Borrower Defense

Overview

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:

  • Reliance on a standard tied to an act or omission of the institution that would give rise to a cause of action under applicable state law provided uneven relief, was confusing for borrowers, and was difficult to apply with the rise in distance education;
  • Lack of a mechanism for seeking reimbursement from the offending institutions; and
  • Lack of a specified process for application and review of borrower defense claims. 

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.

2017-18 Borrower Defense Overview

In 2017-18, ED conducted a renegotiation of borrower defense rules that were developed under the previous administration.

NASFAA Summary of Final Rules

NASFAA Public Comments

Department of Education Resources

NASFAA Comprehensive Coverage of the 2017-18 Borrower Defense Process

Other Resources

2016 Borrower Defense Overview

Through the negotiated rulemaking process, stakeholders debated five issues related to borrower defense regulations:

  1. Whether to establish a new standard for the purpose of determining whether a borrower can establish a defense to repayment on a loan based on an act or omission of a school;
  2. The time period of availability for borrower defense to repayment claims;
  3. Developing a regulatory framework for the process of submitting, reviewing, and determining the veracity of borrower defense to repayment claims;
  4. Updating and expanding the existing categories of false certification discharges; and 
  5. Whether to revise the financial responsibility or administrative capability regulations and whether to add disclosure agreements to protect students, taxpayers, and the federal government against potential school liabilities and risks.

On Nov. 1, 2016, the Department of Education(ED) published final regulations concerning borrower defense to repayment and other related matters. In response to a lawsuit filed by the California Association of Private Postsecondary Schools, ED delayed the original effective date (July 1, 2017) of these regulations under section 705 of the Administrative Procedures Act (APA), which states that when an agency finds "that justice so requires, it may postpone the effective date of action taken by it, pending judicial review." A second lawsuit was filed by student borrowers and 19 states and the District of Columbia objecting to ED's implementation delay, and the two cases were ultimately consolidated by the courts. By order of the courts, the 2016 final regulations took effect in October 2018.

NASFAA Summary of Final Rules

NASFAA Public Comments

Department of Education Resources

NASFAA Comprehensive Coverage of the 2016 Borrower Defense Process

Other Resources

Publication Date: 9/25/2019


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