Borrower-Defense Rules Finalized

Advocates praise new federal rules as a milestone.

November 1, 2022
Education Secretary Miguel Cardona, a middle-aged Hispanic man with glasses and a goatee.
Secretary Miguel Cardona
(Department of Education)

The Education Department is planning to make the process for debt relief easier for borrowers who were misled or manipulated by an institution of higher education.

The new regulations announced Monday for the borrower defense to repayment and other debt-relief options expand eligibility, remove barriers and provide for automatic discharges in some cases. The new rules will go into effect July 1, 2023.

“These transformational changes will protect students who’ve been cheated by their colleges from the bureaucratic nightmares of the past and ensure that all our targeted debt relief programs live up to the promises made by Congress in the Higher Education Act,” Secretary of Education Miguel Cardona said in a statement.

The department has been working on an overhaul of the borrower-defense regulations and other targeted debt-relief programs as part of an effort to improve federal student loan programs.

The changes were published over the summer and received more than 5,000 public comments. Congressional Democrats supported the changes, while Republicans in the House and Senate said the department didn’t have the authority to make the changes it was proposing, especially those to the borrower-defense program.

Career Education Colleges and Universities, the association representing for-profit institutions, submitted a 137-page comment arguing in part that the rule violates the law by depriving schools of essential due process protections. On Monday, the organization questioned whether the department meaningfully considered all the comments submitted.

“The department has cut corners in a rush to ram through a punitive borrower defense rule with serious legal and regulatory flaws that could undermine the American education system,” CECU president and CEO Jason Altmire said in a statement. “This is yet another example of the department’s willingness to disregard established process to pursue a partisan borrower defense agenda that is contrary to the best interests of schools and students. CECU has long supported sensible borrower defense regulations that comply with the law and protect the interests of both students and schools. The new rule fails on both counts.”

Under the new regulations, the department will be able to discharge loans for an individual or for an entire group. The department will have two years to respond to a group claim.

Decisions about whether to grant relief will be based on one of five circumstances, including substantial misrepresentation or substantial omission of fact, breach of contract, and aggressive and deceptive recruitment, according to a news release. Department officials will approve a claim if they find that it’s more likely than not that the act or omission occurred and harmed a borrower.

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Borrowers with approved claims will receive full relief rather than a partial discharge of some outstanding debt.

“The department has tried for years to construct a workable process for determining partial discharge amounts and has concluded there is not a consistent way to achieve that goal,” a fact sheet on the new rules states. “Instead, to approve a claim, the final rule will require the department to conclude that the act or omission caused detriment that warrants a full discharge and refund.”

If a college or university closes, borrowers will be eligible for automatic debt relief within one year if they don’t enroll elsewhere, accept a teach-out or continue at another location of the institution. The secretary of education will have discretion to adjust the closure date, under the new rules.

“Borrowers entitled to debt relief under the Higher Education Act should be able to get it without wading through red tape and confusing tricks and traps,” James Kvaal, education under secretary, said in a statement. “The regulations announced today will streamline a needlessly complicated system and give borrowers a simpler and more often automatic path to the discharges they deserve.”

The National Consumer Law Center commended the department’s new regulations in a statement.

“While the rules released today will go a long way towards making sure that harmed borrowers will have a shorter path to obtaining relief, repayment [of federal student loans] is set to restart in two short months,” said Kyra Taylor, staff attorney at the National Consumer Law Center. “We deeply hope that the department will not force borrowers to restart repayment when their debt should be canceled. However, we are encouraged that the Biden Administration is continuing to make strides to provide relief to student loan borrowers. Each bold step—from one-time cancellation to the changes here—implements long-needed fixes to our broken student loan system and provides life-changing relief to families across the country.”

Similarly, the Institute for College Access and Success celebrated the changes as student- and borrower-centered.

“The new Borrower Defense to Repayment rule marks a milestone in a years-long effort to create a straightforward path to debt relief for student borrowers who are deceived, misled, and defrauded by predatory institutions,” TICAS president Sameer Gadkaree said in a statement. “The rule also makes it simpler for groups of students with similar claims to receive relief and affirms the department’s ability to pursue the return of taxpayer dollars credited to students from the institutions at fault—introducing accountability for defrauding students.”

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