Issue Paper 1 Session 1: January 12 – 14, 2016 Issue: Whether to establish a new standard for the purpose of determining whether a borrower can establish a defense to repayment on a loan based on an act or omission of a school. Statutory cite: 455(h) of the Higher Education Act of 1965, as amended Regulatory cite: 34 C.F.R. 685.206(c), 682.209(g) Summary of issue: The current defense to repayment (DTR) regulation requires a borrower to establish the existence of an “act or omission” by an institution that would give rise to a cause of action against the school under “applicable state law” to demonstrate a defense to repayment. The regulation reads, in part: In any proceeding to collect on a Direct Loan, the borrower may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law. 34 CFR § 685.206(c)(1). The HEA gives the Secretary authority to issue regulations in this area. The statute reads, in full: Notwithstanding any other provision of State or Federal law, the Secretary shall specify in regulations which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under this part, except that in no event may a borrower recover from the Secretary, in any action arising from or relating to a loan made under this part, an amount in excess of the amount such borrower has repaid on such loan. HEA § 455(h), 20 U.S.C. § 1087e(h). In 1995, the Department of Education (Department) issued a Notice of Interpretation providing guidelines on the borrower defense process. The guidelines indicated that the Department will acknowledge a DTR only if the cause of action directly relates to the loan or to the school’s provision of educational services for which the loan was provided. 60 Fed. Reg. 37768 (Jul. 21, 1995). The current borrower defense regulation in place is wholly dependent on state law; relief depends on whether a school’s actions would give rise to a state law cause of action. This creates variation and complexity in application of the regulation for borrowers and the Department. Some state laws offer strong protections to borrowers, while others offer very little protection. At a minimum, the current regulation may provide uneven relief to students affected by the same institutional practices in different states - since relief is dependent on the protections available under the state’s law that is applicable to each borrower’s claim. A key goal of these negotiations is to establish a standard for DTR claims that will allow for a more uniform treatment of borrowers. Some public commenters have advocated the adoption of a standard similar to that in 12 U.S.C. 5531 and 5536, which protects against “unfair, deceptive, or abusive acts and practices” 1 (also known as “UDAAPs”) and is used by the Consumer Financial Protection Bureau (CFPB) and/or in 15 U.S.C. 45, which protects against “unfair or deceptive acts or practices” (“UDAPs”) and is used by the Federal Trade Commission (FTC). However, the Federal UDAAP or UDAP laws are government agency enforcement tools, and were not necessarily designed to be a standard against which an individual seeks relief from the government. Questions for consideration by the committee include: 1. Is the current standard based on applicable State law sufficient for borrower defense claims? Why or why not? 2. If a revised standard is established, should state law remain as an alternate path to relief? What should the scope of available relief under state law be? Should the Department consider limiting State law claims to those in which the borrower won his or her legal case against the school in a court? 3. How should a borrower’s injury and the amount of his or her loss for which relief is given be identified and measured? 4. If a revised standard is established, how should that standard be articulated? Some examples for discussion: the Department’s regulations at 34 CFR Part 668, subpart F2; breach of contract, the unfair practices standards used by the FTC and the CFPB; or some different standard. 5. Whether under a new standard or a standard based on causes of action under a State’s (or States’) laws, how should the new regulations limit claims based on an institution’s failure to comply with the HEA or a regulatory requirement that may not cause harm or injury to the borrower (i.e. failure to respond to an IPEDS survey)? 6. If a new standard is established, should it be applied only prospectively to new loans, or should it also apply retroactively? 1 http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf http://www.ecfr.gov/cgi-bin/textidx?SID=5b3bb1e1ceaff5fdc8d06986d41a08de&mc=true&node=sp34.3.668.f&rgn=div6 2 Issue Paper 2 Session 1: January 12 -14, 2015 Issue: Time period for availability of Borrower Defense to Repayment claims Statutory cites: §455(h) of the Higher Education Act of 1965, as amended, 20 U.S.C. 1087e(h) Regulatory cites: 34 CFR 685.206(c) Summary of issue: The current regulation is silent on the timeframe during which a borrower may bring a Direct Loan Defense to Repayment (DTR) claim and provides a three-year period during which the Department of Education (Department) may recover the amount of loss on a loan due to a successful DTR claim from a school. Public commenters have suggested that “since there is no statute of limitations on Federal student loan collection, no state or Federal statutes of limitations should bar a borrower from establishing a defense to repayment.” While the Department has the authority to adopt a new Federal time period for DTR claims on new Direct Loans, this is not currently an open issue for DTR claims related to existing Direct Loans or for Federal Family Education Loans, which will be governed by the current regulation . Questions to be considered by the negotiating committee if the Department seeks to establish a time limitation for the availability of borrower DTR claims include: 1. Should the regulations address a limitation period for borrowers to bring DTR claims? What limitation period should apply? Should the limitation period differ for different kinds of claims, based on a new Federal standard(s), state law-based claims, or both? 2. What is the “trigger” date from which such a limitation period for borrowers to bring DTR claims should run? What, if any, circumstances would warrant tolling (extending) the limitation period? 