BDR Activity on the Rise Amid Unclear Rules and an Executive Effort to Delete Student Loan Debt; Who will Pay the Tab?
Bricker Graydon
October 20, 2023
Borrower Defense to Repayment (BDR) refers to the administrative process by which borrowers apply to the U.S. Department of Education (ED) to have their federal Direct Loans discharged based on allegations of school misconduct related to the loans or educational services the school provided. A successful application can result in discharge of the borrower’s loans and a refund of payments already made. For schools, a student’s successful application can result in ED initiating proceedings to collect from the school the amount discharged and refunded to the borrower. If there is a common set of facts between multiple borrowers, ED can initiate a class action for collection of discharged debt related to multiple borrowers.
The influx of BDR activity appears to be part of a larger scheme. It is no secret that the Executive branch is attempting to reduce the impact of student loan debt on borrowers, but such efforts have been stopped or stalled by the courts. The Biden administration’s effort to cancel up to $400 billion in student loans for as many as 43 million American’s was deemed an overstep of authority by the U.S. Supreme Court under the “major questions” doctrine in June 2023. Soon after, in August 2023, the Fifth Circuit enjoined ED from enforcing new BDR regulations that were effective July 1, 2023. The new BDR regulations expanded what would be considered “misrepresentation” by schools and create a presumption schools do not contest the BDR claim if the school does not respond within 90 days of ED’s notice. The preliminary injunction will last until at least November 2023.
