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Rule2022-23447

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

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Published

November 1, 2022

Effective

July 1, 2023

Issuing agencies

Education Department

Abstract

The Secretary establishes new regulations governing the William D. Ford Federal Direct Loan (Direct Loan) Program to establish a new Federal standard and a process for determining whether a borrower has a defense to repayment on a loan based on an act or omission of their school. We also are amending the Direct Loan Program regulations to prohibit participating schools from using certain contractual provisions regarding dispute resolution processes and to require certain notifications and disclosures by institutions (institutions or schools) regarding their use of mandatory arbitration. Additionally, we are amending the Direct Loan regulations to eliminate interest capitalization in instances where it is not required by statute. We are also amending the regulations governing closed school discharges and total and permanent disability (TPD) discharges in the Federal Perkins Loan (Perkins), Direct Loan, and Federal Family Education Loan (FFEL) programs. We are also amending the regulations governing false certification discharges in the Direct Loan and FFEL programs. Finally, we are amending the regulations governing Public Service Loan Forgiveness (PSLF) in the Direct Loan program to improve the application process, and to clarify and expand definitions for full- time employment, qualifying employers, and qualifying monthly payments. The changes would bring greater transparency and clarity and improve the administration of Federal student financial aid programs to assist and protect students, participating institutions, and taxpayers.

Full Text

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<title>Federal Register, Volume 87 Issue 210 (Tuesday, November 1, 2022)</title>
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[Federal Register Volume 87, Number 210 (Tuesday, November 1, 2022)]
[Rules and Regulations]
[Pages 65904-66073]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-23447]

[[Page 65903]]

Vol. 87

Tuesday,

No. 210

November 1, 2022

Part III

Department of Education

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34 CFR Parts 600, 668, 674 Et. al.

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; Final Rule

Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 /
Rules and Regulations

[[Page 65904]]

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DEPARTMENT OF EDUCATION

34 CFR Parts 600, 668, 674, 682, and 685

[Docket ID: ED-2021-OPE-0077]
RIN 1840-AD53, 1840-AD59, 1840-AD70, 1840-AD71

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

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary establishes new regulations governing the
William D. Ford Federal Direct Loan (Direct Loan) Program to establish
a new Federal standard and a process for determining whether a borrower
has a defense to repayment on a loan based on an act or omission of
their school. We also are amending the Direct Loan Program regulations
to prohibit participating schools from using certain contractual
provisions regarding dispute resolution processes and to require
certain notifications and disclosures by institutions (institutions or
schools) regarding their use of mandatory arbitration. Additionally, we
are amending the Direct Loan regulations to eliminate interest
capitalization in instances where it is not required by statute. We are
also amending the regulations governing closed school discharges and
total and permanent disability (TPD) discharges in the Federal Perkins
Loan (Perkins), Direct Loan, and Federal Family Education Loan (FFEL)
programs. We are also amending the regulations governing false
certification discharges in the Direct Loan and FFEL programs. Finally,
we are amending the regulations governing Public Service Loan
Forgiveness (PSLF) in the Direct Loan program to improve the
application process, and to clarify and expand definitions for full-
time employment, qualifying employers, and qualifying monthly payments.
The changes would bring greater transparency and clarity and improve
the administration of Federal student financial aid programs to assist
and protect students, participating institutions, and taxpayers.

DATES: These regulations are effective July 1, 2023. For the
implementation dates of the regulatory provisions, see the
Implementation Date of These Regulations in SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: For further information related to
interest capitalization, contact Vanessa Freeman at (202) 987-1336 or
by email at <a href="/cdn-cgi/l/email-protection#fc8a9d92998f8f9dd29a8e9999919d92bc9998d29b938a">[email&#160;protected]</a>. For further information related to
borrower defenses to repayment (BD) or pre-dispute arbitration, contact
Rene Tiongquico at (202) 453-7513 or by email at
<a href="/cdn-cgi/l/email-protection#deacbbb0bbf0aab7b1b0b9afabb7bdb19ebbbaf0b9b1a8">[email&#160;protected]</a>. For further information related to TPD, closed
school, and false certification discharges, contact Brian Smith at
(202) 987-1327 or by email at <a href="/cdn-cgi/l/email-protection#51332338303f7f223c3825391134357f363e27">[email&#160;protected]</a>. For further
information related to PSLF, contact Tamy Abernathy at (202) 453-5970
or by email at <a href="/cdn-cgi/l/email-protection#c2b6a3afbbeca3a0a7b0aca3b6aabb82a7a6eca5adb4">[email&#160;protected]</a>.
If you are deaf, hard of hearing, or have a speech disability and
wish to access telecommunications relay services, please dial 7-1-1.

SUPPLEMENTARY INFORMATION:

Executive Summary

The Secretary amends the regulations in seven areas affecting the
Direct Loan Program and several areas that also affect the Perkins Loan
Program or the FFEL Program. First, we amend the regulations governing
the Direct Loan Program to establish a new Federal standard and process
for determining whether a borrower has a defense to repayment of a
loan. We also limit the use of certain contractual provisions regarding
dispute resolution processes by participating institutions and require
certain notifications and disclosures by institutions regarding their
use of mandatory arbitration. Additionally, we amend the Perkins,
Direct Loan, and FFEL program regulations to improve the process for
granting TPD discharges by eliminating the income monitoring period,
expanding the circumstances in which borrowers can qualify for
discharges based on a finding of disability by the Social Security
Administration, expanding allowable documentation, and allowing
additional health care professionals to provide a certification that a
borrower is totally and permanently disabled. We further amend the
closed school discharge provisions in the Perkins Loan, Direct Loan,
and FFEL programs to expand borrower eligibility for automatic
discharges and eliminate provisions pertaining to reenrollment in a
comparable program. Additionally, we amend the Direct Loan and FFEL
regulations to streamline the regulations governing false certification
discharges. We also amend the Direct Loan regulations to eliminate
interest capitalization in instances where it is not required by
statute. Finally, we amend regulations governing PSLF in the Direct
Loan program to improve the application process and to clarify and
expand the definitions of full-time employment, employee or employed,
and qualifying monthly payments. The changes will bring greater
transparency and clarity and improve the administration of Federal
student financial aid programs to assist and protect students,
participating institutions, and taxpayers.

Purpose of This Regulatory Action

Summary of the Major Provisions of This Regulatory Action
The final regulations--
<bullet> Amend the Direct Loan regulations to establish a new
Federal standard for BD claims applicable to applications received on
or after July 1, 2023. Applications pending on July 1, 2023, will also
be considered under the new standard. In addition, this final rule
expands the existing definition of misrepresentation, provides an
additional basis for a BD claim based on aggressive and deceptive
recruitment practices, and allows claims based on State law standards
for loans first disbursed prior to July 1, 2017.
<bullet> Provide that the Department will use a preponderance of
the evidence standard to determine whether the institution committed an
actionable act or omission and, as a result, the borrower suffered
detriment, such that the circumstances warrant BD relief and the
borrower's BD claim should be approved. In determining whether relief
is warranted the Secretary will consider the totality of the
circumstances, including the nature and degree of the acts or omissions
and of the detriment caused to borrowers.
<bullet> Provide for a full discharge of all remaining loan
balances and a refund of all amounts paid to the Secretary for loans
associated with an approved BD claim.
<bullet> Establish processes for group BD claims that may be formed
in response to evidence provided by third-party requestors or at the
Secretary's discretion, including based on prior Secretarial Final
Actions. We define Secretarial Final Actions as fine, limitation,
suspension, or termination actions taken by the Department against the
institution, denying the institution's application for recertification,
or revoking the institution's provisional program participation
agreement.
<bullet> Stop interest accrual on the borrowers' loans beginning
180 days after the initial grant of forbearance or

[[Page 65905]]

stopped collections in the case of an individual BD claim and
immediately upon formation for a group BD claim.
<bullet> Issue decisions on claims within a certain period or the
loans will be deemed unenforceable.
<bullet> Establish a reconsideration process for review of denied
BD claims.
<bullet> Establish a process for recouping the cost of approved
discharges.
<bullet> Prohibit institutions that wish to participate in title IV
programs from requiring borrowers to agree to mandatory pre-dispute
arbitration agreements or waiver of class action lawsuits.
<bullet> Require institutions to disclose publicly and notify the
Secretary of judicial and arbitration filings and awards pertaining to
a BD claim.
<bullet> Eliminate interest capitalization on Direct Loans where
such capitalization is not required by statute.
<bullet> Modify the Perkins, FFEL, and Direct Loan regulations to
streamline the application process for a TPD discharge by expanding the
Department's use of Social Security Administration (SSA) continuing
disability review codes beyond ``Medical Improvement Not Expected''
when deciding if a borrower qualifies for TPD discharge.
<bullet> Revise the Perkins, FFEL, and Direct Loan regulations to
eliminate the 3-year post-discharge income monitoring period for
borrowers eligible for TPD discharge to allow borrowers to retain their
discharges without unnecessary paperwork burden.
<bullet> Allow borrowers to receive a TPD discharge if the
established onset date of their disability as determined by SSA was at
least 5 years prior to the application to better align the regulations
with statutory requirements for a TPD discharge.
<bullet> Expand the list of health professionals who may certify
that a borrower is totally and permanently disabled to include licensed
nurse practitioners (NPs), physician's assistants (PAs), and clinical
psychologists to help borrowers more easily complete the application
for a TPD discharge.
<bullet> Amend the Perkins, FFEL, and Direct Loan regulations to
simplify the closed school discharge process by expanding access to
automatic discharges and clarify the circumstances when borrowers who
reenroll in a comparable program are not eligible for a discharge.
<bullet> Streamline the FFEL and Direct Loan false certification
regulations to provide one set of regulatory standards that will cover
all false certification discharge claims.
<bullet> Clarify that, to determine eligibility for a false
certification discharge, the Department relies on the borrower's status
at the time the Direct loan was originated, and at the time the FFEL
loan was certified.
<bullet> Revise the regulations for PSLF to improve the application
process, expand what counts as an eligible monthly payment, expand the
definition of ``full-time'' employment, and provide additional
clarifying definitions of public service employment to reduce confusion
and to clearly establish the definitions of qualifying employment for
borrowers.
<bullet> Expand the definition of ``employee'' or ``employed'' to
include someone who works as a contracted employee for a qualifying
employer in a position or provides services which, under applicable
State law, cannot be filled or provided by a direct employee of the
qualifying employer.

Background

Affordability of postsecondary education and student loan debt have
been significant challenges for many Americans. Total outstanding
student loan debt has risen over the past 10 years as student loan
repayment has slowed, while the inability to repay student loan debt
has been cited as a major obstacle to entry into the middle class.\1\
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\1\ R. Chakrabarti, N. Gorton & W. van der Klaauw, ``Diplomas to
Doorsteps: Education, Student Debt, and Homeownership,'' Federal
Reserve Bank of New York, Liberty Street Economics (blog), April 3,
2017, <a href="http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-and-homeownership.html">http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education-student-debt-and-homeownership.html</a>.
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This final rule provides several significant improvements to
existing programs authorized under the Higher Education Act of 1965, as
amended (HEA) \2\ that grant loan discharges to borrowers who meet
specific eligibility conditions. Despite the presence of these
discharge authorities for years, the Department is concerned that too
many borrowers have been unable to access loan relief authorized by
statute. In some situations, this has been due to regulatory
requirements that created unnecessary or unfair burdens for borrowers.
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\2\ 20 U.S.C. 1001, et seq.
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The final rule makes changes related to discharges available to
borrowers in the three major Federal student loan programs: Direct
Loans, FFEL, and Perkins Loans. The most significant effects are in the
Direct Loan program, which has been the predominant source of all new
Federal student loans since 2010. In this program, the Department makes
loans directly to the borrower and then contracts with private
companies known as student loan servicers to manage the borrower's
repayment experience on behalf of the Department. Several components of
these regulations, such as interest capitalization, BD, the prohibition
on the use of mandatory pre-dispute arbitration and class action
waivers, and the PSLF program only apply to Direct Loans. Other
provisions addressed in these regulations, such as closed school
discharge, and TPD discharges, affect Direct Loans as well as loans
previously made under the FFEL Program and the Perkins Loan Program.\3\
False certification discharges only affect Direct Loans and FFEL
Program loans. In the FFEL program, private lenders made Federally
insured and subsidized student loans using their own funds. The lender
was protected from the risk of default or loss by Federal insurance. In
the Perkins program, institutions issued Federal student loans using a
combination of Federal and institutional funds.
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\3\ There have been no new FFEL Program loans originated since
June 30, 2010, and no new Perkins Loans since September 30, 2017.
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The negotiated rulemaking committee (Committee) that considered the
draft regulations on these topics reached consensus on the proposed
regulations relating to interest capitalization, false certification
discharges, and TPD; they did not reach consensus on BD, pre-dispute
arbitration agreements and class action waivers, closed school
discharge, or PSLF.
On July 13, 2022, the Secretary published a notice of proposed
rulemaking (NPRM) for these parts in the Federal Register.\4\ The NPRM
included proposed regulations on which the Committee reached consensus
and the Department's proposed rules for those issues where consensus
was not reached. These final regulations reflect the results of those
negotiations and respond to the public comments received on the
regulatory proposals in the NPRM. The final regulations also contain
changes from the NPRM, which are fully explained in the Analysis of
Comments and Changes section of this document. These final rules do not
speak to one issue raised by commenters in response to the NPRM--
whether and in what circumstances private for-profit employers,
including those that provide early childhood services, should be
treated as qualifying employers for the purposes of PSLF. That issue,
and the responses to comments related to it, will be addressed in a
future final rule. The

[[Page 65906]]

Department is separating this issue for a future final rule because we
received significant and detailed comments in response to our questions
around the possible treatment of for-profit companies that provide
early childhood education as qualifying employers for PSLF. These
comments included a number of proposals that address operational,
legal, and policy considerations, which the Department needs additional
time to consider.
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\4\ <a href="https://www.regulations.gov/document/ED-2021-OPE-0077-1350">https://www.regulations.gov/document/ED-2021-OPE-0077-1350</a>.
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Costs and Benefits: As further detailed in the Regulatory Impact
Analysis, the benefits of the final regulations include: (1) a
clarified process for BD discharge applications assisted by the
creation of a primary Federal standard to streamline the Department's
consideration of applications, while affording institutions an
opportunity to respond to allegations contained in BD claims; (2)
increased opportunities for borrowers to seek relief from institutional
misconduct by prohibiting the use of mandatory pre-dispute arbitration
and class action waivers; (3) improved school conduct and offsetting
some of the costs of discharges to the Federal government and taxpayers
as a result of holding individual institutions financially accountable
for BD discharges and deterring misconduct; (4) increased automated
discharges for borrowers, with the option to opt out; and (5) improved
access to and expanded eligibility for, where appropriate, PSLF, closed
school, TPD, and false certification discharges.
The costs to taxpayers in the form of transfers include BD claims
that are not reimbursed by institutions; additional relief through
closed school, PSLF, TPD, and false certification discharges to
borrowers through programs to which they are legally entitled under the
HEA; and the foregone interest where capitalizing interest is not
required. The paperwork burden associated with reporting and disclosure
requirements necessary to ensure compliance with these regulations
represents an additional cost to institutions.
Implementation Date of These Regulations: Section 482(c) of the HEA
requires that regulations affecting programs under title IV of the HEA
be published in final form by November 1, prior to the start of the
award year (July 1) to which they apply. That section also permits the
Secretary to designate any regulation as one that an entity subject to
the regulations may choose to implement earlier and the conditions for
early implementation.
Consistent with the Department's objective to improve the
implementation of PSLF, the Secretary intends to exercise his authority
under section 482(c) to designate the simplified definition for full-
time employment in PSLF as a provision that an entity subject to the
provision may, in the entity's discretion, choose to implement prior to
the effective date of July 1, 2023. The Secretary may specify in the
designation when, and under what conditions, an entity may implement
the provision prior to the effective date. The Secretary will publish
any designation under this subparagraph in the Federal Register.
The Secretary does not intend to exercise his authority to
designate any other regulations in this document for early
implementation. The final regulations included in this document are
effective July 1, 2023.
Public Comment: In response to our invitation in the July 13, 2022,
NPRM, 4,094 parties submitted comments on the proposed regulations. In
this preamble, we respond to those comments.

Analysis of Comments and Changes

We developed these regulations through negotiated rulemaking.
Section 492 of the HEA requires that, before publishing any proposed
regulations to implement programs under title IV of the HEA, the
Secretary must obtain public involvement in the development of the
proposed regulations. After obtaining advice and recommendations, the
Secretary must conduct a negotiated rulemaking process to develop the
proposed regulations. The negotiated rulemaking Committee considered
each issue separately to determine consensus and reached consensus on
the proposed regulations addressing interest capitalization, TPD, and
false certification discharges. The Committee did not reach consensus
on the remaining proposed regulations that we published on July 13,
2022.
We group major issues according to subject, with appropriate
sections of the regulations referenced in parentheses. We discuss other
substantive issues under the sections of the regulations to which they
pertain. Generally, we do not address minor, non-substantive changes
(such as renumbering paragraphs, adding in a word, or typographical
errors). Additionally, we do not address recommended changes that the
statute does not authorize the Secretary to make (such as forgiving all
student loans, setting interest rates to 0 percent, or providing
forgiveness under PSLF after 60 payments instead of 120) or comments
pertaining to operational processes. We also do not address comments
pertaining to issues that were not within the scope of the NPRM. An
analysis of the public comments received and of the changes in the
regulations since publication of the NPRM follows.

