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Executive Order – Follow-Up

The ‘executive order’ will reportedly also direct ED to;

  • Publish program level data in the College Scorecard on measures of student outcomes, including earnings, student debt, default rates and loan repayment rates.
  • Submit policy recommendations to the White House by January 2020 on federal student loan ‘risk-sharing’ proposals.
  • Prepare HEA re-authorization proposals that priortiize inclusion of program-level data and a new accountability system for colleges.

Please join us for a webinar, Guidance on Borrower Defense Regulations

On March 15, 2018, the U.S. Department of Education released much anticipated guidance detailing how the agency would go about implementing its 2016 “borrower defense” rule. As indicated in the Department’s announcement, the 2016 version of this complex and controversial regulation was scheduled to take effect on July 1, 2017, but was delayed by the current administration. Following an October 2018 decision by the U.S. District Court for the District of Columbia, the delay was set aside, and the 2016 rule took effect. This rule impacts all sectors of higher education, and has been labeled “significant guidance” under the Office of Management and Budget’s Final Bulletin for Agency Good Guidance Practices.

On Wednesday, March 27, Thompson Coburn’s Higher Education Practice will host a special 90-minute webinar examining the new borrower defense guidance in detail. The webinar will address each major component of the guidance, including implementation of the borrower defense framework, institutional reporting requirements under the revised financial responsibility rules, and the use of pre-dispute arbitration and class action waivers. The presentation will be led by Aaron Lacey, leader of the Firm’s Higher Education practice. In October 2017, Aaron was selected by the Department to serve as one of 17 negotiators charged with overhauling the borrower defense rule.

 

TO REGISTER FOR WEBINAR

https://urldefense.proofpoint.com/v2/url?u=http-3A__tcinstitute.com_collect_click.aspx-3Fu-3DjRYOrR8N39RKtm2uvcR6bfPy8zIKwr0ehA9yLRGDBRPs2hLMspnxeo18zLN5oYMV2jjlH0pcWi4Wl1nm2W3IfgB4iI14Lru3-26rh-3Dff0048d0538d22f8c92fc19b96448953b0f5fa34&d=DwMFaQ&c=cZPtTcuaceWpjwM7KRl0IKFrt2kPtYMLVT3iIveZ7SY&r=KfSSnf_vfaqSDBjmiuNBTm2f6dfnOQcybW_Lue8yhcw&m=qbkU8Eq7B0w18Sum8K-pMS6AFT_zIeiGDV8JJUoSwEI&s=x1a8l5UJRs9XoeqFbuhLGqNcOXSkjQEfB2zJ7SSUQQ4&e=

Finally, in November 2016, Thompson Coburn’s Higher Education Practice offered four, detailed, 90-minute webinars on the 2016 borrower defense rule. The recordings of all four webinars are still available free and on demand on our website, for those who may wish to revisit the various aspects of the regulation. Individuals looking for the text of the 2016 rule can access the official version on the Federal Register website.

Borrower Defense Repayment Regs- OPE Guidance

Posted Date: March 15, 2019

Author: Office of Postsecondary Education (OPE)

Subject: Guidance Concerning Some Provisions of the 2016 Borrower Defense to Repayment Regulations

The U.S. Department of Education (Department) has determined that this guidance is significant guidance under the Office of Management and Budget’s, Final Bulletin for Agency Good Guidance Practices.i Significant guidance is non-binding and does not create or impose new legal requirements.  The Department is issuing this guidance to provide institutions of higher education with information to assist them in meeting their obligations under the Higher Education Act of 1964 and implementing regulations, specifically at 34 CFR 668.41, 668.171, and 685.300 that the Department enforces. ii  

On November 1, 2016, the Department of Education published final regulations concerning borrower defense to repayment and other related matters in the Federal Register (81 Fed. Reg. 75,926).  The original effective date (July 1, 2017) of these regulations was delayed by the Department, but by order of the U.S. District Court for the District of Columbia in the case Bauer et al. v. DeVos, Civil Action No. 17-1330 (RDM) the 2016 Final Regulations took effect.

