As part of the “Borrower Defense to Repayment Final Rules (dubbed institutional accountability final rules), The U.S. Department of Education amended the Student Assistance General Provisions regulations. New rules were added establishing conditions and events that could have an adverse, material effect on an institution’s financial condition, thus warranting protections for students and taxpayers. These are broken up into two categories; mandatory and discretionary financial responsibility triggering events.

Unlike the Borrower Defense to Repayment regulations included in this package which will go into effect on July 1, 2020, the amendments below are scheduled for immediate implementation.

Financial Responsibility – Mandatory and Discretionary Triggering Events

The Final Regulations establish mandatory and discretionary triggering events that have, or could have, a materially adverse impact on an institution’s financial condition that warrant financial protection. 

The mandatory triggering events are: 

1) Liabilities arising from a settlement, final judgment from a court, or final determination arising from an administrative action or proceeding initiated by a Federal or State entity; 

2) Withdrawal of owner’s equity from the institution, unless the withdrawal is a transfer to an entity included in the affiliated entity group upon whose basis the institution’s composite score was calculated;

3) For publicly traded institutions, the Securities and Exchange Commission issues an order suspending or revoking the registration of the institution’s securities or suspends trading of the institution’s securities on any national securities exchange, the national securities exchange notifies the institution that it is not in compliance with the exchange’s listing requirements and the institution’s securities are delisted, or the SEC is not in timely receipt of a required report and did not issue an extension to file the report; and 

4) For the fiscal year reported, when an institution is subject to two or more discretionary triggering events, those events become mandatory triggering events, unless a triggering event is resolved before any subsequent event(s) occurs.  

Discretionary triggering events in the Final Regulations include:

1) The institution’s accrediting agency issues an order, such as a show-cause order or similar action, that if not satisfied could result in the loss of institutional accreditation; 

2) The institution violated a provision or requirement in a security or loan agreement with a creditor; 

3) The institution’s State licensing or authorizing agency notified the institution that it has violated a State licensing or authorizing agency requirement and that the agency intends to withdraw or terminate the institution’s licensure or authorization, if the institution does not take the steps necessary to come into compliance; 

4) The institution’s failure to meet the 90/10 requirement; 

5) As calculated by the Secretary, the institution has high annual dropout rates; and

6) The institution’s two most recent official cohort default rates are thirty percent or greater, unless the institution files a challenge, which results in reducing below thirty percent the official cohort default rate for either of or both of those years or precludes the rates from either or both years from resulting in a loss of eligibility or provisional certification.

Finally, the Final Regulations also update the definitions and terms used to calculate an institution’s composite score and the composite score methodology to align with changes in FASB accounting standards. Existing leases will be grandfathered, and the new regulations only apply to new leases.  Existing long-term debt rules are also being grandfathered, but the new rules require tie-ins to plant, property, and equipment new long-term debt.  In addition, the Final Regulations revise Appendices A and B of the financial responsibility regulations to conform with the updates and changes in accounting standards.


The U.S. Department of Education released a new set of proposed rules to govern the Borrower Defense to Repayment process; effectively replacing the 2016 final rules imposed by the Obama Administration. Although students have multiple options for seeking discharge of loans, for example, when a school closes before a student can complete their educational program, the Borrower Defense rules enacted in 2016 outlined a standardized procedure which put the Department at the of the adjudication process. Since 2015 more than 100,000 claims have been filed and the Department has taken over the processing borrower defense claims. From 2015 to 2016, the Department engaged in negotiated rulemaking on borrower defense. On November 1, 2016, the Department published final regulations, certain provisions of which have been delayed until July 1, 2019.

According to a summary of the “Institutional Accountability Regulations” proposed by the Department, The proposed regulations would:

  • Provide students with a balanced, directed process that relies on a single Federal standard rather than many different state standards to ensure that borrower defense to repayment discharges are handled swiftly, carefully, and fairly;
  • Encourage students – including those who pay cash or use other forms of credit to pay for college – to seek remedies directly from institutions that have committed acts or omissions that constitute misrepresentation and cause financial harm to the student;
  • Provide students with an additional 60 days (from 120 days to 180 days) to qualify for a closed school loan discharge and incentivize closing institutions to engage in an orderly teach-out process rather than suddenly shutting their doors;
  • Ensure that institutions engaged in misconduct, rather than taxpayers, bear the burden of losses from borrower defense to repayment loan discharges;
  • Enable institutions to respond to borrower defense to repayment claims and provide evidence to support their response;
  • Discourage institutions from committing fraud or other acts or omissions that constitute misrepresentation;
  • Enable the Department to properly evaluate institutional financial risks in order to protect students and taxpayers;
  • Provide students who cannot obtain an official high school transcript or diploma the opportunity to receive federal financial aid and enroll by attesting, under penalty of perjury, that they completed high school, but disallowing such a borrower from later making a false certification student loan discharge claim if the borrower misrepresented the truth in their attestation;
  • Provide time for the Department to consider engaging in negotiated rulemaking to update the Composite Score methodology to reflect changes in FASB accounting standards; and
  • Maintain a strong, responsible Federal student aid system that can continue to provide redress for students who fall victim to misrepresentations by institutions.

The Department is seeking comment on the best and most fair process to students and taxpayers for loans disbursed on or after July 1, 2019.

In this request for public comment, the Department proposes two possible options for when a borrower can submit a borrower defense claim: 1) That the Department only accept “defensive” claims in response to a collection action, similar to the process described in the 1994 regulation; or 2) at the initiation of the borrower, similar to what has transpired since 2015, accept “affirmative” in addition to “defensive” claims.  Because the implications of this determination are far-reaching for taxpayers and borrowers, the Department is seeking specific public comment on these alternatives and the conditions that would apply in each case, including elements of adjudication, such as the evidentiary standard and time limitations on a borrower to submit a borrower defense.

The department has published the proposed rules in the federal register and public comment is open for 30 days until September 1, less than the usual 60-90 day comment period. Final regulations will be published by November 1, 2018 and will likely take effect on July 1, 2019.

You can read the full summary of the Institutional Accountability Regulations here.