Since this Summer, NASFAA has heard from an increasing number of members that their institutions have received a growing number of borrower defense claim notifications, leading to significant confusion as to how schools should handle these filings due to the rollout of regulatory updates, ongoing legal challenges, and a lack of communication from the Department of Education (ED).
As a reminder, borrower defense is a long-existing, but previously rarely-used, provision of law [Higher Education Act, Sec. 455(h)] that enables students who have been the victims of certain types of institutional misconduct to have their federal student loans forgiven.
Below are some of the most common questions NASFAA has been hearing from member institutions.
Many of the borrower defense claims we’ve received notice of seem frivolous or baseless or don’t meet the definition of a borrower defense claim. Is the department doing any sort of filtering on these claims before sending them to schools?
Recently NASFAA received several examples of borrower claims that, upon first glance, fail to meet the standards for a borrower defense claim or lack merit, leading some aid professionals to wonder whether ED is conducting any sort of filtering of these claims before sending them to schools.
Borrowers can apply for a borrower defense discharge through Federal Student Aid and should provide supporting documentation about how they were harmed by the institution. However, it is NASFAA’s understanding that ED is not necessarily reviewing these claims for “material completeness” before sending them to institutions.
The reasons that ED is not reviewing them for material completeness may vary, including:
Material completeness is a concept only included in the most recent 2023 borrower defense rules, which are currently blocked under a national injunction.
ED is working through back-logged claims in an expedited timetable in accordance with a court settlement (Sweet v Cardona)
Borrower defense claims filed before November 15, 2022, and therefore under previous regulations, stipulate that all pending borrower defense claims must be sent to institutions regardless of their status.
Is the school required to respond?
No, institutions are not required to respond. It is always the school’s choice to respond to a borrower defense claim notification. It is NASFAA’s understanding that a nonresponse from an institution will not be viewed as automatically favorable for a borrower’s claim. However, institutions should work with their legal counsel when determining whether a response is warranted.
Borrower defense claims filed but not yet adjudicated by ED prior to July 1, 2023 fall under the new 2023 borrower defense regulations, which are currently blocked under a national injunction. Under the 2023 rule, institutions have 90 days to respond following ED notification of a borrower defense claim. A lack of response is presumed by ED to mean the institution does not contest the claim. If the department rules in favor of the applicant, however, and seeks recoupment from the institution, the institution is provided a second opportunity to respond as part of a separate recoupment proceeding.
Will institutions be liable for loans that are forgiven under borrower defense claims?
The claim review and recoupment processes are separate and distinct processes. It is NASFAA’s understanding that a lack of a response from an institution is not an admission of wrongdoing and that if an approved claim did move to the recoupment stage, there would be another opportunity for the school to respond. NASFAA has asked ED to clarify this point publicly.
Do we know how many borrower defense claims have been filed, or how many more claims are coming?
We have heard that schools from all sectors and institution types are receiving a wide range of borrower defense claims, ranging from zero to over 100.
Why are we receiving so many notifications of claims now? Are there advocacy groups encouraging borrowers to file borrower defense claims?
NASFAA has heard rumors that there are advocacy groups encouraging borrowers to file borrower defense claims indiscriminately, but has not seen any evidence that this is actually happening. Borrower defense claims may be increasing because borrowers are becoming increasingly aware of their student loan debt as the resumption of loan repayment ramps up. Other reasons may be because of back-logged claims being handled by the department in accordance with a court settlement (Sweet v Cardona).
When will we hear from the Department of Education about this?
NASFAA has urged ED to publish information for institutions about these claims, including their communication process with schools and answers to many of these questions.
It is our understanding that FSA is preparing a communication to go to all schools addressing its borrower defense processes in the coming weeks.
As things currently stand, if a school decides to respond, it should follow the institutional response requirements in 34 CFR 685.405 and as outlined in the notification the institution receives from ED. The content of the institutional response is entirely up to the institution. Any questions must be directed to Borrower Defense Customer Support at 1.855.279.6207 (as indicated in the ED notification).
For more background and information we encourage members to utilize our Borrower Defense web center and AskRegs: How Does a School Respond To Borrower Defense Claims?
Publication Date: 10/4/2023