The Borrower Defense to Repayment Standard

The 2016 Final Regulations established a federal standard for borrower defense to repayment applications based upon judgments against institutions, breaches of contract by institutions, and substantial misrepresentations by institutions, in 34 C.F.R. § 685.222.  This standard will be applied for borrower defense to repayment claims asserted as to loans first disbursed on or after July 1, 2017.

The Financial Responsibility Events, Actions, and Conditions

Among other things, the 2016 Final Regulations included revisions to the Department’s regulations in 34 CFR 668.171, specifying the standards institutions must meet to be deemed financially responsible.  The 2016 Final Regulations, in 34 CFR 668.171(h), require institutions to notify the Secretary within specified timeframes for any of the following events, actions, or conditions that occur on or after July 1, 2017.  Cites below refer to the locations of the definitions of each event, condition, or action, which you may see in the 2016 Final Regulations, at 81 Fed. Reg. 76,073 to 76,074 (pages 148-149 of the linked pdf):

  • Debts, liabilities, and losses (34 CFR 668.171(c)):
    • The institution has a debt or liability arising from a final judgment/determination (judicial or administrative proceeding) or from settlement.
    • A lawsuit against the institution is brought by a Federal or State authority after July 1, 2017, on claims related to the making of a Direct Loan or the provision of educational services, which has been pending for more than 120 days.
    • A lawsuit (other than the type already noted) against the institution is brought after July 1, 2017, where summary judgment motions have not been filed under certain circumstances or the institution’s summary judgment motion has been denied.
    • The institution is required by its accrediting agency to submit a teach-out plan.
    • For an institution with a composite score less than 1.5, any withdrawal of owner’s equity from the institution, unless the transfer is to an entity included in the affiliated entity group on whose basis the institution’s composite score was calculated.
  • Non-Title IV revenue (violation of the 90/10 requirement)(34 CFR 668.171(d)): If the institution did not derive at least 10 percent of its revenue from non-Title IV programs.
  • For publicly-traded institutions (34 CFR 668.171(e)): Certain actions by the U.S. Securities and Exchange Commission (“SEC”) or stock exchange on which the institution’s stock is listed.
  • Discretionary factors or events (34 CFR 668.171(g)):
    • The institution has received a citation by a state licensing or authorizing agency for failing state or agency requirements.
    • The institution has been placed on probation or issued a show-cause order by an accrediting agency for a failure to meet an agency standard.
    • The institution has violated a provision or requirement in a loan agreement and there has been a default or delinquency under the agreement enabling the creditor to require an increase in collateral, a change in the contract, an increase in interest rates or payments, or other sanctions, penalties, or fees.

Notifications of Financial Responsibility Actions, Events, or Conditions Occurring Between July 1, 2017, and the Present

We recognize that some institutions may have had one or more of the events, actions, or conditions occur between July 1, 2017, and the date of this announcement and, in light of the delays and court orders, are uncertain about how to comply with these financial responsibility requirements.

For the majority of the financial responsibility standards addressing the debts, liabilities, and losses under 34 CFR 668.171(c), we recognize that the impact of such events will have been reflected in the institution’s most recent financial statement submitted after July 1, 2017.  As a result, an institution needs to submit a separate notification to the Department of the following events occurring after the fiscal year end for the most recent annual audit submission submitted to the Department:

  • Debts, liabilities, and losses
    • The institution has a debt or liability arising from a final judgment/determination (judicial or administrative proceeding) or from settlement.
    • The institution is required by its accrediting agency to submit a teach-out plan.
    • For an institution with a composite score less than 1.5, any withdrawal of owner’s equity from the institution.

For lawsuits, we will require institutions to notify the Department of:

  • A lawsuit against the institution brought by a federal or state authority after July 1, 2017, on claims related to the making of a Direct Loan or the provision of educational services, which has been pending for more than 120 days and which is still pending as of the date of this announcement.
  • A lawsuit (other than the type already noted) that is still pending as of the date of this announcement against the institution and was brought after July 1, 2017, where summary judgment motions have not been filed under certain circumstances or an institution’s summary judgment motion has been denied.

