NASFAA Members Increasingly Concerned About Rise in Borrower Defense Claims: Steps NASFAA has taken to respond to member concerns about increases in Borrower Defense to Repayment Claims received by their institutions.
Borrower defense is a long-existing, but previously rarely-used, provision of law [Higher Education Act, Sec. 455(h)] that enables students who have been the victims of certain types of institutional misconduct to have their federal student loans forgiven. Following the collapse of Corinthian Colleges, borrower defense applications poured in to the Department of Education, exposing the limitations of the existing rules, including:
These limitations prompted the Department of Education to develop more detailed regulations, through the negotiated rulemaking process.
Final rules published on Nov. 1, 2016 were scheduled to take effect on July 1, 2017. In the interim, there was a change in presidential administrations and before the 2016 rules went into effect, the Trump administration announced that it would not implement the regulations on July 1, 2017 and would instead renegotiate the final regulations in late 2017, and early 2018.
While the renegotiation process was underway, there were several lawsuits filed against ED, claiming that its delay of the implementation of the 2016 rules was unlawful. Ultimately the plaintiffs prevailed and the 2016 rules went into effect in October 2018.
Final rules resulting from the 2017-18 renegotiation were officially released on September 23, 2019, with an effective date of July 1, 2020.
With another administration change in 2020 came a new interest in revisiting the Borrower Defense Rules. Negotiations were held in 2021 and final rules were published on November 1, 2022.
In August, 2023, the 5th U.S. Circuit Court of Appeals granted a complaint filed by Career Colleges and Schools of Texas (CCST), blocking ED’s 2022 borrower defense rules from taking effect nationwide. The prior rule remains in effect during this time. The case is set to be heard on November 3, 2023.