2011 Negotiated Rulemaking for Higher Education - Transcript of the May 26, 2011 Public

111 2 Office of Postsecondary Education (OPE) 3 4 U.S. Department of Education (ED) 5 6 7 8 9 10 11 Negotiated Rulemaking for Higher Education 2011 12 13 14 Transcription of Public Hearing held at 15 The Sciences Auditorium, Room 129, of the 16 College of Charleston School of Sciences and 17 Mathematics Building, 202 Calhoun Street, 18 Charleston, South Carolina on May 26, 2011. 19 20 21 22 23 PANEL MEMBERS PRESENT: 24 25 DAN MADZELAN, Department of Education, 26 Office of Postsecondary Education 27 28 CARNEY McCULLOUGH, Department of Education, 29 Office of Postsecondary Education 30 31 HAROLD B. JENKINS, ESQ., Office of the General 32 Counsel 33 34 35 36 372 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 121 C-O-N-T-E-N-T-S 2 3 Welcome...... 3 4 5 Public Comment 6 7 Diane Auer Jones...... 10 8 9 Jennie Rakestraw...... 23 10 11 Anthony Fragomeni...... 32 12 13 Fran Welch...... 40 14 15 Carol Lindsey...... 47 16 17 Betsy Mayotte...... 58 18 19 Chuck Knepfle...... 70 20 21 Mary Lyn Hammer...... 80 22 23 John Beckford...... 97 24 25 Closing...... 1052 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 131 P-R-O-C-E-E-D-I-N-G-S2 9:01 a.m.3 CHAIR MADZELAN: Good morning,4 everyone. Welcome to this hearing for5 regulatory issues related to the Title IV6 Student Financial Aid Programs that are7 administered by the Department of Education.8 The first thing we want to do here9 at this end of the room is to thank our hosts,10 the College of Charleston for providing this11 venue today and also some additional space for12 tomorrow's roundtables.13 My name is Dan Madzelan from the14 Office of Postsecondary Education. 15 I am joined on my right by Carney16 McCullough also of our Office of Postsecondary17 Education and on my left, by Harold Jenkins18 from our Office of General Counsel.19 We are here in Charleston for two20 days or one and a half days at least and these21 are two separate activities. What we are here22 today about is to get input from you, the23 community, the higher-education community2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 141 around what we ought to do in our next round2 of rulemaking. 3 What we will be doing tomorrow for4 a half day, we have three separate fora or5 roundtables where we want to have a more in-6 depth discussion around several of the7 Department's -- the administration's8 priorities in higher education: The First in9 the World, a competition in our FIPSE10 programs, teacher preparation and also some11 activities around improving college12 completion. So, again, three roundtables13 tomorrow that are really focused on helping us14 flesh out some of our policy positions.15 Today though, this is about16 rulemaking and in particular negotiated17 rulemaking. I'm sure you all know that18 agencies when they engage in rulemaking19 activities are governed by the Administrative20 Procedure Act which provides for a Notice of21 Proposed Rulemaking, a public comment period22 and then a final rule in which the agency23 either considers what they heard in public2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 151 comment or does not consider it, but either2 way, has to inform the public of what they did3 agree to or not agree to in terms of producing4 the final rule.5 What we have for our Title IV--HEA6 Title IV Programs--is an additional7 requirement on the front end of the process8 called negotiated rulemaking and that is where9 we can convene panels. We meet several times10 over a several month period to actually hammer11 out the language of the Notice of Proposed12 Rulemaking. So, again, the neg reg piece of13 this is a front-end activity in the rulemaking14 process.15 On the front end of the rulemaking16 process is why we are here today which again17 is to get input from the community about what18 we ought to be considering. 19 Now, we did publish a notice in the20 Federal Register. I'm sure you all read it.21 That's why you're here today. Otherwise, you22 would not have known about this. Well, I23 shouldn't say that. I'm sure you all have2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 161 friends and colleagues that would have told2 you about this.3 But, we did identify a couple of4 topic areas. We are interested in taking5 another look at the issue around the discharge6 of Federal student loans for total and7 permanent disability. We're also interested8 in taking a look at some of our alternate9 repayment plans, income-based repayment,10 income-contingent repayment and we're also11 interested in insuring that our regulations in12 particular with the Direct Loan Program are,13 you know, independent and free standing.14 Now that all Federal student loans15 are originated through the Direct Loan16 Program, what we have done over the years is17 that we have regulated Direct Loans in many18 instances by cross-reference to FFEL Program19 rules and so, what we're interested in doing20 is again as I say having our Direct Loan21 regulations independent and free standing.22 What my colleagues in the Office of23 General Counsel say is to have our Direct Loan2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 171 rules naturally readable so you don't have to2 cross-reference here and there. I like that3 term. Naturally readable.4 So, again this morning and this5 afternoon, we do have some people who signed6 up ahead of time. 7 The number of people on this list8 is less than the number of people I see in the9 room. If you are not signed up and you become10 inclined or maybe already are inclined, but if11 you become inclined to speak, just go out to12 the back of the room. Our colleague Kathleen13 Smith will be happy to sign you up. 14 You know, there are time slots that15 we have. We generally do not keep to a strict16 schedule. If a speaker takes a little bit17 longer, that's kind of okay. If the speaker18 uses a little bit less time, then we typically19 ask the next speaker to come forward.20 We likely will get to a point where21 there is sort of a break where we do not have22 speakers scheduled or ready to speak and we23 will take breaks. We will take, you know, a2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 181 recess until we have another speaker ready to2 go.3 We will take a break at noon for4 lunch approximately 12:00 to 1:00 p.m. 5 Everything that we say here is6 being transcribed and we will make the7 transcriptions of this and our other sessions8 available on our website.9 I think the last point is again we10 are looking in this process moving forward.11 We are interested in what you have to say12 about, you know, the topics we've identified13 or maybe some other topics that you think are14 important. We're less interested in issues15 related to regulations that are not yet in16 effect. 17 So, again with that, I'll ask18 Carney and Harold if they have something to19 add or did I miss something?20 MR. JENKINS: I'll just add a word21 about the framework that we're operating22 under.23 Congress, of course, establishes2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 191 the Student Aid Programs by legislation and in2 regulating, we are implementing this3 legislation. Now, for some of the programs or4 for some of the provisions of the programs,5 Congress is very prescriptive and very6 specific. That gives us less latitude. In7 other cases, we have more latitude, but in all8 cases, we're limited in our regulating by the9 specific terms of the legislation which10 authorizes the programs.11 CHAIR MADZELAN: Thanks, Harold,12 and so, we'll get started with our first13 speaker.14 Now, we know who you are because we15 have the list, but when you come up, for the16 record, please state your name and where you17 are from, who you represent and our first18 speaker is Diane Auer Jones.19 Yes, everyone come up to the podium20 and the mike is live.21 MS. JONES: Great. Thanks. Good22 to see the three of you. Thanks for holding23 this meeting and thanks for providing me with2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1101 an opportunity to provide comments.2 Given the President's January 18th,3 2011 Executive Order on improving regulation4 and regulatory review, I would recommend that5 the Department's future negotiated rulemaking6 be focused on reducing regulatory burden,7 eliminating outdated or useless regulations8 and ensuring that compliance with the9 remaining regulations not only meets the10 intended goals, but that such compliance does11 not cause additional unnecessary harm to an12 already struggling economy.13 To do this effectively and for the14 public to be able to provide informed and15 relevant comments, we must first see the16 Congressionally mandated report of the17 Advisory Committee on Student Financial18 Assistance regarding Title IV regulatory19 burden.20 It is disappointing that despite21 the significant advance notice of the report's22 due date the Advisory Committee has opted to23 wait until the last minute to conduct their2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1111 research and I use the term research quite2 loosely. They've decided to distribute brief3 surveys to university administrators that must4 be completed in an expedited fashion during5 the busiest time of the academic year. 6 It is hard to believe given the7 experience we had inside of the Department to8 look at regulatory burden that a 10 or 20-9 minute survey will accurately or adequately10 inform the Committee's findings. It is hard11 to understand how anyone who understands12 rigorous research methodology would consider13 these surveys to be an adequate way to assess14 regulatory burden.15 It would appear that the interest16 in determining regulatory burden is less than17 genuine which is disturbing given that there18 is unanimous agreement among Congress and the19 Administration that reducing unnecessary20 regulatory burden is a top priority if we hope21 to get our economy back on track.22 A serious effort is required on the23 part of the Department to fully and adequately2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1121 assess regulatory burden as well as to examine2 the efficacy, usefulness and clarity of the3 current regulations. 4 I do agree with the Department that5 a realignment of lending and servicing6 regulations is in order now that the FFEL7 Program has been eliminated and the Department8 of Education serves as lender, servicer and9 guarantor. It is critical that the Department10 take responsibility for borrower repayment and11 hold itself to the same standards to which it12 once held lenders and guaranty agencies13 regarding borrower satisfaction and reduced14 default rates.15 I must say that if the servicing of16 loans purchased by the Department through the17 PUT Program serves as a bellwether for18 servicing to come under an all-DL Program, I19 have grave concerns.20 I would encourage the Department to21 convene an expert panel of experienced loan22 servicers, guaranty agencies and others to23 develop regulations that clearly articulate2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1131 the Department's roles and responsibilities in2 this regard and will define a set of measures3 by which the Department's performance in the4 areas of borrower servicing, customer5 satisfaction, ease of use and default6 reduction are rigorously evaluated in keeping7 with the ways in which FFEL lenders and8 guaranty agencies have been evaluated in the9 past. 10 In particular, it is necessary for11 the Department to explain in its regulations12 how it will fulfill the provisions of Section13 422 of the HEA. This section assigns a number14 of important borrower education servicing and15 default prevention responsibilities to16 guaranty agencies. 