Title IV, HEA: For Proprietary Institutions, an Unwelcome Return to the Obama Era

We expect the Department in the Biden administration to take administrative actions in higher education, and two of the most closely-watched areas of regulatory action in higher education will be Title IV, HEA and Title IX of the Education Amendments of 1972. This blog post focuses on Title IV, HEA. Click here for our blog post on Title IX.

The Trump administration issued several Title IV, HEA financial-aid regulations that addressed the dramatic change in technology in higher education. There are now new regulations on distance education and innovation, as well as on accreditation and religious liberty. However, as we begin 2021, most of the regulatory focus is on for-profit (proprietary) institutions. 

Secretary Betsy DeVos took two regulatory actions that were particularly favorable toward proprietary institutions: The rescission of the Gainful Employment (GE) regulation and the revision of the Borrower Defense to Repayment (BDTR) regulation

The Obama-era GE regulation singled out proprietary institutions and virtually ignored public and nonprofit institutions in its focus on programs with students who incur an excessive amount of student loan debt compared to their expected income. The Department rescinded the regulation on the ground that all types of institutions, i.e., public, nonprofit, and proprietary institutions, should be treated in the same manner. To that end, Secretary DeVos enhanced the usability of the College Scorecard website to, among other things, provide prospective and current students program-specific information for all types of institutions.

The BDTR regulation is wide-ranging, but it most notably provides an opportunity for a borrower to be excused from loan repayment (and a requirement that the borrower’s institution reimburse the Department) under circumstances in which the Department determines that the institution misled the borrower. The regulation was significantly revised by Secretary DeVos in order to provide institutions a fair opportunity to defend themselves against borrowers’ allegations.   

We expect that the Department will reinstate the GE regulation, and we expect the Department’s new GE regulation to go even further than the rescinded GE regulation in terms of accountability, disclosures, certifications, and reporting for proprietary institutions. As a consequence, the government will (again) single out for harsh treatment proprietary institutions and will (again) virtually ignore public and nonprofit institutions.

With respect to the BDTR regulation, we expect that the Department will return to the Obama-era version of the regulation and, thus, minimize the impact of the Trump-era version of the regulation that provided a fair opportunity for institutions to defend themselves. 

There are currently three different versions of the BDTR regulation, and, if you can believe it, they are all in effect today. The version that applies to a particular borrower depends upon the date on which the borrower’s loan was disbursed. So, the three versions of the BDTR regulation apply to three different time periods:

1. For loans first disbursed prior to July 1, 2017, the version of BDTR that applies is the regulation that was published on December 1, 1994;

2. For loans first disbursed on or after July 1, 2017 and before July 1, 2020, the version of BDTR that applies is the regulation that was published on November 1, 2016; and

3. For loans first disbursed on or after July 1, 2020, the version of BDTR that applies is the regulation that was published on September 23, 2019.

Thus, when the Department (again) revises the BDTR regulation, there will be a fourth time period. However, by returning the BDTR regulation to its Obama-era form, the regulation that applies to the fourth time period will be the same as the regulation that applies to the second time period. That will make the Trump-era version, which applies to the third time period, an aberration.

On account of the negotiated rulemaking and master calendar provisions of the HEA, the issuance of these regulations will take some time. A new regulation must first undergo a discussion process involving stakeholders. And then the Department must issue a proposed rule followed by a public review and comment period. Lastly, the Department issues a final rule. 

If the final rule is issued by November 1, then it can go into effect as a regulation on July 1 of the subsequent year. If not, then it does not go into effect until July 1 of the year that follows the subsequent year. That means the Department would have to issue a final rule by November 1, 2021 in order for it to become effective on July 1, 2022. If the Department issues the final rule after November 1, 2021 (but on or before November 1, 2022), then it will not become effective until July 1, 2023.

And when the Department issues its final rule, we fully expect it to be challenged in court under the Administrative Procedure Act (APA) by certain institutions and/or associations of institutions. The APA prohibits final agency action, such as rulemaking, that is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” The argument will be that the final rule is unsupported by evidence and simply a political maneuver.

In the meantime, we expect the Department to waste little time in its scrutiny of proprietary institutions. It will quickly reestablish its Obama-era proprietary institution task force; reconnect with the Consumer Financial Protection Bureau, Federal Trade Commission, Department of Justice, and other federal agencies; and coordinate with like-minded state attorneys general to investigate proprietary institutions. The number of program reviews examining regulatory compliance, particularly with respect to marketing disclosures and practices, will likely rise exponentially. Proprietary institutions should begin beefing up their regulatory compliance capabilities in anticipation of what is to come. 

We also expect the Department to take swift action against accrediting agencies it deems to be lax in their oversight of the academic quality of proprietary institutions, in particular. First on the chopping block will be the Accrediting Council for Independent Colleges & Schools (ACICS), which primarily accredits proprietary schools including now-defunct Corinthian Colleges and ITT Technical Institute. ACICS will assuredly lose its federal recognition, and, as a result, its 83 member institutions will be looking for a new accreditor in short order. They would be wise to begin the search process now.

Finally, we expect the Department to be hostile toward requests from proprietary institutions for a great many things, particularly conversions to nonprofit status and changes of ownership. Many such Trump-era transitions were criticized by opponents of proprietary institutions who found them to be short on substance and, thus, poorly disguised attempts to avoid regulatory obligations. As a result, proprietary institutions that foresee significant corporate transactions in their immediate future should begin a process of planning a legal and government relations strategy.

Jonathan A. Vogel, a former deputy general counsel with the U.S. Department of Education and a former federal prosecutor, is the managing attorney of Vogel Law Firm PLLC, an education law firm focused on legal issues that arise in K-12, higher education, and student loans.

Categories: Higher Education.