3. The current Direct Loan rule provides that the Department will not pursue recovery against the school for the amount of loss on a loan later than three years after the last year in which the student last attended the school. 34 CFR §685.206(c). This limitation period was derived from the rule requiring schools to retain records of “administration” of title IV programs for at least three years following the last award year in which the student attended the school or aid was provided. 34 CFR 668.24(d). Borrower DTR claims, however, will ordinarily arise not from the calculation and award of title IV aid, but rather from certain acts or omissions by a school for which Department regulations impose no record retention requirements. What, if any, limitation period should apply for the Department to assert a recovery claim against a school (e.g., the routine title IV aid record retention period, as in the current version of §685.206? Some other period?) Issue Paper 3 Session 1: January 12 – 14, 2016 Issue: Developing a regulatory framework for the process of submitting, reviewing, and determining the veracity of Borrower Defense to Repayment (DTR) claims. Statutory cite: §455(h) of the Higher Education Act of 1965, as amended Regulatory cite: 34 CFR 685.206(c) Summary of issue: Current regulations do not describe in detail the process by which a borrower would submit a DTR claim, nor the proceedings the Department of Education (Department) would undertake in considering the forgiveness of some students’ loan obligations based on the DTR regulatory provision. An ideal borrower defense process should be easily understood, facilitate the submittal of sufficient evidence to adjudicate the claim, establish clear expectations for the borrower regarding next steps and timeframes, and assure claims are addressed fairly and equitably. Because the nature of claims may be varied, it is important that the process include considerations for the proper assessment of a specific claim with regard to both the student and the institution. The DTR process should address the range of specific circumstances that may give rise to a borrower’s claim. These include:  Claims Against a Closed School vs. Claims Against an Open School  Group Claims vs. Individual Claims The specific circumstance may inform the most appropriate process for submitting, reviewing, and determining the outcome of such claims. Questions for consideration by the committee include: 1. What kind of process should the Department use to determine the validity of claims against schools that have closed? Should the process differ depending on whether the claim was presented by an individual or a group? 2. What kind of process should the Department use to determine the validity of claims against schools that have not closed?  Should the process differ depending on whether the claim is presented by an individual or an existing group? If the latter, what kind of group should the regulation recognize (i.e., a class certified by a Federal or state court? A group represented by a representative, advocate, or attorney selected by the members of the group?)  What kind of notice should be given to the school of filed DTR claims? What kind of an opportunity should be provided for the school to respond, and what kind of opportunity should be provided for the borrower to respond to the school’s response? 3. Should the Department use a particular process in instances in which several claimants base their claims against a school on the same group of facts (conduct of a particular program, advertising, time period, etc.), even if the individuals themselves have not formed, or sought to form, a group or class? How should such a group be identified? Should the amount of loans owed by the group affect the kind of process used? Should the Department require borrowers to consent to treatment in a group? If so, should that be opt-in or opt-out? 4. Final judgments of administrative agencies, like final judgments of a court, can bar the party against whom a matter is decided from disputing that finding if and when that same party is involved in a separate proceeding—before that agency or another agency—in which the facts resolved by that first finding are in dispute. 1  What kind of process should the Department adopt to ensure that findings the Department makes in claim determinations are binding on the same party in subsequent disputes with that party (e.g., findings based on a Program Review) 1?  