Wake Forest Law Review
21Oct

What’s Mine is Yours: Income Sharing Agreements in Higher Education

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By: Christian Schweitzer

The runaway freight train that is the American student debt crisis continues to accelerate, as borrowers now owe a collective $1.73 trillion in debt.[1] As President Biden and Congress press forward with retroactive reforms to cancel debt for certain limited classes of borrowers,[2] it seems worthwhile to return to conversations about forward-looking reforms to minimize new debt. One potential guardrail to new student debt is the Income Share Agreement (“ISA”),[3] a financing product that serves as an alternative to student loans by offering students educational funding in exchange for the student’s promise to pay the lender a fixed portion of their future income for a set number of years.[4]

Though the principles that underlie ISAs arguably date back to human capital contracts envisioned by free marketeer Milton Friedman,[5] their proliferation into the realm of higher education is relatively recent. In 2002, a Chilean company called Lumni created a fund to invest in students pursuing higher education, with the expected returns to be an agreed percentage of the students’ future income for ten years following graduation.[6] Since then, Lumni and others have expanded to the United States, and the ISA model has been adopted by nonprofit, for-profit, and government entities.[7] While ISAs are increasing in popularity, data on the ISA education financing market share is lacking.[8] Analyzing the client base of Vemo,[9] a leading education finance intermediary, as a proxy, researchers estimate that in addition to private ISA funds, roughly sixty colleges in the U.S. offered ISA financing as of July 2019, up from eight colleges in 2017.[10]

Advocates for the expansion of ISAs see them as more than an alternative to student loans but offering a host of other benefits, including equality of opportunity, student protections, information transparency, innovation, and student support.[11] As a quintessentially free-market device, these experts argue that ISAs open the doors of higher education to students of all racial and financial backgrounds, without the need for federal subsidies.[12] Further, ISAs can be more student protective than traditional private loans, because the risk of low post-graduate income or unemployment is allocated to the lender.[13] Because ISAs carry such low risks to students, they may be attractive to debt-averse students for whom higher education would be otherwise inaccessible.[14] Additionally, ISAs incentivize lenders to offer academic and career support to students, because students who go on to be high earners present the greatest return on investment.[15] Lastly, competition between lenders should encourage innovation in the delivery of financing and education itself, as investors will be more willing to dedicate dollars towards more venerable education providers.[16]

As ISAs have grown in popularity, they have also been subjected to a great deal of scrutiny, including from student’s rights organizations.[17] The harshest of perspectives describes the ISA arrangement as a modern-day indentured servitude because they create the opportunity for a borrower’s repayment to be much more than the value of their education.[18] Indeed, there are legitimate moral concerns created by allowing private funds and corporations to effectively create ownership interests in aspiring young professionals.[19] Additionally, there are practical concerns that ISAs are ripe for unfairness due to opportunities presented for unethical conduct by both lenders and borrowers.[20] Borrower exploitation of the system may manifest as either adverse selection, opting into an ISA knowing privately they intend to earn less than declared in the application process, or as moral hazard, where a borrower does not work as hard for economic success because earning more will lead to paying more to the lender.[21] Lender exploitation could arise by drafting unfair terms for the rate or duration of repayment, as well as inequality in selecting groups who are most often approved for funding.[22] Lastly, critics note that additional risks for investors in ISAs could lead to repayment ultimately being more expensive for successful students than traditional student loans. [23]

Potential weaknesses aside, a nationally representative survey found that 46% of individuals support ISAs to only 22% who oppose them.[24] Given this support and the utility of ISAs, what can regulators do to mitigate their harms and protect borrowers? Some ISA researchers have recommended comprehensive drafting of new regulations which balance controls against likely borrower and lender abuses, in a manner that attempts to anticipate new loopholes lending contracts could include without curbing the innovation that makes ISAs desirable.[25] On the contrary, borrower advocates have argued that ISAs operate similarly to traditional credit agreements and thus can be governed by existing consumer financial protection regimes at the state and federal level, such as the Equal Credit Opportunity Act.[26] Still, others have called for analysis on a case-by-case basis, advocating for simply categorizing ISAs as analogous to a type of traditional transaction and then regulating it under existing regimes. [27]

ISAs are not a one-size-fits-all solution to ongoing student debt issues in the United States. However, they can be a tool in the swiss army knife of policymakers that contributes to meaningful progress. Especially for lower-income and risk-averse students, ISAs can provide a pathway to higher education that traditional student loans do not. For ISAs to be most effective, regulators must continue to work towards solutions that leave the door open to lending innovation, while cutting off avenues for predatory practices. With proper oversight, the broader implementation of ISA funding can be an important piece of next-generation education reform.

[1] Abigail Johnson Hess, The U.S. has a Record-breaking $1.73 Trillion in Student Debt—Borrowers from These States Owe the Most on Average, CNBC (Sept. 9, 2021, 1:03 PM), https://www.cnbc.com/2021/09/09/america-has-1point73-trillion-in-student-debtborrowers-from-these-states-owe-the-most.html.

