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Student Defense Submits Department of Education Rulemaking Comments to Improve Oversight, Accountability, and Fairness in Federal Student Aid Programs

August 15, 2022

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Student Defense Submits Department of Education Rulemaking Comments to Improve Oversight, Accountability, and Fairness in Federal Student Aid Programs

On August 12, 2022, Student Defense submitted five comments on the U.S. Department of Education’s proposed 2022 Borrower Defense Rule, published in the Federal Register on July 13, 2022. The Notice of Proposed Rulemaking (NPRM) proposes important changes, which Student Defense enthusiastically supports, both to the current borrower defense rule and to other key regulations. Building on the improvements in the NPRM, Student Defense’s comments outline additional steps the Department can take to increase oversight, accountability, and fairness to borrowers in federal student aid programs.

“The new regulations proposed by the Department of Education are a hugely important step toward protecting students,” said Alex Elson, Student Defense Vice President. “But there’s even more they can do to promote oversight, accountability, and fairness. This is exactly why the rulemaking process includes an opportunity for advocates to respond to the Department’s initial proposal, and we look forward to working with the Administration to make the final rule as strong as possible.”

The recommendations submitted by Student Defense include the following:

1. To protect students and taxpayers from past and future misconduct, the Department must ensure that wrongdoers pay the price. Unfortunately, the Department has proposed a system that it estimates will recoup only 2 percent of borrower defense discharges from companies and individuals responsible. Given this admission, we propose:

    • The Department should add provisions to ease the path to holding owners and executives personally liable for losses to students and taxpayers.

    • The Department must also acknowledge that the effect of its changes is to ensure that schools, not than the Department, bear the burden in administrative proceedings regarding recoupment. Shifting this burden is appropriate and consistent with the Department’s other administrative proceedings, but the Department must acknowledge and explain this change.

    • The Department must improve transparency around recoupment. For civil law enforcement to deter future misconduct, the Department must increase the transparency of its program reviews and administrative hearings.

2. The Department should build upon the proposed improvements to the Borrower Defense process by accepting claims based on state law, importing consumer law concepts adopted by other federal agencies, and ensuring the availability of group claims for all.

    • Although the Department has recognized that there may be instances in which a borrower needs to rely on state law to assert a valid borrower defense claim, it has proposed to limit a borrower’s right to use state law until after a claim based on the federal standard is denied and a borrower asks for reconsideration. The Department should incorporate a state law standard into its initial review of borrower defense applications.

    • The Department should ensure that “unfair and abusive” conduct—as adopted, interpreted, and applied by the FTC, CFPB, and FDIC among others—can constitute a valid borrower defense claim. This will allow the Department to use these well-developed principles to adjudicate borrower defense claims.

    • Although the Department proposes to allow state entities to submit borrower applications on behalf of groups, it should also allow representatives of judicially certified classes of borrowers to assert borrower defense claims on behalf of that class. Not only are class counsel well-suited to represent the interests of the class, this will help borrowers in states without the resources or the inclination to investigate schools and assemble group borrower defense applications.

3. The Department should provide a one-year grace period prior to repayment for students attending schools that close. Student Defense supports the Department’s proposal to automate closed school discharges for students whose education is disrupted by a school closure and who do not complete an approved teachout within a year. Under the NPRM, when a school closes, students who do not enroll elsewhere will be eligible for the typical six-month grace period before entering repayment. This means that a student who does not enter an approved teach out would enter repayment for six months, only to receive an automatic discharge (unless one has already been granted). Student Defense is proposing that it would be less burdensome for the borrower, the Department, and servicers if the Department extends that normal six month grace period for an additional six months so that students whose education is disrupted by a school closure will have a one-year grace period before an automatic discharge is effectuated.

4. The Department should continue to strengthen the automatic “Total and Permanent Disability” provision. Student Defense commends the Departments response to its 2021 Rulemaking Petition which sought many of the changes being proposed. Still, under the NPRM, the Secretary is required to automate TPD discharges only if the Department obtains data from the Veterans’ Administration(VA) or Social Security Administration (SSA). There is no corresponding obligation for the Department to obtain such data, leaving a glaring hole in the Department's obligation to automate TPD discharges. The NPRM must be strengthened to require the Secretary to obtain data from the VA and SSA. We also propose that the Department work with the VA and SSA (through a joint rulemaking or other means) to ensure that each agency is bound by the process set forth in this regulation.

5. The Department should retain its key proposal regarding mandatory arbitration provisions and class action waivers. Student Defense strongly supports the Department’s proposal to prohibit institutions of higher education from using mandatory arbitration clauses and class action waivers. In our comment, we describe – citing our experience litigating these types of cases – the benefits of these provisions and the difficulties associated with conducting individualized arbitrations to remedy widespread misconduct.

Copies of Student Defense’s rulemaking comments can be found below.