U.S. Department of Education Delays Borrower Defense to Repayment Regulations, Announces New Negotiated Rulemaking Committees

Hogan Lovells

Hogan Lovells

On June 14, the U.S. Department of Education (“ED”) announced its plan to convene negotiated rulemaking committees to consider revisions to two major sets of regulations that were developed by the Obama Administration.  ED also announced that it would delay indefinitely the implementation of one of those sets of regulations—which was scheduled to take effect on July 1, 2017—in light of pending litigation. These developments warrant attention as the implicated regulations impose substantial obligations on institutions in all sectors.

First, ED announced that it has decided to delay indefinitely the implementation of a majority of a rulemaking package that was set to become effective on July 1, 2017.  The “borrower defense to repayment” regulations, which were finalized on November 1, 2016, would have established new standards and processes for determining whether a borrower has a defense to repayment of a Federal Direct Loan based on an institution’s act or omission. The regulations also would have added new requirements related to discharge of federal education loans from closed schools, pre-dispute resolution agreements, and financial responsibility.  ED explained that it has decided to invoke its right under the Administrative Procedure Act to delay implementation of the regulations because of the “existence and potential consequences of” pending litigation brought by a group of postsecondary institutions to challenge some aspects in the regulations.  ED “concluded that justice requires it to postpone the effectiveness of certain provisions of the final regulations until the judicial challenges to the final regulations are resolved.”  ED will not postpone the effective date of certain aspects of the final rule, including provisions that expand the types of documentation that may be used for the granting of a discharge based on the death of a borrower; amend the regulations related to consolidation of certain Nursing Student Loans and Nurse Faculty Loans; and make limited technical corrections.

Separately, ED announced that it plans to host public hearings and convene two negotiated rulemaking committees (1) to develop proposed regulations to revise the gainful employment regulations that were published on October 31, 2014 and generally took effect July 1, 2015 and (2) to develop proposed regulations to revise the “borrower defense to repayment” regulations described above and the authority of guarantee agencies in the Federal Family Educational Loan Program to charge collection costs to a defaulted borrower who enters into a repayment agreement with the guaranty agency.  ED will accept written comments until July 12, 2017 on the identified topics and suggestions for additional topics that the negotiated rulemaking committees should address.  ED will also host public hearings in Washington D.C. and Dallas on July 10 and July 12, respectively.   After reviewing public comments presented at the hearings and in written comments, ED will announce the specific topics for the negotiated rulemaking committees and request nominations for negotiators.  ED anticipates that the negotiated rulemaking committees will convene for the first time in November or December 2017.

As a result of these announcements, until further notice, institutions are not required to comply with the portions of the borrower defense to repayment regulations that have been delayed.  The Massachusetts Attorney General has announced her intent to challenge ED’s action with respect to the borrower defense to repayment regulations.  The Massachusetts Attorney General, along with other attorneys general, has also sought to intervene in the litigation that is the basis for ED’s action to delay implementation of the borrower to defense to repayment regulations.

ED previously granted institutions additional time to comply with certain aspects of the gainful employment regulations, including gainful employment program disclosure requirements.  However, the gainful employment regulations in general have not been delayed or otherwise altered by ED’s June 14 announcements, and institutions therefore must continue to comply with the requirements of the gainful employment regulations.  For example, no later than July 1, institutions must comply with the gainful employment program disclosure requirements by updating the disclosures for each gainful employment program using the 2017 GE Disclosure Template provided by ED.  Institutions also have until July 1 to submit an alternative earnings appeal to the GE Debt-to-Earnings rates that were released by ED on January 9, 2017.  In the coming days ED may issue additional guidance or instruction regarding compliance with the gainful employment regulations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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