On August 14, 2008, President Bush signed the Higher Education Opportunity Act (HEOA), which completes reauthorization of the Higher Education Act (HEA). The HEA generally must be reauthorized every five to six years. Comprehensive HEA reauthorization was overdue, having last occurred in 1998. HEOA lessens to some extent the consequences of noncompliance with the 90/10 rule, expands Pell Grant benefits, and imposes a wide range of new and modified obligations on higher education institutions. HEOA provisions became effective on August 14, 2008, unless otherwise specified in the law. This Update’s Executive Summary (p. 1-4) provides background, summarizes provisions of interest to investors in postsecondary education, and describes next steps. Subsequent sections (p. 5-14) provide more detailed information regarding selected HEOA provisions.


As the HEA reauthorization process began in 2003, the for-profit education sector was particularly interested in matters related to the 50 percent rules, the 90/10 rule, the definition of institution of higher education for HEA purposes, and transfer of credit. The chart below summarizes those issues and related legislative status.

Although Congress took many years to complete HEA reauthorization, three laws to amend and reauthorize aspects of the HEA have been enacted in the meantime. Collectively, those laws – the Higher Education Reconciliation Act of 2005, the College Cost Reduction and Access Act, and the Ensuring Continued Access to Student Loans Act of 2008 – reauthorized the federal student loan programs, increased financial benefits to students, reduced payments to lenders, and addressed concerns about student access to loans in light of developments in the financial markets.1

Notable HEOA Provisions

College costs. Congressional concerns about college costs manifest themselves in HEOA in the form of “college affordability and transparency lists” that will identify certain high-cost institutions. Institutions with high percentage increases in tuition and fees or “net price” (as such term is defined in HEOA) will also be identified and will be required to explain those increases and the steps they intend to take to reduce costs in a written report to the U.S. Department of Education. An earlier proposal to withhold federal aid from institutions that consistently fail to curb college costs was not included in HEOA. HEOA also requires the department to develop, and the department and institutions to post, certain online calculators for students and families to use to estimate net price and total tuition and fees at a particular institution.

Accreditation. Accreditation received substantial attention during the reauthorization process, in part because the Secretary of Education, based on the Commission on the Future of Higher Education’s recommendations and through unsuccessful rulemaking, sought to regulate the accreditation process in new and, critics contended, more prescriptive ways. Among other changes, HEOA (1) clarifies the roles of accreditors and institutions with respect to academic achievement and forbids federal intrusion with respect to specific student achievement standards; (2) mandates accreditors to monitor institutions with significant enrollment growth and to ensure that institutions have security mechanisms in place to verify student participation in distance education; (3) provides greater detail and new requirements regarding due process in accreditation; (4) promotes transparency with respect to accreditor actions; and (5) restructures the NationalAdvisory Committee on Institutional Quality and Integrity (NACIQI), which advises the Secretary on recognition of accreditors and related matters.

Student financial aid. In addition to the change in the 90/10 rule described above, HEOA also modifies the Federal Family Education Loan Program/Direct Loan Program cohort default rate provision to extend the time period used for the calculation from two to three years beginning in 2012. HEOA also raises from 25 percent to 30 percent the cohort default rate threshold used along with other considerations as a trigger for certain regulatory action by the Education Department, such as imposition of provisional certification or termination of participation in federal student financial aid programs. Among other provisions, HEOA also expands Pell Grant benefits, provides benefits and protections to veterans, simplifies the financial aid application process, addresses dual enrollment programs and program reviews, and requires an institution to certify annually that it did not use HEA or federal student financial aid funds for lobbying purposes.

Disclosure requirements. HEOA addresses transfer-of-credit policies for the first time by requiring institutions to disclose such policies. HEOA emphasizes, however, that the federal government cannot substantively regulate transfer-of-credit policies. HEOA increases institutional reporting requirements related to campus crime in response to the Virginia Tech tragedy and related developments. Based on concerns regarding college costs, HEOA requires institutions to disclose certain information regarding textbook costs.

