FINAL BORROWER DEFENSE TO REPAYMENT RULES

Borrower Defense Rule To Protect Students

On former President Barack Obama’s last day in office, the Department of Education released final procedural rules which updated ED’s hearing procedures for establishing liability against schools and colleges, and establishing procedural rules governing recovery proceedings under ED’s borrower defense regulations. Under the HEA, the Defense to Repayment process requires ED to discharge a Federal Direct Loan and in some cases FFEL loans, if a student loan borrower establishes, as a defense against repayment, that a school’s actions would give rise to a cause of action against the school. The procedural rules have only amended existing rules and further establish a new Federal standard and a process for determining whether a borrower has a defense to repayment on a loan based on an act or omission of a school and thus are able to be implemented immediately, without negotiated rulemaking, or public comment.

These regulations establish the procedural rules that would govern such borrower defense and institutional recovery proceedings, and are designed to ensure that institutions are afforded a full and fair opportunity to defend themselves in such proceedings. If the Department determines that a borrower is eligible for relief under the borrower defense regulations, it has the authority to recover losses from an institution. The rules allow the Department to recover losses stemming from both individual borrower relief claims as well as for group claims such as class actions and suits brought by states on behalf of students.

According to the final rules published in the Federal Register, when a borrower defense claim is asserted, ED will notify the school in writing advising them of the pertinent facts, and its intent to recover funds. Schools will have a minimum of 20 days to respond in writing if they believe that ED should not recover funds, and whether they request a hearing or not. If a school chooses not to request a hearing, ED will simply review the school’s response, adjudicate the claim and notify the school of its final determination – however it works out. If a school requests a hearing, ED may either request a hearing date from the Office of Hearings and Appeals or simply withdraw its notice of intent to recover funds. If a school does not respond to the notice altogether, ED will move forward with the claim and seek to recover funds, so its important to point out that if the school wishes to request a hearing, it must do so in its written response or it loses its sole opportunity for a hearing.

It is also important to note that ED retains the right to gather information about claims brought by borrowers in any way it sees fit, including by conducting an examination of records, program review or even by subpoena. Students may be added to a group by ED at their discretion in cases where fraud, or misrepresentation on the part of a school have been deemed widespread as we’ve seen in the case of AIC, Corinthian and ITT. You can read the full Federal Register Notice here: http://bit.ly/2kHCXK0