17 Who will provide these services18 when all Stafford Loans are Direct Loans?19 Included in Section 422 are such default20 avoidance and prevention actions as: partial21 loan cancellation to reward disadvantaged22 borrowers for good repayment histories,23 establishing a financial and debt management2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1141 counseling program for high-risk borrowers2 that provides long-term training in budgeting3 and debt management, establishing a program of4 placement counseling to assist high-risk5 borrowers in identifying employment or6 obtaining additional training and skills,7 developing public service announcements that8 detail the consequences of student loan9 defaults to the public.10 Clearly, Congress saw these11 services as critical to meeting borrower needs12 and to the integrity of the Stafford Loan13 Program. So, it is necessary for the14 Department to explain how it will provide15 these services in an all-DL Program.16 At a time when the Federal Reserve17 has set interest rates at near 0 percent, the18 high interest rates and fees charged to19 student borrowers should provide adequate20 resources to support the development and21 implement of a robust Department-led or GA-led22 and Department-funded default reduction23 program.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1151 Along those lines, I urge the2 Department of Education to align its3 regulations regarding the calculation of4 cohort default rates to the language found in5 the statute. For example, Section 462 of HEA6 states that CDRs should not include as7 defaulted loans those on which the borrower8 has made six consecutive payments, voluntarily9 caught up on past-due payments, repaid in full10 the amount due on the loan, received deferment11 or forbearance based on a condition that began12 prior to the default period or if the loan has13 been otherwise rehabilitated or cancelled.14 Meanwhile, the Department's15 regulations as articulated in the Handbook are16 contrary to statute in that the Department's17 calculation of CDR includes as defaults loans18 in which the borrower has entered into19 repayment and subsequently obtained a20 deferment or forbearance, loans that have been21 consolidated as part of the Loan22 Rehabilitation Program and loans that have23 been paid in full without rehabilitation but2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1161 within the cohort default period. 2 These inconsistencies must be3 resolved so that loans that have been paid in4 full or are back in lawful repayment--5 including through consolidation programs6 authorized by Congress required of borrowers7 who want to benefit from the programs created8 by CCRAA and frankly promoted by the9 Department--are not counted in the numerator.10 Statute requires as much and11 rightly so given the significant consequences12 that the Department's artificially inflated13 CDRs have on institutions and students. 14 The Department's lifetime default15 estimates should similarly take the percentage16 of loans that are ultimately rehabilitated out17 of the equation. It is disingenuous to cite18 statistics that focus on the number of19 borrowers who default since the uninformed20 media and public assume that those loans are21 never repaid. Lifetime default numbers should22 exclude from the calculation defaulted loans23 that are rehabilitated.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1171 By the way, it would also be2 helpful if the Department's website included3 on each page where loans or debt management4 programs are discussed a button that would5 link the student to the loan calculator. So6 that, at every step of the way, they could7 accurately learn exactly how much borrowing,8 consolidation and debt management will cost9 them. Right now the calculator is buried10 several levels in and the student almost has11 to be in the debt management and repayment12 page before they find the calculator.13 Similarly, the Department's website14 should include ample warnings that few15 students will actually benefit from public16 service loan forgiveness or Teach Grants given17 the small print conditions that are embedded18 in those programs.19 Perhaps the most tragic20 misrepresentation in higher education is the21 language used on the Department's own website22 including on college.gov. These websites make23 loans seem like a simple way to pay for2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1181 college and they imply that consolidation, IBR2 or public service loan forgiveness will make3 repayment a snap. 4 By the way, it would also be5 helpful if in the student guide, Funding6 Education Beyond High School, you accurately7 cited the Department of Labor's projections8 about future job growth. It isn't the first9 table from the Occupational Outlook Report10 that matters. The number one field -- that11 table cites data about job rate -- growth in12 job rate. The number one field on that table13 is biomedical engineering and while the rate14 of growth approximates 70 percent, the field15 is so small that a 70 percent growth16 translates to only 11,000 new jobs over ten17 years. So, clearly, it's not the rate of18 growth that matters. 19 Instead, it is the second table20 that shows where most Americans will work over21 the next ten years. This is the table that22 shows where the largest numerical growth will23 take place and this table shows that the2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1191 majority of new jobs over the next ten years2 will not require a college degree. Instead,3 they will require a certificate or4 apprenticeship-like training.5 Finally, since there seems to be6 unanimous agreement that student's are7 overborrowing and frequently for activities8 and purchases that are not related to higher9 education enrollment, institutions of higher10 education must be given the tools necessary to11 limit student borrowing to reasonable levels12 based on the cost of tuition, fees and books.13 One way to do this is by14 interpreting the statutory definition of cost15 of attendance, as a ceiling rather than as a16 floor. Just because Congress allows17 institutions to include a long list of18 indirect costs in the cost of attendance19 calculation should not mean that an20 institution is required to include all of21 these costs if it determines that inflated COA22 numbers are leading to overborrowing. This is23 especially the case for institutions whose2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1201 students are demographically at high risk for2 default.3 Similarly, the Department should4 support the strategy proposed or employed by5 many community colleges that disallow students6 to borrow through the Stafford Loan Program.7 It is inappropriate to hold institutions8 responsible for borrower behaviors when, in9 fact, these institutions have no ability to10 influence or determine who borrows or how much11 they borrow.12 The Department cannot continue to13 encourage students to overborrow while then14 placing the blame for overborrowing on the15 institutions these students attend.16 In closing, I want to reiterate17 that the focus of future negotiated rulemaking18 should be on compliance with President Obama's19 Executive Order 12866 on improving regulation20 and regulatory review. 21 It is imperative that the22 Department improve the way its regulations are23 written and I think, Dan, you used the term2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1211 naturally readable.2 The public as well as3 administrators and students and frankly, the4 Department's own staff should be able to5 easily read and agree upon the interpretation6 of these regulations. I know all too well7 that even within the Department there's often8 times disagreement on how to interpret a9 regulation.10 I also know that it is a strategy11 employed sometimes to intentionally write12 regulations that are vague and subject to13 changing interpretation. This must end14 because it violates both the language and the15 spirit of the Executive Order.16 I encourage you to follow the17 President's Directive to base regulations not18 in speculation or personal opinion, but19 instead in scientifically collected data. It20 is important for the Department to consider21 the academic literature about the lengths22 between student demographics, student risk23 factors and various higher education outcomes2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1221 such as graduation rates, retention rates and2 loan repayment. We all know what those data3 say and it's time to develop policies that are4 based on and respond to reality rather than5 our outdated vision of a higher education6 system that once exclusively served advantage-7 dependent students.8 Finally, it is absolutely critical9 that the Department facilitate a full review10 of existing regulations, including the11 supporting data to determine which are12 ineffective in meeting the regulatory13 objectives they were written to achieve. It14 is time to look at the regulations we have15 before embarking on yet another round of16 actions that will potentially expand17 regulatory burden, potentially with no18 positive results.19 I thank you for this opportunity to20 provide public comment.21 CHAIR MADZELAN: Thank you very22 much. Jennie Rakestraw.23 MS. RAKESTRAW: Good morning. My2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1231 name is Jennie Rakestraw and I'm Dean of the2 Richard W. Riley College of Education at3 Winthrop University and I serve as President4 of the South Carolina Association for Colleges5 of Teacher Education, the state affiliate of6 AACTE.7 I appreciate the opportunity to8 comment at this hearing and my comments are9 mainly going to be about teacher preparation.10 There seems to be agreement and11 ample research attests to the fact that in12 order for student achievement levels to13 improve, highly effective teachers are needed14 and their schools need highly effective15 leaders. These teachers and school leaders16 need to be fully prepared for the challenges17 faced by our country's schools.18 In South Carolina, 53 percent of19 children are from low-income families and in20 half of South Carolina's schools, more than 7021 percent of their students live in poverty.22 Kids Count 2010 reports a 54 percent increase23 in children from migrant families in South2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1241 Carolina and school data continue to reflect2 20 to 30 percent gaps in the achievement of3 white students and that of minority and poor4 students. 5 High poverty, high need schools are6 less likely to have a shared vision,7 commitment to problem solving, effective8 leadership or ongoing professional development9 and this inferior work environment leads in10 turn to higher rates of teacher and principal11 attrition, which compounds the problem of12 providing quality teaching and learning13 environments in high poverty schools and it14 reduces their ability to recruit good teachers15 and leaders.16 Currently, in South Carolina, most17 of our core academic courses are taught by18 teachers who are certified and qualified to19 teach in those fields. However, we have over20 5,000 core classes that are taught by teachers21 not certified to teach those subjects and of22 those, twice as many core classes are taught23 by non-qualified teachers in high poverty2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1251 schools than in low poverty schools.2 When you look at the test scores by3 racial ethnic groups, socioeconomic status and4 English proficiency, there is consistently a5 serious achievement gap.6 For example, in South Carolina's7 Palmetto Assessment of State Standards, the8 PASS examination of students in grades 39 through 8, I looked at the 2008/2009 data, but10 if you look at most tests given in South11 Carolina and nationally, there's at least a 2012 point gap between achievement of white13 students and African American students and14 Hispanic students and between students who15 fully pay for their school meals and those on16 free and reduced meal plans.17 In addition, between 1990 and 2006,18 there's been an increase of over 700 percent19 in the Latino population alone in the up-state20 region of South Carolina which includes the21 counties surrounding Winthrop University in22 Rock Hill and according to our State23 Department of Education, there's been an2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1261 increase of almost 1,000 percent in the number2 of English language learners enrolled in South3 Carolina's public schools since 1990 and4 that's using 2010 data.5 In our local area, English language6 learners are clearly under served and7 disparities among districts are evident when8 it comes to trained and certified teachers to9 work with those students and typically, you'll10 see at least a 10-point achievement gap11 between English proficient and non-English12 proficient students.13 To address these serious issues in14 schools, teachers and school leaders must be15 sufficiently prepared. I believe that it is16 critical for the Federal Government to17 continue to play a key role in supporting18 educator preparation reform. 