Negotiated Rulemaking

Comments: A few commenters suggested the negotiated rulemaking
table must include representatives from civil rights organizations as
well as student representation, stating that communities and people of
color are disproportionately impacted by postsecondary education and
need to be included in rulemaking discussions. These commenters further
urged the Department to include more than two student representatives
in negotiated rulemaking, noting that student representatives were
outnumbered more than two to one by higher education and lending
industry representatives. Other commenters suggested that for-profit
institutions are significantly impacted by these regulations and should
have had more representation at negotiated rulemaking. Finally,
numerous commenters said the negotiated rulemaking process felt rushed
because of the number of issues involved and holding the meetings
virtually. They suggested the Department return to in-person negotiated
rulemaking.
Discussion: On August 10, 2021, the Department published a notice
in the Federal Register announcing its intention to establish a
negotiated rulemaking Committee to prepare proposed regulations for
these issues.\5\ The notice set forth a schedule for the Committee
meetings and requested nominations for individual negotiators to serve
on the committee. As we stated in that solicitation and request for
nominations for negotiators, we select individual negotiators who
reflect the diversity among program participants, in accordance with
Sec. 492(b)(1) of the HEA. Our goal was to establish a Committee and a
Subcommittee that allowed significantly affected parties to be
represented while keeping the Committee size manageable.
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\5\ 86 FR at 43609.
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As the Federal negotiator explained in the first negotiated
rulemaking session, the Department deliberately placed students front
and center in the discussion by including constituencies for dependent
students, independent students, and student loan borrowers.\6\ As with
all other Committee representatives, each of these constituencies had
primary representatives and alternates. The Department believes the
negotiated

[[Page 65907]]

rulemaking Committee captured the diverse universe of students.
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\6\ <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/104am.pdf">https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/104am.pdf</a>, page 61.
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While the Department did not identify civil rights organizations as
a stand-alone constituency for this negotiated rulemaking table,
representatives from that group had several opportunities to be
involved with negotiated rulemaking, including during the public
comment period after each rulemaking session and by submitting written
comments on the proposed rule. In fact, several civil rights
organizations submitted comments to the Department. With respect to the
request for greater representation of proprietary schools, the
Department believes it correctly identified proprietary institutions as
a single constituency group. None of the negotiated topics discussed
during these sessions related solely to the proprietary sector.
Moreover, these institutions represent a smaller share of students than
those in the private nonprofit sector, which also had only a single
representative.
The full negotiated rulemaking Committee reached agreement on its
protocols, including the constituencies represented on the committee
and committee membership.
Finally, the Department disagrees that the negotiated rulemaking
process was rushed. We conducted three public hearings to comment on
the rulemaking agenda.\7\ We also held three negotiated rulemaking
sessions that ran for five days each from 10 a.m. to 4 p.m. EST, which
included a half hour of public comment every day except the final day
of the last session. The Department gave stakeholders and members of
the public the opportunity to weigh in on the development of the
language reflected in the regulations through a public comment period.
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\7\ May 6, 2021, 86 FR at 28299.
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Changes: None.

Public Comment Period

Comments: Several commenters requested a 45- or 60-day comment
period on the proposed rules. Some of these commenters asserted that
under the principles of Executive Orders 12866 and 13563, the
Department must adhere to at least a 60-day comment period.
Discussion: The Department shares commenters' belief in the
importance of giving the public a robust opportunity to publicly
comment on the Department's regulations. The Department received
thousands of written comments and considered every comment it received
in response to the NPRM. We note that the negotiated rulemaking process
provides significantly more opportunity for public engagement and
feedback than notice-and-comment rulemaking without a negotiated
rulemaking component. The Department began this process of developing
regulations more than a year ago by inviting public input through a
series of public hearings in June 2021. We selected negotiators to
represent a range of constituencies. During the negotiated rulemaking
sessions, the Department provided opportunities for the public to
comment throughout the process, including after seeing draft regulatory
text--some of which was available prior to the first session and all of
which was available prior to the second and third sessions. Each of
these opportunities took place before the formal comment period on the
proposed rules. Considering these efforts, the Department believes that
the 30-day public comment period was sufficient time for interested
parties to submit comments. The 30-day comment period on the NPRM is
not unique, and the Department has fully complied with the appropriate
Executive Orders regarding public comments. First, the Department notes
that over the last several years and under multiple Administrations,
the Department has relied on a 30-day comment period for many
regulations including: BD; \8\ distance education and innovation; \9\
and rescission of the gainful employment regulations.\10\
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\8\ 83 FR at 37242 (July 31, 2018).
\9\ 85 FR at 18638 (April 2, 2020).
\10\ 83 FR at 40167 (August 14, 2018).
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Second, while the Executive Orders cited by the commenters direct
each agency to afford the public a meaningful opportunity to comment,
those Executive Orders do not require a 60-day comment period.
Unlike simple notice-and-comment rulemaking, the negotiated
rulemaking process affords ample opportunities for the public to not
only comment but also to understand the Department's proposed rules and
policies. We livestreamed the complete negotiated rulemaking sessions
on our website, posted recordings of the livestreams, as well as the
transcripts of the rulemaking sessions for later review. In addition,
we provided an opportunity for public comment at the end of each day
the committee met, and posted each iteration of draft proposed
regulatory text that the committee reviewed. Thus, the Department has
met the requirements provided in those Executive Orders to afford the
public a meaningful opportunity to comment and participate in the
Department's rulemaking process.
Changes: None.

Borrower Defense to Repayment--General (Sec. 685.401)

General Support for Regulations

Comments: The Department received many comments in support of the
proposed regulations on BD accompanied by testimonial accounts of
borrowers' experiences at institutions and the loan debt they incurred.
One commenter, for example, felt that institutions need to better
inform students about their academic programs, as well as employment
prospects after graduation. Many commenters supported the proposed
regulations because they felt the 2019 BD regulations required
borrowers to meet an unrealistic standard that made it extremely
difficult to prove harm. Commenters further cited the anticipated low
approval rates for BD claims under the 2019 BD regulations compared to
the 2016 BD regulations as further support for creating a new set of
regulations that are more balanced toward students. Commenters also
expressed support for many specific elements of the NPRM, including a
strong upfront Federal standard, the addition of aggressive and
deceptive recruitment as a type of act or omission that could give rise
to an approved claim, the ability to adjudicate group claims, the
opportunity for State requestors to submit applications for considering
group claims, the clearer inclusion of FFEL loans, codifying procedures
such as stopping the accumulation of interest, and establishing
deadlines for reviewing claims. Other commenters supported the proposed
regulations citing that they are more streamlined, easier to
administer, less confusing, and they eliminate unreasonable burdens on
borrowers.
Discussion: We appreciate the comments in support of our proposals.
We believe these final regulations strike the right balance of creating
a process that will result in BD discharges, where appropriate, while
denying claims without merit. In doing so, the Department believes
these regulations will clarify the claims process for borrowers and
institutions, create transparent and realistic timelines, and make the
process easier to administer.
These regulations also provide a path for recouping the cost of
approved discharges from institutions when warranted and after
significant due process opportunities. We address commenters' arguments
with respect to specific provisions of the regulations in the sections
of this preamble specific to those provisions.
Changes: None.

[[Page 65908]]

General Opposition to Regulations

Comments: Many commenters expressed general concerns about the
regulations. These commenters believe that the regulations would lead
to frivolous claims and greater costs to institutions, both in terms of
defending against recoupment efforts associated with what commenters
described as claims that should not have been approved, but also
reputational harm for institutions, the potential for actions by other
regulators, loss of private financing, and the possibility of borrower
lawsuits. Similarly, some former students expressed concern that their
degrees would be devalued if the institution they attended had BD
claims approved against it.
Commenters also argued that the Department lacks the legal
authority to issue these regulations, that components of the
regulations were too vague, that institutions are not afforded
sufficient due process under the proposed rules, and that the
regulations represented impermissible Departmental involvement in
matters of State law. Commenters also expressed displeasure with other
specific components of the regulations, such as the proposed group
process.
Discussion: As we explained in the NPRM, despite the presence of
the BD discharge authority for decades, the Department is concerned
that too many borrowers who were subjected to an act or omission by
their institution that should give rise to a successful defense to
repayment have not received appropriate relief, at least in part
because the regulatory requirements have created unnecessary or unfair
burdens for borrowers.\11\ In these rules, the Department crafted a BD
framework that strikes a balance between providing transparency,
clarity, and ease of administration while simultaneously giving
adequate protections to borrowers, institutions, the Department, and
the public monies that fund Federal student loans.
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\11\ 87 FR at 41879.
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The Department believes that the proposed rule included procedures
that would allow it to deny claims that lacked sufficient evidence or
that did not meet the standard for a BD claim. In particular, under the
proposed rules, the Department would obtain information from
institutions and, in the case of a claim alleging misrepresentation by
the institution, require a showing of reasonable reliance by the
borrower. Nevertheless, in this final rule we have adopted additional
changes suggested by commenters to clarify the standard that must be
met for a claim to be approved and to specify how the Department will
ensure claims include sufficient detail to permit consideration by the
Department. The final regulations require that, to approve a claim, the
Department must conclude that the institution's act or omission is an
actionable ground for BD that caused detriment to the borrower that
warrants relief (the Federal standard definition for a BD in Sec.
685.401). This general standard incorporates enumerated categories of
conduct (``actionable act or omission'') that affect the fairness of
the transaction underlying the borrower's loan obligation. (Unless
otherwise indicated hereinafter, ``act or omission'' refers to an
``actionable act or omission'' within the meaning of the BD standard
and is shortened to aid with readability.) This standard provides that
a borrower must suffer detriment as a result of the conduct, which
incorporates the conventional elements of injury and causation. It also
requires that the outcome of the borrower's loan-and-enrollment
transaction was financial harm, lost value, or other cognizable injury
caused by the actionable conduct. Finally, it requires that the
circumstances of the borrower's resulting detriment warrant the form of
relief--discharge of the entire remaining loan balance, refund of all
payments made to the Secretary, and other remedial measures such as
removing the borrower from default and updating credit reports. There
will be a rebuttable presumption that such relief is warranted in cases
involving closed schools, which reflects past experience. This standard
thus establishes the concept that the institution's act or omission and
the detriment they cause must be of such a nature that the remedy
provided would be appropriate--specifically, a discharge of all
remaining loan obligations, refund of all past amounts paid to the
Secretary, and curative steps related to default, credit-reporting, and
eligibility, if applicable. An act or omission resulting in borrower
detriment that is marginal or attenuated from the decision to borrow or
enroll would thus not be grounds for an approval because the relief of
a full discharge, refund, and associated steps would not be an
appropriate remedy. In considering whether an institution's acts or
omissions caused detriment that warrants this form of relief, the
Department would consider the totality of the circumstances, including
the nature and degree of the act or omission and of the harm or injury
along with other relevant factors. The standard also reflects the
Department's experience that the circumstances warranting such relief
are likely to exist in cases involving closed schools shown to have
committed actionable acts or omissions, and the standard thus provides
a rebuttable presumption that relief is warranted in those cases.
Under this standard and its accompanying regulations, the
Department will have flexibility in determining the universe of
evidence to be considered, while ensuring that relief-worthy claims are
supported by sufficient evidence of the institution's wrongdoing. The
Department is also providing greater clarity regarding what constitutes
a materially complete application that can then be adjudicated
(Sec. Sec. 685.402(c) and 685.403(b)), which will ensure that
applications include a sufficient degree of detail and, where
applicable, evidentiary support.
These regulations should have a deterrent effect dissuading
institutions from engaging in conduct that would give rise to a defense
to repayment. To be clear, however, the Department does not consider
recoupment for the amounts of BD discharges to be a sanction or
punishment for the acts or omissions that impugn the underlying
transaction involving a borrower's enrollment, tuition, and loan. The
deterrent effect that flows from the risk of punishment is applied by
operation of the Department's regulations providing for fine,
suspension, termination, and other sanctions.
The regulations should, however, have the type of deterrent effect
that proceeds from predictably ensuring parties fulfill the commitments
they have made. By setting forth a clearer and more robust Federal
standard for BD claims and a rigorous group claim process, institutions
that might otherwise engage in questionable behavior will change their
practices and act more ethically and truthfully. That is, the
Department believes the standards and processes in this rule will
mitigate the risk of moral hazard if unfulfilled commitments are
ignored. The Department believes there will be a future deterrent
effect even in the situations where the institution is not held liable
for the expense of the approved discharge because there would be a
higher likelihood of successful recoupment on more recently disbursed
loans.
In this context, the Department notes that the circumstances in
which an institution is most likely to face considerable costs related
to BD claims are likely the strongest indication of actionable
wrongdoing. BD applications filed by State regulators following

[[Page 65909]]

investigations that find acts or omissions, and cases with a
significantly large volume of independently filed individual
applications with common claims, are two such examples. Furthermore, we
believe that the regulations requiring borrowers to submit materially
complete individual applications will increase the quality and detail
of claims without posing unnecessary barriers for borrowers.
The Department also does not agree that the commenters' concerns
about reputational harm for institutions, the potential for actions by
other regulators, and the possibility of borrower lawsuits solely
stemming from approved claims are reasons to make significant changes
to the proposed rules. To the extent commenters refer to the risk of
erroneous BD decisions causing harm to the institution, we will only
grant a discharge when adequate evidentiary support exists--a finding
that will occur only after considering evidence and arguments submitted
by the institution. Additionally, we only assess liabilities against
the institution if we initiate a recoupment action. That action will
afford schools the same procedural rights and protections available in
any other situation in which an institution is assessed a monetary
liability associated with title IV.\12\
---------------------------------------------------------------------------

\12\ See, e.g., 34 CFR part 668, subpart G (proceedings for
limitation, suspension, termination, and fines).
---------------------------------------------------------------------------

Regarding potential risks for institutions independent of actual
liability determinations, the Department notes that the HEA clearly
provides borrowers the right to assert a defense to repayment based on
an alleged wrongdoing by an institution in the same way any consumer
may invoke legal remedies against a seller or service provider. The
Department is obligated to consider those claims. The Department does
not conclude that concerns about hypothetical institutional harms,
independent of actual liability determinations, override the concern
for students harmed by institutional misconduct and the Department's
obligation to consider claims alleging such harm.
To the extent commenters are concerned with risks flowing from the
sole act of the Department granting claims, irrespective of recoupment
or any determination of actual liability on the school's part, the
Department does not consider the marginal risk of such harm to warrant
conditioning borrower relief on a finding of school liability or
changing the sequence of those determinations. Were the Department to
make borrower relief and school liability coextensive or to make each
adjudicatory step an adversarial process between the borrower and the
school, it would create unrealistic barriers for borrowers and an
insurmountable administrative burden for the Department.
Furthermore, although the Department must disclose certain records
upon request, it does not publicize the outcomes of individual BD
applications. Commenters did not point to specific or particularized
harm that any open school has suffered as a result of the Department
granting any individual applications in the past. At least one comment
from an institution referenced inquiries it had received from a State
regulator and a lender because the settlement agreement that, at the
time of this final rule, has received preliminary approval.\13\ The
commenter said the part of the settlement agreement to automatically
discharge all claims associated with that school was an indicator of
reputational harm. That example simply mentioned inquiries, however,
and no actual harm suffered. We believe those concerns are unwarranted.
The relief for class members described in that proposed settlement was
agreed to in order to resolve that particular litigation and undertaken
in exercise of the Secretary's settlement and compromise authority. It
does not reflect ``approved'' BD claims or involve the process
contemplated by the proposed regulation.
---------------------------------------------------------------------------

\13\ See Sweet v. Cardona, No. 3:19-cv-03674 (C.D. Cal. filed
June 25, 2019).
---------------------------------------------------------------------------

To the extent that harm from solely granting a borrower's claim
could be shown, either now or in the future, that is simply a by-
product of the statute and structure of title IV. First, by its terms,
the defense to repayment under the HEA is invoked against the
Department, not schools. For that reason, regulations giving context to
the HEA's BD provision must principally address the circumstances in
which borrowers invoke that defense. Properly separating the BD
discharge decisions from liability determinations provides a process
that is administratively feasible for the Department and allows
borrowers to have claims based on that defense asserted and resolved in
a realistic way.
Second, the risk of harm from relief determinations between the
borrower and the Department, to the extent there is any, is simply a
by-product of participation in title IV that schools are aware of when
they seek eligibility. Indeed, the processes set forth in the HEA and
Department regulations, including Department BD relief determinations,
are expressly incorporated into schools' program participation
agreements (PPAs). Title IV funding is structured such that schools
receive federal funds that can be used to pay tuition and fees up front
and leave the subsequent details of repayment, including defenses
thereto, to borrowers and the Department. If the Department's
resolution of borrower claims implicates some attenuated risks, without
any determination of actual liability, then that is simply a by-product
of title IV's inherent structure.
The Department also notes that institutional participation in the
Direct Loan program is voluntary, and the BD rules, including possible
BD liability, have been part of the program almost since its inception.
The proposed regulation has incorporated safe harbors so as not to
enlarge schools' liability for past conduct beyond what was included in
past versions of the regulation and provided robust procedural rights
in cases where the Department assesses actual liability against the
school. If, going forward, institutions find the risk of hypothetical
collateral risks too great, they can easily avoid those risks by
choosing not to participate in title IV loan programs.
Finally, regarding the potential for regulatory scrutiny from other
agencies or borrower lawsuits, the Department does not dictate
evidentiary standards applicable to other regulators, nor do our
regulations impact the pleading rules or evidentiary standards for
borrower lawsuits.
Changes: We revised the Federal standard for BD applications
received on or after July 1, 2023, and for applications pending with
the Secretary on July 1, 2023, in Sec. 685.401(b) to provide that a
borrower with a balance due on a covered loan will be determined to
have a defense to repayment if we conclude that the institution's act
or omission caused detriment to the borrower that warrants relief. We
also added language in Sec. 685.401(e) noting that in determining
whether a detriment caused by an institution's act or omission warrants
relief under this section, the Secretary will consider the totality of
the circumstances, including the nature and degree of the acts or
omissions and of the detriment caused to borrowers. For borrowers who
attended a closed school shown to have committed actionable acts or
omissions that caused the borrower detriment, there will be a
rebuttable presumption that the detriment suffered warrants relief
under this section. We also revised the definition of a materially
complete

[[Page 65910]]

individual application in Sec. 685.403(b) and the requirements for
third-party requestor applications in Sec. 685.402(c) to ensure the
Department obtains the information it needs to make appropriate
determinations under the Federal standard.
Comments: In the NPRM, the Department noted that one of its
concerns about the 2019 regulation was how it addressed the issue of
common evidence--the Department's term for evidence that could be
applied to similarly situated borrowers. In the NPRM, we also stated
that the 2019 regulations limited the Department's ability to consider
common evidence held in its possession. A few commenters asserted that
we mischaracterized the 2019 regulation, pointing to a section of that
final rule that states the Department was allowed to consider common
evidence during adjudication so long as it was shared with both the
borrower and the institution and that they are given the opportunity to
respond to it. Other commenters argued that it would be difficult for a
borrower to show individualized harm under the 2019 regulation.
Discussion: We appreciate the commenters' perspective and reiterate
that the Department remains concerned about burdens placed on
applicants under the 2019 regulations. The commenters are correct that,
under the 2019 regulations, the Department may employ common evidence
for consideration of individual claims. But the Department's greater
concern is that the 2019 regulations do not allow for the consideration
of group claims, for which employing common evidence across the group
is important. Our statement about limits on use of common evidence was
primarily made in that context.
The 2019 regulations also required the borrower to prove
individualized harm. Our experience in processing claims has shown that
certain calculations used to determine the amount of relief in the 2019
regulations would be an inappropriate barrier to relief for the
borrower, not because harm did not occur, but because the process to
show individualized harm required the borrower to have knowledge about
regional and national employment opportunities. We believe that a
borrower is unlikely to know how to locate regional or national
unemployment rates and connect those data to their own experience.
Changes: None.

