NAICU Washington Update

Borrower Defense Due Process Rules Published

January 25, 2017

Promised guidance on the “due process” procedures for colleges facing borrower defense to loan repayment claims was published and made effective immediately by the Education Department on January 19, the last full day of the Obama Administration. 

The detailed regulations, which provide specific steps to be taken and related timelines, supplement the borrower defense regulations originally published November 1, 2016 and effective July 1, 2017. (Background on the underlying regulations can be found at the NAICU website under “Regulations” or in the Washington Update of December 14, 2016.)

Although the new regulations are effective immediately, they will only be used before July 1, 2017, to recover funds paid for claims approved under current authority and made on or before June 30, 2017.  

In an unusual twist, comments will be accepted through March 20, 2017, and may be considered.  The Education Department noted that it might even conduct “additional rule-making based on the comments.”  It is unclear how likely this is since the Trump Administration could chose to reverse these last minute rules.

“These regulations establish the procedural rules that would govern such borrower defense and institutional recovery proceedings, and are designed to ensure that institutions are afforded a full and fair opportunity to defend themselves in such proceedings,” according to the Education Department.

As outlined in the underlying regulations, the process for filing and reviewing claims will depend on whether the claim is by an individual or group, and whether the school is open or closed. The Education Department has the authority to pursue claims for recovery of losses already incurred, but a borrower’s loan discharge would not be rescinded even if the discharge claim is determined not to be valid.

The Department plans to “issue a borrower guide before the borrower defense regulations go into effect to ensure borrowers understand the application process and criteria for seeking debt relief.”

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