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As the higher education community and regular REGucation readers know, the One Big Beautiful Bill Act (or "OB3") introduced several significant provisions affecting colleges, universities, and the broader higher education sector.
We have already provided overviews of some of the most important changes through prior blog posts, webinars, and videos. In this post, we take a closer look at whether OB3 reinstated the Trump-era Borrower Defense to Repayment ("BDR") rule that permitted pre-dispute arbitration agreements and class action waivers. While this is admittedly a complex issue, it is one of real importance to many institutions that have adopted, or are considering adopting, such agreements or waivers.
Based on a review of the statutory language, and as explained further below, OB3 arguably did reinstate the Trump-era BDR rule allowing pre-dispute arbitration agreements and class action waivers.
The Biden-Era BDR Regulatory Framework
The Biden-era 2022 borrower defense to repayment regulations prohibit institutions from using pre-dispute arbitration agreements and class action waivers for BDR claims.1 These regulations changed the prior 2019 Trump-era regulations, which allowed pre-dispute arbitration agreements and class action waivers, provided that certain clear and plain text disclosures were given to the borrower and provided that the borrower retained the right to file a BDR claim with the U.S. Department of Education.2 Until passage of "OB3," the Biden-era 2022 regulations remained in effect, and pre-dispute arbitration agreements and class action waivers were prohibited from being used in connection with a BDR claim.
Arguable Changes to the BDR Framework from OB3
OB3 has two subsections addressing the BDR regulations: § 85001(a) and (b):
- Delay — Beginning on the date of enactment of this section, for loans that first originate before July 1, 2035, the provisions of subpart D of part 685 of title 34, Code of Federal Regulations (relating to borrower defense to repayment), as added or amended by the final regulations published by the Department of Education on November 1, 2022, and titled "Institutional Eligibility Under the Higher Education Act of 1965, as Amended; Student Assistance General Provisions; Federal Perkins Loan Program; Federal Family Education Loan Program; and William D. Ford Federal Direct Loan Program" (87 Fed. Reg. 65904) shall not be in effect.
- Effect — Beginning on the date of enactment of this section, with respect to loans that first originate before July 1, 2035, any regulations relating to borrower defense to repayment that took effect on July 1, 2020, are restored and revived as such regulations were in effect on such date.3
The Biden-era 2022 BDR regulations are set forth in subpart D of part 685 of title 34 (34 C.F.R. § 685.400 et seq.). The Biden-era 2022 rule's prohibitions on pre-dispute arbitration agreements and class action waivers are in subpart C of part 685 of title 34. This part prohibits a school from "enter[ing] into a pre-dispute agreement to arbitrate a borrower defense claim" and prohibits a school from "rely[ing] in any way on a pre-dispute arbitration agreement or on any other pre-dispute agreement with a student . . with respect to any aspect of a class action that is related to a borrower defense claim . . . [effectively prohibiting a class action waiver]."4
OB3's § 85001(a) (i.e. the "Delay" section) prohibits the application of the 2022 BDR rule, subpart D of part 685 of title 34, to any loans disbursed prior to July 1, 2035, effectively delaying the 2022 BDR rule for ten years.5 That "Delay" section thus specifically applies only to subpart D. However, the Biden-era ban on pre-dispute arbitration agreements/class action waivers is found in subpart C of part 685 of title 34 (34 C.F.R. § 685.300), and thus, is not covered by that first BDR subsection set forth in OB3's § 85001(a).
OB3's § 85001(b), or the "Effect" Section, seems to sweep much more broadly to any regulation related to borrower defense to repayment.6 The Trump 2019 rule, which took effect on July 1, 2020 and did not have a pre-dispute arbitration/class action waiver ban, could be covered by subsection (b) of the OB3 above as a regulation "related to borrower defense to repayment.' In other words, subsection (a) could delay subpart D for ten years, while subsection (b) restores and revives any regulations related to BDR, including those not specifically in subpart D, that took effect with the Trump 2019 rule, thus "restor[ing] and reviv[ing]" the Trump 2019 rule's allowance of pre-dispute arbitration agreements and class action waivers.
There is no question that the Trump 2019 rule allowing pre-dispute arbitration agreements and class action waivers "took effect on July 2, 2020," but did it "relate to" borrower defense to repayment? Again, arguably, yes – the Supreme Court has consistently interpreted the term "relating to" in the broadest way.7 The BDR regulations and the pre-dispute arbitration agreement/class action waiver allowance were together in the same final Trump 2019 rule, and thus were promulgated in connection with each other and pertain, and thus relate, to each other. Further, the Department's comments to the 2019 Final Rule clearly demonstrate that its intent was to allow for arbitration agreements and class action waivers to apply to BDR claims.8
Next Steps for Institutions to Consider
Simply put, there is a colorable argument that OB3 revived and restored the entire Trump 2019 rule, including the portion allowing pre-dispute arbitration agreements and class action waivers with respect to BDR claims. This issue has arisen with TC clients, and we have suggested certain language to be placed in institutions' arbitration agreements to allow for such an argument to be made. For institutions considering the same, please consult with counsel prior to making any changes.
Finally, we note that the issues set forth in this blog post, and the position taken thereon, remain subject to a definitive determination by a court.
Footnotes
1. See 34 C.F.R. § 685.300(e) and (f).
2. See 34 C.F.R. § 685.41(h) (2020); 34 C.F.R. § 685.206(e) (2020); 34 C.F.R. § 685.304 (2020) (final rule issued on September 23, 2019, and stating that it was effective July 1, 2020).
3. One Big Beautiful Bill, H.R.1, § 85001(a) and (b), 119th Cong. (2025), https://www.congress.gov/bill/119th-congress/house-bill/1/text.
4. 34 C.F.R. § 685.300(e),(f).
5. See Pub. Law 119-21 § 85001(a) (July 4, 2025).
6. See supra.
7. See Morales v. Trans World Airlines, Inc. 504 U.S. 374, 378-79 (1992); Coventry Health Care of Missouri, Inc. v. Nevils, 581 U.S. 87, 97 (2017).
8. Student Assistance General Provisions, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 84 Fed. Reg. 49,788, 49,842 (Sept. 23, 2019).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