19 At Winthrop University, we're20 transforming how we prepare teachers and21 school leaders through our U.S. Department of22 Education Teacher Quality Partnership Grant23 and School Leadership Grant. Initiatives like2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1271 these propel institutions to rethink how we2 are preparing teachers and school leaders and3 to do so in close collaboration with high-4 needs schools and school districts. Those5 that can benefit most from this type of6 partnership.7 Although alternative routes to8 teaching and school leadership are touted and9 there are certainly viable programs in10 existence that prepare teachers and leaders11 well and provide them with a more streamlined12 path into school careers, more than 70 percent13 of today's teachers are prepared by colleges14 and universities through standards-based,15 traditional undergraduate programs, MAT16 graduate programs and their own alternative17 programs.18 The U.S. Department of Education19 needs to continue to promote innovation and20 clinical preparation of teachers and school21 leaders in university-based programs and22 invest in partnerships between universities23 and P-12 schools, especially high-needs2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1281 schools.2 Strong accountability systems do3 need to be in place for all teacher4 preparation programs, traditional,5 transformative, public, private, alternative,6 all of them. 7 Who are producing the good8 teachers, the ones who can impact student9 learning?10 From my perspective, universities11 have been anxious to see statewide data12 systems in place that will allow us to receive13 good feedback on how well teachers and school14 leaders we graduate are performing on the job.15 We also want to see our graduate student16 learning data used in accountability systems17 that will allow us to continue to get better18 at what we do and guide ways in which we work19 with schools to improve teaching and learning20 in those settings.21 I believe that many universities22 are doing an excellent job in preparing23 effective teachers and leaders, but the data2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1291 we have access to for the most part is self-2 generated although based on state and national3 standards which is not a bad thing, but they4 do not provide the level of objectivity and5 transparency that's needed to ensure the6 public and the Federal Government that the7 educators we're producing are doing a good job8 and are having a strong impact on student9 learning.10 There are many, many university-11 based programs in this country and in the12 state of South Carolina that are not mediocre13 and that are contributing to the solutions14 that we seek in P-12 schools today. The only15 way to acknowledge that is with credible16 statewide data systems. 17 The U.S. Department of Education18 should invest in the development of these19 types of student learning-based systems.20 And finally, I would like to lend21 my support for the notion that states should22 be empowered and required to recognize good23 teacher preparation programs and identify and2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1301 close low performing teacher and school2 leadership preparation programs as well as any3 alternative program that is getting weak4 results in terms of teacher quality and5 resultant student learning. 6 Just as we feel a moral7 responsibility to produce highly-effective8 teachers who are well equipped for the diverse9 needs of learners in schools today, states10 should also recognize a moral responsibility11 to make those decisions through a fair minded12 and informed process so that our schools will13 employ truly good teachers who can make a14 difference in the success of their students.15 Thank you.16 CHAIR MADZELAN: Thank you.17 Anthony Fragomeni.18 MR. FRAGOMENI: Morning. How are19 you doing, Dan, Carney?20 My name's Anthony Fragomeni. I am21 the Chairman of the Government Relations Team22 from the American Association of Cosmetology23 Schools, better known as AACS. 2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1311 I appreciate the opportunity to2 come here today and speak to you about some3 loan issues on behalf of the association.4 We've long been a supporter of the5 Federal Direct Loan Program and we believe6 that among the many strengths, perhaps the7 greatest strength of the Direct Loan Program,8 was the direct connection between the9 institutions and the singular highly effective10 servicer who served as the sole point of11 contact for the borrower as well as the12 institution.13 We understand that as a result of14 the congressional actions under both the15 ECASLA and the HEOA that the Department needed16 to expand beyond just one contractor in order17 to have the resources necessary to administer18 the loan program and the rapidly expanding19 portfolio.20 Unfortunately, we believe that the21 addition of four of the contracted entities as22 well as the lingering role of outside entities23 who still service portions of the overall2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1321 portfolio has blurred the lines of2 communications and made access to clear and3 accurate information for both the borrowers4 and the institutions less transparent and5 accessible.6 As a result, it has weakened the7 level and the quality of the customer service,8 possibly the overall effectiveness, of this9 vital, important program.10 As a result of these concerns and11 in response to the Assistant Secretary's12 request for comments and recommendations, AACS13 submits the following testimony which is14 broken down into four categories: Direct Loan15 simplification, FFEL conversion, borrower16 benefits and institutional necessities.17 So, we thank the Department for the18 opportunity and we offer some suggestions19 publicly today and we welcome the opportunity20 to work with the staff and Assistant Secretary21 and the rest of the higher ed community on the22 development and revisions and modifications to23 the regulations.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1331 When appropriate, we will be2 submitting for consideration experts familiar3 with the minutiae of the loan programs as4 nominees for participation in the negotiated5 rulemaking process.6 Little technical difficulty here.7 CHAIR MADZELAN: That's why I use8 paper.9 MR. FRAGOMENI: You know, it's10 always a good idea to have it, Dan, and I know11 we just can't get away from it.12 Having more technical difficulties13 than we thought. Yes, I know we've got time.14 I appreciate the fact that they said that from15 the beginning that, if we need extra time16 we're going to take it, and I apologize to the17 folks here for the disappearance of this18 document all of a sudden. Here we go.19 Apologize. Thank you.20 Okay. First of all, under the21 Direct Student Loan Program and the Direct22 Loan simplification, single point of contact,23 we urge the Department to modify the Direct2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1341 Loan Program so that, at a minimum, each2 institution has a single servicer responsible3 for all the students. One institution, one4 servicer.5 Among large groups of institutions,6 we would encourage the Department to consider7 broadening the institution/servicer8 relationship to include all institutions under9 common ownership or control and we further10 request the Department to permit institutions11 to choose which of the servicers is12 responsible for the servicing of the13 portfolios based upon the Department's14 assessment of the various contractors'15 effectiveness in achieving the requirements16 detailed in their contracts. Emphasis should17 be placed on the effectiveness of the18 contractor in preventing student loan defaults19 and providing quality customer service.20 Moreover, if the servicer has a21 portfolio reduced for failure to meet or22 exceed its contractual obligations, the23 Department should be required to take these2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1351 findings into consideration as part of the2 review of any negative or adverse3 institutional eligibility determinations, for4 example, cohort default rate eligibility, and5 make accommodations as necessary if the reason6 for potential noncompliance is based upon the7 actions of the servicer and not the8 institution.9 Real time access to borrower10 information is key. It compromises the11 default management efforts of the institutions12 and the students. We urge the Department to13 consider ways in which both the borrowers and14 the institution can have access to real time15 information maintained by the servicers. That16 would include information to both held within17 the Department, as well as access to18 information contained by external servicers,19 who continue to participate in the program. 20 Uniform terms and definitions in21 application to the regulations. We support22 the Department's goal of developing clear,23 understandable regulations governing the2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1361 Direct Loan Program and we urge the Department2 in the development of these regulations that3 they eliminate redundant or conflicting terms4 and definitions; establish a single clear and5 easily understandable term and definition6 which is applied unilaterally and ensure that7 the terms and definitions can and are equally8 applied throughout the regulations.9 Under the FFELP Education Loan10 Program conversion, given the complications11 that have arisen during the transitional loans12 under both the ECASLA and HEOA and the13 prospect of still more outstanding FFELP loan14 portfolios being transitioned into the15 Department under various legislative16 proposals, we urge the Department to develop a17 single interface between students, schools and18 servicers.19 We believe that such a20 clearinghouse could have helped prevent many21 of the frustrations experienced by borrowers22 and institutions throughout the transition and23 it would help avoid some of the confusion that2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1371 now exists when the schools attempt to counsel2 students.3 The role of external servicers. We4 support the role of external servicers and5 their connectivity to the local community. As6 an emerging role, these entities appear to be7 financial literacy, default aversion and8 default management. We hope that these9 servicers will support the following practices10 which will seek to clarify the construction of11 the new regulations: Institutional and third-12 party access to student borrower information,13 possible expansion of loan counseling to14 include counseling at the midpoint of the15 program as well as entrance and exit16 counseling and understanding and communicating17 with institutions to better understand the18 impact of entrance, exit and loan repayment.19 Customer service and borrower20 information transparency and consistency.21 Customer service, AACS recognizes that the22 Department has and continues to work23 vigilantly to ensure the Direct Loan Program2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1381 maintain a high level of quality of customer2 service, but the transition, as with all3 transitions, has not been without some growing4 pains.5 We look forward to working with the6 Department and we welcome any comments.7 CHAIR MADZELAN: Thank you. Fran8 Welch.9 MS. WELCH: Good morning. I am10 Fran Welch. I'm Dean of the School of11 Education, Health and Human Performance here12 at the College of Charleston and welcome to13 Charleston, for those of you who aren't from14 here. We're glad to have you and I appreciate15 this opportunity to discuss the issues that we16 have in front of us today.17 I also represent the South Carolina18 Education Deans Alliance here in South19 Carolina and several of my colleagues are20 here. 21 I'd like to ditto what Jennie22 Rakestraw has said already. Don't need to23 repeat any of that. Very good comments about2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1391 our needs and what we face.2 But I'd like to just comment on the3 four areas that we're discussing, relative to4 our future in education and teacher5 preparation.6 First, the Presidential Teaching7 Fellows Program. We have a Teaching Fellows8 Program here in South Carolina and other9 states do as well and many of my colleagues10 here have those Teaching Fellows Programs at11 their institutions and they're very effective12 and we have a recent report that demonstrates13 how very effective they are in terms of14 persistence in the profession, in terms of15 success in student achievement, and we also16 have Project TEACH. And if I understand17 what's planned here, is that there would be no18 new money for these Presidential Teaching19 Fellows, but we would actually divert funding20 to Project TEACH for the Presidential Teaching21 Fellows.22 I'm totally against that and the23 reason is, we need those funds and many of our2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1401 current students are already accessing the2 Project TEACH funds, and they're particularly3 effective for students who come to us from4 outside of our own state, for example, to5 study and become effective teachers.6 So, I would encourage you to look7 at what states are already doing with their8 Teaching Fellows Programs and then to plan9 accordingly at the Federal level.10 We need many pathways to teaching11 and lots of different pathways to teaching.12 We certainly need to make sure that every13 pathway is resulting in effectiveness of14 teachers as they promote learning, but those15 multiple pathways need lots of alternative16 forms of funding. 