U.S. Department of Education Issues Final Borrowers Defense to Repayment Regulation

This afternoon the U.S. Department of Education posted the pre-publication notice of the Final Borrowers Defense to Repayment regulation which rewrites the regulations promulgated under the Borrower Defense to Repayment provision of the Higher Education Act (HEA). A summary of the rule can be found here. The official version will be published in the Federal Register.

The final rule models the proposed rule and would make a number of important changes. As stated in the Department’s summary, these changes include:

  • Provide borrowers the right to assert defense to repayment claims against institutions for loans first disbursed on or after July 1, 2020, without regard to whether the loan is in default or in collection proceedings.
  • Define “misrepresentation” as: a statement, act, or omission by an eligible school to a borrower that is (a) false, misleading, or deceptive, (b) that was made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth, and (c) that directly and clearly relates to either 1) enrollment or continuing enrollment at the institution; or 2) the provision of educational services for which the loan was made.
  • Maintain the current rule’s preponderance of the evidence standard for all borrower defense-to-repayment claims.
  • The limitations period for all claims will be three years from the date that the borrower leaves the school for any reason, whether withdrawal or graduation.
  • Create streamlined and fair procedures that ensure basic due process for both borrower and institutions.
  • Give students the ability to allege a specific amount of financial harm.
  • Enables the Secretary to determine at the time she provides borrower defense to repayment relief that there is sufficient evidence to require reimbursement from the school.
  • Extend the closed school discharge window from 120 days to 180 days.
  • Encourage institutions to close only after the completion of well-planned teach-outs that provide students with the reasonable opportunity to finish their programs.
  • Allow students to choose between accepting an institution’s offer of a teach-out opportunity or submitting a closed school discharge application to the Department.
  • Provide a financial responsibility framework with fair, clear, and verifiable requirements for recalculating an institution’s financial responsibility composite score and triggering additional security to protect taxpayers.
  • Permit the use of pre-dispute arbitration agreements and waivers as a condition of enrollment, so long as the institutions provide plain-language disclosures to students and place that disclosure on their website where information regarding admissions, tuition, and fees is presented.
  • Update composite score calculations to reflect recent changes to accounting standards. Importantly, the final regulations will grandfather existing leases and apply the FASB requirements only to new leases. The final rule also grandfathers existing long-term debt and requires tie-ins to plant, property, and equipment only for new long-term debt. This was the only provision designated for optional early implementation.

The effective date of the final rule is July 1, 2020. The majority of the rule applies to all Title IV participating institutions of higher education, whether public, nonprofit or proprietary.