[2] Zack Friedman, Biden has Cancelled $11.5 Billion of Student Loans, but Here’s What This Means for Student Loan Forgiveness, Forbes (Oct. 12, 2021, 8:30 AM), https://www.forbes.com/sites/zackfriedman/2021/10/12/biden-has-cancelled-115-billion-of-student-loans-but-heres-what-this-means-for-student-loan-forgiveness/?sh=3a8546ea7fd7.

[3] Income Share Agreements, Student Borrower Prot. Ctr., https://protectborrowers.org/income-share-agreements/ (last visited Oct. 18, 2021).

[4] Id.

[5] Shu-Yi Oei & Diane Ring, Human Equity: Regulating the New Income Share Agreements, 68 Vand. L. Rev. 681, 685 (2015).

[6] Id. at 693–94.

[7] Id. at 693.

[8] Richard Price, Unlocking the Potential of ISAs to Tackle the Student Debt Crisis, Christensen Inst. 7 (Aug. 2019), https://files.eric.ed.gov/fulltext/ED603097.pdf. 

[9] About Us, Vemo, https://vemoeducation.com/about-us/ (last visited Oct. 18, 2021).

[10] See Price, supra note 8, at 7.

[11] Miguel Palacios et al., Investing in Value, Sharing Risk: Financing Higher Education Through Income Sharing Agreements, Am. Enter. Inst. 1–2 (Feb. 2014), https://vtechworks.lib.vt.edu/bitstream/handle/10919/95112/InvestingValueSharingRisk.pdf?sequence=1.

[12] Id. at 7.

[13] Id. at 8.

[14] Id.

[15] Id. at 9.

[16] Id. at 8–9.

[17] See Income Share Agreements, supra note 3.

[18] Elliot Hannon, Is This Indentured Servitude or the New Venture Capital?, SLATE (Oct. 29, 2013, 10:45 AM), https://slate.com/business/2013/10/companies-look-to-loan-you-money-in-return-for-a-percentage-of-your-future-earnings.html.

[19] See, e.g., Ken Previti, The American School for Indentured Servants, RECLAIM REFORM (June 19, 2013), https://reclaimreform.wordpress.com/2013/06/19/the-american-school-for-indentured-servants/ (discussing how corporations are legally indenturing college students as a creative means to profit).

[20] See Oei & Ring supra note 5, at 708.

[21] Greg Madonia & Austin Smith, My Future or Our Future? The Disincentive Impact of Income Share Agreements, Mia. Univ. Farmer Sch. of Bus. 1, 21 (2016).

[22] Stephen Hayes & Alex Milton, Solving Student Debt or Compounding the Crisis? Income Share Agreements and Fair Lending Risk, Student Borrower Prot. Ctr. 4–5 (2020), https://protectborrowers.org/wp-content/uploads/2020/07/SBPC_Hayes_Milton_Relman_ISA.pdf.

[23] See generally Jeff Schwartz, The Corporatization of Personhood, 2015 U. Ill. L. Rev. 1119 (2015) (explaining that ISA fees and other social or transactional costs can add up to make the arrangement burdensome for the borrower).

[24] Jennifer Delaney et al., Perceptions of Income Share Agreements: Evidence from a Public Opinion Survey, 45 J. Edu. Fin. 97, 106 (2019).

[25] Dubravka Ritter & Douglas Webber, Modern Income-Share Agreements in Postsecondary Education: Features, Theory, Applications, Fed. Rsrv. Bank of Phila. 34 (Dec. 2019), https://www.luminafoundation.org/wp-content/uploads/2020/01/modern-isas.pdf.

[26] Hayes & Milton, supra note 22, at 9. Benjamin Roesch, Applying State Consumer Finance and Protection Laws to Income Share Agreements, Student Borrower Prot. Ctr. 7–10 (Aug. 2020), https://protectborrowers.org/wp-content/uploads/2020/08/ISAs-and-State-Law.pdf.

[27] Oei & Ring, supra note 5, at 709–10.

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18Feb

Testing for an Antitrust Investigation: Why the Decision to Remove College Admissions Requirements Raises Anticompetitive Questions

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By Sarah Keller

Antitrust laws ensure that companies are not artificially impacting or controlling demand for products.[1]  Higher education institutions are uniquely situated multibillion-dollar businesses whose product is not simply degrees—but also scholarship, athletics, and the arts.[2]  Although these institutions have qualities that differentiate them from traditional businesses, they remain subject to the Sherman Act’s antitrust regulations.[3]  Notably, the Sherman Act applies regardless of the institution’s financial structure or funding sources.  Educational nonprofit status does not shield Sherman Act coverage and oversight applies whether the institution is for-profit or nonprofit.[4]  Additionally, state institutions should be specifically aware that state actor antitrust immunity[5] is often narrowly construed when applied to public institutions of higher education, subjecting both public and private institutions to antitrust regulation.[6]  Regardless of the institution’s size, structure, or funding sources, the institution competes with competitors, and is therefore subject to the same regulations as more traditional businesses. 

