Negotiators continued to discuss issues surrounding borrower defense to repayment regulations during the second day of a negotiated rulemaking, also known as “neg reg,” session on the topic on Wednesday.
The session began with a continuation of Tuesday’s discussion on what a federal standard for borrower defense to repayment would look like should one be adopted. The Department of Education (ED) provided several examples of existing ED regulatory language and from other federal agencies, such as the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB).
Several negotiators said they liked the existing language in in Subpart F of the general provisions regulations, which address “substantial misrepresentation” on the part of an institution. Bernard Eskandari, California’s deputy attorney general, said the regulations provide “an objective standard” and are consistent with other consumer protection laws around the country. However, he expressed concerns over the lack of language on omission of information on the part of institutions.
“It’s important that if schools are obligated to provide certain information to students and they are not, that’s a key omission that should lead to defense to repayment,” Eskandari said.
There was also a large discussion among the negotiators about the existence and degree of injury to a borrower as as a basis for a defense to repayment claim. Some negotiators called for a tiered system to determine how harmful an institution’s actions were, which would help determine whether a borrower is eligible to file a defense to repayment claim or how much of their debt could be discharged.
For example, if a school misrepresented its job placement data to be higher than it actually was, students who were unable to find employment after completion might be entitled to more relief than students who were successfully able to find jobs.
“There may be some Corinthian students who succeeded despite what happened to them while there, but if someone cannot prove an injury then I don’t know why they are automatically entitled to the same compensation as someone who was,” said David Sheridan, director of financial aid at Columbia University’s School of International and Public Affairs.
However, many student and consumer advocates on the committee argued that such a system would be unfair because the issue is not whether students were able to be successful regardless of the misrepresentation, it is whether the school committed fraud or provided misleading information. They argued such a system would penalize individuals who were able to overcome a difficult situation by not allowing them to file defense to repayment claims, and would be burdensome and too subjective to administer.
The second issue on the agenda addresses whether to establish a time period of availability for borrower defense to repayment claims, and whether to change the current three-year period during which ED may recover from a school the amount of loss on a loan due to a successful defense to repayment claim. Many on the committee said there should be no statute of limitations on filing claims because ED can continue to attempt collection of the loan ad infinitum and because consumers are not always immediately aware that they have been defrauded by their institution. Other negotiators disagreed and argued for some kind of statute of limitation, citing record retention regulations that could lead to a loss of documents or evidence.
The third topic the committee considered surrounded issues about how a process for defense to repayment claims would be structured, and whether the process would vary depending on whether an individual filed a claim, or if a group came together with a claim.
Committee members also discussed what role state agencies and attorneys general would play in the process, whether the process would change if a claim was filed against a closed or open school, and how much weight the ED should give to findings from state investigations.
Student advocates on the committee cautioned that if the forthcoming process is too individualized or complex, it could open students up to more victimization. Maggie Thompson of Higher Ed, Not Debt, said that a process too complex for students to navigate on their own could lead to more companies targeting defrauded students through a profit-making scheme, similar to what has been seen with debt consolidation scams.
“The more individualized a process is, the more opportunities for the hucksters to appear,” Thompson said. “We might just open a new path for students to be victimized twice.”
The committee also put forth ideas for how an individual process for borrower defense claims would function, so as to give the borrowers an answer in a timely matter, and give all parties an opportunity to present evidence and appeal any decisions from ED. Dennis Cariello, a shareholder at Hogan Marren Babbo & Rose, Ltd, who is representing private for-profit institutions, suggested that an individual borrower defense claim could function in a way not dissimilar to how the Office for Civil Rights handles Title IX complaints.
Betsy Mayotte, director of consumer outreach and compliance at American Student Assistance, suggested that borrowers could submit a basic form as a way to file a borrower defense application, as well as any evidence or additional documentation he or she might have. ED would proceed by getting in contact with the borrower to determine if further investigation is necessary, and the school in question would have a chance to respond. If the school doesn’t respond, the discharge should be approved, Mayotte said, but if it responds with a reasonable argument, ED should get back in contact with the borrower with the request that he or she responds again with evidence within 60 days, or another time period, for example.
“Then that’s the end of it. That’s how final decisions would be made,” Mayotte said.
On Thursday, the committee plans to continue its discussion with the fourth issue related to borrower defense claims: updating and expanding the existing categories of false certification discharges. See coverage of previous sessions, including our recap of Tuesday's neg reg session, on our Negotiated Rulemaking resource page.
Publication Date: 1/14/2016