Legal Authority

Comments: Several commenters asserted that the Department lacks
statutory authority to regulate on BD. Specifically, several commenters
stated the Department does not have the statutory authority to design a
process that facilitates the discharge of loans. Commenters further
argued that the proposed regulations and BD framework will result in
the unallowable discharge of loans that in turn will cause increased
inflation. Commenters argued that the Department is limited to
specifying which institutional acts or omissions may form the basis of
a BD claim. The commenters further stated the proposed rule will result
in an unprecedented and unlawful mass discharge of student loans.
Discussion: We disagree with these commenters who state that the
Department lacks the statutory authority to regulate on BD. Throughout
the NPRM, we explain that Sec. 455(h) of the HEA requires the Secretary
to specify in regulations which acts or omissions of an institution of
higher education a borrower may assert as a defense to the repayment of
a Direct Loan (i.e., a borrower defense).\14\ In addition to Sec.
455(h), Sec. 410 of the General Education Provisions Act (GEPA) gives
the Secretary authority to make, promulgate, issue, rescind, and amend
rules and regulations governing the applicable programs administered by
the Department and the manner in which they are operated.\15\ Under
Sec. 414 of the Department of Education Organization Act, the Secretary
is authorized to prescribe such rules and regulations as the Secretary
determines necessary or appropriate to administer and manage the
functions of the Secretary or the Department.\16\ These general
provisions, together with the HEA provision noted above, authorize the
Department to promulgate regulations that govern defense to repayment
standards, process, adjudication, and institutional liability. We note
that the Department has had regulations on this issue since the
inception of the Direct Loan Program in 1994 and the Department's
authority to issue those regulations has not been questioned by
Congress or the courts.\17\
---------------------------------------------------------------------------

\14\ 20 U.S.C. 1087e(h).
\15\ 20 U.S.C. 1221e-3.
\16\ 20 U.S.C. 3474.
\17\ 81 FR 75926, 75932.
---------------------------------------------------------------------------

Collectively, the authorities granted to the Secretary in the HEA
and other general provisions provide the statutory basis to develop a
BD framework. In response to the comment that this regulatory scheme is
unprecedented and unlawful, the Department reminds commenters that the
collapse of the Corinthian Colleges (Corinthian) and the flood of
claims submitted by Corinthian students stemming from the institution's
misconduct necessitated the need for a more robust BD regulatory
framework. Prior to Corinthian's precipitous closure, BD was a rarely
used discharge despite the fact that those regulations existed since
1995. And the number of BD applications has not meaningfully abated in
the years since Corinthian's closure, further supporting the continued
need for clear regulations to address claims from hundreds of thousands
of borrowers. Here, based on the Department's broad statutory
authority, we are building upon the lessons learned from past BD
frameworks to ensure borrowers have full access to the discharge
provided by law.
Changes: None.
Comments: A few commenters suggested the proposed rule is
unconstitutional because the separation of powers doctrine precludes
the Department from adjudicating liability between students and
institutions. The commenters further stated the Department proposes to
delegate to itself the authority to adjudicate traditional common law
actions and defenses. The commenters noted that there is a ``public
rights'' exception to the separation of powers doctrine that applies
when the sole source of recovery is a Federal statute, but that such
exception does not apply here where some of the underlying bases
supporting a BD claim are more typically the province of the courts.
Along similar grounds, some commenters argued that the inclusion of
breaches of contract based upon State law also violated the separation
of powers.
Discussion: We disagree with the commenters. As an initial matter,
BD adjudications do not involve determinations of private rights as
between schools and borrowers. As we explain in several sections of
this document and as we explained in the 2016 final rule, borrowers
have certain rights regarding the obligation to repay a loan made by
the Federal Government, including the right to raise defenses to
collection of the loan. Additionally, the Federal Government has the
right to recover liabilities from the school for losses incurred as a
result of the act or omission of the school participating in the
Federal loan program.\18\ That is, a defense to repayment against the
Department does not involve schools, and should the Department seek
recoupment, any issues of school liability are separately determined in
independent proceedings--a distinction

[[Page 65911]]

that is even clearer under these regulations' approach. In that
context, the Department's BD adjudication process is not resolving
disputes that would otherwise be litigated between schools and
borrowers in an Article III court or state court of general
jurisdiction.
---------------------------------------------------------------------------

\18\ 81 FR at 75929.
---------------------------------------------------------------------------

Additionally, with very limited exceptions, BD adjudications do not
involve the enforcement of common law causes of action at all. That is,
they apply a federal standard that differs from that of actions for
common law fraud or contract. Although a BD claim may incorporate
common law principles, it differs with respect to the claim's scope,
application, and available remedies. The limited exception is for
claims based on loans disbursed before July 1, 2017, which if denied
may invoke state-law causes of action in a request for reconsideration.
But even in such cases, the dispute does not involve claims between two
private parties in the same way as cases that implicate separation-of-
powers concerns.\19\
---------------------------------------------------------------------------

\19\ See Stern v. Marshall, 564 U.S. 462, 473 (2011) (widow's
claim for tortious interference); Commodity Futures Trading Comm'n
v. Schor, 478 U.S. 833, 836 (1986) (contract claims between broker
and investor).
---------------------------------------------------------------------------

To the extent that entertaining state-law claims on reconsideration
implicates ``private rights'' limitations, those rights are asserted
against or by a Federal agency and have the character of public rights,
even if the resolution of those rights invokes some common law
principles because it turns on application of State law.
Finally, there is no separation-of-powers issue here because BD
claims and potential subsequent recoupment actions are adjudicated
through processes to which both the borrower and participant school
have consented.
Changes: None.
Comments: Several commenters contend that the proposed BD
regulation violates the Administrative Procedure Act (APA) and that the
proposed regulations are arbitrary and capricious. These commenters
claimed the Department does not ``examine the relevant data,'' nor does
it rest its conclusions on ``factual findings,'' or a ``reasoned
explanation'' for these BD regulations as required by the APA.
Commenters argued that the Department did not sufficiently explain the
basis for its changes from the 2019 regulation. Commenters argued that
because the Department has not enforced the 2019 regulation, it could
not have conducted an analysis of the 2019 regulation's impact.
Commenters also argued that citing estimates from regulatory impact
analyses issued with prior regulations was not sufficient justification
for making a change.
Discussion: We disagree with these commenters. In taking this
regulatory action, we have considered relevant data and factors,
considered and responded to comments, and articulated a reasoned basis
for our actions. The Department gathered substantial evidence to
support the positions taken in these regulations, as described in
painstaking detail in the NPRM and in this document.
As a threshold matter, the absence of adjudications under the 2019
rule is not a ``refusal to administer it,'' as one comment claims, and
instead simply reflects practical circumstances. That is, the 2019
regulation went into effect on July 1, 2020. This fell between two
important events. The first occurred roughly three months earlier when
the pause on student loan repayment, interest, and collections stemming
from the COVID-19 national emergency began. Because this pause affected
all new loans, loan issued on or after July 1, 2020, have not entered
repayment. Without an ongoing loan payment, a borrower may not yet
fully appreciate the effects of enrolling in a program or institution
and incurring student loans due to one of the bases for borrower
defense.
The second event occurred about three months after the regulation's
effective date, when in October 2020, the Department entered a
stipulation in the then-titled case Sweet v. DeVos agreeing not deny
any claims of class members--which, until the settlement agreement, was
defined as any borrower with a pending borrower defense claim--until
the court reached a final judgment on the merits.\20\ It would have
been effectively impossible for a new borrower to have a claim reviewed
under the 2019 regulation prior to that October stipulation, since they
would have had to take the loan out roughly three months prior, file a
claim almost immediately, and get a decision.
---------------------------------------------------------------------------

\20\ Sweet v. Cardona, No. 3:19-cv-03674 (N.D. Cal.), ECF Nos.
163 at 1, 150-1 ] 5; see also ECF No. 46 at 14 (defining class).
---------------------------------------------------------------------------

Nonetheless, the Department did perform initial reviews of some
claims that would have been covered by the 2019 regulation in
connection with borrowers consolidating older loans but found that all
of them would have been barred by the regulation's statute of
limitations. However, because it had stipulated that it would not issue
denials, it could not adjudicate those claims and issue a final agency
decision.
It would also make little practical sense to address the relatively
sparse volume of pending claims subject to the 2019 regulation
(approximately 3 percent of claims filed since July 1, 2020) in light
of the large volume of pending claims it does not cover. The Department
has a significant number of pending claims stemming from the lack of
decisions being rendered on claims for multiple years. The number of
claims filed has only increased since then. To address that backlog
without violating the commitment on denials, the Department has
prioritized claims that fall into large groups with compelling evidence
supporting approval. Based on time alone, those claims are much more
likely to fall under the 1994 and 2016 regulations. They are unlikely
to fall under the 2019 regulation, which only took effect several
months before the Department agreed to halt denials. To say that
adjudications have not proceeded under the 2019 regulation reflects
that reality rather than a refusal to apply it.
We disagree with the comments arguing that the Department's
experience adjudicating claims under the 1995 and 2016 regulation
cannot inform its conclusions of the need for changes from the 2019
regulation. Courts have long acknowledged that changed circumstances
and experience provide a permissible basis for improving existing
regulations, noting ``it is not arbitrary and capricious for an agency
to change its mind in light of experience''.\21\ Likewise, ``the mere
fact that an agency interpretation contradicts a prior agency position
is not fatal.'' \22\ An agency need only give ``good reasons'' for a
new policy,\23\ which the Department has done at length during the
rulemaking.
---------------------------------------------------------------------------

\21\ New Eng. Power Generators Ass'n, Inc. v. FERC, 879 F.3d
1192, 1201 (D.C. Cir. 2018).
\22\ Smiley v. Citibank (S. Dakota), N.A., 517 U.S. 735, 742
(1996).
\23\ F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515
(2009).
---------------------------------------------------------------------------

Here, the Department's experience evaluating claims under the 1995
and 2016 regulations provides a valuable reference for how that process
would unfold for the 2019 regulation.\24\ After all, the 2019
regulation involves applying many of the same fundamental principles
that animate its earlier iterations: all three versions of the

[[Page 65912]]

regulation involve similar determinations about schools' acts or
omissions, their impact on borrowers' enrollment and borrowing
decisions, and the detriment borrowers may suffer as a result. Thus,
the 2019 regulation shares many of the earlier regulations' core
features and differs by further requiring a multitude of additional
findings and procedural steps that would require considerably more time
and resources from the borrowers, institutions, and the Department.\25\
It is reasonable for the Department to draw on its expertise in
administering title IV and on its experience applying similar concepts
under the other existing standards and processes. Indeed, considerable
deference is given to an agency's administrability-related conclusions
and predictive judgments about matters on which the agency is uniquely
knowledgeable, such as a rule's practical impact.\26\ The Department's
knowledge and experience inform its judgments here on an approach that
will facilitate addressing BD claims in the most effective way.
---------------------------------------------------------------------------

\24\ For details on the numerous cases that the Department has
recently addressed, see FSA, Borrower Defense Updates,
<a href="http://StudentAid.gov">StudentAid.gov</a>, <a href="https://studentaid.gov/announcements-events/borrower-defense-update">https://studentaid.gov/announcements-events/borrower-defense-update</a>. Summaries of some examples include Westwood
Coll. Exec. Summary (Aug. 30, 2022); ITT Tech. Inst. Exec. Summary
(Aug. 16, 2022); Kaplan Career Inst. Exec. Summary (Aug. 16, 2022);
Corinthian Colls. Inc. Exec. Summary (June 2, 2022); Marinello Sch.
of Beauty Exec. Summary (Apr. 28, 2022); DeVry Univ. Exec. Summary
(Feb. 16, 2022).
\25\ For example, the 2019 and 2016 regulations both include a
misrepresentation as a basis for relief. Compare Sec. 685.206(e)(3)
(2019 regulation), with Sec. 685.222(d) (2016 regulation). The same
concept is commonplace under State law causes of action that the
1994 regulation incorporates. Sec. 206(c)(1).
\26\ Nat'l Tel. Co-op. Ass'n v. F.C.C., 563 F.3d 536, 541 (D.C.
Cir. 2009); BNSF Ry. Co. v. Surface Transp. Bd., 526 F.3d 770, 781
(D.C. Cir. 2008).
---------------------------------------------------------------------------

Finally, in the time since the 2019 rule's promulgation, the
Department has learned that there are implementation challenges with
administering the 2019 regulation and with reviewing claims under the
standard and processes it would require. The issue relates to the
requirement that the Department share not just the borrower's
application for relief but also a copy of all other evidence related to
the claim in the Department's possession. The Department is currently
unable to comply with those record-sharing requirements, nor have we
identified a workable platform to do so. In some cases, the evidence
relevant to one applicant's claim may flow from information that
includes other borrowers' personally identifiable information, which
cannot be shared with the applicant without violating those other
borrowers' privacy rights. In other situations, the Department has
received large amounts of evidence related to the claim (some of which
might not be relevant to the final determination). The Department does
not have a mechanism for transmitting such large amounts of information
and it would likely overwhelm the borrower as well as many
institutions. The Department has also found that it does not have the
capacity to provide the necessary evidentiary redactions on a borrower-
by-borrower basis as anticipated by the 2019 regulation. These
experiences thus inform our decision to improve upon the 2019
regulation's approach in this rule.
The Department thus fully considered the likely effect of the 2019
regulations on the adjudication of claims and is making appropriate
changes to counter those effects.
Changes: None.
Comments: Several commenters argued that the proposed BD
regulations lack equitable standards and due process protections and
will facilitate erroneous discharges that harm students, taxpayers,
institutions, and borrowers. These commenters warned of tuition
increases and increased costs to the taxpayers as a result of the
implementation of this BD framework.
Discussion: We disagree with these commenters. The Department
carefully crafted a BD framework that will ensure that borrowers have
the opportunity to provide the details sufficient to justify the BD
application without establishing barriers too complicated for borrowers
to meet and that will ensure institutions have ample opportunity to
respond to a BD claim as described in detail in Sec. 685.405.
Collectively, these regulations provide an equitable standard for all
parties. The Department reminds the commenters that institutions will
have an opportunity to submit a response to claims before they are
adjudicated or before the final Secretarial action occurs, and will not
be held liable for approved borrower defense claims until after a
separate process that gives institutions the opportunity to present
their evidence and arguments before an independent hearing official in
an administrative proceeding. As the Department explained in the NPRM,
we will initiate such liability proceedings through the appeal
procedures for audit and program review determinations in 34 CFR part
668, subpart H. This provides robust due process protections to
institutions during the recoupment proceedings. The institutions will
be presented with the findings and evidence against them. They will
have an opportunity to challenge that evidence by filing an appeal with
the Office of Hearings and Appeals where they can challenge the
evidence and findings and present relevant evidence to bear that they
identify. The hearing officer's decision can be appealed to the
Secretary, who would not have been involved in the decision to pursue
the liability or the decision by the hearing officer. These are the
same protections institutions receive in other similar proceedings.
Thus, while we pursue liabilities from the responsible institutions to
avoid burdening taxpayers with the cost of these discharges, we will
also provide a full opportunity to institutions to respond.
We acknowledge that regulations have added costs, and we explain
how those costs may be offset in the Regulatory Impact Analysis section
of this document.
Changes: None.
Comments: A few commenters asserted that schools may have liberty
and property interests in continued eligibility for benefits (program
participation) under the HEA that are subject to due process
protections. The commenters asserted that institutions have a right to
retain the title IV benefits they previously received, and that the
proposed regulations allegedly deprive them of these interests without
adequate due process. Specifically, the commenters assert that the
group approval loan discharges and the process of evaluating and
approving group discharges does not provide institutions with
sufficient notice and opportunity to respond.
Discussion: We disagree with the commenters' assessment of both the
interests at stake and the process provided under the regulations. As
an initial matter, the commenters appear to suggest that the BD
regulations implicate a property or liberty interest in continued
participation in the title IV programs. They do not. Rights acquired by
the institution under agreements already executed with students remain
fully enforceable on their own terms. The BD regulations only address
loan discharge for borrowers and potential recoupment of discharged
amounts from the institutions that engaged in the acts or omissions
that prompted the discharge. These borrower defense regulations do not
directly impact an institution's continued eligibility, but findings of
substantial misrepresentation or other serious violations that resulted
in approved BD claims could impact an institution's title IV
eligibility. In other words, the Department's approval of BD claims for
borrowers has no direct impact on the institution's title IV
eligibility. However, the improper actions by the institution that
provide the basis for approving a BD claim also will likely violate the
statutory and regulatory requirements of the title IV programs. The
Department could determine that the institution's violation of those
rules could affect title IV eligibility if the claims were

[[Page 65913]]

approved due to a finding of a violation of the HEA that merits
additional adverse actions. Even if the regulations did implicate
continued eligibility, however, the institution has no property right
to continue to participate in the title IV programs on the terms under
which the institution previously participated. Section 452(b) of the
HEA states, ``No institution of higher education shall have a right to
participate in the [Direct Loan] programs authorized under this part
[part D of title IV of the HEA].'' \27\
---------------------------------------------------------------------------

\27\ 20 U.S.C. 1087b(b); see Ass'n of Priv. Sector Colls. &
Univs. v. Duncan, 110 F. Supp. 3d 176, 198 (D.D.C. 2015).
---------------------------------------------------------------------------

Because the commenters misconstrue the scope and impact of the
regulations, they also misapply the due process analysis. The
regulations provide ample due process at all stages and with respect to
all interested parties. Fundamentally, the commenters failed to
distinguish between the BD loan discharge process and the BD recoupment
process. As clearly stated in the regulations and discussed throughout
this document, the loan discharge process is between the borrower and
the Secretary. The regulations include extensive processes tailored to
that relationship, which includes the opportunity for institutional
response. In response to public comment, the Department enhanced the
proposed procedures to provide more notice to affected parties, to
require BD discharge applications to be submitted under penalty of
perjury, and to add an additional opportunity for institutional
response prior to the decision on whether to form a group for
adjudication.
The loan discharge process is separate from any recoupment
proceeding that the Secretary elects to pursue against an institution.
The recoupment efforts contemplated are recoveries of financial
liabilities, not sanctions. The recoupment process involves a number of
procedural steps, including many of the protections the commenters
claimed were missing from the regulations, such as motions practice,
interlocutory challenges, and multiple levels of appeals. See 34 CFR
part 668, subpart H. The Department's hearing procedures provide ample
due process, which is confirmed by the conclusions in caselaw cited by
commenters.\28\ As clearly stated in the regulations, moreover, any
recoupment proceeding under these regulations will only be undertaken
prospectively, with respect to loans disbursed after July 1, 2023. The
Department's final regulations in Sec. 685.409 were revised to make
that even clearer than before. If recoupment is occurring on claims
associated with loans disbursed prior to July 1, 2023, that is because
the actions or omissions that led to that approval would also have
violated the borrower defense regulations in effect when those loans
were first disbursed.\29\
---------------------------------------------------------------------------

