Neg Reg Day 2: Borrower Defense Discussions Snag on Misrepresentation, Process

By Allie Bidwell, Communications Staff

Committee members again on Tuesday struggled to come to agreement on key points within a federal borrower defense regulation during the third and final negotiated rulemaking session, as negotiators continued to come to points of disagreement on critical provisions that prevented them from moving forward.

Negotiations kicked off on Tuesday picking back up with the first issue paper and discussion on the definition of a misrepresentation, as well as whether a borrower would have to prove that an institution acted intentionally or with a reckless disregard for the truth. Before officially beginning the discussions, the Department of Education's (ED) negotiator Annmarie Weisman reiterated to committee members that the goal of the negotiated rulemaking process, or neg reg, is to ultimately come to a consensus. She expressed concern that some negotiators had said it may not behoove them in the end to reach consensus, reasoning that coming to consensus may mean compromising to the point that regulatory language written by ED in the absence of consensus would in fact be more agreeable. Weisman disagreed, pointing out that regulations written by ED would reflect input by ED staff who have not had the benefit of hearing the complex issues the neg reg team has been debating.

"I would just like to encourage you to hit the reset button," Weisman said. "As long as we're still talking and we're still working together we've got a good chance at this."

Still, throughout the day, negotiators appeared to struggle with the give-and-take of the debate on the proposed regulatory language. Linda Rawles, an attorney representing large proprietary institutions, said she felt she and her constituency had compromised "far beyond 50 percent to the other side," and preferred the language ED presented as written. She expressed concern that the process has not been conciliatory and said she worried that continuing to move in that direction would bend too far away from her constituents' interests and result in a weaker rule.

"I think we all came here in good faith," said Walter Ochinko, research director of Veterans Education Success. "We don't always see eye to eye on some of the statements or some of the text, but I don't think it's helpful to impugn the intent of other negotiators."

The divide was clear as negotiators debated whether to include language related to the intentionality of a misrepresentation, and whether the responsibility would fall to the borrower or to ED to determine whether the intent existed.

Some negotiators representing institutions worried that removing language around intentionality would put institutions at risk if employees make a mistake, and that those claims based on mistakes could harm institutions' reputations.

"The issue is at a small school … if one student comes with a borrower defense claim and it was an honest mistake and that loan is discharged ... the message is going to be, ‘Oh that school is a bad school,'" said Mike Busada, general counsel and vice president of Ayers Career College. "In a small community … that school is done. You've lost your reputation."

Negotiators went back and forth on areas for potential compromise. Some suggested finding a balance between the definition of misrepresentation and the evidentiary standard, and making it clear within the regulatory language that it would be up to ED to determine that there was intent in the misrepresentation.

But Abby Shafroth of the National Consumer Law Center also said she was concerned that the regulatory language as written would only allow borrowers to file defense to repayment claims if a misrepresentation occurred — and that the regulations may not cover things like unfair and abusive practices.

ED officials took the information back to further inform a new draft of regulatory language for the first issue paper before in the afternoon moving on to the second, which focuses on a establishing a framework for the process of filing and adjudicating claims, notifying parties of the decision, and submitting requests for reconsideration.

Negotiators on both sides seemed to agree that there may be area for compromise in drafting language for a voluntary alternative resolution or mediation process. They made progress in clarifying the timeframe for which borrowers and institutions may submit additional evidence and at what point both parties would be able to review evidence submitted by either side.

But discussions again slowed when the idea of partial relief resurfaced. As written, the regulatory language ED provided said the secretary will consider factors including but not limited to the "value of the education that the borrower received from the school" and "the borrower's earning potential."

Both sides had concerns with that language, but for different reasons.

Aaron Lacey, representing general counsels/attorneys and compliance officers, said the first factor particularly was troublesome because ED staff would be determining the value of an education.

"It would be dangerous to expose this process to political whims," Lacey said. "Things can change dramatically from one administration to the next, as we have seen. And one administration to the next can have very different views as to the value of [an] education."

Lacey also said determining educational value and quality is the job of accrediting agencies — not the federal government. Additionally, he said, those determinations could be inconsistent from one ED staffer to the next.

Shafroth said she was concerned with giving ED "really expansive discretion" to award only partial relief, and reiterated her belief that there should be the presumption of full relief.

As in the last session in January, Weisman said the presumption of full relief was off the table.

"ED comes from the position that we do not presume full relief and have not at any time," she said. "I think we're pretty committed to the idea that partial relief will exist."

Still, when pressed for more information, ED officials could not explain how they planned to measure either of the factors presented in the regulatory text. Negotiators made suggestions such as taking the difference between a borrower's earnings and the stated earnings, subtracting the price of credits earned from the amount of debt a borrower incurred, or using various metrics from the College Scorecard. But each of those suggestions had its drawbacks and negotiators could not find one that would accurately measure educational value

"Partial relief is not enough to give students the resources and give them a place in society where they can get themselves back on their feet," said Joseline Garcia, president of the United States Students Association. "Full relief is what I'm in favor of and I will continue pushing for that throughout this process and after."

The committee will resume Wednesday with discussion on the third issue paper, which focuses on financial responsibility. The main committee is also expected to hear a report from the financial responsibility subcommittee.


Publication Date: 2/14/2018

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