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UNITED STATES DEPARTMENT OF EDUCATION

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BORROWER DEFENSES AND FINANCIAL RESPONSIBILITY

NEGOTIATED RULEMAKING COMMITTEE 2017-2018

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SESSION 3

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WEDNESDAY

FEBRUARY 14, 2018

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The Negotiated Rulemaking Committee 

met in Barnard Auditorium, 400 Maryland Avenue, 

S.W., Washington, D.C., at 9:00 a.m., Ted Bantle, 

Moira Caruso and Rozmyn Miller, Facilitators, 

presiding.

PRESENT

TED BANTLE, Federal Mediation and Conciliation 

Service, Facilitator

MOIRA CARUSO, Federal Mediation and Conciliation 

Service, Facilitator

ROZMYN MILLER, Federal Mediation and 

Conciliation Service, Facilitator

ROBERT ANDERSON, President, State Higher 

Education Executive Officers Association

BRYAN BLACK, Attorney

MICHAEL BOTTRILL, CFO and CEO, SAE Institute 

North America

KIMBERLY BROWN, Vice President, Enrollment 

Management and Student Affairs, Des Moines 

University

MIKE BUSADA, General Counsel and Vice President, 

Ayers Career College
2

STEVAUGHN BUSH, Student, Howard University 

School of Law

EVAN DANIELS, Assistant Attorney General, 

Government Accountability and Special 

Litigation Unit, Office of the Arizona 

Attorney General

CHRIS DELUCA, Attorney at Law, DeLuca Law LLC

ALYSSA DOBSON, Director of Financial Aid and 

Scholarships, Slippery Rock University

JOHN ELLIS, Principal Deputy General Counsel and 

Division Chief, State of Texas Office of 

the Attorney General

ROBERT FLANIGAN, JR., Vice President for Business

and Financial Affairs and Treasurer,

Spelman College

JULIANA FREDMAN, Bay Area Legal Aid

JOSELINE GARCIA, President, United States 

Students Association

WANDA HALL, Senior Vice President and Chief 

Compliance Officer, Edfinancial Services

ASHLEY HARRINGTON, Special Assistant to the 

President and Counsel, Center for

Responsible Lending

WILLIAM HUBBARD, Vice President of Government 

Affairs, Student Veterans of America

KELLI HUDSON PERRY, Assistant Vice President for 

Finance and Controller, Rensselaer 

Polytechnic Institute

GREGORY JONES, President, Compass Rose 

Foundation

AARON LACEY, Partner, Thompson Coburn LLP

DALE LARSON, Vice President for Business and 

Finance/Chief Financial Officer, Dallas 

Theological Seminary

KAY LEWIS, Assistant Vice-Provost, Enrollment 

Executive Director of Financial Aid and 

Scholarships, University of Washington

DAN MADZELAN, Associate Vice President for 

Government Relations, American Council on 

Education

JULIANNE MARIE MALVEAUX, President Emerita, 

Bennett College, President and Owner of 

Economic Education
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SUZANNE MARTINDALE, Senior Attorney, Consumers 

Union

MICHALE MCCOMIS, Executive Director, Accrediting 

Commission of Career Schools and Colleges

JEFFREY MECHANICK, Assistant Director-Nonpublic 

Entities, Financial Accounting Standards 

Board

SUSAN M. MENDITTO, Director, Accounting Policy, 

National Association of College and 

University Business Officers

LODRIGUEZ MURRAY, Vice President, Public Policy 

and Government Affairs, United Negro 

College Fund

BARMAK NASSIRIAN, Director of Federal Policy 

Analysis, American Association of State 

Colleges and Universities

JAY O'CONNELL, Director of Collections and 

Compliance, Vermont Student Assistance 

Corporation (VSAC)

WALTER OCHINKO, Research Director, Veterans 

Education Success

JOHN PALMUCCI, Interim President, Chief Business 

Officer, Maryland University of Integrative

Health

KAREN PETERSON SOLINSKI, Executive Vice 

President, Higher Learning Commission

LINDA RAWLES, Rawles Law

ASHLEY ANN REICH, Senior Director of Financial 

Aid Compliance and State Approvals, 

Liberty University

SHELDON REPP, Special Advisor and Counsel, 

National Council of Higher Education 

Resources

DAWNELLE ROBINSON, Associate Vice President for 

Finance and Administration, Shaw 

University

RONALD E. SALLUZZO, Partner, Attain

ABBY SHAFROTH, Staff Attorney, National Consumer 

Law Center

VALERIE SHARP, Director, Office of Financial 

Aid, Evangel University

COLLEEN SLATTERY, Federal Contract and 

Compliance Officer, MOHELA
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KAREN PETERSON SOLINSKI, Executive Vice 

President, Higher Learning Commission

JONATHAN TARNOW, Partner, Drinker Biddle & Reath 

LLP

STAFF PRESENT

CAROLINE HONG, Office of General Counsel

BRIAN SIEGEL, Office of General Counsel

JOHN KOLOTOS, Office of Postsecondary Education

JIM MANNING, Acting Under Secretary of Education

ANNMARIE WEISMAN, Federal Negotiator, Office of 

Postsecondary Education
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1 P-R-O-C-E-E-D-I-N-G-S

2 9:06 a.m.

3 MR. BANTLE: Good morning, everybody. 

4 It is 9:06, and we should probably get started. 

5 We do have a very busy schedule today. We are 

6 going to start off, as I mentioned yesterday, with 

7 Issue Paper 3. We have individuals from the 

8 subcommittee here to help us with that issue paper.

9 After that, we'll return to Issue Paper 

10 2 to kind of run through any final concerns we have 

11 on 2. And then we have the intent and the goal 

12 to get through 4 through 8 as well today. So we 

13 could say tomorrow we'll come back, we'll revisit 

14 1 and 2. So that is a lot to do today, I know.

15 Okay, so as I said, we're starting with 

16 Issue Paper 3, we'll circle back to finish up 2. 

17 And then we want to get through 4 through 8 as 

18 well today, so we can circle back to 1 and 2 

19 tomorrow. 

20 We have a hard stop at noon, just so the 

21 department can continue working on the suggestions 

22 you all had from Issue Paper 1 and 2. But without 

23 further ado, I will turn it over to Annmarie of 
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1 the department to take us through Issue Paper 3.

2 MS. WEISMAN: Good morning. Thank you 

3 again for being back with us for your two previous 

4 days of hard work and your anticipated hard work 

5 in the next two. I don't think we need those lights 

6 on. I heard several no's around the table. Thank 

7 you, Scott.

8 Okay, so are we all okay with the 

9 lights, the temperature, as best we can control 

10 it, and the sound? Okay. I got some thumbs up, 

11 so thank you.

12 We'd like to again, as Ted mentioned, 

13 get into Issue Paper 3. We do have members of the 

14 subcommittee here. So keep in mind, I am not only 

15 not an attorney, but I am also not an accountant. 

16 So when the questions get super technical beyond 

17 where my reach is, I do have some help on the bench 

18 behind me.

19 Starting off at the top, we've added 

20 in some additional regulatory citations that we 

21 will now be impacting. That includes 34668.91, 

22 668.94, as well as 668.172. Both, again, also 

23 including 668.171 and 668.175. This is financial 
7

1 responsibility and administrative capability.

2 The new changes that we have here are 

3 to update the actions of the hearing official to 

4 identify actions or events that the secretary may 

5 consider when determining if an institution is 

6 financially responsible; providing that the 

7 secretary may accept other types of financial 

8 protection in addition to letters of credit; giving 

9 a four-year transition period for operation leases

10 entered into before January 1, 2019. 

11 Again, that one is very technical. 

12 This is related to the Financial Accounting 

13 Standard Board, or FASB changes that we tasked the 

14 subcommittee with looking at.

15 And also, this paper also will update 

16 the appendices to subpart L to account for changes 

17 in accounting standards and terminology. So 

18 again, related to the subcommittee's work.

19 So looking first at 668.91, Initial and 

20 Final Decisions. We turn over to page three. 

21 We've updated text in (iii), previously saying, 

22 "Surety in the amount specified by the secretary." 

23 We now clarify that by saying a letter of credit 
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1 or other financial protection under 668.15, or 

2 668.171.

3 If the hearing official finds that the 

4 amount of the letter of credit or other financial 

5 protection established by the secretary under 

6 668.15 or 668.175 was appropriate, unless the 

7 institution can demonstrate the amount was not 

8 warranted.

9 Continuing on in (iv), talking about 

10 termination action. In a termination action taken 

11 against an institution or a third party servicer 

12 based on the grounds that the institution or 

13 servicer failed to submit a required audit by the 

14 deadlines established in 668.23, or otherwise 

15 failed to comply with the requirements of 668.23.

16 If the hearing official finds that the 

17 institution or servicer failed to meet those 

18 deadlines or requirements, the hearing official 

19 finds that the termination is warranted.

20 We've done some renumbering here in (v) 

21 because of the addition of (B). The addition of 

22 (B) reads, In the limitation or termination action 

23 against an institution on the grounds that the 
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1 institution is not financially responsible.

2 We then continue on to say upon proof 

3 of conditions in 668.174(a), the hearing officials 

4 finds that the limitation or termination is 

5 warranted, unless the institution demonstrates 

6 that all conditions in 668.174(f) have been met, 

7 or that the hearing official finds that the 

8 limitation or termination is warranted unless the 

9 institution demonstrates that all applicable 

10 conditions described in 668.174(b)(2) or 175(g) 

11 have been met.

12 So I'd like to stop there and take any 

13 comments or feedback on that text.

14 MR. BANTLE: So we are looking at 

15 668.91 in its entirety.

16 PARTICIPANT: I know this is skipping 

17 around just a little bit, but I'd like it on the 

18 record that in November of last year there was a 

19 handful of members of the Senate that specifically 

20 called on the department to provide full relief, 

21 understanding the department's position is not to 

22 provide full relief as a presumption. But I just 

23 would like to flag that letter that was shared for 
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1 the record.

2 MR. BANTLE: And as noted, we will be 

3 returning to 1 and 2. But right now, can we focus 

4 on any comments or suggestions on 668.91. And just

5 a facilitator's note, because we do have a tight 

6 timeline today, we're going to hold you to suggested 

7 changes to the regulatory text, hold all 

8 negotiators pretty firm.

9 Can we presume from the silence that 

10 the group is comfortable with 668.91 as written? 

11 Show of thumbs? Okay, I see no thumbs down. 

12 We'll move on to the next section.

13 MS. WEISMAN: So moving on to 668.94, 

14 Limitation. As we noted earlier, those three 

15 asterisks that lead off this section show that the 

16 language leading up to that has not changed. 

17 But just to give you some context, this 

18 is the section on limitation. And the stem that 

19 leads into that is, A limitation may include as 

20 appropriate to the title IV HEA program in question.

21 And then (h) becomes, "A change in the 

22 participation status of the institution from fully 

23 certified to participate, provisionally certified 
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1 to participate" under 668.13(c).

2 We then renumber, and I'd like to 

3 continue on to 668.171. We've clarified some 

4 wording here in (a)(2). Instead of saying, 

5 "Administer properly the title IV HEA programs in 

6 which it participates", because this is about 

7 financial responsibility, that belongs more in 

8 Administrative Capability, which is 668.16. 

9 So we struck that text, and instead 

10 we've added in the text, "Meet all of its financial 

11 obligations." And then added in (3), "Provide the 

12 administrative resources necessary to comply with 

13 title IV HEA of program requirements."

14 And then (b), again, we're trying to 

15 conform with our renumbering. And we say, "Except 

16 as provided under paragraph (c) and (d) of this 

17 section, the Secretary considers an institution 

18 to be financially responsible if the Secretary 

19 determines that."

20 The next change comes down in (i), where 

21 we say the institution part of (4) is the 

22 institution is able to meet all of its financial 

23 obligations, including making refunds. 
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1 And then (i) becomes, Under its refund 

2 policy and the returning title IV HEA programs for 

3 which it is responsible under 668.22, which is the 

4 R2TIV, or return of title IV regulations, and 

5 provide the administrative resources necessary to 

6 comply with title IV HEA program requirements.

7 An institution may not be able to meet 

8 its financial or administrative obligations if it 

9 is subject to an action or event described in 

10 paragraph (c) of this section that has or is likely 

11 to have an adverse material effect on the 

12 institution's operations or ability to continue 

13 as a going concern.

14 And then we've also updated (5) on the 

15 top of page four, where we say, The institution 

16 or persons affiliated with the institution are not 

17 subject to a condition of past performance under 

18 668.174(a) or (b).

19 And I'd like break it there.

20 MR. BANTLE: Comments on 668.94 and 

21 668.171, up to and including number (5).

22 PARTICIPANT: I just have a question 

23 for the department. It's just to make sure I 
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1 understand. Could you just repeat, Annmarie, I'm 

2 sorry, but could you repeat the context of (h) on 

3 page two.

4 MS. WEISMAN: Sure. So (h) on page two 

5 is part of the limitation text. And so that text 

6 begins, A limitation may include, as appropriate 

7 to the title IV HEA program in question. And then 

8 that would be a change in the participation status 

9 of the institution from fully certified to 

10 participate as provisionally certified.

11 PARTICIPANT: I understand, thanks.

12 MR. BANTLE: Suggested edits or 

13 concerns?

14 PARTICIPANT: This is a follow-up 

15 question that I had asked last time, and it doesn't 

16 seem to have changed. So I just want to understand 

17 the context. In (4)(ii), and then it goes on in 

18 (c) and (d), we talk about debts and liabilities. 

19 And that's our liabilities. 

20 So I don't know that we need the extra 

21 wording, unless they're meant to mean two different 

22 things. So I would propose striking debts, and 

23 --
14

1 MS. WEISMAN: I'm sorry, where are you?

2 PARTICIPANT: The top of page four. 

3 And there's nothing stricken there, there's nothing 

4 in red. But it goes on throughout the rest of the 

5 paper to talk about debt or liability, or debt and 

6 liability. And in my mind, it's the same thing. 

7 So, unless it --

8 MS. WEISMAN: In our mind it is not the 

9 same thing. Someone could owe funds from a fine 

10 action, and a fine action is actually something 

11 distinct from a liability. We categorize those 

12 separately, so we would expect to see both.

13 PARTICIPANT: I'm sorry, but how do you 

14 define a debt different from a liability? Because 

15 in my mind, they are the same.

16 MS. WEISMAN: When we talk at the 

17 department about liabilities, we're generally 

18 talking about something that is a payment of the 

19 result, for example, of a program review or an audit 

20 resolution. 

21 So when you have a liability, it is 

22 specifically the amount where you were found to 

23 be at fault. So if you didn't pay your return of 
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1 title IV funds in the amount of $5,000, then you're 

2 assessed that $5,000 to repay back to the 

3 department.

4 Contrast that with if you did not file 

5 your iPads timely, we would issue a fine action. 

6 And that fine action might be $4,000. But we 

7 wouldn't categorize that the same. We would 

8 consider that to be a debt to the department.

9 PARTICIPANT: From the school's 

10 perspective, they're both liabilities, though.

11 MR. BANTLE: Any other negotiator 

12 comments on this, that question, debts versus 

13 liabilities?

14 MS. WEISMAN: I would just also note 

15 that it's existing text, that this is not text that 

16 we've changed here within the context of this 

17 rulemaking.

18 PARTICIPANT: Understood, but when we 

19 get into (c) and (d), I think it complicates it 

20 a little more. Because those, when you're talking 

21 about you're assessing something based on a 

22 borrower defense claim, that becomes a liability. 

23 It's not a debt, it's a liability for the school. 
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1 So, it's just, when you said you're not 

2 an accountant, for business officers reading this, 

3 this is confusing because it's the same, they're 

4 the same thing.

5 MR. BANTLE: Kelli, do you have a 

6 proposal of how that could be clarified 

7 incorporating the department's perspective that 

8 they are different?

9 Any additional comments on this 

10 section? Show of thumbs on 668.94 and 668.171, 

11 up to and including (5)? William.

12 MR. HUBBARD: On (c), I propose that 

13 there's a modification. Instead of saying --

14 MR. BANTLE: I think that's the next 

15 section, yup.

16 MR. HUBBARD: All right.

17 MR. BANTLE?: So let's get that show 

18 of thumbs, and then we can move on to William's 

19 card.

20 I see no thumbs down, so Annmarie, can 

21 you take us into the next section, and then we have 

22 William's comment on (c).

23 MS. WEISMAN: Picking up then on page 
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1 four, (c), other factors or events, The secretary 

2 may determine that an institution is not able to 

3 meet its financial or administrative obligations. 

4 Under paragraph (b)(4) of this section, 

5 If after the end of the fiscal year for which the 

6 secretary has most recently calculated an 

7 institution's composite score, the institution 

8 incurs a debt or liability from borrower defense 

9 claims adjudicated by the secretary, and as a result 

10 of that debt or liability, the institution's 

11 recalculated composite score is less than 1.0 as 

12 determined by the secretary under paragraph (d) 

13 of the section.

14 (2) talks about the idea of a failing 

15 score from the result of the withdrawal of owner's 

16 equity. That would apply specifically just to 

17 for-profit institutions, again, because of the way 

18 their financials are structured.

19 Something I'd like to suggest, and it's 

20 not reflected in this issue paper, but I would want 

21 to move item (4) and replace that with (3), and 

22 just reverse those. Because they both apply to 

23 for-profit institutions, and so I'd like to group 
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1 them. 

2 So I'd like to move (4) and make that 

3 the new (3), where it says, For its most recently 

4 completed fiscal year, a proprietary institution 

5 did not derive at least ten percent of its revenue 

6 from sources other than title VI HEA program funds, 

7 as provided under 668.28(c). 

8 Then what I would propose would be the 

9 new (4) applies to publicly traded institutions, 

10 and that would be the US Securities and Exchange 

11 Commission, the SEC, notifies or warns the 

12 institution that it may suspend trading on the 

13 institution's stock, or suspends trading on its 

14 stock.

15 (ii) is that the institution failed to 

16 file a required annual or quarterly report with 

17 the SEC within the time period prescribed for the 

18 report, or by any extended due date under SEC 

19 regulations.

20 Then (iii) is that the exchange on which 

21 the institution's stock is traded notifies the 

22 institution that it's not in compliance with those 

23 exchange regulations, or its stock is delisted for 
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1 any reason. And I'd like to, because of the 

2 importance of this section, I'd like to keep it 

3 fairly narrow and just discuss those pieces right 

4 now.

5 MR. BANTLE: William, then Aaron.

6 MR. HUBBARD: Thanks. On (c) under 

7 (5), I propose that instead of a may, we modify 

8 the language to read, "When the Secretary 

9 determines that an institution." It may seem like 

10 a minor change, but I just really think that's an 

11 important one.

12 MR. BANTLE: Comments on that, or 

13 Annmarie?

14 MS. WEISMAN: So essentially what that 

15 does is requires the secretary to act, and it was 

16 very important to us here that we make these 

17 discretionary items. So I think the cadence of 

18 keeping that as a may is important to us.

19 MR. BANTLE: Additional comments on the 

20 proposed edit?

21 MR. LACEY: Yeah, I agree with the 

22 department. I mean, there are, these are 

23 indicators of potential financial stress, they're 
20

1 not dispositive of financial stress. 

2 There are lots of reasons that an 

3 institution, despite experiencing one of these 

4 items, could still be financially sound and in good 

5 shape. And the secretary needs the discretion to 

6 be able to dialog with the institution to determine 

7 whether or not this actually means that the 

8 institution is not financially responsible. 

9 So I wholeheartedly support the 

10 department's position.

11 PARTICIPANT: Linda.

12 MS. RAWLES: I wholeheartedly support 

13 the department's position on that issue, and I have 

14 another language change when you're ready. Should 

15 I give it? First of all, I appreciate the changes 

16 that were made since the last session. Very 

17 appreciated that.

18 On (iii), where it reads, "The exchange 

19 in which the institution's stock is traded notifies 

20 the institution that it is not in compliance with 

21 exchange requirements, or its stock is delisted 

22 for any reason", I propose that instead of, "Or 

23 its stock is delisted for any reason", we say, "And 
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1 as a result its stock is delisted."

2 I'm not an SEC lawyer, but I'm told by 

3 many of them that your stock can be delisted for 

4 legitimate reasons. And I think if your stock is 

5 delisted for a legitimate reason, perhaps you're 

6 going private, this shouldn't kick in. So maybe 

7 the department has a valid reason for that, but 

8 I'm open to hearing it.

9 PARTICIPANT: Annmarie.

10 MS. WEISMAN: Sure, and I think that 

11 for that one, I can say that our reason is that 

12 we did make these discretionary, with the idea that 

13 we're taking a look. We're not making a final 

14 determination just because of this. But it, to 

15 us, signals that we want to take a look at it.

16 So we want to be clear that we're looking 

17 at any delisting for any reason.

18 PARTICIPANT: Linda, did you have a 

19 follow-up?

20 MS. RAWLES: Then I'm all right with 

21 that, as long as the language stays discretionary.

22 PARTICIPANT: Michael, and then Chris.

23 PARTICIPANT: On that same item, I do 
22

1 think it's useful to include the language, And as 

2 a result. Because you want to take a look when, 

3 not the legitimate claims, like we're going 

4 private, but it's that they've been notified that 

5 the institution's not in compliance with exchange 

6 requirements.

7 And as a result, its stock, and I would 

8 replace is with may be, because I think you want 

9 to be looking at it before the delisting occurs. 

10 So I would suggest that you consider the

11 institution is not in compliance with exchange 

12 requirements, and as a result, its stock may be 

13 delisted.

14 MS. WEISMAN: So I agree with that, but 

15 I want to make sure that would still cover then 

16 is delisted. May be or is delisted?

17 PARTICIPANT: Okay, sure.

18 MS. WEISMAN: Something that would 

19 include both. And I'm not sure about the as a 

20 result, because I think we want to know that they're 

21 not in compliance with requirements, as well as 

22 the idea that it's been delisted or could be 

23 delisted. Yes, we are definitely looking for early 
23

1 warning signs. But that's my concern with that 

2 text.

3 PARTICIPANT: Well, then, you could 

4 then keep -- Oh, I'm sorry. Sorry, Barbara, I 

5 didn't see you there.

6 MS. WEISMAN: Thank you for your 

7 patience. So the concern is that the delisting 

8 of stock, whether it's a may be or is, is not 

9 connected enough to the rest of (iii). 

10 So we'd like to propose moving that to 

11 become a new (iv), so that (iii) would remain, "The 

12 exchange on which the institution's stock is traded 

13 notifies the institution that it is not in 

14 compliance with exchange requirements."

15 And then the new (iv) would say, and 

16 we may need to wordsmith this a little bit, but 

17 basically that the stock is delisted or may be 

18 delisted for any reason. So once we see that up 

19 on the screen, we can decide if that needs a little 

20 tweaking.

21 MR. BANTLE: So we have the cards noted, 

22 but comments on that suggested edit?

23 PARTICIPANT: So the challenge I have 
24

1 with may is, as a practical matter, institutions 

2 would never know when the notice requirement was 

3 triggered. Because an institution's not going to 

4 know if its stock may be delisted, and I don't think 

5 that's a fair obligation to require of an 

6 institution to try to guess as to what the exchange 

7 may do.

8 So I would, you know, if you want to 

9 include is delisted, I don't have a strong opinion 

10 on that. As long as this remains discretionary, 

11 I think that makes sense. But I don't think may 

12 would work.

13 PARTICIPANT: Valerie, did you also 

14 have a comment on this language? Okay. Barkmak.

15 MR. NASSIRIAN: This is not a line edit, 

16 this is more of a substantive comment, on subsection 

17 3. 

18 I just want to bring to your attention 

19 the ridiculousness of if these are supposed to 

20 protect the taxpayers against possible collapse 

21 of a publicly traded entity to which the taxpayers 

22 are sending hundreds of millions of dollars of 

23 public money, (i) and (iii) are basically 
25

1 meaningless. 