\28\ See Cont'l Training Servs., Inc. v. Cavazos, 893 F.2d 877,
893-94 (7th Cir. 1990) (school's ability to submit written and oral
statements was ``quite a lot of predeprivation process'' and ``all
the process constitutionally required''); see also id. at 892 (that
schools may have certain liberty or property interests entitles them
to ``some predeprivation process,'' but ``does not determine how
much predeprivation process should be required'').
\29\ At least one comment invokes schools' liberty and property
interests with reference to Continental Training Services. The
Department notes that the interests acknowledged in Continental
Training were tied to the school's eligibility for title IV funding,
id. at 892, which is not at stake as part of the BD process--either
for claim adjudication or recoupment. Nonetheless, schools are
afforded meaningful opportunities to be heard during both phases
under the updated rule and, to the extent the same facts cause
schools to face other eligibility-related determinations, they have
robust procedural protections as part of that process too. To that
point, we also note that the Continental Training court concluded
the process afforded the school in that case was adequate to survive
constitutional scrutiny. See id. at 894.
---------------------------------------------------------------------------

Changes: None.
Comments: A few commenters suggested that erroneous BD discharges
could prompt mandatory financial responsibility triggers, which we
discussed during a spring 2022 negotiated rulemaking session involving
separate student loan issues, that could cause the Department to
determine inappropriately that an institution is not financially
responsible.
Discussion: We disagree with these commenters. Erroneous discharges
are unlikely to occur given the adjudicative framework we crafted,
which gives the institution and the requestor an opportunity to present
evidence and provides that, to approve a discharge, the Department must
conclude that the institution's act or omission caused detriment to the
borrower that warrants relief. The bifurcated process, separating claim
adjudication from recovery of the amounts discharged, further minimizes
the risk of any hypothetical collateral effect on institutions.
As of the publication of these final regulations, the financial
responsibility regulations referred to by the commenters are proposals,
not binding regulations. Current regulations at Sec.
668.171(c)(1)(i)(A) require the Department to establish liability
against an institution under an administrative proceeding in which the
institution has an opportunity to present its position before a hearing
official. That structure addresses the concerns raised by the
commenters. The public will have an opportunity to provide comments on
any future regulations related to financial responsibility triggers
when they are published in an NPRM.
Changes: None.
Comments: Commenters stated that HEA Sec. 455(h) does not grant
power of adjudication to circumscribe presumptions or assign liability
to institutions. Several commenters argue that the proposed BD
improvements exceed the Department's authority based on principles
articulated in the Supreme Court's recent decision in West Virginia v.
EPA.\30\
---------------------------------------------------------------------------

\30\ 142 S. Ct. 2587 (2022).
---------------------------------------------------------------------------

Discussion: The rule falls comfortably within Congress's statutory
directive that the Secretary specify in regulations the acts or
omissions by schools that provide borrowers a defense to repayment.\31\
One commenter argued the rule falls outside the statute's grant of
authority because it will account for ``highly-complex'' and ``fact-
specific borrower claims.'' But those complexities and the need for
fact-specific review stem from the increased number of claims that rest
on acts or omissions found by court judgments or regulatory
investigations, which invoke the defense to repayment specifically
referenced in the HEA. Indeed, another commenter argues that such
increased volume suggests the Department lacks authority to improve the
existing rule, but the volume of applications and the acts or omissions
that motivated them are precisely why the rule needs improvement. That
is, foregoing the improvements included in these rules would do nothing
to change the number of borrowers invoking the statutory remedy.
---------------------------------------------------------------------------

\31\ See 20 U.S.C. 1087e(h).
---------------------------------------------------------------------------

With respect to the comment that the HEA does not grant power of
adjudication to circumscribe presumptions, we again refer commenters to
the general provisions granting authority to the Secretary in GEPA,
authority extended in the Department's organization act, and numerous
provisions in the HEA. Along with a statutory directive to define which
acts and omissions provide a defense to repayment, those statutory
provisions grant the Department authority to promulgate regulations
giving content to the statutory BD provision, including an adjudication
framework like the one this rule prescribes. We discuss the issues
pertaining to liabilities more fully and elsewhere in this document.
The Department disagrees that the Supreme Court's West Virginia
decision undermines the Department's authority

[[Page 65914]]

to promulgate the proposed rule's BD improvements.\32\ That decision
described ``extraordinary cases'' in which an agency asserts authority
of an ``unprecedented nature'' to take ``remarkable measures'' for
which it ``had never relied on its authority to take,'' with only a
``vague'' statutory basis that goes ``beyond what Congress could
reasonably be understood to have granted.'' \33\ The rule here does not
resemble the rare circumstances in West Virginia. First, there is
nothing unprecedented or novel about the Department relying on the
``Borrower defenses'' subsection of 20 U.S.C. 1087e to authorize a BD
regulation with standards and procedures to effectuate that subsection.
That section, in fact, requires the Secretary to issue regulations
specifying the actions or omissions a borrower may assert as a defense
to repayment. Indeed, the Code of Federal Regulations has included
multiple versions of regulations governing BD claims since 1995.\34\
---------------------------------------------------------------------------

\32\ One commenter suggested that the NPRM's omission of a case-
specific discussion of West Virginia requires that the Department
abandon and reconsider this proposed rule because, according to the
commenter, that decision signals a ``restive'' judicial attitude
toward major regulatory actions that the NPRM was required to
address. The comment cites no authority, nor is the Department aware
of any, requiring agencies to foresee hypothetical changes in law
based on signals of restiveness. In any event and for the reason
explained herein, the Department does not read the Court's decision
in West Virginia as reason to reconsider the rule.
\33\ West Virginia, 142 S. Ct. at 2608-09.
\34\ 59 FR at 61664 (Dec. 1, 1994); 81 FR at 75926 (Nov. 1,
2016); 84 FR at 49788 (Sept. 23, 2019).
---------------------------------------------------------------------------

Thus, contrary to the commenters' arguments, the rule does not
reflect ``unheralded'' action only loosely tethered to a congressional
grant of authority.\35\ To the contrary, the rule gives context to the
defenses that Congress instructed the Department to define,\36\ and
does so in a way that accounts for all involved parties' rights.
---------------------------------------------------------------------------

\35\ See West Virginia, 142 S. Ct. at 2608.
\36\ 20 U.S.C. 1087e(h).
---------------------------------------------------------------------------

Changes: None.
Comments: A few commenters stated that the BD regulations violate
the separation of powers doctrine. These commenters state that the rule
impermissibly assigns the Department an adjudicatory role for claims
and defenses that are constitutionally required to be decided by
courts.
Discussion: We disagree that these regulations violate the
separation of powers doctrine. Administrative agencies commonly combine
both investigatory and adjudicative functions, see Winthrow v.
Larkin,\37\ and due process does not require a strict separation of
those functions as long as adequate process is provided.\38\ The
Department is no different and performs both investigative and
adjudicative functions in other contexts, including those that involve
borrower debts \39\ and institutional liabilities.\40\
---------------------------------------------------------------------------

\37\ 421 U.S. 35 (1975).
\38\ See Hortonville Joint Sch. Dist. No. 1 v. Hortonville Educ.
Ass'n, 426 U.S. 482, 493 (1976).
\39\ For example, the Department provides both schools and
borrowers the opportunity to request and obtain an oral evidentiary
hearing in both offset and garnishment actions against a borrower
and in an offset action against a school. See 34 CFR 30.25
(administrative offset generally); 34 CFR 30.33 (Federal payment
offset); 34 CFR 34.9 (administrative wage garnishment).
\40\ See 34 CFR 668.24 and part 668, subparts G and H
(proceedings for limitation, suspension, termination and fines, and
appeal procedures for audit determinations and program review
determinations).
---------------------------------------------------------------------------

Changes: None.
Comments: A few commenters argued that there is no legal ground in
the HEA for affirmative BD claims, which in the 2019 regulation was
defined as claims from borrowers who were in repayment as opposed to
defensive claims, which are for borrowers in default.
Discussion: We disagree with the commenters. Section 455(h) of the
HEA requires the Secretary to ``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.'' This
language in no way limits the remedy to a defense asserted in
collection proceedings. Rather, the concept of ``repayment'' is widely
understood to encompass not just borrowers in default but also those
actively repaying their loans. As we note elsewhere, BD relief, though
unique, bears features of remedies like rescission, avoidance,
restitution, and certain forms of out-of-pocket or reliance costs.
Those remedies are appropriate as a defense to the obligation to repay,
not simply as backstops for contingencies like default. In that
context, we do not see these comments' distinction between
``affirmative'' and ``defensive'' claims to be a meaningful one
considering a defense to repayment is only relevant in the context of
an existing obligation to repay.
Moreover, limiting BD only to loans in default would be illogical.
Only allowing claims from loans in default would place borrowers in an
unfair situation of either intentionally defaulting in the hopes that a
BD claim is successful or repaying a loan that potentially should be
discharged due to the acts or omissions of an institution. Given that
institutions must keep their default rates below certain thresholds
established in statute and regulations, creating an incentive for
default could end up inadvertently hurting an institution that has
large numbers of BD claims.
Changes: None.
Comments: Some commenters raised concerns about how the inclusion
of new items in part 668, subpart F as well as the new part 668,
subpart R would be used for other Department oversight or enforcement
activity. They raised concerns about institutions potentially facing
adverse actions for past conduct now covered by these additions.
Discussion: The Department notes that some of the changes to Part
668, subpart F represent items that are not new but have simply been
moved to other locations or slightly restated. Other elements in that
subpart, as well as part 668, subpart R are new. For the items that are
new, the Department could bring adverse actions in relation to conduct
that occurs on or after July 1, 2023.
Changes: None.

Effective Date of Regulations, Claims Covered Under Regulations

Comments: The Department received several comments related to the
treatment of borrowers who have already paid off their loans. A few
commenters requested clarification as to whether these individuals are
eligible for BD. Others argued that a borrower who has paid off their
loan should be prohibited from filing a BD claim because there would be
no repayment to defend.
Discussion: A borrower who submits a BD claim is asserting that
they should no longer be required to repay the loan they owe to the
Department. BD claims are thus limited to loans that are still
outstanding and are associated with the institution whose alleged act
or omission could give rise to the defense to repayment. This concept
is embedded in the definition of ``borrower defense to repayment,''
which makes the defense available for ``all amounts owed to the
Secretary on a Direct Loan.'' Sec. 685.401(a). The next paragraph of
the definition provides for reimbursement of all payments ``previously
made to the Secretary on the Direct Loan,'' which is a direct reference
back to the loan identified in the first paragraph (on which amounts
must still be outstanding). Thus, if a borrower no longer has a loan
outstanding, they do not have a defense to repayment as there would no
longer be any loans to repay.
Changes: None.
Comments: Commenters recommended that the regulatory text expressly
state that new BD standards

[[Page 65915]]

will not retroactively apply to institutions for alleged misconduct
that occurred prior to the effective date of these regulations. They
also noted that, while the preamble to the NPRM stated that retroactive
application would not occur, such statements were not reflected in the
accompanying regulatory text.
Discussion: BD is fundamentally a process between the borrower and
the Department. It is a claim brought by the borrower that they should
no longer have to repay an outstanding debt owed to the Secretary. The
reason for such a claim is due to an alleged act or omission by the
institution. The Department must review that allegation to determine
whether the borrower should be relieved of their obligation to repay.
Whether the Department chooses to seek recoupment from the institution
for the cost of approved discharges is a separate question and subject
to a separate set of procedures. This is in keeping with how the
Department handles discharges for closed school and false certification
discharges as well.
In this regulation, the Department simplifies the standard that
governs whether the borrower should be relieved of their loan repayment
obligation. The Department's approach ensures that a single standard is
used to evaluate BD claims arising from the same acts or omissions,
regardless of whether the borrower has multiple loans that were
obligated in multiple years or whether a borrower's loans were
consolidated. This approach ensures more consistent decision-making and
treatment of borrowers.
The Department is not applying this approach to recoupment.
Institutions will only be subject to recoupment actions for claims that
would be approved under the standard in place at the time the act or
omission occurred. In other words, a claim that is approved due to a
misrepresentation, omission, breach of contract, aggressive and
deceptive recruitment, judgment, or final Secretarial action that
occurred prior to July 1, 2023, would only result in recoupment if the
claim would have been approved under the 1994, 2016, or 2019
regulations, whichever is applicable. We appreciate the feedback from
commenters who noted that this concept was not sufficiently expressed
in the NPRM and have updated the final amendatory text to make this
point clearer.
Changes: While claims that are pending on or received on or after
July 1, 2023 will be adjudicated under this standard, we have added
language in Sec. 685.409(b) noting that the Secretary will not collect
any liability to the Secretary from the school for any amounts
discharged or reimbursed to borrowers for an approved claim under Sec.
685.406 for loans first disbursed prior to July 1, 2023, unless the
claim would have been approved under the standards for what constitutes
an approved claim under the three different borrower defense
regulations. The standards are contained within Sec. 685.206(c), the
1994 regulation, for loans first disbursed before July 1, 2017; under
Sec. 685.206(d), the 2016 regulation, for loans first disbursed on or
after July 1, 2017, and before July 1, 2020; or under Sec. 685.206(e),
the 2019 regulation, for loans first disbursed on or after July 1,
2020, and before July 1, 2023.
Comments: Many commenters wrote in saying that the proposed
regulations are impermissibly retroactive. They cited a body of case
law supporting a presumption against retroactive regulations.
Discussion: Courts have regularly rejected retroactivity challenges
to regulations that operate like these. As with statutes,\41\ newly
promulgated regulatory measures are not improperly retroactive, ``so
long as the Department's regulations do not alter the past legal
consequences of past actions.'' \42\ That is, a regulation raises
concerns of unconstitutional retroactivity if it would impair rights a
party possessed when he acted, increase a party's liability for past
conduct, or impose new duties with respect to transactions already
completed.'' \43\ Thus, whether a regulation ``operates retroactively''
turns on ``whether the new provision attaches new legal consequences to
events completed before its enactment.'' \44\ It is, however, well
settled that ``[a] statute is not rendered retroactive merely because
the facts or requisites upon which its subsequent action depends, or
some of them, are drawn from a time antecedent to the enactment.'' \45\
Nor is a statute impermissibly retroactive simply because it ``upsets
expectations based in prior law.'' \46\ Under these regulations, while
all claims pending on or received on or after July 1, 2023 will be
reviewed under the standards in this final rule, an institution will
not be liable for the amount of the BD claim paid by the Department
unless the claim would have been approved under the standards in the
regulations in place at the time the claim arose. Thus, these
regulations are not retroactive for institutions.
---------------------------------------------------------------------------

\41\ Courts routinely apply the same principles to statutes and
regulations to evaluate concerns about impermissibly retroactive
applications. See St. Louis Effort for AIDS v. Huff, 782 F.3d 1016,
1023 (8th Cir. 2015) (``Although we examine regulations, not
statutes, the[ ] same principles apply.''); Little Co. of Mary Hosp.
& Health Care Ctrs. v. Shalala, 994 F. Supp. 950, 960 (N.D. Ill.
1998) (stating that the same principles ``suppl[y] the test to
decide when a statute (or by natural extension a regulation)
operates retroactively'').
\42\ Ass'n of Priv. Sector Colls. & Univs., 110 F. Supp. 3d at
196 (internal marks and emphasis omitted).
\43\ Ass'n of Proprietary Colls. v. Duncan, 107 F. Supp. 3d 332,
356 (S.D.N.Y. 2015). See also Ass'n of Accredited Cosmetology Schs.
v. Alexander, 774 F. Supp. 655, 659 (D.D.C. 1991), aff'd, 979 F.2d
859 (D.C. Cir. 1992), and order vacated in part on other grounds sub
nom. Delta Jr. Coll., Inc. v. Riley, 1 F.3d 45 (D.C. Cir. 1993);
Ass'n of Accredited Cosmetology Schs. v. Alexander, 979 F.2d 859,
864 (D.C. Cir. 1992) (no retroactivity-based infirmities with
determining eligibility based on pre-rule data of cohort default
rates).
\44\ Ass'n of Priv. Sector Colls. & Univs., 110 F. Supp. 3d at
196.
\45\ Id.
\46\ Id.
---------------------------------------------------------------------------

Changes: None.
Comments: Several commenters recommended the Department continue to
process pending BD claims, regardless of any new regulation, and urged
the Department to process claims under the 2019 regulations. The
commenters further suggested the Department should revisit claims
approved for partial discharges to reconsider the amount of discharge
that is appropriate; assess whether all available evidence was
considered with respect to claims that have been denied; investigate
and process claims from institutions for which no student has yet
received relief; and establish processes to more quickly adjudicate new
claims as they come in while regulations are ongoing.
Discussion: The Department continues to process BD claims as well
as abiding by commitments the agency has made in ongoing litigation. As
we specified in the NPRM, we proposed new regulations to establish a
new Federal standard for BD claims applicable to applications received
on or after July 1, 2023, and to those pending before the Secretary on
July 1, 2023. To date, all approved claims have been for full
discharges, so the need to contemplate past instances of partial
discharge is not needed. As noted, this new standard will apply to all
claims that are pending on or received on or after July 1, 2023.
Changes: None.