For non-Title IV revenue (violations of the 90/10 requirement), an institution must notify the Department 45 days after the end of the institution’s first fiscal year beginning on or after July 1, 2017.

For certain actions by the SEC or stock exchange on which the institution’s stock is listed for publicly-traded institutions, institutions must notify the Department of all such events occurring after July 1, 2017.

For state licensing or authorizing agency citations and accreditor show-cause orders or accreditor-imposed probation status, institutions must notify the Department of all such events occurring after July 1, 2017, unless they have been resolved as of the date of this announcement.

For violations of a requirement in a loan agreement, institutions must notify the Department of all such events occurring after July 1, 2017.

Notifications should be sent to FSAFRN@ed.gov within 60 days of this electronic announcement.

Contact Information

We appreciate your diligence in maintaining compliance with the Title IV regulations.  For help with notifications, please contact Tiffany Hill at Tiffany.Hill@ed.gov.

The Class Action Bans and Predispute Arbitration Agreements Provisions

The 2016 Final Regulations also included revisions to the Department’s regulations in 34 CFR 685.300 covering agreements between an eligible institution and the Secretary for participation in the Direct Loan Program.  Generally, these revisions include prohibitions on:

    • Internal dispute resolution (34 CFR 685.300(d)).  An institution may not compel any student to pursue a complaint based upon a “borrower defense claim” (generally, a claim that is or could be asserted as a borrower defense claim by a borrower under the Department’s administrative process, see below) through an internal dispute process before the student presents the complaint to an accrediting agency or government agency authorized to hear the complaint.

The Department’s administrative process allows a Direct Loan borrower to request a discharge of the borrower’s loan based upon an act or omission of the institution attended by the student that relates to the making of a Direct Loan for enrollment at the institution or the provision of educational services for which the loan was provided, under standards established in the Department’s regulations at 34 CFR 685.206(c) and 34 CFR 685.222.

  • Class action bans (34 CFR 685.300(e)).  An institution may not seek to rely in any way on a predispute arbitration agreement or other predispute agreement with a student who has obtained or benefited from a Direct Loan with respect to any aspect of a class action that is related to a borrower defense claim (as defined above).
  • Predispute arbitration agreements (34 CFR 685.300(f)).  An institution may not enter into or seek to rely in any way on a predispute agreement to arbitrate a borrower defense claim (as defined above), or any aspect of a borrower defense claim, with a student who obtained or benefited from a Direct Loan.

In addition to the prohibitions above, institutions must submit certain records to the Department:

  • Arbitral records (34 CFR 685.300(g)).  An institution must submit copies of certain records in connection with any claim filed in arbitration by or against the institution concerning a borrower defense claim.
  • Judicial records (34 CFR 685.200(h)).  An institution must submit copies of certain judicial records in conjunction with any claim concerning a borrower defense claim filed in a lawsuit by the institution against the student or by any party, including a government agency, against the institution.

Because the 2016 Final Regulations are now in effect, institutions are required to implement these changes.

Nothing in these regulations prohibits an institution from having and enforcing a mandatory predispute arbitration requirement or class action ban in connection with any claim not concerning a borrower defense claim or in connection with any claim asserted by a student who is not a Direct Loan borrower.  A claim is not a borrower defense claim if it is not based upon an act or omission of the institution attended by the student that relates to the making of a Direct Loan for enrollment at the institution or the provision of educational services for which the loan was provided, such as a personal injury tort claim or a sexual or racial harassment claim.  The regulations, at 34 CFR 685.300(e)(3) and (f)(3), specifically note that the issue of whether a claim is “a claim regarding the making of a Direct Loan or the provision of educational services for which the loan was provided,” (i.e., a borrower defense claim) is to be decided by the court.

In addition, as explained in 34 CFR 685.300(f)(1)(ii), a student may enter into a voluntary post-dispute arbitration agreement with an institution to arbitrate a borrower defense claim.  In other words, these regulations do not prohibit an institution from providing an arbitration process for students who have borrower defense claims, or any other claims, who voluntarily agree to arbitration after a grievance has been raised with the institution.

