Just in time for the holidays, the U.S. Department of Education approved the discharge of 12,900 pending claims submitted by former Corinthian College students under existing Borrower Defense to Repayment (BDR) rules. Some students got only proverbial coal though, as ED also rejected 8,600 pending claims. ED reports that some of the rejected claims had been filed after President Trump took office but that “many” had been identified for denial under President Obama’s administration. ED offered no commentary on how either set of claims had been processed or decided. It had previously announced its intent to continue to process claims under existing (and bare-boned) regulations though, which remain in effect while recently-revised BDR rules are reevaluated.

The BDR regulations underwent a substantial overhaul during President Obama’s administration after the collapse of career college giant, Corinthian College, which sank under allegations of falsified job placement rates and other student misrepresentations. The revised BDR regulations, announced November 1, 2016, drew much criticism and currently are the subject of litigation.

Secretary Devos has asserted that the revised BDR regulations created “a muddled process that’s unfair to students and schools, and puts taxpayers on the hook for significant costs.” She has called for a “regulatory reset.”

At issue are the competing interests of students, institutions and taxpayers. The BDR rules were designed to provide a defense to collection efforts on government-backed student loans where an institution has, for example, defrauded a student. At the same time, ED does not want to provide any free lunches to students not actually harmed–particularly where the institution may no longer be operating or otherwise in a position to reimburse ED the cost of the forgiven loan. In those cases, it is the taxpayer who will bear the financial brunt of the decision to forgive a loan.

ED has twice delayed the effective date of the revised BDR rules. They are now set to take effect July 1, 2019. In the meantime, ED has launched a new negotiated rulemaking process to take another look at the BDR rules. The negotiated rulemaking committee had its first meeting in November, is currently meeting from January 8 to 11 and is set to have its final meeting February 12-15. Assuming consensus is reached, it is anticipated that new proposed BDR rules will be making the rounds for public comment in the spring.

ED’s December 20 announcement hints as to what the new rules may look like. While the challenged BDR rules put the burden on the school to prove the value of education provided in order to potentially rebut or reduce a student’s claim for loan forgiveness, ED’s December 20 announcement takes a very formulaic approach. Students who earn less than 50 percent of their peers will be eligible for full loan forgiveness while those earning 90% and above will be eligible for only 10 percent relief. This seems a rational approach for establishing loan relief amounts where a student has been harmed by an institution’s intentional misconduct assuming the student’s low earnings are not the result of a student’s voluntary choices, such as rejecting full time employment in favor of part time hours.

Written by Therese King Nohos

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