Eligible Loan Types

Comments: A few commenters commended the Department for providing
FFEL borrowers with access to the BD claim process through loan
consolidation, including by giving borrowers the option on their
application to request consolidation of their loans into a Direct Loan
if their claim is approved. A few commenters,

[[Page 65916]]

however, were concerned that by limiting the definition of BD to the
making of a Direct Loan, the provision could be read to exclude claims
that pertain to the making of a FFEL loan, even if such FFEL loan is
later consolidated into a Direct Loan. These commenters suggested some
regulatory changes to ensure FFEL borrowers have access to relief.
Commenters also raised concerns that some FFEL borrowers are
ineligible to consolidate into Direct Loans, thus making it impossible
for them to receive a BD discharge if their claim was approved. As
examples of FFEL borrowers who cannot consolidate into Direct Loans,
these commenters pointed to borrowers who are current on a FFEL
Consolidation Loan and do not have any additional loans to consolidate,
as well as FFEL borrowers who are subject to enforced collection
orders, such as wage garnishment, or who have a judgment on their FFEL
loans. These commenters suggested that the Department promulgate final
regulations that make borrower defense discharges available to
borrowers with FFEL Loans, including FFEL Consolidation loans, even if
they cannot or do not consolidate.
Commenters also expressed concerns that a FFEL borrower whose
defense to repayment claim is only partially approved may be left worse
off if the resulting Direct Consolidation Loan is not fully discharged
and urged the Department to ensure that a Direct Consolidation loan
would not be automatically effectuated if doing so would adversely
affect the borrower. These commenters noted that consolidation is one
of the few avenues that borrowers can use to get their loans out of
default but borrowers whose loans are already consolidated generally
lose the option to consolidate. Commenters stressed that these
borrowers should not lose the option to get out of default, arguing
that many borrowers with approved borrower defense claims are also
likely to be at high risk of delinquency or default.
Commenters requested that the Department clarify whether it will
refund amounts paid on FFEL loans before they were consolidated.
Other commenters did not support the inclusion of FFEL borrowers.
They argued that a BD claim is based on the acts or omissions of an
institution at the time the loan was issued, which for any FFEL loan
would precede the issuance of any Direct Loan through consolidation.
That is, because Sec. 455 of the HEA only applies to Direct Loans, the
commenters argued that conduct that occurred while the loan was in the
FFEL Program should not qualify for a BD discharge. These commenters
argued that FFEL loans should be ineligible for a BD discharge.
Discussion: The Department affirms its position that FFEL borrowers
should retain a pathway to BD discharges. The HEA directs that,
generally, Direct Loans are made under the same ``terms, conditions,
and benefits'' as FFEL Loans.\47\ In 1994 and 1995, the Department
interpreted that Direct Loan authority as giving the Department
authority to hold schools liable for BD claims under both the FFEL and
Direct Loan programs, and stated that, for this reason, it was not
pursuing more explicit regulatory authority to govern the BD process.
---------------------------------------------------------------------------

\47\ 20 U.S.C. 1087a(b)(2), 1087e(a)(1).
---------------------------------------------------------------------------

We also want to assure commenters who were concerned that the
regulatory language might not provide adequate protection for FFEL
borrowers who consolidated into a Direct Loan. Through a Direct
Consolidation Loan, FFEL borrowers will have a pathway to BD.\48\
Specifically, Sec. 685.401(a) states that relief for actionable
conduct includes a ``defense to repayment of all amounts owed to the
Secretary on a Direct Loan including a Direct Consolidation Loan that
was used to repay a Direct Loan, [and] a FFEL Program Loan[.]''
Additionally, Sec. 685.401(b) makes clear that a BD claim is available
to a ``borrower with a balance due on a covered loan[,]'' which
includes ``a Direct Loan or other Federal student loan that is or could
be consolidated into a Federal Direct Consolidation Loan.'' Sec.
685.401(a). With these references, we believe that viewing the BD
framework in the totality should allay any concerns about a FFEL
borrower receiving a pathway to BD.
---------------------------------------------------------------------------

\48\ See 87 FR at 41886.
---------------------------------------------------------------------------

Operationally, the Department will streamline the claims process
for FFEL borrowers by having the BD claim application also function as
a Direct Consolidation Loan application, which would only be executed
if the claim is approved. In 2009, the Department issued Dear Colleague
letter FP-09-03 in which we told FFEL lenders that they cannot decline
to complete a Loan Verification Certificate solely because the borrower
is attempting to consolidate only a FFEL Consolidation Loan without any
additional loans.\49\ The question of whether to complete the
consolidation thus rests with the Department. Improvements to the loan
consolidation process will be reflected when the Department redesigns
the BD form, which will separately go through public comment. The
Department will also provide other sub-regulatory guidance on how it
will treat borrowers with covered loans that are not Direct Loans.
Moreover, the Department notes that since approved claims will receive
a full discharge the question of whether a consolidation is in the
borrower's best interest will be simpler to assess.
---------------------------------------------------------------------------

\49\ <a href="https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2009-04-03/fp-09-03-subject-completion-loan-verification-certificates">https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2009-04-03/fp-09-03-subject-completion-loan-verification-certificates</a>.
---------------------------------------------------------------------------

The Department appreciates the commenters' concern for borrowers
with an involuntary collection order such as wage garnishment or a
judgment through a court order but notes the statutory constraints and
the Department's limitations. As provided in Sec. 428C(a)(3)(A)(i) of
the HEA, borrowers will need to take preliminary steps, such as having
those wage garnishment orders lifted or those judgements vacated, in
order to facilitate consolidation. Finally, with respect to refunds,
the Department will refund amounts previously paid to the Department.
We cannot refund amounts the Department did not receive.
Changes: None.

Definitions

Changes: None.
Comments: Commenters provided several different suggestions on the
proposed ``Department official'' definition. A few commenters suggested
that the Department should preclude staff from Federal Student Aid
(FSA) from serving as a Department official. These commenters stated
that FSA is responsible for oversight and monitoring and that if the
Department had exercised appropriate oversight, we would not have
issued the loans related to a BD claim in the first place. The
commenters argued that allowing FSA to determine the outcome of BD
claims raises the appearance of a conflict of interest. Other
commenters argued for a similar change, asserting that the Department
official lacks neutrality, because they review and make a
recommendation on the merits of a claim. These commenters stated that a
borrower defense claim should be adjudicated by an administrative law
judge (ALJ), arbitrator, or some other neutral party. On the other
hand, a few commenters argued that even an ALJ could not be a neutral
party, because they are still a Department employee.
Other commenters argued that the Department official should be an
``officer'' rather than a career employee, suggesting further that
ideally this individual would be a principal officer who is named by
the President and confirmed by the U.S. Senate. Commenters argued for
this change

[[Page 65917]]

because the decision of whether to approve or deny a BD claim is a
final agency decision made on behalf of the Federal government and such
decisions cannot be made by career staff.
Discussion: We disagree with the commenters and see no need for
such limitations on which employees could serve as a Department
official. We have, however, clarified the roles fulfilled by the
Department official versus those of the Secretary to make clear that
the Secretary is the final decision maker.
The role of the Department official is to review the BD claim,
consider the evidence, and recommend approval or denial of the claim.
The Department official also recommends whether a group should be
formed where applicable. The Secretary or the Secretary's delegate may
accept or reject the recommendations and is the final decision maker.
The Department has clarified this through changes to Sec. 685.406.
We do not agree with the commenters who believe that the Department
official cannot be part of FSA, or must be a third-party, such as an
ALJ. These FSA staff members handle BD processes, which is separate
from the institutional compliance work performed by FSA program
reviewers and enforcement staff.
After the collapse of Corinthian in 2016, the then-Under Secretary
of Education appointed a BD Special Master to advise the Department on
BD issues.\50\ The Special Master agreed with Department leadership
that the best way to create a fair, transparent, and efficient process
for handling BD claims was to establish an infrastructure that was
flexible and scalable. By dedicating a team with the human capital and
resources to handle BD claims, as we have in FSA's BD Group, led by a
director, the Department believes that it has created a nimble
framework that accommodates an efficient and fair resolution of BD
matters. We plan to continue with this framework.
---------------------------------------------------------------------------

\50\ <a href="https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-1.pdf">https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-1.pdf</a>.
---------------------------------------------------------------------------

The Department further believes that requiring the Department
official to be a certain type of individual--such as a special master
or ALJ--would impermissibly tie the agency's hands with respect to
future Congressional appropriations. Requiring that claims only be
considered by a certain type of employee would constrain the Department
in how to best use Congressional appropriations for salaries and
expenses and would limit the Secretary's flexibility to address
changing circumstances and appropriations. The definition of Department
official in these regulations provides necessary flexibility to
allocate staff to review and make recommendations on BD claims.
Furthermore, under Sec. 412 of the Department of Education
Organization Act,\51\ the Secretary may delegate the authority to
perform the functions and duties of the position. A BD claim represents
a defense to repaying all amounts owed to the Secretary, and the
initial adjudication and resolution of those claims is a function that
the Secretary may delegate to an inferior officer or other Department
official.
---------------------------------------------------------------------------

\51\ 20 U.S.C. 3472.
---------------------------------------------------------------------------

Changes: We revised the regulatory text in Sec. 685.406 to clarify
the role of the Department official, who makes a recommendation to the
Secretary and that the Secretary, or his delegate will make final
decisions.
Comments: Commenters suggested that the Department replace ``Direct
Loan'' in Sec. 685.401 with ``Direct Loan or other Federal student
loan that is consolidated into a Federal Direct Consolidation Loan,''
as the Department states in Sec. 685.401(b)(2) through (5), to ensure
FFEL borrowers have access to relief. These commenters feared that
without an explicit reference to ``other Federal student loan that is
consolidated into a Federal Direct Consolidation Loan,'' FFEL borrowers
would be unable to access the BD discharge.
Discussion: We assure these commenters that the regulations will
give FFEL borrowers access to a BD discharge. Although we did not adopt
the specific language the commenters suggested, we created a new
definition of a ``covered loan'' in Sec. 685.401(a). This change does
not substantively change the types of loans eligible for relief,
because we cannot change the statutory definition of ``Direct Loan''
(see Part D of title IV of the HEA). These regulations make clear,
however, that FFEL borrowers may access the BD process through a Direct
Consolidation Loan. A covered loan remains a Direct Loan or other
Federal student loan that is or could be consolidated into a Federal
Direct Consolidation Loan.
Changes: We added a new definition of ``covered loan'' in Sec.
685.401(a), which includes a Direct Loan or other Federal student loan
that is or could be consolidated into a Federal Direct Consolidation
loan.
Comments: Many commenters expressed disappointment that the
Department excluded legal assistance organizations from the parties
eligible to request consideration of group claims, as we allow for
State requestors in these BD regulations. These commenters stated that
excluding legal assistance organizations will disadvantage borrowers
who attend smaller institutions that are less likely to attract the
attention of State officials. Similarly, these commenters were
concerned about borrowers in States that do not have the capacity to
investigate predatory institutions and pursue group discharges or have
decided not to do so for lack of resources or policy reasons. The
commenters stated that legal assistance organizations are well-versed
in the application of States' laws and the nuances of States' higher
education regulatory systems, which would make them well-positioned to
request consideration of group discharges under State law.
Additionally, the commenters asserted that these organizations may
possess greater awareness of institutions using predatory conduct
against low-income students than government agencies. Other commenters
agreed with the NPRM's limitation of the entities eligible to bring
forth group claims.
A few commenters suggested the Department permit representatives of
certified classes of borrowers to submit group BD applications. These
commenters further stated the Department repeatedly acknowledges the
value of lawsuits, particularly class action lawsuits, to promote the
purposes of the Direct Loan program. They noted that permitting only
State requestors to submit group applications will likely result in
differential treatment of student borrowers based solely on where they
live. In addition, the commenters stated that counsel representing
classes of harmed borrowers can assemble a wealth of relevant evidence.
Discussion: During negotiated rulemaking session 3, the Department
initially considered allowing legal assistance organizations to submit
group requests. Upon further consideration, however, the Department
concluded that limiting the group formation request to State requestors
would facilitate a more efficient process. The Department has
consistently and repeatedly received valuable information from States
that played a key role in the adjudication of BD applications. For
example, we received evidence from State attorneys general that we used
to approve claims related to several institutions across the country.
The Department received evidence from the California Attorney General
that helped document that Corinthian Colleges misrepresented its job
placement rates. Evidence from the

[[Page 65918]]

New Mexico Attorney General helped establish that ITT Technical
Institute misled students about obtaining accreditation for its
associate degree in nursing programs. More than two dozen State
attorneys general submitted evidence related to ITT giving students
false, erroneous, or misleading statements about the value of its
education. The Department received evidence from the Illinois and
Colorado attorneys general that demonstrated Westwood College lied to
students about the ability for criminal justice students to get a job
as a police or corrections officer in Illinois and that it made false
promises at all of its campuses about guaranteed prospects for students
who could not find a job. The Department likely would have been unable
to approve many of the claims associated with those schools without
that evidence.
After careful reconsideration, we are persuaded by the commenters'
arguments that allowing legal assistance organizations to request a
group formation could give borrowers who would otherwise not have a
pathway to relief the ability to file a BD claim. Allowing these
additional organizations to request the consideration of group claims
affords another channel for the Department to receive valuable
information that we can use to assess BD claims. The commenters' point
that legal assistance organizations may have potentially greater
awareness regarding some institutional conduct than States is
important, given that we have received claims pertaining to thousands
of institutions.
The Department also initially cited concerns about the potential
added burden of allowing legal assistance organizations to make group
requests. The overall requirements for a group request will mitigate
this concern, particularly the requirement that a group request must
include evidence beyond sworn borrower statements to be considered for
a decision. Though not an exhaustive list, in the past the Department
has found that additional evidence such as an institution's internal
training materials and communications, the documentation used to
calculate job placement rates, and copies of misleading advertisements
have all been helpful in adjudicating BD claims. Group requests without
additional evidence and information will be deemed incomplete. That
means a group request will require additional evidence from the third-
party requestor.
To make this change operationally manageable, the Department is
adding a new definition of a ``third-party requestor,'' which will
encompass State requestors and ``legal assistance organizations'' (also
newly defined in the regulations) and will allow such third-party
requestor the ability to request group formation, subject to certain
conditions. The definition of ``legal assistance organization'' in the
regulations is drawn, in part, from Sec. 428L(b)(1) of the HEA which
defines a civil legal assistance attorney with the exception of where
their employer receives their funding as outlined in Sec.
428L(b)(1)(A)(ii) of the HEA. Beyond being a nonprofit organization, we
do not believe a legal assistance organization's funding source should
have any bearing on their request to form a group under Sec. 685.402.
We believe relying on a modified definition created by Congress is
better than trying to craft a new one.
The regulations also add a requirement that third-party requestors
that are legal assistance organizations may only request to form a
group in which all borrowers have entered into a representation
agreement with the legal assistance organization. In this respect,
legal assistance organizations significantly differ from State
requestors. This legal distinction is required for several reasons.
First, confidential borrower-related information must be exchanged as
part of BD determinations. The Department is permitted to exchange that
information with the offices of State attorneys general but must obtain
borrower-specific privacy waivers to share such information with
private counsel. It is far more likely that the Department will be able
to exchange such borrower-related information for borrowers that legal
assistance organizations represent. Second, State attorneys general may
act as their constituents' public legal representative based on the
nature of their role. Non-governmental groups, on the other hand,
generally have no comparable right to assert claims on behalf of non-
clients. Class counsel who represent plaintiffs in a civil class action
lawsuit are one exception to this general bar, but only following
specific determinations about class counsel and the class
representatives, their clients.\52\ The Department lacks the resources
or procedures to recreate a similar process for group BD requests from
legal assistance organizations that the Department is able to do so for
State attorneys general. For these and other practical reasons,
requests submitted by a legal assistance organization to form a group
must contain a certification that the requestor has legal
representation authority for each borrower identified as a member of
the group, which must be based on individual representation agreements
or on a court appointing the legal assistance organization to represent
a certified class that includes all members of a requested group in
connection with claims substantially similar to BD. As we explain later
in the Group Process and Group Timelines section, the Department will
retain the flexibility to approve a group that is broader or narrower
than the one requested by a third party based upon a review of the
evidence.
---------------------------------------------------------------------------

\52\ See, e.g., Fed. R. Civ. P. 23(a) (requiring representative
plaintiffs to have claims typical of the class and to be adequate
class representatives); Fed. R. Civ. P. 23(g) (setting forth various
requirements, duties, and obligations of class counsel).
---------------------------------------------------------------------------

The Department declines to allow representatives of certified
classes of borrowers to submit requests to form a group seeking BD if
they do not fall under the definition of a legal assistance
organization. While we appreciate these external entities' interest,
the Department believes that expanding the scope of third-party
requestors presents administrative issues that are not feasible for the
Department to address at this time. We also note that the ability to
use judgments to support BD claims means that representatives of
certified classes can obtain relief for their clients if they secure a
judgment that meets the requirements under Sec. 685.401(b)(5). And, of
course, nothing prevents these entities from independently sharing
general information with the Department.
Changes: We added definitions of ``legal assistance organization''
and ``third-party requestor'' in Sec. 685.401(a). Throughout the
document, we also revised any reference to ``State requestor'' to be
``third-party requestor'' to reflect inclusion of legal assistance
organizations. We also amended Sec. 685.402(c) to state that third-
party requestors that are legal assistance organizations may not
request to form a group that includes any borrower who has not entered
into a representation agreement with the legal assistance organization.
We also added a corresponding new paragraph Sec. 685.402(c) that
requires a legal assistance organization submitting a group claim to
certify that it has entered into a legal representation authority with
each borrower identified as a member of the group.
Comments: Many commenters supported allowing States to request a
consideration of a group claim. Those commenters noted the importance
of State attorneys general in identifying important evidence and the
overall importance of having group claims. We

