Home News Breaking Down Borrower Defense Regs: New Rules for Certain Loan Discharges, Pre-Arbitration Agreements – NASFAA

Breaking Down Borrower Defense Regs: New Rules for Certain Loan Discharges, Pre-Arbitration Agreements – NASFAA

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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 third in a series of three articles analyzing the rule, and will focus on changes to certain types of loan discharges and miscellaneous provisions. 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 second article in this series focused on changes to borrower defense standard and process.

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.

Closed School Discharge

Under the current rules, ED may grant automatic closed school discharges in the absence of an application from borrowers under certain conditions. The new 2019 rules will end the possibility for an automatic discharge process for closed school discharges for borrowers who attend institutions that close on or after July 1, 2020.

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