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Fact Sheet: Landmark Improvements to Targeted Debt Relief Programs

Today, the U.S. Department of Education (Department) is announcing final regulations that will 

transform a range of student loan relief programs authorized by the Higher Education Act (HEA). These 

final rules will also implement important changes to lower the overall cost of loans by ending student 

loan interest capitalization where it is not required by statute, allow borrowers to have their day in court

in disputes with their colleges, and outline additional categories of institutional conduct that can result 

in agency oversight action. 

These regulations build on the Administration’s commitment to removing unnecessary roadblocks for 

borrowers to access relief, including automatic relief without an application where warranted. The 

regulations eliminate common barriers that have impeded borrowers in the past. At the same time, they 

acknowledge the need for greater accountability for the tens of billions of dollars in federal financial aid 

awarded each year. 

Additionally, these regulations were strengthened by robust public comment from a range of 

stakeholders across the country. The final rules reflect many changes to clarify areas of confusion and 

make improvements to the Notice of Proposed Rulemaking published in July. 

Summary of Major Provisions

Borrower Defense to Repayment: 

A borrower should have a fair path to a student loan discharge if their college deceives them. The final 

rule sets fair requirements for what borrowers must show to obtain a discharge, allows for 

consideration of claims as a group instead of only considering individual applications, and provides

appropriate institutional due process. It also simplifies the process for recouping from schools when 

claims are approved. 

Standards for approval: The borrower defense standards in this rule will apply to all claims pending on 

or received on or after July 1, 2023. A claim may be approved based on any of the following acts or 

omissions: 

• Substantial misrepresentation

• Substantial omission of fact

• Breach of contract

• Aggressive and deceptive recruitment

• Judgments and secretarial final actions

The final rule clarifies that, to approve a borrower defense claim, the Department must conclude, based 

upon a preponderance of the evidence, that the act or omission occurred and that it caused detriment 

to the borrower that warrants relief, which includes a discharge of the remaining loan balance and 

refunds of amounts paid to the Secretary, among other benefits. Such a determination will consider the 

totality of the circumstances, including the nature and degree of the acts or omissions and of the 

detriment caused to the borrower. 
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These elements ensure that there is a connection between institutional acts or omissions and the 

borrower’s claim, as well as a negative effect on the borrower, without imposing unreasonable 

requirements that a borrower applying for relief would be unlikely to meet. The Department also 

refined the standard for aggressive and deceptive recruitment from the proposed rule, including 

deleting some items that caused confusion. We have also clarified that the final secretarial actions that 

can serve as the basis for borrower defense approvals will only include fines, limitations, and suspension 

actions, including denials of recertifications and revocation of program participation agreements.

Claims process: The final rule continues the options for reviewing claims on either an individual or group 

basis from the proposed rule. The Department can initiate a group process or may choose to form one 

based upon a request from a third-party requestor. In the final rule, the third-party requestor can be a 

state entity, such as an attorney general, or a nonprofit legal assistance organization. 

The Department has also made some adjustments to the group formation process to afford institutions 

an opportunity to respond to the group request before the Department decides whether to form a 

group. Because of the expanded category of requestors and additional due process steps, the final rule

adjusts the timeline for the Department to respond to a group claim to two years instead of one, but the 

decision on the group claim will then be rendered within one year of formation rather than two, leaving 

the total timeline unchanged. Individual borrowers in a group may opt out of the group discharge if it is 

approved. 

As was the case in the proposed rule, borrowers who have an outstanding balance will be able to bring a 

borrower defense claim at any point.

Approval amounts: The final rule provides that all approved claims will receive a full discharge and 

refund of all amounts paid to the Secretary. Where applicable, this relief will also include restoring 

borrowers’ federal aid eligibility and changes to credit reporting. The Department has tried for years to 

construct a workable process for determining partial discharge amounts and has concluded there is not 

a consistent way to achieve that goal. Instead, to approve a claim, the final rule will require the 

Department to conclude that the act or omission caused detriment that warrants a full discharge and 

refund.

Reconsideration: The final rule affords borrowers the option to have their claim reconsidered if it is 

denied, so long as they have new evidence or are raising an administrative or technical error. Borrowers 

whose loans were first disbursed prior to July 1, 2017, may also request reconsideration under a state 

law standard that would have been available to them under older borrower defense regulations. This is 

a change from the proposed rule, which proposed giving all borrowers the option of reconsideration 

under a state law standard.

Recoupment: The final rule clarifies the procedures for recouping the cost of a discharged claim in 

several ways. It notes that recoupment actions will follow the same procedures used by the Department 

to collect any other liability owed to the Department, which places the burden of persuasion on the 

institution once the Department has made factual determinations that account for various parties’ 

input. The Department has added regulatory text explaining how these procedures will work. The final 

rule also clearly states that recoupment cannot occur on a claim approved under this rule that would 

not have been approved under the standards for borrower defense in place at the time the loans 

associated with the claim were first disbursed. The final rule also adopts a six-year limitations period for 
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recoupment. That period may be tolled once the institution is notified of the claim, including through 

the filing of lawsuits and other steps.

Prohibiting Mandatory Pre-dispute Arbitration and Class Action Waivers

Borrower defense claims should be a backstop, not a first stop, for borrowers cheated by their school. 

