Department of Education embarks on negotiated rulemaking

ED set an ambitious Fall agenda with plans to tackle several topics that are relevant to higher education institutions. We summarize below the topics on the negotiated rulemaking agenda, categorized in terms of topics that have direct implications for institutions and those that relate predominantly to student borrowers and Pell Grant recipients. Of particular note, ED proposes to consider modifications to the borrower defense to repayment regulations, which were first promulgated during the Obama Administration and then amended during the Trump Administration.

Based on the HEA Master Calendar, ED must promulgate a final rule by November 1 in any year in order for the rule to be effective July 1 the following year. Accordingly, July 1, 2023 is the earliest possible effective date for any regulations that are developed based on the negotiated rulemaking process.

Topics that have direct implications for institutions

• Closed school discharge (which applies to closures of entire schools as well as closure of locations)

  • ED notes that several aspects of the current closed school discharge process limit the ability of borrowers to receive closed school discharges. Accordingly, ED proposes the following changes: (1) Reinstating automatic closed school discharges; (2) Establishing a consistent window of eligibility for students who withdrew from a school before it closed; (3) Defining “comparable program” for purposes of a closed school discharge; and (4) Expanding the list of examples of exceptional circumstances. This item warrants attention because institutions are held financially responsible for loan amounts discharged pursuant to the closed school discharge process.

• Borrower defense to repayment – adjudication process

  • ED believes that borrowers who are subject to conduct such as substantial misrepresentations by their institutions should have relief options through the borrower defense to repayment process. ED proposes the following changes to the borrower defense to repayment process:

    • Develop a single standard for all borrower defense claims, irrespective of when the loan was first disbursed

    • Grant relief based upon a preponderance of evidence standard

    • Adopt new categories that could lead to successful borrower defense claims:

      • Substantial misrepresentation

      • Omissions

      • Breach of contract

      • Aggressive recruitment

      • Adjudications (Court judgments and ED findings)

    • Revise the definition of misrepresentation to include job placement rates, program costs, and tax status of the institution

    • Define a misleading or deceptive omission as an act leading to a successful borrower defense claim

    • Emphasize the group process for adjudicating claims

    • Review individual applications not covered by a group process

    • Clarify the type of evidence that may be used

    • Allow prior ED actions to establish a basis for granting borrower defense discharges

    • Place borrowers in forbearance while they adjudicate their claims

    • Eliminate limitations periods for borrowers to submit a borrower defense to repayment

    • Develop a time-limited institutional response process for institutions

    • Freeze interest accumulation on loans held by borrowers with pending borrower defense claims for six months or longer

    • Streamline the procedures for FFEL Program borrowers

• Borrower defense to repayment – post-adjudication

  • ED proposes to address the post-adjudication treatment of borrower defense to repayment claims. ED specifically seeks to address situations where approved claims provide insufficient relief and the lack of a reconsideration process.

  • ED proposes to adopt a presumption of full relief for approved borrower defense claims. This presumption could be rebutted with evidence illustrating that the harm to the borrower is less than what they would receive from a full discharge. ED also proposes to establish reconsideration procedures that borrowers may pursue if their borrower defense claim is denied or only granted partial relief.

• Borrower defense to repayment – recovery from institutions

  • ED seeks to clarify the process it uses to recoup discharged loan amounts from institutions and to implement a clearer limitations period. ED proposes to implement a six-year limitations period where the clock would stop when the institution is notified of claims during the institutional response process.

• Pre-dispute arbitration

  • ED proposes to forbid institutions that participate in the Direct Loan program to use certain contractual provisions related to dispute resolution processes and to mandate certain institutional disclosures and notifications concerning use of arbitration.

Topics that relate predominantly to recipients of Pell Grants and federal loans

• Total and permanent disability (TPD) discharge

  • ED proposes to make the TPD discharge process simpler to allow for eligible borrowers to take advantage of the current relief options.

• Creating a new income-driven repayment (IDR) plan

  • To improve the IDR program, ED seeks feedback on several topics, such as lowering the discretionary income repayment rate on undergraduate loans to 5 percent, exempting income up to 150 percent of the federal poverty line based on family size, creating greater clarity among the various IDR plans, and improving the IDR program to reduce delinquency and default.

• False certification discharge

  • There are currently several regulatory standards that apply to false certification discharge claims. ED proposes to adopt one set of regulatory standards to include all false certification discharge claims.

• Pell grant eligibility for prison education

  • In December 2020, Congress codified much of the Obama Administration’s Second Chance Pell experiment, which allows incarcerated individuals access to Federal Pell Grant funds for qualifying prison education programs. To implement this statute, ED seeks feedback on several topics, such as student, institutional, and program eligibility, as well as how to structure the annual reporting requirement.

• Eliminate interest capitalization for non-statutory capitalization events

  • ED has identified several issues with the current interest capitalization process that result in inefficiencies for borrowers. ED notes that interest capitalization can substantially increase a borrower’s debt and extend the time it takes to repay loans. ED proposes eliminating the capitalization events that are not authorized by statute.

• Improving the Public Service Loan Forgiveness (PSLF) Application Process

  • Although ED must cancel outstanding balances for borrowers employed in public service after 120 qualified payments have been made, ED has expressed concern that very few borrowers who apply for PSLF receive forgiveness. Accordingly, ED proposes the following revisions to the application process to improve the PSLF program: (1) Removing application requirements when ED determines borrowers do not need one; (2) Simplifying the regulations to ensure that an amount paid by the borrower equal to the full scheduled payment due counts toward forgiveness; (3) Allowing certain deferments and forbearances to count as payments; (4) Stopping the clock restart upon consolidation; (5) Providing FFEL lender notifications to borrowers about PSLF eligibility; and (6) Establishing a PSLF Reconsideration Process allowing for eligibility denial appeals.

• PSLF employer eligibility and full-time employment

  • ED has highlighted several issues with the current eligibility guidelines, such as the difficulty determining eligibility when an organization does not have 501(c)(3) status but still serves the public. ED proposes the following solutions to improve eligibility issues: (1) Defining the primary services of a private organization to allow organizations without 501(c)(3) status that serve the public greater participation in PSLF; and (2) Clarifying the definition of full-time employment.

Committee meetings are public and can be accessed virtually. ED will post committee recordings and meeting transcripts to its website. Parties interested in registering for future committee meetings can register for the sessions on ED’s website and access relevant resources and materials here. The remaining two sessions are scheduled for November 1-5, 2021, and December 6-10, 2021.

Please contact us if you would like additional information regarding the rulemaking.

Authored by Stephanie Gold and Will Crawford.