By Allie Bidwell, Communications Staff

Students, consumer advocates, financial aid professionals, and other higher education stakeholders will gather next week in Washington, DC to begin the tedious process of writing regulations to create a system for borrower defense to repayment.

A similar group of individuals convened last year in the negotiated rulemaking process, or "neg reg," and the Department of Education (ED) later released a set of regulations through which student loan borrowers can seek to have their loans discharged if their school closed before they finished their programs, or if they believe they were defrauded by their schools.

But as part of a broader "regulatory reset," Education Secretary Betsy DeVos in June announced ED would halt implementation of the regulations – as well as gainful employment regulations – and rewrite them. The regulations published by the Obama administration were set to take effect July 1, 2017.

David Sheridan, director of financial aid at Columbia University's School of International and Public Affairs, was on the rulemaking committee the last time around, and said it's "disappointing" that the process will begin again, after months of negotiations and work by the previous committee.

"The political cynic in me thinks this is really just another example of the Trump administration doing everything they can to pretend the Obama administration never existed," he said. "While I know I have colleagues who thought these regulations were kind of heavy-handed and could be a burden and could even lead to an increase in legal action, I think more than any other recent regulations in the past few years, these really spoke to the integrity of Title IV programs."

Under the final regulations published last October by the Obama administration, which were more than one year in the making and were drafted after ED received more than 10,000 public comments on proposed rules, a borrower could assert a "defense to repayment" under certain conditions. For example, if an institution was found to have committed "substantial misrepresentation," a borrower may seek to have his or her loans discharged.

The Obama administration set out to develop new regulations after it received an unprecedented number of borrower defense claims from former Corinthian Colleges students who said they were defrauded by their schools. Since Corinthian Colleges' downfall, several other large, for-profit college institutions have closed and/or been accused of misrepresentation.

"The original regulations were in reaction to something that was really bad," Sheridan said. "And my sense that they are trying to undo them in such a way that students are likely to have less recourse when they're the victims of fraud comes at a time when the American public is already more skeptical about the value of higher education than they have been in a long time. If we see a higher education as something that is a bad example of consumers being ripped off and it results in negative connotations of student loans, this really hurts our industry."

There is a silver lining, to renegotiating the regulations, however. Alyssa Dobson, director of financial aid and scholarships at Slippery Rock University, was a negotiator during the previous rulemaking session, and will again be at the table next week.

"It's interesting that we're having a do-over," she said. "The first time around we obviously did not reach a consensus, and what we ended up receiving from that was very different in many ways. With this unprecedented second chance, I'm hoping we can take those areas where we know we have common ground and expand on that so we don't end up with something that, in my opinion, was less desirable than what we would have wanted as an outcome."

One of those issues, for example, revolves around institutional financial responsibility. During the last neg reg session, the group discussed a list of several "triggers" that would cause a school to fail ED's financial responsibility regulations and to submit a letter of credit (LOC) for a certain percentage of the amount of Title IV funds the school received during the most recent award year.

This time around, ED has implemented a Financial Responsibility Subcommittee that will focus just on that issue.

"From my perspective and especially from my sector … the prospect of having the large letter of credit was scary for access institutions especially," Dobson said, noting that some triggers related to benchmarks on retention and graduation rates were "arbitrary."

"When you are an access institution, you are dealing with riskier students and you might not have such stellar rates," she added. "When the intent is to focus on the bad players who are intentionally misleading students, when your net catches other institutions it's never a good solution, in my opinion."

Other issues that may resurface throughout the next few months of the rulemaking process, according to Sheridan and Dobson, could include how exactly to define fraud, partial discharges, mandatory arbitration clauses, and whether borrowers have to prove harm.

"The defining fraud part was something that the higher education sectors had a lot of problems with last time," Sheridan said. "The definition was kind of at the level of ‘I know it when I see it,' which can lead to frivolous lawsuits and things like that."

Throughout the process, Dobson said it will be important to communicate concerns from the previous round, as well as issues to potentially be added or expanded, with negotiators.

"It's important for all interested parties to communicate to the leaders of their sectors to get feedback to the negotiators that they may have contact with," she said. "We're there to represent broadly all the folks in our sectors."

Stay tuned to Today's News for coverage throughout the negotiated rulemaking process this week.

For more information on the negotiated rulemaking process, and previous coverage of borrower defense, please refer to NASFAA's Negotiated Rulemaking page, and the following articles.

• July 2017: NASFAA's Response to Intent to Re-Negotiate Borrower Defenses to Repayment and Gainful Employment
• June 2017: What's Next With the Renegotiation of Borrower Defense and Gainful Employment Rules
• June 2017: ED Announces Plans to Rewrite Borrower Defense, Gainful Employment Rules
• November 2016: ED Simplifies Loan Discharges, Issues Prohibition on Certain Contractual Agreements Under New Borrower Defense Rules
• November 2016: ED Makes Few Changes to Borrower Defense Standard and Process in Final Rules
• November 2016: NASFAA Policy Analysis: Final Rules for Borrower Defense and Financial Responsibility
  October 2016: ED Releases Final Borrower Defense Rule, Announces Pell Grant Restoration Plan
• March 2016: Borrower Defense Neg Reg Meets Anti-Climactic End Without Consensus
  January 2016: Day Two of Neg Reg Focuses on Time and Structure of Borrower Defense Process
• January 2016: Borrower Defense Neg Reg Kicks off With Discussion on Role of Consumer Protection

Publication Date: 11/9/2017

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