[[Page 65919]]

also received many comments that opposed this provision. Commenters
argued that the Department did not sufficiently justify why it was
including State requestors and that it lacked the legal authority to
include them. Commenters also argued that the Department was adopting
this position to circumvent limitations on its own investigatory power
and that it can already share information and does not need this
provision. Commenters also alleged that this provision would involve
the Department in internal matters between attorneys general and State
authorizing agencies that may not want to take action. Commenters also
raised concerns that State requests could be used to try and influence
ongoing settlement negotiations. Commenters also asked if State
requestors would have to limit their requests to only cover borrowers
in their states. Finally, a few commenters argued that the Department
would struggle to sift through the material from states.
Discussion: We appreciate the support from commenters who are in
favor of including State requestors.
We disagree with commenters opposed to the inclusion of State
requestors. As discussed in the NPRM as well as in this final rule, the
Department has benefited repeatedly from information provided by State
attorneys general in its adjudication of claims. The Department has
also received many requests for consideration of group claims from
attorneys general. Creating a formal process for the handling of these
group requests is better for States, the Department, affected
borrowers, and institutions. For States, the regulations provide more
clarity around what is needed in an application and lays out timelines
for when to expect decisions. Borrowers who may not understand how to
file a BD claim or who may not have the information necessary to
support all elements of a claim on their own will benefit from the
expertise and support of state officials who regularly act on behalf of
consumers in their states in many contexts. For institutions, they will
also have a clearer role in responding to both the request to form the
group, as well as whether the group should be approved. These
regulations also give the Department a clear process to follow for the
handling of group claims and will ensure consistent treatment and
consideration of claims. We also note that third-party requestors are
only involved in the submission of claims by borrowers; they are not
involved in any proceeding brought by the Department against the
institution.
We disagree with the concerns raised that allowing any third-party
requestor--whether from a State or legal assistance organization--would
result in attempts to influence the Department or influence litigation
or oversight matters within a state. The Department's concern is
ensuring it receives evidence that can help it make fair decisions
about the merits of BD claims. The Department does not have a role in
the resolution of matters at the State level between an attorney
general and an institution or other State entities.
With regard to which borrowers a State may request a group around,
the Department does not believe it needs to add any language specifying
the extent of a group. We note that to date all requests for group
consideration from State attorneys general have only covered borrowers
within their states.
Finally, the Department believes it will have the capacity to
review material from States. It has already done so for several group
requests and the requirements for what is needed in a group application
will help ensure the Department will receive additional useful evidence
when reviewing requests for group claims.
Changes: None.
Comments: One commenter requested that the Department add State
authorizing agencies to the list of State requestors under Sec.
685.401, noting that in at least one State the authorizing agency has
responsibility for reviewing title IV aid issues and eligibility
requirements that incorporate title IV aid elements.
Discussion: The Department agrees with the commenter. In adopting a
definition of State requestor, the Department sought to include
entities that have authority from the State to oversee institutions of
higher education, including reviewing and approving institutional
conduct. We modified the language of State requestor to include State
entities that are responsible for approving educational institutions in
the State.
Changes: We have added a State entity responsible for approving
educational institutions in the State to the definition of a ``State
requestor'' in Sec. 685.401.
Comments: A few commenters believed the definition of ``school''
and ``institution'' in Sec. 685.401(a) was duplicative and too broad.
Commenters stated that inclusion of the cross-reference to Sec.
668.174(b) in this definition can be read to mean that, for the
purposes of adjudicating a BD claim, the conduct of an institution
could be imputed to any other institutions that are under common
ownership.
Discussion: We concur with the commenters. The Department
contemplated covering in the definition of ``school'' or
``institution'' a person affiliated with the institution as described
in Sec. 668.174(b). This was done for purposes of recovery from the
institution in Sec. 685.409.\53\ The Department already retains the
authority to assess a past performance liability for individuals
associated with the institution under the financial responsibility
regulations, however. Therefore, a cross-reference to Sec. 668.174(b)
in the definition of school or institution is unnecessary.
---------------------------------------------------------------------------

\53\ See 87 FR at 42009-42010.
---------------------------------------------------------------------------

Changes: We revised the definition of ``school'' or ``institution''
(which are used interchangeably) by removing the sentence ``School or
institution also includes persons affiliated with the institution as
described in Sec. 668.174(b) of this section.''

Federal Standard

Comments: Many commenters supported the establishment of a strong
Federal BD standard that better captures the full scope of
institutional misconduct relevant for a BD claim. These commenters
noted that, to date, the BD claims review process has been burdensome,
with different regulatory standards depending on loan disbursement
date. Commenters said the different Federal standards and processes
contributed to inequities among similarly situated borrowers, resulted
in a backlog, and delayed adjudication while borrowers were left in the
dark. The commenters praised the new Federal standard, noting it
established clearer and expanded grounds for BD claims and was a
tremendous step in protecting consumers and ensuring the integrity of
the Federal financial aid programs.
Discussion: We thank the commenters for their support.
Changes: None.
Comments: Many commenters indicated that the Department should be
required to find some or all of the following elements to approve a
claim: reliance by the borrower, detriment to the borrower,
materiality, adverse effect, financial damages or harm to the borrower,
and intentionality by the institution. They raised these comments with
respect to each component of the BD standards: substantial
misrepresentation, substantial omission of fact, breach of contract,
aggressive and deceptive recruitment, judgments, and final Secretarial
actions.
Commenters argued that the absence of some or all of these elements
would

[[Page 65920]]

result in the approval of claims that they described as having minimal
allegations or documentary evidence or that did not result in any harm
and thus should be denied. Commenters also said the proposed Federal
standard would encourage the filing of what commenters described as
frivolous claims. These commenters indicated that under the proposed
rules the Department could approve claims as a result of errors by the
institution in good faith, as a result of acts or omission in which the
borrower did not in fact suffer any injury, or with virtually no
factual allegations or documentary support. Commenters said the NPRM's
approach is impermissibly broad and noted that the absence of some
elements such as reliance appears to be inconsistent with the
definition of a substantial misrepresentation in Sec. 668.71.
Commenters also noted that without the inclusion of some or all of
these elements, it is unclear how institutions could successfully
challenge liability during the institutional response stage,
contributing to concerns about the due process rights of institutions.
Similarly, many commenters raised concerns that an institution could be
held accountable for inadvertent mistakes unless intent is required for
a BD claim.
Discussion: We agree with the commenters in part. Upon
consideration of each of the items suggested by commenters, we modified
the proposed Federal standard to provide that, to approve a claim, the
Department must find that the institution committed ``an actionable act
or omission and, as a result, the borrower suffered detriment of a
nature and degree warranting the relief provided by a borrower defense
to repayment as defined in this section.'' Sec. 685.401(b). The final
clause (``warranting the relief provided by a borrower defense to
repayment as defined in this section'') refers to the steps set forth
in Sec. 685.401(a)'s definition that comprise the remedy that BD
provides, which are (i) relief from future repayment obligations of
covered loans, (ii) reimbursement of all amounts paid to the Secretary,
and, where applicable, curing consequences related to (iii) default or
eligibility and (iv) adverse credit reporting. This general standard
supplies a claim's primary elements of actionable conduct, injury,
causation, and conditions justifying the remedy.
The Federal standard goes on to enumerate the different categories
of conduct that, if shown, may serve as a sufficient basis for
satisfying the general definition's first prong (``actionable act or
omission''). That is, the following subsections enumerate the ``acts or
omissions'' that fall within the scope of what is ''actionable'' for
purposes of BD, which are: substantial misrepresentation, substantial
omission of fact, breach of contract, aggressive and deceptive
recruitment, judgments, and final Secretarial actions. By structuring
the standard with general elements proceeding from the BD definition,
claims must satisfy each of those general elements to be approved under
any of the different conduct-related grounds for BD.
This simplified approach sets forth the shared elements of a claim:
actionable acts or omissions by the institution; detriment to the
borrower from having taken out a loan and enrolled; a causal link
between the school's conduct and the borrower's injury; and that the
appropriate remedy for such conduct and resulting injury is to
discharge the borrower's remaining repayment obligations, refund
payments already made to the Secretary, and take curative steps for any
prior consequences related to credit reporting or default. The first
three elements involve a factual determination about school's conduct
and its impact on the borrower. The final prong ties those elements to
the unique remedy that a defense to repayment provides. The section
below on ``Amounts to be Discharged/Determination of Discharge''
provides a more comprehensive discussion of the remedy that BD
provides.
The changes to the definition of a BD make several improvements
that clarify the standard and address various commenters' concerns.
Principally, a general definition accompanied by enumerated actionable
acts or omissions clarifies the shared elements without shoehorning
them into each specific way of establishing a defense to repayment.\54\
A definition of general elements also considers commenters' requests to
require that the act or omission be accompanied by one or more
variations of the elements of causation and detriment to the borrower.
---------------------------------------------------------------------------

\54\ In addition to bringing the shared claim elements one step
higher on the definitional tree, the modifier ``actionable'' also
defines the phrase ``actionable act or omission'' as a BD-specific
term that means one of the categories of conduct enumerated in Sec.
685.401(b)(1)-(5). That is intended to clarify that other instances
of the term ``act or omission'' in CFR, Title 34 may overlap with
the enumerated BD categories but are not necessarily coextensive.
---------------------------------------------------------------------------

For causation, the Department chose a straightforward general
element of causation instead of specific articulations such as reliance
and materiality. First, a general causation element fulfills the
function that reliance and materiality play in many actions for common
law fraud, but in a way that more appropriately reflects the unique
context of BD and student loans generally. Indeed, the decision to take
out Federal loans to pay tuition in exchange for education, training,
and credentials differs from the conventional context of common law
fraud. The core concern for BD is ensuring it is a remedy for injuries
caused by the identified acts and omissions, which is a concern that a
general causation standard more appropriately addresses.
General causation can also be expressed in terms that will make
more sense to a borrower. As numerous commenters observed, requiring
applicants to use specific phrases risks filtering out applicants who
do not understand terms with specific legal meanings instead of
focusing on the borrower's actual entitlement to relief. The Department
was also persuaded by concerns from commenters that reliance is a
complicated element to rebut because only the borrower will truly know
if they relied upon an act or omission. Causation, meanwhile, requires
describing factual circumstances that show a connection between the act
and the detriment to the borrower.
Detriment to the borrower is also a general element of a defense to
repayment. The Department opted for this element rather than the
suggestion of a few commenters to require borrowers to establish harm
in specific forms or financial quantities. As noted in the NPRM, the
Department is concerned that past requirements to establish harm have
set unrealistic bars for borrowers, such as ruling out factors like
regional or national recessions and a poor job-search process as causes
for a borrower's inability to find employment or denying relief to
borrowers who succeed despite their program. Requiring specific forms
or values of harm would present an unrealistic barrier for many
borrowers likely entitled to relief.
Furthermore, some comments on this topic appear to conflate the
fact of detriment with the measure of resulting harm for remedial
purposes.\55\ The ``detriment'' element ensures that an applicant or
group of applicants did, in fact, suffer harm caused by the relevant
act or omission. In the BD context, that will frequently take the form
of lost

[[Page 65921]]

value or economic loss as a result of the transaction to take out a
loan and enroll. Limits on the form or degree of that injury are more
appropriately treated as remedy-related issues, as explained in the
paragraphs that follow and in the ``Amounts to be Discharged/
Determination of Discharge'' section.
---------------------------------------------------------------------------

\55\ See Dan Dobbs & Caprice Roberts, Law of Remedies Sec. 3.1
(3d ed. 2018) (explaining the distinction between the fact of legal
injury and measures of harm caused for purposes of calculating
damages remedy).
---------------------------------------------------------------------------

A claim's final general element proceeds from the remedy for BD,
and involves a determination that the nature of the relevant acts or
omissions and resulting detriment warrant the remedy available in BD.
This feature of the updated definition and Federal standard, among
others, addresses many of the concerns raised by commenters
representing institutions or the interests of institutions. Regarding
the concerns these comments raise, an approved claim requires the
Department to conclude that the act or omission caused detriment to the
borrower such that the circumstances warrant the relief of removing the
borrower's obligation to repay the loan's remaining balance, refunding
amounts paid to the Secretary, and other benefits like changes to
credit reporting and determining that the borrower is not in default.
In making that determination, the Secretary will weigh the totality of
the circumstances, including the nature and degree of the acts or
omissions and of the detriment caused to borrowers, along with any
other relevant facts. As explained below, when making that
determination for cases involving closed schools, there will be a
rebuttable presumption that relief is warranted, which reflects the
Department's experience that the circumstances warranting such relief
are likely to exist in cases involving closed schools shown to have
committed actionable acts or omissions.
As we explain elsewhere, BD relief, though unique, bears features
of remedies like rescission, restitution, avoidance, reliance costs,
and an obligor's claims and defenses against the enforcement of an
unsecured loan. As rules and principles for those remedies reflect,
whether rescissionary relief is appropriate often depends on the facts
and circumstances of a particular case.\56\ Although we did not adopt
precise standards from these related areas of law, the Department
expects to draw on principles and reasoning underlying the application
of rescissionary remedies that BD resembles, where factual
circumstances call for it, and will make explanations of important
remedy-related determinations public. The relief available under BD and
determinations on whether certain circumstances warrant relief are
explained in greater detail in the ``Amounts to be Discharged/
Determination of Discharge'' section.
---------------------------------------------------------------------------

\56\ See, e.g., Restatement (Third) of Restitution & Unjust
Enrichment Sec. 54 (2011) (``Rescission is appropriate when the
interests of justice are served by allowing the claimant to reverse
the challenged transaction instead of enforcing it.''); Restatement
(Second) of Contracts Sec. 344 cmt. a (1981)(relief flexibly
tailored ``as justice requires'' to protect reliance and
restitutionary interests).
---------------------------------------------------------------------------

The Department considers this flexible inquiry superior to specific
benchmarks of cognizable harm requested by numerous commenters.
Principally, it corresponds more closely to the remedy of a discharge
and refund. As noted, the remedies that BD resembles generally call for
a weighing of equities and case-specific circumstances. Because of the
variety of interests involved in BD and the nature of the remedy it
provides, a similar approach is appropriate to incorporate into the
Federal standard. It also provides a limiting principle that addresses
the comments concerned that full discharges and refunds would be
warranted for trivial misstatements or borrowers with negligible harm.
As part of this determination, the standard provides for a
rebuttable presumption that applicants who attended closed schools and
otherwise establish a claim to relief are presumed to have suffered
detriment that warrants BD relief. This presumption is based on the
Department's experience that the circumstances in which BD has been the
appropriate remedy to date are in cases involving closed schools. This
does not mean that every alleged act or omission by a closed school
will warrant relief, nor does it mean that borrowers who attended a
closed school should expect the Department to automatically grant
applications for BD. In cases where a school closes but there is no
evidence of an act or omission that could give rise to a BD claim, the
HEA still provides a path for borrowers who are otherwise harmed by the
closure itself to get relief through the closed school discharge
process. Applicants for BD who attended closed schools will still have
to show, by a preponderance of the evidence, that the school committed
actionable acts or omissions that caused them detriment. Although there
is a presumption that such circumstances warrant BD remedies, it may be
rebutted by evidence or reasons suggesting that the circumstances do
not warrant the remedy of discharge and refund. The Department opted
for this presumption because it acknowledges the context and challenges
with obtaining additional evidence that often accompanies closed
schools, while also allowing the Department to exercise its discretion
based on the specific circumstances of each case.
Finally, the Department disagrees with the suggestion that the
regulations require a finding of intent or knowledge by the institution
for a BD claim to be approved. Requiring intent would place too great a
burden on an individual borrower, who would need to have some way to
know why the institution, or its representative committed the improper
act or omission. Moreover, if the action resulted in detriment to the
borrower that warrants relief, the Department does not believe whether
it was taken with knowledge or intent should be relevant. The borrower
still suffered detriment that warrants relief and so, if proven, should
be relieved of their repayment obligation. The inclusion of a
requirement that the action caused detriment to the borrower that
warrants the relief of a full discharge and refunds means that harmless
and inadvertent errors are unlikely to be approved. It is unlikely that
a trivial action caused detriment and the Department will most likely
not reach that conclusion. An error of consequence that causes
detriment to a borrower that warrants relief should result in relief,
however, regardless of whether it was made with knowledge.
Changes: We revised Sec. 685.401(b), the Federal standard for a
BD, to require the Department to conclude that the institution
committed ``an actionable act or omission and, as a result, the
borrower suffered detriment of a nature and degree warranting the
relief provided by a borrower defense to repayment as defined in this
section.''
We also added, in Sec. 685.401(e), the general parameters that the
Department will consider when determining whether detriment caused by a
school's act or omission warrants relief. This involves the Secretary
considering the totality of the circumstances, including the nature and
degree of the acts or omissions and of the detriment caused to
borrowers. The standard also provides that for borrowers who attended a
closed school shown to have committed actionable acts or omissions that
caused the borrower detriment, there will be a rebuttable presumption
that the detriment suffered warrants relief under this section.
Comments: The Department received many comments with differing
opinions on whether to presume reasonable reliance for an individual
claim, as well as a group one. A few commenters requested a more
explicit statement from the Department that we would presume reasonable
reliance for an individual claim. Others, however, argued that the
Department did not have

[[Page 65922]]

the statutory authority to use a presumption of reliance and did not
provide sufficient evidence for this proposal. These commenters also
argued that a presumption of reliance, coupled with the absence of
requirements such as showing harm, and the broad definitions of terms
like aggressive recruitment, would lead to the approval of frivolous
claims. Commenters also argued that concerns that borrowers fail to
state reliance do not provide legal grounds for adopting a presumption
in regulation. They argued that when agencies establish a presumption,
they typically do so using a rational nexus between the proven and
presumed facts and that the Department has not showed that would be the
case.
Commenters also disagreed with the Department's citation to
authority held by the Federal Trade Commission (FTC). The commenters
argued that the FTC can only employ its presumption when there is
proven widespread violations, which include material and widely
disseminated misrepresentations. The commenters argued that the
Department's proposed standard represented a lower bar than what the
FTC uses. The commenters also said the presumption does not comport
with Supreme Court rulings related to the application of presumptions
and stated that some misrepresentations as outlined in Sec. 668.72
must require a showing of individual reliance. Finally, a few
commenters stated that borrowers should bear the burden of proving
reliance. They noted that only the borrower knows if they relied upon a
particular act or omission, and it would be difficult for an
institution to rebut a presumption of reliance.
Discussion: We take seriously the concerns the comments express,
and have revised the amendatory text, where appropriate, but we
disagree with much of the commenters' reasoning.
Regarding concerns about applying a presumption of individual
reliance, the final regulation includes a general causation element in
the definition of BD that addresses this concern in some ways. In this
respect, approved claims must be based on a showing that a school's
actionable act or omission caused the borrower detriment. That showing
may be based on an inference of causation that does not meet the
strictures of a conventional common law fraud claim, but the Department
will not presume causation based on a borrower establishing an
actionable act or omission, standing alone. The general causation
requirement and the reasons for adopting it are explained in response
to other comments in this section.
The updated regulation does, however, retain the feature that
adopts a rebuttable presumption that identified acts or omissions
impacted each borrower in a group recommended for consideration under
the proposed Sec. 685.402. This is a logical feature of a process that
considers claims collectively.
Contrary to a few commenters' suggestions, this feature does not
permit a presumption where there is no rational nexus between the
established and presumed facts. Rather, the regulation contemplates
that a recommendation to consider certain borrowers' claims as a group
will stem from facts supporting a logical inference that certain acts
or omissions impacted members of the group in similar ways. For that
reason, the rebuttable presumption accompanying a formed group will
reflect a rational nexus between the proven facts and the presumed
facts.\57\
---------------------------------------------------------------------------

\57\ See Cole v. U.S. Dep't of Agric., 33 F.3d 1263, 1267 (11th
Cir. 1994).
---------------------------------------------------------------------------