Implementation of the 2016 Final Regulations for Existing Predispute Arbitration Agreements and Class Action Bans

We recognize that some institutions may have entered into mandatory predispute arbitration agreements or other predispute agreements addressing arbitration and class action bans between the 2016 Final Regulations’ original effective date of July 1, 2017, and the date of this announcement.  Although such agreements cannot be enforced in relation to any borrower defense claim made by a Direct Loan recipient, the Department recognizes that institutions may need time to prepare new enrollment agreements that omit such mandatory predispute arbitration requirements or include the language specified by the regulations if the agreements address arbitration and class action bans.  Institutions need not issue new enrollment agreements or contracts to students who may have accepted the terms of such a predispute arbitration agreement or class action ban in an earlier enrollment agreement or contract, but may instead provide written notification to those students that such agreements will not be enforced with respect to borrower defense claims for Direct Loan recipients.  Therefore, institutions may do either of the following to comply with the requirements of revised 34 CFR 685.300:

    • Amend the mandatory predispute arbitration agreement within 60 days of this announcement, to contain the language specified in 34 CFR 685.300(f)(3)(iii)(A) (see Appendix) and, if the agreement also addresses class actions or there is a separate predispute agreement addressing class actions, to contain the language specified in 34 CFR 685.300(e)(3)(iii)(A) (see Appendix);

OR

  • Within 60 days of this announcement, begin complying with the notice requirements.  Institutions may also choose, within 60 days of this announcement, to begin providing notice to students that mandatory predispute arbitration agreements will not be enforced for borrower defense claims, no later than at the point of exit counseling or the date on which the institution files its initial response to a demand for arbitration or service of a complaint from a student who has not already received a notice or amended agreement.  Institutions may also achieve compliance by providing notice to all impacted students now, if they choose.  The content of the notice is specified in 34 CFR 685.300(f)(3)(iii)(B) (see Appendix) as to existing predispute arbitration agreements.  The content of the notice for a class action ban — whether in an existing predispute arbitration agreement or in a separate predispute agreement — is specified in 34 CFR 685.300(e)(3)(iii)(B) (see Appendix).

The regulation is clear on the requirements for predispute arbitration agreements and other predispute agreements entered into after the 60 day window provided in this announcement.

Finally, the unenforceability of predispute arbitration agreements and class action bans under 34 CFR 685.300 also applies in the context of an arbitration proceeding between an institution and a student under the circumstances described in the regulation (i.e., if the proceeding relates to a borrower defense claim, as defined above and in the regulation, and the student involved in the arbitration with the institution is a Direct Loan recipient) that was ongoing as of October 16, 2018, and was initiated pursuant to a predispute arbitration agreement.  A student involved in an ongoing arbitration may choose to continue with the arbitration process toward a final conclusion but has no obligation to do so under the regulation.

For institutions with arbitrations that are ongoing and not final at the time of this announcement, institutions must provide students with the notice(s) described above within 10 days of this announcement.  Institutions may continue to offer voluntary opportunities for students to engage in arbitration on issues related to a borrower defense claim after a grievance has been raised, but institutions may not require a Direct Loan recipient to engage in arbitration prior to filing a borrower defense claim.  Institutions may also continue to enforce mandatory predispute arbitration agreements or bans on class action suits for complaints unrelated to a borrower defense claim; however, the court is to make the determination as to whether the claim is a borrower defense claim.

Submission of Arbitral and Judicial Records

For any dispute in arbitration based on a borrower defense claim that was pending as of July 1, 2017,  or initiated after July 1, 2017, a copy of the arbitral records specified in 34 CFR § 685.300(g) should be sent to borrowerdefense@ed.gov.

For any lawsuit based on a borrower defense claim that was pending as of July 1, 2017, or initiated after July 1, 2017, a copy of the judicial records specified in 34 CFR 685.300(h) should be sent to borrowerdefense@ed.gov.

Institutions must submit existing records no later than 90 days of this electronic announcement and must comply with the timeframes set forth in the regulations for submission of future records.

Contact Information

We appreciate your diligence in maintaining compliance with the Title IV regulations.  For help with submission of arbitral and judicial records, contact Sara Hayhurst atSara.Hayhurst@ed.gov.

