On the last day before the new administration took office, the Department of Education (ED) released a second borrower defense final rule package. These “procedural rules” govern the process that ED will use to establish liability against an institution and to recover funds from institutions for losses for approved borrower defense claims. The rules are final and effective immediately, with a request for public comments due March 20, 2017.
Requirements in the Higher Education Act and Administrative Procedure Act generally require the following steps in issuing regulations:
ED asserts that these regulations are exempt from negotiated rulemaking and delayed effective date requirements since they make procedural changes only and do not establish substantive policy, therefore meeting the “good cause” exception in the law.
A stated goal of the rules is to ensure that institutions are afforded a full and fair opportunity to defend themselves in proceedings to recover losses stemming from borrower relief.
Since the rules are effective immediately, they will apply when ED seeks to recover for losses for claims approved under the current borrower defense standard based on state cause of action before July 1, 2017. When the new borrower defense rules are implemented on July 1, 2017, ED will use these procedural regulations to:
The procedural rules for borrower defense recovery proceedings are modeled after the existing regulations governing proceedings to assess a fine, limitation, suspension, or termination against an institution and are included in the same section of the regulations. The new rules also make the following changes to all of the procedural provisions more broadly applicable to all of these proceedings:
When ED seeks to recover funds from an institution, the rules dictate the following process:
ED bears the burden of proof in any recovery action against a school for all claims that ED asserts.
New rules regarding prehearing conferences and the hearing itself mirror rules already in place for fine, limitation, suspension, and termination processes with changes that officially grant the hearing official significantly more power over the hearing procedures than was explicitly stated in the prior rules. NASFAA’s legal experts are currently reviewing the rules to ensure that they provide proper due process to affected institutions.
Both borrower defense regulatory packages are eligible for consideration for repeal by Congress under the Congressional Review Act. Whether the regulations will survive the U.S. Congress or the new Administration is unknown.
Publication Date: 1/27/2017