Likewise, a rebuttable presumption does not change the burden of
persuasion, which will still require that the evidence show an
entitlement to relief by a preponderance of the evidence. For purposes
of schools' liabilities, the presumption will simply operate to shift
the evidentiary burden to the school, while still allowing the school
to rebut the presumption as to individuals in the identified group, or
as to the group as a whole. In any recoupment action related to such a
case, the members of the group will be identified. Although the group
may include borrowers who did not file an individual application, the
members of the group will be known as part of the fact-finding process.
Because the Federal standard now focuses on causation rather than
reliance, there is no need for the changes regarding presumptions for
individual claims that commenters requested.
We disagree that the Secretary lacks the authority to provide for
presumptions in the procedures for resolving BD claims. It is a well-
established principle that administrative agencies may establish
adjudication procedures that include evidentiary presumptions based on
logical inferences drawn from certain facts.\58\
---------------------------------------------------------------------------

\58\ Chem. Mfrs. Ass'n v. Dep't of Transp., 105 F.3d 702, 705
(D.C. Cir. 1997).
---------------------------------------------------------------------------

We also disagree with commenters' attempts to distinguish the
principles underlying presumptions drawn from FTC jurisprudence. The
presumptions that the FTC uses are not limited to contempt proceedings
and also apply in actions for restitution under Sec. 19 of the FTC
Act.\59\ What is more, commenters ignore key differences between FTC
enforcement and BD that underscore the Department's authority here.
First, the FTC actions that commenters reference involve civil
enforcement proceedings meant to encourage compliance with general
commercial standards and deter practices that financially harm
consumers in general. In contrast, the Department's BD-related
recoupment actions against schools involve the collection of discharged
loan amounts so that the party that caused the loss reimburses the
Government and taxpayers. That is, unlike the civil remedies that the
FTC deploys, the Department's BD-related proceedings with schools
simply involve the Department seeking reimbursement for liabilities
owed to the Department as a result of the schools' voluntary
participation in the title IV programs. Second and relatedly, the FTC's
enforcement authority stems from more than 70 different laws and covers
an extensive range of consumer interactions that make commercial actors
subject to the FTC's consumer-oriented jurisdiction simply by virtue of
engaging in economic activity with consumers. The scope of BD, on the
other hand, only encompasses Federal loans paid to schools through the
Department-administered title IV programs in which schools
affirmatively and voluntarily sought eligibility to participate. To be
eligible to participate in these programs, a school must also expressly
agree to be subject to the Department's regulations, which includes
assuming responsibility and liability for losses the Department incurs
from relevant discharges. See 34 CFR 685.300. Not only do the
regulations explicitly provide for such reimbursements, but they also
have included features like the presumption commenters reference long
before this rule. The 2016 regulation specifically provides for such
presumptions.\60\ Similarly, the 1994 regulation empowered the
Department to apply State law, which would include presumptions applied
in many jurisdictions. As we explained when the final 2016 regulations
were published, the presumption that those regulations codified did not
``establish[ ] a different standard than what [wa]s required under the
. . . [1995] regulations'' in place at that time.\61\ Indeed, as noted,

[[Page 65923]]

agencies retain the discretion to apply presumptions in the
adjudication process that are not codified in regulations at all so
long as a rational nexus exists between the relevant evidence and
presumptive inferences to be drawn from it.\62\
---------------------------------------------------------------------------

\59\ See, e.g., F.T.C. v. Figgie Int'l, Inc., 994 F.2d 595, 605
(9th Cir. 1993).
\60\ 34 CFR 222(f)(3).
\61\ 81 FR at 75971.
\62\ See Chem. Mfrs. Ass'n, 105 F.3d at 705.
---------------------------------------------------------------------------

The upshot of these differences is that the procedural steps
required for FTC presumptions are based on many reasons that do not
apply to the BD context. That obviates the need to recreate similar
procedures as a prerequisite to applying presumptions in BD-related
proceedings. That is particularly the case because recreating such
procedures would meaningfully hinder the efficient administration of BD
proceedings, which are an integral part of the Department's role as the
administrator of title IV Federal loan programs. The Department has
authority to administer those programs in a way that honors borrowers'
right under the HEA to raise a defense to collection of their loan and
that ensures schools satisfy the financial commitments and obligations
they undertake as a condition of title IV participation. Thus, the
interagency differences that the comments mention support the
Department's authority to craft a context-specific process for
resolving claims for BD.
Changes: The Department revised Sec. 685.401(b) to provide that,
to approve a claim, the Department must conclude the institution made
an actionable act or omission that caused detriment to the borrower
that warrants the relief provided under BD.
Comments: A few commenters argued that the Department should adopt
a plausible basis requirement for BD claims similar to the Federal
pleading standard. In this situation, the Department would assume that
well-articulated factual allegations are true and then determine
whether they give rise to relief. The commenters also argued that the
claimant should be required to state the claim with particularity as
required under certain elements of the Federal Rules of Civil
Procedure.
Discussion: We agree in part with the comments but disagree that it
would be appropriate to adopt specific pleading standards--whether
heightened or relaxed--drawn from civil litigation. Without adopting
specific standards, the Department has made revisions that address many
of the concerns expressed in these comments.
With regard to pleading standards, revisions to the regulations set
forth basic requirements for a materially complete individual claim
application. These requirements are discussed in greater detail in the
section in Process to Adjudicate Borrower Defense Claims, but their
core purpose is to increase the quality of and content in individual
applications by requiring an adequate description of the alleged acts
or omissions, along with their relevant circumstances, impact, and
resulting detriment. This differs from a particularity requirement such
as Federal Rule of Civil Procedure 9(b) but addresses some commenter
concerns.
The Department declines to adopt a plausibility requirement.
Principally, the BD adjudication process does not implicate the
plausibility standard's goal of resolving claims early to avoid
expensive and burdensome discovery costs.\63\ Nor does the BD process
implicate other pleading-related concerns of providing a defendant
adequate notice,\64\ because the Department is the party against which
borrowers assert a defense to repayment. Otherwise, we think the
updated guidelines for a materially complete application will
adequately address concerns about applications lacking sufficient
information.
---------------------------------------------------------------------------

\63\ See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007);
Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs.
Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 719 (2d
Cir. 2013).
\64\ See Fed. R. Civ. P. 8.
---------------------------------------------------------------------------

Accordingly, we clarify the definition of a materially complete
application to require that borrowers provide certain details that form
the basis of a claim, but we are not asking borrowers to provide
factual support for claim elements that they are unlikely to know or
have the ability to obtain, such as centralized corporate practices,
advertising plans, or the calculation formulas behind institutional job
placement rates.
Changes: We clarified the definition of a materially complete
application in Sec. Sec. 685.402(c) and 685.403(b) to require that
borrowers provide certain details that form the basis of a claim.
Comments: Some commenters raised concerns about whether the
Department would terminate or otherwise sanction institutions for past
behavior based upon new items in part 668, subpart F or the new part
668, subpart R. They raised concerns about institutions potentially
facing adverse actions for past conduct now covered by these additions.
Discussion: The Department notes that some of the changes to Part
668, subpart F represent items that are not new but have simply been
moved to other locations or slightly restated. Other elements in that
subpart, as well as part 668, subpart R are new. For the items that are
new, the Department could bring adverse actions in relation to conduct
that occurs on or after July 1, 2023 that violates those new
provisions.
Changes: None.
Comments: Some commenters argued that the Federal standard and its
relation to other prior standards would confuse borrowers and adds
unnecessary complexity.
Discussion: We disagree. As noted in the NPRM, the Department is
concerned that the fact that the current framework of associating a
regulation with a disbursement date can be very confusing for
borrowers, especially if their borrowing spans multiple regulations or
they consolidate. The single upfront Federal standard will reduce that
confusion. This approach avoids the possibility that different loans
held by the same borrower and related to the same allegations could
otherwise result in different adjudication outcomes, which would be
confusing.
Changes: None.

Substantial Misrepresentation

Comments: A commenter made several suggestions regarding the
definition of misrepresentations related to job placement rates in
Sec. 668.74. These included clarifying that these are
misrepresentations related to the use of placement rates in marketing
materials, not what is reported to accreditors or State agencies;
allowing paid internships of a certain minimal length to be considered
a placement; saying that placement rates can align with the methodology
historically accepted by an accreditor or State agency; counting
borrowers who were placed prior to graduation as part of a clear
disclosure; and, allowing for the exclusion of non-respondents after a
good faith attempt to contact them and alongside a disclosure. The
commenter also provided regulatory text to execute their suggested
changes.
Discussion: Sec. 668.74 (g)(1) already states that a
misrepresentation exists if the actual employment rates are materially
lower than the rates included in the institution's marketing materials,
website, or other communications, so we do not believe further
clarification is needed there. However, after reviewing Sec.
668.74(g)(1)(ii) we believe the phrasing there was not sufficiently
clear. Accordingly, we have revised Sec. 668.74(g)(1)(ii) to clarify
that the rates in question are the ones disclosed to students. In
reviewing the request for greater clarity we also concluded that the
language in 668.74(g)(1)(ii)(C) did

[[Page 65924]]

not fully capture the issues that the Department has seen in that
space. Accordingly, we clarified that language to say ``assessments of
employability'' in addition to difficulty with placement. This
addresses two issues the Department has seen. One is institutions
excluding borrowers from a placement rate solely because they did not
follow a strictly defined job search process as laid out by the
institution. The other is excluding students because the institution
thinks the person would have a hard time finding a job, which can
include someone who is pregnant. Regarding the other suggestions, we
believe it is important for the placement rates provided to borrowers
to be as straightforward as possible, and the comment did not provide
reasons for further limiting the grounds for misrepresentation set
forth in Sec. 668.74(g)(1)(ii)(A) through (C). We have, however,
deleted Sec. 668.74(g)(1)(ii)(D). The commenter noted that the
treatment of non-respondents could potentially also deflate placement
rates if someone who is placed does not respond. Given the potential
for the treatment of non-respondents to increase or decrease the
placement rate, we believe this provision is not as consistent in
resulting to rates that are overstated as paragraphs (A) through (C).
The Department also notes that the Federal standard for BD
incorporates misrepresentations as defined in Sec. 668.71(c), which
include representations to accrediting agencies, State agencies, and
others. Whether any such statement amounts to a substantial
misrepresentation will depend on whether it is false or misleading. For
purposes of BD, the Department would have to further conclude that the
misrepresentation misled a particular borrower and caused the borrower
detriment such that it warrants a full discharge and refund. Thus, not
every substantial misrepresentation under part 668, subpart F will
support a defense to repayment and the remedies it entails. In addition
to this flexibility, the regulations permit the Department to seek
additional evidence from requestors, when appropriate, and permit
schools with various opportunities to be heard. Given these features,
the Department disagrees that the definition of substantial
misrepresentation should be changed.
Changes: We have revised Sec. 668.74(g)(1)(ii) to clarify it
applies to rates disclosed to students. We have clarified Sec.
668.74(g)(1)(ii)(C) to note this also includes assessments of
employability. We have also deleted Sec. 668.74(g)(1)(ii)(D).
Comments: One commenter stated that the Department's proposal to
add false, erroneous, or misleading statements concerning institutional
selectivity rates or rankings as a form of misrepresentation was
confusing and pointed out possible inconsistencies in that approach.
Another commenter requested clarification on the Department's approach
to ``highly ranked and highly selective programs.''
Discussion: We appreciate the questions raised by the commenters.
The goal behind Sec. 668.72(m) is to capture misrepresentations in
which the institution misleads students into thinking the school itself
or a program it offers has selective entrance requirements when that is
not the case. The Department had attempted to capture this concept by
pointing to two different types of misrepresentations. The first type
would have been when the school's actual selectivity or admissions
profiles or requirements are materially different than how they were
presented by the school, such as representations making it seem to
students that a school is highly selective when it is in fact open
access. The other type would have been when an institution's actual
rankings are materially different from those advertised.
After reviewing the proposed language following questions from the
commenters, the Department has simplified the phrasing in Sec.
668.72(m) concerning selectivity rates to state: ``Institutional or
program admissions selectivity if the institution or program actually
employs an open enrollment policy.'' This language better captures the
concept in the first type of misrepresentation, which involves the
false presentation of an institution as selective when it is in fact
open access. We added ``program'' to this definition as well, to
acknowledge that some open-access institutions have individual programs
that are selective and thus would not trigger a misrepresentation under
this section.
In making this change, the Department deleted the components
related to admissions profiles and requirements, which are vague and
difficult to follow. We have also deleted the references to presenting
rankings that are materially different from those presented to others.
The Department is not aware of instances where an institution has
presented a ranking different than what a rankings organization
published. Instead, the Department has seen instances in which
institutions have presented incorrect data that resulted in the ranking
assigned being higher than it would otherwise have been and that
ranking is then advertised accurately. Accordingly, we have simplified
this type of misrepresentation to reflect past misbehavior observed at
institutions.
In response to the commenter who requested clarification on the
Department's approach to ``highly ranked and highly selective
programs,'' we decline to further elaborate as we have revised the
definition of this type of misrepresentation under Sec. 668.72(m).
Changes: We revised Sec. 668.72(m) to provide that
misrepresentation concerning the nature of an eligible institution's
educational program includes, but is not limited to, false, erroneous
or misleading statements concerning institutional or programmatic
admissions selectivity if the institution or program employs an open
enrollment policy.

Omission of Fact

Comments: The Department received numerous comments alleging
instances where institutions omitted facts about their academic
program. For example, a commenter stated that they discovered that they
needed additional certifications and training to be employed in the
field but only learned about this well after enrollment. This commenter
claimed that their institution did not inform them of the additional
requirements needed beyond the degree program, including subsequent
training or education, and had they known, they would not have pursued
the degree.
Discussion: The Department appreciates hearing about the
commenters' experiences. These reports, along with the Department's
oversight and compliance work, validate the Department's determination
to include an omission of fact as one of the bases for a defense to
repayment claim. Had institutions not omitted material information
about the nature of their educational programs, but instead disclosed
such information upfront, this could have resulted in a different
outcome for the student and negated the need for a defense to repayment
claim.
Changes: None.
Comments: Commenters requested that omission of fact be revised so
that an omission be considered a defense to contract performance only
when there is knowledge that omission makes it fraudulent, or contrary
to good faith and fair dealing, or trust and confidence.
Discussion: We disagree with comments requesting that actionable
omissions be required to meet conventional elements of common law fraud
or defenses to contract performance. Many of those elements

[[Page 65925]]

are intended to ensure proof that the omission caused the harm asserted
or formation of the relevant contract, respectively. We consider the
general causation element added to the definition of BD and the Federal
standard to adequately ensure a causal link between a potential
omission and the detriment to a borrower. We also note that the breach-
of-contract basis for showing an actionable act or omission does not
require fraud, but rather failure to perform an obligation promised in
exchange for the borrower's decision to enroll or take out a loan or to
accept a disbursement of the loan.
As for the omission-related element commenters sought, we note that
actionable omissions incorporate the definition of misleading conduct
from part 668, subpart F, which requires that the omission make the
school's interaction with a borrower misleading under the
circumstances. Otherwise, we disagree that an omission must be
accompanied by a specific duty to disclose or scienter requirement to
be actionable. Not only would those requirements be unrealistic for
borrowers to prove without the tools of civil discovery, but it would
overlook the realities of transactions at the core of student loans and
BD. In circumstances where the school's failure to disclose certain
facts causes the borrower to be misled, such circumstances should be
actionable. The updated regulations reflect that reality, but by adding
a general causation element, it also ensures that defense to repayment
is only available when such omissions are shown to have caused the
borrower detriment.
Changes: None.
Comments: Commenters representing the legal aid community expressed
support for the proposed condition in Sec. 668.75(a) about omissions
related to ``[t]he entity that is actually providing the educational
instruction, or implementing the institution's recruitment, admissions,
or enrollment process.'' These commenters noted that in their work they
have frequently found that borrowers report being dismayed when they
find out that someone, they thought was a school employee was in fact a
contractor. The commenters noted that these borrowers indicated that
they would have approached the conversation with a higher degree of
skepticism had they understood that they were speaking with a
contractor. Similarly, the commenters stated they heard concerns from
students who enrolled in online programs where the organization that
designed the curriculum and provided the instruction was not the same
as the institution under whose branding the program appeared. Other
commenters raised concerns that this condition would confuse borrowers
who may not understand the relationship between service providers and
the institution, and that organizations with trusted contractors do not
commonly require employment disclosures before discussions with
students or prospective students. A commenter also noted that
institutions sometimes use contractors to assist them during the
busiest parts of the financial aid year and asked if such a situation
would require disclosure that such a person is a contractor. That
commenter also asked why the requirement that contractors be identified
as third-party servicers with the Department is not sufficient to
address this concern.
Discussion: The Department appreciates the comments noting support
for its proposed rule on this issue. As commenters noted through
testimony from borrowers, had the student known they were talking to an
employee of the institution versus someone employed to recruit on
behalf of the school, that student would have changed their perception
of the transaction. While that does not necessarily mean they would not
still have enrolled, the borrowers did report that they would have
exercised a greater degree of skepticism than they otherwise employed.
Similarly, borrowers should be clear about who will be providing the
education in which they are investing. When a borrower enters into a
financial transaction as significant as attending college, they should
have sufficient clarity into the source of the education they are
purchasing. That means understanding if they will be receiving
instruction provided by employees of the institution or something that
is fully or partially outsourced. Knowing this information allows them
to more properly evaluate what they should be receiving at the outset
and should reduce concerns later that the education was not what was
promised.
With regard to the commenters who are concerned that requiring
employment disclosures would confuse borrowers, adding the requirement
in the Federal standard that the Department must conclude the act or
omission caused detriment to the borrower that warrants relief gives an
institution a framework to consider whether failing to disclose the
role of a contractor could meet such a standard. If failure to provide
such a disclosure does not meet this standard, then it would not result
in an approved borrower defense claim.
The reporting of third-party servicers to the Department is
insufficient to address this concern. The regulations at Sec. 668.25
provide the general framework governing the situations in which schools
may contract with entities to help with administering the title IV
programs but this relationship is largely unknown to students or
borrowers; these students and borrowers view the third-party servicer
and the institution as one and the same. Moreover, the regulations are
intended to address the responsibilities of the institution and third-
party servicer to the Department within the context of the title IV
programs. While both the school and the third-party servicer are liable
for any related actions by the third-party servicer, the school is
ultimately held accountable if a third-party servicer mismanages the
title IV programs. As noted by the commenters, a borrower's
understanding of whether they are talking to an employee or contractor
when making judgments about whether to enroll is important for making a
decision. Such information thus needs to be provided to the borrower if
failing to tell them could cause detriment to the borrower that
warrants borrower defense relief.
Changes: We revised Sec. 685.401(b), the standard for a borrower
defense to repayment, to provide that, to approve a BD claim, the
Department must conclude that the institution committed ``an actionable
act or omission and, as a result, the borrower suffered detriment of a
nature and degree warranting the relief provided by a borrower defense
to repayment as defined in this section.''
Comments: A few commenters requested that the Department make the
list of omissions exhaustive while deleting Sec. 668.75(e) (which
makes actionable any omission of fact regarding the nature of the
institution's educational programs, the institution's financial
charges, or the employability of the institution's graduates), saying
that category would lead to an overwhelming number of disclosures for
borrowers. Commenters noted that an exhaustive list of omissions would
give institutions more clarity. Similarly, a few commenters made
general requests for greater clarity and specificity. Some also
proposed a safe harbor for institutions if they provide documentation
that shows students received all disclosures already required under
other Department regulations. Other commenters asked the Department to
either include a list of required disclosures or incorporate by
reference the disclosures imposed by State and accrediting agencies so
that borrowers will know what they need to

