Our second blog post about the Borrower Defense to Repayment Rule focuses on the impact of the new rule on Direct Loan borrowers and the bases for borrower defense claims and how those claims will be processed.
On September 11, we published a detailed look at the portion of the Department of Education’s long-awaited revised Borrower Defense to Repayment Rule (BDTR) that focused on the elements directly impacting institutional operations – financial responsibility triggers, new treatment of leases and long-term debt, and the removal of the ban on arbitration agreements. The institutional elements – not a part of the original BDTR law itself (see below) – were added in the 2016 Obama-era rule for the purpose of deterring “bad conduct” and providing early warning of institutions in trouble.
This article will focus on the impact of the new rule on those for whom the statute was originally intended to protect – Direct Loan borrowers – and more specifically the bases for borrower defense claims and how those claims will be processed. All of these new rules will become effective on July 1, 2020.
To briefly recap the rationale for the BDTR regulations, the statutory provision for “Borrower Defenses” contains just 80 words:
(h) Notwithstanding any other provision of State or Federal law, the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan.