ACE, Associations Offer Recommendations for Final Student Loan Forgiveness Regulations
August 15, 2022

While borrowers wait to hear whether the student loan repayment pause will be extended beyond Aug. 31, the Department of Education (ED) last month released a notice of proposed rulemaking to enhance protections for defrauded borrowers, improve the Public Service Loan Forgiveness (PSLF) program, and make other revisions to the regulations governing student loan discharge standards and processes.

ACE and a group of 23 other higher education associations submitted comments last Friday on these proposals, expressing broad support for their goals and offering recommendations to fine-tune them. Changes to the proposed regulations must be made by Nov. 1, if the new rules are to take effect by July 1, 2023 at the earliest.

The groups also noted the delay on a much-needed overhaul of the student loan system, writing that the proposed rules are the are the “best available way to assist borrowers" apart from a legislative solution.

“[T]he continued lack of legislative action to comprehensively address federal student loan repayment has resulted in a system with little coordination; a lack of understanding of who should, and who does, benefit; and the likelihood of major policy reversals and the accompanying confusion with each change of administration," the associations wrote. “We understand the Department, in lieu of congressional action, is using the tools at its disposal, but borrowers would benefit most from a revamped student lending and repayment system that looks at all pieces holistically."

Changes to Public Service Loan Forgiveness

Congress created the PSLF program in 2007 to provide loan relief for individuals working full-time in public service. However, the difficulty borrowers have had in accessing the benefits of the PSLF program—the source of enormous public and media attention—has highlighted the flaws in the underlying statute.

ED's proposals would make permanent many elements of the waiver the Biden administration offered in late 2021—which is set to expire Oct. 31—and will do much to restore public confidence in the program, the groups said. For that reason, they recommend either implementing the PSLF provisions early or extending the current waiver through June 2023 so that there is a seamless transition to the new regulations.

Among the changes ED is proposing to the PSLF program are expanding what is considered an eligible payment and the types of forbearances that would apply to the 120-payment threshold. Additionally, the requirement that borrowers be employed at a qualified employer at the time a determination is made to receive forgiveness would be dropped. ED also would clarify the definition of what organizations are qualified employers, although the groups wrote that they remain concerned that many borrowers who should be eligible for PSLF by the nature of their work, such as early childhood educators or medical professionals working under contract or at for-profit hospitals, would still be ineligible.

Significantly, ED would be allowed to make automatic determinations of PSLF eligibility without an application. The department would also provide a reconsideration process for denied claims.

Changes to Borrower Defense to Repayment

Provisions in the Higher Education Act referred to as borrower defense to repayment (borrower defense) allow borrowers to seek loan forgiveness if a college or university misled them or engaged in other misconduct in violation of certain state or federal laws. These regulations have been revised by both the Obama and Trump administrations.

ED's latest draft rules attempt to clarify the standard for aggressive and deceptive recruiting and allow individual or group borrowers to request reconsideration of borrower defense claims that were fully or partially denied.

The department is also proposing a new category of misrepresentation, "omission of fact," which would serve as the basis to assert a borrower defense claim.

Any borrower who was induced to enroll and take out loans for their education due to fraud or substantial misrepresentation by an institution deserves to have those debts forgiven and any equivalent eligibility for federal student aid restored, the groups wrote in their comments. Similarly, if borrowers have been granted a defense to repayment, they pointed out that it is equally reasonable that ED should seek to recoup those funds from the institution responsible where possible.

The proposed rules make clear that where there are conflicting interests, protecting the borrower takes precedence. However, the groups said that drafting the rules in this way has created areas of ambiguity that may have negative unintended consequences for institutions acting in good faith. They offer a number of suggestions for revising the rules to address these ambiguities.

Change to the Closed School Discharge

If an institution closes while students are enrolled or soon after they withdraw, they may be eligible to have their federal student loans forgiven. The draft rules would extend the period under which borrowers can file for a discharge; allow for discharge in some cases where a teach-out plan was available; and remove the bar on borrowers re-enrolling or transferring credits to another institution within a certain time period.

In drafting these regulations, ED has sought to address previous abuses, but in doing so has included language that is overly broad, with the possibility of creating unintended consequences. The groups urge ED to clarify certain sections and also provide flexibility in the final rule for situations where the closed school discharge would not apply.

dotEDU Episode 65: The Policy and Politics of Student Loan Forgiveness

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