Our Education Team examines how the Borrower Defense Rule is again expanding under the Biden Administration, beginning with a huge decision involving, for the first time, for-profit schools that are still operating.

• Nearly 16,000 students will have $415 million waived
• Total relief under the program reaches $2 billion for over 107,000 borrowers
• The rule was expanded under Obama, narrowed under Trump, and now revived under Biden

Yesterday, the U.S. Department of Education announced its approval of $415 million in borrower defense to repayment discharges for nearly 16,000 student borrowers who attended DeVry University, Westwood College, ITT Technical Institute, and Minnesota School of Business/Globe University. Importantly, “These are the first approved borrower defense claims associated with a currently operating institution, and the Department will seek to recoup the cost of the discharges from DeVry,” according to the department’s February 16, 2022 press release.

The “Borrower Defense Rule” stems from a 1993 amendment to the Higher Education Act that required educational institutions to accept responsibility and financial liability stemming from their failure to perform functions under their program participation agreements with the Department of Education. The Borrower Defense Rule allows a borrower to assert a defense against repayment of a federal direct loan based on an “act or omission” of the borrower’s school. The department’s action brings the total amount of approved relief under the Borrower Defense Rule to approximately $2 billion for over 107,000 borrowers and signals that the department is continuing to provide relief to student borrowers.

Use of the Borrower Defense Rule was greatly expanded in 2016 under the Obama Administration to allow for claims based on a school’s “substantial misrepresentation” to a borrower, and then significantly narrowed in 2019 under the Trump Administration, which required that borrowers demonstrate that the misrepresentation be “material” and that the borrower “reasonably relied” on the misrepresentation. As reflected in this recent announcement, it appears that under the Biden Administration, the rule is being broadly applied to grant significant relief to student borrowers. The decision suggests that in addition to forgiving federal loan debt, the department may soon begin aggressively pursuing recovery directly from the institutions.

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