Repayment Rate and Financial Protection Disclosures

The 2016 Final Regulations also added a requirement, 34 CFR 668.41(h), that for a proprietary institution that does not meet a certain loan repayment rate for the majority of its student loan borrowers, the institution must include a specified warning in its promotional materials that are made available to prospective or enrolled students.  As contemplated by 34 CFR 668.41(h)(3)(i)(A), the Department will inform institutions of the form, place, and manner that the warning must appear in institutions’ promotional materials in an upcoming Federal Register notice.  Further, the Department will be engaging in consumer testing in the near future to ensure the warning is meaningful and helpful to students.  As a result, institutions will be informed through future Federal Register notices about when and how they must provide repayment rate warnings to students in the future and of any changes to the content of the warning.

The 2016 Final Regulations also added a requirement, 34 CFR 668.41(i), that all institutions deliver a disclosure to enrolled and prospective students regarding the occurrence of certain triggering events that are indicators of financial responsibility or other events.  As specified in 34 CFR 668.41(i)(2) and (3), the Department will be engaging in consumer testing in the near future to determine the triggering events for which disclosure will be required and to determine the form of the disclosure to ensure the disclosure is meaningful and helpful to students.  As a result, institutions do not need to provide the disclosure to students until further notice from the Department.

AppendixTo amend predispute agreements covered by 34 CFR 685.300, institutions must include the following provisions:

    • For predispute arbitration agreements, under 34 CFR 685.300(f)(3)(iii)(A):
We agree that neither we nor anyone else who later becomes a party to this predispute arbitration agreement will use it to stop you from bringing a lawsuit concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. You may file a lawsuit for such a claim or you may be a member of a class action lawsuit for such a claim even if you do not file it. This provision does not apply to other claims.  We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.
    • For predispute arbitration agreements that address class actions, pursuant to 34 CFR 685.300(e)(3)(iii)(A):
We agree that neither we nor anyone else who later becomes a party to this agreement will use this agreement to stop you from being part of a class action lawsuit in court.  You may file a class action lawsuit in court or you may be a member of a class action lawsuit even if you do not file it. This provision applies only to class action claims concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained.  We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.

For institutions deciding to provide notices to students rather than amend the original predispute agreements, the notices must contain the following language:

    • For predispute arbitration agreements, under 34 CFR 685.300(f)(3)(iii)(B):
We agree not to use any predispute arbitration agreement to stop you from bringing a lawsuit concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained. You may file a lawsuit regarding such a claim or you may be a member of a class action lawsuit regarding such a claim even if you do not file it.  This provision does not apply to any other claims. We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Direct Loan or the provision of educational services for which the loan was obtained.
    • For predispute arbitration agreements, or other predispute agreements addressing class actions under 34 CFR 685.300(e)(3)(iii)(B):
We agree not to use any predispute agreement to stop you from being part of a class action lawsuit in court.  You may file a class action lawsuit in court or you may be a member of a class action lawsuit even if you do not file it. This provision applies only to class action claims concerning our acts or omissions regarding the making of the Federal Direct Loan or the provision by us of educational services for which the Federal Direct Loan was obtained.  We agree that only the court is to decide whether a claim asserted in the lawsuit is a claim regarding the making of the Federal Direct Loan or the provision of educational services for which the loan was obtained.

i 72 Fed. Reg. 3432 (Jan. 25, 2007).  See https://www.gpo.gov/fdsys/pkg/FR-2007-01-25/pdf/E7-1066.pdf.ii If you are interested in commenting on this guidance, please email your comment to Annmarie Weisman at Annmarie.Weisman@ed.gov and Linda Shewack at Linda.Shewack@ed.gov or write to us at the following address:

Annmarie Weisman or Linda Shewack
U.S. Department of Education
400 Maryland Avenue SW
Washington, DC 20202

For further information about the Department’s guidance processes, please visit https://www2.ed.gov/policy/gen/guid/significant-guidance.html).  Author:  Federal Student Aid and Office of Postsecondary Education.