule and the changes to gainful employment program length eligibility along with it. In addition to robust regulatory reform provisions, the CCRA includes institutional risk-sharing provisions that would impact each institution uniquely. Institutional risk-sharing proposals for tuition financing have had greater negative impacts on colleges that educate a disproportionate share of low-income students, which our schools are proud to serve. The CCRA attempts to fix this unintended consequence by creating PROMISE grants to institutions based on their Pell-eligible population. CECU continues to advocate for sector-neutral accountability.

The Committee just released its internal analysis of the fiscal impact of the CCRA on individual institutions, which you can read here. CECU is hosting a webinar on May 15, 2024, with Committee staff on the newly released analysis and how this analysis differs from the previous third-party analysis of the bill. Register here!

Bipartisan Workforce Pell Act is the compromise legislation agreed to by Chairwoman Foxx and Ranking Member Bobby Scott (D-VA). The bill would allow all types of institutions—including online and for-profit schools—to participate in the new Pell Grant expansion, if the program meets certain eligibility requirements and receives approval from state workforce boards and college accreditors. The bill advanced out of the Committee on a bipartisan basis prior to the holiday break and was briefly on the House floor schedule for consideration but was withdrawn due to opposition by progressive Democrats who oppose proprietary institutions and online program eligibility in the bill. Although the bill would create the strictest eligibility criteria of any federal financial aid program, opponents argue that expanding Pell Grants in this way will invite bad actors. A broader group of members are critical of the “pay for” for the bill, which would end eligibility in the federal loan program for wealthy institutions subject to the endowment tax.

In April, the full House passed a bipartisan renewal of Workforce Innovation and Opportunity Act (WIOA) programs at the Department of Labor, the A Stronger Workforce for America Act, by a vote of 378-26. This bill maintains proprietary institution eligibility in the Eligible Training Provider List (ETPL). The bill now sits with the Senate Health, Education, Labor, and Pensions (HELP) Committee for consideration. 

Recently, Congressman Lloyd Smucker (R-PA) introduced a bill to restore the “150% rule” on gainful employment program length. Smucker’s previous attempt to defund the implementation of the changed Rule in the appropriations bill was removed during negotiations on appropriations between the House and the Senate. Chairwoman Foxx is supportive of that bill and may look to include it if the CCRA receives consideration by the full House. CECU is educating offices on the impact of the rule change and advocating for both delays in enforcement of the new program length rule and restoration of the 150% rule.

Looking Ahead

CECU will continue to advocate for the sector on these and other important policy issues and will provide another update in early June. If there are specific questions or concerns you would like us to cover in the next update, please let us know!