Washington Update James P Bergeron President NCHER Legal

Washington Update James P. Bergeron, President NCHER Legal Meeting October 5, 2018 1

Current Landscape 2

Current Landscape - Congress v v Congress is focused on the mid-term election that takes place in 32 days. The House recessed last week to give its members more than 40 days to seek reelection; the Senate is slated to recess on October 26 to keep its Democratic members in town. v Current Election Themes o Republicans: Reinforce tax reform and other accomplishments; fire up base by talking about “Speaker Pelosi” and impeachment o Democrats: Keep Trump, front and center, and talk up failures on healthcare/guns Both the House and Senate will be in session for only 16 days in November and December. v Lame-Duck: Finish up budget/approps, but everything else has been pushed off until 3 next year.

Current Landscape Administration v Trump Administration is approaching the traditional two-year mark for an Administration – looking at its past accomplishments and upcoming opportunities. v At ED, of the 15 major positions, 11 have finally been confirmed by the Senate; 2 nominated by the White House, including Assistant Secretary for Postsecondary Education (still no nominees for Under Secretary or Assistant Sec for Communications and Outreach). But FSA is seeing a great deal of turnover for an agency in the midst of massive procurements. v The Trump Administration seems to be getting its footing. After spending more than a year reversing final rules put forth by the Obama Administration (borrower defense to repayment, gainful employment, etc. ), it is slated to start a 4

Current Landscape – President’s Approval Rating Poll Date Sample Approve Disapprove Spread RCP Average 9/16 - 10/1 -- 43. 9 52. 5 -8. 6 Rasmussen Reports 9/27 - 10/1 1500 LV 48 50 -2 Quinnipiac 9/27 - 9/30 1111 RV 41 53 -12 Harvard-Harris 9/29 – 9/30 1330 RV 45 55 -10 Gallup 9/24 – 9/30 1500 A 42 53 -11 Economist/You. Gov 9/23 – 9/25 1238 RV 44 53 -9 NPR/PBS/Marist 9/22 – 9/24 802 RV 44 49 -5 Reuters/Ipsos 9/19 – 9/25 1425 LV 45 53 -8 Pew Research 9/18 – 9/24 1439 RV 40 55 -15 Fox News 9/16 – 9/19 818 LV 46 52 -6 NBC News/WSJ 9/16 – 9/19 900 RV 44 52 -8 Economist/You. Gov 9/16 – 9/18 1195 RV 44 53 -9 5

Current Landscape – President’s Approval Rating 6

Current Landscape – President’s Approval Rating 7

Current Landscape – President’s Approval Rating 8

Current Landscape – President’s Approval Rating 9

Policy Forecast 10

Policy Forecast v Like Bush and Obama, the Trump Administration has learned that it can exact real change on higher education policy in the U. S. – both good and bad. v ED delayed all pending regulations, announced that it would revise borrower defense to repayment and gainful employment rules, and plans to convene an additional neg-reg panel this year on state authorization, accreditation, innovation, etc. v Sec. De. Vos has made clear that she supports risk-sharing and lifelong learning initiatives; White House released its priorities for HEA reauthorization. v OMB wants fewer programs (President’s budget eliminated SEOG, PSLF, and subsidized loans, merged TRIO and GEARUP and sent to states, etc. ). 11

Policy Forecast v ED has focused its main attention on improving the experiences that borrowers have with Federal Student Aid and its Next Generation Financial Services Environment: o o o v Development of mobile FAFSA. Interaction with IRS for quicker processing of financial info. “Create world-class, mobile-first, mobile-complete, omnichannel engagement capabilities and a state-of-the-art technical infrastructure” – borrower experience mirrors American Express, Discover, etc. Phase One with multiple components was released earlier this year, caught up in protest by GC Services that was resolved in early September; FSA moving forward with Components A/B and C/D – then Components E/F next year (impact of approps language is unclear). 12