2 Because that's an entity that is at this 

3 point going to crash. So (ii) is an administrative 

4 screw-up, if they didn't file their paperwork 

5 properly. 

6 And the question I would encourage the 

7 department to contemplate is if you hired a plumbing 

8 company to come work on your house and it was a 

9 publicly traded entity, and you wanted to assure 

10 yourself that they do the job for the money you're 

11 giving them, would you be satisfied with any of 

12 these procedural safeguards? 

13 Or would you ask other questions, like 

14 does the entity's capitalization give me any 

15 assurance that the amount of money I'm sending them 

16 is going to be properly used?

17 MS. WEISMAN: So I think we tried to 

18 find items that we were comfortable with. At this 

19 point, rather than stating that these items are 

20 ridiculous, I would challenge you to, or the rest 

21 of the table, to suggest other triggers that you 

22 might have in mind that you feel would do what we're 

23 trying to accomplish here that we have not already 
26

1 considered in previous regulations.

2 Because as we stated, we have had some 

3 issues with ones that were used in the past. So 

4 we've already considered those. But if people have 

5 new ideas that we have not already entertained, 

6 this would be the time to bring those us.

7 MR. NASSIRIAN: Market cap in 

8 comparison to the cashflows that the entity derives 

9 from the Department of Education. That'd be a 

10 reasonable thing, right? If you have only ten 

11 cents on you, you probably shouldn't receive, you 

12 know, a million dollars of taxpayers' money.

13 MS. WEISMAN: Can you suggest some text 

14 for us?

15 MR. NASSIRIAN: I shall.

16 PARTICIPANT: Thank you. Chris.

17 MR. DELUCA: Yeah. Just kind of 

18 getting back to the question of you know, again, 

19 just supporting that this is discretionary and not 

20 the change that was proposed to make this mandatory 

21 and the importance of that, and just recognizing 

22 and just reminding folks we haven't gotten there 

23 yet. 
27

1 But you know, it tied in with (c) further 

2 on in Issue Paper 3, or in this section, there is 

3 s requirement for notice, so it all ties in together 

4 again. So that the school still has to provide 

5 a form of notice to the department for them to have 

6 the information then to make their discretionary 

7 determination.

8 PARTICIPANT: Aaron? Thank you. 

9 Valerie. Okay, Linda.

10 MS. RAWLES: I just wanted to state I 

11 agree with Aaron's point, and it's not fair for, 

12 the school would never know if you have the word 

13 may when they would have to give notice. So I 

14 support the language that the department has, as 

15 long as it remains discretionary.

16 PARTICIPANT: Michael, and then Will.

17 PARTICIPANT: So I'm still going to 

18 advocate for the may, because I think that you can 

19 get to the notice issue by using the same route 

20 that you used in (iii), which is the exchange on 

21 which the institution's stock is traded notifies 

22 the institution that its stock may be delisted, 

23 or the stock is delisted for any reason.
28

1 Now, you could say may be delisted for 

2 the reasons identified in (iii) above. Or is 

3 delisted for any reason. I just think that you 

4 want to get to the, you might be kicked off of the 

5 exchange earlier than is.

6 MS. WEISMAN: That is what our goal was 

7 here, and I understand your position about the idea 

8 of may be, that it would be helpful for us to know 

9 if there was a thought from the SEC that they may 

10 be delisted. 

11 So I guess then I would say does that 

12 satisfy those who had concerns that an institution 

13 wouldn't know? Because what we are saying is that, 

14 and again, I have to look at the language as we've 

15 tweaked it. But we'd want it to be that they've 

16 been notified that their stock is going to be. 

17 So maybe we can play with what's there to kind of 

18 bring us all together.

19 PARTICIPANT: So then, okay. So one 

20 other way would be to do it -- in (iii) you've got 

21 the notification, and you keep their, or its stock 

22 may be, and as a result its stock may be delisted. 

23 And then keep (iv), The stock is delisted for any 
29

1 reason.

2 So that way you're getting your may and 

3 you're getting your is. And the may is tied to 

4 the notification of noncompliance with the 

5 requirements.

6 MS. WEISMAN: For me, I think that 

7 accomplishes what the department's goal was.

8 MR. BANTLE: Comments on that edit?

9 PARTICIPANT: Aaron?

10 MR. LACEY: So I still have the concern, 

11 you know, as a result the stock may be delisted. 

12 I don't do SEC stuff, but I deal with regulators 

13 all the time. And it's just asking an institution 

14 to sort of speculate and notify. But I have an 

15 alternative language. 

16 What if we said, and you know, the 

17 exchange on which the institution's stock is 

18 traded, notify them that you're not in compliance, 

19 and that the stock has been or will be delisted. 

20 I mean, if the SEC notifies you that 

21 it will be delisted, maybe it hasn't happened yet, 

22 you know, that would at least give you some looking 

23 into the future, you don't have to wait until the 
30

1 action's actually been taken. 

2 But I just, I'm just telling you as a 

3 practical matter, if you tell schools you've got 

4 to speculate, you're going to have wild 

5 inconsistency.

6 MS. WEISMAN: So --

7 MR. LACEY: I'm not going to die on 

8 this.

9 MS. WEISMAN: I appreciate what you're 

10 saying.

11 MR. LACEY: I'm not an SEC attorney, 

12 but it's just a really hard thing.

13 MS. WEISMAN: No, I appreciate your 

14 comment. But what I'm looking for is as much of 

15 an early warning system as we can get. And what 

16 I'm saying is I'm not asking the institution to 

17 speculate. I'm saying if the SEC, let's assume 

18 you're a publicly traded institution. 

19 The SEC tells you that it may suspend 

20 your stock or delist you. Then you know, you've 

21 heard from them, and I want you to report that to 

22 me. So if our language is not there yet, then I 

23 think we can get there, and I think we would both 
31

1 be comfortable.

2 MR. BANTLE: And I'm just seeing some 

3 body language. Michael, do you have an idea of 

4 how to do that?

5 PARTICIPANT: No, I don't, no. But I 

6 do want to be mindful, I don't want that and to 

7 be conjunctive, to be both of those things need

8 to be satisfied. So I got to think about that a 

9 little bit more. 

10 It's not that, well, they notified me 

11 that we were out of compliance, but they didn't 

12 say they might delist us. Right? So I don't want 

13 those two things to have to be fulfilled. So I 

14 think you need to just --

15 MR. BANTLE: So maybe we've gotten a 

16 little too deep into the edits and we just need 

17 to kind of get back to the concept that there seems 

18 to be agreement on.

19 MS. WEISMAN: I think that's why I 

20 wanted to have the idea of may be delisted down 

21 with (iv) and is delisted. But I think we have 

22 to add in some notification requirement, that the 

23 institution is notified that it may be or is being 
32

1 delisted. Again, we can play with that text a 

2 little, but that's where I'm thinking.

3 PARTICIPANT: Linda.

4 MS. RAWLES: I was just going to say, 

5 I could live with Annmarie's language, but I don't 

6 know if she remembers it now because we've come 

7 so far from. But what you said a few minutes ago 

8 was fine, but I didn't write it down, you didn't 

9 write it down.

10 PARTICIPANT: Any other suggestions 

11 for this language?

12 MR. BANTLE: Barmak, is this a 

13 suggestion on this language, or additional?

14 MR. NASSIRIAN: Yes.

15 PARTICIPANT: Okay.

16 MR. NASSIRIAN: I want to support 

17 Aaron's point, because it really does make a 

18 difference. Just as a matter of historical record, 

19 the New York Stock Exchange began proceedings to 

20 delist ITT on September 6, 2016. In other words, 

21 on the day that the school shut down.

22 MR. BANTLE: So Barmak, you're 

23 supporting the language as it is on the board right 
33

1 now?

2 MR. NASSIRIAN: Is could be, at that 

3 point, you know, you've already hit the iceberg, 

4 it makes no difference.

5 PARTICIPANT: Any other comments on 

6 this language? Okay, Will, you're next.

7 MR. HUBBARD: So I have some additional 

8 proposed language. Is now a good time? Okay, 

9 great. So this is kind of lengthy, so if you want 

10 me to grab your email, I could send it on over.

11 But I propose an addition of a (5) to 

12 this list, which would read, Debts and borrower 

13 defense-related lawsuits. I've got a sub (a) and 

14 (b) to that, but I'll just stick with this for 

15 concept's sake for now. 

16 As well as adding a (6) on, oh terrific, 

17 on cohort default rates, except as provided under 

18 paragraph (h)(3) of the section, An institution 

19 is not able to meet its financial or administrative 

20 obligations under paragraph (b)(3) of this section, 

21 and the institution's two most recent official 

22 cohort default rates are 30 percent or greater, 

23 as determined under subpart (n) of this part.
34

1 Unless, and then there's some text under 

2 that -- I'm just doing the high level concept, and 

3 then I'll send this all to him.

4 MS. WEISMAN: Okay, but what I'm 

5 hearing are items that were in the 2016 reg. And 

6 so we have already considered those items at the 

7 department, and for various reasons we have ruled 

8 them out. So if they are from the 2016 reg and 

9 are not already up on the screen, we've already 

10 eliminated them from consideration.

11 MR. HUBBARD: Okay, I have (7) I believe 

12 is new as well.

13 MS. WEISMAN: So if you have ones that 

14 are new, I'd be happy to entertain them.

15 MR. HUBBARD: Okay. And then 

16 potentially fluctuations in title IV revenue beyond 

17 one standard deviation. I haven't, you know, 

18 completely refined that language, but I think the 

19 idea that if title IV funding is swinging wildly 

20 left and right up and down, that is definitely an 

21 indication of some potential concern. So we can 

22 maybe flesh that out a little bit.

23 PARTICIPANT: Any other comments on 
35

1 this section? Abby?

2 MS. SHAFROTH: Yeah, I was hoping to 

3 hear more from the department about why those 

4 wouldn't be considered. Because I also was, I had 

5 also noted the lack of triggers for things like 

6 lawsuits that could form the basis for, lawsuits 

7 or even final judgments that would create a 

8 liability on the school under these proposed 

9 borrower defense regulations. 

10 That seems like a really important early 

11 warning trigger, and that's the sort of thing I 

12 think that was highlighted in the Office of 

13 Inspector General's report last year as being an 

14 important improvement to the department's process 

15 for protecting taxpayers and students from the 

16 potential of schools not being able to make students 

17 or taxpayers whole.

18 So I hear you saying that the 

19 department's considered it and isn't willing to 

20 entertain discussion, but I was hoping you could 

21 give us a better understanding of why so that we 

22 could help come up with other alternatives.

23 PARTICIPANT: Annmarie.
36

1 MS. WEISMAN: So the concern is that 

2 there is not a close enough tie-in to borrower 

3 defense from some of them, such as cohort default 

4 rate. 

5 Our feeling is that that is not 

6 necessarily connected in any way to borrower 

7 defense claims. Things like lawsuits, we've had 

8 numerous conversation about the idea of lawsuits 

9 or investigations that are pending. The feeling 

10 is that anyone can file a lawsuit at any time for 

11 almost any reason. 

12 And they also may not be indicative of 

13 anything related to borrower defense or anything 

14 that would create borrower defense claims in the 

15 future. We did not feel that they were good 

16 predicative indicators of potential liabilities 

17 that were connected enough to this regulation.

18 PARTICIPANT: Valerie.

19 MS. SHARP: Yeah, that's okay. Okay, 

20 I do apologize, I know that we asked this question 

21 before. Just, it's still not clear in my mind.

22 So on (c)(1), or the number one right 

23 after (c) at the top of the page on four, where 
37

1 you're talking about recalculating the composite 

2 score after it's been calculated if you incur a 

3 borrower defense debt or liability after that score 

4 has been calculated, are you going to be, is this 

5 just a recalculation kind of as a warning sign, 

6 or are you actually recalculating the composite 

7 score so that a school's composite score could then 

8 change, the official score, change midyear? 

9 And so that if they dropped below the 

10 1.0, any of the penalties or impacts of that would 

11 occur in the middle of a year?

12 MS. WEISMAN: So we're specifying here 

13 that it's at the end of the fiscal year for which 

14 we have the most recently calculated score. And 

15 we are going to go back and recalculate if we have 

16 claims, just to give us a sense of would you then, 

17 as a result of those claims, would your score then 

18 fail.

19 MS. SHARP: So let me just use a time 

20 frame then. So normally, we turn in our audit end 

21 of January. It's usually March/April, in that time 

22 frame, May, where we get our score from the 

23 department and we start conversations. It just 
38

1 depends on the department, you know, where they're 

2 at on their time frames.

3 And then so the discussion starts on 

4 the scores, the school is notified. So as a part 

5 of that calculation in the spring after our audit 

6 is submitted, that's when you're also looking back 

7 to borrower defense to say does that, if we didn't 

8 have borrower defense, the score would be, the 

9 official score, would be this. But since we do, 

10 the official score is this.

11 It's not that you're going to send the 

12 school a letter in March and say this is your score, 

13 but then in May or June, you go back and say, oh, 

14 now in May, we had some claims. So that it's now 

15 in June, we're going to send them another letter 

16 and say, I'm sorry, your official score is now this. 

17 And you now, if you've dropped below a 1.0, there's 

18 new impact and penalties.

19 I'm just trying to think from an 

20 operational standpoint how that would work in the 

21 timing if this scores changed. Because when you 

22 drop below the 1.0, you know, there are impacts 

23 as far as heightened cash monitoring or CERA. 
39

1 Yeah, even if you don't. 

2 So a school's score changing mid-, after 

3 you've gotten that official score could be quite 

4 a big switch that you operationally have to figure 

5 out how to handle.

6 PARTICIPANT: Annmarie.

7 MS. WEISMAN: So we believe the 

8 language is okay as it is. Our intention is that 

9 we can go in at any time. So once you have a 

10 composite score, if we've got a batch of claims, 

11 we would go in and use the result of that claim 

12 or those claims, look at the value of them, and 

13 recalculate a composite score. And then determine 

14 if there are consequences.

15 So in other words, if you fail as the 

16 result of $100,000 worth of claims, then we would 

17 assign to you whatever consequences we would 

18 typically assign. 

19 If you have two claims and they're for 

20 $10,000 total, most likely it's not going to have 

21 an effect on the institution. But we want to take 

22 a look and say, once you have this liability to 

23 us, what will that do, and do we need to collect 
40

1 other surety, for example, to protect us.

2 PARTICIPANT: Clarification. Would 

3 the claim be effective upon notification to the 

4 institution, or would it be effective at the 

5 beginning of the next fiscal year?

6 MS. WEISMAN: When you're talking about 

7 a claim, we're talking about claims that have been 

8 paid out that we've then come to the institution 

9 and said, You have a liability to pay this claim. 

10 So that could occur at any time. 

11 We would look at it, my guess is once 

12 we had a batch of them. I don't think we're going 

13 to look after every claim. I think we would do 

14 it when we felt we had a concern that there was 

15 a large number.

16 PARTICIPANT: Other proposals or 

17 suggestions for this section? Do you have a 

18 question or?

19 MR. LACEY: Well, it's just a 

20 follow-up. Am I allowed to follow-up?

21 PARTICIPANT: Okay, briefly.

22 MR. LACEY: I'll just reinforce 

23 Valerie's point. The concern for me is not what 
41

1 the department may do. The concern for me is that 

2 there are creditors and states and so many other 

3 entities that use the composite score for purposes 

4 of authorization and their own determinations. 

5 So I'll give you a hypothetical. Lots 

6 of institutions in the country, many, many 

7 nonprofit traditional institutions participate in 

8 CERA. They offer online education, and the basis 

9 for their ability to offer online education to all 

10 of these students without having to have approval 

11 from all those individual states is the fact that 

12 they're CERA-authorized, right?

13 Part of being CERA-eligible is your 

14 composite score. So if you guys calculate an 

15 alternative composite score halfway through the 

16 year and the school has enrolled all of these 

17 individuals from 49 different states or around the 

18 country, and the composite score drops below the 

19 CERA threshold, suddenly they're not authorized 

20 to provide title IV to all those students 

21 potentially that are enrolled.

22 So I think there is real merit to 

23 considering whether or not -- you know, I'm not 
42

1 trying to undermine the department's ability to 

2 act on this composite score. 

3 But characterizing it as an alternative 

4 composite score, you know, for the basis of actions 

5 in this are just some way so that an institution 

6 operationally isn't going to be hung out halfway 

7 through the year having enrolled a bunch -- and 

8 the students, by the way, also won't be hung out. 

9 I mean, you could have who knows how 

10 many students have enrolled, and the school might 

11 say, well, look, we can't, we're no longer 

12 authorized to enroll students in your state because 

13 we lost the CERA authorization. 

14 I just think this is a really important 

15 point that's being raised by Valerie, and it may 

16 be that it can be solved by the department by drawing 

17 a distinction between your official composite score 

18 you get based on your prior year financials, and 

19 an alternative composite score that is calculated 

20 for the purpose, you know, of dealing with these 

21 borrower defense claims that have arisen. 

22 I don't know if the department's 

23 amendable to that, but Valerie's point is a very, 
43

1 very important one.

2 PARTICIPANT: Okay, so I think the 

3 department has heard that concern and point. Dan, 

4 do you have language or a proposal?

5 MR. MADZELAN: I have a follow-up 

6 concern. So you've said that, you know, you have 

7 this kind of interregnum calculation of the 

8 composite score. And if there's, your example, 

9 $100,000 of borrower defense claims, you want to 

10 take that in consideration. 

11 Would you also take into consideration 

12 at that time if coincidentally there was a $100,000 

13 unrestricted donation to the college? 

14 So I'm also asking this in the context 

15 of the statutory provision that says, with respect 

16 to financial responsibility, that there shall be 

17 an audit of the institution's financial condition, 

18 of the institution in its entirety. And so I think 

19 that's what the ordinary composite score does, 

20 because you're using an audited financial 

21 statement. It's the entirety of the institution. 

22 And now you're taking one element, one 

23 factor in that formula, and modifying it. And 
44

1 it's, at that point in time, I don't see how you're 

2 looking at the institution, its financial condition 

3 in its entirety.

4 PARTICIPANT: Michael and then Walter. 

5 Okay. Walter, any proposals or suggestions for 

6 this section?

7 MR. OCHINKO: I had a question.

8 PARTICIPANT: Oh, your mic's not on, 

9 Walter. Oh, press and hold. There you go.

10 MR. OCHINKO: I had a question. I 

11 don't want to beat a dead horse, but I understood 

12 what you said, that you did not want to include 

13 anything that was in the 2016 regulation. But for 

14 example, Corinthian. Prior to its closure, the 

15 department fined it $30 million for falsifying job 

16 placement rates.

17 Would something like that be taken into 

18 consideration in the draft rules we have here?

19 MR. BANTLE: Walter, do you have a 

20 proposal on how that, how you think that could be 

21 quantified?

22 MR. OCHINKO: I mean, this is something 

23 beyond my, you know, ability to I think make a 
45

1 specific suggestion. Basically we were told we 

2 can't suggest anything that's already been in the 

3 prior regulation. But I'm asking if maybe I'm 

4 missing something. Maybe in the way it's drafted 

5 already, there is something that would capture 

6 that?

7 PARTICIPANT: Okay, Michael.

8 PARTICIPANT: Can I wait to hear if 

9 Annmarie's going to respond to William's? Well, 

10 I've been kind of going back and forth as to whether 

11 or not that would be a useful element to consider 

12 when looking at financial responsibility. And 

13 that would be the institution incurs a liability 

14 from the department for noncompliance with HEA 

15 regulations.

16 And so then the questions becomes, well, 

17 if we want to do that, you know, I get program 

18 reviews that have a liability for $64, and you know, 

19 some for $30 million. So then you'd have to have 

20 some kind of quantitative trigger that would mean 

21 this is when it could be considered, when we want 

22 to look at it to be tied to financial 

23 responsibility.
46

1 Now, you may decide that doesn't really 

2 matter, because we can take other enforcement 

3 actions under other sections of the regulations. 

4 We don't need to tie it to financial 

5 responsibility. 

6 We've determined that they're out of 

7 compliance with HEA in other areas, and we can, 

8 you know, take all kinds of other LS&T action. 

9 So it may not really be necessary here to tie it 

10 to financial responsibility, because we've already 

11 got a determination of noncompliance.

12 PARTICIPANT: The only point I would 

13 make about that is that back almost eight or nine 

14 months earlier, ten months earlier, when the 

15 department told Corinthian that because it was not 

16 sharing the job placement rates with it, the 

17 department said, Well, we're going to delay the 

18 release of title IV funds to you.

19 And Corinthian's response was, If you 

20 do that, we're going to go bankrupt. So the 

21 institution already was, you know, in dire straits. 

22 So it seems to me that something is directly 

23 BD-related misrepresentation, which is what job 
47

1 placement rates were about, deserves to be 

2 acknowledged somewhere in this document.

3 PARTICIPANT: Thank you. Ashley, 

4 Rich.

5 PARTICIPANT: I just, I have a 

6 question.

7 PARTICIPANT: Is this for 

8 (inaudible.)?

9 Ashley: Okay, it doesn't sound like 

10 it is. So going back to Valerie's point about the 

11 composite score, my question is could there be, 

12 if the calculation was recalculated, or the 

13 composite score was recalculated, you're almost 

14 making it seem as though that's an instantaneous 

15 thing, meaning you would, you know, go after 

16 institutions for, you know, they'd be put on 

17 heightened cash monitoring, whatever.

18 Could there be some sort of time period 

19 for, not necessarily resolution's probably not the 

20 right word. But for instances where we could lose 

21 eligibility for groups of students halfway through 

22 the year when it comes to a state authorization 

23 item.
48

1 You know, to serve the students better, 

2 could there be some sort of almost like resolution 

3 on the institution's side in a time period allotted 

4 to do that, so it wasn't just instantaneous, like 

5 we do with a teach-out plan, for example? Does 

6 that make sense?

7 That way, we would mitigate some harm 

8 to students without having to report, like, to our 

9 state agency saying we no longer meet these 

10 requirements, they would say, you know, well, we 

11 need to pull these students. 

12 So I'm just wondering if there could 

13 be any language in there about, you know, we would 

14 follow through with regular teach-out plan or 

15 something like that. I don't know how to craft 

16 that just right, but I just wondered if there could 

17 be, instead of it just being so instantaneous, that 

18 there could be some sort of time period.

19 PARTICIPANT: Annmarie.

20 MS. WEISMAN: So I hear the concern from 

21 our perspective that we're talking about debt or 

22 liabilities that result from borrower defense 

23 claims. 
49

1 So at that point, the institution has 

2 had some notice, is aware that they have these 

3 claims, has had a recovery you know, hearing and 

4 some back and forth as part of that process, and 

5 the ability to provide evidence at that time.

6 So I think from our perspective, you've 

7 had some notice along the way to what's coming, 

8 and you can kind of prepare for that. You would

9 generally have a sense of whether this amount of 

10 claims is going to impact your financial score to 

11 the extent that it is. 

12 This is, remember, it's discretionary 

13 and we expect that you know, schools that have a 

14 claim or two would not have a problem. That a claim 

15 or two is mostly likely not going to impact a 

16 financial score of an institution. 

17 And if it does, then perhaps it should, 

18 you know. Is a $10,000 claim going to impact the 

19 score of most schools? I would argue no. And that 

20 if the impact is so significant that it does impact 

21 the score, that I think the idea that a school cannot 

22 continue to enroll new students, for example, might 

23 be warranted.
50

1 PARTICIPANT: Right, I don't disagree 

2 with that. I just, I'm concerned that it's 

3 instantaneous. And I'm not going to necessarily 

4 know when you're going to be recalculating that 

5 score to assume should I stop enrolling students 

6 now, or. Like, I don't know necessarily when you 

7 have a group of claims that you decide, I'm going 

8 to go ahead and recalculate. 

