This week the U.S. Department of Education (ED) released draft regulatory proposals addressing a variety of higher education policy areas ahead of a penultimate round of negotiated rulemaking next month in Washington. These rules address policy areas impacting student loans and federal repayment programs. Individual topics range from Pell grant eligibility for prisoners to the Public Service Loan Forgiveness process and a new income-driven repayment plan for eligible borrowers. 

Included among these high-profile matters is a regulation known as the Borrower Defense to Repayment (BDTR) rule. As presently drafted, BDTR is a process by which student loan borrowers may seek discharge of their federal student loan obligations if they were deceived by their institution or the school engaged in other misconduct in violation of certain state laws. Borrowers seeking discharge must submit an application for relief and are asked to describe the basis for their claim as well as provide any additional evidence to the Department relevant to their claim. If approved, the Department will then use successful claims as a basis for seeking remuneration from the institution in an amount up to the full balance discharged.

In view of the nearly $2 trillion in student loan debt outstanding in the U.S., lower barriers to debt forgiveness for borrowers opens the door to large, unanticipated expenses for colleges and universities across the country.

Following a spirited first round of negotiations, the Department has incorporated feedback and published draft regulatory proposals that would significantly lower barriers for borrowers and groups of borrowers seeking discharge of their student loans. With substantial process changes and the introduction of a new federal standard for misrepresentation for borrowers whose loans were disbursed after July 1, 2023, the Department is poised to expand liabilities for institutions in a significant way. 

In its latest draft, the Department contemplates borrowers basing claims for relief on any of the following:

1. The school or its representatives made an omission of fact in connection with the borrower's decision to attend or continue attending the institution
2. The school failed to perform its obligations under the terms of a contract with the student (e.g. enrollment agreement breach).
3. The school or its representatives engaged in aggressive and deceptive recruitment tactics in connection with borrower's decision to attend or continue attending institution
   1. The Department has proposed language defining "aggressive recruitment" as exerting unreasonable pressure upon a consumer to enroll, including but not limited to:
      1. Exploiting a consumer’s fears, anxieties, insecurities, or any specific misfortune or circumstance of such gravity as to impair the consumer’s judgment, to influence the consumer’s decision with regard to the institution
      2. Interfering with the ability of a consumer to understand a term or condition of enrollment or a financial product or service related to enrollment;
      3. Taking unreasonable advantage of someone’s lack of understanding of higher education and financial aid, by reason of socio-economic background, lack of familial experience in higher education, or other reason;
      4. Taking unreasonable advantage of someone who reasonably relies on the recruiting individual or entity to act in their interests;
4. Borrower, class of borrowers, or government agency has obtained a favorable judgment against the school based on violations of federal or state law.
5. The Secretary of Education sanctioned or took adverse action against borrower's institution.
6. The school's institutional or programmatic accrediting agency took corrective action, sanctioned, or otherwise took adverse action against the institution at which the borrower enrolled.

The Department has also proposed a modified process for group claims. Under these changes, the Secretary can initiate actions based upon enforcement activity and lawsuits filed against educational programs based upon external information and sources such as state attorneys general, consumer groups, and other federal agencies. The Department has signaled they will seek to establish a rebuttable presumption whereby the Secretary will identify groups of borrowers based upon requests from these stakeholders.

Our Dentons team will continue to monitor developments as negotiators resume their efforts in the coming weeks. If your institution or organization is interested in learning more, please reach out to a member of our Higher Education team below.