Policy Forecast v Relying on the technological capabilities of Next Gen, the Department cancelled its long-time unrestricted procurement for debt collection services, choosing to use the existing small business contracts to handle the work on defaulted federal student loans. o o v Cited a “substantial change” in its current needs. Developing a new approach where it will significantly enhance its engagement with borrowers who are 90 days behind on their payments. “ED expects these enhanced outreach efforts to reduce the volume of borrowers that default, improve customer service to delinquent borrowers, and lower overall delinquency levels. ” Judge recently issued injunction halting the Department’s decision, but clarified that his decision was influenced by the administrative record. 13

Policy Forecast v Claiming ownership of the federal student loan program, ED released a Notice of Interpretation preempting state student loan laws that require federal servicers to obtain a license and follow a number of requirements to operate in the respective states. o o o v The federal government has the power to regulate those companies hired by the Department to collect Federal Direct Loans, and servicing is an area “involving uniquely federal interests. ” State regulation of the servicing of FFELP loans is preempted “to the extent that it undermines uniform administration of the program. ” No effect on private education loans. ED released a notice seeking public input on dischargeability of student loans in bankruptcy – deadline was May 21 – next steps? 14

Policy Forecast v The Federal Trade Commission continues to lead “Operation Game of Loans” - Along with 11 states and the District of Columbia, it is a coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief scams. v Nationwide crackdown encompasses 36 actions by the FTC and state AGs against scammers alleged to have used deception and false promises of relief. v These third-party debt relief companies are alleged to have taken more than $95 million in illegal upfront fees from American consumers over the last few years. 15

Policy Forecast v The Bureau of Consumer Financial Protection, under Acting Director Mick Mulvaney, has moved away from “pushing the envelope, ” representing a dramatic shift in the regulatory environment. o o o Issued a series of Requests for Information on many aspects of its operations, including consumer complaint database and consumer education. Folded the Office of Students and Young Consumers into the Office of Financial Education, staff transferred to other offices. Removed student loan servicing standards from Unified Agenda, following ending of MOU with ED on sharing of information. Plans to prioritize a proposed rule on debt collection. Actions caused Ombudsman to 16

Policy Forecast v U. S. House Education and the Workforce Committee largely completed the hearing process in the 113 th and 114 th Congress, held 15 hearings. v But Chairs (Foxx/Guthrie), Ranking Members (Scott/Davis), and 12 new members caused them to hold a few additional hearings last year - March-May held hearings on financial aid simplification, accreditation reform, etc. v Committee is more partisan than ever – Republicans think the feds and spending are the problem and pushing for “one loan, one grant” program; Democrats think the federal government should play a major role in promoting equity and pushing “free college. ” v In the past - introduced and passed a series of narrowlytailored, bipartisan bills centered around transparency, more loan counseling, simplifying the FAFSA, etc. 17

Policy Forecast v In December 2017, Committee introduced/passed H. R. 4508, the PROSPER Act: o Consolidates multiple grant (SEOG), loan (subsidized and Perkins Loans), and repayment programs into a new “Federal ONE Loan Program. ” o Expands federal aid to short -term programs. o Repeals the 90 -10 rule and includes other provisions favorable to proprietary schools. o Repeals Public Service Loan Forgiveness and 18

Policy Forecast 19

Policy Forecast v The bill includes a number of provisions of interest to the industry: o Revises preferred lender list restrictions. o Allows defaulted borrowers to rehabilitate their loans twice. o Provides authority to financial aid administrators to lower annual and aggregate student loan limits. o Promotes financial literacy through enhanced counseling. o Provides Direct Loan borrowers with additional disclosures. o Mirrors language in past appropriations bills on student loan servicing. o Ensures federal law and contractual requirements preempt state and local rules impacting federal student loan servicing and collections. o Caps the amount that parents can borrower under the PLUS program. v The bill continues to await consideration by the Full House – but Foxx lacks the votes. 20