9 MS. WEISMAN: But you know that we've 

10 gone to you for recovery of those funds. So it's 

11 not just we have claims. These are claims that 

12 we have adjudicated, we've told the institution, 

13 You owe us money for these claims. 

14 So, you know when they've totaled such 

15 an amount that they're starting to impact your 

16 score.

17 PARTICIPANT: Okay, other proposals or 

18 questions, or I'm sorry, or concerns for this 

19 section. Abby, you have tent has been up. Abby, 

20 do you have proposed language or a suggestion?

21 MS. SHAFROTH: I'm hoping to see if 

22 there's some room for compromise on the sort of, 

23 this idea that a, you know, discretionary trigger 
51

1 could be something related to a borrower defense 

2 judgment, you know. Something that happens before 

3 the final adjudication of the claim by the 

4 secretary, but that would I think reasonably make 

5 us think that there is liability related to borrow 

6 defense-type claims at issue. 

7 And that would, I think if we're looking 

8 for early warning signs and the department wants 

9 to have some of the discretionary at least authority 

10 to consider this. 

11 So would something like, if the 

12 institution is required to pay any debt or incur 

13 any liability arising from a final judgment, sort 

14 of as with a cross reference to the final judgment 

15 standard from Issue Paper 1, in a judicial 

16 proceeding or administrative proceeding or 

17 arbitral proceeding that relates to the, on claims 

18 relating to the making of a direct loan for 

19 enrollment at the school or the provision of 

20 educational services.

21 That seems pretty discrete, pretty 

22 clearly related both to borrower defense and to 

23 liability of the school, and strikes me as if there 
52

1 is that sort of judgment, and we know that's a, 

2 sort of, per se basis for borrower defense relief, 

3 why not authorize the department to look at that 

4 and consider that an early warning sign.

5 PARTICIPANT: Any other proposals or 

6 suggestions? Aaron.

7 MR. LACEY: This is very specific to 

8 Ashley and Annmarie's conversation. So I, and I 

9 think maybe this would solve the issue, and also 

10 address a concern I had. 

11 So you all, and I appreciate the 

12 department, and I'm going to skip ahead to number 

13 three on page five, built in an opportunity for 

14 institutions when they provide notice of one of 

15 these events, to provide information, quote, "About 

16 the conditions or circumstances that precipitated 

17 the action," etc.

18 The challenge is the way this language 

19 is written, it only, it contemplates that an 

20 institution has an opportunity to communicate to 

21 the department about extenuating circumstances, 

22 etc., either when it provides notice, or in response 

23 to a determination by the secretary that the 
53

1 institution is not financially responsible.

2 Now, here's the concern. With regard

3 to borrower defense liabilities, right, you don't 

4 provide notice. So the institution will not have 

5 submitted a notice to the department. Which means 

6 the first opportunity it has to communicate to the 

7 department would be after the composite score has 

8 been recalculated and there's been a determination.

9 I know there's been lots of back and 

10 forth in the recovery action, but my concern is 

11 the one that Dan brought up, right. So let's say 

12 the institution has some sort of windfall with 

13 regard to its financial position, right. 

14 So I'm an institution and I've gone this 

15 borrower defense claim process, and I've got 

16 $100,000, right, in borrower defense liability. 

17 But I don't think there's going to be a basis to 

18 recalculate my composite score, because I just got 

19 a gift for a million dollars. But the department 

20 doesn't know that. Because you got last year's 

21 financials, and all you have is the information 

22 on the liability from the borrower defense 

23 proceeding. 
54

1 And under this provision, there's no 

2 opportunity for me, before you recalculate the 

3 deposit score and reach a determination, to provide 

4 you with information. Because I don't give you 

5 notice about borrower defense actions, you've 

6 already got that.

7 So what I would suggest, in the way of 

8 very specific language, is to say in number three, 

9 it should read, and I'm going to go all the way 

10 down. I'm here in its notice to the secretary, I'm 

11 skipping all the way down to the third line. Under 

12 paragraph (c) of this section, or I'll just read 

13 the whole thing, make more sense.

14 In its notice to the secretary under 

15 this paragraph, or in response to a determination 

16 by the secretary that the institution is not 

17 financially responsible because of an action or 

18 event under paragraph (c) of this section, but 

19 before the secretary takes action, the institution 

20 will be afforded an opportunity to. 

21 And then you get down to (iii). Which 

22 means in a borrower defense circumstance, if you 

23 all determine to do a recalculation of the composite 
55

1 score, but before you would act on that recalculated 

2 composite score, there is a guarantee that the 

3 institution will at least be afforded an 

4 opportunity to provide additional information to 

5 the department. 

6 Which could be, as Dan pointed out, any 

7 host of information that you don't have available 

8 regarding finances or changes that may have 

9 occurred since the last financial audits were 

10 submitted.

11 For me, it is also important, I think 

12 that helps resolve Ashley's concern. But it also 

13 is important because I want to make sure that 

14 institutions -- I know the department needs to act 

15 quickly, I'm not suggesting a particular time 

16 frame. 

17 But I think institutions should at least 

18 have a change in every circumstance to provide, 

19 if there is relevant information regarding their

20 financial circumstances, to provide that before 

21 the department acts on its recalculated composite 

22 score or what have you.

23 MR. BANTLE: Okay, I see Chris and 
56

1 Michael have cards up. Are they proposals on (c) 

2 one through four? Okay.

3 PARTICIPANT: Chris.

4 MR. DELUCA: So my proposal is for some 

5 clarification. And I think it gets back to the 

6 point that Valerie and Ashley were making as well. 

7 But it's really important to know whether or not 

8 this recalculated composite score is an official 

9 composite score. 

10 And the concern that I've got, 

11 particularly for small institutions, is you may 

12 have a situation where, so for example, massage 

13 therapy school, five students in a class. They've 

14 got a borrower defense claim because of a rogue 

15 administrator, rogue admissions director or 

16 something. Okay, the school corrects it, but 

17 they've got a BDR claim, it could be $50,000.

18 For a small school, that may move their 

19 composite score. Now, it may not move it from, 

20 and the issues is it may not even move it down to 

21 1.0, right. So it could move it from a 1.6 to a 

22 1.4. For you, for the department, there's no, 

23 okay, that's fine, because you've got that cushion 
57

1 there, as long as it doesn't go below a 1.0.

2 But if it's an official composite score 

3 and now it's been recalculated. And again, not 

4 to put you on the spot, Michael, but I'd love to 

5 get your thoughts on this. Now does the school 

6 have, you know, some accreditors have an 

7 obligations to report to, require that their 

8 schools report to them if there is a, you know, 

9 material finding or change of position or, and 

10 notification from the Department of Education.

11 Well now do they, are the accreditors 

12 going to get notice of this recalculated composite 

13 score? Or does the school have an, the school may 

14 have an affirmative obligation to do that? 

15 Now is the school, even though the 

16 department doesn't say they're not financially 

17 responsible, but they technically haven't, now 

18 they've got a 1.4 instead of a 1.6. And does that 

19 mean that, okay, they're fine for the feds, but 

20 now they've got an issue with their accreditor?

21 So I think, you know, that this is, you 

22 know, it becomes important in how this is 

23 classified. Again, if it's just, if the language 
58

1 here is that for purposes of this section, we 

2 calculate the composite score to see if there's 

3 an issue, but it's not, you know, but it's not 

4 restating the school's official composite score 

5 for fiscal year 2017, that's one thing. 

6 Versus saying, Oh, we're going to update 

7 your official composite score for fiscal year 2017. 

8 And now, you know, instead of a 1.6, you're a 1.4, 

9 and even with, so with the Department of Education, 

10 the department says, We're not going to take any 

11 further action. But now the school has other 

12 repercussions because of that.

13 PARTICIPANT: Michael.

14 PARTICIPANT: Well, frankly, I think 

15 that a recalculated composite score is the least 

16 of the school's worries at that point. They've 

17 been found to have misrepresented. As an 

18 accrediting agency, we want to know that. Now, 

19 whether, you know, it triggers -- you know, our 

20 agency would not be interested only because it 

21 triggered a different composite score trip.

22 I mean, we would be interested to know 

23 that a claim was being adjudicated by the
59

1 department, and that the institution was found to 

2 have misrepresented to the student. That's, as 

3 an initial matter, that's going to initiate our 

4 review, regardless of, you know, the financials 

5 is another piece of it, another consideration as 

6 to whether or not.

7 But our concern is at that point we'll 

8 be, okay, well, can they can continue to operate. 

9 So I'm not concerned about whether or not, you 

10 know, it trips, or it. Because we're already 

11 initiating a process at this point for review. 

12 And financials is going to be part of that, and 

13 financial reporting's going to be part of that. 

14 We're going to ask, what is the 

15 financial impact of the department's action. Give 

16 us all the information about it, explain, you know, 

17 what the misrepresentation was and so, you know. 

18 I just, I'm not persuaded that that is an issue 

19 for accreditors. And in fact, to the contrary. 

20 You know, we're going to want as much 

21 of that information as we can. And I don't want 

22 to do, you know, put into place things that would 

23 restrict our ability to get that information. But 
60

1 how we use the composite score I think is not really 

2 material.

3 PARTICIPANT: Okay, so the time is now 

4 10:17, and we still have to get to the subcommittee 

5 meetings, or their report-out. So unless this is 

6 a proposed language to correct your concerns, I'm 

7 going to open it back up to Annmarie. Michael.

8 PARTICIPANT: So, yeah, to go to what 

9 Aaron, Ashley, and Valerie were saying, maybe, to 

10 go back to Issue Paper 2, it fits, and I know, I'm 

11 sorry. 

12 But under number nine, under recovery 

13 from the school, when it talks about the secretary 

14 may initiate a proceeding, to Aaron's question or 

15 point about notification and having the 

16 opportunity, I'm sorry that I don't have the 

17 specific language that would be helpful, because 

18 it just popped in my head. But maybe that's where 

19 we can give some notice and opportunity for the 

20 institution to provide, you know.

21 Because, again, what we're trying to 

22 get to is, you know, the early warning. And

23 remember that this is only when they incur a 
61

1 liability, not when they may incur a liability. 

2 This means that it's already happened. 

3 So again, I'm not as concerned about, 

4 you know, what the impact will be because you might 

5 take it. You've already taken an action, you've 

6 already initiated a proceeding, you've already 

7 issued a requirement for them to repay at that 

8 point. They've incurred the liability, and now 

9 you're going to recalculate. 

10 So we're pretty far down the road. The 

11 institution had plenty of notice and opportunity 

12 probably up to this point, but if we wanted to make 

13 sure, then it could go under recovery from the 

14 school and a little bit of language about notice 

15 being provided there.

16 PARTICIPANT: Okay. Annmarie, do you 

17 want to open up the paper to other suggestions, 

18 or (Simultaneous speaking.).

19 MS. WEISMAN: I'd actually like a 

20 moment to confer with staff first, and then we can 

21 continue on.

22 PARTICIPANT: Okay, thank you.

23 MR. BANTLE: Annmarie, it is 10:15. 
62

1 Should we just take the 15-minute morning break? 

2 Perfect. 

3 (Whereupon, the above-entitled matter 

4 went off the record at 10:15 a.m.)

5 MR. BANTLE: Okay, I would like to just remind 

6 everyone, well, first, thank you all for the discussion. It has been 

7 a good discussion. It has been necessary discussion.

8 But I would like to remind you, we all do have a lot 

9 to get through today, so as facilitators, we will be jumping in to 

10 kind of hone points and understand concerns, and to try and 

11 move the conversation along. So you will all probably be 

12 frustrated with us in due time here. We apologize in advance.

13 I want to turn it over to the Department, as they 

14 had kind of requested some time there to discuss.

15 PARTICIPANT: So I think we've gotten some 

16 good feedback on some of the paper, as we've gotten so far. 

17 We left off at D, at the bottom of page 4. Are we ready to pick 

18 up there, or do we have other --

19 PARTICIPANT: Suzanne?

20 MS. MARTINDALE: Just a very quick suggestion 

21 before we move on to D, understanding the concern that the 

22 Department has about, you know, anyone can bring a lawsuit for 

23 any reason, so that may not be connected to financial 
63

1 responsibility. However, could we consider language that 

2 captures, you know, attorney general investigations, enforcement 

3 actions, as a compromise position, a multi-state attorney general 

4 enforcement action, because those are typically brought after 

5 years of investigation, evidence gathering and are not based on 

6 nothing, and if they're connected to borrower defense, I think that 

7 is a very, very relevant early trigger.

8 PARTICIPANT: Thank you. Annmarie? Or 

9 Juliana, did you also have a point on that?

10 MS. FREDMAN: I was going to make a similar 

11 point about attorney general actual filed lawsuits, as opposed to 

12 investigations, not being something that gets filed willy-nilly. And 

13 I also wanted to echo what Michael was saying about a fully 

14 adjudicated borrower defense claim being a potential 

15 non-mandatory trigger.

16 Given what we've heard here from some of the 

17 smaller schools saying that even a single borrower defense claim 

18 filed could destroy their business, I think one that's been through 

19 the full adjudication process would at least be something the 

20 Department might want to look at in some circumstances, if it 

21 really is going to impact the business that much, in terms of 

22 financial responsibility and diligence for the tax payers.

23 PARTICIPANT: Any last comments before we 
64

1 move on?

2 Will? Make it a good one.

3 MR. HUBBARD: Oh, this will be a great one. 

4 So I think in a similar vein, understanding that the Department 

5 doesn't necessarily have a palette for some of the previous stuff, 

6 I think to the point that's been made, multi-state actions, in terms 

7 of settlements, so any settlements that go across state lines I 

8 think would be relevant in this case. This indicates a larger 

9 action versus a one-off settlement with a single student, which I 

10 could understand the relevant concerns with some schools on 

11 that, but I think larger settlements that do cross state lines, I think 

12 would indicate an issue that would be worth looking into as it 

13 relates to BD.

14 PARTICIPANT: Just a correction on what's up 

15 there. It would be state attorney general, like, complaints filed, 

16 or lawsuits, as opposed to bare investigations. So we've heard 

17 the concerns of the AGs about investigations.

18 PARTICIPANT: Thank you. Annmarie?

19 MS. WEISMAN: So I just want to thank people 

20 for coming up with additional suggestions. I feel like I asked, 

21 and you delivered, so I do want to thank you for that.

22 These are all items that I'd like to take back for 

23 consideration, so if we can kind of move on from here, but 
65

1 knowing that we will revisit this, I've been -- I think, pretty firm 

2 with our facilitators that we've got to get through these papers 

3 today, so we have time to come back to one and two tomorrow, 

4 so being mindful of time, I don't want to deviate from that too far, 

5 but I do think that we will end up revisiting some of these 

6 suggestions tomorrow again.

7 PARTICIPANT: I know Evan -- quick, very quick, 

8 okay, just because I think it will probably be in relation to --

9 MR. DANIELS: Yes, it is. So appreciate what 

10 some have suggested about state attorney general actions. 

11 There's probably going to be some differences in position from 

12 the state attorney generals on this, as it concerns my office, 

13 anyway, we have publicly filed a comment as it related to the last 

14 rulemaking, we would be opposed to the use of an attorney 

15 general individual state or multi-state investigation, or even the 

16 filing of a lawsuit, for the reasons already stated. Those things 

17 are uncertain. The results are uncertain, and that's why we 

18 would oppose it.

19 However, I think we would support the idea that a 

20 final judgment, or some final resolution, as the basis for looking 

21 at these things more closely.

22 PARTICIPANT: So could you -- just to impose 

23 on you just for a minute, could you help us to amend the 
66

1 language up there to something that might help you to be more 

2 comfortable, that you think would be more applicable, generally?

3 MR. DANIELS: Yes, I think we would oppose the 

4 complaints filed, and we would support a final judgment or final 

5 resolution. But anything regarding just complaints filed, or 

6 investigations, you know, initiated, we would oppose that. Does 

7 that help?

8 PARTICIPANT: So I think what he was saying 

9 was to strike 11, but can you undo that and go back? I think you 

10 struck 11 and 12, and I want to see 12 again.

11 So then the question I would have for our -- I 

12 believe you were referred to yesterday as our AG friends, the 

13 question I would have for our AG friends is, would we be aware 

14 of the settlements, or would they be private?

15 MR. DANIELS: Generally, at least the practice of 

16 my office is that settlements like this come in the form of consent 

17 judgments, which have to be approved by a court, and they are 

18 publicly announced.

19 PARTICIPANT: Juliana, did you have a question 

20 or a comment to that point?

21 MS. FREDMAN: Just a brief one. I understand 

22 that the AG's wouldn't want investigations or even complaints 

23 filed to serve as a basis for a borrower defense. I understand 
67

1 the reasoning behind that.

2 But these are early trigger warnings, which the 

3 Department can, at their discretion, take a closer look. So I think 

4 that our position would be that a complaint filed, that's gone 

5 through the vetting process to be filed in a court, would be an 

6 appropriate potential trigger to investigate, to look at the issue 

7 further, if the department thought that that was warranted, as 

8 opposed to being something more -- some sort of more 

9 concrete action.

10 MR. DANIELS: And I understand that. And 

11 ultimately, the issue we have with that is given that some kind of 

12 trigger could result in -- not an action against an institution, but 

13 a concrete result that does have effects on the ability of an 

14 institution and how they operate, we just -- we have due process 

15 concerns about the filing -- the mere filing of a complaint or 

16 presence of an investigation as a trigger, if you will.

17 PARTICIPANT: Okay. Just, Chris, is it another 

18 suggestion, or --

19 MR. DELUCA: So I think the numbering might be 

20 off. I think the numbering is -- I think that those are all subs 

21 under what was then 3 -- or now 4, those are all numbers under 

22 publicly-traded institutions, right? 

23 So aren't we talking about adding like 5, 6, 7, 8? 
68

1 Aren't we looking -- I mean, as far as -- I'm not saying that I agree 

2 with everything on there. I'm just saying, as far as 

3 understanding it, these are other facts -- these are starting at --

4 whatever, 5, sub 5, Romanette 5, right. Those are all -- or is that 

5 marking tabulations public --

6 PARTICIPANT: So Romanette 5 I believe should 

7 be numeral 5.

8 PARTICIPANT: Well market cap, and compared 

9 to cash flow, market cap -- that would -- no, that would be for 

10 publicly traded, right?

11 PARTICIPANT: Yes, Romanette 6.

12 PARTICIPANT: Market cap? Yes, Romanette 6 

13 should be --

14 PARTICIPANT: Numeral 5, yes.

15 PARTICIPANT: Okay.

16 PARTICIPANT: Okay. So I think we have some 

17 food for thought for the Department there, and let's move on to D. 

18 And we'll let Annmarie kind of give us the guide of how much the 

19 Department would like to consider at this time.

20 PARTICIPANT: So we're picking up at the 

21 bottom of page 4, with D, recalculating the composite score. 

22 The Secretary recognizes the actual amount of the debt or 

23 liability incurred by an institution for borrower defense claims 
69

1 under paragraph C(1) of this section as an expense, and it 

2 accounts for that expense by -- and the new text that was 

3 inserted here, at 1, 2, and 3; 1, for the primary reserve ratio, 

4 increasing expenses and decreasing adjusted equity by that 

5 amount; 2, for the equity ratio, decreasing modified by that 

6 amount; and 3, for the net income ratio, decreasing income 

7 before taxes in the net income ratio by that amount.

8 Our next change occurs on page 5, with number 

9 3. In its Notice to the Secretary under this paragraph, or in 

10 response to a demonstration by the Secretary, that the institution 

11 is not financially responsible because of an action or an event 

12 under paragraph C of this section, the institution may 

13 demonstrate that the reported withdrawal of owner's equity under 

14 paragraph C(2) was used exclusively to meet tax liabilities of the 

15 institution or its owners for income derived by the institution; 

16 show the action or event has been resolved, or demonstrate that 

17 the institution has insurance that will cover all or part of the debts 

18 and liabilities that arise from borrower defense claims under 

19 paragraph C(1); or explain or provide information about the 

20 conditions or circumstances that precipitated that action or event 

21 that demonstrates that the action or event has not or will not have 

22 a material adverse affect on the institution. 

23 So I think that those three conditions under 3, on 
70

1 page 5, may address some of the concerns that Dan and Aaron 

2 and possibly Chris had raised earlier.

3 PARTICIPANT: The screen doesn't match. 

4 Scroll down a little.

5 PARTICIPANT: I apologize. I'm just not sure 

6 what function the screen is playing right now, whether these are 

7 things we're considering, or this is just stuff that -- you know, but I 

8 just want to make sure -- okay. Okay, well, that reflects my 

9 earlier comment.

10 PARTICIPANT: Are we breaking there, 

11 Annmarie, or are you opening it up to questions?

12 Okay, Kelli and then Chris. 

13 MS. HUDSON PERRY: Okay. In D, on the 

14 bottom of page 4, I'm not going to beat a dead horse, but I still 

15 think that it should be liability, even based on the Department's 

16 description of what a debt or a liability is. But saying that, in your 

17 -- in the 1, 2, and 3, where you talk about the ratios, these ratio 

18 calculations are only listing the ones for for-profit entities, and I 

19 believe that this applies to both for-profit and not-for-profit.

20 And so in one, it needs to be changed, increasing 

21 expenses or decrease in adjusted equity amount for for-profit 

22 institutions, or expendable net assets for not-for-profit institutions.

23 In the second one --
71

1 PARTICIPANT: I'm not sure that our editor has 

2 caught all that.

3 MS. HUDSON PERRY: Okay. I can go slower. 

4 Sorry.

5 PARTICIPANT: Thank you.

6 MS. HUDSON PERRY: Decrease in adjusted 

7 equity for for-profit institutions, or expendable net assets for 

8 not-for-profit institutions.

9 In number 2, for the equity ratio, decreasing 

10 modified -- I believe you're missing a word there, that should say 

11 modified equity, for for-profit institutions, and modified net assets 

12 for not-for-profit institutions.

13 And then in the third one, decreasing income 

14 before taxes in the net income ratio for for-profit institutions, and 

15 changes in assets without donor restrictions for not-for-profit 

16 institutions.

17 PARTICIPANT: Excuse me, Kelli, let me clarify. 

18 Should it be net assets, or assets, in the last one?

19 MS. HUDSON PERRY: Sorry, changes in net 

20 assets.

21 PARTICIPANT: Thank you.

22 MS. HUDSON PERRY: Yes. It's without donor 

23 restrictions.
72

1 PARTICIPANT: Oh, sorry.

2 PARTICIPANT: Okay. Chris?

3 MR. DELUCA: Under D(2), the equity ratio for 

4 for-profit institutions, and again, the catch as far as you know, 

5 modified equity, but I think it should also be a decrease in both 

6 modified equity and modified assets for for-profit institutions, 

7 because what we're saying here is based on the BDR claim, 

8 we're going to reduce the amount of equity by $10,000. But then 

9 also, if we're going to do that, the denominator should be 

10 decreased as well, because they're saying, okay, if we're going to 

11 go back and re-state where the school was, then they had 

12 $10,000 fewer of assets as well, so I think it should be an 

13 adjustment in both the numerator and the denominator to make 

14 the math consistent.

15 PARTICIPANT: Chris, how does that affect the 

16 assets?

17 MR. DELUCA: Because if the school is saying, 

18 oh, we've got -- well, it seems like there should be a similar 

19 adjustment. If we're saying that a school --

20 PARTICIPANT: The ratio that this really has an 

21 effect on is actually the equity ratio. In the primary reserve ratio, 

22 it's affecting the numerator and the denominator. So the equity 

23 ratio is where it's actually going to have an effect in that 
73

1 calculation, because you're going to be increasing your -- sorry, 

2 decreasing your equity, but your assets aren't going to change.

3 Because the concept of this is that the 

4 Department is saying, okay, you owe us money, so an institution 

5 is going to an expense and a liability on their books until they 

6 actually pay it. So because of the fact that they haven't paid it 

7 yet, they're not affecting their assets.

8 PARTICIPANT: Other proposed language or 

9 comments on this section?

