Borrower Defense to Repayment (BDR) refers to the administrative process by which borrowers apply to the U.S. Department of Education (ED) to have their federal Direct Loans discharged based on allegations of school misconduct related to the loans or educational services the school provided. A successful application can result in discharge of the borrower’s loans and a refund of payments already made. For schools, a student’s successful application can result in ED initiating proceedings to collect from the school the amount discharged and refunded to the borrower. If there is a common set of facts between multiple borrowers, ED can initiate a class action for collection of discharged debt related to multiple borrowers.

The influx of BDR activity appears to be part of a larger scheme. It is no secret that the Executive branch is attempting to reduce the impact of student loan debt on borrowers, but such efforts have been stopped or stalled by the courts. The Biden administration’s effort to cancel up to $400 billion in student loans for as many as 43 million American’s was deemed an overstep of authority by the U.S. Supreme Court under the “major questions” doctrine in June 2023. Soon after, in August 2023, the Fifth Circuit enjoined ED from enforcing new BDR regulations that were effective July 1, 2023. The new BDR regulations expanded what would be considered “misrepresentation” by schools and create a presumption schools do not contest the BDR claim if the school does not respond within 90 days of ED’s notice. The preliminary injunction will last until at least November 2023.

Despite recent judicial hurdles, ED is also facing a push from BDR applicants for fair and timely consideration of applications. The Sweet v Cardona matter is a class action filed in the Northern District of California representing the interests of borrowers with pending BDR applications filed on or before June 22, 2022. A settlement in the Sweet matter, effective January 28, 2023, requires ED to follow an expedited schedule to process BDR applications and make final determinations regarding discharges.

With its Sweet foot on the gas, ED is propelling the BDR process forward into roads that are under construction. Even without the orange barrels of judicial intervention, the regulatory landscape of BDR is a winding one. Regulations covering BDR apply based on when the loans were disbursed, and they have changed frequently over the last decade. For loans disbursed before July 1, 2017, the standards for discharge include “acts or omissions” that create a cause of action under state law. Loans disbursed between July 1, 2017 and June 30, 2020 follow a heightened standard where loans are dischargeable when there is a “substantial misrepresentation” by the school. The regulatory standards change again for loans disbursed between July 1, 2020 and June 30, 2023 to include specific types of “misrepresentation” ED will consider.

Given the variables and unknowns, it is no surprise that in recent notices to schools, ED has not been transparent regarding the standards they are using to determine whether to grant borrowers’ BDR claims. Recent notices from ED to schools are sparse on the standards they are using to analyze BDR applications; they do not cite the authority claims will be decided under, the applications themselves appear to cover proofs for multiple iterations of regulatory standards, and ED even suggests that institutions should submit an affidavit with their responses—a requirement of the new BDR regulations that are, at the time this article was published, still subject to injunction.

As schools receive BDR notices, sometimes by the dozen, it is easy to write off the claims made by borrowers as objectively baseless and unworthy of the administrative resources it will take to respond. Given the high stakes, at a minimum, schools should:

• Designate an employee to act as the main contact for BDR notices who has access to the admissions, career services, and curriculum-related data necessary to respond
• Note claim receipt dates and response deadlines, and respond in a timely manner
• Respond to all claims but consider each claim on a sliding scale and, assuming limited resources, spend more time collecting data for stronger claims
• Engage with counsel to navigate the construction-strewn, winding roads of the legal and regulatory underpinning of the BDR process

Given the demonstrated debt alleviation goals of the current administration and ED’s coinciding regulatory changes broadening standards for BDR discharges, schools are wise to raise a defense to even the most groundless of claims. If schools do not, they may be asked to pay the tab for nationwide student debt relief. 

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