This Alert addresses the actions that postsecondary institutions participating in the federal Direct Loan Program must take now and in the near future if they require students to enter into binding pre-dispute arbitration agreements or class action waivers with the institution. Below, we address how the guidance may affect ongoing arbitrations and current and future arbitration agreements. We will cover the financial responsibility reporting requirement triggers in our next Alert.
The March 15, 2019, guidance makes clear that the 2016 BDR Rule is now in effect. Accordingly, schools are no longer permitted to rely on binding pre-dispute arbitration agreements and class action waivers with Direct Loan borrowers in connection with so-called “borrower defense claims.” Borrower defense claims are those based on an act or omission of the institution attended by the claimant student that relates to the making of a Direct Loan for enrollment at the institution or the provision of educational services for which the loan was provided. The guidance excludes, for example, personal injury tort claims and sexual and racial harassment claims from being categorized as borrower defense claims. Other claims, such as educational malpractice claims, may also be excluded, so long as they do not meet the definition of a borrower defense claim.
Schools should keep in mind certain key deadlines as they work with counsel to determine the best path forward for complying with the 2016 BDR Rule.
To read the full text of this Alert, please visit the Duane Morris website.