The Department of Education (ED) on Wednesday released guidance to institutions on the borrower defense process after the Sweet v. Cardona settlement, as aid offices this fall reported concerns over an increase of borrower defense notifications.
Sweet v. Cardona, originally dubbed Sweet v. DeVos, is a class action lawsuit filed in 2019 by seven plaintiffs on behalf of themselves and federal student loan borrowers with pending borrower defense claims. The lawsuit sought for the Trump administration to issue decisions on a backlog of pending borrower defense claims.
In an electronic announcement posted last week, ED clarified that as part of the Sweet v. Cardona settlement, ED is sending institutions notices of borrower defense applications received from June 23, 2022, to Nov. 15, 2022. The Sweet v. Cardona settlement requires ED to adjudicate these applications under the 2016 borrower defense regulation, which requires ED to notify institutions of all borrower defense applications before they are reviewed.
ED noted that the reason institutions are notified of all applications before any substantive review is because the 2016 regulation requires fact-finding prior to adjudicating applications. The notification process to institutions is a part of that fact-finding, according to ED.
An institution has the option to respond to these borrower defense notices 60 days from the date the institution receives the notification. However, there is no “negative inference” against an institution if it doesn’t respond.
Additionally, ED said it is attempting to batch applications so institutions receive all claims from the June 23 to Nov. 15, 2022 period in a single notification. According to ED, over 90% of institutions receiving borrower defense notices from this period have fewer than 100 applications.
And for the institutions that have over 500 applications filed by former or current students during this period, ED said it will reach out and explain “how it will pace the number of notifications sent each week.” ED anticipates completing these initial notifications to all institutions by April 2024.
Once ED completes its notification process, it will adjudicate applications on merits. The 2016 borrower defense regulation provides approvals on applications based on “substantial misrepresentation; a nondefault, favorable contested judgment; or breach of contract. Substantial misrepresentations are the most common type of alleged misconduct.”
The electronic announcement also details information about the recoupment process. If a borrower defense discharge is approved, ED will determine whether to proceed with recouping borrower defense costs from the institution at a separate time.
Additionally, ED clarified that institutions will have an opportunity to contest any recoupment action with a hearing officer. ED will also send institutions a second notification with the application form for all loans where recoupment is requested, all attachments submitted by the borrower, and the rationale for the department’s decision.
The electronic announcement also has a section with frequently asked questions with answers. ED wrote that institutions with questions about the Common Origination and Disbursement (COD) system can email [email protected] or call 1-800-848-0978.
This announcement comes as financial aid administrators voiced concerns and confusion over an increase in borrower defense application. NASFAA answered some of the most common questions it has heard from member institutions.
Publication Date: 11/13/2023