17 I do agree with Diane Howard18 Johnson. We do need some deregulation19 relative to how we approach all of this, but20 certainly, multiple forms of funding to21 encourage folks to consider teaching.22 The second thing I want to talk23 about is our need for minority teachers and I2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1411 think there's a proposal for the Hawkins2 Centers of Excellence and we also have a3 program to encourage individuals who are from4 underrepresented groups to go into teaching5 here in South Carolina. The program is called6 the Call Me Mister Program, and again, many of7 my colleagues sitting here in the audience8 have those programs at their institutions. We9 have one here at the College of Charleston.10 It's designed to get African-American males11 into teaching.12 And I think we all know that13 approximately less than 1 percent of our14 teachers currently are African-American males.15 Because we wanted to fundraise around this16 issue, we actually developed a case to learn17 that young African-American males in grades K-18 8 who have at least one African-American male19 teacher are three times more likely to20 graduate from high school. So, we obviously21 need more African-American male teachers.22 There are a number of programs23 designed to encourage underrepresented groups2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1421 to go into teaching and this Call Me Mister2 Program here in South Carolina is a3 collaborative. It's a partnership program.4 It's not one institution. We have many of our5 HBCUs who have this program, but then6 obviously, the College of Charleston and7 Clemson University are not HBCUs. We also8 have the program and this type of partnership9 is what really brings about excellence in10 teaching, I think. And so, if we go down the11 path of working to get more minorities into12 teaching, I would encourage us to look at13 partnership programs.14 You know, when you think about15 streamlining institutional reporting, but also16 identifying low-performing educator17 preparation programs, those things are in kind18 of a competition if you think about it. They19 don't really fit together too nicely.20 So, I think one of the things, as21 we think about streamlining our institutional22 reporting requirements, we certainly need to23 make sure that all teacher preparation or2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1431 educator preparation programs report.2 Alternative programs, as well as the3 traditional programs in colleges and4 universities. So, let's make sure that that5 happens.6 Don Stowe is here from our South7 Carolina Department of Education and I think8 we've already streamlined to some degree. I9 would have to look at my colleagues to see,10 but, I mean, we have a pretty good system here11 in South Carolina. It's not -- we've been12 doing this reporting for some time.13 But, I think the real question is:14 are we collecting the right data? Second: now15 that we have that data, are we using it and16 are we using it in a meaningful way and are we17 using it in a meaningful way to identify18 institutions or programs? 19 Many of these programs -- in fact,20 Don, I'd have to look to you, but my21 understanding is that our largest teacher22 education program in South Carolina is, in23 fact, not housed in any institution of higher2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1441 education, but it's our alternative program.2 So, I think, as we look at those3 programs and we collect the data and we use4 the data, and then to identify those programs5 that are performing. There's some way of6 identifying these programs that are not doing7 what they need to do.8 But then I think the real question9 is: so then what do you do? 10 Don told me this morning that the11 last time we identified a low-performing12 program in South Carolina was in 2003. So,13 what's the consequence once we identify them?14 Well, I think the consequence15 should be, so we identify what they need to do16 to improve and again, we work in partnership,17 and work in partnership to help all teacher18 education programs be what they can be and we19 all can improve. I mean, there's no question20 about that.21 So, I do think what Jennie said,22 and I'll ditto again, having some type of23 statewide data system to help us answer these2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1451 important questions, help us show what we are2 or are not doing, do the things that will help3 us improve. We pretty much know what those4 things are. I don't think we need to spend a5 whole lot of time trying to figure that out,6 but to then have our programs at the Federal7 level help us to do this work. 8 Thank you for the opportunity to9 speak.10 CHAIR MADZELAN: Thank you very11 much. Carol Lindsey.12 MS. LINDSEY: Good morning. My13 name is Carol Lindsey. I'm the Vice President14 of Policy and Compliance at the Texas15 Guaranteed Student Loan Corporation or TG.16 I'm speaking today on behalf of TG and other17 guaranty agencies in the National Association18 of Student Loan Administrators or NASLA.19 NASLA is a private nonprofit20 voluntary membership organization that21 represents the interests of FFELP guaranty22 agencies. NASLA is organized to ensure23 consistent and reliable delivery of student2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1461 loan services to Americas' students, parents2 and postsecondary institutions. NASLA members3 are committed to working cooperatively with4 all postsecondary participants and5 organizations in fulfilling the promise of6 successful student loan repayment.7 First, I want to talk a bit about8 participation in negotiated rulemaking. We9 are all aware that postsecondary education10 loan debt continues to grow and, in fact, now11 exceeds consumer credit card debt. For12 several years, we have seen the effects of our13 current economic condition in the increase of14 national default rates. 15 A recent study shows that at least16 41 percent of borrowers become delinquent at17 some point during the loan repayment period.18 These factors underscore the need to review19 several areas in our program for potential20 improvement to insure successful loan21 repayment and equitable treatment for22 borrowers.23 A core focus of guaranty agencies2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1471 is education loan debt management services to2 help maximize the success of borrowers in3 repaying their loans and also to be an4 advocate for borrowers. 5 As administrators of the 3846 billion FFELP portfolio, guaranty agencies7 work closely with the Department, students,8 families, schools, lenders and loan servicers9 throughout the life of the loan providing10 education debt management assistance.11 Inclusion of a guaranty agency voice in the12 upcoming negotiations will promote broad-based13 well-informed discussions as rules are14 developed, amended or removed from the15 regulations as appropriate.16 In terms of issues for negotiation,17 NASLA believes there are a number of important18 issues the Department should address during19 the upcoming process. Many of these focus on20 a single overarching principal. Changes to21 the regulations should be made to enhance22 default aversion success and offer comparable23 repayment options and tools to Federal student2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1481 loan borrowers regardless of the program or2 programs from which they obtain their loans. 3 Accordingly, NASLA proposes the4 following list of issues for negotiation in5 both the FFEL and Direct Loan Programs.6 The first focuses on extended7 repayment and the minimum repayment amount.8 Under current FFEL regulations, a borrower9 must have more than $30,000 outstanding in10 FFEL loans to be eligible to repay through the11 extended repayment plan. 12 The same holds true for a Direct13 Loan borrower. He or she must have more than14 30,000 outstanding in order to extend15 repayment from the standard 10-year plan to 2516 years.17 In today's environment of many18 split borrowers, those who have both FFEL and19 Direct Loans, these rules place a potential20 burden on receiving an important program21 benefit. Some borrowers do not meet the22 minimum balance requirement in either program23 separately, but would qualify for extended2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1491 repayment if their loan balances were2 considered on an aggregate basis. 3 NASLA believes the Department4 should address this situation and revise the5 regulations to permit a borrower with both6 FFEL and Direct Loans to combine their total7 loan balances for both programs to determine8 eligibility for extended repayment. This9 change would allow split borrowers to have the10 same repayment options as borrowers who have11 more than 30,000 outstanding in just one loan12 program which promotes greater fairness and13 consistency of treatment.14 This split borrowing situation15 should not harm borrowers who meet the minimum16 aggregate balance threshold across the two17 loan programs.18 Similarly, FFEL and Direct Loan19 regulations specify that a borrower must pay20 at least $600 each year under the standard21 repayment plan. As with the requirements for22 extended repayment, the regulations do not23 account for borrowers who have loans in both2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1501 programs. 2 Therefore, NASLA recommends that3 the Department change the regulations to4 permit a borrower with both FFEL and Direct5 Loans to pay $600 each year between the two6 loan programs. So, that the total minimum7 payment per year is 600.8 I'd like to also address total and9 permanent disability loan discharge. The10 process itself, as you have invited comments11 on specifically.12 While the statute and regulations13 generally embrace the electronic exchange of14 information, the requirements as they relate15 to a guaranty agency's processing of total and16 permanent disability applications have remain17 archaic and cumbersome. Currently, guaranty18 agencies are required to print and mail19 collateral documents for each individual20 applicant including hard copies of promissory21 notes, indemnification agreements in lieu of22 the backside of promissory notes, supporting23 data for electronic signature and paper forms2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1511 noting any applicable non-zero refundable2 payments to be made to the borrower upon3 approval.4 Most, if not all of this5 information, is stored electronically.6 However for total and permanent discharge7 processing, guaranty agencies must reproduce8 the documentation in hard copy format to be9 mailed to the Department's contractor for10 processing.11 Additionally, if the application is12 rejected for any reason, the hard copy13 documentation is returned by mail to the14 guaranty agency even though the submitting15 entity has no need for the paper16 documentation.17 This continuous exchange of paper18 documents via snail mail has lead to frequent19 mix-ups, unnecessary information security20 risks and unacceptable processing delays for21 disabled borrowers needing relief. 