Generally, antitrust violations require a conspiracy, knowingly joined and formed, to affect interstate commerce or restrain competition.[7]  The conspiracy or collusive agreement need not be a formal contractual agreement and can arise informally.[8]  Enforcement of informal agreements may create tension with higher education’s spirit of collaboration.[9]  Often, colleges and universities use their peers to gain insight into “best practices” and share approaches to challenges common to the cohort.[10]  While the exchange of approaches and ideas may be an important and accepted practice for like-institutions, under federal antitrust law this action remains the exchange of ideas between competitors.[11]  As a result, antitrust lurks unassumingly behind many of the general practices of higher education administration.[12]  In antitrust regulation, collaboration among competitors does not raise antitrust concerns unless it restrains competition.[13]  In higher education, competition occurs not merely in outputs such as research, athletics, and educational outcomes, but also in inputs through student admissions. 

College admissions provide some of the strongest competition in the country.  In 2018, Harvard accepted less than 5 percent of its 43,000 applicants.[14]  The National Association of College Admissions Counseling reports that selective universities receive over one-third of all college applications yet enroll only 22 percent of freshman students.[15]  The level of competition in admissions is palpable,[16] adjudicated,[17] and hoodwinked[18] constantly. 

Most recently, a debate about college admissions testing has created a competitive debate.[19]  Colleges without testing requirements get more applicants,[20] increasing their pool of admittable students and their potential competitive advantage.  Yet, colleges should be aware that a joint decision to remove testing may be considered a removal of competition through improper cooperation between competitors.  For example, the agreement between medical schools to participate in a uniform residency admission protocol through the National Resident Matching Program (“NRMP”)[21] required a judicial and codified exception from antitrust regulation to continue operating.[22]  The NRMP creates cooperation between competitor medical schools, which raised an antitrust concern and required an exception to continue.[23]  This exception was granted based on the NRMP system’s established nature.[24]  Creation of an agreement to remove admissions testing, as a new and unestablished agreement, would likely not receive the same deference.[25]  

Prior to the pandemic, the movement away from admissions testing was growing.[26]  Early removal of testing occurred at less selective institutions; however, more selective universities followed suit in 2018 when the University of Chicago removed testing standards in admissions.[27]  Following Chicago’s decision, small and selective institutions such as Bucknell University and DePauw University also made the shift away from testing.[28]  The issue reached national publicity, pandemic notwithstanding, in 2020 when the California system chose to remove testing,[29] despite research from their own faculty finding that testing is the best predictor of collegiate success.[30]  

The pandemic-induced moratorium on admissions testing requirements is a band-aid to a bullet hole, and the issue remains unresolved beyond the 2022 admissions cycle.[31]  While COVID-19 changed admissions protocols through necessity, continued change should be made thoughtfully to avoid subjecting the institution to antitrust issues.  Modifying who attends the school, or who competes for positions at the school, if done collusively will implicate antitrust concerns.[32]  Instructive caution comes from the Department of Justice’s recent decision not to bring charges against eight D.C.-area prep schools.  In 2018 eight prep schools jointly announced a curriculum transition away from providing Advanced Placement (“AP”) courses.[33]  After extensive investigation, the Department of Justice dropped charges in January 2021 out of respect for the heavy burden on schools as a result of the pandemic.  This decision was despite evidence of an agreement between the schools to modify their curricula.[34]  Relief was granted due to extenuating circumstances; however, relief is situational, and this investigation offers helpful guidance. 

The competitive landscape between the prep schools would have shifted if only a few schools had eliminated AP courses.  Offering AP courses can affect applicant interest, which subsequently impacts tuition dollars and financial competition.  The same is true for removal of college admissions testing.  Colleges choosing to forego testing requirements receive more applications,[35] increasing their pool of admittable students and their potential competitive advantage.  Logically, competition between collegiate institutions will exist without test scores, just like competition between the prep schools would exist without AP courses.[36]  The concern here is the existence of an agreement between competitors to implement the change, which would constitute impermissible cooperation.

Collusive action need not be malicious.[37]  Defending collusive action that controls or modifies the competitive landscape with assertions of corrective or good intent may not be enough.  Again, the Department of Justice’s investigation into the D.C. prep schools is instructive.  The prep schools framed their curriculum decision as a response to the “diminished utility of AP courses,”  stating the goal of the AP program is not its modern reality.[38]  Similarly, collegiate institutions removing testing requirements cite that standardized testing has not fulfilled its original intent of diversifying the Ivy League.[39]  This lack of fulfillment assertion comports with recognition among some schools, advocates, and scholars that standardized testing favors wealthy and non-minority students who can afford test prep and multiple test attempts.[40]  However, antitrust does not distinguish between selfish or social welfare motives: collusive action cuts both ways.[41]  Collusive removal of competition, regardless of a socially beneficial intent, is a modification of competition between schools.  If admissions testing modification happens in concert with peers, colleges may be subject to antitrust investigations.

