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ED Issues Proposed Rules on Borrower Defense to Repayment

June 16, 2016

The Department of Education has released proposed regulations on Borrower Defense to Repayment, a mechanism which would allow any student who believe they were defrauded at their school or the school violated state law, to file a claim with the Department of Education for discharging their loans. These proposed rules have come from the Department due to a failure earlier this year of Negotiated Rulemaking on the topic.

Focus on this rule has been brought about due to fallout from Corinthian Colleges, however it should be known that these regulations apply equally to both for-profit and not for profit institutions:

In response to the collapse of Corinthian Colleges (Corinthian) and the flood of borrower defense claims submitted by Corinthian students stemming from the school’s misconduct, the Secretary announced in June 2015 that the Department would develop new regulations to establish a more accessible and consistent borrower defense standard and clarify and streamline the borrower defense process to protect borrowers and improve the Department’s ability to hold schools accountable for actions and omissions that result in loan discharges.

Consistent with the Secretary’s commitment, we propose regulations that would specify the conditions and processes under which a borrower may assert a defense to repayment of a Direct Loan, also referred to as a “borrower defense,” based on a new Federal standard. The current standard allows borrowers to assert a borrower defense if a cause of action would have arisen under applicable state law. In contrast, the new Federal standard would allow a borrower to assert a borrower defense on the basis of a substantial misrepresentation, a breach of contract, or a favorable, nondefault contested judgment against the school for its act or omission relating to the making of the borrower’s Direct Loan or the provision of educational services for which the loan was provided. The new standard would apply to loans made after the effective date of the proposed regulations. The proposed regulations would establish a process for borrowers to assert a borrower defense that would be implemented both for claims that fall under the existing standard and for later claims that fall under the new, proposed standard. In addition, the proposed regulations would establish the conditions or events upon which an institution is or may be required to provide to the Department financial protection, such as a letter of credit, to help protect students, the Federal government, and taxpayers against potential institutional liabilities.

Comments on the proposed rules are being accepted through August 1st, 2016.  UPCEA encourages our member institutions to weigh in and make their voices heard. Please submit your comments here.

For more information on Borrower Defense to Repayment, click here.

UPCEA is a proud founding member of advocacy groups such as the Today's Students Coalition as well as the National Adult Learner Coalition.

UPCEA Policy Committee

Mary Niemec, University of Nebraska, Co-Chair
Dick Senese, Capella University, Co-Chair

Kristen Brown, University of Louisville
Allison Friederichs, University of Denver
Ricky LaFosse, University of Michigan
Reed Scull, University of Wyoming


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