NASFAA

Borrower Defense Neg Reg Day 3: Reconsideration of Claims, Partial Relief, Financial Responsibility, and Arbitration Agreements

By Allie Bidwell, Communications Staff

The negotiating committee tasked with attempting to rewrite a federal borrower defense to repayment rule made progress on Wednesday, tackling several more issues outlined for discussion, including the process to reconsider claims, whether to grant partial relief in some cases, what institutions must do if they are found to not be financially responsible, and disclosures associated with pre-dispute arbitration requirements.

After two days of slow discussions, the committee worked its way through half of the issue papers that detail the issues the negotiators must discuss and ideally come to a consensus on. The group began with discussion on a process for the Department of Education (ED) to reconsider denied claims.

As the draft regulation is currently written, a borrower would have the opportunity to request that ED reconsider a claim that is denied in full or in part “upon the submission of newly discovered evidence which supports the borrower’s claim.” Likewise, an institution could ask ED to reconsider a claim that is granted in full or in part upon the submission of newly discovered evidence. In both instances, ED defined newly discovered evidence as “relevant evidence that the borrower or the school, with reasonable diligence, could not have discovered” prior to the decision on the claim.

Some negotiators expressed concern that students might not realize what information is or is not relevant upon submitting their claim, and because under the draft regulation they would not have the opportunity to see evidence submitted by the institution, they might be denied the opportunity to submit new evidence that may not be considered “newly discovered.” Several negotiators suggested that the borrower should be able to see — and rebut — any evidence submitted by the school before a final decision is issued.

There was tentative agreement to include some provision that allowed both the borrower and the institution to see any evidence submitted and provide additional information after that discovery period. The group also seemed to agree to change language in the definition of newly discovered evidence to define it as relevant evidence that the borrower or the institution did not previously submit and was not relied upon by ED in its decision.

The group again discussed the idea of partial relief in some situations. While student representatives and consumer advocates at the table strongly contended that partial relief would be unacceptable, and that there should at least be the presumption of full relief, other negotiators said there are circumstances in which full relief may go a step too far.

Chris De Luca, an attorney representing small proprietary institutions, said partial relief might be more appropriate in a situation where a student finishes his or her program, is licensed in a profession, and obtains a job.

“If it’s all or nothing, we’re going to give nothing when partial relief might be appropriate,” he said.

De Luca also asked ED officials to provide some language as to how exactly partial relief would be determined.

“If we’re creating a rule that’s going to last for multiple administrations … it would be nice to have some understanding and some parameters on this,” he said. There should be expectations, he said “to know it’s not just up to the discretion of whoever happens to be sitting in the White House.”

Other negotiators questioned whether ED would apply the same calculations used to determine partial relief in its recently-announced “tiered relief” system for some current claims.

Annmarie Weisman, ED’s negotiator, said the tiered relief was put in place for Corinthian Colleges borrowers because ED had information for those borrowers that it might not have for other borrowers, and therefore, that method might not be included in a future rule.

“That method may not be appropriate going forward,” she said. “The goal here is not to revisit the past, but to be forward-thinking and look into the future.”

She went on to say that ED’s position “has been for quite some time now” that there will be an assumption that there will be partial relief in some cases.

“We’ve never presumed full relief,” she said. “We would expect to see these regulations include methods for that, or at least the underlying tone that it’s expected.”

William Hubbard, vice president of government affairs at the Student Veterans of America, suggested that there should be a presumption of full relief, with an explanation from ED in cases in which they decided to grant partial relief. Of the multiple proposals put forward to amend the language, Hubbard’s appeared to garner the most support.

The group then moved on to the third issue paper, which discussed financial responsibility and administrative capability. ED proposed to expand the types of financial protection institutions shown to not be financially responsible may provide. ED also proposed recalculating the composite score for institutions that incur liabilities from borrower defense claims.

As an alternative to submitting a letter of credit for a certain amount, an institution would also be able to provide cash for the amount required, or “enter into an arrangement under which the Secretary offsets the amount of Title IV, HEA program funds that an institution has earned in a manner that ensures that, no later than the end of a nine-month period, the amount offset equals the amount of financial protection the institution is required to provide.”

In the afternoon, the committee then pushed through the fourth issue paper, which focused on pre-dispute arbitration agreements, class action waivers, and their associated disclosures.

Several negotiators took issue with the fact that ED walked back on prohibiting pre-dispute arbitration agreements, as it did in the 2016 rule. Several months ago, ED said after a reevaluation, it decided it did not have the authority to prohibit pre-dispute arbitration agreements. However, in the draft regulatory language, ED proposed requiring additional disclosures for institutions that do choose to use those types of requirements.

Some negotiators representing institutions were also concerned that the wording of the draft regulation would also require institutions not using those agreements or waivers to make additions to their entrance and exit counseling. However, Brian Siegel, deputy assistant general counsel and acting assistant general counsel for ED, clarified that institutions would only be required to make those disclosures or provide additional counseling if they used pre-dispute arbitration agreements or class action waivers.

Alyssa Dobson, director of financial aid and scholarships at Slippery Rock University, also suggested decoupling the process from entrance and exit counseling, and renaming it to show that it is a separate process focused on explaining any pre-dispute arbitration requirement or class action waiver and institution uses.

While ED officials maintained that they do not have the authority to ban pre-dispute arbitration agreements, some negotiators pushed them to consider requiring making the proceedings available to the public.

“I’m afraid this issue paper is trying to address the wrong problem,” said Abby Shafroth of the National Consumer Law Center. “I don’t think the problem … is that there isn’t a disclosure to students. Frankly, I don’t think the disclosures matter. I don’t think adding all these additional requirements is going to do anything to protect students or taxpayers.”

“Arbitration is the secretive process that takes complaints out of the public eye and puts them into a secretive chamber,” she continued. “It silences legitimate complaints.”

Student representative Joseline Garcia, president of the United States Student Association, pressed ED to explain how it felt the proposed language would “limit the abuse of arbitration agreements by institutions.”

Weisman said from ED’s perspective, it would give the issue more attention in the public, and for prospective and current students.

“Our feeling was there were some limitations based on other guidance what we could do,” she said. “This was something we felt we could do. That’s not to say we’re not open to other ideas. But we’ve been told we can’t ban it. If we can’t ban it, we can show the spotlight on it.”

Toward the end of the day, the group began its discussion on the fifth issue paper focused on closed school discharges. In the draft regulatory language, ED proposed amending the requirements to reflect current practice, which requires borrowers submitting an application rather than a sworn statement. It also proposed to expand the window for discharges from 120 days to 150 days. The committee will continue its discussion on closed school discharges on Thursday, and will move through the remaining three topics focused on false certification, guaranty agency collection fees, and subsidized usage period recalculation.