ED Announces Plans to Rewrite Borrower Defense, Gainful Employment Rules

By Allie Bidwell, Communications Staff

The Department of Education (ED) on Wednesday announced that it plans to halt and rewrite two contentious higher education regulations put into place during the Obama administration: borrower defense to repayment and gainful employment. 

The decision – first reported by Inside Higher Ed – comes amid a flurry of criticism over an apparent delay in processing borrower defense applications, and a lawsuit seeking to block the rule. A group of Democratic senators – Elizabeth Warren of Massachusetts, Patty Murray of Washington, Dick Durbin of Illinois, and Sherrod Brown of Ohio – just last week wrote to Education Secretary Betsy DeVos asking her whether she would implement and enforce the regulation. Meanwhile, a group of state attorneys general this week filed a motion to intervene in the lawsuit, in an attempt to prevent the regulation from being withdrawn.

DeVos said in a press release that in the meantime, ED will continue to process the claims under the current rule. But ED plans to postpone the July 1 effective date of the borrower defense regulation "due to pending litigation" challenging the rules, the release said.

"My first priority is to protect students," DeVos said. "Fraud, especially fraud committed by a school, is simply unacceptable. Unfortunately, last year's rulemaking effort missed an opportunity to get it right."

ED said in the release that postsecondary institutions have expressed concern over the borrower defense regulation since it was published in the fall, specifically relating to how it defines "substantial misrepresentation" and breach of contract. Institutions also took issue with financial trigger 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.

"It's time to take a step back and make sure these rules achieve their purpose: helping harmed students. It's time for a regulatory reset," DeVos said. "It is the Department's aim, and this Administration's commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow."

The agency said that due to the pending lawsuit, it has the authority to halt the effective date of the regulation under section 705 of the Administrative Procedures Act, 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."

The code continues: "On such conditions as may be required and to the extent necessary to prevent irreparable injury, the reviewing court, including the court to which a case may be taken on appeal from or on application for certiorari or other writ to a reviewing court, may issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve status or rights pending conclusion of the review proceedings."

ED said it will also convene a second rulemaking committee on the gainful employment regulation because during the implementation process "it became clear that, as written, it is overly burdensome and confusing for institutions of higher education." 

Of acute interest to institutions will be whether they will still be required to comply with disclosure requirements under the gainful employment rule by July 1. ED in March announced there would be a delay in the timeline for the disclosure requirements. But without official word from ED, it’s unclear whether the current rule will stand in the meantime.

Justin Draeger, president of NASFAA, said the association takes DeVos "at her word that the Department is interested in renegotiating these regulations in good faith to ensure adequate protections for borrowers while balancing fair accountability standards for colleges."

"We have several questions regarding the regulations currently on the books that we will be sending to the Department of Education in the near future," Draeger said. "The financial aid community plans to be active participants in these upcoming regulatory processes."

Within hours of the announcement, statements condemning the decision began to roll in from advocacy groups, nonprofits, and unions, saying removing the regulations would ultimately harm students.

Leading up to DeVos' announcement, several state attorneys general have been expressing their support for the borrower defense regulation and urging ED not to dismantle the protections. In February, for example, attorneys general from 18 states and the District of Columbia wrote to DeVos and congressional leaders expressing their support for the regulation. The attorneys general claimed that rolling back the regulation "would again signal ‘open season' on students for the worst actors among for-profit post-secondary schools."

At least one state attorney general – Maura Healey in Massachusetts – has said she plans to sue over the regulatory rollback, saying the move violates federal law. Members of Healey's office were involved in the initial negotiated rulemaking sessions that helped develop the current regulation. 

"Once again, President Trump's Department of Education has sided with for-profit school executives and lobbyists who have defrauded taxpayers of billions of dollars in federal loans," Healey said in a statement. "This is a betrayal of students and families across the country who are drowning in unaffordable debt."

But two groups representing historically black colleges and universities (HBCUs) – the United Negro College Fund (UNCF) and the National Association for Equal Opportunity in Higher Education (NAFEO) on Monday wrote to DeVos, specifically asking ED to delay implementation of the borrower defense rule and to start a new negotiated rulemaking process.

"A new regulatory process is needed to significantly narrow the scope of this regulation, limit institutional liabilities for unwarranted claims, provide greater certainty for both students and institutions and ensure due process for HBCUs and [predominantly black institutions], as well as other institutions that are serving their students well," the letter said. "Should a new rulemaking process commence, we also request that there be substantial representation on the rulemaking committee from HBCUs and PBIs." 

The groups said they had specific concerns about how "misrepresentation" was defined in the rule, which they said could lead to unnecessary financial penalties and fines.

"Such provisions could result in significant costs that would divert precious resources better spent on serving the needs of students. Furthermore, the appeals process, as established through the final regulation, continues to limit due process protections for institutions," they wrote.

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 new rulemaking process will lead to "conversations that will really protect students from academic fraud."

"Our sector has consistently supported this premise," Gunderson said. "Unfortunately, the Obama Department of Education chose to use this basic concept as a vehicle to continue their ideological assault on our sector's very existence. Now we can correct that with a clean Borrower Defense regulation that protects both students from academic fraud and their schools from ideological efforts geared to destroy postsecondary and career education." 

Gunderson went on to say the gainful employment regulation as it is written hurts students "by denying access and by defining success in dramatically different terms depending on the location of that student's school." 

The official notice of ED's intent to conduct negotiated rulemaking will be published in the Federal Register on Friday.

NASFAA has been in touch with ED's Acting Assistant Secretary and is pulling together questions now about the immediate impact of this latest announcement. If you have questions about the announcement, please send them to [email protected].


Publication Date: 6/15/2017

Vic P | 10/18/2017 10:25:08 AM

You liberal idiots...

David S | 6/15/2017 1:25:42 PM

I have complete confidence that a Secretary of Education appointed by the founder of Trump University is committed to the premise that "...fraud committed by a school, is simply unacceptable."

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