Breaking Down Borrower Defense Regs: ED Introduces Another Borrower Defense Framework – NASFAA
On August 30, the Department of Education (ED) released an unofficial draft of its Institutional Accountability regulations, which include borrower defense to repayment claims, pre-dispute arbitration agreements, and institutional financial responsibility standards. The rule becomes effective July 1, 2020. This is the second in a series of three articles analyzing the rule, and will focus on changes to borrower defense standard and process. The first article in this series reviewed changes to the standards of financial responsibility which institutions must meet to maintain eligibility to participate in the Title IV programs. The third article will examine the changes to other loan discharges and miscellaneous provisions.
For background, these issues were previously negotiated under the Obama administration and a final rule was issued in 2016. That rule became effective in 2018 after a court declared invalid two delays issued by ED prior to the rule’s original effective date of July 1, 2017. The newly-issued rule is the result of negotiated rulemaking sessions held in 2017-18, in which negotiators failed to reach consensus, leaving ED to draft its own language.
Background
The history of borrower defense and multiple negotiations of rules has led to three borrower defense periods:
1) Loans first disbursed prior to July 1, 2017, which are subject to pre-2016 regulations that specify that a borrower may assert a defense to repayment based on an act or omission by the school that would give rise to a cause of action under state law;
2) Loans first disbursed on or after July 1, 2017 and before July 1, 2020, which are subject to final regulations published on Nov. 1, 2016; and
3) Loans first disbursed on or after July 1, 2020, which are subject to the 2019 regulations described in this article.