Student loans. HEOA imposes new requirements on institutions with respect to preferred lender arrangements and relationships with lenders. Those new requirements include, for example, a code of conduct and disclosure obligations that derive from recent attorneys general investigations of the student loan industry. HEOA also imposes new disclosure obligations on lenders of private and federal loans with respect to, for example, loan terms and conditions. Studies. HEOA requires studies and surveys related to the 90/10 rule, private education loan criteria, incentive compensation, federal regulation of higher education, student loan programs, and student financial aid recipients.


The Education Department has stated that affected parties are responsible for taking steps to comply by the effective dates established by HEOA, even though the department has yet to issue regulations to implement HEOA. According to the department HEOA Web page, “[p]otentially affected parties should review the legislation immediately to determine the proper measures they must take to comply.” The department has announced that it will soon start the negotiated rulemaking process for certain parts of HEOA. HEA requires negotiated rulemaking for the development of all regulations implementing statutory changes to Title IV of the HEA, which contains the federal student financial assistance programs. As part of the negotiated rulemaking process, the department will hold public meetings in September and October 2008. The department anticipates that it will establish negotiated rulemaking committees and begin negotiations by February 2009. It has also explained that where negotiated rulemaking is not required, HEOA provisions will be implemented either through the usual notice and comment process or, where regulations will merely reflect the changes to the HEA and not expand upon those changes, as technical changes. Under the HEA, the department generally must publish final regulations related to the federal student financial aid programs by November 1 in a given year in order for those regulations to become effective on July 1 of the following year.

College Costs 

  • College affordability and transparency lists: Beginning July 1, 2011, the Education Department will publish on its Web site lists of the top five percent of institutions, in each of nine categories, with (1) the highest tuition and fees for the most recent academic year, (2) the highest “net price” for the most recent academic year, (3) the largest percentage increases in tuition and fees for the most recent three academic years, and (4) the largest percentage increases in net price for the most recent three academic years. An institution that is placed on a list for high percentage increases in either tuition and fees or in net price must submit a report to the department explaining the increases and the steps that it intends to take to reduce costs. The department will report annually to Congress on these institutions and will publish their reports on its Web site. It will also post lists of the top 10 percent of institutions in each of the nine categories with lowest tuition and fees or lowest net price for the most recent academic year.
  •  Net price: Under HEOA, net price means average yearly price actually charged to first-time, full-time undergraduate students who receive student aid at a higher education institution after such aid is deducted. “Net price” is the difference between (1) the institution’s cost of attendance for the year and (2) the quotient of (a) the total amount of need-based and meritbased aid from federal, state, and institutional sources provided to all enrolled students and (b) the total number of such students receiving such need-based or merit-based aid. 
  • Calculator tools: By August 14, 2009, the department must develop a “net price calculator” and a “multi-year tuition calculator” to help students and their families estimate, on an individual basis, the net price of a particular higher education institution and the total amount of tuition they may pay to attend a particular higher education institution. Within two years after the department makes the net price calculator available, each institution must post a net price calculator on its Web site, along with a disclaimer that estimated calculations are not binding and are subject to change. Institutions may choose to use the department’s calculator or may develop their own, so long as it contains, at a minimum, the same information as the department’s calculator. The multi-year tuition calculator, which the department will post on its Web site along with a disclaimer that estimated calculations are not binding and are subject to change, will permit comparison of multiple institutions. 
  • Consumer information: By August 14, 2009, the department will post on its Web site and annually update 27 categories of information about each institution that participates in federal student financial aid programs. It will also post on its Web site, in a sortable and searchable format, cost and net price information for each institution.
  • Student achievement: Accreditors may use different standards for different institutions or programs to evaluate success with respect to student achievement in relation to the institution’s mission. The Education Department may not establish any criteria or promulgate any regulation regarding standards that accreditors use to assess an institution’s success with regard to student achievement.
  • Distance education: An accreditor that evaluates distance education institutions or programs must demonstrate to the Secretary of Education that its standards effectively address the quality of an institution’s distance education, but accreditors are expressly not required to have separate standards, procedures, or policies for evaluation of distance education. An accreditor that evaluates institutions offering distance education must require such institutions to have processes through which the institution establishes that a student who registers for a distance education program is the same student who participates in and receives credit for the program.
  • Growth: Accreditors must monitor growth of programs at institutions that are experiencing significant enrollment growth. HEOA does not define “significant enrollment growth” or specify the monitoring that accreditors must do. 
  • Due process: Accreditors must provide an opportunity to appeal any adverse action before an appeals panel that does not include any person involved in making the adverse decision. Members of the appeals panel must be subject to a conflict of interest policy. Institutions may be represented by counsel during an appeal of an adverse action. When an adverse action is based solely upon failure to meet financial standards, an institution may submit during the appeal process new financial evidence that was unavailable before the adverse action. Any accreditation decision that is based upon the new information is not separately appealable.
  • Transparency: In reporting final denial, withdrawal, suspension, or termination of accreditation, an accreditor must provide any findings made in connection with the action as well as any comments of the affected institution. 
  • National Advisory Committee on Institutional Quality and Integrity (NACIQI): NACIQI has historically been comprised of 15 members appointed by the Secretary. HEOA adds three members and divides appointment authority among the Secretary and majority and minority leadership in the U.S. Senate and the U.S. House of Representatives. The current members’ terms expired on August 14, 2008. New members cannot be appointed until January 31, 2009.


