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

To close out this series of summaries of the first session of Negotiated Rulemaking, today UpdateEd looks at the U.S. Department of Education’s proposed changes to regulations regarding pre-dispute arbitration and class action waivers. We will also analyze the “neg reg” session as a whole.

As identified in the Department’s issue paper (see here), the proposed changes to pre-dispute arbitration and class action waivers are very significant, constituting a return to the 2016 BDR rule’s prohibitions as well as the addition of new provisions. Proposed changes are as follows.

  • The Department proposed changes to the current regulations that include restoring the 2016 BDR regulations and prohibiting institutions from obtaining, through the use of contractual provisions or other agreements, a pre-dispute agreement to resolve claims that could form the basis of a borrower defense claim. Similarly, the Department proposed restoring prohibitions on institution obtaining an agreement from the borrower to waive rights to pursue in a class action any claim that could be the basis of a borrower defense claim. Finally, the Department also proposed requiring institutions to notify the Department and to disclose to students the institution’s use of arbitration agreements and to provide judicial and arbitral records to the Department, which would be available to the public.
  • The discussion of Issue Paper #9 was short, but important. Despite supporting the proposal, one negotiator requested further changes, including: 1) requiring that institutions provide arbitration records to the Department for “any unlawful act,” beyond claims that could give rise to a BDR application; 2) requiring automatic enforcement triggers if the institution violates the prohibition; and 3) extending the provision to private lenders, including those using income share agreements. The proprietary institution representative defended the use of such agreements and requested that the Department change its stance. The legal aid representative rejected her argument, while another representative suggested that prohibiting the use of these agreements in the context of a borrower defense claim was a “public good.”
  • The class action waiver prohibition was not extensively discussed by the negotiation committee.
  • The temporary consensus check revealed more opposition to the proposal than expected. While the proprietary institution representative voted it down, so did the legal aid representative, who suggested that simply going back to 2016 is not enough to “meet the moment.”

Here are some of our general thoughts on the first session of Negotiated Rulemaking:

  • Introducing twelve topics for negotiation and finalization over fifteen days is an ambitious goal. Given the agenda and the lack of regulatory language for the most contentious topics of the negotiation (i.e., borrower defense to repayment), the Department may not have allowed sufficient time for the thoughtful review and consideration that will be required of negotiators to reach consensus. The Department now has ten negotiating days to rewrite nearly all of the borrower defense to repayment regulations, create a new student loan repayment plan, fix public service loan forgiveness, and address a number of other topics.
  • Could additional sessions be scheduled? Yes, no authority exists to prevent the Department from doing so, but those sessions, which could be scheduled for January, would impact USDE’s schedule for other rulemaking efforts.
  • The Department appears ready to be generous to student loan borrowers. On a number of occasions, USDE’s representative stressed her willingness to focus on making regulatory processes and procedures “easier” for borrowers. Negotiators were receptive, as discussed before, with many showing an interest in creating or expanding “automation” where possible, including in the borrower defense to repayment process, closed school loan discharge, public service loan forgiveness, and other areas. While it is important for Department processes to be accessible to borrowers, the Department’s authority – and therefore its ability to be generous – is limited by the Congressional grant of authority that it receives. As a result, these efforts to be borrower-friendly must comply with the Higher Education Act and Administrative Procedures Act.
  • Facilitating a negotiated rulemaking session is not for the faint hearted, for certain. Despite the successes of the week, there were some significant challenges. First, without regulatory language on the most important topics, the facilitator’s “temperature checks,” or temporary consensus checks, seemed to serve little purpose. Second, after a full week of negotiations, the committee made no significant progress on any regulatory language or the Department’s proposals.
  • Other topics – a new income-driven repayment plan, regulatory fixes to the Public Service Loan Forgiveness Program, eliminating interest capitalization events, among others – have not garnered as much attention on this blog. These topics are important in their own right, and carry the potential of significant changes for higher education. If you are interested in learning more about these topics, the Higher Education Group is happy to discuss any of the Department’s proposals with you on an individual basis.
  • Next on the schedule, the Prison Education Programs subcommittee will meet from October 18-20. The Department has promised proposed regulatory language prior to the subcommittee meeting. Session 2 of the full negotiated rulemaking committee meets from November 1-5.

 

For more information on this topic and others, please contact, Jonathan HelwinkKatherine 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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