10 (Pause.)

11 Annmarie, has the Department heard enough on 

12 this section? Can we open up to the next section? So are we

13 at F, public institutions?

14 PARTICIPANT: We do not have any new 

15 changes in that section that I can see. We don't have anything 

16 shaded with new information. So if people want to just take a 

17 quick glance at that, I think that -- yes.

18 PARTICIPANT: So any -- take a quick glance. 

19 We're looking at F all the way down to where 668.172 would 

20 begin on the next page, on six. is that correct?

21 PARTICIPANT: I'd like to pick up with 668.172, 

22 with financial ratios.

23 PARTICIPANT: Any comments prior to 668.172? 
74

1 Okay. 

2 PARTICIPANT: Annmarie?

3 MS. WEISMAN: So this is where the work of our 

4 subcommittee comes in, and we'll have them at the table for 

5 questions related to this, where applicable. We've inserted new 

6 text, which is 668.172D, about the transition period that we 

7 mentioned related to leases.

8 "D(1) states, as a result of changes to the 

9 accounting for leases, required by FASB, for an institution's four 

10 consecutive fiscal years beginning on or after July 1, 2019, for 

11 which the Secretary calculates the institution's composite score, 

12 the Secretary also calculates a transition score by excluding from 

13 the calculation operating leases that the institution entered into 

14 before July 1, 2019, provided that those leases are properly 

15 disclosed in the supplemental schedule required under Appendix 

16 A or B of the subpart.

17 "For each year of the transition period, the 

18 Secretary uses the higher of the composite or transition score in 

19 determining, in part, whether the institution is financially 

20 responsible."

21 We then continue at the top of page 7, "For the 

22 transition period described in paragraph D(1), the Secretary 

23 suspends the conditions in section 668.175D(1), Romanette 1(B); 
75

1 and two, under which an institution continues to qualify for the 

2 zone alternative.

3 "For any fiscal year following the transition period, 

4 the institution's transition period scores have no bearing on 

5 whether the institution qualifies under an alternative standard in 

6 668.779. 175 C, D, or F."

7 And because of the significant discussion we had 

8 last time about this section, I'd like to close that off there, and just 

9 have the discussion about this section on the transition period for 

10 leases.

11 PARTICIPANT: Opening it up to the committee? 

12 Chris?

13 MR. DELUCA: So at our last meetings, there 

14 were some questions and requests for some additional 

15 information, and perhaps some additional proposals with respect 

16 to both the transition period, as well as perhaps even looking at 

17 are there other ways to look at accounting for the affects of the 

18 lease changes under the FASB rule changes.

19 And so one of the things that I had mentioned at 

20 the last meeting was that there are schools that signed leases 

21 before the FASB rules were published. Those leases will extend 

22 beyond the transition period. And so seeking additional 

23 transition period for those, with respect to those leases, and 
76

1 again, under just a fairness idea of that, schools making financial 

2 decisions, i.e., entering into a lease under a current set of rules in 

3 2014, that they should not have an adverse impact -- have 

4 something that was going to adversely affect their composite 

5 score in 2022 or 2023 when they're still under that lease.

6 So I want to stop there, and just understand -- and 

7 well, follow up with that, some of the information that was 

8 requested by the subcommittee that we provided. We've got 

9 information from nearly 200 schools that indicated about 15 

10 percent of those schools responded back to us saying, oh, we 

11 have leases that fall within that time frame. So 15 percent of a 

12 sample size of about 200 schools.

13 So wanting to know, just kind of the thought 

14 process of why that request was not granted, or what the thought 

15 process is for not extending a transition period for schools with 

16 leases in that circumstance.

17 PARTICIPANT: So I'm going to ask one of the 

18 staff members from the Department, Chris Vierling, to come to 

19 the table to address that issue. He worked more specifically 

20 with the subcommittee, and can better respond to that.

21 MR. VIERLING: This is Chris Vierling. I hope I 

22 can give a good explanation. There was a lot of discussion on 

23 the subcommittee concerning the transition period, and one of 
77

1 the aspects of what will happen in the transition period is that a 

2 school will be identifying all of the leases that exist at the 

3 beginning of the transition period. 

4 And as the transition period is moving along, the 

5 balance of those leases is going to go down. And as those 

6 leases go down, the impact of the business decisions that the 

7 institution is entering into, after -- I mean, while the transition 

8 period is occurring, will be reflected in the composite score. 

9 So the thought was, that we've got the four-year 

10 transition period, and then an institution would hopefully be in at 

11 least the zone at the end of the transition period with the leases, 

12 and that we are basically giving a waiver to the zone requirement 

13 for an additional three years. So that if an institution is in the 

14 zone for the entire transition period, they've still got an additional 

15 three years after the transition period to remain in the zone.

16 And I can say that the members of the 

17 subcommittee actually thought that that was a pretty good idea 

18 that we had all come up with.

19 PARTICIPANT: So my concern is that there -- so 

20 even if a school is in the zone at the end of the transition period, 

21 and recognizing that the way the math works, that the accounting 

22 works, is that the value of the lease, liability, and assets is going 

23 to go down as you get further in the lease.
78

1 Now we haven't talked about options. So if we've 

2 got a school that has signed a ten-year lease, and it's got a 

3 five-year option under the terms of that lease, there's a whole 

4 other issue that the school has to determine of whether or not 

5 they get the benefit or if there's an impact for the fact that they 

6 negotiated for favorable terms under an option. But that's a 

7 whole other issue.

8 But even with that, in the transition period, and 

9 this gets back into an issue raised earlier, is that I work with 

10 schools that are in the zone for Department of Education 

11 purposes, but that puts them into financial monitoring under their 

12 accrediting standards. And so it may not be an issue with the 

13 U.S. Department of Education for that extra three years, but it 

14 can be a very material issue for them in connection with their 

15 accreditor.

16 And as I said, I work with schools that have a 1.2, 

17 and that's an issue for them with their accreditor. So there's still 

18 an issue with a negative impact on them for a business decision 

19 they made under a set of rules that -- they're being judged on 

20 rules that didn't exist at the time they made their business 

21 decision.

22 I understand going forward, these are the new 

23 rules, but you know, in 2014, these weren't the rules.
79

1 PARTICIPANT: Other comments or concerns on 

2 this section?

3 Abby?

4 MS. SHAFROTH: I was just wondering if you 

5 could talk us through sort of how you came up with four years, 

6 and four years from the effective date of this regulation. 

7 Presumably schools already know about the change and the 

8 accounting standards now, and so operating leases -- if they 

9 entered into operating leases between now and July 2019, they 

10 would be doing so with sort of awareness of those 

11 consequences. So I wondered whether in light of that, it would 

12 be -- make sense to have a slightly shorter transition period, like 

13 three years.

14 PARTICIPANT: Well, in actuality, because this 

15 applies to the world, the world has known that this accounting 

16 standard was going to be coming into effect since 2016. We did 

17 some research as a subcommittee, and what we determined was 

18 that it was about an eight-year period, that that was on the 

19 outside, was eight years.

20 And so we looked and we said, okay, you've got --

21 what is it, the three years -- well, I guess at this point, it's two 

22 years -- from 2016, and then you've got the four year transition 

23 period. And then because we do want schools to be able to 
80

1 continue to participate, we said, okay, well, we'll do the zone for 

2 an additional three years. 

3 So it was very reasoned to try to allow as many 

4 schools to remain participating in the title IV programs as we 

5 could.

6 PARTICIPANT: Chris DeLuca?

7 MR. DELUCA: So the second issue I wanted to 

8 discuss was there was another proposal that we had put -- we, at 

9 the bequest of members of the subcommittee, to think about 

10 other ways to approach the lease amortization issue, and the 

11 change in at least accounting issues is that we submitted a 

12 proposal, the idea being, that under these rules, under the new 

13 FASB rules, when you sign a lease, a ten-year lease, you're 

14 going to have a very large asset at the beginning of the ten-year 

15 lease period. You're going to have a very small asset at the end 

16 of the lease period. And so it's a self-amortizing number. Each 

17 year that number goes down.

18 And so the negative impact of the lease on a 

19 school's composite score calculation is going to be reduced, if 

20 nothing else changes, just by fact that you've gone further into 

21 the lease. If all the numbers stay the same, your composite 

22 score's going to gradually get better.

23 So we had put a proposal to say that what if we 
81

1 looked at it a different way and used an averaging of that, so that 

2 we're not overstating the impact of the lease up front, we're not 

3 understating the impact of the lease on the back end, but to try to 

4 come up with, if it's a ten-year lease for $100,000 a year, the 

5 average lease payment is $500,000. So for purposes of the 

6 composite score calculation, can we value the asset and the 

7 liability at $500,000, for each of the years under the lease, so that 

8 it's not fluctuating so wildly between the front of the lease and the 

9 end of the lease.

10 So that's not -- again, that was submitted to the 

11 committee at the request of proposing different ideas. I see that 

12 that idea is not included in the proposal, and so I just want to 

13 understand the reasoning why behind that.

14 PARTICIPANT: Well, one of the primary 

15 objections to the proposal was that it was proposing to not follow 

16 GAAP for the composite score going forward. And for the 

17 composite score, we follow GAAP. 

18 And as a result of that, if it had been something 

19 involving transition period, but the way that the proposal came to 

20 us was that it was going to be going forward, that we would be 

21 using the averages -- that that would be the regulation, and that 

22 we would never be actually implementing the accounting 

23 standard and taking it into consideration.
82

1 PARTICIPANT: Aaron?

2 MR. LACEY: Can I just ask? I mean, I 

3 understand the -- how you all came up with the four years as the 

4 transition period. What I don't understand is, what is the harm to 

5 the Department to extend that transition period further in an effort 

6 to try to keep those institutions that might have just signed 

7 ten-year leases, or might not be as sophisticated, smaller schools 

8 that may not be as up-to-date on the accounting changes, from 

9 being unintentionally caught?

10 I mean, I just -- what I don't -- I understand why 

11 you got the four, you know, this sort of trying to shoot the middle 

12 here. But what I don't understand is the risk to the Department 

13 or the downside to the Department to allowing a longer transition 

14 period.

15 Because the harm is clear. But what is the 

16 downside to extending?

17 MR. FENLEY: So this is Steve Fenley from the 

18 Counsel's Office. Transition periods, as we view them, at least, 

19 are of limited duration. And some of the proposals for treating 

20 the operating leases differently were to either go on in perpetuity, 

21 or for longer periods.

22 And what we think is a reasonable proposal to 

23 combine a break on being in the zone, after the end of the 
83

1 transition period, with a transition period that's already coming 

2 after, as Chris mentioned, after a period where there's been 

3 pretty broad notice to everyone that this change was coming. 

4 And also as Chris noticed, the regulations 

5 themselves are contemplated on having the financial statements 

6 be evaluated in accordance with GAAP. And GAAP is changing, 

7 and people should be planning to be evaluated under those 

8 change standards going forward.

9 PARTICIPANT: Can I just -- I understand that. 

10 But I mean, we're not talking about perpetuity. We're talking 

11 about the difference between four and eight, or four and six. 

12 Because folks who have just signed a ten-year lease, I mean, 

13 there comes a point where that's no longer an issue.

14 So I totally appreciate that there has to come a 

15 point where folks need to be in compliance with GAAP, and that 

16 we don't want to give them forever, although, this is a completely 

17 separate concept that is an invention of the Department, in a 

18 sense. But I guess again, my question, and I'll put a finer point 

19 on it, what's -- we know that there is potential harm to institutions. 

20 Maybe they should have known better, right? We're talking 

21 about a marginal group of schools, probably the smallest and 

22 least sophisticated, right?

23 But we know that there's a potential harm there for 
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1 those folks. And it's possible that it's really just due to the fact 

2 that they're not as sophisticated or well resourced, and had the 

3 bad luck to just sign a lease. But I think we have to allow there's 

4 some potential harm.

5 What is the harm to the Department or the 

6 taxpayer if we go from four to eight?

7 PARTICIPANT: I think you're looking at their 

8 proposal on the table, and that's the -- I've tried to answer the 

9 question you asked. Right? What would be the harm if it went 

10 on in perpetuity, or for 20 years, or for 10 years?

11 We know that schools may have the opportunity in 

12 some circumstances, especially with related parties, to have 

13 incredibly long leases, right? The period you see in front of you 

14 is what we think is the reasonable recommendation based on the 

15 discussions with the subcommittee.

16 PARTICIPANT: Are there proposals for 

17 modifications to 668.172?

18 PARTICIPANT: Okay, Aaron, and then Chris, do 

19 you have a proposal? Okay, so we'll go down the line, Aaron, 

20 Chris, and then Linda.

21 (Pause.)

22 Shall we go to Linda? Linda.

23 MS. RAWLES: Well, I just want to share the 
85

1 concerns that Aaron had, because even though I'm here 

2 representing the large for-profits, as an attorney, I have some 

3 small schools who, as much as you think they should know this, 

4 they are relatively small and unsophisticated. They were taken 

5 by surprise.

6 And I know at least one that its score would 

7 change by .9. So I just want to add my concern to Aaron and 

8 Chris, and suggest that we have a longer time period of 

9 transition.

10 PARTICIPANT: Do you have a suggestion on 

11 that time period?

12 MS. RAWLES: I'd like to hear what Aaron and 

13 Chris say, but maybe eight.

14 PARTICIPANT: Chris?

15 MR. DELUCA: My proposal on extending the 

16 transition period is not for every school. So I'm not looking at --

17 it wasn't going from four to eight for everybody, and delaying it. 

18 But looking at that, I mean, it's a relatively small group, again, 

19 based on an informal survey, but still of a substantial number of 

20 approximately 200 schools, 15 percent of the schools that fell into 

21 that circumstance.

22 And so again, looking at not changing what's here, 

23 but adding an additional period for those schools that fell into that 
86

1 circumstance. I mean, again, I respect where the Department's 

2 coming from. Again, I thought the proposal for averaging the 

3 leases, I still like that, but I'm not going to die on that hill for 

4 today.

5 But I do think that for schools -- again, for that 

6 subset of schools, that signed a lease before February of 2016, 

7 and it at least extends beyond the transition period, they should 

8 be able to use -- they should account for those leases through 

9 the end of their lease. Now, if we need to put a qualifier on 

10 there, that it can't be a related party lease, I mean, I'm not trying 

11 to provide protection or create loopholes for people to abuse the 

12 system.

13 I mean, I'm looking at clients of mine who are 

14 family-owned, trade and career schools, who signed a lease in 

15 2014, who are going to have a negative impact on this when they 

16 do their composite scores for 2023 and 2024 and 2025.

17 PARTICIPANT: Aaron?

18 MR. LACEY: And look, I support that proposal. 

19 And the reason is because I understand the rationale and the 

20 thinking that schools need to get into gear here. Again, I'm not 

21 suggesting that we should let this go into perpetuity. But if 

22 there's no harm to the Department and the taxpayer that we can 

23 identify, I cannot understand the public policy reason for 
87

1 penalizing a small percentage of schools when it is easy to 

2 accommodate them.

3 And we're still talking about a fixed period of time, 

4 when we're going to be calculating an alternative score. They 

5 are still subject to the composite score. I mean, we're talking 

6 about a very specific accommodation for a limited period of time 

7 to avoid an identified harm, when there is no harm identified.

8 PARTICIPANT: Aaron, do you have a proposal 

9 that differs from Chris's?

10 MR. LACEY: No, I'm just expressing my support 

11 for Chris's proposal.

12 PARTICIPANT: Okay, so Kelli's name tent is up. 

13 And can you turn those towards -- it's Chris and Mike Busada. 

14 So before we move on, I just want to say that the 

15 time is 11:20. There is a hard lunch break at 12:00, and we still 

16 have to get to the report out from the subcommittee. So we 

17 have to finish this section, because we're still in 668.172.

18 So Kelli?

19 MS. HUDSON PERRY: So mine is actually a 

20 question for Chris, and I'm trying to maybe help with this a little 

21 bit. So in those schools' instances, that have these long term 

22 operating leases, what will be their plan when those leases are 

23 done, right? 
88

1 Because ideally, they're still going to need that 

2 same space, or whatever they're leasing, right? And so if they 

3 have to buy it, they in essence are then going to have to put an 

4 asset on the books, and potentially a debt on the books. So 

5 what's their plan past this transition period, I guess?

6 MR. DELUCA: Well, the plan past the transition 

7 period is that they have the transition period to figure it out. 

8 These schools don't have the resources to buy a building. They 

9 don't have -- and nor would they necessarily need to. But again, 

10 it's going to be looking at, are there going to be options for them 

11 to get -- will they have to do five-year instead of ten-year leases? 

12 How much can they invest for their schools if they can only 

13 commit to five years rather than ten?

14 What conditions are landlords going to put on 

15 them, if they can only get a five-year lease, or a ten-year lease, 

16 because a five-year lease, they may have to pay more than they 

17 might have had to pay if they could get a ten-year lease. 

18 There's going to be substantial issues with that. But that's going 

19 to be part of what these schools, over the transition period, will 

20 have to figure out. Okay, under the new reality, what they can 

21 afford to do.

22 But again, I think that at least for the period of the 

23 lease that they've already signed for these schools, that they 
89

1 should not be penalized under their current lease.

2 MS. HUDSON PERRY: So I think -- and this kind 

3 of came up in some conversations, this change in accounting, for 

4 those of you that aren't accountants around the room, which is 

5 most, is a really big deal. It's been something that FASB's been 

6 working on for years and years and years. And when the 

7 financial responsibility composite score was developed, this 

8 wasn't a concept, right?

9 So outside of the term of this regulation, there's 

10 the concept of, does that calculation need to be re-looked at, 

11 right? Do those weights still have the same concept, with the 

12 fact that this accounting pronouncement now exists? Because it 

13 changes the landscape for some schools.

14 For some, it doesn't affect it enough that it's going 

15 to change their score. But is it something that those weights in 

16 the composite score potentially need to be looked at.

17 So I think the idea was that with the adoption of 

18 this accounting pronouncement, nobody really knows what's 

19 going to happen to the scores. Nobody knows at the end of the 

20 four year transition period, how many schools are still going to be 

21 affected by that.

22 So it can't be done within this rulemaking. But 

23 does it give the Department the potential to say, you know, 
90

1 there's a number of schools that are being affected by this, and 

2 we're going to get to year four, and there's still a number of 

3 schools that are being affected by this. Do our composite 

4 weights then need to change? And potentially look at it years 

5 down the road, once there's some data available, as opposed to 

6 making that determination right now.

7 PARTICIPANT: And that's something that I 

8 agree with, and I think that that's something there's -- as far as 

9 looking at the composite score in general, and recognizing that 

10 you know, again, I assume that when the composite scores were 

11 calculated, that the folks that did it knew how to account for 

12 leases, and knew what lease liabilities were, and they chose not 

13 to make any adjustment to the composite score calculation for 

14 leases. I mean, that was part of the landscape at the time.

15 Again, we've got this new accounting lease, and 

16 it's my understanding, we're not getting into the particulars of the 

17 actual composite score and the rates here. But that's certainly, I 

18 think, you know, open for further discussion.

19 One of the things I'd even like to propose as a 

20 modification to my proposal here, from an administrative 

21 standpoint, is that recognizing the point that as we get to the end 

22 of a lease, the impact on the composite score is going to 

23 decrease, because the value of the asset is going to decrease.
91

1 And so you know, even among this 15 percent of 

2 schools that I'm talking about, they may all pass under the new 

3 GAAP rules. It may not be an issue. So even if it's just an 

4 option for the school, so it's not like they're mandatorily doing 

5 multiple composite scores, and the Department's doing multiple 

6 composite scores, but a school, if they're in that circumstance, 

7 we've got -- we're creating a situation right now during the 

8 transition period where there's a mechanism to report this 

9 information. So for a school that has a pre-February 2016 lease, 

10 that if they choose to do so, that they can submit an alternate 

11 composite score calculation. 

12 So again, from an administrative standpoint, 

13 there's even fewer schools that would fall into this gap, and 

14 again, looking to reduce the burden on the Department as far as 

15 how many alternate calculations they'd have to look at.

16 PARTICIPANT: Okay, I see Danny's tag up, and 

17 Mike's tag up. Are these additional proposals? 

18 Yes?

19 Okay. Danny, and then Mike, and then, I think, 

20 just for the sake of time, I think we need to move onto the next 

21 section. 

22 MR. MADZELAN: I just want to address 

23 something that Chris said. And Aaron. They talked about a 
92

1 small number of schools that would be really impacted by this 

2 lease, and the ratios that we would derive thereof.

3 There are many schools out there, some large, 

4 medium, small, sophisticated, unsophisticated, that signed leases 

5 prior to June 2016. And some of those leases are for $25 million 

6 and $30 million, and they go on for like 20 years. So my only 

7 proposal is that if this committee sees some benefit in extending 

8 the transition period, it's not for select member schools, it's for all 

9 schools.

10 PARTICIPANT: Proposal, Mike?

11 MR. BUSADA: Just to really kind of piggyback 

12 off of that, I just want to make sure that as we discuss this, we 

13 keep saying, it's the school. You know, will this harm the 

14 school? If the school has to close because of this, will it harm 

15 the school?

16 At the end of the day, it's not about the school. 

17 It's about those students. And a lot of schools, they're the only 

18 providers of a lot of in-demand things, like welding, truck driving, 

19 pharmacy technicians. It's -- I mean, this is not about the 

20 school. It's about the students. And when a school closes, 

21 every single student that graduated from that school is affected.

22 So you know, I appreciate everybody caring about 

23 us and the schools. I want to care about the students, because 
93

1 when a school closes, it hurts the students, and we need to -- if 

2 there's no downside, if there's no harm to the Department or the 

3 taxpayer, then we need to protect the students and make sure 

4 that we don't have schools in rural areas closing where there's no 

5 other providers.

6 PARTICIPANT: Thank you. I think now we're 

7 ready to move on. So can we open up the next section?

8 PARTICIPANT: So at this point, I'd like to bring 

9 the subcommittee up, if we're ready for that, instead of continuing 

10 on in this paper.

11 PARTICIPANT: Well, and that's -- my question is 

12 I've got a significant procedural issue, as well as just a 

13 substantive issue, but with Appendix A, the ratio methodology for 

14 proprietary institutions that is referenced in 668.172. So I'm not 

15 sure if the subcommittee is going to be addressing that, and if 

16 that's the proper time for me to raise these issues, or if we need 

17 to raise these now.

18 PARTICIPANT: The subcommittee is going to 

19 walk through the appendixes.

20 MR. VIERLING: Okay, let me say, I'm Chris 

21 Vierling.

22 MS. PEFFER: I'm Rhonda Peffer. 

23 MS. MENDITTO: Sue Menditto.
94

1 PARTICIPANT: And all of us were working on 

2 the subcommittee, and Sue was one of the non-federal 

3 participants, and Rhonda and I were both federal participants. 

4 So we'd like to start with Appendix A.

5 What you see shaded is all of the changes that 

6 have been made from the original regulation, not from what was 

7 presented at the committee the last time. So what we're going 

8 to go over is only going to be those aspects that were changed 

9 from when we previously reported to you.

10 And Rhonda is going to start that.

11 MS. PEFFER: One of the areas that we did 

12 additional work on was the financial responsibility supplement 

13 schedule requirement, and the example with that. We actually 

14 put a definition in on what the sample schedule would require. 

15 However, in the handout that you guys got, it was not included, 

16 so we will be getting you a new handout that shows what that text 

17 would be.

18 But the text actually says, "A supplemental 

19 schedule must be submitted as part of the required audited 

20 financial statement submission. The supplemental schedule 

21 contains all the financial elements required to compute the 

22 composite score. Each element in the supplemental schedule 

23 must have a reference to the financial statements, or the notes 
95

1 for those." And it's worded just a little bit different, but if you're a 

2 proprietary school or a non-profit, to actually match up, and we 

3 state the actual statements there. 

