Final rules published by November 1 will take effect on July 1, 2023
On July 13, the U.S. Department of Education (ED) published an extensive set of proposed regulations, generally aimed toward protecting the interests of and strengthening protections for students and borrowers and streamlining loan debt relief. In this Notice of Proposed Rulemaking (NPRM), ED formally presents proposed regulatory text that a negotiated rulemaking committee considered last fall. These issues include:
- Borrower Defense to Repayment, Arbitration, and Class Action Waivers
- Total and Permanent Disability (TPD) Discharge
- Closed School Discharge
- False Certification of eligibility for federal financial aid programs
- Public Service Loan Forgiveness
- Interest Capitalization
Two issues from the fall 2021 negotiations do not appear in this NPRM, but ED officials have announced that proposed language for Income-Driven Repayment and prison education programs will join proposed regulations on Changes of Institutional Ownership/Control and closing the 90/10 loophole in another NPRM expected within the coming month.
The rest of the accountability-focused proposed rules from winter 2022 negotiations will come in a subsequent NPRM, tentatively expected for release in April 2023.
Publication of the latest NPRM marks the beginning of a 30-day public comment period. Student advocates, labor unions, civil rights organizations, institutions and their associations, and current students and borrowers themselves will be among the interested parties submitting feedback on the proposed regulations.
Key provisions in the proposed regulations include:
Borrower Defense to Repayment, Arbitration, and Class Action Waivers. The Department’s borrower defense (BD) proposal would undo many of the provisions put in place by the previous administration that many student and borrower advocates contended raise significant hurdles to claimants seeking relief under this provision of the Higher Education Act. The new proposed rule would make several substantial changes to strengthen ED’s ability to protect students and the integrity of federal financial aid programs:
- Clarifies omission or misrepresentation of facts about an institution or program that can serve as a basis for borrower defense.
- Adds aggressive and deceptive recruitment of students as a basis for BD claims.
- Strengthens ED’s ability to seek recoupment of funds from individuals associated with institutions where students are found to have grounds for loan discharges under BD. Decisions about seeking recoupment from individuals who commit this fraud—and, thus, to diminish the cost of their fraud passed on to taxpayers—would be separate from decisions to approve or deny students’ claims. This two-step approach would enable ED to discharge loans on a separate timeline from decisions about whether to pursue a recoupment process or resolve claims.
- Sets timeline for adjudicating claims. Group claims would be adjudicated within two years; individual claims would be adjudicated within three years. If the Department was unable to process claims by those timelines, borrowers would automatically receive approvals. The proposed rule would be the first BD regulation to include adjudication timelines.
- Restores borrowers’ ability to pursue appeals of denied claims in light of newly discovered evidence of institutional fraud or misrepresentation.
- Prevents institutions from forcing prospective students to sign away their legal rights by forcing them into arbitration, rather than using the legal system to pursue claims when students discover their colleges defrauded them.
- Affirms ability of similarly defrauded borrowers to pursue relief through class action.
Although negotiators at the fall 2021 table discussed enabling legal aid organizations to file group claims for similarly defrauded student borrowers, the proposed regulations only provide that ability to state attorneys general. Legal aid groups could still work in collaboration with attorneys general to provide evidence of patterns and practices of fraudulent activity and abuse of financial aid programs.
Total and Permanent Disability (TPD) Discharge. Fall 2021 negotiators reached consensus on proposed language to streamline student loan discharges for borrowers with total and permanent disabilities. These changes would follow a March 2021 action by ED to ensure 190,000 borrowers with disabilities in an earnings monitoring period would not be at risk of having their outstanding balances put back into repayment. Another 41,000 TPD recipients received discharges whose loans had been placed back into repayment as a result of failing to submit earnings information amid the Covid-19 emergency.
New TPD discharge provisions would allow:
- More qualifying borrowers to receive discharges by allowing additional categories of disability determinations by the Social Security Administration to qualify.
- Additional types of medical professionals to certify TPD eligibility.
- More borrowers who received a discharge to avoid having their loans reinstated by removing the three-year income monitoring period that currently exists in regulation.
According to a 2016 Government Accountability Office analysis, 98 percent of reinstated disability discharges occurred because of onerous paperwork requirements—not because they no longer met eligibility requirements for discharges.
Closed School Discharge. Under its closed school discharge authority, ED can clear student loan balances for borrowers who attended institutions that closed shortly after they left the school, provided they did not complete a credential. In August 2021, the Department made discharges available to 115,000 borrowers who attended the now-defunct ITT Technical Institute. ITT notoriously spent years misleading students and defrauding financial aid programs before collapsing in September 2016.
Through the proposed regulations, ED would “clarify and streamline the eligibility requirements for closed school discharges by providing more automatic discharges for borrowers within one year of their college closing.” In addition, the Department would remove the requirement that an applicant borrower affirm they did not complete a comparable program of study at another school. (The regulations would keep in place a requirement that a borrower state they did not complete an eligible institutional teach-out plan performed or arranged by the closed school.)
False Certification. Fall 2021 negotiators reached consensus on proposed language to streamline the process for borrowers whose institutions led them to take on loan debt under false pretenses. Borrowers can demonstrate eligibility for loan discharges under false certification in such cases as when their college:
- Pushes students to take on loan debt to pursue credentials when legal requirements would not allow the student to work in their credential’s professional field.
- Signs loan agreements for students without their knowledge or consent.
- Encourages prospective students to apply for student loans when they do not have a high school diploma or equivalency.
Proposed regulations in the new NPRM expand the documentation ED would consider when borrowers file for false certification discharge. The regulations would also enable groups of borrowers who had experienced the same behavior by their institutions to receive discharges of their federal student loans.
Public Service Loan Forgiveness (PSLF). Recognizing longstanding procedural problems with the Public Service Loan Forgiveness program, last fall ED established a temporary expanded PSLF program to enable qualifying borrowers to receive credit for missed payments and benefits according to PSLF’s original intent. As of this writing, the expanded program is set to expire at the end of October 2022.
In the proposed regulations, the Department seeks to “improve the application process, expand what counts as an eligible monthly payment, expand the definition of full-time employment, and provide additional clarifying definitions of public service employment to reduce confusion and to clearly establish the definitions of qualifying employment for borrowers.”
Interest Capitalization. Fall 2021 negotiators reached consensus on proposed language to stop the practice of capitalizing student loan interest—which effectively increases the cost of borrowing—for all actions apart from those required by law. These changes would decrease growth rates for borrowers’ principal balances over time.
How to Weigh In
Between now and August 12, anyone interested in submitting comments on aspects of the NPRM can do so via a portal set up by the federal government. ED officials will review and respond to the comments when the Department publishes final versions of the rules later this year.