22 So, NASLA suggests that the23 Department allow and encourage guaranty2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1521 agencies to file total and permanent2 disability claims electronically in the manner3 currently utilized by the Title IV Additional4 Servicers, or TIVAS, and further into this5 concept and the efficiency, consistency and6 improved service to borrowers that would7 result, we advocate for the addition of8 explicit permissive or supportive language in9 the regulations.10 And finally, on the topic of11 teacher loan forgiveness, permissible breaks12 in service, as a consequence of continual13 nationwide budget shortfalls, many elementary14 and secondary schools and school districts15 that serve low-income families have laid off16 qualified teachers and some of these schools17 are closing also.18 To qualify for forgiveness under19 the Teacher Loan Forgiveness Program, a20 borrower must be employed as a full-time21 teacher in an eligible Title I school for at22 least five consecutive complete academic23 years. However, Federal regulations permit a2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1531 break in qualifying teaching service if the2 teacher returned to postsecondary education in3 some cases, had a condition covered under the4 Family Medical Leave Act or was called or5 ordered to active duty military service.6 Like some of these current7 exceptions, a permissible break in service for8 teacher layoffs would address a circumstance9 that may be beyond a teacher's control.10 Without a permitted exception to the11 consecutive complete academic year12 requirement, teachers whose qualifying service13 is interrupted by a layoff, including a layoff14 due to school closure, must start their15 qualifying service all over again. They16 receive no credit for their years of service17 prior to being laid off.18 The combined challenges of being19 laid off coupled with losing already completed20 teaching service for purposes of loan21 forgiveness may greatly weaken a teacher's22 incentive to return to the profession thus23 undermining the objective of this provision2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1541 and denying the teacher the anticipated2 relief.3 There has been a long-standing4 sense of a low compensation and high job5 security trade off in the teaching profession6 that will be in question going forward because7 of economic challenges. 8 Having a sufficient number of9 qualified teachers will always be critical to10 the nation's interest. Becoming a TLF11 eligible Title I school teacher is an arduous12 undertaking in itself. Perspective teachers13 generally understand the associated14 challenges, but are willing to follow that15 path to achieve meaningful rewards including16 teacher loan forgiveness relief. 17 This proposed change would better18 fulfill the intent of the Teacher Loan19 Forgiveness Program which is to encourage20 individuals to enter and continue in the21 teaching profession.22 Therefore, NASLA recommends that23 the Department create a new permissible break2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1551 in teacher loan forgiveness qualifying service2 requirements to accommodate qualified teachers3 who are laid off, but subsequently resume4 teaching at a Title I school within a5 reasonable period of time.6 In conclusion, NASLA appreciates7 the Department's consideration of this8 testimony and offers itself as a resource to9 the Department on these and other issues that10 the Department may consider in the upcoming11 negotiated rulemaking process.12 Thank you.13 CHAIR MADZELAN: Thank you. Betsy14 Mayotte.15 MS. MAYOTTE: Good morning. My16 name is Betsy Mayotte and I am the Director of17 Regulatory Compliance and Privacy at American18 Student Assistance.19 I speak to you today on behalf of20 ASA and to show our support of our fellow21 guaranty agencies at NASLA and the testimony22 that Carol just recently provided.23 American Student Assistance is a2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1561 private nonprofit organization whose public2 purpose mission is to help college students3 and their families fulfill the promise of4 higher education by successfully managing5 their higher education debt. 6 We encourage the Department to7 include an education debt management voice at8 the negotiated rulemaking table to promote a9 broad-based well-informed discussion as10 student loan rules are developed.11 Just like NASLA, ASA's comments12 focus on changes to the regulations that13 should be made to enhance default aversion14 success and offer comparable repayment options15 and tools to Federal student loan borrowers16 regardless of the program or programs for17 which they obtain their loans. 18 Accordingly, ASA proposes the19 following list of issues for negotiation for20 both the FFELP and the Direct Loan Program.21 The first is in regards to the22 deadline for deferment processing and23 delinquent loan repurchases.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1571 The Higher Education Act defines2 default for both the Direct Loan and FFEL3 Programs as the failure of a borrower or4 endorser to make installment payments for 2705 days. While the regulations reflect this6 definition, operationally, borrowers in the7 FFEL Program are treated very differently from8 those in the Direct Loan Program.9 Based on our experience, FFELP10 borrowers are unable to have deferments11 processed on loans that are 270 days or more12 past due. While Direct Loan borrowers are13 able to have deferments processed up to the14 delinquency day of 359 days in order to15 prevent default. 16 Our ombudsmen have had numerous17 cases where borrowers who began school or were18 deployed in the military after becoming 27019 days delinquent but before a default claim was20 filed with or paid by the guarantor had their21 loans default or received denials from22 servicers when repurchases were requested.23 This situation causes much confusion for2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1581 borrowers with loans in both programs and2 certainly creates an inequitable situation for3 those borrowers within the FFELP.4 It is a request that the5 regulations specifically require eligible6 deferments to be processed on a FFELP and/or a7 Direct Loan borrower's account if eligibility8 begins prior to the date a default claim was9 paid in the FFEL Program or by day 359 in the10 Direct Loan Program. This would also align11 the process of default with the current cohort12 default rate calculations and help standardize13 industry requirements for mandatory14 repurchases of defaulted loans in cases of15 military deployment.16 On a related issue, borrowers who17 requested discretionary forbearance after18 their loans have become 270 days or more past19 due are also treated very differently between20 the two loan programs. The Direct Loan21 Program will process a verbal forbearance for22 any eligible borrower not more than 359 days23 past due. While the FFELP borrower in a2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1591 similar situation will be denied that same2 forbearance request.3 Recently, the Department provided4 guidance to its servicers saying that a FFELP5 borrower whose loan has been put and is in a6 Department held asset is allowed to receive a7 verbal forbearance after reaching 270 days8 delinquent. This default aversion tool is9 already in place for Direct Loans and the10 Department agreed to extend it to FFELP loans11 that are held by the Department to allow for12 consistent treatment of borrowers.13 In contrast, FFELP regulations14 require that a written agreement between the15 lender and the borrower be in place in order16 for forbearance to be granted after the17 borrower becomes more than 270 days18 delinquent. Having such a requirement creates19 delays that worsen an already difficult20 situation for late stage delinquent borrowers21 who are taking steps to avoid default.22 We believe the FFELP regulations23 should be revised to provide the same benefit2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1601 to FFELP borrowers as is available to Direct2 Loan borrowers in regards to granting such3 verbal forbearances after the 270th day of4 delinquency. The holder of one's loan should5 not dictate the action that can be taken to6 assist them with averting default. This7 default prevention tool needs to be applied8 consistently across the loan programs not just9 among Department held loans.10 It becomes particularly important11 for borrowers who have loans in both the FFEL12 and Direct Loan Programs. Such a borrower is13 required to obtain a written agreement on his14 FFELP loans held by a commercial lender while15 simply requesting forbearance over the phone16 with the Department on his Direct or17 Department held FFELP loans. ASA urges the18 Department to include this item on the19 negotiated rulemaking agenda to resolve the20 disparate treatment of borrowers.21 My remaining comments surround the22 Income Based Repayment Program which I believe23 was the topic that you had requested comments2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1611 on. 2 The Income Based Repayment Option3 is a power tool for helping borrowers4 successfully repay their loans. It is well5 designed to assist borrowers managing loan6 debt in good and bad economic situations. ASA7 applauds Congress and the Department for8 creating and structuring the program in such a9 way that it can assist the greatest number of10 at-risk borrowers.11 However, there are two12 clarifications that should be added to current13 regulations to improve borrower utilization of14 this benefit. These clarifications are15 designed to insure that a borrower with both16 FFEL and Direct Loans will experience a common17 set of requirements and procedures for both18 types of loans.19 The first clarification deals with20 documentation that is required to verify a21 borrower with income if he did not file a tax22 return and therefore, has no reported adjusted23 gross income or AGI. The current regulations2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1621 provide latitude for each loan holder to2 determine the documentation that a borrower3 must submit to verify income in this4 situation. This has resulted in inconsistent5 instructions to borrowers and often a delay in6 determining eligibility for IBR.7 Anecdotal information indicates8 that a borrower with loans being serviced by9 the Department servicers is only required to10 provide a self-certifying statement to show11 that he or she does not have any income when12 applying for IBR. However, a FFELP servicer13 may require the same borrower to wait until he14 or she has filed that year's income tax return15 before determining the borrower's eligibility16 for IBR.17 Clarifying in the FFELP18 regulations that a self-certifying statement19 from a borrower is sufficient to show that he20 or she does not have any income when applying21 for the program would align the process for22 making IBR eligibility determinations and23 assist borrowers who have loans with more than2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1631 one holder, particularly those with loans in2 both programs.3 A second clarification is requested4 because of confusion surrounding the repayment5 options for a borrower that leaves IBR. When6 a borrower leaves IBR, current regulations7 require the borrower be automatically placed8 in a standard repayment plan calculated based9 on the term remaining in the 10-year repayment10 schedule. 