NASFAA Submits Comments on Borrower Defense NPRM

By Joan Berkes, NASFAA Policy & Federal Relations

NASFAA submitted comments to the Department of Education (ED) on Monday concerning a Notice of Proposed Rulemaking (NPRM) that would describe grounds and processes for borrowers to claim institutional misconduct as a reason to set aside repayment of federal student loans (a.k.a., borrower defenses to repayment). ED proposes to broaden the definition of misrepresentation as a basis for borrower defenses. The NPRM also proposes extensive new standards to define financial responsibility—one of the measures of institutional eligibility to participate in the Title IV programs—and to hold institutions liable for loans discharged under the defense to repayment process.

NASFAA also joined several other higher education associations in signing on to comments submitted by the American Council on Education (ACE) and the National Association of College and University Business Officers (NACUBO). By the Monday deadline, 10,685 comments had been filed on the website.

Currently, borrower defenses to repayment are dependent upon state laws and processes, which vary substantially. As noted in previous Today’s News articles, the proposed rules would establish three federal avenues for borrower relief, based on court judgments obtained by the borrower, breach of contract, or substantial misrepresentation by the school. Misrepresentation would be broadened to include omissions as well as acts, and a detailed discussion in the preamble of the NPRM explains that intent to mislead a borrower need not be established.

In addition to borrower defenses, the proposed rule reorganizes some of the factors of financial responsibility, and adds a long list of events that would trigger a requirement for financial guarantees based on the potential for loss of financial stability. Schools would have to post and disseminate public warnings if a guarantee is triggered.

NASFAA, NACUBO, ACE, and other groups support ED’s efforts to establish a federal approach to borrower defenses so that a consistent standard is available to borrowers, either individually or as a group. However, comments from all three associations include a number of suggestions that would refine the processes.  For example, the proposed rule would impose time limitations for bringing a borrower defense application under some circumstances, but no limitation for others. It would allow applications to be reopened to consider new evidence, but in some instances that seems to be limited only to borrowers’ new evidence. The three sets of comments to which NASFAA subscribes suggest some sort of limitation in all circumstances, and ask for the same treatment of new evidence under all circumstances. Comments also address the potentially excessive accumulation and capitalization of interest to borrowers who are granted administrative forbearance during the application process, should the defense be denied. Some of the comments request clarifications regarding the description of recognized borrower defenses.

A key factor in borrower defenses is the definition of misrepresentation, which some commenters contend the proposed rules would broaden too much and too vaguely. NASFAA supports a strong and enforceable regulation prohibiting misrepresentation, but has concerns regarding “intent.” While intent to mislead a borrower need not be a factor in discharging loans if misrepresentation occurred, it should be a consideration when determining whether an institution should have its Title IV participation limited, suspended, or terminated.

The three sets of comments are all critical of ED’s proposal to expand financial responsibility standards, which were added to the negotiating committee remit only after nominations and selection of negotiators had occurred. The comments assert that the proposed rules changing financial responsibility standards were negotiated without adequate representation by experts from within the higher education community. NASFAA questions whether the nature of the new standards is supported by current law, and emphasizes the right of due process for schools. Further, ED needs to ensure that through its investigation and the imposition of cumulative financial assurances it does not contribute to an institution’s financial failure. NACUBO states that “ED’s current financial responsibility practices are broken. The standards should not be expanded until they are fixed.”

The NPRM also contains a new repayment rate measure for proprietary institutions only, and would require public warnings to be posted and disseminated in the case of very low rates. ED states in the NPRM preamble that it “will look for ways to harmonize the multiple repayment rate methodologies, contingent on consumer testing and user needs.” NASFAA commented that another repayment rate definition should be imposed before a single preferred and demonstrably effective methodology is determined.

The proposed rule must be finalized no later than November 1 to go into effect next July 1.


Publication Date: 8/3/2016

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