By Allie Arcese, Director of Communications
By Allie Bidwell, Communications Staff
Months of negotiation over regulations to create a system for borrower defense ended in frustration Friday as negotiators failed to reach a consensus by their 6:00 pm deadline. Department of Education (ED) officials can now write the proposed rules that will lay out how defrauded borrowers can seek debt relief as they see fit.
The final day of negotiations started off in a tense environment, as several non-federal negotiators claimed ED officials had been negotiating in bad faith, waiting until the eleventh hour to explain a conceptual framework detailing how borrowers with Federal Family Education Loans (FFEL) and Perkins loans would be treated for borrower defense purposes. ED officials said at the beginning of the third session on Wednesday that they would explain how FFEL and Perkins loans would be included in borrower defense regulations, but did not give a verbal explanation until Thursday afternoon. By Friday morning, ED officials still had not distributed exact proposed regulatory language to negotiators.
One negotiator in particular, Derek Fronabarger, who represented student veterans , said he overheard a specific conversation among ED officials saying they waited to discuss FFEL and Perkins loans because they didn't want student advocates to "fuss" over the issue.
But Gail McLarnon, the federal negotiator, repeatedly insisted there was more to the delay, including legal complexities and necessary research, and later apologized to Fronabarger and the rest of the committee that someone within ED made those comments.
Throughout the day Friday, discussion ebbed and flowed with some moments that made it seem as though the committee might come to a consensus on a proposal. But several delays hindered the negotiators’ progress, including more than one caucus that ED officials requested, and repeated revisions to draft language distributed to the committee throughout the afternoon. ED officials and facilitator Susan Podziba apologized for the confusion more than once.
Despite the procedural delays, there were still several sticking points some negotiators could not agree on. For-profit representative Dennis Cariello, for example, refused to agree to language in the proposal that laid out under what circumstances a borrower would be allowed to file a borrower defense claim, and how the claim would be resolved. Cariello said he was concerned about a portion of the text that he felt would leave well-intentioned schools vulnerable. In the end, it was Cariello’s dissent –– and the subsequent 30-minute caucus ED officials requested with him –– that caused the committee to miss its deadline.
It was still unlikely, however, that the committee would eventually agree on the proposal, as several negotiators had strong concerns about a proposed repayment rate calculation and disclosure, as well as a provision that would still allow institutions to use mandatory arbitration clauses that essentially force students to forfeit their right to sue a school.
For some school and financial aid representatives on the committee, the repayment rate provision, as written, would have been a dealbreaker.
“We fear this is written broadly enough that it’s going to capture schools that we don’t really think the department intends to capture,” said David Sheridan, director of financial aid at Columbia University’s School of International and Public Affairs.
Under ED’s proposal, schools that fail to meet a zero percent threshold for their repayment rates five years after a cohort enters repayment –– meaning that the majority of borrowers in the cohort have not decreased their principal balance in that five year period –– would have to disclose their repayment rate on any promotional material, and disclose it to all current and prospective students. School and financial aid representatives said not only would the measurement negatively punish schools whose graduates immediately enroll in graduate school, for example (as those students would not be excluded from the calculation), but the administrative burden would also be immense.
Before the committee officially began its final session, school and financial aid representatives met with ED officials to argue for a revised proposal. They said the repayment rate disclosure should not be a standalone item, and that schools should only have to disclose it if they had one or more other proposed automatic triggers indicating financial irresponsibility. They were particularly worried about community colleges and Minority-Serving Institutions (MSIs) that would likely be negatively impacted by the repayment rate as it was written.
Mike Firestone of the Massachusetts Attorney General’s Office, said he agreed with the repayment rate concerns, and added that schools encouraging students to enter into income-driven repayment plans –– which the Obama administration has heavily encouraged –– would also be punished.
But ED officials dug in their heels, saying the repayment rate was an important piece of information to share with students and families.
“We’ve heard your concerns about the institutional burden,” one ED staffer said. “But at this point we still believe the repayment rate is an incredibly important repayment measure for students to know before enrolling in school.”
Many negotiators also disagreed on the language around arbitration agreements. On Thursday, there appeared to be widespread agreement in favor of an option that would essentially ban schools from using mandatory arbitration clauses and would permit arbitration only with the student’s consent. ED came back on Friday with a different revised option which didn’t have much support among non-federal negotiators when it was initially presented a day earlier. This option would still allow schools to include arbitration clauses in their enrollment agreements, as long as they agreed to several procedural requirements ED felt would enhance transparency and better protect students. ED officials said they didn’t feel they had the authority to move forward with the second option that would come closer to essentially prohibiting arbitration clauses.
Eileen Connor, a negotiator representing legal aid organizations, said the language would set a precedent in ED condoning arbitration agreements, which it has never done before.
“I don’t think I have the support of my constituency to not object,” she said.
But as Podziba, the facilitator, attempted to begin asking the committee for tentative agreement on different parts of the overall proposal, Cariello’s objection and discussion with ED officials ran the clock down.
“So, we’re done,” Podziba said, as negotiators and the public packed up and left the room.
A Notice of Proposed Rulemaking (NPRM) is expected in early summer, with a 45-day public comment period, and final rules will be issued by November 1, 2016. The final rules will be effective July 1, 2017.
Publication Date: 3/21/2016
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