Emerging Legal Developments in Title IV Administration

1. Emerging Legal Developments in Title IV Administration Presented to National Association of Student Financial Aid Administrators Annual Conference Washington, DC July 8-11, 2007 Presented by Stanley A. Freeman Sherry Mastrostefano Gray Sharon H. Bob, Ph.D. Joel M. Rudnick Powers Pyles Sutter & Verville PC Attorneys At Law 1501 M Street, NW, Seventh Floor, Washington, DC 20005 Phone: (202) 466-6550 Fax: (202) 785-1756 www.ppsv.com

2. Washington Merry-Go-Round Stanley A. Freeman Powers Pyles Sutter & Verville PC Attorneys At Law

3. Washington Merry-Go-Round From The Founding Fathers - Three Branches Of The Federal Government: • Article I of the Constitution – Legislative • Article II – Executive Branch • Article III – Judicial Branch

4. Washington Merry-Go-Round Legislative Branch – A “Perfect Storm” Of Bills Affecting Student Aid • Student Loan Sunshine Act (H.R. 890, passed House in May) • College Cost Reduction Act (House Reconciliation Bill) • Higher Education Access Act of 2007 (Senate Reconciliation Bill) • Higher Education Amendments of 2007 (Senate HEA Reauthorization Bill)

5. Washington Merry-Go-Round Legislative Branch – “Perfect Storm” Of Bills Affecting Student Aid • House Appropriations Bill for FY 2008 (passed House on June 8) • Senate Appropriations Bill for FY 2008 (Rpted out of Subcommittee on June 19) • Student Aid Reward Act (STAR Act) • Pending: Senate Banking Committee to tackle private lending • Recurrent: HEA Extension Legislation

6. Washington Merry-Go-Round Sample Topics Covered By The “Perfect Storm” Of Proposed Legislation • Accreditation – Possible Re-write of NACIQI • Student Outcomes and Accreditation • Student Loan Restrictions and Auctions • Independent Student Definition • Transfer of Credit • Due Process in Program Reviews • Pell Grants and Loan Limits

7. Washington Merry-Go-Round Executive Branch – Agency Initiatives Complicate The Outlook • Negotiated Rulemaking Hits Rough Seas: • Accreditation – Secretary Agrees to Cease and Desist • Lending Rules – Too Little Too Late? • Federal Trade Commission • Chairman’s Recent Letter to George Miller: “Law enforcement will be a critical part of the FTC’s response to concerns about private student loans.”

8. Washington Merry-Go-Round Executive Branch – Agency Initiatives • Education Department Initiates Campus Security Program Reviews on Clery Act • Watchdog Group – “Security on Campus” –Steps Up Private Enforcement Efforts • Furor Over Recent Case in Wake of ED Report: • Report: School defied Clery timely warning requirements for ten weeks after rape/murder in dorm was discovered • Potential Sanctions: Fines/Title IV Restrictions

9. Washington Merry-Go-Round Judicial Branch: Case Law Takes Sharp Turn Towards Expansion of Whistleblower Claims • Appeals Courts Reinstate False Claims Act Allegations Premised on Title IV Violations • One Case Even Focuses Upon Accreditation • College Lawyers Cite Growing Threat of Whistleblower Claims on Multiple Fronts • Qui Tam Cases: Filed, But “Under Seal” and Not Made Known to the Institution!

10. School – Lender Relationships: New and Proposed Rules Sherry Mastrostefano Gray Powers Pyles Sutter & Verville PC Attorneys At Law

11. Prohibited Inducements (34 CFR 682.200) • Lender cannot offer, directly or indirectly, points, premiums, payments, or other inducements to secure FFEL loans.

12. Prohibited Inducements (Non-Exhaustive List Per ED) 34 CFR 682.200 • No payments or other benefits to a prospective borrower in exchange for applying for or accepting a FFEL loan from the lender. • No payments or other benefits to a school, any school-affiliated organization or to any individual in exchange for FFEL loan applications, application referrals, a specified volume or dollar amount of loans made, or placement on a school’s list of recommended or suggested lenders.

13. Prohibited Inducements - Definitions • The term “other benefits” includes, but is not limited to: • preferential rates for or access to the lender's other financial products, • computer hardware or unrelated computer software at below market rental or purchase cost, and • printing and distribution of college catalogs and other materials at reduced or no cost. • A school-affiliated organization is: • any organization that is directly or indirectly related to a school and includes, but is not limited to, alumni organizations, foundations, athletic organizations, and social, academic, and professional organizations

14. Prohibited Inducements • No payment of conference or training registration, transportation, and lodging costs for an employee of a school or school-affiliated organization (but see exception).

