1. Regulatory Reform Update
2018 Legislative Conference
Shelly Repp, NCHER

2. ED currently conducting two negotiated rulemakings:
Revising 2014 gainful employment regulation
Revising 2016 borrower defenses regulation

3. Gainful Employment Neg Reg
For for-profit college programs and non-degree programs at nonprofit colleges, HEA defines an “eligible program” to include a program that provides “training to prepare students for gainful employment in a recognized occupation.”

4. Gainful Employment Neg Reg
No regulatory definition until 2014, when ED issued regulations establishing standards and requirements.
Standards include:
Accountability measure
Transparency
School certifications
School Reporting

5. Gainful Employment Neg Reg
Key metric is debt to earnings (D/E)
Debt is the annual loan payment calculated by amortizing median loan debt of program completers
Earnings is higher of mean or median annual earnings of program completers, calculated by SSA

6. Gainful Employment Neg Reg
Grading:
GE program considered “passing” if D/E rate< 8% (or < 20% of discretionary income)
GE program considered “failing” if D/E rate > 12% (or > 30% based on discretionary income)
In between “in the zone”

7. Gainful Employment Neg Reg
Sanctions:
Program loses eligibility if it fails 2 out of 3 years or fails or is “in the zone” for 4 consecutive years
Any program that could lose eligibility based on the following year’s D/E rate must provide a warning to current and prospective students

8. Gainful Employment Neg Reg
Issues:
Should rule apply to all programs or just GE programs
Is D/E rate the appropriate metric, or should it be eliminated
Should D/E rates be used to determine eligibility and sanctions
Should D/E rates be included in transparency disclosures
Will program disclosures alone be effective in helping enrolled and prospective student identify lower performing programs
Can appeals be streamlined (American Association of Cosmetology Schools case)
What data will schools be required to report
Should school certifications (that program is approved by accreditors and state, and satisfies educational prerequisites for licensure) be retained

9. Borrower Defenses Neg Reg
ED is revisiting the borrower defenses to repayment regulation published 11/1/16. Obama administration estimated that this regulation would cost tax payers $14.9 billion over 10 years. ED says it wants a rule that’s fair to both borrowers and tax payers. Neg Reg also covers other issues included in 2016 rule.

10. Borrower Defenses Neg Reg
Existing rule dates from beginning of Direct Loan Program, but has been seldom used. Borrower needs to establish existence of act or omission by school that would give rise to cause of action under state law. New rule to apply to loans disbursed beginning 7/1/19.

11. Borrower Defenses Neg Reg - Issues
Should a federal standard be established, and should it be the exclusive standard?
ED Draft: Sets forth a federal standard
What is the standard?
ED Draft:
A misrepresentation where school acted with intent to deceive, knowledge of misrepresentation or reckless disregard
Borrower must prove reasonable reliance
Borrower must prove financial harm

12. Borrower Defenses Neg Reg - Issues
What is the standard of proof? ED Draft: Clear and convincing evidence (higher standard than preponderance of evidence) When can a borrower file a claim? ED Draft: Claim must be filed within 3 years of when borrower discovered or should have discovered the misrepresentation

13. Borrower Defenses Neg Reg - Issues
Can ED grant partial relief? ED Draft: Yes Can borrower request reconsideration of denials? ED Draft: ED decision final unless there is newly discovered evidence that borrower could not have previously discovered

14. Borrower Defenses Neg Reg - Issues
Issues Should schools be allowed to use pre-default arbitration agreements and/or class action waivers? ED Draft: Yes (but disclosure and counseling requirements included)

15. Borrower Defenses Neg Reg - Issues
What due process is awarded to schools? ED Draft:
School provided opportunity to submit response
ED may seek recovery against school if borrower asserts successful claim

16. Borrower Defenses Neg Reg – Issues
Framework for Processing & Submitting Claims
ED Draft:
Lender to apply mandatory administrative forbearance when notified by Secretary borrower intends to consolidate loan(s)
Forbearance applied in yearly increments until consolidated or Secretary notifies to end
For loans held by guaranty agency suspend collection activities for the period designated by the Secretary

17. Borrower Defenses Neg Reg – Issues
Financial Responsibility & Administrative Capability
ED Draft:
Identifies actions or events the Secretary may consider in determining if school financially responsible
Includes language Secretary may accept other types of surety or financial protection in lieu of letters of credit
Allows for a four-year transition period for operating leases entered into before January 1, 2019

18. Borrower Defenses Neg Reg – Issues
Closed School Discharge
ED Draft:
Amends application requirement to reflect current practice that borrower submit an application rather than a sworn statement
Window for closed school discharge eligibility expanded from 120 to 150 days before school closure
Adds ability for borrower to request a review by the Secretary if the guaranty agency denied the claim

19. Borrower Defenses Neg Reg – Issues
False Certification Discharge
ED Draft:
Amends application requirement to reflect current practice that borrower submit an application rather than a sworn statement
Update to remove reference to “ability to benefit” and instead use eligibility of a non-high school graduate who is considered to be a student who did not have a high school diploma or its recognized equivalent and did not meet the alternative requirement under General Provisions at the time the loan was originated

20. Borrower Defenses Neg Reg – Issues
Guaranty Agency Collection Fee
ED Draft:
Prospectively prohibits charging collection costs on defaulted borrowers who enter into, and honors, an acceptable repayment agreement within 60 days of receiving notice of default; includes rehabilitation agreement
Lender purchase of rehabilitated loan is not considered entry into repayment, as such, interest accrued during rehab period may not be capitalize at time of purchase
ED confirmed interest capitalization permitted after a subsequent capitalization eligible event such as deferment or forbearance

21. Borrower Defenses Neg Reg – Issues
Recalculation of Subsidized Usage Period and Interest Accrual
ED Draft:
Recalculate if the borrower receives a discharge when they did not receive all or part of the educational benefits
Eliminate or recalculate the subsidized usage period, and if applicable, also restore lost interest subsidy associated with the amount discharged on closed school, false certification, unpaid refund, and borrower defense