Student Financial Aid

Student Eligibility Matters

 Pell Grant: HEOA increases the authorized maximum Pell Grant award to $6000 for academic year 2009-2010 (which is a $200 increase from the highest amount authorized in the HEA prior to HEOA) and by $400 annually over the following five academic years. Actual Pell Grant awards depend on congressional appropriations. HEOA maintains mandatory spending add-ons for certain eligible students that were enacted as part as the College Cost Reduction and Access Act. For the first time, Pell Grants will be made available to eligible students throughout all 12 months of each year. Students are eligible to receive Pell Grant awards for no more than 18 semesters. While the HEA, prior to HEOA, permitted the Secretary of Education to allow a student to receive two Pell Grant awards in a single award year in certain circumstances, HEOA requires the Secretary to allow a student to receive two Pell Grant awards in a single award year under certain circumstances and it expands the circumstances under which a student is eligible for two Pell Grant awards in a single award year. The maximum Pell Grant award will be provided to eligible students whose parents or guardians died due to service in the Armed Forces in Iraq or Afghanistan after September 11, 2001, subject to certain conditions.

Veterans: Following up on expanded veterans education benefits under the recently enacted Post-9/11 Veterans Education Assistance Act, HEOA addresses veterans benefits in terms of federal student financial aid programs under Title IV of the HEA and other veterans education matters, including development of a searchable Web site concerning student financial aid programs for military members and veterans, exclusion of veterans education benefits from student need calculations, scholarships for children and spouses of certain deceased veterans and current active military personnel, and prohibition on discrimination against veterans with respect to readmission. 

Financial aid application process: Among other HEOA provisions intended to streamline the financial aid application process, the Free Application for Federal Student Aid will be modified to include fewer questions. The Education Department must create a model form that institutions may use to communicate financial aid offers to applicants.

