NAICU Washington Update

Borrower Defense Negotiated Rule-making Panel Fails to Reach Consensus

March 23, 2016

The negotiators on borrower defenses failed to reach consensus on proposed regulations despite appearances by, and statements from, Sen. Elizabeth Warren (D-MA) and Rep. Maxine Waters (D-CA), multiple statements of harmed borrowers from Corinthian Colleges, reams of position papers, protracted discussions, and last minute revisions. The last of three negotiated rule-making sessions went down to the final minutes of the last day. However, since there was no agreement, the Department of Education is now free to write a Notice of Proposed Rule-Making (NPRM) as it sees fit.

The proposed regulations would have clarified and expedited processes by which borrowers who were defrauded by their school could have their remaining loan balances discharged, and perhaps recoup repayments made on the loan.

There were many areas of agreement between negotiators and the Department on a number of issues, which were mainly technical. Those technical areas of agreement included electronic submission of death certificates and allowing faculty nursing loans to be consolidated. There was also agreement on some sections of the borrower defenses to loan repayment, and proposed financial responsibility language.

However, negotiations ultimately broke down when the representative for the for-profit sector dissented from the final language on the regulatory framework for borrower defense claims. Had that not happened, the negotiators for the public and private nonprofit schools likely would have dissented because of the proposed requirement in the financial responsibility language to disclose loan repayment rates to both current and prospective students. Institutional negotiators felt this data would be misleading for students considering public and private nonprofit colleges, especially those colleges with graduate programs.

The Department had come a considerable distance from its original proposals in January to develop fair and expeditious processes.

For example, the Department proposed lengthening the period of time in which a borrower could file a defense claim, and offered restrictions on the much criticized mandatory arbitration, a practice used by many for-profit schools. The Department’s language also included a number of automatic triggers, such as a high cohort default rate, that would have required costly letters of credit. (In a related action, the Department published the names of all schools that have had to purchase letters of credit under other federal requirements not related to borrower defenses.) It is not clear how much of the language included in the final proposals will be maintained.

The Department is eager to have final regulations on borrower defense because there are thousands of borrowers who have filed claims, and are currently being processed individually through consideration by the Department. In order to have a final rule in effect by July 1, 2017, it must be made final and published by November 1, 2016. This means that the Department has to publish an NPRM early enough to allow public comment and Departmental review of a rather complex proposal before then.

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