2019 Institutional Accountability (Borrower Defense) Regulations
On August 30, 2019, the U.S. Department of Education made available the final institutional accountability (borrower defense) rule (2019 Rule).
Except for certain provisions related to financial responsibility, the effective date of the 2019 Rule is July 1, 2020. Until then, however, institutions are responsible for complying with the 2016 Rule (see below section).
A summary accompanying the 2019 Rule indicates the new regulations will:
The 2019 Rule is a substantive rewrite of the Obama-era 2016 borrower defense to repayment regulations, which remain currently in effect.
Except for certain provisions related to financial responsibility, the effective date of the 2019 Rule is July 1, 2020. Until then, however, institutions are responsible for complying with the 2016 Rule (see below section).
A summary accompanying the 2019 Rule indicates the new regulations will:
- Provide borrowers the right to assert defense to repayment claims against institutions for loans first disbursed on or after July 1, 2020, without regard to whether the loan is in default or in collection proceedings.
- Maintain the current rule’s preponderance of the evidence standard for all borrower defense to-repayment claims.
- Allow borrowers ample opportunity to file defense to repayment claims.
- Create streamlined and fair procedures that ensure basic due process for both borrower and institutions.
- Give students the ability to allege a specific amount of financial harm.
- Enable the Education Secretary to determine at the time she provides borrower defense to repayment relief that there is sufficient evidence to require reimbursement from the school.
- Extend the closed school discharge window from 120 days to 180 days.
- Encourage institutions to close only after the completion of well-planned teach-outs that provide students with the reasonable opportunity to finish their programs.
- Allow students to choose between accepting an institution’s offer of a teach-out opportunity or submitting a closed school discharge application to the Department.
- Provide a financial responsibility framework with fair, clear, and verifiable requirements for recalculating an institution’s financial responsibility composite score and triggering additional security to protect taxpayers.
- Update composite score calculations to reflect recent changes to accounting standards.
The 2019 Rule is a substantive rewrite of the Obama-era 2016 borrower defense to repayment regulations, which remain currently in effect.
2016 Borrower Defense to Repayment Regulations
On March 19, 2019, the Department published in the Federal Register the long-awaited announcement that the 2016 borrower defense to repayment rule (2016 Rule) is officially in effect. The announcement, considered largely procedural housekeeping at this point, comes five months after a federal court ordered the previously delayed rule take effect on October 16, 2018.
The March 19, 2019 announcement follows on the heels of significant guidance published by the Department on March 15, 2019, which is intended to assist institutions with their obligation to comply with the now-effective 2016 Rule. The guidance, issued through an Electronic Announcement, clarifies the responsibilities of institutions concerning selected provisions of the rule, including financial responsibility, pre-dispute arbitration agreements, class action bans, and repayment rate and financial protection disclosures.
The March 19, 2019 announcement follows on the heels of significant guidance published by the Department on March 15, 2019, which is intended to assist institutions with their obligation to comply with the now-effective 2016 Rule. The guidance, issued through an Electronic Announcement, clarifies the responsibilities of institutions concerning selected provisions of the rule, including financial responsibility, pre-dispute arbitration agreements, class action bans, and repayment rate and financial protection disclosures.
Update: The Department issued on June 3, 2019 a Questions and Answers document that supplements the March 15, 2019 Electronic Announcement.
Institutions are encouraged to carefully review the various guidance documents as specific financial responsibility-related actions, events, or conditions that occurred since July 1, 2017 (the original effective date of the 2016 Rule) may result in needing to notify the Department of that action, event, or condition within a stated period. Furthermore, the guidance also lists additional deadlines -- one as short as 10 days -- by which institutions must comply if they entered into mandatory pre-dispute arbitration agreements or other pre-dispute agreements addressing arbitration and class action bans since July 1, 2017 with a Direct Loan borrower.
CECU’s comments on the Department’s July 31, 2018 proposed rule are available here.
Please direct any questions regarding the institutional accountability/borrower defense to repayment regulations to Nicholas Kent, Senior Vice President of Policy and Research, at (571) 800-6524 or Nicholas.Kent@career.org.