Breaking Down Borrower Defense Regs: ED Issues New Set of Financial Responsibility Standards – 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 first in a series of three articles analyzing the rule, and will focus on changes to the financial responsibility standards, primarily located in sections 668.171 and 668.175 of the General Provisions regulations.
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
Institutions must meet certain standards of financial responsibility as one condition of participation in the Title IV federal student aid programs. Institutions are considered financially responsible if: