12 Things You Need To Know About Proposed Borrower Defense Regulations
In early July, the Department of Education released the latest updates on proposed changes to borrower defense regulations. These changes are not set in stone yet and are subject to a 30-day comment period before ED can issue the final rule.
These regulatory changes were introduced during a negotiated rulemaking session at the end of 2021, where the Student Loans and Affordability committee discussed nine topics from October-December. Unfortunately, the committee did not reach an agreement on most of the issues, meaning that ED has significant leeway to implement language of their choosing.
You can find more information about those topics and other proposed regulations here.
The regulations announced in early July largely mirror the language presented during the negotiated rulemaking session last year. Here are 12 things you need to know about the proposed borrower defense regulations.
Table of Contents
They will go into effect on July 1, 2023
There will be ONE standard
Currently, there are not one, not two, but three different standards for adjudicating borrower defense claims—1994 regulations, 2016 regulations, and 2019 regulations. The standard used on the claim is based on when the loan was disbursed.
BUT this could change. ED proposed establishing this new standard as the ONLY standard. All claims currently pending or submitted after July 1, 2023, will be evaluated under the new standard, regardless of when the loans were disbursed.
The good news: Schools would not be retroactively liable. If a loan taken out in 2019 was evaluated under the 2023 process, schools would not be liable for costs that they wouldn’t have been liable for if it was evaluated under the 2019 process.
There will be no limitations period
Any student with a loan could bring a claim at any time. Unfortunately, this means that schools will be required to keep files indefinitely.
There will be five categories of acts or omissions that can be used as the basis for a claim
- Substantial misrepresentation
- If a borrower relied on the misrepresentation to their detriment, it is considered substantial. There are a lot of different things that fall under this category, including the availability of externship sites, job prospects, etc.
- Substantial omission of fact
- It’s considered substantial if the borrower would not have enrolled in the school if it weren’t for that omission.
- Breach of contract
- Aggressive recruitment
- While some tactics fall clearly under the umbrella of “aggressive,” it’s not all black and white. For example, repeatedly engaging in unsolicited contact falls into this category without a definition of “repeatedly.” For example, a student could tell an admissions representative that they are no longer interested in the school, but continue to get retargeting ads.
There are new categories that can be used as a basis for a claim.
Including judgments against institutions, ED actions, and violations of state law.
Group processes are back
ED announced two processes for group claims:
- Secretary initiated groups
- State requestor groups
- ED must consider claims from a state requestor
In individual processes, a BDR application and the borrower's sworn statement are sufficient evidence to move a claim forward.
Additional evidence is a nice to have but not a need to have. Once ED receives the application, they will stop interest accrual on loans for 180 days.
ED can consider prior actions when determining whether or not to form and approve a group claim.
This includes failure to meet administrative capability, audit issues, fines, etc. Plus, institutions would not be able to respond to allegations before ED decides to form a group claim.
ED is giving itself a timeline
Loans are considered unenforceable if they have not made a decision by the end of the timeline.
- State requestor-issued group claims must be adjudicated within two years
- Individual claims must be adjudicated within three years
- ED must provide updates within one year, including an expected decision timeline.
Come July 1, 2023, if decisions have been outstanding for longer than these timelines, ED can determine that the loans are unenforceable. Fortunately, schools wouldn’t face negative retroactive action.
Institutions must respond to claims within 90 days.
If institutions do not respond, ED assumes the claims are uncontested.
Institutions can't resubmit for reconsideration if ED approves the claim
If an individual’s claim is denied, they can resubmit for consideration. If a group claim is denied, individuals within that group claim can file a new application under the individual process. State requestors may also request reconsideration. The Secretary of Education may also reopen a claim.
Schools may not ask for reconsideration.
Loans disbursed on or after July 1, 2023, MUST be collected from the school
In the case of a closed school, it must be collected from a person affiliated with the school.
Here are a few things to consider to prepare for changes:
- Keep your marketing materials updated.
- If an externship site or if a placement stat changes, do not wait to update your marketing materials. This includes third party marketers and other agencies that you contract with.
- Make the financial aid process as clear as possible
- This, of course, is far easier said than done. But if a student doesn’t understand the financial aid process, it could fall under “aggressive recruitment.”
- Document everything
- Conversations with students, student attendance, student skill attainment, and all other relevant information. The more documentation you have, the better equipped you’ll be to combat claims. Because you may need to keep files indefinitely, keep those files digitally for better management
This post offers a high-level overview of pending changes and is by no means comprehensive. Check with your regional advocacy group for additional resources or national advocacy groups like CECU and CSPEN.