This is not to say testing should not be removed, simply that colleges should be careful to make changes after concerted internal deliberation.  The California system’s new admissions policy is the decision of one system with one overarching President and Board of Regents.[42]  This action is not a decision impacting competition because this decision is within a system, not between systems.  While other states also have state-wide public higher education systems,[43] this is not always the case.  A state with separately operating state institutions, each with unique governance structures, could be subject to antitrust investigation if it colluded with outside institutions on a decision impacting competition, such as removal of admissions testing.  Impermissible external deliberation can occur within and between states and remains collusive whether the institutions are public or private.[44]  

While communication on “best practices” is considered commonplace in higher education administration,[45] administrators should keep deliberation internal when developing a strategy for accepting or not accepting testing in college admissions.[46]  Relief granted to educational institutions in light of COVID-19[47] will not last indefinitely.  Social aims are not exempt from antitrust if they have an anticompetitive result,[48] and collusion to remove test score quantifiers in the application process could, because of its impact on competition, place schools at risk.  Institutions exploring the removal of testing from admissions requirements should proceed with caution. 

[1] Debra Wilson, Proceed with Caution: How Antitrust Law Affects Schools, The Nat’l Ass’n of Indep. Schs. (2017), https://www.nais.org/magazine/independent-school/summer-2017/proceed-with-caution/.

[2] Nat’l Ctr. for Educ. Stat., Postsecondary Institution Revenues (2020), https://nces.ed.gov/programs/coe/indicator_cud.asp#:~:text=In%202017%E2%80%9318%2C%20total%20revenues,at%20private%20for%2Dprofit%20institutions.  Over $671 billion flowed into degree-granting higher education institutions in 2018. Id.

[3] 15 U.S.C. §§ 1–7; see Mary Strimel, DOJ Enforcement Update, McDermott Will & Emery: Antitrust Alert (Apr. 25, 2018), https://www.antitrustalert.com/2018/04/doj-enforcement-update-higher-education/; Jeffrey Selingo, The Best Ways to Fix College Admissions Are Probably Illegal, The Atl. (Apr. 27, 2018), https://www.theatlantic.com/education/archive/2018/04/college-admissions-antitrust/559088/.  Examples of antitrust issues occurring in higher education include financial aid decisions, faculty recruitment, and use of the Common Application. Molly Moriarty Lane et al., Colleges and Universities: Litigation Challenges and Risk Mitigation in the Face of COVID-19, Morgan Lewis: LawFlash (May 21, 2020), https://www.morganlewis.com/pubs/2020/05/colleges-and-universities-litigation-challenges-and-risk-mitigation-in-the-face-of-covid-19-cv19-lf; see also United States v. Brown Univ., 5 F.3d 658 (3d Cir. 1993).

[4] Strimel, supra note 3.

[5] Ann O’Brien & Brady Cummins, Limits of State Action Protection for Colleges and Universities, BakerHostetler: Antitrust Advoc. (June 11, 2020), https://www.antitrustadvocate.com/2020/06/11/limits-of-state-action-protection-for-colleges-and-universities/#:~:text=The%20antitrust%20laws%20prohibit%20colleges,recruitment%20of%20students%20and%20faculty; Jennifer R. Scullion, When Are Universities and Executive Agencies “State Actors” for Antitrust Immunity?, Proskauer: Minding Your Bus. Litig. (June 24, 2016), https://www.mindingyourbusinesslitigation.com/2016/06/when-are-universities-and-executive-agencies-state-actors-for-antitrust-immunity/#:~:text=More%20than%20fifty%20years%20ago,relationship%20with%20%E2%80%9CParker%E2%80%9D%20immunity.

[6] O’Brien & Cummins, supra note 5.

[7] U.S. Dep’t of Just., Antitrust Resource Manual (Archived) (Nov. 2017), https://www.justice.gov/archives/jm/antitrust-resource-manual-1-attorney-generals-policy-statement.

[8] Lane et al., supra note 3.

[9] Id.; O’Brien & Cummins, supra note 5.

[10] Lane et al., supra note 3; O’Brien & Cummins, supra note 5; see also Paul Basken, COVID Response ‘Could Expose U.S. Colleges to Antitrust Laws,’ Times Higher Ed. (Apr. 30, 2020), https://www.timeshighereducation.com/news/covid-response-could-expose-us-colleges-antitrust-laws.

[11] Lane et al., supra note 3.

[12] Basken, supra note 10.

[13] Michael Bloom, Doing Good Well, Fed. Trade Comm’n, Bureau of Competition (Oct. 20, 2016, 3:39 p.m.), https://www.ftc.gov/news-events/blogs/competition-matters/2015/10/doing-good-well.