15. Prohibited Inducements • No payment of entertainment expenses. Includes private hospitality suites, tickets to shows or sporting events, meals, alcoholic beverages, and any lodging, rental, transportation, and other gratuities related to lender-sponsored activities for employees of a school or a school-affiliated organization (but see exception). • No philanthropic activities if provided in exchange for FFEL loan applications or application referrals, or a specified volume or dollar amount of FFEL loans made, or placement on a school’s list of recommended or suggested lenders.

16. Prohibited Inducements • No staffing services to a school as a third-party servicer or otherwise on more than a short-term, emergency, non-recurring basis to assist a school with financial aid-related functions. • No conducting unsolicited mailings to a student or a student's parents of FFEL loan application forms. • No engaging in fraudulent or misleading advertising with respect to its FFEL loan activities.

17. Permitted Activities (Exhaustive List) A lender may provide: • Assistance to a school that is comparable to the kinds of assistance provided to a school by the Secretary under the Direct Loan program, as identified by the Secretary in a public announcement, such as a notice in the Federal Register. • Most recently published in August 1999 • Issue of LCD – will direct loan schools demand the type of services that FFEL lenders can and would provide?

18. Permitted Activities • Support of and participation in a school’s or a guaranty agency’s student aid and financial literacy- related outreach activities, provided that lender name is disclosed and lender does not promote its student loan or other products.

19. Permitted Activities • Meals, refreshments, and receptions that are reasonable in cost and scheduled in conjunction with training, meeting, or conference events if those meals, refreshments, or receptions are open to all training, meeting, or conference attendees; (Exception to prohibition regarding entertainment expenses.)

20. Permitted Activities • Toll-free telephone numbers for use by schools or others to obtain information about FFEL loans and free data transmission service for use by schools to electronically submit applicant loan processing information or student status confirmation data. • Reduced origination fees in accordance with §682.202(c) and reduced interest rates as provided under the HEA, and payment of federal default fees.

21. Permitted Activities • Other benefits to a borrower under a repayment incentive program that requires at least one or more scheduled payments to receive or retain the benefit; and • Items of nominal value to schools, school-affiliated organizations, and borrowers that are offered as a form of generalized marketing or advertising, or to create good will.

22. Additional Permitted Activities – Guaranty Agencies (34 CFR 682.401) • Meals and refreshments that are reasonable in cost and provided in connection with guaranty agency provided training of program participants and elementary, secondary, and postsecondary school personnel and with workshops and forums customarily used by the agency to fulfill its responsibilities under the Act;

23. Additional Permitted Activities – Guaranty Agencies • Travel and lodging costs that are reasonable as to cost, location, and duration to: • facilitate the attendance of school staff in training or service facility tours that they would otherwise not be able to undertake, or • participate in the activities of an agency's governing board, a standing official advisory committee, or in support of other official activities of the agency; • Default aversion activities approved by the Secretary under section 422(h)(4)(B) of the Act:

24. Preferred Lender List (34 CFR 682.212) What is it? Any recommendation or suggestion of lenders (in print or any other medium or form) for use by the school’s students or their parents.

25. Preferred Lender List Guidelines: • Cannot be used to deny or otherwise impede a borrower’s choice of lender; • Impede means to purposefully delay (see unnecessary certification delays standard). • Cannot contain fewer than three lenders that are not affiliated with each other and that will make loans to borrowers or students attending the school; and • Cannot include lenders that have offered, or have been solicited by the school to offer inducements

26. Preferred Lender Lists • A school that provides or makes available a list of recommended or suggested lenders must: • Disclose as part of the list, the method and criteria used by the school in selecting any lender that it recommends or suggests; • Provide comparative information to prospective borrowers about interest rates and other benefits offered by the lenders;

27. Preferred Lender Lists • Ensure that any benefits offered to borrowers by the lenders are the same for all borrowers at the school; • Advise students through a prominent statement that they are not required to use one of the school’s recommended or suggested lenders; • Cannot not assign a first-time borrower’s loan to a particular lender; and • Cannot cause unnecessary certification delays for borrowers who use a lender that has not been recommended or suggested by the school. (See also pattern or practice language under 34 CFR 682.603(f).)