If a particular process is adopted for group claims (as opposed to individual claims), should only findings made in group dispute/hearing cases be binding on the party? http://www.ecfr.gov/cgi-bin/textidx?SID=5b3bb1e1ceaff5fdc8d06986d41a08de&mc=true&node=sp34.3.668.h&rgn=div6 Issue Paper 4 Session 1: January 12 -14, 2015 Issue: Update and expand the existing categories of false certification discharges Statutory cites: §437(c) of the Higher Education Act of 1965, as amended, 20 U.S.C. 1087(c) Regulatory cites: 34 CFR 682.402, 685.215 Summary of issue: The Higher Education Act of 1965 (HEA) provides that if a student’s eligibility to borrow “was falsely certified by the eligible institution or was falsely certified as a result of a crime of identity theft . . . then the Secretary shall discharge the borrower’s liability on the loan (including interest and collection fees).” 20 U.S.C. § 1087(c)(1). The Department of Education’s (Department’s) current regulation defines the basis for a false certification Direct Loan discharge as when “a school falsely certifies the eligibility of the borrower (or the student on whose behalf a parent borrowed) to receive the loan.” The categories under which such a determination may be made include:  When borrower eligibility is determined on the basis of the borrower’s ability to benefit from the institution’s training and the student did not meet the eligibility requirements;  When the institution signed the borrower's name on the loan application or promissory note without the borrower's authorization;  When the institution certified the eligibility of a student who, because of a physical or mental condition, age, criminal record, or other reason accepted by the Secretary, would not meet the requirements for employment (in the student's State of residence when the loan was originated) in the occupation for which the training program supported by the loan was intended; and  When the institution certified the borrower's eligibility for a Direct Loan as a result of the crime of identity theft committed against the individual. Questions to be considered by the negotiating committee if the Department seeks to update or expand the grounds for false certification discharge include: 1. Are there additional categories of false certification that should be considered?  Public commenters suggested the categories include situations wherein an institution misled borrowers about job prospects, the total cost of their education (including the portions covered by grants versus loans), the quality of the programs, and individuals’ eligibility to qualify for certain jobs; in cases of electronic fraud; in instances in which an institution’s acts meet the standard for a federal UDAAP (unfair, deceptive or abusive act or practice under 12 U.S.C. 5531) violation; in instances in which an institution violated the HEA or the regulations thereunder; and when an institution violated the Federal Trade Commission’s Guides for Private Vocational and Distance Education Schools (also known as the Vocational School Guides).1 2. When the false certification rule was established in 1994, it was not intended to cover misrepresentations pertaining to the characteristics of a program or institution, only misrepresentations about the eligibility of the student for employment in a chosen field. Are there eligibility misrepresentations that are currently unaddressed by the existing regulation? 3. Is there a reason(s) why acts or omissions falling into these proposed categories should be treated differently than under any standard for Borrower Defense to Repayment (DTR) claims to be put in place? 1 A number of categories suggested (e.g., misrepresentations by institutions, institutional acts meeting the standard for a federal UDAAP, and instances relating to a violation an HEA or regulatory requirement) are also raised in the Department’s Issue Paper 1, about whether a new standard should be established for the purpose of determining whether a borrower can establish a defense to repayment on a loan, and may be discussed in the context of that Issue Paper. Issue Paper 5 Session 1: January 12 – 14, 2016 Issue: Whether to revise the financial responsibility or administrative capability regulations, and whether to add disclosure requirements, to help protect students, the federal government, and taxpayers against potential school liabilities and risks. Statutory cite: §§487(a) and (c), 498 of the Higher Education Act of 1965, as amended, 20 U.S.C. 1094(c), 1099c, Regulatory cite: 34 CFR Part 668 Subpart L, 34 CFR §668.16, 34 CFR §668.43, 34 CFR §668.14 Summary of Issue: To participate in the title IV student aid programs, an institution must demonstrate both financial responsibility and administrative capability. Under the HEA, the Secretary is charged with establishing standards for financial responsibility and administrative capability necessary for the sound administration of the financial aid programs. If an institution violates these requirements, the Secretary may limit, suspend, terminate, or otherwise condition the institution’s participation in the title IV, HEA programs. Questions to be considered by the negotiating committee include: 1. Should the Department take additional steps to protect students and taxpayers from a) potential borrower defense to repayment (DTR) claims, b) liabilities stemming from closed school discharges, and c) other conditions that may be detrimental to students? • If so, what conditions, triggering events, metric-based standards, or other risk factors should the Department consider indicative of failing financial responsibility, administrative capability, or other standards? • What should the consequences be for a violation? Letter of credit or other financial guarantee? Disclosure requirements and student warnings? Other consequences? 2. If a letter of credit or other financial guarantee is required, how should the amount be determined?