4 And then the amounts in the supplemental 

5 schedule will tie directly back to one of those. And then they will 

6 actually state when the amount is zero, they will enter an N/A on 

7 this schedule, as in not applicable. And the auditor's opinion 

8 letter must contain a paragraph that references the additional 

9 analysis that was done on the financial responsibility statements.

10 In the sample that we'll be giving you, it will have 

11 the exact texts of what statements and the different options, and 

12 how that can be put into play with that. 

13 In addition to that, we clarified on the non-profit 

14 side, we had just total expenses. There's always been some 

15 confusion there. We went ahead and defined total expenses 

16 and loss. Sue may want to add something to that, if she wants, 

17 on the expenses and losses section on that. 

18 Is there anything you want to add on that?

19 MS. MENDITTO: We just made the definition 

20 more comparable between non-profits and for-profits. And so 

21 that was a slight change from what we reviewed a couple of 

22 months ago, or a month ago, time flies.

23 And losses on endowment investments and 
96

1 defined benefit pension plans, other post-employment plans, and 

2 the like, would not be included, because those are prone to 

3 market fluctuations and bear no -- have nothing to do and are not 

4 a proxy for the operating size of an institution, which is what 

5 we're trying to measure.

6 PARTICIPANT: An additional area that we 

7 looked at was the long-term debt for long-term purposes. We 

8 had discussions there, and kind of redefined that, and made 

9 clarifications on that, from when we were here in the last. That 

10 is the information that we handed out, how that would be looked 

11 at now, so we wanted to make sure that everyone was aware that 

12 that was a change.

13 Most of the other changes was in the last 

14 supplement. We're happy to go over those, if you want us to, 

15 but they're really not any different from what we had when we 

16 were here before. But we would be happy to go over them, if 

17 you want us to.

18 MR. DELUCA: So I have significant procedural 

19 concerns with this committee and the changes that were made to 

20 the definition of long-term debt. And again, as a preface, again, 

21 some of you have heard me say this, but for the record, I'm going 

22 to say this again, I'm on this committee because I was nominated 

23 by the American Association of Cosmetology Schools.
97

1 My constituency schools, the vast majority of 

2 them, are accredited by the National Accrediting Commission of 

3 Career Arts and Sciences. I have been at a number of 

4 presentations from the executive director of NACCAS, where he 

5 has said to his member schools that most schools, the trouble 

6 they get into with NACCAS, the predominant reason, is because 

7 of financial responsibility. Not from an operations standpoint, 

8 but from financial responsibility.

9 There's also a statement in the Government 

10 Accounting, the GAO report, there's a GAO report from August 

11 2017 about education oversight and gaps in monitoring the 

12 financial conditions of schools. There's a statement in that 

13 report from the GAO that says, we previously found that 

14 accreditors most frequently sanction schools for failure to meet 

15 standards on financial capability, rather than standards on 

16 academic quality or administrative capability.

17 I say this as a preface to underscore how 

18 important it is that any issues that affect the composite score and 

19 that affect the calculation of financial responsibility for schools 

20 are properly vetted and we understand the impacts of that. 

21 And I applaud the committee, the subcommittee, 

22 for the work that they've done on the leases. We've had a lot of 

23 discussion on the leases. We've gone back and forth, submitted 
98

1 proposals. You were very kind enough to answer my questions 

2 and concerns and consider things that we proposed, and 

3 understand the reasons why in response to that.

4 And it was my understanding that the 

5 subcommittee was created for purposes of addressing changed 

6 FASB changes that might impact the composite score, and how 

7 the U.S. Department of Education would factor those FASB 

8 changes and incorporate those into the composite score. 

9 This change in the definition of long-term debt has 

10 nothing to do with recent changes from FASB. This change was 

11 not brought up in the issue papers. It was not brought up as an 

12 issue when we discussed -- when we met in November. We met 

13 and had additional information, we had actual issue papers that

14 we negotiated for four days in January. This issue was not 

15 brought up.

16 Now, as a member of this committee, I'm invited 

17 to participate in the financial subcommittee meetings. And the 

18 third subcommittee meeting that was scheduled for the end of 

19 January was cancelled, in lieu of -- and replaced by a conference 

20 call that we were invited to.

21 But it's my understanding, from folks who 

22 participated in that subcommittee call, that this change on the 

23 definition of net income -- I'm sorry, the definition of long-term 
99

1 debt, was not discussed on the meeting that I was invited to. 

2 And now, when we get the issue papers, a week before we come 

3 here, there's a substantial change in the definition of what is 

4 long-term debt that's going to have -- that may or may not, I don't 

5 know, but may or may not have a material impact on the 

6 calculations of the composite scores, for schools that participate 

7 in title IV.

8 And I'm not here to provide cover for schools that 

9 are looking for ways to abuse the system. I don't know if there is 

10 a legitimate reason for why this change was made, if there was a 

11 legitimate, you know, concern or manipulation. I think that's 

12 subject to a further discussion.

13 But it seems to me that at this late hour, without 

14 us having to -- had an opportunity to review this, one, I think it's a 

15 violation of the protocols. I certainly think it's not in the spirit of 

16 open negotiation to have such a material change thrown on us at 

17 the last minute. And certainly, I'm not in a position where I could 

18 ever agree to making this change in a regulation without having 

19 had a full opportunity to vet this, understand the impact, go back 

20 to my constituency group, and understand what affect this is 

21 going to have.

22 PARTICIPANT: Chris, understanding -- or 

23 understanding your procedural concerns, could you point the 
100

1 group towards the substantive aspects that you are discussing?

2 MR. DELUCA: What I'm talking about is at the 

3 bottom of that -- the bottom of draft appendix A, ratio 

4 methodology for proprietary institutions. So at the bottom, 

5 there's the three asterisks, and it's where the last -- so after the 

6 first sentence, all of that additional information, "So if an 

7 institution wishes to include debt obtained through long-term lines 

8 of credit," etcetera, etcetera, through that.

9 So I think that should be stricken.

10 PARTICIPANT: I'll just add that -- I mean, I'm not 

11 an accountant, but it appears to me there's a conforming change 

12 in Appendix B, for non-profit institutions. And I will also add

13 that I have worked very hard throughout this process to get my 

14 constituency involved and engaged and try to get feedback. And 

15 with some success. I got calls about this provision from for 

16 profits and non-profits alike, so this got a lot of attention. 

17 It's clearly again, and I'm not an accountant. This 

18 isn't something I do, but it is clearly something that is concerning 

19 to schools that it has shown up at this point in time. So you 

20 know, if it is accurate to say that this is not a change that is being 

21 made to conform to FASB changes, it does strike me that that is 

22 outside of the scope of what we were told the subcommittee was 

23 created to do and that that would be in addition that would 
101

1 require consensus by the committee to add for consideration 

2 which I don't think has happened. 

3 MR. BANTLE: Comment from the subcommittee 

4 and then Linda.

5 PARTICIPANT: I certainly, as a member of the 

6 subcommittee understand the concerns being raised this 

7 afternoon. So let me try to provide some background into the 

8 subcommittee's thinking.

9 We were addressing components of the ratio 

10 holistically that touched some of the FASB changes. So 

11 because we were revisiting long-term liabilities, long-term debt 

12 because of the leasing standard, we looked a long-term debt 

13 holistically.

14 The first presentation we gave to you all, I don't 

15 know, a month ago where we had handouts, the long-term line of 

16 credit issue was noted on the supplemental schedule and I 

17 realize that it is probably difficult for everyone around this table 

18 other than maybe Kell, who I know is an accountant, and Danny, 

19 to kind of go through those schedules. We did enumerate it on 

20 the supplemental schedule. So I just wanted to say in the 

21 interest of transparency, we weren't really trying to hide it and 

22 that was our thinking that long-term liabilities were part of the 

23 discussion because leases and the right of use asset in the lease 
102

1 liability is a type of long-term liability.

2 We were asked to look at it because and this 

3 happens in both the non-profit and the for-profit sectors. There 

4 are institutions that take out lines of credit and I think this was 

5 discussed in our issues paper as well with some potential 

6 solutions that we talked about. There are institutions that take 

7 out a long term line of credit that draw on their long term line of 

8 credit facility before their financial statements are issued, before 

9 the fiscal year ends or the calendar year ends.

10 After their audited financial statements are issued,

11 they then pay back the line of credit. Because you can deduct 

12 all debt, long-term debt up to the amount of property, plants, and 

13 equipment, it can cause your composite score to go up. So we 

14 were looking at possible manipulations to composite score.

15 I'm not insensitive as a subcommittee member to 

16 what you are all saying. I just wanted you to understand that we 

17 didn't hide it. It was addressed in the issues paper. It was 

18 addressed on the supplemental schedule earlier and it did touch 

19 holistically this notion of long-term debt and liabilities which we 

20 were looking at as a result of the lease standard.

21 MR. BANTLE: Linda's card -- Chris, I just wanted 

22 to come back to you because an edit was made on the screen. 

23 Is that in line with your proposal? Okay.
103

1 Linda.

2 MS. RAWLES: Now I'm not an accountant. And 

3 I've tried really hard to understand this. I was on the one call 

4 that was referenced and I do not recall this being discussed. 

5 Now it could be because I don't understand it. But the bottom 

6 line is that I didn't understand what the subcommittee was doing 

7 on this until Friday before we came because I think it was very 

8 low keyed. I'm not saying it was deliberately low keyed. It was 

9 low keyed. So I understood the impact of this to my 

10 constituencies Friday.

11 I haven't had time to talk to anyone to see what 

12 the effect is. I understand from learning as much as I can 

13 about it since Friday when I finally understood it that I don't think 

14 most people on this committee and it's no offense, people have 

15 said they're not accountants. I think all of us on this committee 

16 really don't know what we're doing here and for us to vote for this 

17 when we don't even know what the impact is. We don't 

18 understand it. Just found out Friday it hasn't been emphasized, 

19 would be very irresponsible and wrong and so I support Chris' 

20 change wholeheartedly.

21 MR. BANTLE: Chris, then Kelli.

22 MR. DELUCA: So the element of the composite 

23 score that long-term debt can affect is the primary reserve ratio, 
104

1 right? That's the ratio we're talking about so that's where -- so if 

2 it's an issue of to the point that was made that there was concern 

3 that schools borrow on a line of credit, then they have their at the 

4 end of the year and then they pay it back at the front of the year, 

5 that that can increase their composite score. But it's through the 

6 primary reserve ratio, right? You're nodding your heads right. 

7 Yes, okay.

8 So the primary reserve ratio, as I understand it, 

9 and as it was explained in the August 2017 GAO report that I 

10 referenced, the primary reserve ratio is does the school have 

11 sufficient resources to cover its expenses. Is that a fair 

12 characterization as what the primary reserve ratio? That's in the 

13 GAO report, so I just want to make sure that we're -- that we, as 

14 for talking points, recognize that that's what that ratio is looking at 

15 is does the school have sufficient resources to cover its 

16 expenses?

17 MR. BANTLE: Yes.

18 MR. DELUCA: Okay, so this gets into the 

19 question why again I think it's open to debate. There's been a 

20 characterization that a school drawing on a line of credit is 

21 somehow manipulating the composite score. And maybe there 

22 are abuses out there that I'm not aware of, okay? But I think it's 

23 at least open to debate to discuss if a school has a line of credit 
105

1 that is access to cash. That is a benefit to the school and that 

2 seems to me that that could at least arguably be included in a 

3 conversation of does the school have sufficient resources to 

4 cover its expenses. 

5 So without further discussion, research, debate, I 

6 can't sign off on the concept that using a line of credit or the fact 

7 that you've drawn out a line of credit is somehow a manipulation. 

8 Again, that would take much further discussion and much further 

9 debate because again I look at it and I think that a line of credit --

10 that is a resource that the school can use to cover its expenses.

11 MR. BANTLE: Then Kelli, William, and Michael 

12 and I'm not hearing additional proposals other than Chris's, so 

13 let's keep the tags to those that are up and evaluate after those 

14 tags.

15 PARTICIPANT: That GAO report cited this very 

16 issue and went and spoke with schools about what they were 

17 doing with lines of credit. And they had a whole series of schools 

18 say that the entire reason that they took out these lines of credit 

19 was in order to manipulate their composite score. And the GAO 

20 told the Department of Education that it needed to do more about 

21 eliminating that type of manipulation of the composite score.

22 We also an Office of Inspector General report 

23 which cited us for not doing enough to try to eliminate the 
106

1 manipulation of the composite score.

2 Rhonda, who has worked in this for years, has 

3 seen that this is not a small issue with the Department of 

4 Education.

5 PARTICIPANT: Steve, was your tag up? Did 

6 you want to say more to that?

7 PARTICIPANT: Yes, I just want to point out to 

8 the -- I understand what you were saying about they may not 

9 have been aware that this was an issue that was being 

10 considered by the subcommittee, but it certainly -- the treatment 

11 of long-term debt and the primary reserve ratio was explicitly 

12 mentioned in the Federal Register notice about the kind of things 

13 that would be discussed there. So I mean there is a foundation 

14 for it to be there and in the overall presentation from the 

15 committee, the goal here is that these documents are going to 

16 simplify and provide much more consistency in how these items 

17 are looked at for all the institutions.

18 And long-term debt is an issue where when the 

19 Department is looking at this issue in detail with the school, 

20 there's a lot of work papers that are requested, underlying 

21 documents, and that kind of process would be, we think, greatly 

22 simplified by these clarifications that are in the appendix.

23 PARTICIPANT: Kelli.
107

1 MS. HUDSON PERRY: Two things. I want to 

2 try to help a little bit with how this actually, what this means. And 

3 then I do have some changes to the other appendix.

4 So this concept of this debt, the lines of credit, 

5 they're already in the financial statement. They already exist. 

6 So they're already being considered by the Department when the 

7 calculations are happening. The idea behind this added text 

8 here is that if a school chooses to use a line of credit for 

9 long-term purposes, that they simply disclose what those 

10 long-term purposes are. It's not changing financial statements. 

11 It's just adding more context around what those letters of credit 

12 are for. Because what's happening, as Steve just said, is that 

13 the Department is evaluating that long-term debt whether it be 

14 issued -- stated as long-term debt or stated as lines of credit in 

15 the financial statements. And they're going back and forth with 

16 schools to try to say okay, what are those lines of credit for?

17 So the idea behind this isn't really changing 

18 anything, it's just trying to provide clarity as to what schools are 

19 using that debt for.

20 In Appendix B, I just have a couple of potential 

21 changes. In the definition of total revenue with donor restriction 

22 and gains without donor restriction, the first one there where it 

23 says equals total revenue including amounts released from 
108

1 restriction plus total gains, I think the parentheses should start 

2 with investment returns because that language is trying to explain 

3 investment returns as it relates to total gains. It's not part of the 

4 definition, so if you start the parentheses there for the rest of 

5 what's included there.

6 At the bottom of this page where it talks about 

7 unsecured related party receivable as required by 34 CFR, one 

8 of the things that Annmarie said that if it's important enough to be 

9 in a preamble or something, it's important enough to be in the 

10 regulation. And I really think that there should be a definition of 

11 what unsecured related party receivables are. The 

12 subcommittee did provide something that explained this because 

13 there are some inconsistency with pledges as it relates to board 

14 members and whether or not those constitute unsecured related 

15 party receivables, so I think it's important that that definition be 

16 here.

17 And then on the actual supplemental schedule as 

18 it relates to Appendix B, in the category of total expenses and 

19 losses, one of the losses that's actually excluded here is 

20 supposed to be the concept of annuities which would be change 

21 of value of split interest agreements would be considered 

22 annuities. So that should be listed as a separate line item on the 

23 supplemental schedule.
109

1 And then lastly, we talk in instructions here that if 

2 something is zero it should be noted as N/A, so I think in your 

3 example on the supplemental schedule where you're showing 

4 zeros, you might want to say N/A as opposed to saying it's zero. 

5 So for example, where we say in the first section expendable net 

6 assets, it says related party contributions receivable net, we have 

7 a zero listed. Maybe that should show as N/A because that's 

8 what the definition is asking to do.

9 PARTICIPANT: Yes, Rhonda.

10 MS. MENDITTO: Kelli, to your point on the 

11 changes in value and split interest agreements, we do agree we 

12 are changing that in the additional supplemental schedule that 

13 we hand out and we can change that to N/A for that part, too.

14 MR. BANTLE: Okay, noting our hard stop in 

15 eight minutes, there are a number of tags up. Do we have --

16 and noting the procedural concerns that have been raised, do we 

17 have proposals to change Issue Paper 3 or the related 

18 documents from those that have their cards up?

19 PARTICIPANT: In addition to the proposals that 

20 have been made.

21 MR. BANTLE: Correct, in additional to the 

22 proposals that have been made.

23 No additional proposals? Okay. Will, I think 
110

1 your card was up next. And again, we have about eight minutes 

2 until the stop for lunch.

3 MR. HUBBARD: I'll keep it very brief. Kelli, 

4 thank you for your explanation and description. I thought that 

5 was tremendously helpful and certainly providing, I think, some 

6 level of clarity and transparency. This process is important. 

7 I also want to thank the members of the 

8 subcommittee for your many hours of service on this. It's 

9 tremendously appreciated. Doesn't sound necessarily like, you 

10 know, maybe that's coming through, but I just want to share that 

11 specifically.

12 Additionally, I think this might be an opportunity to 

13 perhaps bifurcate this issue from the current context. It sounds 

14 like there is a lot more study that's needed, so I would perhaps 

15 offer that as a proposal to consider.

16 MR. BANTLE: Linda.

17 MS. RAWLES: I guess I understand it more than 

18 I thought because I'm not sure I agree with the explanation of it 

19 that was given because I do think it's directing schools how they 

20 can use their lines of credit, but they must use it for capital 

21 expenditure. So I think it's more than a clarification. It's a 

22 directive. But that illustrates my point which is none of us -- I have 

23 not had time to consider this, talk to people about it. I think it's 
111

1 outside the scope of this committee. I think if the Department 

2 wants to revisit the composite score, we should have a separate 

3 committee do that. And I really think this is an inappropriate 

4 discussion to even be having under the directive of this 

5 committee and the subcommittee.

6 PARTICIPANT: So Mike Busada and then Abby.

7 MR. BUSADA: And I want to say as well and as 

8 we've all been akin to say, and I am not an accountant. I 

9 couldn't tell you what a lot of this means. I do want to say thank 

10 you because I know that this is not an easy thing and you all put 

11 a lot of time in it.

12 As an LSU grad, I would rather cheer for the 

13 University of Alabama than be on this committee and have to 

14 learn some of this stuff that you all have had to dig through. It's 

15 phenomenal. So I appreciate it tremendously. 

16 I cannot in good -- all that being said, and this 

17 may be a great idea. I just don't understand what effect it would 

18 have. In good conscience, I can't support including this because 

19 I feel like will -- that I have a moral obligation to the people I 

20 represent to at least understand what I'm voting on. So all that's 

21 to say this may be a very good idea. But I think that it would be 

22 -- I think the best option would be as Will said, let's take this out. 

23 Let's move this. Let's consider everything else and then let's 
112

1 find a procedure that we can get full buy in from where we can 

2 discuss this that may be absolutely necessary and important.

3 MR. BANTLE: Thank you. And finally, Abby. 

4 And we have like four minutes.

5 MS. SHAFROTH: I hear people's procedural 

6 concerns. Those are frankly similar to concerns I've had about 

7 agreeing with much of what was put into Issue Paper 1 this 

8 round, but I'm not clear on how those things would impact the 

9 constituencies that I'm supposed to represent, so I have those 

10 very same sorts of concerns. So I hear you.

11 I did, however, want to voice some support for that 

12 language, based upon the explanation of the members of the 

13 committee that it sounds like they feel that this would be closing a 

14 loophole that has been identified by the Department over the 

15 years as being a major area of manipulation by certain schools 

16 that needs closure and to the extent this committee was 

17 convened in part to address the financial responsibility standards. 

18 This seems to be part and parcel with that, so I'm afraid that if 

19 we kick the can down the road too much that we're not going to 

20 do what is needed in order to really ensure that we have good 

21 standards that protect the taxpayers and protect students. And 

22 that makes sense.

23 So I don't know procedurally what the next step is, 
113

1 but I don't want to just take this language completely off the table.

2 PARTICIPANT: So it's 11:57. Are there any 

3 more comments from the subcommittee? Why don't we break 

4 for lunch now and let's be back at 1:10. Thank you all.

5 MR. BANTLE: And just to note, as we've said 

6 many times today, we have a significant amount of work to do in 

7 the afternoon. If you get back a minute or two early, please look 

8 at the rest of Issue Paper 3 and Issue Paper 4 and have your 

9 concerns ready to go. And as Rozmyn, Moira, and I have said, 

10 we are going to hold you to proposals, language edits.

11 (Whereupon, the above-entitled matter went off 

12 the record at 11:57 a.m. and resumed at 1:10 p.m.) 

13 MS. WEISMAN: All right. I'm going to 

14 play Ted and me. So, we are ready to get started 

15 gain on Issue Paper 3. We will be picking up 

16 shortly with page seven of that issue paper.

17 But before we continue, I would like 

18 to report out that we actually have some results 

19 from our lunch meeting.

20 There was a proposal on the table to 

21 delete text from Appendix A on the ratio methodology 

22 for proprietary institutions. And someone 

23 enlighten me. I thought that we were talking about 
114

1 that also being in B. But I could be wrong. Where?

2 PARTICIPANT: On the back.

3 MS. WEISMAN: Ah, the back side.

4 Okay. So, the proposal was to delete 

5 the section on the first appendix, on Appendix A, 

6 begins with, if an institution wishes to include. 

7 Aaron, can you bring that text up.

8 It's on the way.

9 And then the similar language in 

10 Appendix B as well on the reverse side of that 

11 document. The Department agrees to withdraw that 

12 language in the interests of meeting consensus.

13 As I mentioned before, we have a 

14 significant interest in meeting consensus. And 

15 we are trying to work toward that goal. That said, 

16 this is being done for the purposes of this session, 

17 meaning, not too subtly, that if we do not meet 

18 consensus we certainly reserve the right to put

19 it back in.

20 Additionally, we talked before the 

21 break about the idea of leases. And what we heard 

22 was that people were not satisfied with the idea 

23 of the four-year transition period with the 
115

1 addition of the three-year zone alternative 

2 proposal that we had put out on the table.

3 So, what the Department would like to 

4 propose now is to have a six-year transition period 

5 with no zone alternative option available, so we've 

6 moved from four to six years.

7 MR. BANTLE: Okay, not seeing any 

8 action at the table, a show of thumbs on 668.172 

9 with those changes.

10 (Show of thumbs.)

11 MR. BANTLE: I see no thumbs down.

12 Take us into the next section.

13 MS. WEISMAN: In the next section we 

14 are on page 7, again, of Issue Paper 3, looking 

15 in Section 668.175, alternative standards and 

16 requirements.

17 The only change that we made on page 

18 seven here is within (c). And we just provided 

19 a clarification, as we had been requested to do 

20 that basically makes it clear that the letter of 

21 credit provision does not apply to public 

22 institutions.

23 Moving on to page eight, under the zone 
116

1 alternative we talk about the Secretary basically 

2 instituting some reporting requirements for 

3 various events that we have already talked about. 

4 These are items that we would not necessarily know 

5 about but feel we have a need to know about or, 

6 again, have talked about within other regulations.

7 So we've added (A), (C), and (D). And 

8 then I believe we, because we struck (E), we would 

9 need to renumber the current, currently listed item 

10 that's listed as (F) we would need to renumber as 

11 (E).

12 So, what we have added would be 

13 basically notifying the Department of these various 

14 financial events, which would include any adverse 

15 action, including a probation or similar action 

16 from an accrediting agency; a violation by the 

17 institution of any institution of any loan 

18 agreement; a failure of an institution to make 

19 payment in accordance with its debt obligations 

20 that would result in a creditor filing suit to 

21 recover funds under those obligations; and also 

22 the need to report, again, what would become the 

23 new (E).
117

1 (E) would be any extraordinary losses 

2 that are unusual in nature or infrequently occur, 

3 or both, as defined in accordance with Accounting 

4 Standards Update. And we've then added those 

5 numbers.