11 However, these regulations do not12 clarify that after leaving IBR a borrower13 retains the ability to change the selection of14 a repayment plan to anything other than the15 standard 10-year repayment plan.16 In presentations at the FSA17 conference and in private guidance, the18 Department has clarified the process for a19 borrower choosing a new repayment plan after20 leaving IBR. ASA requests that this21 clarification also be codified in the22 regulations so that all loan administrators23 will clearly understand that a borrower may2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1641 choose any repayment plan for which he or she2 is eligible upon leaving the Income Based3 Repayment Option.4 My final comment is in regards to5 Income Contingent Repayment. Similar to6 Income Based Repayment, we believe that the7 Income Contingent Repayment Option is an8 important tool for assisting some borrowers in9 managing their Federal student loan debt.10 With a modification to current rules,11 borrowers in need of this type of relief will12 more easily be able to utilize this option.13 To the extent allowed by statute, we believe14 the regulations that align the IBR and ICR15 Repayment Options for married borrowers who16 file separate Federal tax returns.17 Unlike IBR, ICR generally requires18 married couples to include both spouses' tax19 information when applying for this repayment20 option even if the individuals filed separate21 tax returns. The only exception to the rule22 is for a borrower who is separated from his or23 her spouse. 2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1651 Aligning ICR with IBR regarding how2 the rules address spousal income for married3 borrowers who file separately will assist4 borrowers who may not qualify for IBR, but are5 still in need of a repayment option to address6 this current economic challenge.7 As a personal aside, I recently8 counseled a borrower who was strongly9 considering going through a divorce with her10 husband in order to be eligible for ICR. It11 was becoming the difference between whether12 they were going to be able to afford their13 mortgage payment. But, having to include both14 incomes would not have provided them enough15 relief to afford both their student loan16 payment and their mortgage. They were17 considering divorce.18 That concludes my comment. Again,19 I thank you for the time and I thank you for20 providing this forum. We look forward to21 assisting the Department with these and other22 issues. 23 Thank you.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1661 CHAIR MADZELAN: Thank you. We2 have come to at the moment the last of our3 speakers this morning. We'll take a minute4 here to check up front to see if we have5 anyone else in the queue. So, hold on for a6 minute please.7 First, a reminder. If you do have8 or did have written testimony that you wanted9 to submit, you can provide that up front at10 the desk or if, you know, you have it11 electronically and you want to send it to us12 via email, again see Kathleen up front and13 she'll give you the email address.14 At this time, we have no one in the15 queue to speak. So, we'll take a break until16 we have someone who wants to speak or it17 becomes the lunch hour whichever comes first.18 (Whereupon, the above-entitled19 matter went off the record at 10:11 a.m. and20 resumed at 10:59 a.m.)21 CHAIR MADZELAN: Good morning22 again. We'll reconvene at this time with23 Chuck Knepfle and again, when you come to the2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1671 podium, if you could again identify yourself2 and who you represent, where you're from.3 MR. KNEPFLE: So, I dragged4 everyone back from Starbucks. I feel bad5 about that. I'm sorry.6 I'm actually on the agenda for7 later this afternoon and I appreciate you8 taking me early. 9 Good morning. My name is Chuck10 Knepfle. I am the Director of Financial Aid11 at Clemson University and Chair-elect for the12 National Direct Student Loan Coalition.13 I bring you my greetings to South14 Carolina from the upstate.15 I speak to you today on behalf of16 the National Direct Student Loan Coalition a17 grassroots organization comprised of schools18 dedicated to the continuous improvement and19 strengthening of the Direct Loan Program. Its20 members are practicing financial aid21 professionals working at participating22 institutions.23 I'd like to thank the Secretary for2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1681 the opportunity to provide the Department of2 Education with comments on Federal student3 loan programs that may be addressed in the4 negotiated rulemaking process later this year.5 First and foremost, the Coalition6 wants to extend its thanks and congratulations7 to the staff at the Department of Education8 and especially at Federal Student Aid for the9 tremendous success in moving all 5,000-plus10 schools to the Direct Lending Program this11 year. 12 While some in our industry13 predicted that this would be an impossible14 task, the fact is that there has not been a15 report of even one student who was denied16 access to Stafford Loan funds this year as a17 result of schools making the transition to18 Direct Lending. This transition could not19 have been more successful for schools or for20 students.21 To insure that the Federal Direct22 Loan Program continues to be a strong and23 viable source of funding for students, I wish2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1691 to address regulatory issues in four different2 areas.3 First, the simplification of4 origination regulations. The Healthcare and5 Education Affordability Reconciliation Act of6 2010, HR 4872, requires that all new Federal7 loans beginning with 2010/2011 academic year8 be originated in the Direct Loan Program. The9 Direct Loan regulations continue to cross-10 reference regulations with the Federal Family11 Education Loan Program, FFEL, which Congress12 ended with HR 4872.13 With so many new administrators in14 the Direct Loan Program needing quick, easy to15 read regulatory language to insure compliance16 with the origination regulations for Direct17 Loans, it is important to simplify the Federal18 Loan regulations by negotiating a clear,19 concise, standalone set of Direct Loan20 regulations that eliminate any cross-reference21 to the FFEL Program.22 Second is servicing. One of the23 trademarks and richest features of the Direct2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1701 Loan Program prior to this year was that all2 Direct Loans were serviced by the same3 servicer. Every Direct Loan borrower and4 school staff member knew exactly where a5 student's loans were held and knew who to call6 with questions.7 The National Direct Student Loan8 Coalition recognizes that the Department of9 Education now uses multiple contractors for10 the servicing of Federal student loans, but we11 encourage new regulatory language to address12 the following issues that are inherent when13 multiple servicers compete for servicing14 contracts.15 First, a single interface between16 students and schools and all servicers to17 avoid the confusion that now occurs when18 schools attempt to counsel students with loans19 held by multiple servicers.20 Next, transparency of borrowers and21 their families about the contractor that is22 serving their loans and repayment.23 Third, the Department's vigilance2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1711 in monitoring the servicing contracts to2 insure accurate data is provided by the3 servicer to the Department for the calculation4 of cohort default rates.5 Next, loan terms that are6 consistent for all borrowers regardless of7 their servicer. Currently, issues like8 capitalization of interest for borrowers and9 the date income-based repayment is calculated10 are not always the same with different11 servicers. Terms need to be consistent with12 the historical Direct Loan methodology that is13 favorable to most borrowers.14 And lastly, exit counseling15 requirements that insure the providing of16 helpful information about consolidation17 options that benefit borrowers with multiple18 loan types.19 Further, we urge the Department to20 retain the role of assigning students to21 servicers. A topic we've heard on more than22 one occasion that there could be a change that23 would allow either the students or the schools2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1721 to choose their servicer. Even though the2 current servicers do not profit in nearly the3 same way as lenders did under the FFEL4 Program, there would still be a financial5 incentive to encourage schools to recommend an6 individual servicer.7 This would inevitably lead to a8 situation that we finally left behind this9 year, inducements and incentives to steer loan10 volume to particular companies.11 The Department is the only entity12 that should be making those servicer13 assignments.14 Third, on the topic of total and15 permanent disability, the Coalition requests16 that the Department of Education negotiate17 rules with a final result that is fair to both18 permanently disabled borrowers and Federal19 taxpayers. Currently, students are required20 to submit multiple applications for loan21 discharge and are monitored for up to three22 years after being granted the permanent23 disabled status.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1731 We encourage the Department to2 develop a less intrusive and simplified3 process that retains the integrity of the4 current one.5 And lastly, operations.6 Regulations for the Direct Loan Program7 encompass both the policy and operational8 aspects of the program. With all Federal9 loans and grants processed through one system,10 the Common Origination and Disbursement11 System, COD, student aid processing and12 delivery have now focused on the student13 rather than on each individual aid program as14 it was in the past.15 It is absolutely critical that the16 Department insure that regulations address the17 need for a system concept like COD. Any18 solution that does not retain the ease of use19 and understanding of our current COD process20 will set students and schools back21 significantly. 22 This standardization of the common23 record file formatting in such a system is2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1741 essential for the following reasons.2 Standardization of the common record format3 streamlines student eligibility changes for4 funds and insures students receive their funds5 on time. Standardization of the common record6 format simplifies and enables quick7 programming that is required by software8 vendors to deliver funds for new programs that9 Congress develops.10 For each program in COD, a school11 or third party servicer is assigned the same12 customer service representative team to13 facilitate origination of the disbursement14 process and issue resolution thus providing15 more time for financial aid professionals to16 counsel students about all aspects of their17 financial aid.18 Before COD, schools did not have19 any online capability to make corrections or20 changes, process emergency requests, check21 processing status to help resolve issues for22 students quicker or to get their aid disbursed23 immediately.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1751 The COD system provides2 accountability because funds for all programs3 are processed through one system: G5. Monthly4 and annual reconciliation processes decrease5 fraud and abuse by insuring that all funds are6 accounted for in a timely basis. Every7 disbursement record for a student's funds is8 recorded in the system to insure9 accountability.10 The COD system now contains11 information about the servicer to which12 student's loans have been assigned under our13 current multiple servicer format.14 And finally, over multiple academic15 years and institutional enrollments, a16 student's record remains in a single record17 within COD to insure greater ease in the18 school's compliance with Federal regulations.19 In closing, I want to thank you20 again for the opportunity to present this21 testimony on behalf of the National Direct22 Student Loan Coalition. Many of our members23 were the first schools to implement the Direct2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1761 Loan Program over 15 years ago and have years2 of expertise in operational and policy issues3 as well as compliance with the regulations.4 The Coalition looks forward to participating5 in the negotiating rulemaking process that6 will occur later this year.7 Thank you.8 CHAIR MADZELAN: Thank you. We do9 have word that we'll have another speaker this10 morning, but at this point, we again will take11 a short break.12 (Whereupon, the above-entitled13 matter went off the record at 11:08 a.m. and14 resumed at 11:13 a.m.)15 CHAIR MADZELAN: We will continue16 at this point with Mary Lyn Hammer and again,17 Mary Lyn, if you can identify yourself and who18 you represent, where you're from.19 MS. HAMMER: Morning, everybody.20 My name is Mary Lyn Hammer. I'm the President21 and CEO of Champion College Services and we22 have been in business 22 years doing default23 prevention.