Institutional Compliance Matters

  • 90/10 rule calculation: HEOA generally codifies the formula for 90/10 calculations that is set forth in current department regulations, but broadens the categories of funds that may be counted as non-Title IV revenue for 90/10 purposes. Under HEOA, such funds may include (1) funds paid by a student (or by a party other than the institution on behalf of a student) for education or training programs that are not Title IV-eligible, subject to certain conditions, (2) certain institutional loans and scholarships, and (3) for Stafford loans disbursed between July 1, 2008, and June 30, 2011, the amount of such loans in excess of the loan limits authorized before enactment of the Ensuring Continued Access to Student Loans Act of 2008.
  • 90/10 rule compliance: A for-profit institution that violates the 90/10 rule for any fiscal year will be placed on provisional status for two fiscal years. For-profit institutions that violate the 90/10 rule for two consecutive fiscal years will become ineligible to participate in Title IV programs for at least two fiscal years and will be required to demonstrate compliance with Title IV eligibility and certification requirements for at least two fiscal years prior to resuming Title IV participation.
  • Cohort default rate calculation: Beginning with Federal Family Education Loan Program/Direct Loan Program cohort default rate calculations for federal fiscal year 2009, the cohort default rate will be calculated by determining the rate at which borrowers who become subject to their repayment obligation in the relevant federal fiscal year default by the end of the second (rather than the following) federal fiscal year. The current method of calculating rates will remain in effect and will be used to determine institutional eligibility until three consecutive years of cohort default rates calculated under the new formula are available.
  •  Cohort default rate compliance: Effective as of federal fiscal year 2012, the cohort default rate threshold of 25 percent will be increased to 30 percent. If an institution’s cohort default rate is 30 percent or more in a given fiscal year, the institution will be required to assemble a “default prevention task force” and submit a default improvement plan to the department. Institutions that exceed 30 percent for two consecutive years will be required to review, revise, and resubmit their default improvement plans, and the department may direct that such plan be amended to include actions, with measurable objectives, that it determines will promote loan repayment. An institution whose cohort default rate is 30 percent or more for any two consecutive federal fiscal years may file an appeal to demonstrate exceptional mitigating circumstances, and if the Secretary of Education determines that the institution demonstrated such circumstances, the Secretary may not subject the institution to provisional certification based solely on the institution’s cohort default rate.
  • Dual enrollment: Beginning July 1, 2010, HEOA allows institutions to admit as regular students individuals “who will be dually or concurrently enrolled in the institution and a secondary school.” The provision addresses the apparent position of the department’s Inspector General that dual enrollment programs may jeopardize the Title IV eligibility of the institution as a whole.
  • Program review: The department must give institutions adequate opportunity to respond to a program review report before the final report is issued. Final program review reports and audit determinations must contain written statements that address the institution’s response and provide the basis for the report or determination, and must include a copy of the institution’s response. Except in limited circumstances, the department must keep a program review report confidential until the institution has had the opportunity to respond and a final report has issued. 
  • Settlement of claims: HEOA seeks to address congressional concerns that the department settled, for less than full liability, claims that some lenders overbilled it for subsidies on federal student loans. It forbids the department to settle any claim
  • Lobbying: HEOA forbids postsecondary education institutions to use HEA funds to compensate any person for influencing or attempting to influence certain government officials or employees with regard to certain federal actions, including, for example, the awarding of federal contracts. In addition, under HEOA, no Title IV program funds may be used to hire a registered lobbyist or to pay any person or entity for securing an earmark. An institution must certify annually that it has abided by these HEOA provisions. HEOA grants the Secretary of Education authority to take such actions as are necessary to ensure that the provisions are implemented and enforced.

Disclosure Requirements

  •  Transfer of credit: An institution must publish its transfer-of-credit policies. Such disclosure must include any established criteria the institution uses for transfer of credit earned at another institution as well as a list of higher education institutions with which the institution has established agreements (commonly known as “articulation agreements”) specifying the acceptability of transferred courses toward meeting specific degree or program requirements. Accreditors, as part of accreditation reviews, must confirm that an institution has a publicly disclosed transfer-of-credit policy and that the policy includes criteria regarding the transfer of credit earned at another institution. The Secretary must post online a link to an institution’s Web site that provides transfer-of-credit policies. Neither the Secretary nor NACIQI may require particular policies, procedures, or practices with respect to transfer of credit, and the disclosure requirement expressly does not create a legally enforceable right to require an institution to accept a transfer of credit from another institution. 
  • Campus safety: An institution must report any written agreements it has with state and local law enforcement agencies. Institutions must report current campus policies for immediate emergency response and evacuation procedures. Campus officials must immediately notify the campus of any confirmed significant emergency, unless providing such notice will compromise efforts to contain the emergency.
  • Textbook costs: Institutions must provide, on their Internet course schedules, “to the maximum extent practicable,” (1) the International Standard Book Number (ISBN) of every required and recommended textbook and supplemental materials, (2) if no ISBN number is available, the author, title, publisher, and copyright date, and (3) retail price information of required and recommended textbooks and supplemental materials. If the institution lacks accurate information about the ISBN number, it may indicate in the course schedule that the information is “to be determined.” On any written course schedule, the institution must indicate that textbook information is available through the institution’s Internet course schedule and must provide the Internet address for the schedule.
  • Textbook marketing: In another effort to control textbook costs, HEOA imposes new requirements on marketing of textbooks and supplemental materials by publishers. When a publisher provides a faculty member (or other person in charge of selecting course materials) with information regarding a college textbook or supplemental material, the publisher must include (1) the price at which the publisher would make the textbook or material available at the campus bookstore and the price at which the publisher makes the textbook or material available to the public, (2) the copyright dates of the three previous editions of the textbook, (3) a description of the substantial content revisions made between the current edition and the previous edition, and (4) whether the textbook or material is available in any other format, including paperback and unbound, and the price at which the publisher would make the textbook or material available in the other format to the campus bookstore and the public. A publisher that sells a college textbook and supplemental material as a single bundle must also make them available as separate and unbundled items, each separately priced. To the maximum extent practicable, a publisher must also make such information available with respect to the development and provision of custom textbooks.
  • Textbook provisions: The effective date of the textbook provisions is July 1, 2010. HEOA forbids the department to promulgate regulations related to the provisions.

