Borrower Defense to Repayment

Borrower Defense to Repayment
Title	Borrower Defense to Repayment
Agency	United States Department of Education
Jurisdiction	Federal government of the United States
Date enacted	1994 (as part of the Higher Education Act of 1965)
Related legislation	Higher Education Act of 1965

Borrower Defense to Repayment. It is a federal regulation established under the Higher Education Act of 1965 that provides a path for student loan forgiveness. The rule allows borrowers to seek discharge of their federal student loans if their institution engaged in certain misconduct. This legal recourse is administered by the United States Department of Education and has been central to major policy debates following the collapse of institutions like ITT Technical Institute and Corinthian Colleges.

Overview

The provision functions as a form of consumer protection within the federal student aid system, operating alongside other discharge options like Closed School Discharge and Total and Permanent Disability Discharge. Its authority is derived from the Master Promissory Note signed by borrowers, which contractually includes this defense. The Office of Federal Student Aid, a division of the Department of Education, is responsible for adjudicating claims, a process that has seen significant shifts under different presidential administrations from Bill Clinton to Joe Biden. The rule is distinct from broader forgiveness initiatives such as the Public Service Loan Forgiveness program.

Eligibility and grounds

Borrowers are eligible to apply if they attended a participating Title IV institution and can prove the school violated state law. Grounds for a successful claim have historically included substantial misrepresentations by the school regarding job placement rates, graduation success, or the transferability of credits. Specific legal violations by institutions, such as those established in lawsuits against DeVry University or findings against University of Phoenix, often form the basis of claims. Evidence can include findings from state attorneys general, such as those from Massachusetts or California, or from accreditors like the Accrediting Council for Independent Colleges and Schools.

Application process

Applicants must submit a formal application to the Department of Education, providing detailed evidence to support their assertion of institutional misconduct. The process was historically paper-based but has moved to an online portal managed by Federal Student Aid. Under the administration of Betsy DeVos, the process was significantly altered, introducing stricter standards that were later challenged in court cases like Sweet v. DeVos. Following litigation, the Biden administration instituted a pause on collections and initiated a mass review of pending claims, leading to large-scale discharges approved by officials like Secretary of Education Miguel Cardona.

Historical development

The regulation was created in 1994 but remained rarely used for decades. Its prominence surged following the high-profile failures of major for-profit college chains, notably Corinthian Colleges in 2015, which prompted organized "debt strikes" by former students. The Obama administration subsequently established a more formalized rulemaking process, culminating in the 2016 Borrower Defense rules. The subsequent Trump administration, led by Secretary Betsy DeVos, attempted to rewrite these rules, facing immediate legal challenges from groups like the Harvard Law School's Project on Predatory Student Lending. The Biden administration has since pursued new rulemaking and implemented sweeping discharge actions.

Impact and outcomes

The program has resulted in the discharge of billions of dollars in federal student loan debt for hundreds of thousands of borrowers. Major group discharges have been approved for students who attended institutions like ITT Technical Institute, Corinthian Colleges, and Marinello Schools of Beauty. These actions have significant implications for the Federal Family Education Loan Program and the Direct Loan program. The discharges also trigger recoupment efforts by the Department of Education against the institutions' assets or their parent companies, affecting entities like Dream Center Education Holdings. Outcomes are closely monitored by advocacy organizations such as the National Consumer Law Center.

Criticisms and controversies

The rule has been a focal point of intense political and legal controversy. Critics, including some Republican lawmakers and representatives of the for-profit college industry, have argued the rule is too vague, costly to taxpayers, and creates moral hazard. Supporters, including Democrats like Senator Elizabeth Warren and Senator Dick Durbin, have criticized the slow pace of processing and alleged obstruction by officials like Betsy DeVos. Legal battles, such as California Association of Private Postsecondary Schools v. DeVos, have centered on the rule's standards and implementation. The massive backlog of applications and the varying approval rates across administrations remain persistent sources of contention.

Category:United States federal education legislation Category:Student financial aid in the United States