The
Department of Education (ED) has released its
final regulation on borrower defense to repayment, which cancels Direct Loans
for students whose institutions
misrepresented their educational offerings, job placement outcomes, or
otherwise provided grossly misleading information to their students.
“Borrower defense to
repayment” allows student borrowers to seek loan forgiveness if a higher
education institution misled them or engaged in other misconduct in violation
of the law. This type of student loan forgiveness was rarely used prior to
2015, when several high-profile school closures—including Corinthian Colleges
and ITT Tech—prompted the Obama administration to update the rule to help guide
the process.
The
Trump administration’s rule—a revision to the Obama-era regulation finalized in
2016—was announced before the Labor Day weekend in an ED press release.
Official publication in the Federal Register is pending.
The new rule is likely to have a negative
impact on borrowers in several ways. It narrows the window for filing such
claims to three years and includes a rebuttable presumption that borrowers are
not entitled to 100 percent cancellation.
ED estimates the rule will save the
government approximately $11 billion over 10 years. The department believes
these savings stem from preventing unwarranted claims, but critics fear that
many students who are due relief will not get it.
Among the provisions, the rule imposes new
burdens on students seeking debt relief who were enrolled at schools that
closed or who withdrew just ahead of closure. It also rescinds the current
prohibition against mandatory arbitration agreements and modifies the financial
responsibility standards to allow the department to take immediate action when
events occur, including lawsuits, that might impact an institution’s financial
condition.
ACE and 20 other
associations submitted comments
last year on the proposed rule,
expressing concern that it would make asserting a successful borrower defense
claim functionally impossible, eliminate accountability for the worst actors,
and incentivize practices that are harmful to students.
Politico
reported this week that legal challenges over the final regulations are on the
horizon. Harvard Law School's Project on Predatory Student Lending has said it
will file a lawsuit to stop the rules from taking effect, and California
Attorney General Xavier Becerra said in a statement
that his office was prepared to fight the rule.