U.S. Department of Education Negotiated Rulemaking – Session One Recap

On Friday, October 8, 2021, the U.S. Department of Education wrapped up its first week-long session of the (virtual) Affordability and Student Loan Negotiated Rulemaking. The Department’s agenda (see here) kicked off with a discussion of each of the twelve issue papers, some with proposed regulatory language, provided to the committee prior to the beginning of the sessions.

With a moment to digest, the Higher Education Group’s presents a three-part review of the week’s activity in the following parts: 1) Borrower Defense to Repayment (BDR); 2) Closed School Loan and False Certification Discharges; and 3) Other Proposals and Overall Impressions.

First up today: the proposed changes to BDR.

As identified in the Department’s issue papers (see here), the proposed changes are significant. The proposal is not simply a return to the 2016 BDR rule, but instead an enhanced version of it. Proposed changes include:

  • No proposed regulatory language. USDE did not provide any proposed regulatory language for its BDR proposals. Instead, the Department offered negotiators Issue Papers with conceptual changes and proposed solutions. Instead of consensus votes, facilitators conducted “Temperature Checks” to determine the committee’s opinion of the proposals that the Department could consider when drafting regulatory language. The result was a week that did not have any binding consensus votes, but did provide a sense of where USDE could be headed with their proposed regulations, which the Department promised to provide before negotiated rulemaking session #2 in November.
  • Emphasizing the group process. USDE indicated that its proposal means that it would consider the group process its “default” approach to BDR claims. USDE proposed to identify groups of borrowers based upon: actions by the federal government; state attorneys general and other state agencies; lawsuits related to educational programs and judgments filed; individual applications with common facts; requests from attorneys general and law enforcement organizations. Most negotiators were amendable to this proposal, but wanted to include other groups as potential sources of BDR claims.
  • A “reconsideration” process for a borrower whose BDR claim was denied or did not receive sufficient relief. In this new “appeal” process, the borrower would be provided the opportunity to request that USDE reevaluate their claim based upon a state-law standard, instead of the federal standard. While receptive to the idea of such a process, many negotiators did not understand the Department position that a state law standard should not be the basis for the initial determination.
  • Removal of the 2019 BDR rule’s requirement that the borrower produce evidence. USDE proposed that the borrower will no longer have to show that they relied upon the institution’s misrepresentation, if the Department determines that a reasonable person would have relied upon it. Negotiators were mostly receptive to this idea and agreed with the Department negotiator that the BDR application, itself, constituted sufficient evidence for the claim.
  • Additional categories for BDR claims. USDE proposed adding the following bases for successful BDR claims: substantial misrepresentation; omission; breach of contract; aggressive recruitment (new); and adjudications (new). The committee was concerned about the definition of the new categories, specially “aggressive recruitment.” USDE also indicated a willingness to add more categories.
  • Leveraging the Final Program Review Determination and Final Audit Determination process. USDE proposed using the FPRD and FAD processes as bases for BDR claims. The Department noted that if a review revealed that, for example, an institution misstated job placement rates, USDE could use those finding to grant discharges to affected borrowers. In addition, the FPRD process would be used to determine liabilities in a recoupment action by USDE, which would be appealable to the Department’s Office of Hearings and Appeals. These proposals garnered support from most negotiators.
  • Elimination of BDR claim limitations period. USDE proposed eliminated the limitations period for the filing of a BDR claim. In addition, USDE proposed creating a six-year limitations period for recoupment actions against an institution. However, the Department, and the negotiators, were not clear as to when such a period would commence. Such confusion resulted in a number of negotiators registering their disagreement with this proposal.
  • Imposing a “rebuttable presumption of full relief.” The Department introduced its proposal for a presumption of full relief for borrowers, while holding out the possibility that partial relief would be possible. Negotiators primarily asked the Department questions about when partial relief would be appropriate, as many saw full relief as the only reasonable option. They requested evidence and data from the Department as to examples of partial relief and data that USDE was relying upon for partial relief. USDE did not directly answer the question stating that the Department wants to “err on the side” of providing full relief to the borrower while also “maintain[ing] due process on the institution side.” One commenter firmly rejected this notion stating that he “struggled” to see an “enhanced” due process protection for institutions. A number of negotiators signaled their disapproval of this proposal.

Coming up tomorrow: Closed School Loan and False Certification Discharges.

For more information on this topic and others, please contact, Jonathan Helwink, Katherine D. Brodie, any of the attorneys in the Higher Education Group or the attorney in the firm with whom you are regularly in contact.

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