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1771 And going back to give you a2 background, I used to handle foreclosures for3 a bank in Texas when the oil market crashed4 and prior to that, I was in the student5 lending part of the bank back in the old days6 when it was easy and, you know, $30,000 a year7 and you got a loan. 8 So, I got to the point where I just9 couldn't do any more foreclosures. It was10 really sad because they weren't bad people.11 They just had bad circumstances.12 Moved to Arizona and there was an13 ad in the paper. It said default manager. I14 thought what is that and it was when they15 first made defaults an issue. So, I answered16 the ad in the paper and they said well, you17 have the right background. Our default rate's18 35 percent. Here's an office and a computer.19 Get our default rate down. So, that was as20 much direction as I had. 21 I was the first full-time default22 manager in the history of the country that we23 know of. Got the default rate down to 92 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1781 percent within two years. I helped write2 Appendix D which was the original regulatory3 criteria for default prevention from 1989 to4 1996. It's still in the regulations under5 Subpart M. 6 Been a negotiator three times with7 the Department. Most recently rewriting8 Subpart M and Subpart N a couple of years ago.9 And we've been in business 22 years10 and on average, our default rates we cut in11 half for our clients. 12 So, to go back a little further13 than that, I grew up in an abusive home in14 Montana and I knew that education was the way15 that I was going to change my circumstances.16 So, I went to a proprietary school, graduated17 when I was 19 and it was that education and18 the support from those people that changed my19 life and that's why I go to Washington and do20 what I do because I'm actually one of your21 high-risk students.22 So, that's my background and some23 of the subjects that I'm going to talk about,2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1791 some of the Department people are very2 familiar with. I've been trying to get some3 of this for 18 years. 4 The first point that I wanted to5 make was about sharing of information for6 student loans. As a third-party default7 management servicer, we don't have access to8 student loan information that's needed to9 properly educate the borrowers and it's been10 an issue for quite some time. 11 Congress thinks that the Department12 already has the authority to regulate it. The13 Department wants Congressional input on it and14 we've had our language in three bills so far,15 but it's never made it all the way through.16 But, with the emphasis on financial17 literacy from other parts of the Government18 and also within the student loan industry,19 it's becoming more and more important. It has20 a great effect on default rates. You can only21 do so much borrower education with general22 facts. What they really need is the exact23 details.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1801 And the student loan industry has2 become more complicated than the transition.3 The loans are being transferred. You know,4 things have gone wrong and I won't get into5 all of that right now. Most of us know what6 those things are. We need to be able to have7 the detailed information necessary to properly8 counsel the borrowers.9 And as I said, we've cut our10 default rates in half, but I want to give you11 a true picture of the effectiveness when you12 do it right and we've been doing it 22 years.13 With the most recent information14 that was released by the Department with the15 increases in default rates from the official16 2008 to the draft 2009 data, our clients went17 up .06 percent. The national average went up18 27 percent and the proprietary schools which19 are our main client base went up 31 percent20 compared to our .06. So, basically, a half a21 percent increase.22 At the same time last summer when23 they released the data for gainful employment,2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1811 our average tenured client was at 45 percent2 repayment rate. 3 So, we have those statistics and4 our students are paying and we need access to5 the information to keep that trend going6 because I think it could only improve if we7 have the right information to give them.8 So, I've provided some written9 materials and I'll also email them out to the10 Department people. Kathleen has the copies of11 where I've quoted all of the laws, Gramm Leach12 Blieay, FERPA. There's many, many laws that13 have sections that require the sharing of14 information and gives authority to do so. So,15 we just need to outline how that happens.16 The next point I'd like to make is17 giving the schools authority to limit student18 loan debt. This is a very frustrating part of19 what we deal with everyday because we have a20 couple of generations of kids that have grown21 up in an unaccountable -- where the22 accountability is not really there and the23 entitlement is there and what's confusing2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1821 about the Federal programs is that they're2 called an entitlement and entitlement in the3 kids' minds these days means they get it for4 free. So, just by the name of the program,5 it's confusing to those people. So, they6 think it's entitlement and they forget the7 accountability piece and it's not just8 something that's happening in student loans.9 It's something that's happening in10 our country and with all of the electronic11 processes that are in place, it made12 everybody's life easy. Paperwork Reduction13 Act. But, out of sight, out of mind. They're14 not signing checks like they use to. They're15 not filling out deferment forms like they used16 to. It just all magically happens and it's17 taken the ownership away.18 So, they don't really understand19 the debt that they have. They don't20 understand how much interest accrues when21 they're in school and they don't really22 understand the long-term ramifications of all23 the money that they take out until they're2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1831 paying it.2 So, I think we have a3 responsibility to help them make decisions,4 make good decisions when you know that taking5 out that extra $4,000 or $6,000 is going to6 put them over what is an appropriate income-7 to-debt ratio.8 So, we ask that you give some type9 of established regulatory language to allow10 schools to do this.11 One of the other things that we run12 into a lot and I think it's going to become13 more and more prevalent is in rehabilitating14 loans. Because as our economy recovers, more15 and more of these students who have gone into16 default because of their circumstances are17 going to want to repair their credit and many18 of them need to be retrained because the job19 that they had before is simply not available. 20 The way they can do this is in21 rehabilitating their loans, but there's a gap22 in the definition between six months that it23 takes of on-time payments to get a new loan2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1841 and nine months of payments to fully2 rehabilitate the loan and what that does is it3 promotes bad behavior. They can take out more4 debt; before they've taken care of their old5 debt as far as their own credit reports and as6 far as cohort default rates and all of the7 other criteria.8 So, what we are suggesting is that9 the Department recognizes 0 as a payment.10 Because when they go into school and have a11 deferment or they're on an Income-Based12 Repayment Program or whatever the circumstance13 is, there are many, many people that are14 qualifying for 0 as a payment and that would15 take them through the other three months while16 they're in school or you can align the17 definition to be the same number of months.18 One or the other. It just -- it should be the19 same. It's better than it used to be when it20 was 12 months, but there's still a gap.21 And we have to remember that once22 they're in default, they have little incentive23 to keep the next one out of default. So, if2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1851 we can't get them rehabilitated and they're2 already in default, they may say well, my3 credit's already messed up. So, I don't care4 and I think that promotes bad behavior.5 I know one of the subjects on your6 agenda is IBR and ICR Programs and I have a7 few suggestions for it, but, you know, really8 it's something that should be worked out in9 the negotiated rulemaking process. But, it's10 very difficult for the students to get out of11 that program once they're in it. My personal12 opinion in how we cancel borrowers, it's the13 Standard Repayment Program is the best program14 for the student.15 And that goes to another one of my16 points. The Graduated Repayment Program is an17 entitlement. The students can qualify for it18 and ask for it and it is the worst repayment19 program that there is. 20 If you look at it in comparison to21 what's happened in the mortgage loan business,22 you see that all of the people on the ARM23 loans, they were the same ones I was2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1861 foreclosing on 25 years ago in Texas. They2 are the same ones that are foreclosed on now.3 It doesn't show up in the cohort4 default rates. It shows up in the life of the5 loan default rates and the reason why is6 because when the loan payment goes up, they7 can't afford it and they go into default and8 it costs them a ton more money in interest. 9 So, it's in the best interest of10 the students to not have options for them that11 set them up for failure and, you know, anybody12 or most kids are going to say oh, it's cheaper13 payment. I'll choose this one and they don't14 think about, you know, it goes up $200 in15 three years. So, it's detrimental to their16 future.17 So, those are a couple of things.18 The payment programs that I believe should be19 taken a look at and then there's a few appeal20 benefits that I feel are appropriate. Some of21 them having to do with economic times. 