Policy Forecast v In July 2018, Committee Democrats introduced H. R. 6543, the Aim Higher Act: o Increases funding for Pell Grants. o Maintains campus-based aid programs, including Perkins Loans and SEOG. o Eliminates origination fees and allows borrowers to refinance their federal student loans. o Creates a federal-state partnership to encourage free college programs. o Repeals the “student unit record” ban and improves available postsecondary data. o Tasks the Department to conduct Title IV compliance checks instead of accreditors. o Changes the 90 -10 rule and maintains gainful employment requirements. o Directs the Department to create a Common Manual to improve 21

Policy Forecast v U. S. Senate largely completed the hearing process in the 114 th Congress, but held “a hearing a week” in January and February 2018 on financial aid simplification, accountability, innovation, and affordability in order to further lay the groundwork on HEA reauthorization. v During the hearings, Chairman Alexander and Ranking Member Murray argued about the treatment of Secretary De. Vos and implementation of the Elementary and Secondary Education Act– bipartisan negotiations never really started because of non-higher education issues. v Committee remains non-partisan, but confirmation fights and other areas have strained the Alexander and Murray relationship. v Republicans are focused on simplification and deregulation, including turning the Task Force on Higher Education Regulation recommendations into legislation, and risk-sharing. v Democrats have their own wish-lists, Murray to address homeless children, Gillibrand to address campus safety, Warren to allow 22 private loans, borrowers to refinance their federal loans and wrap-in

Policy Forecast v With the HEA reauthorization process taking longer than anticipated, budget and appropriations continue to drive federal higher education policy: o Bipartisan Budget Act of 2015 Amended TCPA to authorize the use of predictive dialer technology to collect a debt owed/guaranteed by the United States. o Consolidated Appropriations Act, 2016 - Allocated loan volume to federal student loan servicers on performance and capacity. Amended the Higher Education Act to increase from 95 to 100 percent reinsurance payments on default claims paid by guaranty agencies to lenders. Amended the Higher Education Act to extend authority for Account Maintenance Fees. o Further Continuing and Security Assistance Appropriations Act, 2017 – Amended the Higher Education Act to extend authority for Account 23 Maintenance Fees.

Policy Forecast o o Consolidated Appropriations Act, 2017 – Reinstated Year-Round Pell Grants. Required the Department of Education to allow all of its federal student loan servicers to offer consolidation loans. Required the Department of Education to put in place a plan under which it will give credit for subcontracting with small businesses, including state-based nonprofit organizations with expertise in assisting borrowers. Bipartisan Budget Act, 2018 – Twoyear budget agreement that increased discretionary spending for education and extended Account Maintenance Fees until September 30, 2018. o Consolidated Appropriations Act, 2018 – Prohibited the Department from moving forward on the federal servicing procurement unless it includes the participation of multiple servicers and they manage “a unique portfolio of borrower accounts and the full life-cycle of loans from disbursement to pay-off. ” Modified the Public Service Loan Forgiveness Program to assist borrowers enrolled in ineligible repayment plans. o Consolidated Appropriations Act, 2019 – Report language directing the Small Business Administration to provide subcontracting credit for ED’s Title IV 24 program contracts to small businesses and state and nonprofit

Policy Forecast v v Outside of the Trump Administration and Congress, there are states, think-tanks, trade associations, and consumer groups interested in higher education reform. v States are passing legislation to create Student Loan Ombudsmen and license federal and private student loan servicers (new fees, disclosures, prohibitions, etc. ), provide annual disclosures to students on their student loan debt, beginning college promise programs, debating refinancing programs for certain professionals, etc. Growing consensus on the main problems and challenges with the higher education system: o o o “How do you promote a highly-educated workforce focused on college access AND completion? ” “How do you improve institutional quality? ” “How do you make college 25 more affordable? ”