[14] Selingo, supra note 3.

[15] Nat’l Ass’n of Coll. Admissions Counseling, 2017 State of College Admissions: Chapter 1 College Applications (2017), https://www.nacacnet.org/globalassets/documents/publications/research/soca17_ch1.pdf.

[16] Abby Jackson, It Was the Hardest Year on Record to Get in to Elite Colleges: Admissions Experts Explain Why, Bus. Insider (Dec. 20, 2017, 11:33 p.m.), https://www.businessinsider.com/former-ivy-league-admissions-directors-say-its-harder-than-ever-to-get-into-elite-schools-2016-11.

[17] Scott Jaschik, Appeals Court Backs Harvard on Affirmative Action, Inside Higher Ed. (Nov. 16, 2020), https://www.insidehighered.com/admissions/article/2020/11/16/appeals-court-backs-harvard-affirmative-action.

[18] Kate Taylor, Parents Paid to Open College Doors, Now They’re Spending to Limit Prison Time, N.Y. Times (Oct. 22, 2019), https://www.nytimes.com/2019/10/03/us/college-admissions-scandal-consultants.html.

[19] The Editorial Board, The Pandemic Changed College Admissions. That’s a Good Thing, Bos. Globe (Feb. 3, 2021 4:00 a.m.), https://www.bostonglobe.com/2021/02/03/opinion/pandemic-changed-college-admissions-thats-good-thing/.

[20] Scott Jaschik, The College Board’s (Smaller) Future, Inside Higher Ed. (Jan. 25, 2021), https://www.insidehighered.com/admissions/article/2021/01/25/changes-sat-prompt-discussion-future-college-board.

[21] The Match: Nat’l Resident Matching Prog., https://www.nrmp.org/about-nrmp/ (last visited Feb. 17, 2021).

[22] Jung v. Ass’n of Am. Med. Coll., 339 F. Supp. 2d 26, 46 (D.D.C. 2004) (dismissing a previous finding that plaintiffs of an antitrust class action adequately alleged the existence of a collusive agreement to restrain competition in recruitment for medical residency interns through use of the National Resident Matching Program after promulgation of 15 U.S.C. § 37b). Jung and the class alleged the National Resident Matching Program , as the only avenue for placement in medical residency programs, constituted a collusive action restraining competition under the Sherman Act.  Jung v. Ass’n of Am. Med. Coll., 300 F. Supp. 2d 119, 125 (D.D.C. 2004). Following the initial motion practice in February 2004 and the prior to further motion practice in August 2004, President Bush signed the Pension Funding Equity Act of 2004. Pub. L. No. 108-218, 118 Stat. 596. The Act contained a specific antitrust exception for medical schools due to the NRMP’s established nature.  15 U.S.C. § 37b(a)(1)(A).

[23] 15 U.S.C. § 37b.

[24] Id. § 37b(a)(1)(A).

[25] Selingo, supra note 3.

[26] Scott Jaschik, Chicago Drops SAT/ACT Requirement. Will Others Follow?, Inside Higher Ed. (June 19, 2018), https://www.insidehighered.com/admissions/article/2018/06/19/university-chicago-drops-satact-requirement.

[27] Id.

[28] Id.

[29] Shawn Hubler, Why Is the SAT Falling Out of Favor?, N.Y. Times (May 23, 2020), https://www.nytimes.com/2020/05/23/us/SAT-ACT-abolish-debate-california.html.

[30] Id. (comparing test scores to high school grades). This research study itself, however, contradicts a Georgetown University report finding that based on test scores alone, only 53 percent of students at the 200 most selective schools would have been admitted.  Mack DeGeurin, 27 Great Schools That Don’t Require SAT or ACT Scores, Bus. Insider (July 2, 2019 4:09 p.m.), https://www.insider.com/27-great-schools-that-dont-require-sat-or-act-scores-2019-7.

[31] Nick Anderson, Applications Surge After Big-Name Colleges Halt SAT and ACT Testing Rules, Wash. Post (Jan. 29, 2021 4:28 p.m.), https://www.washingtonpost.com/local/education/harvard-uva-sat-act-requirement-college-applications/2021/01/29/90566562-6176-11eb-9430-e7c77b5b0297_story.html.

[32] Strimel, supra note 3.

[33] Press Release, Dep’t of Just., Justice Department Concludes Its Investigation of D.C.-area Schools’ Decision to Stop Offering Advanced Placement Courses (Jan. 11, 2021), https://www.justice.gov/opa/pr/justice-department-concludes-its-investigation-dc-area-private-high-schools-decision-stop.

[34] Id.

[35] Jaschik, supra note 20.