22 I did some research and the average23 unemployment rate in the country was 5 percent2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1871 for the ten years leading up to this most2 recent recession and now, it's in the 93 percent range. It definitely has an effect on4 the default rates and I believe that that5 should be taken into consideration and I find6 it pretty appalling that it is taken into7 consideration for mortgage loans and for8 credit cards and for all other credit debt,9 but in student loans, there's absolutely no10 regard given to it and that's not realistic.11 It's not realistic for the students. It's not12 realistic for the schools.13 And as a taxpayer, I can tell you14 that I would rather pay a defaulted loan and15 have somebody in the workforce than to just16 eliminate a possibility for education because17 I truly believe that education is a means for18 making dreams come true and we need to have19 some dreams out there in order to turn our20 country around.21 So, that's one of the appeals22 options I believe is fair. 23 Another is that if a school has an2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1881 approved default management plan and it's2 documented that they have followed that plan,3 that there should be some consideration4 instead of a strict threshold for three years5 over 30 percent or 25 percent or whatever the6 criteria is going to be in the future.7 If they're doing everything they8 can, many of the intercity schools are serving9 a high-risk population and most of those10 programs that the high-risk population enter11 are lower tuition programs. So, we have12 schools that have moved from the city out into13 the country because they don't want to serve14 the high-risk people and those are the people15 the program is written for. In 1965, it was16 written for people to get an education who17 wouldn't otherwise be able to do so.18 So, we ask that if the right thing19 is being done and the school has crossed all20 their t's and dotted all of their i's and the21 Secretary has approved the default management22 plan that's used to do so, that it be taken23 into consideration.2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1891 And lastly, I can't be here for the2 roundtables tomorrow. So, I've also put my3 ideas about something -- an idea that I've had4 for many years actually and that is in5 rewarding good behavior. To have a program6 like that.7 So, in our budget, they're talking8 about getting rid of the interest subsidies9 and also, they're talking about funding a lot10 of money to completion programs and retention11 and, you know, a lot of the programs like that12 and I feel that we should be using this13 opportunity to create a program that teaches14 our kids the accountability that they haven't15 learned for the last couple of decades so that16 they can have success long term. 17 So, some of my ideas are to reward18 them for good behavior by paying 10 percent of19 the interest that's accrued on the loan for 9520 percent attendance. Reward them for good21 grades. Fifteen percent accrued interest is22 paid when you have a C average. Twenty23 percent when you have a B average. Twenty-2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1901 five percent when you have an A average and2 the rest of the interest 70 percent for3 completing your program. It gives them4 incentive to stay in school. It gives them5 incentives to get good grades.6 The other part of it is during7 approved deferment times which are not8 enrollment because that's covered with those9 incentives, I believe that the money would be10 well spent if we are rewarding them for making11 interest payments. Instead of paying the12 whole interest on half of the loan that they13 have, do an interest payment match. If they14 pay $50 in interest, the Government matches15 it. It will get them in the habit of making16 payments. It will reduce their debt burden17 and I believe that it would be about the same18 budgetary cost to the Government.19 And then the last idea on that is20 again rewarding good behavior and I have two21 ideas about it and again, this is all, you22 know, for negotiation, but you're getting my23 theme of rewarding good behavior. It would be2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1911 something like if they've made 11 on-time2 payments, the Government makes the 12th or if3 they make 12 on-time payments, the Government4 makes the equivalent of a payment and it would5 be the average of what their payments were for6 that year. That gives an incentive to pay and7 to pay on time. So, it once again rewards8 good behavior. 9 So, instead of paying the interest10 for them during deferments or different things11 like that, you're taking it to reward good12 behavior which is going to benefit everybody.13 It'll benefit the schools. It'll benefit the14 students and it'll benefit the Government15 because your default rates will come down. I16 guarantee it. 17 Because the difference between a18 high default rate and a lower default rate are19 those students that just don't understand20 things and need a little bit of help. Because21 you're going to have students that will always22 pay. You're going to have students that will23 never pay and the difference between the rates2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1921 are those in between that just need a little2 bit of help.3 So, those are my ideas and I look4 forward to the negotiations. I hope that the5 Department is open minded and, you know, it's6 for our kids. It's for our future and I think7 we can use the opportunity to leverage what we8 have and we can do because education goes way9 beyond the classroom. Thank you.10 CHAIR MADZELAN: Thank you. We11 have no more speakers scheduled this morning.12 So, what we will do is break for lunch now and13 we'll reconvene at 1:00 p.m. Thank you.14 (Whereupon the above-entitled15 matter went off the record at 11:32 a.m. and16 resumed at 1:00 p.m.)2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1931 A-F-T-E-R-N-O-O-N S-E-S-S-I-O-N2 1:00 p.m.3 CHAIR MADZELAN: Good afternoon.4 We are ready to resume with John Beckford and5 again, for the record, please state your name,6 where you're from and who you represent.7 MR. BECKFORD: Good afternoon. My8 name is John Beckford. I'm Vice President for9 Academic Affairs and Dean at Furman University10 in Greenville, South Carolina.11 Furman is a 185-year-old private12 liberal arts college originally affiliated13 with the Southern Baptist, but for the last 2014 years has been an independent college. 15 This is my 35th year at Furman16 having started my career in the Department of17 Music and for the past four years, as an18 administrator.19 Today, I'm not only representing20 Furman University, but the South Carolina21 Independent Colleges and Universities and by22 extension, the National Association of23 Independent Colleges and Universities. 2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1941 I appreciate having the opportunity2 to appear here today to suggest additional3 issues that the next round of negotiated4 rulemaking should address.5 Specifically, I'd like to address6 the regulations dealing with state7 authorization, 34 CFR 600.9 and the Federal8 definition of credit hour, 34 CFR 600.2, that9 are scheduled to take effect on July 1 of this10 year. These portions of the October 2911 Program Integrity regulations are highly12 problematic.13 First, with respect to the state14 authorization and in particular the distance15 education component, generally speaking,16 institutions like Furman have been delivering17 exceptional postsecondary education for18 decades within long-standing arrangements with19 our respective states. It seems inappropriate20 and unnecessary for the Federal Government to21 require states to second guess the explicit22 decisions that have already been made in23 meetings with the authorizations and their2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1951 responsibilities.2 Also, the ambiguity of the new3 regulations raises concerns that state4 officials may overreach by imposing5 requirements on private nonprofit institutions6 that go well beyond the objectives of the7 regulations. This is particularly of concern8 to institutions with religious affiliations.9 But, with regards to the distance10 education component of the regulation, I11 personally find this to be onerous for both12 states and institutions, stifling toward the13 development of innovative models in education14 and an unnecessary Federal involvement in15 state law.16 Because of the long valued teacher17 to student relationships embraced by small,18 private liberal arts colleges, we are probably19 among the last to explore the possibilities of20 distance education, but with the advancement21 of technology in this area, we're seeing these22 institutions implement effective models of23 distance education that parallel the quality2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1961 educational outcomes found on our traditional2 campuses.3 The state authorization provisions4 will layer a bureaucratic obstacle that will5 smother the creativity required to develop6 quality distance education programs. 7 For the United States to remain8 competitive in higher education, we should be9 adopting policies that unleash the innovation10 in the delivery of quality education.11 Otherwise, our foreign competitors will seize12 the upper hand in distance education if we13 lose our agility and become mired in needless14 state authorization regulations.15 With respect to the credit hour, it16 is this issue that I have most closely17 followed for this last year. For me, it18 represents the most glaring intrusion on the19 academy during my 35 years in higher20 education. It is the primary reason I am here21 today.22 If I might draw though from an23 April 26 letter that was sent to Senators Hart2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1971 and Enzi from Molly Corbett Broad, who is the2 President of the American Council of3 Education, and was endorsed by 70 other higher4 education associations and accrediting5 organizations.6 She says, and I quote, "A credit7 hour is the most basic building block of any8 academic program. By establishing a Federal9 definition of a credit hour, the regulation10 opens the door to inappropriate Federal11 interference in the core academic decisions12 surrounding curriculum. The very kind of13 interference expressly prohibited in the14 Department's enabling legislation. 15 "Consistent with our support are16 the principles and limitations outlined in17 this and other Federal laws. It is our18 position that no Federal definition of a19 credit hour is ever appropriate because it20 becomes the basis of perpetual regulatory21 intervention in multiple institutional and22 accreditation decisions associated with the23 credit hour."2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1981 She goes on to say that "As a2 secondary, but practical matter, the ambiguity3 of the particular definition at issue and the4 insufficiency of the guidance about it pose5 serious challenges for institutions as they6 review tens of thousands of courses in an7 effort to insure consistency with the new8 Federal definition. Accreditors will face9 similar burdens as they attempt to develop or10 revise policies and practices to review credit11 policies of these institutions. 12 "The definition and related13 guidance also place accreditors in the14 unprecedented position of being required to15 force institutions to meet a Federal standard16 in an academic area as a condition of17 accreditation."18 Let me add to her remarks though by19 saying at my institution, I'm also confident20 that it is the same as what we find at all of21 the other National Association of Independent22 Colleges and Universities institutions, that23 determining course credit is one of the most2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 1991 carefully considered decisions we make. 2 Numerous variables and factors play3 into assigning credit. Course experiences4 ranging from the traditional lecture to5 private weekly music lessons, service learning6 projects in the community, spending 15 weeks7 in a foreign country or a summer in a biology8 lab. The range of educational experiences9 recognize the rich diversity of pedagogues we10 bring to our students. But, that diversity11 which is the key to a successful approach to12 education defies any simple formula that might13 define earned credit. 14 The level of engagement and15 measurement of student outcomes are complex16 and truly beyond any Federal regulation of17 credit hours that could have any kind of18 meaningful application to all institutions.19 Let me conclude by saying that I20 believe I understand what has prompted these21 regulations, but the Federal intrusion in22 areas fundamental to core academic decision23 making is inappropriate and contrary to our2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 11001 shared commitment to strengthening higher2 education in the United States. 3 These regulations are both4 ambiguous and inappropriate and should be5 rescinded.6 Thank you for your time.7 CHAIR MADZELAN: Thank you. At8 this time, we'll take another break and when9 we have another speaker, we will convene.10 If you care to speak, again, we ask11 that you go out to the table and sign up with12 Kathleen. 13 Thank you.14 (Whereupon the above-entitled15 matter went off the record at 1:09 p.m. and16 resumed at 3:32 p.m.)17 CHAIR MADZELAN: This concludes18 this afternoon's hearing or today's hearing I19 should say and we want to thank all of our20 speakers today and we also want to remind21 everyone that transcripts from this hearing as22 well as our other two hearings will be23 available on the Department's website in the2 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011 11011 near future.2 Again, thanks to everyone who came3 today. Bye.4 (Whereupon, at 3:32 p.m., the5 above-entitled matter went off the record.)67891011122 3 Negotiated Rulemaking Higher Education 2011 – Public Hearing May 26, 2011

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