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In Case You Missed It: Borrower Defense to Repayment

August 6, 2018

Part of our commitment to keeping you informed is calling your attention to changes in the industry. In case you missed it, the Department of Education recently published a Notice of Proposed Rulemaking for borrower defense to repayment. We have the details of the announcement you need to stay informed.

Notice of Proposed Rulemaking (NPRM), 83 FR 37242 details proposed regulations designed to replace certain provisions of the 2016 final regulations published in 81 FR 75926 that have been delayed until July 1, 2019. The NPRM also proposes to rescind specified provisions of those 2016 final regulations.

The major provisions of this NPRM are to:

  • Establish a new Federal standard for borrower defense to repayment for loans first disbursed on/after July 1, 2019.
  • Establish a process for the assertion and resolution of borrower defense to repayment for loans first disbursed on/after July 1, 2019.
  • Provide schools and borrowers with opportunities to provide evidence and arguments when a defense to repayment application has been filed and to provide an opportunity for each to respond to the other's submitted evidence.
  • Require a borrower to sign an attestation to ensure that financial harm is not the result of the borrower's workplace performance, disqualification for a job for reasons unrelated to the education received, a personal decision to work less than full–time or not at all, or the borrower's decision to change careers.
  • Establish a time limit for the Secretary to initiate an action to collect from the responsible school the amount of any loans first disbursed on or after July 1, 2019, that are subject to a successful borrower defense to repayment discharge for which the school is liable;
  • Provide for remedial actions the Secretary may take to collect from the responsible school the amount of any loans subject to a successful borrower defense to repayment discharge for which the school is liable.
  • Establish institutional responsibility and financial liability for losses incurred by the Secretary for repayment of loan amounts discharged by the Secretary on the basis of a borrower defense to repayment discharge.

The following is a partial list of other topics included in the proposed regulations.

  • Issues related to pre–dispute arbitration agreements or class action waivers as a condition of school enrollment.
  • Financial responsibility provisions for participating schools related to conditions or events that have, or may have, an adverse material effect on a school's financial condition and warrant financial protection for ED.
  • Definitions of terms used to calculate a school's composite score and provisions for future negotiated rulemaking for updating of the composite score regulations.
  • Expanding the window of time for a borrower under the Perkins Loan, FFEL, and Direct Loan Programs to qualify for a closed school discharge to 180 days.
  • Conditions under which a borrower may qualify for a closed school discharge under the Perkins Loan, FFEL, and Direct Loan Programs.
  • Conditions under which a Direct Loan borrower may qualify for a false certification discharge.
  • Guarantee agency prohibitions:
    • May not charge collection costs to a defaulted borrower who enters into a repayment agreement with the guaranty agency within 60 days of receiving notice of default from the agency.
    • May not capitalize interest on a loan that is sold following the completion of loan rehabilitation.
  • Codification of ED policy on the impact that a discharge of a Direct Subsidized Loan has on the 150% Direct Subsidized Loan limit.

Comments are due to ED on or before August 30, 2018. For additional details, please refer to the NPRM from July 31, 2018: Notice of Proposed Rulemaking on the Institutional Accountability Regulations, including Defense to Repayment, under Title IV of the Higher Education Act of 1965, as amended.

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