To that end, the final rule continues the policies in the proposed rule that give borrowers a way to have 

their day in court. It prohibits institutions that participate in the Direct Loan Program from requiring 

borrowers to agree to mandatory pre-dispute arbitration agreements and/or requiring them to waive 

the ability to participate in a class-action lawsuit with respect to a borrower defense claim. These

institutions similarly cannot compel students to go through an internal dispute resolution process before 

contacting the accreditor or government agency about their complaint. 

The final rule also requires institutions to disclose the use of arbitration and to provide the Department 

with certain arbitral records and judicial records connected with any borrower defense claim filed 

against the school, increasing transparency and providing the Department with more information to 

investigate schools engaged in possible wrongdoing. The Department will publish these records in a 

central database. 

Interest Capitalization

The final rule eliminates all instances of interest capitalization that are not required by statute, including 

two instances that were inadvertently excluded in the proposed rules. Interest capitalization is a 

frustrating experience for borrowers because it means that outstanding interest is added to the 

borrower’s principal balance, resulting in a larger overall amount owed and the borrower being charged 

interest on that higher amount. More specifically, capitalization will no longer occur in the following 

instances going forward: 

• When a borrower first enters repayment. 

• When a borrower leaves a forbearance. 

• When a borrower in the Pay As You Earn repayment plan no longer has a partial financial 

hardship.

• When a borrower leaves the revised Pay As You Earn repayment plan.

• During periods of negative amortization under the alternative payment plan or the incomecontingent repayment plan.

• Upon entering default.

Total and Permanent Disability Discharges

The final rule adopts the policies in the proposed rule, which received consensus approval during the 

negotiated rulemaking sessions. 

These changes will provide more pathways for a borrower to receive a discharge based upon a disability 

determination made by the Social Security Administration (SSA). Existing rules only allowed borrowers 
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who are categorized as Medical Improvement Not Expected (MINE) to be eligible for a discharge. The 

final rules also add the following categories:

• Medical Improvement Possible; 

• Compassionate allowance; or

• Having an established onset date of at least five years ago. 

Borrowers who do not qualify for a discharge due to an SSA determination will be able to submit

additional forms of documentation to the Department to more easily obtain approval through the Total 

and Permanent Disability certification process by allowing additional types of medical professionals to 

sign the necessary paperwork. 

For borrowers who do receive a discharge, the final rule eliminates the three-year income-monitoring 

requirement, which had resulted in large numbers of borrowers inadvertently losing discharges in the 

past.

Closed School Discharges

Borrower are entitled to a discharge if they were unable to complete their program because the college 

closed. However, in the past too many borrowers who were eligible for a discharge failed to receive one, 

with significant numbers of these borrowers ending up delinquent or in default. These final regulations 

restore the ability of borrowers to get an automatic discharge, expand the number of borrowers who 

will be eligible for an automatic discharge, and provide relief sooner so that borrowers are at a reduced 

risk of default. More specifically, the regulations do the following: :

• Continue standards that a borrower is eligible for a discharge if their school closed, and they did 

not finish their program or had left the school within 180 days of its closure. 

• Provide an automatic discharge one year after a school closes if the borrower does not enroll 

elsewhere, accept a teach out, or continue their program at another location of the school. If a 

borrower accepts but does not complete a teach out or the continuation of program at another 

location of the school, then they would receive an automatic discharge one year after their final 

date of attendance. 

• Give the Secretary the flexibility to adjust the closure date if a school closes but first 

discontinued the programs in which most borrowers were enrolled. This addresses past 

practices the Department has observed, where a college may try to drag out its closure to avoid 

liabilities from closed school discharges. 

Public Service Loan Forgiveness

The PSLF regulations will reduce previous barriers created in regulation that made it harder for 

borrowers to make progress toward forgiveness. 

Help borrowers get closer to forgiveness: The regulations allow borrowers to receive credit for 

payments that are made late, in installments, or in a lump sum. Prior rules only counted a payment as 

eligible if it was made in full within 15 days of its due date. The rule also allows certain periods in 
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deferment or forbearance to count toward PSLF to avoid instances where a borrower may have faced 

confusing choices about pausing payments or getting credit toward PSLF. 

These periods include: 

• Cancer treatment deferment 

• Military service deferment 

• Post-active-duty student deferment 

• Economic hardship deferment, which includes service in the Peace Corps 

• AmeriCorps and National Guard service forbearances 

• U.S. Department of Defense Student Loan Repayment Program forbearance 

• Administrative or mandatory administrative forbearances 

Borrowers will also receive a weighted average of existing qualifying payments toward PSLF when they 

consolidate their Direct loans. Under current rules, borrowers lose all progress toward forgiveness when 

they consolidate. Under the new regulations, for example, a borrower with 60 qualifying payments on 

$30,000 in debt who forms a consolidation loan with another $30,000 in loans will have a new payment 

count of 30 payments. 

Further information on the permanent improvements made to PSLF regulations can be found here.

False Certification Discharges

The final rule adopts the policies in the proposed rule designed to streamline the rules that apply to 

cases when a college falsely certified a borrower’s eligibility for student loans when, in fact, the student 

was ineligible. These policies provide borrowers with an easier path to a discharge. The final rule also 

expands the types of allowable documentation and clarifies the applicable dates for a discharge. The 

regulations also allow for group false certification claims, so that similarly affected borrowers do not 

need to apply for relief individually when sufficient group evidence exists.