ED Releases Final Borrower Defense Rule, Announces Pell Grant Restoration Plan

By Allie Bidwell, Communications Staff

The Department of Education (ED) on Friday announced final regulations intended to protect student borrowers against misleading or predatory practices by colleges and universities, and streamline a path to debt forgiveness for certain students. ED also announced plans to restore Pell Grant eligibility for students unable to complete their studies because their institution closed.

The highly-anticipated regulations come after ED received more than 10,000 comments on the proposed rule it released over the summer. (Read a summary of the final rule and how it differs from the proposed rule in this document). The rule is more than one year in the making, and incorporates the input of negotiators who spent three sets of three-day negotiated rulemaking sessions discussing the details of what they would like to see in the new rule. Although the negotiated rulemaking sessions ultimately ended without a group consensus, the rule takes into account several suggestions stakeholders put forth.

ED set out to develop a new rule after it received an unprecedented number of borrower defense claims from former Corinthian Colleges students who said they were defrauded by their schools and were seeking debt relief following the closure of the large for-profit college chain. To date, ED has approved more than 15,000 borrower defense claims – more than 11,000 of which were approved since June 29, 2016 – according to a new report on borrower defense released Friday. In total, ED has forgiven more than $247 million in outstanding loans.

"Since taking office, the Obama Administration has worked tirelessly to protect students and taxpayers and crack down on dodgy schools," said Education Secretary John B. King, Jr., in a statement. "Today's regulations build on that progress by ensuring that students who are lied to and mistreated by their school get the relief they are owed, and that schools that harm students are held responsible for their behavior."

Rep. John Kline (R-MN), chairman of the House Committee on Education and the Workforce, and Rep. Virginia Foxx (R-NC), chairwoman of the Higher Education and Workforce Training Subcommittee, said in a statement that while they support "responsible efforts" to create a fair process for defrauded students to obtain debt relief, "what the department has put forward is far from responsible."

"This extreme approach will limit choice for students, restrict access to higher education, and cost taxpayers billions of dollars," they said. "It's a missed opportunity to serve the best interests of institutions, students, and taxpayers."

ED also announced in its press release a plan to restore Pell Grant eligibility to students whose schools closed before they could finish their studies. ED said it determined it has the authority to restore Pell eligibility to these students, following requests from both sides of the aisle, such as Sen. Patty Murray (D-WA) and Rep. Luke Messer (R-IN). 

“This is such great news for students who have faced an abrupt closure of their school,” Murray said in a statement. “As someone who was only able to go to college myself because of the federal support that is now called Pell Grants, I know firsthand how much of a difference this will make for students in my home state of Washington and across the country who are working hard and scrambling to continue their education at a new school.”

Pauline Abernathy, executive vice president of the Institute for College Access and Success (TICAS), also applauded ED for including the Pell restoration plan.

“While nothing can give students back the time they spent at schools that closed, this action will help ensure they have access to Pell Grants to resume their education at a quality institution,” Abernathy said.

While most of the rule’s provisions will take effect on July 1, 2017, ED is seeking early implementation of a provision for automatic closed school loan discharge. Under the final rule, student borrowers whose school closed on or after Nov. 1, 2013, and have not re-enrolled in another Title IV institution within three years may have their loans automatically discharged. ED said in a release that this provision will be implemented “as soon as operationally possible.”

Randi Weingarten, president of the American Federation of Teachers, said that while more needs to be done to improve the rule, it is “a step in the right direction” for borrowers.

“Predatory for-profit institutions have wreaked havoc on the U.S. higher education landscape by ripping off students seeking only the promise of a better life. They fought for years against any commonsense federal regulations stopping their predatory practices, and thousands and thousands of students have been hurt as a result of their unfettered actions,” Weingarten said. “For years, the AFT campaigned for these for-profits to be reined in –– and after the disastrous collapse of Corinthian Colleges and ITT Tech, our voices, and others’, are finally being heard.”

The final rule also bans all pre-dispute arbitration agreements – an issue that several negotiators raised during negotiated rulemaking sessions. The so-called mandatory arbitration clauses are often tucked into enrollment agreements and essentially force students to forfeit their right to sue a school.

The rule will also include a number of triggering and early warning events that would require institutions to put up a Letter of Credit (LOC) for at least 10 percent of the amount of Title IV funds the school received in the previous year. Institutions may also be required to disclose certain information to students, and proprietary institutions specifically would be required to disclose poor loan repayment outcomes. ED said it will conduct consumer testing to determine which triggers would require a disclosure.

The association that represents the majority of proprietary higher education institutions took issue with the regulation, saying it will “cause millions of students to lose access to higher education and leave American taxpayers on the hook for billions of dollars.”

Steve Gunderson, president and CEO of Career Education Colleges and Universities (formerly the Association of Private Sector Colleges and Universities, or APSCU), said in a statement that the regulation “puts the future of career education in America at risk.”

“This complex and burdensome regulation will crush career education with financial requirements not imposed on others in higher education – including institutions that have lower graduation rates and higher default rates,” Gunderson said. “All of this is being enacted in the final days of the Administration – a last ditch ideological effort that will have a lasting impact on students, educators, and taxpayers.”

Stay tuned to Today’s News for a more complete analysis of the final borrower defense rule from NASFAA’s policy team.


Publication Date: 10/28/2016

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