The higher education landscape is constantly transforming. Learn more about recently passed and blocked legislation, including final regulations for loan forgiveness in cases of institutional misconduct, the blocked rule to extend overtime pay to over four million U.S. employees, 1098-T Box 1 reporting, DACA, and what Republican control could mean for tax legislation in 2017.
Borrower Defense Regulations
The U.S. Department of Education recently announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct, according to a press release from the U.S. Department of Education on October 28, 2016. These final regulations further cement the Obama Administration's focus on protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars and holding institutions accountable for their actions.
Following the closure of Corinthian Colleges, the DOE received an unusually large amount of borrower defense claims, and thus began the negotiated rulemaking process. At the time, the regulation, promulgated in 1995, didn’t provide much detail on how borrowers could submit these claims or how the DOE would handle them. The final regulations now include key provisions from the proposed regulations intended to protect the rights of borrowers and hold institutions accountable by:
- Giving borrowers access to consistent, clear, fair and transparent processes to file claims;
- Empowering the Secretary to provide debt relief to borrowers without requiring individual applications in instances of widespread misrepresentations;
- Protecting taxpayers by ensuring that financially troubled institutions provide the government with protection against the risks they create and that institutions whose actions lead to discharges of federal student loans are held responsible;
- Helping students make more informed decisions by requiring proprietary schools with poor loan repayment outcomes to include a plain-language warning in their advertising and promotional materials;
- Ensuring affected borrowers have information about loan discharge when schools close and access to an automated process; and
- Banning schools from inducing students to sign pre-dispute arbitration agreements that waive their rights to go to court and bring class-action lawsuits based on borrower defense claims.
The final regulations strengthen several provisions in response to public comment on the proposed regulations, including:
- Providing for Early Implementation of Automatic Closed School Discharge: the final regulations provide for the automatic discharge of the loans of borrowers whose schools closed on or after Nov. 1, 2013, and who have not re-enrolled in another Title IV participating institution within three years. The Department intends to designate this provision for early implementation as soon as operationally possible before July 1, 2017, which will allow eligible Corinthian borrowers to benefit from this streamlined process sooner.
- Banning All Pre-dispute Arbitration Agreements: the final regulations strengthen the limitations on pre-dispute arbitration agreements that prevent students from taking institutions to court by permanently banning any pre-dispute arbitration agreements for all Direct Loan borrowers for disputes related to the educational services provided or the making of Direct Loans, regardless of whether such clauses are a condition of enrollment. These provisions not only allow students to choose where to pursue claims against an institution after claims arise, but also prohibit institutions from banning class-action lawsuits by students.
- Determining Borrower Defense Loan Relief: the final regulations make clear that the Department will determine in a reasonable and practicable way the appropriate relief for a borrower defense claim, taking into account any educational benefit received.
- The Department received over 10,000 comments on the proposed regulations published in the Federal Register on June 16. All provisions of the regulations, with the exception of those the Department intends to designate for early implementation, will take effect on July 1, 2017.
Blocked Legislation – Federal Overtime Rule
The Department of Labor’s (DOL) new federal overtime rule has been halted by a federal judge in Texas. This action came on November 22 and fell on the heels of several lawsuits filed by states and special interest organizations.
This new rule would have doubled the Fair Labor Standards Act’s (FLSA) salary threshold for exemption from overtime pay starting December 1. Specifically, it would have raised the salary threshold from $23,660 to $47,476 with adjustments to be made triennially. The new overtime rule may be implemented at some point in the future.
For the moment, employers have the option of proceeding to implement the related changes or reversing course and abiding by the existing overtime regulations.
Keep in mind, this injunction is temporary and does not (yet) reverse or change the DOL ruling. Staying the course may make particular sense to those employers who already have provided salary increases to employees in order to maintain their exempt status and have made such communications. Reversing at this point may lead to employee morale issues that result in unintended consequences.
Employers who did not plan for the December 1 implementation may wish to use this reprieve as an opportunity to prepare for the possible return of the requirement. It may be wise to complete position reviews that are underway, ensuring the duties test as defined by the DOL is accurately updated and the correct classification is applied.
For any questions regarding this or other human resources issues, please contact our FLSA team.
1098-T Box 1 Reporting Will Not be Required Until 2018 Tax Year
The Internal Revenue Service (IRS) has announced that it is extending the implementation of the recently enacted requirement for colleges and universities to report amounts paid for qualified tuition and expenses in Box 1 of the Form 1098-T.
According to Announcement 2016-42, the IRS will not penalize institutions for reporting the aggregate amounts billed for qualified tuition and related expenses on the 2017 Form 1098-T (Box 2) instead of the aggregate amount of payments received (Box 1) as required by the Protecting Americans from Tax Hikes Act of 2015, enacted late last year. In May, the IRS had announced a one-year delay allowing schools to continue reporting amounts billed for 2016 forms.
The National Association of College and University Business Officers (NACUBO) formally requested the delay in an October 17 letter to the IRS, explaining the benefits of requiring colleges and universities to change business practices and accounting systems only after they have a complete and clear understanding of what new tuition reporting methodology will be required under final rules that the IRS is currently developing and their software providers have had sufficient time to create and test software that implements the changes.
In November, the IRS made an announcement, clarifying that through tax year 2017 (forms filed in early 2018), institutions will continue to have the option of reporting either amounts paid (Box 1) or amounts billed (Box 2) for qualified tuition and related expenses.
DACA and other Executive Actions
A significant concern for many administrators around the country is what will happen to the Deferred Action for Childhood Arrivals (DACA), and how it will affect undocumented students on campus.
American Association of State Colleges and Universities Vice President of Government Relations and Policy Analysis Michael Zola said DACA could be immediately repealed, because it is an executive action, if the president-elect so decides upon taking office. However, Zola pointed out, immigration courts are already extraordinarily clogged. Any mandate to increase deportation efforts would add to the judicial backlog, and action in that regard would not be swift at all.
He also pointed out that there is no pathway to citizenship through DACA, and many of the issues that are causing anxiety among undocumented students on campus would still need to be addressed via the DREAM Act, which will likely make its way through Congress again.
What Republican Control Could Mean for Tax Legislation in 2017
Following the election, speculation is mounting as to what the major tax legislation and tax cuts will be in 2017 with Donald Trump in office and Republicans in control of both houses of Congress. While it is too early to know if significant tax reform will be enacted, some key proposals made during the campaign and in recent discussions of Trump’s “100-day” plan are discussed here.