[[Page 65926]]

receive, and institutions will know how to meet agency expectations.
Other commenters cited the types of statements they have in their
enrollment agreements that require students to acknowledge the
information received and that they understood it as a way of showing
the kind of evidence they would want to submit to disprove a borrower's
allegations.
Discussion: The concerns of the commenters are best addressed by
the Department's changes to the overall Federal standard that require
the act or omission to cause detriment to the borrower that warrants
relief. Adopting those elements will protect against the concerns
raised by commenters, such as that the omission of an unimportant piece
of information could lead to an approved claim. We believe our changes
give institutions clarity in thinking about whether an act or omission
may give rise to an approved borrower defense claim and eliminates the
need for additional specificity within the elements in Sec. 668.75.
The Department declines to make the list exhaustive, as the list of
misrepresentations is similarly non-exhaustive as a way of giving the
Department flexibility to identify other concerning acts or omissions
that may arise over time. The proposed safe harbor or list of
disclosures would be inappropriate because institutions are already
required to abide by the disclosure requirements in 34 CFR part 668,
subpart D (institutional and financial assistance information for
students), and such a safe harbor or list would mean just following the
Department's regulations even if the institution does so while still
failing to inform borrowers of other critical information that is not
explicitly provided. The Department appreciates the examples raised by
commenters of how some institutions ask borrowers to acknowledge the
receipt of certain information provided to them. That type of
information would be considered during the fact-specific review of a BD
claim.
Changes: We revised Sec. 685.401(b), the standard for a borrower
defense to repayment, to provide that, to approve a claim, the
Department must conclude that the institution committed ``an actionable
act or omission and, as a result, the borrower suffered detriment of a
nature and degree warranting relief provided by a borrower defense to
repayment as defined in this section.''

Breach of Contract

Comments: Many commenters wrote in expressing support for the
inclusion of a breach of contract standard.
Discussion: The Department thanks the commenters for their support
and agrees with the importance of including this as an element of an
approved borrower defense claim.
Changes: None.
Comments: Many commenters opposed the inclusion of breach of
contract and asked for its removal. They said that the Department
lacked the statutory authority to include it. Some argued that a breach
of contract would either be a misrepresentation or an instance where a
college closed and that anything in between was too vague to include. A
few commenters also argued that the Department lacked the ability to
properly interpret State contract law and did not specify how it would
reconcile State contract law with Federal law. Commenters also argued
that the Department should not preempt State remedies for breaches of
contract and noted that the lack of a limitations period for filing a
borrower defense claim was contrary to limitations that may apply to
contracts.
Discussion: We disagree with the commenters who said that we lacked
the statutory authority to include breach of contract as an act or
omission. As we've explained throughout the NPRM and this final rule,
Sec. 455(h) of the HEA requires the Secretary to specify in regulations
which acts or omissions of an institution of higher education a
borrower may assert as a defense to the repayment of a Direct Loan and
the Department is asserting, and explains in detail,\65\ that a breach
of contract is an appropriate act or omission to include in the
borrower defense Federal standard.
---------------------------------------------------------------------------

\65\ 87 FR at 41893.
---------------------------------------------------------------------------

The commenters mischaracterize the Department's regulations. Under
these regulations the Department will only determine whether the
borrower has stated a basis for a BD claim on their Direct Loan based
on the alleged breach of contract by the school. This determination
resolves the borrower's qualification for a Federal benefit and does
not make any determination of the rights of the parties under the
contract itself or under the State laws which apply to those contracts.
While we acknowledge that a breach of contract could be a
misrepresentation, in some instances a breach of contract claim may
very well not fit into the Department's substantial misrepresentation
standard. Where a breach of contract does not meet the elements of
substantial misrepresentation, borrowers would have a basis for a BD
claim based on the institution's failure to deliver educational
services per the contract. We also explain in the NPRM why we were
convinced to include breach of contract in the Federal standard and
concluded that borrowers may be able to allege breach of contract more
readily.\66\
---------------------------------------------------------------------------

\66\ 87 FR at 41893.
---------------------------------------------------------------------------

We further dismiss any notion that the Department's inclusion of
breach of contract would be too vague to include in the Federal
standard. A breach needn't be an extreme case such as, for example, a
closed school. Because a breach of contract is a cause of action that
is well established with the same basic elements in the laws of all
States, territories, and the District of Columbia, codifying breach of
contract in the Federal standard in the area of contracts between the
student-institution would ensure consistency and predictability in this
area. Furthermore, it is a common practice for the standards in Federal
regulations draw on common law concepts and principles.\67\
---------------------------------------------------------------------------

\67\ See, e.g., 12 CFR 51.7(c) (authority of receiver of
uninsured bank; includes powers under ``the common law of
receiverships''); 12 CFR 109.24(c) (privileges in agency proceeding;
includes those that ``principles of common law provide''); 20 CFR
404.1007(a) (existence of employer-employee relationship; based on
``common-law rules''); 26 CFR 1.385-1 (tax treatment of interests in
a corporation as stock or indebtedness; ``determined based on common
law''); 38 CFR 13.20 (veterans benefits; spousal relationships
include ``common law marriage''); 45 CFR 160.402(c) (organizational
liability for civil penalties; ``Federal common law of agency'').
---------------------------------------------------------------------------

Changes: None.
Comments: A few commenters requested that the Department clarify
what constitutes a contract for purposes of a borrower asserting a
defense to repayment under a breach of contract. They said otherwise
the proposed standard is too vague and overbroad.
Discussion: For purposes of BD, the terms of a contract between the
school and a borrower will largely depend on the circumstances of each
claim. As we stated in the NPRM for the 2016 regulations, a contract
between the school and a borrower may include an enrollment agreement
and any school catalogs, bulletins, circulars, student handbooks, or
school regulations.\68\ 81 FR at 39341. We decline to clarify the
elements of what constitutes a contract because that is a fact-
intensive determination best made on a case-by-case basis. We also
acknowledge that

[[Page 65927]]

State law generally guides what constitutes a contract and that such
laws vary among States. Similar to our position in 2016, the Department
intends to make these determinations of what constitutes a breach of
contract consistent with generally recognized principles applied by
courts in adjudicating breach of contract claims. To the extent that
Federal and State case law has resolved these issues, we will be guided
by that precedent. Application of the standard will thus be guided but
not controlled by State law. Moreover, the Department will continue to
evaluate claims as they are received and may issue further guidance on
this topic as necessary.\69\
---------------------------------------------------------------------------

\68\ See Ross v. Creighton Univ., 957 F.2d 410, 416 (7th Cir.
1992). In describing the limits of a contract action brought by a
student against a school, the Ross court stated that there is `` `no
dissent' '' from the proposition that `` `catalogues, bulletins,
circulars, and regulations of the institution made available to the
matriculant' '' become part of the contract. See 957 F.2d at 416
(citations omitted). See also Vurimindi v. Fuqua Sch. of Bus., 435
F. App'x 129, 133 (3d Cir. July 1, 2011) (quoting Ross).
\69\ 81 FR at 75944.
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Changes: None.
Comments: One commenter stated it was unclear if an act or omission
in Sec. 685.401(a) must directly relate to or give rise to the breach
of contract or must itself constitute the breach of contract.
Discussion: Consistent with the Department's interpretation of its
authorizing statute, the act or omission by the school must be the
breach of contract itself. We are clarifying, however, that the breach
of contract must be related to the BD claim.
Changes: We revised Sec. 685.401(b)(3) to state that a borrower
has a defense to repayment if the institution failed to perform its
obligation under the terms of a contract with the student and such
obligation was undertaken as consideration for the borrower's decision
to attend, or to continue attending, or for the borrower's decision to
take out a covered loan.
Comments: One commenter expressed concern that the breach of
contract standard fails to protect institutions for situations out of
their control. They pointed to the COVID-19 pandemic, the need to move
classes online, and the resulting lawsuits.
Discussion: We believe that the changes we have made to the
proposed regulations address the commenter's concern. A breach of
contract is a defense to repayment only if the institution failed to
perform its obligations under the contract and the obligation was
consideration for the borrower's decision to attend or continue
attending the institution or for the borrower's decision to take out a
covered loan. We believe that this additional language will largely
limit the approval of BD claims based on a breach of contract to those
within the institution's control or those that the institution could
have avoided.
Changes: We revised Sec. 685.401(b)(3) to state that a borrower
has a defense to repayment if the institution failed to perform its
obligation under the terms of a contract with the student and such
obligation was undertaken as consideration for the borrower's decision
to attend, or to continue attending, or for the borrower's decision to
take out a covered loan.

Aggressive and Deceptive Recruitment

Comments: Many commenters approved of the Department's definition
of aggressive and deceptive recruitment tactics or conduct (hereafter
``aggressive recruitment'') and supported the inclusion of this
category. They shared examples from borrowers of aggressive
recruitment. Other commenters expressed concern that the proposed
definition and its terminology were vague. Commenters said this could
result in the Department approving claims even if the information the
institution presented to the borrower was accurate and without
omission; such commenters suggested that the Department be required to
make a determination of reasonable, actual reliance and material harm
to the borrower's detriment with respect to aggressive recruitment.
These commenters alleged that the terms ``take advantage,''
``pressure,'' ``immediately,'' ``repeatedly,'' and ``unsolicited
contact'' are ambiguous and further definitions are necessary to
educate institutions and clarify what evidence would be required to
allege or defend such a claim. Commenters raised similar concerns about
the reference to ``threatening or abusive language or behavior.''
Commenters asked for more guidance on what it would take to disprove
allegations under each prong. Commenters also raised concerns about
what it would mean to ``take advantage'' of a student's lack of
knowledge or experiences in postsecondary education if they were
unaware of a given student's background or circumstances. Other
commenters claimed the definition of aggressive recruitment is not
supported by statute and does not provide reasonable clarity to
students, institutions, or the public. Many commenters called for
removing aggressive and deceptive recruitment from the Federal
standard. Others did not call for the removal of the standard but did
express concerns about how to distinguish aggressive recruitment from
typical institutional contact, such as notifying students about
impending deadlines. Along similar lines, a commenter identified
situations where there are in fact hard deadlines for students where
communicating urgency is important. Others also raised concerns about
how Sec. 668.501(a)(1) would affect situations where the program does
in fact have limited spots. Similarly, other commenters argued that the
acts or omissions covered under subpart R would not be prohibited by
any existing State laws. Other commenters argued that any elements that
led to an approved borrower defense claim under subpart R would already
be captured under misrepresentations or omissions.
Several commenters expressed confusion about the phrasing in Sec.
668.500(a) that says aggressive and deceptive recruitment is prohibited
in all forms, including ``the effects of those tactics or conduct''
that are reflected in the institution's marketing or promotional
materials, among other things. They said it is unclear how the effect
of a tactic can be expressed in marketing materials. Other commenters
suggested that Sec. 685.501(a)(3) be rewritten to require the
institution took ``unreasonable'' advantage instead of just advantage
of the student. Many commenters also expressed concerns about Sec.
685.501(a)(5) saying it was unclear how failing to respond to
information could be considered aggressive recruitment and expressing
concerns about how to handle excessive requests for information from
borrowers. One commenter asked for a safe harbor tied to this provision
if they could show that an institution provided necessary information
at some point during the enrollment process. Several commenters in the
cosmetology sector also provided examples of mandated disclosures
required by their accreditor in which students sign agreements noting
that they understood provisions about an institution's programs and
courses, among other things. They asked how that would interact with
aggressive recruitment.
Discussion: Section 455(h) of the HEA requires the Secretary to
specify the acts or omissions that would give rise to a successful BD
claim. As with misrepresentations and omissions of fact, the concepts
underpinning aggressive and deceptive recruitment resemble many causes
of action under State law,\70\ with the common attribute of being
practices that prevent the consumer from making an informed decision
free of manipulation and misinformation. The items laid out in the
definition of aggressive recruitment provide more detailed examples of
conduct that would fall under this

[[Page 65928]]

category, however, because States typically do not have consumer
protection laws that are specific to postsecondary education. As the
NPRM explained, this reflects the Department's experience that certain
practices are particularly likely to mislead prospective borrowers,
especially borrowers that are targeted for recruitment because of
specific vulnerabilities.
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\70\ See, e.g., Kan. Stat. Sec. 50-627; Ohio Rev. Code Sec.
1345.03; Mich. Comp. Laws Sec. 445.903; N.J. Stat. Sec. 56:8-2.
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We disagree with commenters who state that our definition of
aggressive recruitment is not supported by statute and does not provide
reasonable clarity to students, institutions, or the public.\71\
Section 432 of the HEA states that the Secretary has the authority to
issue regulations deemed necessary to carry out the purposes of the
program and to establish minimum standards for sound management and
accountability of the programs. Furthermore, Sec. 498 of the HEA (20
U.S.C. 1099c) provides that the Secretary determines and institution's
administrative capability. These authorities give the Secretary
adequate basis for defining aggressive recruitment for oversight
purposes and as an act that would give rise to a defense to repayment
claim.
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\71\ At least one comment suggested that the Department was
somehow relying on state deceptive-practices or consumer-protection
causes of action to incorporate this basis for relief. Although
those types of claims may overlap with this prong of a BD claim,
there are also many practices that could amount to cognizable state
claims but would nonetheless fall short of a claim warranting
discharge, refund, and the other relief provided by BD. In this
respect, BD is not coextensive with all deceptive, unfair, or
otherwise actionable practices that might serve the basis for a
claim under state law. The same observations apply to comments
asking that we adopt the CFPB's definition and application of the
term ``abusive.'' See 12 U.S.C. 5531(b). The Department may look to
the application of that term by the CFPB and other agencies as a
reference.
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In keeping with the other grounds for BD that emphasize the
importance of borrowers making enrollment and borrowing decisions
uncorrupted by misinformation and manipulation, the specific conduct in
the definition of aggressive recruitment is derived from what the
Department has seen in its own oversight work as well as in State and
other Federal investigations into conduct by postsecondary
institutions.\72\ Indeed, regulators at the State and Federal level
have long recognized that consumers may be misled not just by a
seller's communications, but by the pressure a recruiter or salesperson
can create.\73\ As we explain in the NPRM, we incorporated some of the
negotiators' proposals on aggressive recruitment, consulted with the
FTC, and analyzed other Federal laws on unfair, deceptive, and abusive
acts or practices (UDAP).\74\
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\72\ See, e.g., Complaint ]] 14, 25, 65, California v. PEAKS
Trust 2009-1, No. 20STCV35275 (L.A. Cty., Cal. Super. Ct. filed
Sept. 15, 2020) (documenting aggressive tactics to leverage student
borrowing decisions); S. Comm. on Health, Educ., Labor & Pensions,
Rep. on For Profit Higher Education, S. Doc. No. 112-37, at 67-73
(2d Sess. 2012) (similar). The Department's own findings have also
observed the harmful effects of aggressive and deceptive recruitment
tactics. E.g., Westwood Exec. Summary, supra note 24, at 1-2
(``aggressive sales tactics'' paired with ``a high-pressure sales
environment where recruiters made false or misleading statements to
prospective students to persuade them to enroll''); ITT Tech. Exec.
Summary, supra note 24, at 1-2 (same).
\73\ See, e.g., 37 FR 22933, 22937 (Oct. 26, 1972) (``FTC
Cooling-Off Rule'') (explaining the prevalence of high-pressure
sales tactics ``designed to create . . . desire for something [a
consumer] may not need, or cannot afford'').
\74\ 87 FR at 41894; see, e.g., 12 U.S.C. 5531(d)(2)
(unreasonable advantages); 15 U.S.C. 1692 (FDCPA prohibitions on
unsolicited contacts); 940 Mass. Code Regs. 31.06(9) (declaring
high-pressure sales tactics on the part of for-profit colleges
unfair).
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We disagree with commenters who state that a BD claim that is
approved under subpart R would be captured as a substantial
misrepresentation or substantial omission of fact. In the NPRM, we cite
our reason for including this new designation of acts or omissions as
its own category. To those same points, aggressive and deceptive
tactics capture a category that is in keeping with the other types of
acts or omissions that are actionable, because based on the
Department's experience, the combination of deceptive statements and
aggressive tactics may coerce borrowers in such a way that in their
enrollment or borrowing decisions they are similarly deprived of the
right to make such consequential choices free of misinformation and
manipulation. While these misrepresentations or omissions might not, on
their own, amount to an act or omission that causes detriment
warranting relief, when combined with aggressive sales tactics, it may
deprive borrowers of the right to make a full and informed choice.\75\
Borrowers who are misled by this combination of aggressive and
misleading conduct may otherwise be unable to successfully make out a
BD claim under the specific grounds of a substantial misrepresentation
or omission. Retaining aggressive and deceptive recruitment as its own
category ensures these borrowers have a pathway to relief. There are
also instances where aggressive recruiting on its own could lead to an
approved BD claim even if it does not involve additional
misrepresentations. The Department has seen instances where
institutions use aggressive recruitment tactics such as: actively
discouraging borrowers from seeking information from other sources;
presenting information so quickly that borrowers cannot fully ascertain
the true price of the program; and, failing to give the borrower the
information and time to assess how much financial aid they would
receive, how long the program will take, or what type of job
opportunities they would be qualified for after completing the program.
Such recruitment tactics could lead to a borrower enrolling without
fully understanding the program they are purchasing and may thus end up
spending significantly more money for the program than they expected,
or not be qualified

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