6 So, I have been informed that (A), (C), 

7 and (D) are not new items, that they were shaded 

8 incorrectly, that they are currently in existing 

9 language. So disregard that shading.

10 So the update here then would be on what 

11 is the new (E) and updating the standard number.

12 And then picking up on page two.

13 MR. BANTLE: Nine.

14 MS. WEISMAN: I'm sorry, nine, yes. 

15 On page nine. We are making better progress than 

16 that.

17 Let's hold it right there. Let's go 

18 to that point.

19 MR. BANTLE: So, I believe we are going 

20 up to and including (f) on page eight; is that 

21 correct?

22 Thank you. So, 668.175 up to and 

23 including (f) on page eight. Proposals for 
118

1 modifications? Aaron?

2 MR. LACEY: I have a question for the 

3 Department because I'm not sure I understand 

4 something.

5 So this language has been added in the 

6 middle of nine, two-thirds of the way down that 

7 it says if you've got an institution some 

8 provisional certification it says under two --

9 we're there; right? I didn't skip ahead, we're 

10 on provisional certification?

11 MS. WEISMAN: You skipped ahead a 

12 little.

13 MR. LACEY: I thought you said through 

14 (f). Okay, I'll stop.

15 MR. BANTLE: Oh yeah, sorry, there's 

16 two F's.

17 MR. LACEY: Oh.

18 MR. BANTLE: Sorry. My apologies.

19 So (F), (F) on page 8. Any questions 

20 or proposed modifications?

21 (No audible response.)

22 MR. BANTLE: Seeing no action, a show 

23 of thumbs.
119

1 (Show of thumbs.)

2 MR. BANTLE: And I see no thumbs down. 

3 And that is just to confirm going up to and 

4 including (F) on page eight, which is where we are 

5 starting from right now.

6 MS. WEISMAN: F on page nine.

7 MR. BANTLE: Okay, that was not my 

8 understanding.

9 MS. WEISMAN: Okay. There's, I mean 

10 there's no changes through that section, so.

11 MR. BANTLE: Okay. We're good.

12 Let's allow Aaron to talk then. My 

13 apologies.

14 MS. WEISMAN: Aaron's comment goes, I 

15 believe, to below (f). But if I'm wrong, that's 

16 fine. I thought he was looking at two.

17 Let's let Aaron go ahead and we'll go 

18 with it wherever it is.

19 MR. LACEY: Okay. I have a question, 

20 so here it is.

21 So, for an institution that's 

22 provisionally certified we say pursuant to Arabic 

23 two under (f). Under this alternative, the 
120

1 institution must. And then we've added, then we've 

2 added under Roman numeral at (iii), comply with 

3 the provisions under the zone alternative, as 

4 provided under paragraph (d)(2) and (3) of this 

5 section.

6 And back in the prior section one of 

7 the things that's in gray, but I know has been there 

8 before, is that you have to report if you have a 

9 violation of a loan agreement.

10 My concern is it is not atypical for 

11 institutions, particularly those that may be 

12 experiencing some level of distress, but even those 

13 simply that aren't, to have covenants in loan and 

14 debt agreements that may relate to performance in 

15 other things. And that, and sometimes those 

16 agreements were struck two or three years ahead; 

17 right?

18 And so, you can have a situation where 

19 an institution might not hit a performance metric 

20 or something that they had agreed to with a lender, 

21 and so they would violate, technically speaking, 

22 the loan agreement.

23 My concern would be if what we were 
121

1 saying is a provisionally -- what I don't understand 

2 is if that happens, if I've got an institution 

3 that's provisionally certified and it has a some 

4 item or metric in its loan agreement or a loan 

5 agreement that it doesn't satisfy, so it's 

6 technically in default, it now has an obligation 

7 not only to report that but it looks -- what I don't 

8 understand is what's the outcome, because this 

9 says, under this alternative, the institution must. 

10 And we've added these three criteria.

11 So, if it has a breach of a covenant 

12 there doesn't seem to be anything contemplated that 

13 will allow the school to say that's not material, 

14 or we cured it, or the lender has allowed us to 

15 cure it. I just need to understand what the 

16 mechanics is to make sure that we're not suggesting 

17 that if that happened you're done, for example.

18 MS. WEISMAN: Well, any time there's 

19 a letter of credit the institution can certainly 

20 go back to the Department and request that they 

21 review it. So that wouldn't necessarily change 

22 here.

23 MR. LACEY: My, I guess my concern is 
122

1 how does this play into their eligibility? Because 

2 they're eligible by virtue of being on provisional. 

3 And this makes it sound like if you are on 

4 provisional, a criteria or a requirement of being 

5 on provisional is that you comply in theory at all 

6 times with Roman numerette (i), (ii), and (iii). 

7 And (ii) and (iii) are new.

8 And (iii) ties into all of the altern 

9 -- zone alternative requirements.

10 So if I'm reporting that I've violated 

11 the debt agreement, am I automatically in violation 

12 of my provisional participation agreement or is 

13 there some sort of dialog now with the Department? 

14 I'm just unclear on the mechanics.

15 MS. WEISMAN: Okay. So, I have 

16 confirmed that if there is a waiver from your 

17 creditor, that we do have that back and forth. 

18 So, if there is some condition that you can explain, 

19 that you go ahead and explain that and you remain 

20 provisionally certified.

21 MR. LACEY: What I would love to see 

22 would be something that would say if at any time 

23 an institution is not satisfied to (i) through 
123

1 (iii), you know, then the Secretary may request 

2 information or take further action, or whatever. 

3 But my challenge is there's nothing here that 

4 suggests if you are not complying with (i) through 

5 (iii) what happens next.

6 And I think it would be a meaningful 

7 addition here to clarify if you, for some reason, 

8 aren't able to satisfy one of these three Roman 

9 numerettes what happens next. Because I read (iii) 

10 to talk about the end of the period. So there's 

11 really nothing that says in real time if you report 

12 non-compliance, what happens.

13 MS. WEISMAN: So, I think let's work 

14 up some language.

15 MR. LACEY: Okay.

16 MS. WEISMAN: So, in terms of 

17 placement?

18 MR. LACEY: I would probably put it 

19 between where -- because (iii) seems to speak again 

20 to the, you know, the end of the period. So I would 

21 think after (ii), before (iii) you'd probably have 

22 a new Arabic. And it would say something like, 

23 you know, if an institution is or reports to the 
124

1 Secretary, you know, that it is, you know, unable 

2 to satisfy the criterion or criteria -- somebody 

3 can help me with that -- in Section (2), you know, 

4 (i) through (iii), then the Secretary, you know, 

5 -- I don't know -- you know, may take action is 

6 probably too vague. But the Secretary, you know, 

7 may or will evaluate whether the institution is 

8 financially responsible or remains financially 

9 responsible.

10 I'm clearly spitballing, but you get 

11 the idea.

12 MS. WEISMAN: Yeah, I do. But I think 

13 what we're looking for is not so much to say that 

14 you're financially responsible, because I think 

15 that's a -- that's quite a cliff for you. I think 

16 what you're really looking to say is that you've 

17 resolved the issue.

18 MR. LACEY: Well, yeah. I mean, I 

19 would like to build in -- fair enough. I mean, 

20 I think it would be very positive to have a back 

21 and forth, you know.

22 The Secretary may request further 

23 information regarding the institution's financial 
125

1 responsibility.

2 MR. BANTLE: So we'll look at getting 

3 something back specifically on that.

4 But I will say in general when this comes 

5 up and we've seen a violation of a loan covenant, 

6 during the fiscal year covered by the audit the 

7 question I'm going to ask when I'm working with 

8 the reviewers is whether that breach was cured 

9 during the period covered by the audit. Because 

10 a lot of times these audits come in, as you know, 

11 six months after the end of the fiscal year.

12 PARTICIPANT: Yeah.

13 MR. BANTLE: And anything that happens 

14 after the fiscal year in some sense is too late 

15 to address if that institution was at risk of a 

16 debt being accelerated based on a breach in the 

17 covenant, or some other action during that period.

18 So we look at information from an 

19 institution that comes in along with the audit or 

20 to supplement the audit showing that a possible 

21 triggering event mentioned in the audit has already 

22 been resolved satisfactorily. We're going to be 

23 looking to see if it happened during the fiscal 
126

1 year.

2 MR. LACEY: So, and here's a question 

3 for you. So my understanding is if you're in the 

4 zone alternative or provisional, now you have to 

5 report this within ten days of the event occurring. 

6 So you might be outside the cycle of the review 

7 of previously-submitted audited financials.

8 So I guess that's really and what I'm 

9 conceiving of as a situation where, you know, maybe 

10 you've reviewed the last round of audited 

11 financials. We, you know, an institution reports 

12 that something has occurred so they're in violation 

13 of a debt covenant. And just to ensure that in 

14 that instance there's some mechanism to say, okay, 

15 if that happens and you report it and you're 

16 provisionally certified, you know, there would be 

17 a dialog that would occur.

18 MR. BANTLE: You know, I think that 

19 sounds -- I think that's a reasonable suggestion 

20 that the institution, when it's bringing this to 

21 the Department's mind, you know, attention timely, 

22 is also bringing into the discussion the steps it's 

23 taking to resolve any concerns about it.
127

1 MR. LACEY: I would certainly agree 

2 that would behoove the institution.

3 MR. BANTLE: Ashley.

4 MS. HARRINGTON: I have a question 

5 going back to page seven. It would be under 668.175 

6 little (d).

7 So, I believe when we first started you 

8 said the Department took away the zone alternative 

9 for what we talked about in 668.172 for financial 

10 ratios. But we're still referencing the zone 

11 alternative for that section which, I believe if 

12 I'm understanding correctly, no longer exists.

13 MS. WEISMAN: Yeah, we still need to 

14 do new cleanup.

15 MS. HARRINGTON: Okay.

16 MS. WEISMAN: We're going to be 

17 presenting you a new Issue Paper 1 and 2 for tomorrow 

18 morning. And that will reflect any of those 

19 changes that are associated with those changes.

20 MR. BANTLE: Okay. Any additional 

21 comments on 668.175? We're looking at pages seven, 

22 eight, and nine.

23 MS. WEISMAN: I think I can also then 
128

1 add on page 10, since it's only one minor change.

2 MR. BANTLE: Yes.

3 MS. WEISMAN: When we had talked about 

4 the idea of doing offset as an alternative form 

5 of providing surety to the Department in lieu of 

6 a letter of credit, we talked about doing an offset 

7 that would be completed or satisfied at the end 

8 of a 10-month period.

9 So we've moved that language from 10 

10 months, what we had talked about at the last session 

11 as the idea of doing a range, so, to give some 

12 flexibility and to allow for the consideration of 

13 the vast differences in what we see in the amount 

14 of aid being disbursed at institutions. We have 

15 changed that to now reflect a six- to 12-month 

16 period.

17 So that is the only change that is 

18 contained that's different from the last session 

19 on page 10.

20 MR. BANTLE: Okay. Seeing no tags 

21 going up, can we see the show of thumbs on 668.172 

22 -- or 175. I apologize. Page seven through the 

23 end, which is on 10, noting Ashley's cleanup change 
129

1 and Aaron's proposal in concept that I think I would 

2 suggest still needs some words missing, but in 

3 context.

4 Show of thumbs.

5 (Show of thumbs.)

6 MR. BANTLE: Okay. I see no thumbs 

7 down.

8 Okay, that takes us to the end of Issue 

9 Paper 3.

10 As discussed before, we are going back 

11 to Issue Paper 2 to wrap up Issue Paper 2 now. 

12 And then we will go to four through eight today 

13 so we can get back to the changes on one and two 

14 tomorrow. We have a lot to do but and so please 

15 pull out Issue Paper 2.

16 And if anyone can remind the group where

17 we left off, I think I have us on page seven. Is 

18 that correct? And I'm open to being corrected.

19 PARTICIPANT: I think we stopped before 

20 cooperation by the borrower. Is that right? Yes.

21 MS. WEISMAN: That was my 

22 understanding. So we, I believe, left off after 

23 the end of six, Romanette (iii)(C), right before 
130

1 cooperation of the borrower, which is number seven.

2 MR. BANTLE: Yeah, we were on Arabic 

3 seven at the bottom of page six.

4 MS. WEISMAN: Correct. And that's 

5 where we'll pick up.

6 PARTICIPANT: We had proposed or 

7 offered up some draft language for the voluntary 

8 claim resolution. And I didn't know if that's for 

9 tomorrow or today or what you all wanted to do.

10 MS. WEISMAN: That process will be 

11 covered in the edits that we provide you with 

12 tomorrow.

13 PARTICIPANT: Got it.

14 MS. WEISMAN: So, anything up to this 

15 point? It's not that we are ignoring you. That 

16 is coming soon to a location near you.

17 So, picking up on seven cooperation by 

18 the borrower, we have just changed some text in 

19 there to reflect our referencing. So we're saying 

20 now that the Secretary may revoke any relief granted 

21 to a borrower who fails to cooperate with the 

22 Secretary in any proceeding under paragraph, we 

23 now have (d)(9) of this section or under subpart 
131

1 G, which is referencing the hearing locations of 

2 our regulations. Such cooperation includes, but 

3 is not limited to providing testimony regarding 

4 any representation made by the borrower to support 

5 a successful borrower defense claim.

6 So we've changed that from request for 

7 discharge, noting that we would only request that 

8 for a successful claim, which would be when we would 

9 be collecting from an institution.

10 Moving over to page seven under recovery 

11 from the school, we've inserted under (9) we now 

12 have Romanette (i), changing the text a little bit 

13 here, now saying the Secretary may initiate an 

14 appropriate proceeding to require the school whose 

15 misrepresentation -- changing that from omission, 

16 or after omission, now to say a misrepresentation 

17 resulted in the borrower's successful borrower 

18 defense claim with respect to a Direct Loan to pay 

19 the Secretary the amount of the loan to which the 

20 defense applies, in accordance with 34 CFR 668 

21 Subpart G.

22 We then continue on with additional new 

23 text about full recovery. The Secretary initiates 
132

1 a recovery action against the school no later than 

2 three years after the date of the final 

3 determination of the borrower's defense to 

4 repayment claim.

5 The school must repay the Secretary for 

6 the amount of the loan which has been discharged 

7 and amounts refunded to a borrower for payments 

8 made by the borrower to the Secretary unless the 

9 school demonstrates that the Secretary's decision 

10 to approve the borrower defense claim was clearly 

11 erroneous.

12 And then closing out that section we've 

13 added the school may present relevant evidence in 

14 the recovery proceeding.

15 And I think we can break there.

16 MR. BANTLE: Okay. Linda, I see your 

17 card up. Do you have a proposal for changes?

18 MS. RAWLES: Quick background. In 

19 Issue Paper 1, the, I call them affirmative 

20 defenses, but the evidence that a school could 

21 present to mitigate against a claim were removed. 

22 That was on page six, number (4), Romanette (i) 

23 through Romanette (iv).
133

1 And I believe that they -- and I 

2 understand the reasoning for removing them because 

3 some of them had to do with, say, a potential rogue 

4 employee. And there was some thought that if the 

5 standard remained intent for the schools, that that 

6 would be intent for the school and not intent for 

7 the rogue employee.

8 But I think that is so unsettled at this 

9 point as to how that's going to come out or if the 

10 Department would actually not consider intent of 

11 a rogue employee as intent for the school, that 

12 I would like to propose we return four Romanette 

13 (i) through (iv) into this section where the school 

14 may present relevant evidence in the recovery 

15 proceeding.

16 Do I need to say all that again?

17 MR. BANTLE: That would probably be 

18 helpful.

19 MS. RAWLES: I know we're all tired. 

20 And going back to one, I apologize for that. But 

21 if you have Issue Paper 1 with you, and look at 

22 page 6. And these were a list of the types of 

23 evidence that the school could provide to the 
134

1 Department. For instance, to correct a 

2 misrepresentation prior to the borrower enrolling. 

3 These were all -- at first we thought they were 

4 moved. But they were not moved, they were removed. 

5 Right?

6 And I'm not sure everyone here 

7 understood that, that they weren't moved. Because 

8 we were going to find them again in Issue Paper 

9 2. But then when we went to Issue Paper 2 we 

10 realized they had not been moved, they had been 

11 removed.

12 And because I still think they are very 

13 important pieces of evidence that a school can use 

14 to give to the Department more information, I 

15 propose that they be added back in this section 

16 where the school is presenting relevant evidence 

17 in the recovery proceeding.

18 MS. WEISMAN: So I think I can respond 

19 to that. Our feeling was that by listing out in 

20 the standard the idea of reckless disregard, it 

21 would negate any of these items, that they just 

22 wouldn't apply.

23 MS. RAWLES: I'm not sure we can -- this 
135

1 is one of these problems where we're taking things 

2 in isolation. And they all work together. So we 

3 don't know how that standard is going to come out.

4 But even if we -- as my preference would 

5 be -- to keep intent and reckless disregard, I 

6 thought -- and correct me if I'm wrong, Annmarie 

7 -- but I thought that the rationale for taking them 

8 out was that we would not hold a school accountable 

9 for the intent of, say, a rogue admissions officer.

10 I'm not sure I can count on that 

11 interpretation in the future. So I still think 

12 it's important that the school be allowed the 

13 opportunity to mitigate some of these things. And 

14 that would be: do you show whether there was 

15 reckless disregard or not?

16 But I can't, I can't know we're going 

17 to end up with reckless disregard.

18 MS. WEISMAN: So I think then let's just 

19 put that on hold until tomorrow when we have the 

20 new proposed language for both one and two.

21 MS. RAWLES: Okay. I'm willing to 

22 hold, yeah.

23 MR. BANTLE: Okay.
136

1 MS. RAWLES: I just don't want it to 

2 drop.

3 MR. BANTLE: Okay. I have William and 

4 then Michael.

5 MR. HUBBARD: Thanks a lot.

6 In Romanette (iii) at the end where it 

7 says unless the school demonstrates that the 

8 Secretary's decision to approve the borrower 

9 defense claim is clearly erroneous, I propose 

10 striking that language. I think by this point if 

11 the Department has approved a borrower defense 

12 claim, sufficient evidence or substantial weight 

13 of the evidence, or evidence write large has been 

14 presented at this point.

15 And this strikes me as kind of a gotcha 

16 moment that would potentially present a claw-back 

17 to a student who's already had their claim approved.

18 So it's unclear. And maybe I'm not 

19 clear on this. So perhaps some clarity would be 

20 appreciated.

21 PARTICIPANT: I'm sorry. Well, I'm 

22 just, like, reading the entire and I'm just, like, 

23 that's not right.
137

1 So, well, I think I don't quite 

2 understand how you're reading the language. So 

3 I guess I'll say here we are saying that, so, the 

4 school must repay the amount of the loan unless 

5 the school demonstrates the decision to approve 

6 the borrower defense claim is clearly erroneous.

7 So it already presumes that the 

8 Department in the borrower defense claim already 

9 had -- I mean, we'll see, we'll talk more about 

10 the changes to Issue Paper 1 and Issue Paper 2 

11 tomorrow. But the language as drafted in this 

12 issue paper before you all today envisions having 

13 evidence from the school and from the borrower. 

14 And the decision here to recover will only occur 

15 if the borrower defense claim is approved. So, 

16 the decision about the approval then would be upheld 

17 by the -- in the recovery action, that those 

18 findings would then lead to the recovery action 

19 against a school only, and it will be upheld unless 

20 the hearing official then finds that decision 

21 clearly erroneous.

22 So, I feel like it's a little different 

23 from what you're getting at. But let me know if
138

1 I'm wrong.

2 MR. HUBBARD: That makes more sense. 

3 I mean, as I read it, though, it just strikes me 

4 that if potentially the claim has been already 

5 approved and then evidence is presented, it would 

6 pull it back.

7 If I'm not reading that right, that's 

8 fine as well.

9 PARTICIPANT: We're not talking here 

10 about a claw-back from the student or from the 

11 borrower. We're just talking about is the school 

12 obligated to pay? And if by some chance the school 

13 can at this point show that the claim is erroneous, 

14 then we're going to give them that opportunity that 

15 they wouldn't need to pay for it. But we're not 

16 saying then we would go back to the borrower and 

17 take the money back.

18 PARTICIPANT: And just, just to 

19 clarify, in the written decision section of this 

20 issue paper we do note that the decision in the 

21 initial claims process, that passes the initial 

22 determination bar. And then it goes on to 

23 determination, the final decision. So that would 
139

1 be the final decision from the borrower's 

2 perspective.

3 MR. BANTLE: Does that address your 

4 concern, Will?

5 MR. HUBBARD: It does.

6 MR. BANTLE: Okay. Michael, then 

7 Kelli.

8 MR. BOTTRILL: So, in reading this and 

9 listening to Caroline's comments, it feels like 

10 there may be some process and some steps that are 

11 involved in this recovery action. So, as I'm 

12 looking at Romanettes (i) through (iv), they don't 

13 really describe this as a process whereby there 

14 is written notice that's given to the institution 

15 that the Secretary will initiate the proceeding.

16 And the word proceedings itself, the 

17 word proceeding itself indicates to me there's a 

18 process.

19 That the school is going to have an 

20 opportunity to demonstrate either -- well, to 

21 demonstrate that the Secretary's decision was 

22 erroneous. Or that the school will have an 

23 opportunity to present relevant evidence.
140

1 So I just think sequencing here is more 

2 along the lines of the Secretary may initiate. 

3 If it does, then the school, the Secretary will 

4 provide its decision to do so in writing and the 

5 school will have an opportunity to submit its 

6 response or any evidence that it believes supports 

7 any claim that the Secretary's decision was 

8 erroneous. And that that claim, that recovery 

9 action has to be done within three years.

10 So I'm just suggesting that in the 

11 sequencing there maybe it can put forward what steps 

12 of a process you're envisioning. Is that --

13 PARTICIPANT: So, I think much of that 

14 is what we reference with 668, within Subpart G. 

15 So the idea of a hearing, for example, is outlined 

16 in 668.89. I think our goal here was not to repeat 

17 all of those steps that would be afforded to an 

18 institution that are already outlined elsewhere 

19 in regulation.

20 PARTICIPANT: And just to follow up on 

21 that. In January of last year we published a 

22 procedural rule that modified Subpart G to 

23 accommodate borrower defense provisions. And 
141

1 because that was purely a process issue, that didn't 

2 go through. It was in the Federal Register but 

3 it didn't have to go through negotiated rulemaking 

4 like what we've got here.

5 And certainly, depending upon what is 

6 the outcome of these proceedings and the 

7 regulations that result, modifications to that 

8 process could, could be made. But there, but we 

9 do have a reference for the Subpart G, and that, 

10 that was intended to sort of reference those 

11 changes. And those changes did go into effect, 

12 I think, January 19, 2017. So they are, they are 

13 there.

14 MR. BOTTRILL: Right. So, next time 

15 just stop me and tell me that I'm rambling on 

16 inappropriately and that I haven't fully done all 

17 my homework.

18 PARTICIPANT: Mike, you're rambling.

19 (Laughter.)

20 MR. BOTTRILL: Thank you.

21 MR. BANTLE: Was that --

22 MR. BOTTRILL: How do I get called out 

23 for that, given what we've experienced over the 
142

1 last three weeks?

2 (Laughter.)

3 MR. BANTLE: Because you just set 

4 yourself up for it.

5 Okay, Kelli and then Abby.

6 MS. HUDSON PERRY: Roman number (ii) 

7 up at the top of page seven, there's a reference 

8 to any sworn statement. Is that different, is that 

9 a different sworn statement based on this section, 

10 or does that relate to the application? Because 

11 I feel like we've changed the terminology 

12 throughout the rest of the papers.

