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Stakeholders Gather for Final Borrower Defense Neg Reg Session

By Allie Bidwell, Communications Staff

Negotiators reconvened in Washington, DC this week for the third and final session of negotiated rulemaking for borrower defense to repayment. While the goal of the negotiated rulemaking process, or neg reg, is for the committee to come to a consensus on regulatory language, the group got off to a slow start as discussions stalled on recurring points of contention.

The committee hit a snag midway through the morning when one negotiator reiterated concern with the basis of the first issue — whether to establish a federal standard at all. The negotiator, John Ellis of the Texas Attorney General office, said he was skeptical of establishing a federal standard.

“Our topline concern is that we are trying to create an entirely new standard with new language, much of which … I don’t know what it means,” Ellis said, referencing changes the Department of Education (ED) made to provisions such as the standard of evidence used to support a borrower defense claim. At the same time, he said he recognized that ED applying 50 different state standards is “unworkable.”

After delaying the 2016 borrower defense regulation, Education Secretary Betsy DeVos said claims would be processed under the existing regulation, which was written in the early 1990s. Under that regulation, the federal standard essentially defers to state statute. In a notice to be published in the Federal Register on Wednesday, ED said it is again delaying the implementation of the 2016 regulations to July 1, 2019, the same date that the regulations being negotiated now are scheduled to take effect

During a public comment period at the end of the day, Rep. Mark Takano (D-CA), who sits on the House Education and the Workforce Committee, gave an impassioned speech regarding the regulations and the neg reg process.

“It is telling and troubling that the best opportunity for me to provide feedback on the borrower defense rule is at an open, public comment period,” he said. “I strongly encourage Secretary DeVos to appear before Congress to discuss the administration’s education agenda, including the funding cuts proposed in the president’s budget this morning.”

He went on to say he believes ED is “on the verge of betraying the students and taxpayers it is supposed to serve.” Takano detailed the abuses he said he has seen within the for-profit sector and urged ED and the committee to take action. He also took issue with the apparent slowdown of borrower defense application processing since the Trump administration took office.

“[ED’s] refusal to process existing borrower defense applications is forcing thousands of students to put their lives on hold,” Takano said. “And [DeVos’] description of borrower defense applicants as seeking ‘free money’ was an insult to students, veterans, and families who have had their futures derailed by a for-profit institution.”

Ellis, of the Texas attorney general office, said he was also concerned that the group might establish a federal standard that was significantly higher or lower than state law. Consumer representatives, such as Abby Shafroth of the National Consumer Law Center, said they shared those concerns and felt the draft regulatory language ED provided the committee would establish a much tougher standard for borrowers.

ED’s proposal, Shafroth said, would create a standard that “departs substantially from the consumer protections for students that have long existed in state law.” Creating this standard, she continued, “would seem to invite or allow more abuses” than would currently be allowed under state consumer law. The federal standard, she emphasized, should be the floor rather than the ceiling. That way, if a given state didn’t meet the minimum standards, students would still have a pathway to relief.

Likewise, William Hubbard, vice president of government affairs for the Student Veterans of America, said the two standards “are not in competition, and setting it up as such is a false analogy.”

Throughout the day, the committee members’ progress was hindered as negotiators debated other nuanced provisions, such as the standard of evidence. The 2016 borrower defense regulations used a preponderance of evidence standard, and a previous draft from ED during this neg reg session suggested using the more strict “clear and convincing” standard. During the last session in January, some negotiators suggested that a standard in the middle would be more appropriate.

The draft regulatory language distributed this time around suggested borrowers would receive relief “if the substantial weight of the evidence” demonstrated that a misrepresentation occurred, or that the borrower had obtained a “final, definitive” judgment from a federal or state court or an arbitrator.

Although ED officials said this standard was intended to be a compromise, negotiators representing both students and institutions from different sectors took issue with the fact that it is not clearly defined in law.

Negotiators also again circled back to debate on whether there should be a statute of limitations on borrower defense claims, and if so, how long that timeframe should last. Previously, some negotiators were clear that they would not support a rule that did not include some sort of statute of limitations, while consumer advocates said they would prefer no statute of limitations. In the most recent draft regulatory language, ED proposed implementing a statute of limitations of “within three years of the date the borrower discovered, or reasonably should have discovered, the misrepresentation.”

Proposals for alternatives ranged from having no statute of limitations to timeframes between three and 10 years, with the triggering effective date ranging from the date a student became aware of the misrepresentation, to the date a student graduated or withdrew from school.

Negotiators also spent a substantial amount of time debating one paragraph toward the beginning of the issue paper, which specified the conditions under which borrowers could assert a borrower defense claim. Specifically, negotiators focused on a phrase stating a borrower “may assert a borrower defense claim regarding the ‘provision of educational services’ for an act or omission of  an institution” concerning a number of factors, such as the employability of graduates, or the nature of an institution’s financial charges.

Some negotiators said they were concerned the language as written wouldn’t allow for misrepresentations made regarding graduates’ earnings, or those made with regard to an institution’s career services. Other negotiators said they felt it was necessary to keep parameters around this section of the regulation to avoid opening institutions up to claims that they said might not be legitimate borrower defense claims.

In the end, ED officials said they would attempt to return Tuesday with revised regulatory language for the group to consider for the first of eight issue papers.