[36] Lee Shulman Bierer, Countdown to College: Why Is College Admission Getting More Competitive?, Omaha World-Herald (Oct. 23, 2020), https://omaha.com/lifestyles/parenting/countdown-to-college-why-is-college-admission-getting-more-competitive/article_392fda55-502b-5eaf-bd9e-46c466ecd282.html (“Among the top tier of public and private liberal arts institutions, applications have increased by one-third or more during the last five years. Yet the available spaces have remained constant.”); see also Sherri Dalphonse et al., Private School Confidential: Things Washington Parents Need to Know, Washingtonian (Oct. 18, 2018), https://www.washingtonian.com/2018/10/18/private-school-confidential-25-things-washington-parents-need-to-know/#1-Campuses-have-gotten-swankier- (stating the top D.C. prep schools “still have much lower acceptance rates—and applicant pools have gotten more competitive”).

[37] Jung v. Ass’n of Am. Med. Coll., 339 F. Supp. 2d 26, 37 (D.D.C. 2004) (“If lawful acts are used as the means to effectuate an antitrust conspiracy, the conspiracy itself is still unlawful.”).

[38] Scott Jaschick, Rejecting AP Courses, Inside Higher Ed. (June 19, 2018), https://www.insidehighered.com/news/2018/06/19/eight-private-high-schools-washington-area-are-dropping-out-ap-program (“The AP program, the Washington private high schools say, was started with the goal of helping students finish college early, and yet few students do so.”).

[39] Hubler, supra note 29.

[40] Id.

[41] Bloom, supra note 13. “For better or worse, folks in the educational field think that what they do is so important on a societal level that they’re exceptional, and that the ordinary rules just shouldn’t apply to them . . . and none of that’s true.” Basken, supra note 10.

[42] U. of Cal., Organizational Chart (Dec. 12, 2020), https://www.ucop.edu/president/_files/uc-org-chart.pdf.

[43] See, e.g., The U. of Tex. Sys., https://www.utsystem.edu/administration (last visited Feb. 17, 2021); The State U. of N.Y., https://www.suny.edu/about/ (last visited Feb. 17, 2021).

[44] O’Brien & Cummins, supra note 5.

[45] Lane et al., supra note 3.

[46] Jung v. Ass’n of Am. Med. Coll., 339 F. Supp. 2d 26, 37 (D.D.C. 2004) (“If lawful acts are used as the means to effectuate an antitrust conspiracy, the conspiracy itself is still unlawful.”); see also Lane et al., supra note 3; O’Brien & Cummins, supra note 5.

[47] See Press Release, supra note 33.

[48] See Basken, supra note 10; Bloom, supra note 13.

Post Image by Nguyen Dang Hoang Nhu on Unsplash.

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19Feb

It’s Time for School: The Long Wait for Reauthorization of the Higher Education Act

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By Greg Berman

On October 15, 2019, Representative Bobby Scott (D-VA) introduced the College Affordability Act.[1]  The bill contains sweeping reforms in the higher education sector, including expanding Pell Grant eligibility to undocumented and incarcerated students, overhauling the federal loan repayment system, and tethering the maximum Pell Grant award to inflation.[2]  The College Affordability Act also revives policy initiatives brought by its 2018 predecessor,[3] which contained many of the same provisions but quickly floundered in the Republican-led House.[4]  Now, however, with Democrats firmly in control of the House of Representatives for the first time since 2011, some statisticians have estimated that the bill could have a chance of being enacted this term.[5]  Enacting this bill would be noteworthy for many reasons.  For starters, its comprehensive reforms to higher education will affect millions of students attending post-secondary schools.[6]  It also would ban predatory for-profit schools from receiving funds from any federal grant program.[7] However, perhaps most notably, enacting the College Affordability Act would finally reauthorize the Higher Education Act of 1965, a feat that has not been accomplished since 2008.[8] 

But why is “reauthorizing” the Higher Education Act of 1965 such a big deal?  What even is the Higher Education Act of 1965?  The Higher Education Act of 1965, better known as the HEA, was a key component of President Johnson’s “Great Society” initiative.[9]  The HEA created a series of federal aid programs relating to higher education, and currently governs all of the federal money that goes into colleges and universities.[10]  Because of the volatile nature of higher education, the drafters of the HEA feared that the bill would quickly become outdated if not periodically amended.[11]  As such, the drafters placed numerous sunset provisions throughout the HEA, ensuring that Congress would return to the bill every four to six years and “reauthorize” its funding.[12]

In 1968, only three years after first passing the HEA, Congress had its first opportunity to reauthorize the bill.[13]  In its first reauthorization, Congress only made small alterations to the bill, creating new grant programs for disadvantaged families while increasing the funding going towards existing programs.[14]  The HEA was next reauthorized from the Higher Education Amendments of 1972.  Even though Richard Nixon, a Republican, was now the president, the amendments still passed with bipartisan support.[15]  In fact, this 1972 reauthorization greatly expanded the purview of the HEA, creating the Federal Pell Grant program to provide financial assistance directly to students in need.[16]  Following this trend of bipartisanship, Congress reauthorized the HEA in 1976, 1980, 1986, 1992, and 1998.[17]  Each iteration of the act contained differing provisions, depending on the party controlling the legislative branch at the time, yet still were consistently ratified without lengthy delays.[18]  However, that all changed while Congress was attempting to reauthorize the HEA after the 1998 amendments.

