The Department of Education Friday released the final regulations for the discharge of federal loans when colleges have defrauded students.
The so-called borrower defense rules apply a uniform federal standard
for the handling of student loan discharges in cases where borrowers
assert fraud or abuse by institutions. While this provision has existed
in law for decades, it has been sparingly granted. The new regulations
would greatly expand the availability and (likely success) of claims of
borrower defense against repayment.
The final version of the regulations was little changed from the
draft version offered for public comment, and did not significantly
address concerns expressed by the higher education community that the
rules do not distinguish between intentional fraud and inadvertent
mistakes in cases such as advertising job placement rates—and in some
ways are more stringent than the proposed rules, according to Inside Higher Ed.
While the potential impact of the final regulations remains uncertain, Inside Higher Ed also noted
that there is praise for an accompanying announcement that the
department would restore Pell Grant eligibility for students who were
unable to finish a program after their institution shut down.
ACE and a group of 13 other higher education associations submitted comments
(89 KB PDF) in August on the proposed rules that expressed strong support for the
department’s effort to provide clear, consistent processes through which
borrowers who have been defrauded or harmed by the higher education
institutions they attended may seek debt relief. But the groups also
urged the department to continue to clarify the regulatory language to
ensure that it will best serve borrowers, hold fraudulent institutions
accountable for their misconduct and ensure a fair process for
legitimate institutions.
The comments focused specifically on a limited number of issues
related to the borrower defense portion of the proposed rule, including
administrative concerns, defining the type and nature of claims, due
process and dealing with consolidated loans.
A companion letter
(73 KB PDF) submitted by ACE and nine other higher education groups discussed the
proposed changes in determining whether an institution is financially
responsible and the consequences for being found “not financially
responsible” in these situations. The associations asserted that the
changes represented a significant shift in the department’s approach to
the financial responsibility standards (or FRS) which is likely to
result in adverse and unintended consequences for many colleges and
universities, particularly smaller, tuition-dependent nonprofit
institutions. Similar to the rules for discharge of loans, few changes
were made to the proposed FRS language to incorporate stakeholder
feedback.