Yesterday, October 14, 2021, UpdateED published the first of a three-part recap of last week's U.S. Department of Education Negotiated Rulemaking Session, focusing on the proposed Borrower Defense to Repayment provisions. (see here)
Up today: the proposed changes to Closed School Loan Discharges (CSLD) and False Certification Discharges (FCD).
As identified in the Department's issue papers (see: CSLD here; FCD here), the provisions make significant changes to both programs. As stated yesterday, the proposal is not just a return to the 2016 CSLD or FCD rules, but instead an enhanced version of them. Proposed changes for CSLD include:
- The Department's first proposal was to reinstate automatic discharges for students at closed schools, a provision that was deleted in the 2019 BDR Rule. However, the proposal shortened the 3-year window (in the 2016 Rule) to 1-year. This means that a student would only need to wait a single year to be eligible for a discharge without an application. USDE explained this was due to their concern about students defaulting over the longer period. Negotiators were not unanimous in their support for this idea, most of whom thought it did not go far enough. One negotiator suggested doing away with a window entirely, another proposed that borrowers should be eligible as soon as they learn that their school is closing.
- Next, the Department's proposal included a provision that would allow a student to remain eligible for a CSLD, even if they enrolled at another school within one year of the closure of their school, so long as they did not accept (and complete) a teach-out program or that they did not transfer "most" of their credits to the new institution. Negotiators were receptive to this idea, but appeared confused about why a student would still be eligible if they transferred their credits. The discussion focused mainly on the Department's intention to balance granting discharges and encouraging students to finish their programs, with some negotiators rejected the idea that any balance should exist. Tentative consensus could not be reached on this proposal.
- The Department's proposal did reveal an issue that many negotiators supported for CSLD and other topics: automation. Many negotiators viewed the necessity for a borrower to file an application with the Department to be burdensome and a barrier for many otherwise eligible individuals. USDE seemed receptive to this idea. More on this topic in tomorrow's UpdateED post.
- The Department proposed that a 180-day "look-back" period be imposed for when assessing whether a borrower is eligible for a discharge, regardless of the loan disbursement date. No negotiator objected. However, there was strong disagreement as to when to start the "look-back" period - the closing date, the announcement of the closure, another date? No agreement was reached on this issue.
- Finally, USDE proposed adding to the non-exhaustive list of "exceptional circumstances" that allow the Secretary to extend the 180-day "look-back" period, to include: state or federal government agency findings, accreditor actions, failure to deliver on teach-outs, and the termination of Title IV eligibility. One negotiator proposed adding extensions for schools that are on heightened cash monitoring and any judgments against the school that adversely impacted the finances of the institution. One negotiator strongly disagreed with the heightened cash monitoring idea. Preliminary consensus was not reached on this proposal.
Proposed changes to FCD:
- USDE proposed a number of changes to current FCD regulations, including: using the borrower's status at the time the loan was originated, not the disbursal date; rescind the borrower's attestation regulations that would prevent FCDs; allow FCDs without an application; remove the requirements that borrowers submit a signature specimen; allow borrowers to provide identity theft through multiple means as evidence for an FCD application.
- The Department did provide regulatory language for this proposal. The discussion of the topic was relatively muted, likely owing to FCD being the very last proposal discussed in a full week of negotiations. Needless to say, there was general support for the provisions, with only lukewarm disapproval. One negotiator proposed additional topics for the FCD proposal, including creating a process for group FCD discharges and to think "more broadly" about "what it means to have a false certification claim." This comment did not result in any meaningful discussion. No negotiator expressed deep disapproval with any element of the proposal.
Tomorrow's Topics: Prohibitions on pre-dispute arbitration and class action waivers, as well as our overall analysis of Session One's other topics.
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