NASFAA Members Increasingly Concerned About Rise in Borrower Defense Claims
By NASFAA Policy & Federal Relations Staff
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:
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Material completeness is a concept only included in the most recent 2023 borrower defense rules, which are currently blocked under a national injunction.
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ED is working through back-logged claims in an expedited timetable in accordance with a court settlement (Sweet v Cardona)
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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
Jeff A | 10/6/2023 10:24:27 AM
Good thoughts Peter. Imagine ED seeking recoupment AFTER they have forgiven the claim. Fait accompli. ED already decided to forgive the claim, and now your institution is only afforded to argue with that same ED that they should not have 'done what they did'.
In which direction do you think the adjudication of your recoupment leans? Obviously huge burdens on the institution, and in many of these cases, none on the claimant. That is why all of the counsel addressing this are advising to set your case up now rather than later.
Peter G | 10/4/2023 5:8:54 PM
At the least, ED should have clearly communicated what they are doing, and what the implications of responding or not responding are for any future recoupment action.
If this were only a matter of loan discharge, they could ultimately do what they wanted (or at least I would not have standing to sue if I disagreed), but the recoupment risk is a mystery, and there's the secondary issue that the Department is at times prone to using it's actions as a public relations weapon directly or indirectly, as we also saw in the OIG/USC case recently.
Peter G | 10/4/2023 5:5:34 PM
Even going back and re-reading the original post that doesn't jump out, but I can live with that clarification if that's your feeling.
On the material completeness point, it's yes and no. That addition in the regs was supposed to raise the bar for a student providing specifics (i.e. X person told me Y on Z date) instead of just "The school misrepresented my chance at getting a job." It's fair in that light that students with a vague misrepresentation claim ED feels obliged to process.
But there are plenty of claims in this BDR bundle that don't even specify a claim that falls within the boundaries of BDR at all (i.e. material completeness doesn't or at least shouldn't apply), and ED certainly could have filtered those out, or more technically, pushed them back to the student to rewrite under Sweet prior to denial, but did not. Some of that likely comes down to staffing and bandwidth.
But I think you're being a bit too generous here that ED had to do it in this particular way. There is definitely more to this than ED simply being bound by law.
David S | 10/4/2023 3:38:10 PM
Peter, I didn't say this was all about bad actor schools and everyone else would be left alone (having served on the original DTR neg reg committee, I know this well). What I said was that their actions are why we have this in the first place; that's how they earned that title.
Peter G | 10/4/2023 1:52:43 PM
I appreciate that NASFAA's been poking at this, but I think it's critical that ED be pushed to comment publicly on clear process/standards. Albeit, for many of us they have effectively run out the clock on our 60 days at this point anyway, which is problematic.
The reason being every lawyer I've heard these past few weeks (our private counsel, NACUA's presentation, the Thompson Coburn presentation) agree that ED seems to be mixing and matching different rulesets in whatever it is they're doing.
They should presumably be operating under Sweet but what we can actually see of what they are doing in practice diverges from that framework, which also suggests that their approach to recoupment may diverge from that framework.
Three weeks ago I would have agreed with this article's summary, but everything I've heard since then suggests schools need to respond, and that assuming you will be granted any separate process rights via a distinct recoupment procedure is risky. One certainly reserves the right to try to sue ED in court, but that is an expensive and far from guaranteed option.
Peter G | 10/4/2023 1:45:29 PM
I hesitate to get involved in the Jeff v. David debate, but the current tranche of claims is all claims filed in 2022. We haven't seen the coming avalanche of 2023 Borrower Defense claims, not to mention the whole other category of 'False Certification' which I expect to be as big or bigger if the 2022 regs are not tossed in court.
I would however disagree with David that this is only about "bad actor" schools or even sectors. When Sweet v. Cardona settled I assumed it wouldn't have anything to do with my school, but boy was that wrong lol - the main part of the settlement doesn't, but buried in the fine print there are tendrils that go nearly everywhere.
David S | 10/4/2023 12:49:19 PM
Jeff, it's unclear to me why ED would take action to increase the number of claims, especially being that, in the case of closed schools, there's no way of recouping funds. And as the article points out, the whole issue of material completeness has been blocked by a circuit court (by two judges appointed by the founder of Trump University...a "university" found guilty of fraud). So ED's hands are tied in such a way that prevents them from reviewing much of what is being described as frivolous.
Jeff A | 10/4/2023 11:15:35 AM
David, ED is to blame for the majority of claims that are mostly frivolous by waiving proper adjudication. They want to rack up large numbers for promotional purposes. Those college situations you mentioned already had all of their students' loans forgiven. And many that are still operating. HE is failing many demographics with way too high of prices and low grad rates for certain groups of students.
Joshua M | 10/4/2023 11:0:52 AM
60 days to review, we received 21 claims in one day. All of them are very frivolous, incomplete, or make no sense at all. its a waste of time but we have to review them.
David S | 10/4/2023 10:46:56 AM
This is frustrating. But ED is simply following the law; they're not to blame for this any more than staff at the IRS are to blame for things you don't like about taxes. Want someone to be angry with? I suggest the following:
1. T4 eligible schools (especially those that don't exist anymore) that deliberately and egregiously defrauded students so that ownership could get their hands on huge piles of T4 money and then skip town (Corinthian Colleges, for example, closed up shop before DTR claims could be filed, therefore leaving taxpayers on the hook);
2. Those who have aggressively set out to erode trust in America's entire higher education system. My belief is that some degree of DTR claims are based on "colleges have a lot of money, I'm sure mine ripped me off one way or another." That general attitude is far more prevalent than it used to be.
3. SCOTUS overturning the Biden Administration's loan cancellation; I don't think it's a coincidence that we've seen so many of these claims since that happened. "The Supreme Court says I can't get my student loan canceled, but I read on Facebook that this borrower defense thing is a way around that."
Jeff A | 10/4/2023 10:25:50 AM
Correct Andrew.
The vast majority of claims were obviously received during a window in the Sweet case where ED 'promised' to not require documentation and assume what a person says is accurate in deciding to forgive a claim. Of course they made the statement under penalty of perjury, but I'm sure the bar will be low and the adjudication swift without trying to determine if the claimant perjured themselves.
There certainly are advocacy groups promoting filing claims and helping persons review a checklist of situations that may warrant forgiveness. Pick one. And there was huge promotion during the Sweet case 'window' in 2022 including references in news articles to the platform to file your claim.
My responses are leading with the claim they are not covered under the rule and must be denied as a result when that is the case and nearly always is.
While the law requires notification to the institution, ED certainly did not have to agree to not require any evidence to support a claim! Which is what has led to this tsunami. I'm sure many of us have spent a fortune on lawyers as well as way too much time.
Andrew F | 10/4/2023 9:29:35 AM
We were given 60 days to respond. I wonder if that is because most of the claims were prior to 2023
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