13 PARTICIPANT: I think that is really 

14 us saying the application, but also any other sworn 

15 statements. So it's kind of conserving the option.

16 If someone, for example, can't appear 

17 at a hearing and they make a sworn statement, then 

18 we would include that information as well.

19 MR. BANTLE: Abby.

20 MS. SHAFROTH: All right. Number 

21 seven on the bottom of page six, cooperation by 

22 the borrower, I have I think, hopefully, sort of 

23 a small technical sort of suggestion to make here.
143

1 If you're saying that the Secretary may 

2 revoke relief granted to the borrower if the 

3 borrower fails to cooperate with the Secretary in 

4 the subsequent recoupment proceeding, just because 

5 we're talking about the Department may do this 

6 subsequent proceeding within three years after, 

7 after the decision, I just want to make sure that 

8 this language wouldn't, wouldn't allow, wouldn't 

9 set off revocation of the borrower's relief if, 

10 you know, the borrower moves during that time frame 

11 and the Department isn't able to get in touch with 

12 them.

13 And I don't think that's the intent 

14 here. But just to clarify it in the language, if 

15 we changed it to something like a borrower who 

16 refuses to cooperate with the Secretary, I think 

17 that would satisfy the concern.

18 MS. WEISMAN: Thank you. I appreciate 

19 that edit.

20 And just to clarify, no, we were 

21 certainly not intending to go back to borrowers 

22 that we couldn't reach, that type of thing. There 

23 may be reasons that for some reason they cannot 
144

1 cooperate with the borrower. There could be 

2 extenuating circumstances.

3 So I think a refusal to cooperate we 

4 could probably work with that language. You know, 

5 there could be a reason to refuse. But I think 

6 it still covers what we're looking for.

7 MR. BANTLE: Chris.

8 MR. DELUCA: So I recall we've had the 

9 conversation about this in connection with other 

10 sections here. But when we get to page 9 -- or 

11 page seven, I'm sorry, page seven, section nine, 

12 recovery from the school, about instituting a 

13 proceeding in accordance with Subpart G, the issue 

14 came up regarding how does this affect schools under 

15 a provisional certification? Do they get the full 

16 protections of a Subpart G proceeding?

17 I mean, has that been answered? Have 

18 we already answered that or is that still --

19 PARTICIPANT: We believe that 

20 certainly they do. We did not feel that the 

21 language was necessary but we did have it in the 

22 issue paper in another location. You will see it 

23 presented when you see a new issue paper tomorrow. 
145

1 But our, our belief is that even without the 

2 language, even without specifying, that 

3 provisionally certified schools do have an 

4 opportunity here under Subpart G for the hearing.

5 MR. BANTLE: Aaron.

6 MR. LACEY: So, we have a clearly 

7 erroneous standard. What is the standard for other 

8 Subpart G proceedings: fine, limitation, 

9 suspension, termination proceedings? Is it 

10 clearly erroneous?

11 PARTICIPANT: So, counsel has advised 

12 me that in other Subpart G hearings we don't have 

13 a prior proceeding. So this wouldn't apply.

14 MR. LACEY: Well, what is the 

15 evidentiary standard? I mean, what's the standard 

16 in those other Subpart G proceedings where an 

17 institution is appealing a prior determination? 

18 Or, I don't know, where an institution has the 

19 burden of proving its case.

20 PARTICIPANT: So, under Subpart -- So, 

21 in Subpart G we have the burden of proof, the 

22 Department, in proving the limitation, suspension, 

23 or fine.
146

1 MR. LACEY: Can I just ask why the 

2 Department put this in Subpart G and not, not H, 

3 what the thinking was there?

4 PARTICIPANT: Let me address this. 

5 Subpart G, in Subpart G the school is almost --

6 well, Subpart G provides the opportunity for oral 

7 argument -- I mean oral presentation of evidence. 

8 Generally, this would, because this involves 

9 money, most of our -- this would normally under 

10 Subpart H, which is a paper hearing in most 

11 circumstances.

12 In this case there is the possibility 

13 that in the case of misrepresentation where you 

14 have the need for oral testimony from the students 

15 and from representatives of the school, so we put 

16 it in Subpart G which has that opportunity.

17 However, like in Subpart H, in a Subpart 

18 H proceeding the burden is on the school to counter 

19 what the Department has done because we've set out 

20 everything in a final program review determination 

21 letter that says this is how much the school owes, 

22 and we basically already presented our case.

23 This, as a procedural matter, the 
147

1 borrower defense process is similar to that because 

2 we will have already had a proceeding beforehand 

3 involving where the student and the school are 

4 already involved. We've presented a decision. 

5 So we're putting it in Subpart G so that there's 

6 the opportunity for oral testimony, if appropriate, 

7 but we're using a burden of proof that's similar 

8 to what would apply in Subpart H because we have 

9 this prior proceeding. So it's kind of a mix.

10 MR. LACEY: And that was exactly my next 

11 question is, well, what is the standard in Subpart 

12 H? Is it clearly earnings?

13 PARTICIPANT: It's --

14 PARTICIPANT: Can you pull the mike 

15 closer, please.

16 MR. LACEY: So my next question was, 

17 so my next question was what, then what is the 

18 standard used in Subpart H?

19 PARTICIPANT: In Subpart H it's really 

20 we don't specify a standard of evidence, a standard 

21 of evidence. The burden of proof --

22 MR. LACEY: Or review. I'm sorry. 

23 Standard of review I should say.
148

1 PARTICIPANT: Right. The burden of 

2 proof is on the school to disprove what, what's 

3 in the final program review determination to the 

4 satisfaction of the hearing official. So it's not 

5 clearly erroneous or anything like that, it's, it's 

6 what satisfies the hearing official.

7 PARTICIPANT: Follow-up. Would that 

8 not be appropriate in this context as well if it 

9 works in Subpart H?

10 PARTICIPANT: In this circumstance we 

11 believe because of the more complete opportunity 

12 in a Subpart, in a Subpart H proceeding, it's you, 

13 you haven't had the back and forth with a third 

14 party that you do here. So we, we believed that 

15 the clearly erroneous standard was appropriate.

16 MS. WEISMAN: And just a reminder, this 

17 is not new from the last session to this one. So, 

18 if possible, I'd like to move on.

19 MR. BANTLE: Can we just get a show of 

20 thumbs? I believe this is Section 685.206, 

21 starting with Arabic seven on page six, and going 

22 through Romanette (iv) on page seven, at the end 

23 of the page, with Abby's refusal substitution.
149

1 Do you have another proposal, Abby?

2 MS. SHAFROTH: In Roman numerette (iv) 

3 at the end of this section that we're looking at, 

4 it says, the school may present relevant evidence 

5 in the recovery proceeding.

6 Is this additional evidence that the 

7 school didn't present in the underlying proceeding? 

8 And, if so, should we put limits on that? Should 

9 it be newly discovered evidence or otherwise the 

10 school getting, like, sort of another, another shot 

11 to put new evidence into the -- or to put additional 

12 evidence in the record that wasn't there before 

13 to sort of a second appeal that the borrower doesn't 

14 get?

15 MS. WEISMAN: At this point the 

16 borrower has already received this discharge. So 

17 this is just looking at whether the school should 

18 pay the Secretary. And so our feeling is that we 

19 are requesting recovery from the institution. If 

20 they have evidence that counters the claim that 

21 we're making, that they be afforded the opportunity 

22 to present that.

23 MS. WEISMAN: Final comment from Linda.
150

1 MS. RAWLES: Without commenting on it 

2 substantively, I think the change from fails to 

3 cooperate to refuses is not -- that's adjusting 

4 language that's not new from the last time; correct? 

5 It's not in gray, so I don't know why Aaron can't 

6 finish his point about the clearly erroneous.

7 MR. BANTLE: Aaron, did you have any 

8 more?

9 MS. RAWLES: I just want to make sure 

10 he has full opportunity to talk about it.

11 MR. LACEY: I appreciate that, Linda. 

12 I don't have anything else to add, other than my 

13 mind is not made up on this yet. Subpart G is very 

14 complicated.

15 You know, I'm processing what Bryan was 

16 kind enough to share, which I appreciate, which 

17 is why this is put in G and that there's no standard 

18 in H. But, you know, I don't want to hold things 

19 up, but we haven't voted on anything and I'm still 

20 processing it.

21 PARTICIPANT: And just a reminder, our 

22 votes today, you know, we do not have consensus 

23 until we have final consensus on everything.
151

1 So, Valerie?

2 MS. SHARP: I just wanted to ask, you 

3 mentioned that you were considering changing the 

4 wording in the other place that I requested on 

5 Subpart G for provisionally certified. And I had 

6 requested it also be considered on Number 9. So, 

7 just a point, if they're bringing back a revised 

8 copy tomorrow that they would be consistent.

9 Thank you.

10 PARTICIPANT: And I think we are.

11 MS. WEISMAN: So, can you clarify? We 

12 have somebody making edits who wants to make sure 

13 he reflects exactly what you're requesting.

14 MS. SHARP: Yes. Oh, sorry. I, 

15 yesterday you were going to go back and discuss 

16 what wording you wanted to add there. And we had 

17 discussed some text in the prior section. And you 

18 mentioned that you didn't think it was necessary, 

19 but you were considering adding it.

20 I requested that also that same text 

21 that was added, where we talk about Subpart G at 

22 the beginning of this section, that it also be added 

23 at nine, at the end of nine, just matching text.
152

1 MS. WEISMAN: So, Aaron, maybe you 

2 could just highlight that for right now. You don't 

3 necessarily have to add the text in.

4 MS. SHARP: Yeah.

5 MS. WEISMAN: But just a note that we 

6 want to be parallel in that section as well.

7 MS. SHARP: And my feeling is probably 

8 you've adjusted the text.

9 MS. FREDMAN: I'm just wondering, like, 

10 in this proceeding do you envision a cooperating 

11 student to be, like, compelled to testify and be 

12 cross-examined by the school's attorney in that 

13 situation about the prior testimony? So I'm trying 

14 to understand, you know, what you'd be looking for 

15 in terms of additional sworn statements or 

16 testimony.

17 PARTICIPANT: Juliana, thank you so 

18 much for your question. And I think that really 

19 is like a case-by-case analysis. But it was our 

20 thought that given due process requirements, and 

21 here we're talking about recovery from a school 

22 of funds that they have, so their property, that 

23 under due process we may need to -- if the 
153

1 circumstances warrant, and certainly we'll have 

2 to think about this very carefully given the 

3 concerns that you are raising, whether or not there 

4 is a need for cross-examination of an adverse 

5 witness if issues of credibility or veracity are 

6 at issue.

7 MS. FREDMAN: Because it does then sort 

8 of seem like we're talking about two sort of 

9 separate proceedings to establish almost the same 

10 borrower defense. You know, presumably the 

11 Department got all the evidence from both sides 

12 and made a determination about the student's 

13 credibility prior. And then that's all going to 

14 happen again at any point in the new three years.

15 I understand that might not eradicate 

16 the initial final determination, but it is a little 

17 troubling to think it could be that open-ended and 

18 that the finality isn't really final.

19 PARTICIPANT: So, I just want to 

20 understand your concern a little bit more. So it's 

21 the claim process is final as to the borrower. 

22 Your concern is about whether the process, like 

23 when the finality for the school occurs?
154

1 MS. FREDMAN: Well, the school if --

2 I guess, I mean, I haven't totally thought this 

3 completely through, but I think that you get to 

4 some point two or three years out and you have a 

5 full hearing where there's a cross-examination and 

6 maybe somebody doesn't -- you know, is 

7 unrepresented, doesn't maybe remember what, what 

8 they wrote in their application form because it 

9 was a couple years ago. You know, I can just 

10 envision stuff that would be a little problematic 

11 from the borrower perspective in that situation.

12 I don't know exactly how it would play 

13 out, but.

14 PARTICIPANT: So, just to clarify, we 

15 use this language in our other discharges as well. 

16 So this is something that we, again, have the right 

17 to do. I don't think it's something that we 

18 commonly do. But, but we want to preserve our 

19 rights to have the borrower give us information 

20 that we may need at that hearing.

21 MS. FREDMAN: Yeah, absolutely. And 

22 I'm very familiar with the discharge applications, 

23 and I know that the borrower -- I always explain 
155

1 that to people that they, you know, might have to 

2 provide additional information. It's more that 

3 adversarial process that concerns me than the 

4 Department asking the student for additional 

5 information. Just to clarify.

6 PARTICIPANT: I don't think we see it 

7 as adversarial. I mean, the borrower isn't being 

8 put up against the school in the way that maybe 

9 it seems because the decision for the borrower has 

10 already been made and is final.

11 MR. BANTLE: Okay. Can we see a show 

12 of thumbs on this, this item, starting with Arabic 

13 7 on page 6, and going through Romanette (iv) on 

14 page 7, with the refusal substitution that Abby 

15 suggested and -- Okay.

16 Show of thumbs.

17 (Show of thumbs.)

18 MR. BANTLE: Okay. Seeing no thumbs 

19 down, 685.212.

20 MS. WEISMAN: So then looking at 

21 685.212, we pick up on page eight. The new text 

22 is in Romanette (ii) in about the middle of the 

23 page.
156

1 The text now reads, if the borrower 

2 defense claim is approved, the Secretary discharges 

3 the appropriate portion of the Direct Consolidation 

4 Loan and affords the borrower further relief, as 

5 applicable, in accordance with 685.206(c)(2) or 

6 685.206(d)(6)(ii).

7 So that is basically, just to kind of 

8 clarify, that is when a borrower has used a 

9 consolidation loan as a vehicle for getting relief. 

10 So, for example, if they have a FFEL loan that 

11 they would like to file a claim on, the way we can 

12 get them into the direct loan program is through 

13 consolidation. So then we're clarifying what that 

14 process would look like.

15 Moving on to 685.300, we moved this item 

16 from the standard paper Number 1 into process, and 

17 we have adjusted the language slightly so that 

18 Number 11 now reads, Accept responsibility for 

19 financial liability stemming from losses incurred 

20 by the Secretary for repayment of amounts 

21 discharged by the Secretary pursuant to sections 

22 685.206, 685.214, 685.215, 216, and 222, and for 

23 which the institution has been determined to be 
157

1 liable as described in Subpart G.

2 So this is basically putting this into 

3 the agreement between the institution and the 

4 Secretary in terms of what it takes to participate 

5 in the Direct Loan Program.

6 And those are the only changes left that 

7 are new to this section.

8 MR. BANTLE: So, comments from 212 to 

9 the end of the document? Abby.

10 MS. SHAFROTH: This is, this is sort 

11 of a question, I raised this in Session 2, and I 

12 don't, I don't think it was fully resolved.

13 For borrowers who have a Direct 

14 Consolidation Loan, if, if they took out a direct 

15 loan prior to the effective date of the regulation 

16 and they consolidate that into a Direct 

17 Consolidation Loan after July 2019, is that 

18 borrower's claim subject to the old standard, the 

19 state law standard, or is it subject to the new 

20 standard?

21 And as a wrinkle on that, just to make 

22 sure I fully understand, if the borrower had a 

23 combination of direct and FFEL loans prior, that 
158

1 they took out prior to July 2019 to attend a program, 

2 and then they consolidate into, all of those into 

3 a Direct Consolidation Loan after July 2019, is 

4 part of their claim subject to the old standard 

5 and part subject to the new standard, which strikes 

6 me as pretty confusing to the borrower?

7 PARTICIPANT: So I think the text that 

8 you're looking for is on page eight in (2)(i)(A) 

9 and (B) to talk about what standard applies. So 

10 we said basically it would be the standard in the 

11 underlying loan.

12 If you want to propose a change, then 

13 this would be the place to make an adjustment.

14 PARTICIPANT: I just have a clarifying 

15 question. Isn't the Direct Consolidation Loan a 

16 new loan? Because we talked about that last time 

17 that I, we were under the impression that when that 

18 consolidation loan is made, regardless of what's 

19 folded in there, that was a new loan and that 

20 creation of that new loan was based on, like, it 

21 would follow whatever time period. If it was 

22 before, it was under this. If it was after, it 

23 was under the new.
159

1 That's what we were told last time. 

2 So, is that not accurate?

3 PARTICIPANT: So I think, first of all, 

4 we have some missing text that we need to address 

5 first. So, we talk about -- and I think what I'm 

6 saying is I believe we need a (C) to clarify, first 

7 of all.

8 So, we have an (A), whether the omission 

9 of the school with regard to the loan described 

10 in paragraph (k)(2) of this section, other than 

11 a Direct Subsidized, Unsubsidized, or PLUS Loan, 

12 establishes a borrower defense under 685.206(c) 

13 for a Direct Consolidation Loan made before July 

14 2, 2019, or under the standard set forth in 685.222, 

15 for a Consolidation Loan made on or after July 2, 

16 2019.

17 So, there we've addressed the before 

18 as well as the on or after. But then when we get 

19 down to (B) we only address the on or after. And 

20 so I, I just want to clarify that I think that we're 

21 missing a piece in there.

22 PARTICIPANT: And just to sort of build 

23 on that. So, (A) talks about basically anything 
160

1 that's not a direct loan that can be consolidated.

2 (B) talks about direct loans made after 

3 the new standard goes into effect, which is exactly 

4 what Abby's question is. So I think we're missing 

5 a (C) here, as Annmarie was saying, about what 

6 happened, which is Abby's question.

7 MS. WEISMAN: So this is something that 

8 I -- you definitely raised it, Abby. You know, 

9 I wasn't here. I read the transcript. I saw that 

10 you had raised it. But something that we really 

11 need more discussion of.

12 So if people here have thoughts about 

13 that, we'd like to hear it.

14 MR. BANTLE: Abby.

15 MS. SHAFROTH: So, I mean I'm a bit of 

16 two minds. And to the extent that, to the extent 

17 that I don't like the new standard that is created 

18 I like to preserve the opportunity to borrowers 

19 who have taken out direct loans prior to July 2019 

20 to continue to rely on the existing state law 

21 standard.

22 You know, at the same I am in favor of 

23 clarity for borrowers. And I am concerned about, 
161

1 particularly in an instance where a borrower has 

2 some Direct Loans and some FFEL loans taken out 

3 prior to July 2019, they consolidate them 

4 afterwards as part of their claim, has to be subject 

5 to a state law standard and part of their claim 

6 has to be subject to a new fraudulent 

7 misrepresentation standard, then that's probably 

8 pretty confusing for an unrepresented borrower. 

9 And I think there is some value to their being 

10 clarity for the borrower going into their 

11 application to know which standard they're going 

12 to be held to.

13 So that doesn't -- that's not a 

14 proposal, that's just a few things that I'm thinking 

15 about, you know, things that I just suggest that 

16 the Department give attention to. And if you come 

17 back with language, then I'm happy to consider it 

18 more.

19 PARTICIPANT: And just for the table, 

20 just to provide some context here, you know, as 

21 we're all aware, borrower defense is something 

22 that's authorized for the Department to do under 

23 the Direct Loan Regulations. However, that does 
162

1 not exist in quite the same way -- and notice I 

2 said "the same way" -- with other loans that may 

3 be consolidated.

4 So when the borrower consolidates the 

5 loan, then it's a direct loan that's authorized 

6 under the program. And so then the question arises 

7 of which standard applies and how it applies. And 

8 that's, that's really where this comes to.

9 Whereas, if they have a direct loan 

10 that's been consolidated they have a standard 

11 applied to it under originally.

12 So we'll take it back.

13 MR. BANTLE: Jaye?

14 MS. WEISMAN: Okay. So I want to go 

15 back to Issue Paper 1 and the change that you made 

16 under (A)(1). I thought, and maybe I didn't 

17 understand it, but you struck or the Department 

18 struck (A)(2) which I thought was trying to get 

19 at the consolidation of non-DL loans. And you 

20 added language about where the making of a loan, 

21 the making of a loan debt was repaid by a Direct 

22 Consolidation Loan.

23 So I guess I was, my interpretation of 
163

1 that was, and the process that we've talked about 

2 for FFEL is that there would be this preview or 

3 preevaluation of the FFEL loan. And if it was 

4 approved, then the Department would instruct the 

5 borrower to consolidate.

6 And so if those were loans, and they 

7 would have to be pre-July 1, 2019 -- we're not making 

8 any more FFEL loans, so. So anyway, I think what 

9 you're saying is you want something, you're going 

10 to consider whether there's more explicit language 

11 about that in this section to kind of clarify the 

12 change you made in (A)(1)?

13 PARTICIPANT: Right. I mean, so FFEL 

14 is slightly different because the direct loan 

15 authority, I mean the statutory authority is in 

16 the Direct Loan Program statute. So the FFEL, so 

17 the FFEL statute doesn't reference borrower 

18 defense.

19 So, if a FFEL, if a FFEL loan gets 

20 borrower defense relief through this process, the 

21 Direct Loan borrower defense process, then they 

22 basically need to become a Direct Loan through 

23 consolidation. So that's why the standard would 
164

1 matter for that.

2 But for a Direct Loan that gets 

3 consolidated or was consolidated prior to someone 

4 knowing about our end process, then that remains 

5 sort of the question we need to take back.

6 MR. BANTLE: So, are there any 

7 proposals on this new 8 from the table? Abby?

8 MS. SHAFROTH: So, this isn't specific 

9 language. But I would just ask the Department to 

10 consider whether, whether you think you would have 

11 the authority to establish a rule that the standard 

12 that applied is based on the date of the original 

13 underlying loans, whether they be direct or not 

14 direct prior to consolidation so that, you know, 

15 all the loans that were Direct or FFEL that have 

16 already been originated prior to the effective date 

17 of this regulation are subject to the old standard, 

18 even if they are later consolidated into a Direct 

19 Consolidation Loan.

20 And all the loans that originated after 

21 the effective date are subject to the new standard. 

22 And, so making it based on the date of the original, 

23 of the loan origination rather than the date of 
165

1 the consolidation I think would be clearer to 

2 borrowers and would be more equitable in treating 

3 borrowers who originally took out Direct versus 

4 FFEL loans and who didn't, you know, choose whether 

5 they took Direct versus FFEL loans. So we'd be 

6 treating those borrowers, borrowers who borrowed 

7 at the same time, the same way.

8 MR. BANTLE: Jaye, is that a new tag 

9 or a left up?

10 Okay, Ashley and then Wanda.

11 MS. HARRINGTON: Just a question on the 

12 process though. A loan can be originated but never 

13 disbursed; correct?

14 MS. WEISMAN: Yes. A loan can be 

15 originated and never disbursed.

16 MS. HARRINGTON: So why would we, why 

17 would we not just use when the loan was disbursed 

18 then? Okay, I just wanted to make sure I understood 

19 that it -- I was under the impression it could be 

20 originated and never disbursed, and those dates 

21 could be vastly different, so.

22 MR. BANTLE: So the modification would 

23 be the date of disbursement rather than 
166

1 origination. Okay.

2 Wanda?

3 MS. HALL: I thought I understood how 

4 many categories of borrowers and loans that we had. 

5 So, we have FFEL loans today are based on state 

6 rules. Then in order for them to be able to have 

7 the borrower defense discharge they need to be 

8 consolidated into the Direct Loan Program.

9 There could be -- I don't think there 

10 are any today -- but there could be some FFEL that 

11 get consolidated into DL before 7/1/19. So those 

12 would fall under one set of rules because of the 

13 date it was made, originated, or whatever. Right?

14 And then you could have some FFEL that 

15 get consolidated after 7/1/19. So that's another 

16 group.

17 You have DL plus Stafford and in 

18 consolidation that were originated. I always 

19 thought in DL it was always just originated and 

20 we didn't use the word "disbursed," that it was 

21 originated. So DL plus Stafford in consol made, 

22 originated prior to 7/1/19.

23 Then you have DL plus Stafford consol 
167

1 made, originated after 7/1/19.