Student Loans

Provisions That Relate Primarily to Lenders

  • Disclosures to Federal Family Education Loan Program (FFELP) borrowers: FFELP lenders must provide to borrowers certain information regarding terms and conditions of their loans at the time a loan is approved, at or prior to disbursement, at or prior to start of repayment, and during repayment.

  • Disclosures to private loan borrowers: Private education loan providers must disclose certain information to borrowers at specified times. Among other disclosures, private lenders must describe the terms of the loans, explain that borrowers may be eligible for federal student financial assistance, provide the interest rates available for federal student loans, and refer borrowers to their institutions or the department’s Web site for additional information regarding federal student aid. An institution that provides to a prospective borrower information regarding a private education loan must include the information that the private lender is required to disclose in its applications or solicitations. The institution must also advise the prospective borrower that he or she may qualify for federal student financial assistance, explain that the terms and conditions of federal student loans may be more favorable than those offered by private lenders, and present private student loan information in a way that distinguishes it from federal student aid information provided by the institution. 
  • Disclosures regarding Direct Loan Program loans: Institutions that participate in the Direct Loan Program must provide certain information regarding Direct Loan Program loans to students and prospective students and their families. Institutions must include information regarding the Direct Loan Program with any information regarding private education loans that the institution provides to prospective borrowers. In addition, the Education Department itself, as lender under the Direct Loan Program, must make certain disclosures to borrowers. 
  • Self-certification: Under HEOA, a private education loan may not be consummated until the borrower signs and submits to the lender a certification form that the department will create in collaboration with the Federal Reserve System’s Board of Governors. The certification form will, for example, encourage the applicant to discuss federal, state and institutional financial aid options with financial aid personnel at the applicant’s institution and explain that private education loans could affect the applicant’s eligibility for free or low-cost financial aid.
  • Competitive Loan Auction Pilot Program for PLUS Loans: HEOA modifies the pilot program to require eligible lenders who wish to participate in the auction to commit to entering into an agreement with the department if the lender submits the winning bid. The department is authorized to sanction winning bidders who fail to enter into the required agreement. Federal PLUS loans originated under the pilot program will be guaranteed at 99 percent of the unpaid principal and interest due on the loan, which is higher than the standard guarantee.