In 2008, President George W. Bush signed into law the Higher Education Opportunity Act, reauthorizing the HEA for the first time since 1998.[19]  The HEA was actually due for full-scale reauthorization five years earlier, but political gridlock forced lawmakers to enact a then “unprecedented” fourteen extensions of the HEA’s statutory deadline.[20]  The Higher Education Opportunity Act took effect in late 2008, ten years after the most recent HEA reauthorization, and attempted to adapt higher education to the new millennium.[21] Among other reforms, it forced colleges to be more transparent with the price of education, it allowed students attending summer programs to obtain Pell Grant funding, and it attempted to address the ever-growing student loan debt level for recent graduates.[22]  In addition to these systematic reforms, the 2008 reauthorization also created around seventy new aid programs and increased the federal funding going towards existing programs.[23]  The HEA finally was fully reauthorized, and the funding from the bill was not set to expire until September 30, 2014, giving Congress six years to come together to form a new agreement for future funding.[24]  Congress failed.

It has been eleven years since the Higher Education Act was last reauthorized, creating an uncertain future for the many federal programs reliant on its funding.  For example, the mandatory appropriations for Title III, Part F, which provides funding to STEM programs for many HSIs and HBCUs,[25] was set to expire on September 30, 2019.[26]  To avoid this, the House of Representatives passed legislation in the Spring of 2019 to fund Title III programs for two years to give Congress time to fully reauthorize the HEA.[27]  Rather than voting on this bill, however, a recent Senate compromise has instead led them preferring a “piecemeal approach” to reauthorization, rather than a full-scale overhaul of the HEA.[28]  Because politicians refused to compromise, the end result is that Congress failed to reauthorize Title III, Part F funding, and its mandatory appropriations have officially expired.[29]

Based on the parties’ proposals in recent years, there is little indication that the parties’ impasse will be resolved without serious compromise. On December 1, 2017, House Republicans introduced the PROSPER Act, sponsored by Virginia Foxx (R-NC), which aimed to help “prepare [students] to enter the workforce with the skills they need”[30]  The PROSPER Act would have reauthorized the HEA, but it was also heavily criticized by college lobbyists and Democratic leaders alike for the burdens it places on graduating students and its weakened restrictions on predatory for-profit schools.[31]  On July 24, 2018, House Democrats responded by announcing the Aim Higher Act, which (because Democrats were the minority party at the time) only really functioned as a “point-by-point rejection” of the PROSPER Act.[32]  While neither of these bills ultimately came to fruition, they still signal that the parties’ current positions are diametrically opposite, casting further doubt on Congress’s current reauthorization efforts.

Currently, the College Affordability Act is the only full-scale HEA reauthorization bill pending before the 116th Congress.[33] So where is this reauthorization bill now? After its introduction, the House Committee on Education and Labor sent the bill to the full chamber for consideration.[34] The House of Representatives has yet to vote on the bill.[35]  However, even if the College Affordability Act makes it through the House in its current form, there is no guarantee that it would survive either the Senate or the President’s desk.  In President Trump’s most recent budget proposal, he proposed a massive series of cuts to several HEA grant programs, indicating his early disapproval with the College Affordability Act and possibly the HEA in general.[36]

When two sides have become this divided on a once-bipartisan issue, it is clear that something needs to be done. While some of this divide may be mere correlation with the overall increase in political polarization,[37] its consequences for education reform have been severe and will continue to grow worse.  The Higher Education Act needs to be reauthorized, and many essential federal programs will continue to suffer for as long as Congress fails to do so.

[1] College Affordability Act, H.R. 4674, 116th Cong. (2019)

[2] Higher Education Act, American Ass’n of Collegiate Registrars and Admissions Officers, https://www.aacrao.org/advocacy/issues/higher-education-act/executive-director-update/2019/10/17/house-democrats-unveil-comprehensive-overhaul-of-hea-10-17-2019 (last visited Feb. 14, 2020).

[3] See infra text accompanying note 32.

[4] See Andrew Kreighbaum, House Dems’ Vision for Higher Ed, Inside Higher Ed. (Oct. 16, 2019), https://www.insidehighered.com/news/2019/10/16/house-democrats%E2%80%99-latest-higher-ed-plan-pushes-free-college-more-generous-loan.

[5] Skopos Labs, Prognosis Details: H.R. 4674, GovTrack, https://www.govtrack.us/congress/bills/116/hr4674 (last visited Feb. 14, 2020). Of course, because the increasing polarization of Washington, D.C. is not considered by Skopos Labs, this prognosis may be slightly optimistic. Id.

[6] Kreighbaum, supra note 3.

[7] Id.

[8] Id.