Policy Forecast v But there continues to be no consensus on the role of the federal government to provide solutions to address these challenges. v Higher education, including financing, continues to be a high-profile issue. v More players in higher education policy than in past (ED, CFPB, Treasury, states, consumer groups, etc. ). v Federal Student Aid/federal financial aid system envisions limited role for states. v Younger and inexperienced House and Senate members and staff responsible for policy development, many with student loans. 26

Policy Forecast v. With many moving parts, can consensus be achieved? q Accreditation reform q Automatic payroll deduction q Borrower defenses to repayment q Campus-based aid programs q Competency-based education q Debt-free college q Federal-state partnership q Federal student data system q Financial education/literacy q Gainful employment for all schools Income share agreements One loan, one grant program “Pell-Well” concept Private loan regulation Public service loan forgiveness Repayment rates v. default rates Risk-sharing proposals Sexual abuse protections Simplifying repayment plans Student loan servicing changes Teacher preparation improvements q Year-Round Pell Grants q 90 -10 and other prop school issues q q q 27

Snapshot of Financial Aid Source: College Board 28

Election Outlook 29

Election Outlook Key Questions Going Into November 2018 v Can Democrats defend all of their vulnerable seats and pick up a few seats to claim a majority in the Senate? v Can Democrats pick up the House with a lack-luster agenda or will gerrymandering save Republicans? v Will the President’s low approval ratings drag down his party, similar to historical projections? v Can Democrats pick up a significant number of Governor seats in the 36 states that have elections, and control redistricting for the next 10 years? 30

Election Outlook – U. S. Senate Breakdown: Republicans - 51 Democrats - 49 2018 (ran in 2012 with Obama): Democrats up 24 Republicans up 9 2020 (ran in 2014 with Tea Party): Republicans up 21 Democrats up 31

Election Outlook – U. S. Senate RCP: Democrats – 43/ Toss-Up – 9 / 32

Election Outlook - U. S. Senate v Democrats: o o o FL - Nelson (D) v. Scott (R) IN – Donnelly (D) v. Braun (R) MO – Mc. Caskill (D) v. Hawley (R) ND – Heitkamp (D) v. Cramer (R) WV – Manchin (D) v. Morrisey (R) v Republicans: o AZ – Mc. Sally (R) v. Sinema (D) o NV - Heller (R) v. Rosen (D) o TN – Blackburn (R) v. Bredesen 33

Election Outlook - U. S. Senate A cautionary tale when looking at the polls… 34

Election Outlook - U. S. Senate Race/Topic Spread Poll Results FL Senate - Scott vs. Nelson WCTV-TV Nelson 45, Scott 44 Nelson +1 WV Senate – Manchin v. Morrisey WSAZ-TV Manchin 46, Morrisey 38 Manchin +8 ND Senate - Heitkamp vs. Cramer NBC Valley News Heitkamp 41, Cramer 51 Cramer +10 NV Senate Heller v. Rosen CNN Heller 43, Rosen 47 Rosen +4 NJ Senate - Menendez vs. Hugin Stockton University Menendez 45, Hugin 43 Menendez +2 MO Senate - Mc. Caskill vs. Hawley CNN Mc. Caskill 47, Hawley 44 Mc. Caskill +3 MO Senate – Mc. Caskill vs. Hawley Missouri Scout Mc. Caskill 46, Hawley, 48 Hawley +2 PA Senate – Casey v. Barletta Franklin and Marshall Casey 50, Barletta 33 Casey +17 MI Senate – James v. Stabenow EPIC-MRA Stabenow 56, James 33 Stabenow +23 CA Senate – Feinstein v. de Leon PPIC Feinstein 40, de Leon 29 Feinstein +11 DE Senate – Carper v. Arlett University of Delaware Carper 61, Arlett 24 Carper +37 OH Senate – Brown v. Renacci NBC News/Marist Brown 52, Renacci 39 Brown +13 FL Senate - Scott vs. Nelson NBC News/Marist Nelson 48, Scott 45 Nelson +3 FL Senate - Scott vs. Nelson Quinnipiac Nelson 53, 35 Scott 46 Nelson +7