Provisions That Relate to Relationships Between Lenders and Institutions 

  • Preferred lender arrangements: Institutions that enter into preferred lender arrangements must comply with certain requirements. Such institutions must submit annual reports to the department that explain, among other matters, why the institution has a preferred lending arrangement. If the institution participates in federal student financial aid programs, the institution’s preferred lender list must satisfy certain requirements, including, for example, a description of the method and criteria used by the institution to choose its preferred lenders. The list must cover the institution’s preferred lender arrangements related to federal and private loans. Institutions with preferred lenders must make certain disclosures – based on information provided annually by the lender to the institution – for each type of loan offered under a preferred lender arrangement. 
  • Prohibited conduct: Institutions that enter into preferred lender arrangements or that participate in federal student financial aid programs must adopt a code of conduct. For financial aid office or other employees who have responsibility related to education loans, the code must forbid, with limited exceptions, gifts, consulting arrangements with lenders, and advisory board compensation other than reasonable expense reimbursement. The code also must ban “opportunity pools” that lenders offer in exchange for certain promises and staffing assistance from lenders. HEOA requires the institution to post the code “prominently on its Web site” and ensure that its officers, employees, and agents who have financial aid responsibilities are informed annually of the code’s provisions. 
  • Prohibited inducements – lenders: HEA prohibits lenders from providing certain benefits to borrowers and institutions to secure applications for FFELP loans or to sell other products. HEOA modifies that prohibition to identify specific benefits that lenders may not provide to institutions and others, such as consulting arrangements with certain institutional employees and compensation, other than reasonable expense reimbursement, for lender advisory board service. HEOA also creates new similar prohibitions with respect to lenders of private student loans. Specifically, HEOA amends the Truth in Lending Act to forbid private loan lenders to engage in certain activities with educational institutions, such as co-branding, revenue sharing agreements, provision of gifts, and provision of compensation, other than reasonable expense reimbursement, for lender advisory board service. 
  • Prohibited inducements – guaranty agencies: HEOA identifies additional benefits that guaranty agencies are prohibited from offering to institutions and lenders, as well as to their employees. HEOA also requires guaranty agencies to work with institutions to create and make available financial literacy programs.


  • Proprietary institutions of higher education: By August 14, 2010, the Comptroller General of the United States must conduct an analysis of proprietary institutions of higher education and submit a report to Congress. The report must address (1) the number of institutions subject to the 90/10 rule; (2) the number and percentage of such institutions each year that do not comply with the 90/10 rule; (3) the number of institutions that are in compliance with the 90/10 rule at the time of submission of the report; and (4) in the case of institutions that are in compliance with the 90/10 rule at the time of submission of the report, information on the extent to which such institutions’ revenue is derived from funds provided under Title IV of the HEA, including information on the number of such institutions that derive not less than 85 percent of their revenues from Title IV funds.
  • Private education loan criteria: By August 14, 2009, the Comptroller General must conduct a study on the impact of the inclusion of certain nonindividual factors – such as an institution’s cohort default rate and graduation rate – in the underwriting criteria of private student loans on the pricing of and access to private education loans.
  • Incentive compensation: No later than 18 months after the date of HEOA’s enactment, the Comptroller General must conduct a study of the efforts by the Secretary of Education to enforce the HEA’s incentive compensation provisions, which forbid higher education institutions that participate in Title IV programs to provide any commission, bonus, or other incentive payment based directly or indirectly on any person’s or entity’s success in student recruiting or admission activities, or in making decision regarding the award of student financial assistance. 
  • Federal regulation of higher education: The Secretary of Education must engage the National Academy of the Sciences to conduct a study to ascertain the amount and scope of all federal regulations and reporting requirements with which higher education institutions must comply. The study must be completed by August 14, 2010, and must include, by agency, (1) the number of relevant federal regulations and reporting requirements; (2) the estimated time and cost required to comply with such regulations and requirements; and (3) recommendations for consolidating, streamlining, and eliminating redundant and burdensome regulations and reporting requirements. In addition, the Advisory Committee on Student Financial Assistance is directed to review and analyze federal regulations that apply to higher education institutions to determine, for example, whether a regulation is duplicative, no longer necessary, inconsistent with other federal requirements, or overly burdensome. The Advisory Committee must submit to Congress and the Secretary of Education, not later than two years after negotiated rulemaking related to HEOA is completed, a report with findings and recommendations. 
  • Student aid recipient survey: The Secretary of Education must conduct and publish a survey, at least every four years, of student aid recipients. The survey will identify, among other things, the population of students receiving federal student financial aid and the income distribution and other socioeconomic characteristics of such recipients. The survey will also provide information on how the cost of postsecondary education affects such students’ choice of institution, their debt burden, their repayment capacity, their chosen course of study, and their post-graduate plans. 
  • Student loan programs comparison: By August 14, 2009, the Comptroller General must complete a study to examine all financial and compliance audits and reviews required or conducted as part of the Federal Family Education Loan Program and Direct Loan Program. The study must compare the audits and reviews to determine whether they are comparable. Among other matters, the study must also assess whether the department properly uses such audits and reviews.