On Friday, NASFAA submitted comments to the Department of Education (ED) on a package of proposed regulations that was negotiated in late 2021 related to college affordability and student loans. This is the second in a series of three articles that will be published this week to delve into the details of the proposal. Today’s article will focus on loan discharges for total and permanent disability, closed schools, and false certification. See our previous article on borrower defense to repayment (BDR), pre-dispute arbitration, and class action waivers and stay tuned for our final article on public service loan forgiveness and interest capitalization.
Total and Permanent Disability (TPD)
ED makes a number of meaningful improvements to the TPD process to ensure that borrowers with disabilities aren’t overburdened by paperwork requirements when information already exists within the federal government. It also relaxes several overly strict eligibility and documentation standards that forced borrowers to go to great lengths to prove their status when simpler methods would have satisfied the TPD requirements established by law.
ED cites compelling data for its proposal to remove the three year income monitoring period following a TPD discharge, noting that failure to submit income documentation is the most common reason for loan reinstatement, but that nearly all borrowers who failed to submit the paperwork actually had incomes low enough for continued qualification for discharge.
ED automates TPD discharges through data matching with the Department of Veterans Affairs (VA) and the Social Security Administration (SSA) and, where automation is not possible, expands the types of SSA documentation it will accept. ED also expands the types of medical professionals who can certify a borrower’s status; that list would now include physician assistants, nurse practitioners, and licensed psychologists.
Closed School Discharge
As with borrower defense to repayment (BDR) loan discharges covered in an earlier article, ED seeks to streamline the closed school discharge process by establishing a single federal standard for eligibility.
The proposed regulations provide for an automatic discharge within one year of closure for borrowers who attended a closed school unless they enrolled in and completed a teach out.
Borrowers who enrolled in a teach out and didn’t complete the program within a year from their last date of attendance at the closed school would also receive an automatic discharge. Similarly, borrowers who enrolled in a comparable program would no longer be disqualified from receiving a closed school discharge. ED argues that the current regulations that restrict borrowers from receiving a closed school discharge when they enroll in a teach out or comparable program forces them to choose between continuing their education or receiving a loan discharge, and that many borrowers may choose the lower risk option of discharge when continuing their education is the better long term option for them.
ED also proposes to increase the timeframe within which a borrower can withdraw prior to a school’s closure and still qualify for a closed school discharge, from the current 120 days to 180 days.
As with borrower defense and closed school discharge, ED establishes a single federal standard for false certification discharges to ensure equitable treatment for borrowers regardless of when they borrowed their loans.
The proposed regulations remove the provision that a borrower who attests to having a high school diploma can't receive a closed school discharge. This decision was informed by evidence that many students who make such false statements do so in the context of coercion from schools.
Loans would qualify for automatic false certification discharge in cases where ED determined that an institution had falsified satisfactory academic progress (SAP). Such discharges would be limited to the loans borrowed during the time period SAP was falsified and not necessarily all of the borrower’s loans at the institution.
ED also proposes to allow state attorneys general and nonprofit legal services representatives to submit group closed school discharge applications to ED.
Negotiators reached consensus on both total and permanent disability discharge and false certification discharge. Negotiators did not reach consensus on closed school discharge. As such, ED is free to draft proposed rules on closed school discharge as it sees fit, but changes to the TPD and false certification language would have to be justified in the preamble of the final rule. ED will review public comments and revise the proposed regulations over the upcoming months. It is expected that ED will issue final regulations by November 1, 2022, which will make the regulations effective on July 1, 2023 unless it uses its early implementation authority.
Publication Date: 8/16/2022