|On October 2, 2018, the U.S. Department of Education (ED) announced that proposed regulations in regard to Borrower Defense to Repayment (BDTR) and Gainful Employment will not be published by the November 1, 2018 deadline in order for these proposed regulations to be effective as of July 1, 2019. ED indicated that it was unable to review the comments related to the proposed regulations.
As a result, this has an immediate impact for post-secondary institutions. As to BDTR, the regulations passed by the Obama administration in 2016 may become law depending on the ruling on October 12, 2018 in a case before the U.S. District Court for the District of Columbia before judge Randolph Moss. If the Obama-era 2016 BDTR regulations become effective, post-secondary institutions would be subject to the ban on pre-dispute arbitration agreements. In addition, the mandatory and discretionary triggers related to standards of financial responsibility which were in the 2016 regulations would become effective. This would include the undefined and subjective triggers such as high dropout rates, significant fluctuations in Title IV funding, anticipated borrower defense to repayment claims, etc.
In regard to the Gainful Employment regulations (GE), the current Obama-era regulations would continue to be in effect. As such, post-secondary institutions need to continue to comply with the GE regulations. ED has indicated that an information sharing arrangement with the Social Security Administration (SSA) expired in May of 2018. Thus, ED doesn’t have access to the earnings data which would enable it to compute year 2 debt-to-earnings (D/E) rates under the GE regulations. The GE regulations would require a rule change to enable ED to obtain the data from another agency, such as the Internal Revenue Service. In our opinion, ED could be subject to lawsuits from advocacy groups or state attorney generals forcing ED to reinstitute the data sharing agreement with SSA in order to issue year 2 D/E rates. As a reminder, for programs which failed the year 1 D/E rate and are still being taught, post-secondary institutions need to continue to comply with the GE warning requirements.
ED could issue the proposed BDTR and GE regulations in the 4th quarter of 2018 or early 2019 and allow the regulations to be early adopted instead of having to waiting until July 1, 2020 as described in the federal calendar. This is solely conjecture on our part and we don’t have any specific insight as to ED’s thought process. The overriding conclusion of the delay of the proposed BDTR and GE regulations is that ED has created significant uncertainty in the near future. We recommend that post-secondary institutions discuss the ramifications with their regulatory counsel and CPAs especially once the Obama-era 2016 BDTR lawsuit ruling occurs on October 12, 2018.