Negotiators Discuss Trigger Warnings, Student Disclosures for Borrower Defense Regs

By Allie Bidwell and Brittany Hackett, Communications Staff

Negotiators during Thursday’s borrower defense to repayment negotiated rulemaking session continued discussing the Department of Education’s proposed regulations, focusing on the proposed regulatory framework for determining defense to repayment (DTR) claims and revised financial responsibility regulations.

The negotiations began with an explanation from ED about the proposed framework, including a high-level overview about the process for submitting, reviewing, and determining a ruling of DTR claims.

According to ED Senior Director of Policy Development, Analysis, and Accreditation Service Gail McLarnon, the process will require the borrower to file an application for DTR, after which ED will grant the borrower forbearance and provide information about income-driven repayment plans. If the borrower's loans are in default, collection on those loans will be suspended for the duration of the DTR review process. He or she will also be given information about continuing to repay the loans under a rehabilitation agreement.

Upon receipt of a discharge application, ED reviews the application and may seek and consider any additional information and may engage in a fact-finding process with the school in question, depending on whether the school is open or closed. ED will then inform the borrower whether his or her claim has been approved or denied and if approved, whether ED is discharging the entire loan or a portion of it.

A more detailed outline of the proposed regulatory framework can be found in Issues Papers 1 through 3 of the negotiated rulemaking.

As the negotiating committee discussed the proposal, many student and consumer advocates expressed concern that undue burden would be placed on borrowers. Several said that the need for a borrower to file an application or provide additional information might be a barrier to DTR.

They also expressed concern that going up against a school during a fact-finding process would unduly intimidate students and create an adversarial environment.

McLarnon said that while ED understood the concern, if the department intends to seek out recoupment from a school, that school must be included in the process. "We're not intending an intimidating or adversarial process here," she said.

Student and consumer advocates also expressed concern over a list of proposed considerations ED may take when determining the amount of a borrower's injury in cases where complete relief is not awarded, which can be found in Appendix A of the proposed regulations in Issues Papers 1 through 3. They argued that the list, overall, does not take into account non-financial losses, such as time enrolled in a fraudulent program or personal expenses spent during enrollment.

Maggie Thompson of Generation Progress said that the "calculation on economic losses [in Appendix A] is just so narrow."

In the afternoon, the negotiators moved on to Issue 5, which put forth proposed revisions to financial responsibility regulations and potential new disclosures to current and prospective students.

Currently, for-profit and private nonprofit institutions must meet general financial responsibility standards to continue to participate in the Title IV programs.

John Kolotos, of ED's Office for Postsecondary Education, said ED is proposing to augment the standards "so that we identify situations that are problematic, risky, creating a lot of uncertainty with regard to the institution's financial condition that are early warning signs of problems."

The idea for identifying early warning triggers was brought up during the first session of negotiated rulemaking hearings last month, as some negotiators said that had students known Corinthian Colleges had been under investigation, or that it was operating under heightened cash monitoring, it could have prevented some of them from enrolling in an unstable institution.

The ED proposal suggests expanding the financial responsibility standards to add automatic and discretionary triggers that would cause an institution to fail the financial responsibility standards and be required to submit a letter of credit (LOC) to ED. The potential automatic triggers that would require an institution to submit an LOC were divided into two categories: one in which the amount of the LOC would be based on "prior debts or repayments," for the previous three years and another in which the amount of the LOC would be at least 10 percent of the Title IV funds the institution received in the previous year, for each trigger.

The first group on prior debts and repayments included two triggers:

  • "The school is required to repay the Secretary for losses from borrower defense claims."
  • "The school is required to repay a debt or liability arising from an audit, investigation, or review conducted by a State or Federal entity, or accrediting agency, or the school resolves or settles a suit brought against it by that entity for violations of State or Federal law, regulations, or accreditation standards."

The second set of triggers that would automatically require a school to submit an LOC of at least 10 percent of its Title IV funds from the previous year included 14 possible situations, such as:

  • "Violates any existing loan agreement."
  • "Fails to make a payment in accordance with existing debt obligations for more than 120 days."
  • "At any time during the prior three years, its accrediting agency issued a show cause order or placed the school on probationary status, or the school was subject to a final decision by its accrediting agency to deny, withdraw, suspend, revoke, or terminate its accreditation or preaccreditation." 
  • "Is being sued, or was sued during the prior 3 years, by one or more State or Federal entities."

The discretionary triggers that would leave decision-making up to ED included situations such as a school that has a significant amount of "outstanding or pending" borrower defense claims; a school with high dropout rates; a school that is "reported to have deficiencies or financial aid problems" by a state licensing or accrediting agency; and a school that has "significant fluctuation" in Direct Loan or Pell Grant volume that cannot be accounted for by changes in the programs themselves.

ED stressed that the triggers were up for discussion and that they are open to suggestions for others that should be included, or changes that should be made. Several negotiators expressed concern that some triggers as they were written could have unintended negative consequences for Minority Serving Institutions (MSIs), smaller private nonprofit schools, or those that serve at-risk students.

Alyssa Dobson, director of financial aid and scholarships at Slippery Rock University, suggested that a failure to disclose or correctly disclose gainful employment information should be considered as a trigger, or if a school is found to have falsely certified loans.

Several committee members also said that a requirement that students sign an arbitration clause — essentially preventing them from taking legal action against the school — should be considered a trigger, or prohibited in the first place.

The committee also discussed whether and how schools should be required to disclose information about loan repayment rates below a certain threshold and the existence of ED-mandated LOCs to current and prospective students.

While most members agreed that the disclosures were important, there were disagreements about the calculations of loan repayment rates — because ED's proposed calculation differs from what is used on the College Scorecard – how the disclosures should be delivered to students, and by which entity.

Financial aid administrators present worried that being required to notify both current and prospective students of these disclosures would present a great administrative burden, and that any emails sent out would likely be ignored or go unnoticed by a significant number of students. A proposal to require an active confirmation of receipt of the disclosure from students was also fairly unpopular. Betsy Mayotte, director of consumer outreach and compliance for American Student Assistance, suggested putting the disclosure information on the Student Aid Report, if applicable for an institution listed by the student, which many members supported, and ED said it would take back for consideration.

"If you look at all the testimony and conversations … it always comes back to the same thing: 'I wish I had known,'" said Will Hubbard, vice president of government affairs for Student Veterans of America. "If we can prevent these situations from coming up … just simply create informed consumers, we'd save everybody a lot of time and energy."

Stay tuned to Today's News for continuing coverage of this round of neg reg, and see coverage of previous sessions on our Negotiated Rulemaking resource page and archive page.


Publication Date: 2/19/2016

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