28. Enforcement - NPRM • Temporary or permanent exclusion from programs as eligible lender. (34 CFR 682.705 and .706) • Rebuttable presumption – to rebut, but provide evidence that the activities or payments were provided for a reason unrelated to the securing of FFEL applications. • A guaranty agency may not make a claim to ED regarding a loan if the lender offered or provided an improper inducement. (34 CFR 682.406) • Lender subject to claims borrower may have against school if, minimally, the school refers borrowers to that lender or an inducement was provided. (34 CFR 682.209)

29. New York SLATE • Prohibitions cover: • All institutional employees • All educational loans (Federal and private) • Guarantee Agencies • Lenders and affiliates that make loans

30. New York SLATE • No revenue sharing is permitted between lenders and schools. • Schools must implement a code of conduct prohibiting lender gifts to employees. • Effectively, financial aid employees cannot serve on lender advisory boards with respect to any form of student loans. • FA employees will need to report to NYSED all participation or financial interests they have related to any lender. • Schools must inform students of availability of Title IV loans, including terms and conditions, before a lender can offer a private loan.

31. New York SLATE • A lender and school cannot enter into an agreement under which the lender makes high risk (opportunity) loans to students in exchange for the school providing concessions or promises to the lender that may prejudice other borrowers.

32. New York SLATE • Preferred lender lists are allowed. • school must explain method and criteria for selection and rank criteria • must state (in same font size) that student can use another lender without penalty • inclusion and placement of lenders on the preferred lender list must be based solely on the best interests of the borrowers • school must review list(s) at least annually • school must seek assurances that advertised benefits upon repayment will continue upon sale of loan(s) • sale of loans shall be disclosed (same font)

33. New York SLATE • Penalties • lender can be fined up to $50,000 • school employees can be fined up to $7,500 • if lender violates this law, the lender cannot be placed on any preferred lender list unless notice of such violation is provided to all potential borrowers at the institution • NY defines "lender" to include guarantee agencies and any trade or professional association that receives money from a lender or guaranty agency for educational loan purposes.

34. Senate HEA Bill - Proposed • Bottom Line – substantially scales back original proposals; mixture of NPRM and SLATE • Addresses School/Lender relationships with respect to FFEL loans only. • Possible involvement of Banking Committee, FTC • May require changes to Final Rules issued by ED.

35. Senate HEA Bill - Proposed • Specifically addresses: • Issues identified in NPRM • Consulting arrangements (prohibited for FA employees or those school responsible for student loan decisions) • Compensation for service on advisory boards (prohibited – but reimbursement for expenses allowed)

36. Senate HEA Bill - Proposed • Would require code of conduct to • Prohibit revenue sharing • Prohibit gifts and trips except allows reasonable expenses for professional development that will improve programs and for domestic travel to such development • Prohibit consulting arrangements • Prohibit payment for service on advisory board except for reimbursement of reasonable expenses. • Would require annual attestation of compliance by executive officer.

37. Senate HEA Bill - Proposed • Preferred lender lists • Disclosure by school of why lenders are included on list • Student choice • At least 3 unaffiliated lenders (Secretary to maintain list of lenders) • Factors considered for inclusion can include loan terms, high-quality customer service, additional benefits (obviously, not prohibited benefits).

38. Senate HEA Bill - Proposed • Enforcement – per program participation agreement, violation can result in institution’s limitation, suspension or termination from loan programs.

39. Title IV Hardball With PPSV

40. Title IV Hardball With PPSV Issue 1:Preferred Lender Lists

41. Title IV Hardball With PPSV Issue 2:Revenue Sharing

42. Title IV Hardball With PPSV Issue 3:NASFAA/Cuomo Apology and Code of Conduct

43. Title IV Hardball With PPSV Issue 4:Direct Lending vs. FFELP

44. Title IV Hardball With PPSV Issue 5: Lender Auctions

45. Title IV Hardball With PPSV Issue 6: Transfer of Credit

46. Title IV Hardball With PPSV Issue 7: Campus Security

47. Title IV Hardball With PPSVThe End!

48. Top Ten NegotiatedRulemaking Issues Sharon H. Bob, Ph.D. Powers Pyles Sutter & Verville PC Attorneys At Law

49. ED Conducts Negotiated Rulemaking • On August 18, 2006, the Department of Education announced in the Federal Register its intent to establish up to four negotiated rulemaking committees to prepare regulations under Title IV of the Higher Education Act (HEA). The notice also announced a series of four regional hearings where interested parties could suggest issues for consideration.

50. ED Conducts Negotiated Rulemaking • The Department held four field hearings on September 19, 2006, October 5, 2006, November 2, 2006, and November 8, 2006. Witnesses articulated a number of overarching themes at the hearings including: • the need to revisit a number of unworkable rules governing the Academic Competitiveness Grant (ACG) and the National Science and Mathematics Access to Retain Talent Grant (National SMART Grant) programs; • the value of the current accreditation process particularly as it relates to improving student outcomes; and • the need to address the rising levels of student debt through increased student aid and improved repayment options.