Aftermath of the Nov Election – U. S. Senate v If the chamber flips, largely same Democratic and Republican leadership –Schumer/Durbin and Mc. Connell/Thune v Same narrow majority on the floor and in committee – 51 -49/52 -48 either way v New Committee Chairs (Murray at HELP and Sanders at Budget) v New Ranking Members (Alexander or Enzi at HELP? Shelby at Appropriations) v What does this mean for reauthorization of the Higher Education Act? What priorities will be on the table? 36

Election Outlook – U. S. House Breakdown: Republicans - 236 Democrats – 193 Vacant - 6 (Ds need +25 seats) Retirements: Republicans – 37 Democrats – 18 Primary Defeats: Rep. Pittenger (RNC) Rep. Sanford (R-SC) Rep. Crowley (DNY) Rep. 37 Capuano (DMA)

Election Outlook – U. S. House Breakdown by Party - 218 to Claim Majority Solid Republican Democrats 206 Likely Republican Lean Republican Toss-Up Lean Democrat Likely Democrat Solid Democrat Republicans 189 Toss-Up - 40 38

Election Outlook - U. S. House v Top 10 Most Endangered Incumbents – All Republicans: o IA-01 - Blum (R) v. Finkenauer (D) o PA-17 – Rothfus (R) v. Lamb (D) o VA-07 - Comstock (R) v. Wexton (D) o o o o MN-02 – Lewis (R) v. Craig (D) NY-22 – Tenney (R) v. Brindisi (D) NY-19 – Faso (R) v. Delgado (D) CA-48 – Rohrabacher (R) v. Rouda (D) CA-25 – Knight (R) v. Hill (D) CO-06 – Coffman (R) v. Crow (D) KS-02 – Yoder (R) v. Davids (D) 39

Election Outlook - U. S. House 9/16 – 9/30 D +7. 4 9/29 - 9/30 D +8 9/27 - 9/30 42 9/26 - 9/27 D +9 9/23 - 9/25 D +8 9/22 - 9/24 D +7 9/19 - 9/25 D +7 9/18 - 9/24 D +10 9/17 - 9/23 D +9 9/16 - 9/20 D +3 9/16 - 9/19 42 9/16 - 9/19 D +8 9/16 - 9/18 D +4 9/12 - 9/18 D +7 9/9 - 9/13 RCP Average Harvard-Harris D +7 1330 RV Quinnipiac Harvard-Harris 48. 5 41. 1 45 37 1111 RV 49 1228 RV 45 36 Economist/You. Gov 1238 RV 46 38 NPR/PBS/Marist 802 RV 48 41 Reuters/Ipsos 1425 LV 48 41 Pew Research 1439 RV 52 42 Gallup 1308 RV 51 42 Rasmussen Reports 2500 LV 46 43 FOX News 818 LV 49 NBC News/Wall St. Jrnl 594 LV 51 43 Economist/You. Gov 1195 RV 45 41 48 41 42 D +5 Reuters/Ipsos Rasmussen Reports 2500 LV 1304 LV 40 47

Aftermath of the Nov Election House v Speaker Ryan announced his retirement in a challenging midterm election. If Republicans lose the majority, will Mc. Carthy and Scalise be replaced as well? No Changes to Democratic leadership v House Education and the Workforce Committee Chair changes hands v House Appropriations Committee Chair changes hands either way; Rep. Frelinghuysen retiring, Reps. Aderholt, Granger, Cole, etc. are running v What does this mean for H. R. 41

Election Outlook – Governors RCP: Democrats – 19 / Toss-Up – 8 / 42

What Does It All Mean? For the higher education financing industry, we will enjoy a better federal regulatory environment because of the current Administration, but continue to face a challenging policy and political environment, especially in Congress – and uncertainty at the state level. And Hold on! Buckle up! 43

Thank you! Any Questions? 44