[9] 20 U.S.C. §§ 1001 et seq. (2018); see also Higher Education Act, Ass’n of Ctrs. for the Study of Cong., http://acsc.lib.udel.edu/exhibits/show/legislation/higher-education-act. (last visited Feb. 14, 2020).

[10] Alexandra Hegji, Cong. Research Serv., R43351, Higher Education Act (HEA): Primer 2 (2016).

[11] Adam Harris, Congress Might Finally Overhaul Higher Education, The Atlantic (Mar. 8, 2019), https://www.theatlantic.com/education/archive/2019/03/congress-eyes-higher-education-act-reauthorization/584449/

[12] See, e.g., 20 U.S.C. § 1071a–1(g); id. at § 1078(3)(e); id. at § 1098(k). If Congress is unable to agree on a full reauthorization bill, it can pass short-term extensions to continue funding higher education programs. Mark Kantrowitz, Reauthorization of the Higher Education Act of 1965, SavingForCollege.com (Dec. 26, 2018), https://www.savingforcollege.com/article/reauthorization-of-the-higher-education-act-of-1965.

[13] Lawrence E. Gladieux, Federal Student Aid Policy: A History and Assessment, U.S. Dept. of Educ. (Oct. 1995), https://www2.ed.gov/offices/OPE/PPI/FinPostSecEd/gladieux.html.

[14] Id.

[15] See id.

[16] Id. Previous Federal Grant programs distributed money to the universities, which in turn dispursed them to the students.  Lumina Foundation, Pell Grant: Building Block of Student Based Aid, Institute for Higher Education Policy 5, https://lookingback.luminafoundation.org/wp-content/uploads/2017/01/Chapter-3-ihep-pell-guide.pdf (last visited Feb. 14, 2019). The Pell Grant was the first Federal Grant program to provide assistance directly to the students themselves. Id.

[17] Hegji, supra note 8, at44 (2016).

[18] See id.

[19] Id.

[20] ACE Analysis of Higher Education Act Reauthorization, American Council on Education https://www.acenet.edu/Documents/ACE-Analysis-of-2008-Higher-Education-Act-Reauthorization.pdf (last visited Feb. 14, 2020).

[21] Emily Bouck & India Heckstall, As the Higher Ed Opportunity Act Turns 10, Here’s How the Landscape Has Changed, EdSurge (Aug. 17, 2018), https://www.edsurge.com/news/2018-08-17-as-the-higher-ed-opportunity-act-turns-10-here-s-how-the-landscape-has-changed

[22] ACE Analysis, supra note 18.

[23] Id.

[24] See id.

[25] HSIs refers to Hispanic Serving Institutions, while HBCUs refers to Historically Black Colleges and Universities.

[26] Teri Lyn Hinds, Will the Higher Education Act Be Reauthorized in 2019?, Nat’l Ass’n of Student Personnel Administrators (Oct. 24, 2019), https://www.naspa.org/blog/will-the-higher-education-act-be-reauthorized-in-2019.

[27] Id.

[28] Madeline St. Amour, Next Steps Uncertain After Bipartisan Agreement, Inside Higher Ed (Dec. 5, 2019), https://www.insidehighered.com/news/2019/12/05/senate-has-bipartisan-proposal-what-comes-next.

[29] Andrew Kreighbaum, HBCUs Plan Cuts After Congress Misses Funding Deadline, Inside Higher Ed (Oct. 15, 2019), https://www.insidehighered.com/quicktakes/2019/10/15/hbcus-plan-cuts-after-congress-misses-funding-deadline.

[30] PROSPER Act, H.R. 4508, 115th Cong. (2017)

[31] See Andrew Kreighbaum, GOP Seeks to Shift Accountability for Colleges, Inside Higher Ed (Dec. 4, 2017), insidehighered.com/news/2017/12/04/republican-bill-would-reshape-how-colleges-are-held-accountable.

[32] Andrew Kreighbaum, The Democratic Alternative, Inside Higher Ed (July 25, 2018), https://www.insidehighered.com/news/2018/07/25/dem-higher-ed-bill-promises-more-student-aid-tougher-accountability-colleges. See Aim Higher Act, H.R. 6543, 115th Cong. (2018) for the full text of the proposed act.

[33] See Kreighbaum, supra note 3.

[34] H.R. 4674: College Affordability Act, GovTrack, https://www.govtrack.us/congress/bills/116/hr4674 (last visited Feb. 14, 2020).

[35] Id.

[36] Wesley Whistle, Trump Budget Proposes Cuts to Education, Forbes (Feb. 10, 2020), https://www.forbes.com/sites/wesleywhistle/2020/02/10/trump-budget-proposes-cuts-to-education/#2eb9f03a708d.

[37] See Frank Newport, The Impact of Increased Political Polarization, Gallup (Dec. 5, 2019), https://news.gallup.com/opinion/polling-matters/268982/impact-increased-political-polarization.aspx.

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