2 So, we really kind of have four groups.

3 For FFEL, the only way they can get 

4 borrower discharge is if they -- borrower defenses, 

5 if they go into the DL consolidation. And then 

6 it's only for the amount that's outstanding at the 

7 time that they consolidate. That's the discharge 

8 amount; right? Or is that changed? That's what 

9 we had talked about last year. And I don't know 

10 that we've talked about that this year. Maybe I 

11 just missed it.

12 You can back that wrinkle out and just 

13 go with the categories if you want to.

14 MS. WEISMAN: I think we need to add 

15 to what we have here and bring you back new language.

16 MR. BANTLE: Any final thoughts on 

17 this, this section that we've discussed closing 

18 out Issue Paper 2?

19 (No response.)

20 MR. BANTLE: Okay. So I think we're 

21 going to get other additional modifications to 

22 Issue Paper 2. So let's close out this discussion. 

23 And tomorrow, when we bring back that, we can look 
168

1 at the issue paper in its entirety.

2 So, Issue Paper 4.

3 MS. WEISMAN: So, for Issue Paper 4, 

4 in the summary of changes -- this was, again, on 

5 pre-dispute arbitration agreements, class action 

6 waivers, and internal dispute processes -- we 

7 talked about in the last session changing 

8 "counseling borrowers" to include a requirement 

9 that schools would provide information about 

10 pre-dispute arbitration.

11 And so now we've clarified that to say 

12 that it would be schools that use pre-dispute 

13 arbitration agreements and/or class action waivers 

14 would review with borrowers the information about 

15 the availability of an internal dispute resolution 

16 process.

17 So that way it relieves the burden of 

18 providing that information. Schools who do not 

19 use that would not have to discuss that within their 

20 counseling.

21 So, moving over to page 2 under (h), 

22 part of the "enrolled students, prospective 

23 students, and the public" disclosure section. We 
169

1 state that an institution has to make available 

2 to enrolled students, prospective students, and 

3 the public easily accessible information regarding 

4 any class action waiver or pre-dispute arbitration 

5 agreement that is included in any agreements 

6 between the institution and students receiving 

7 Title IV federal student aid.

8 So, it's just rewording what was in the 

9 next sentence and I think trying to rewrite it for 

10 some clarity.

11 We also on page 3, under Romanette (ii), 

12 we took out the word "lawsuit" from the end, so 

13 that we're now just talking about an individual 

14 participating in a class action. So that's part 

15 of the definition of what a class action waiver 

16 means.

17 In 684.304, under "counseling 

18 borrowers" in two locations we've removed the 

19 language that said "from that school." What we 

20 were proposing the last time was that institutions 

21 would be repeating the entrance counseling any time 

22 a new borrower came to their institution. So what 

23 we're doing here is reverting back to what currently 
170

1 exists, basically saying that a borrower would 

2 complete entrance counseling one time, that they 

3 would not be repeating it at each institution that 

4 they attend.

5 Going down to the bottom of page 3, in 

6 (B), we are specifying here who they are providing 

7 information to by inserting the words "to the 

8 borrower." So if an electronic tool was available 

9 to provide entrance counseling, the school must 

10 provide to the borrower any elements of the required 

11 information that are not addressed through the 

12 electronic tool.

13 Moving over to page 4, we had been asked 

14 about the idea of what it means to provide something 

15 in writing. The Department's practice has been 

16 that that could include information that is given 

17 electronically. But we were asked for clarity. 

18 And so here we've added the words "or electronic."

19 So, it now reads, "On a separate written 

20 or electronic form provided to the borrower signs 

21 and returns to the school." So, again, it's an 

22 electronic version as one option for you.

23 I think let's break it up there to get 
171

1 some feedback.

2 MR. BANTLE: Wanda, is your tag new or? 

3 Okay, we'll go John, William, Chris.

4 PARTICIPANT: So let me start by saying 

5 what I'm not saying in this comment. We are in 

6 Washington after all.

7 So, my comment, before anyone reacts, 

8 it doesn't go to the wisdom or advisability of 

9 regulating the use of pre-dispute arbitration 

10 agreements. Various attorneys general have 

11 different views on that. Various of them have 

12 discussed that with policy makers on Capitol Hill 

13 many times.

14 But in the past I've flagged my concern 

15 that what the Department is doing here is regulating 

16 in an area where it doesn't have authority to 

17 regulate. The behavior that's being regulated 

18 here is not really the provision of educational 

19 services or the provision of loans. What's being 

20 regulated here is the use of pre-dispute 

21 arbitration agreements.

22 Congress has expressed a policy in that 

23 area. It's gone so far as to preempt most of state 
172

1 law in regulating the use of binding pre-dispute 

2 arbitration agreements. And I don't recall -- the 

3 Department is more than welcome to correct me if 

4 I'm wrong -- I don't recall the Department being 

5 given any rulemaking authority under the Federal 

6 Arbitration Act.

7 That act went into effect in 1925. It's 

8 been amended by Congress since that time. Congress 

9 has shown that it knows how to create exemptions 

10 or additional requirements in different public 

11 contracting situations when it wants to. And I 

12 just have real concerns that what the Department's 

13 doing here, whether it's a good idea or not, is 

14 not something that the Department has the authority 

15 to do.

16 PARTICIPANT: I'd like to respond to 

17 that. Our position is that we are not regulating 

18 the use of them. We are just saying that if you 

19 use them you need to let students know there's some 

20 information.

21 PARTICIPANT: And I understand that, 

22 that what you're saying is you're actually 

23 regulating the education services and 
173

1 participation here. I don't agree with that 

2 characterization.

3 You're adding a requirement on the use 

4 of those clauses that Congress didn't include in 

5 its statute. Congress spoke strongly enough that, 

6 for instance, the state of Texas couldn't create 

7 this requirement more than likely.

8 So, again not to be flippant, and I know 

9 how hard our friends at the Department are working, 

10 they have a much stronger argument that they can 

11 preempt the states than they have argument that 

12 they can preempt Congress.

13 MR. BANTLE: William, Chris, then 

14 Justin.

15 MR. HUBBARD: Thanks, Ted.

16 On (6)(i) on page 4, it's a very minor 

17 thing that hopefully will not spark a lot of concern 

18 but I think is important, I would like to amend 

19 the language or propose amending the language to 

20 read -- and I'll highlight the pertinent part --

21 "Explain the use of a Master Promissory Note (MPN)" 

22 as a student loan contract.

23 Understanding that that may appear 
174

1 redundant, I think to emphasize the point of the 

2 use of the Master Promissory Note as a student loan 

3 contract is important.

4 MR. BANTLE: I think that we might have 

5 stopped at (2). Correct me if I'm wrong. Okay, 

6 so we'll put that on hold, please. Keep that in 

7 your mind.

8 So, Chris, Joseline, then Linda. Or 

9 Chris, okay, Chris, Joseline, and then Aaron, and 

10 then Linda.

11 MR. DELUCA: So my, my question -- or 

12 not question but issue, on page 2, (h)(1), the 

13 change that was made, "An institution of higher 

14 education musts make available to enrolled 

15 students, prospective students, and the public 

16 easily accessible information regarding any class 

17 action waiver or pre-dispute arbitration 

18 agreement."

19 "Easily accessible," what, what does 

20 that mean? I mean, is the Department going to have 

21 a template that schools are going to be using? 

22 You know, it seems to me that what one person might 

23 think is, well, this is easily accessible, another 
175

1 may say no. And I think using the words "easily 

2 accessible" creates a level of confusion.

3 MS. WEISMAN: Do you have a suggestion 

4 for what we could say instead? Because we did not 

5 intend to create a template.

6 MR. DELUCA: I'll think about it. 

7 Because that was one of the questions I had is 

8 whether you were going to have a template or not.

9 MS. GARCIA: My question is actually 

10 on the same thing as to what "easily accessible" 

11 means and when institutions are distributing this 

12 information what does that look like?

13 I know that for students, sending an 

14 email is not always the most efficient thing because 

15 they don't always look at emails. I mean, I don't 

16 know if institutions have this capacity, but doing 

17 presentations at classes, making them go through 

18 a training program before they enroll that goes 

19 through all these steps, or, I don't know, using 

20 social media. So Instagram, Facebook, Snapchat, 

21 I don't know if you all have those, but those are 

22 ways where information can be easily accessible 

23 to students.
176

1 And my question was how, how would the 

2 Department be able to enforce that or navigate that 

3 because I do assume it would be different for every 

4 institution.

5 MR. BANTLE: So I see that suggestion's 

6 been noted in the text up there. So, if anyone 

7 has any ideas, feel free to put up your card.

8 Actually, is your card directly 

9 responding or? Okay.

10 PARTICIPANT: So, could you say, let's 

11 see what it is, prospective students and the public. 

12 So, I know that in -- I can't remember the exact 

13 wording but I know there are some pieces where it 

14 talks about requiring an institution to have a 

15 direct URL to that information. Could we possibly 

16 use something like that?

17 Yeah, I think at Consumer Information 

18 we have one for state, so something maybe along 

19 those lines where it would directly link the student 

20 to the page. Meaning, for those that aren't 

21 familiar, you don't have to keep, like, linking

22 from page to page to page to page to find that 

23 information. It would be a direct link to that.
177

1 MR. BANTLE: Next I have Aaron, then 

2 Linda, then Jaye, and Suzanne.

3 MR. LACEY: I'll offer a couple of 

4 general comments and then I have a specific one.

5 I mean, I agree with John. I'll start 

6 by saying I think this is, there is a real question 

7 as to whether or not this really is an attempt to 

8 once again add conditions on to the use of 

9 arbitration causes and class action waivers. I 

10 mean, I appreciate that it's, as John said, I mean, 

11 it has to do with disclosure, but it's still a 

12 condition prerequisite to being able to use them, 

13 practically speaking.

14 You know, my other general comment, 

15 though, and bigger concern is just that even outside 

16 of this room in the context of higher education, 

17 I mean it is well established that consumer groups 

18 frequently do not like arbitration causes, class 

19 action waivers. That's been well established. 

20 It's been stated here.

21 Many organizations, institutions, I 

22 don't necessarily mean of higher education, 

23 companies often advocate for them, plaintiff's 
178

1 attorneys don't like them; arbitration unions and 

2 associations do like them. I mean, they're just 

3 split out there, and people for different reasons 

4 go different ways.

5 The Department has made a conclusion 

6 which it has articulated that it is not going to 

7 attempt to -- and I agree with completely that it 

8 does not have the legal authority to try to regulate 

9 arbitration agreements, class action waivers. 

10 This feels like a very unpopular attempt to split 

11 the difference.

12 I mean, there's been a lot of testimony, 

13 or whatever the right -- commentary here by folks, 

14 I believe from all sides, but I don't claim to 

15 characterize that but, you know, that dumping more 

16 disclosures on people, adding more stuff to the 

17 entrance exam and exit exam processes is not going 

18 to be helpful. Students already get way too much 

19 paper.

20 And I, it is my personal believe, with 

21 all due respect, that the triad is failing 

22 institutions and students alike on that score; that 

23 institutions can't keep up with all the stuff 
179

1 they're supposed to hand out; and there's so much 

2 stuff dumped on students that it is not meaningful.

3 And I just really encourage the 

4 Department when they go back to consider whether 

5 or not attempting to put an unpopular idea out that 

6 may not be within their statutory authority is 

7 really a good idea. I just don't think it is.

8 I think I get that the Department was 

9 trying to maybe put something out there here that 

10 would satisfy folks. And I just want to go on the 

11 record as saying I don't think it does, and I don't 

12 think it's going to help necessarily students. 

13 I mean, I don't want to speak for the students 

14 obviously, but I've seen how much paper gets dumped 

15 on them, and I just think it's just more paper.

16 All that having been said, my specific 

17 concern which I brought up in the last round again, 

18 is that the definition of class action waiver 

19 agreement and pre-dispute arbitration agreement 

20 have no box around them. So, you know, if the 

21 University of Alabama, which I like to pick on, 

22 if it's got Title IV students driving into its 

23 parking garages and there's an arbitration 
180

1 agreement on the back of those tickets that they 

2 get that print-out every time they drive in, I do 

3 not believe that this is putting a box around that.

4 We've had that conversation. It's 

5 clearly not in the definitions on these agreements. 

6 And if I look at (h)(1), that's putting an 

7 affirmative obligation for disclosure.

8 So, I just encourage the Department, 

9 we've got to figure out a way, unless it's your 

10 intention that every single arbitration agreement 

11 that Ohio State or any other massive university 

12 may have for health clubs -- not health clubs, wrong 

13 word, but you know, maybe not in every case -- you 

14 know, gym, athletic facilities, parking garages, 

15 on-campus concerts, all those places where they 

16 may have agreements or tickets that have a 

17 pre-dispute arbitration clause and you've got a 

18 Title IV student that's signing one of those things, 

19 I don't see the box.

20 And I don't think it's your intent to 

21 require that entrance exam to talk about the parking 

22 lot in, you know, Building G, but I think this needs 

23 more work to make sure that it gets there. And 
181

1 I did make that comment before, and I just, I don't 

2 see how it's there yet.

3 MR. BANTLE: Do you have a proposed box?

4 MR. LACEY: I think it could be done 

5 easily in the definitions of, well, relatively easy 

6 in the definitions of class action waiver, "means 

7 any agreement or part of an agreement, regardless 

8 of its former structure, between a school, or a 

9 party acting on behalf of a school, and a student 

10 that" -- and then the question becomes relates to 

11 X, fill in the box, and prevents.

12 And I don't know what the Department's 

13 intention here is. You know, is it enrollment? 

14 Is it enrollment in the provision of educational 

15 services? I mean, we do have a definition of 

16 provision of educational services. But, again, 

17 I think if you don't put a box here it's going to 

18 create an unintended consequence. I mean, I think 

19 it's unintended. And certainly one that's going 

20 to cause a lot of institutions surprise when they 

21 discover that they're out of compliance.

22 So, I think you've got to have something 

23 there. Again, it could be enrollment in the 
182

1 provisions of educational services, you know.

2 MR. BANTLE: Linda then Jaye.

3 MS. RAWLES: There we go. Yeah, I 

4 won't just repeat what Aaron said. He did make 

5 most of the same statements that I was going to 

6 make, only much more eloquently. But I want to 

7 add to it just a bit and then make a proposal.

8 If it was just the issue that we're 

9 adding a burden to schools, which always ends up 

10 being a burden to students as well, then maybe we 

11 would just let this go, even though I haven't heard 

12 anyone in here really say that this is particularly 

13 helpful to students.

14 So, I'm a little concerned about doing 

15 something that isn't helpful to students but is 

16 an additional burden to all parties concerned when 

17 I think John is right in his reading of the law. 

18 And I worry about if we do reach consensus here, 

19 and this is part of it and there is any kind of 

20 legal challenge, what that will do to the rest of 

21 our efforts here.

22 So, in that vein and just to get it on 

23 the table, in addition to Aaron asking the 
183

1 Department to reconsider, I'd like to make a 

2 proposal that we strike Issue Paper 4.

3 MR. BANTLE: Jaye.

4 MS. O'CONNELL: So this is somewhat of 

5 a knit, but I think Dan last time asked for the 

6 addition of "or electronic" in Item (2) on the top 

7 of page 4, which I support. I just had heard on 

8 Issue Paper 1 when we were talking about the written 

9 decision earlier in the week, so, under 

10 685.206(d)(4), Annmarie, I heard you talk about 

11 the Department's kind of longstanding position on 

12 written can be electronic.

13 I'm just pointing out that sometimes 

14 we say "written or electronic," sometimes "written" 

15 is understood that it can be either. But just 

16 within this rulemaking it was inconsistent. So, 

17 I just don't know if you want to look at that.

18 Thank you.

19 MR. BANTLE: Suzanne.

20 MS. MARTINDALE: Oh, I just want to 

21 support in particular some of the examples that 

22 Joseline threw out as a demonstration of how 

23 financial literacy often doesn't really work and 
184

1 is no substitute for substantive protections. You 

2 really do need to get into counseling and skill 

3 building at meaningful decision making points to 

4 help a consumer make an informed decision. Which 

5 is why I think, you know, we share many of the 

6 concerns that have already been expressed about 

7 whether this will in fact be helpful to students 

8 so that they can make informed decisions.

9 The solution to this problem is for 

10 schools to stop using pre-dispute arbitration 

11 agreements. And not going to relitigate the 

12 discussion around authority, but we believe that 

13 the 2016 rule got it right and stated a very 

14 reasonable basis for what it did then.

15 MR. BANTLE: Suzanne, do you have any 

16 additional proposals to Joseline's list at this 

17 time?

18 MS. MARTINDALE: No.

19 MR. BANTLE: Okay. William.

20 MR. HUBBARD: Thank you. I think this 

21 paper is getting to the point where we would be 

22 comfortable with it. I think it's a great start, 

23 and I applaud the Department for the attempt.
185

1 Initially my proposal would be to not

2 strike the whole paper. I think that's absurd. 

3 And also points to the fact that there's, I think, 

4 fundamentally a misunderstanding over what this 

5 paper is trying to achieve, which I think ultimately 

6 is, as federal money, the Department is in a 

7 position to determine if a school wants to take 

8 the money, federal funds, how pre-dispute 

9 agreements are used, and I think this is getting 

10 to that point.

11 So it's not telling any school whether 

12 or not they can or can't use pre-dispute. I think 

13 that that would get towards the statutory concerns 

14 as outlined by some of my colleagues. But in terms 

15 of how it's done if they do accept federal funds, 

16 I think it does outline that.

17 Noting that there is concerns over 

18 whether or not dumping a bunch of paper on students 

19 is successful or not, I am empathetic to those 

20 points. You know, on occasions that can be the 

21 case. But that's not a reason for, for throwing 

22 this out entirely. I don't think that provides 

23 any level of justification for not making the best 
186

1 attempt possible to inform students.

2 We, you know, we certainly we can talk 

3 later about perhaps more effective ways to do that. 

4 But barring other options, just throwing it out 

5 entirely I think would be a tremendously disastrous 

6 idea.

7 MR. BANTLE: Any additional proposals 

8 on this section that we're discussing, will?

9 MR. HUBBARD: So, my proposal is to not 

10 strike the paper.

11 MR. BANTLE: Not strike it. Okay.

12 I see Joseline, Bryan, Michael. And 

13 then I want to wrap up discussion on this section, 

14 unless we have new proposals. And Walter will be 

15 the final card.

16 Okay, so Michael will be the final card. 

17 Joseline.

18 MS. GARCIA: Thank you. Yeah, so I 

19 mean I echo a lot of the things that Will was just 

20 stating right now. I don't think we should strike 

21 this.

22 I mean, my original position is that 

23 I'm not comfortable with class action waivers and 
187

1 pre-dispute arbitration agreements. But, you 

2 know, in an offer to negotiate in good faith I think 

3 it's important that we have this.

4 And I see where Aaron is coming from. 

5 I don't like to waste paper. And I totally 

6 remember being in that situation. But, you know, 

7 going back to the ideas I mentioned earlier, I think 

8 we can be very creative with this in terms of how 

9 we deliver information to students and actually 

10 break it down.

11 And I would be willing to, like, sit 

12 down with institutions and the Department. I was 

13 a student organizer and knows how to rally up 

14 students and get information that is complicated 

15 and break it down to them to figure out ways that 

16 this can be accessible.

17 Again, this is really important. This 

18 is a really big lifetime and life-changing 

19 decision. And I think that more information gives 

20 the students to better set them up for success.

21 MR. BANTLE: Bryan, Michael. I see 

22 Abby's card again. Hopefully we're looking at 

23 proposals here.
188

1 MR. BLACK: I'm actually going to come 

2 out in favor of the Department of Education 

3 proposal. And the reason I say that, and I want 

4 to be transparent here, but I've been, at least 

5 on the periphery, involved in litigation that has 

6 involved a class action lawsuit against cosmetology 

7 schools where a plaintiff firm brought an action 

8 under the Fair Labor Standards Act.

9 And what they were trying to argue, and 

10 filed a multi-, multi-count complaint that it dealt 

11 with trying to turn our students into employees, 

12 even though they're licensed, they're going through 

13 a vocational program, they wanted all the benefits 

14 that an employee would get.

15 Most all the District Federal courts 

16 have thrown out this lawsuit. But I know the 

17 entities that I am familiar with and involved with 

18 to some extent have spent well over a million 

19 dollars in challenging what really has become a 

20 very, very frivolous case. And if we didn't have 

21 some pre-dispute arbitration, class action 

22 waivers, you know, going forward at least, I feel 

23 that we'd be really hamstrung.
189

1 The thing that I mentioned even at the 

2 very outset of these hearings is that these 

3 arbitration agreements seem to be held up only about 

4 half the time. It seems that the courts, if they 

5 want to ignore them, they simply ignore them and 

6 allow the plaintiffs to proceed. So, while we're 

7 talking about perhaps that they don't have absolute 

8 concrete effect, that they're granted the effect 

9 that they are intended, many times they don't have 

10 that effect at all, they're just simply ignored 

11 by the courts, and plaintiffs get their day in 

12 court.

13 But, again, and I want to be transparent 

14 on this, is that myself personally I've seen how 

15 a frivolous action can get out of hand. And having 

16 that added protection I think is necessary to 

17 institutions.

18 So I support --

19 MR. BANTLE: Is your proposal as is?

20 MR. BLACK: It is, yes.

21 MR. BANTLE: Okay.

22 MR. BLACK: Thank you.

23 MR. BANTLE: Michael.
190

1 MR. BOTTRILL: So, just a couple 

2 points. I'm assuming that it stays. So, my 

3 comments are along those lines.

4 With regard to "easily accessible," I 

5 think that there are many places throughout either 

6 these regulations, accreditation standards, where 

7 you use words that the onus and the burden will 

8 always fall upon the institution to demonstrate 

9 it. So, somebody questions it. Then the burden 

10 falls on the institution to convincingly show, yes, 

11 it was easily accessible because of X, Y, and Z.

12 So, because of that I don't know that 

13 we need to add a whole lot of additional language 

14 to define that. I'm not particularly persuaded 

15 that we need to include, you know, social media 

16 or other forms. I mean, the burden will fall on 

17 the institution to make that demonstration.

18 However, in that last sentence I'm not 

19 sure that you specifically mean to say -- and maybe 

20 you do, and maybe I'm mis-remembering the last 

21 conversation -- do you mean to say that the 

22 institution may not solely use an internet website? 

23 They could use it for those purposes.
191

1 PARTICIPANT: So, to clarify, an 

2 intranet site is different from an internet site.

3 MR. BOTTRILL: Yes. I understand 

4 that.

5 PARTICIPANT: So the idea of an 

6 intranet site could not be used to meet the needs 

7 of notice by any prospective students and the public 

8 that they wouldn't have access.

9 MR. BOTTRILL: My question --

10 PARTICIPANT: So they could use it for 

11 students but not prospective students or the 

12 public.

13 MR. BOTTRILL: Okay. But I'm just 

14 suggesting that you may want to include the word 

15 "solely" in between "may" and "not." I get that 

16 what -- that doesn't get to the public, but they 

17 could use that as one tool of several for the purpose 

18 of providing that notice as part of "easily 

19 accessible" information.

20 PARTICIPANT: Yes. But it could never 

21 be used to provide information to prospective 

22 students or the public. So I don't think "solely" 

23 would apply there.
192

1 MR. BOTTRILL: Okay, fair enough.

2 PARTICIPANT: Do you know what I mean?

3 MR. BOTTRILL: I do. I do, okay.

4 PARTICIPANT: You can use it for your 

5 own students but never for prospective students 

6 or the public because they wouldn't have access 

7 yet.

8 MR. BOTTRILL: Okay. To Aaron's point 

9 -- and I'm not sure that this helps -- but maybe 

10 the language under Romanette (ii) on page 3, to 

11 put a box around it on behalf -- starting, you know, 

12 "or a party acting on behalf of a school, and a 

13 student that" and then insert something along the 

14 line of "relates to the educational services for 

15 which the student received Title IV funding and 

16 prevents an individual from filing or participating 

17 in a class action" and add "with regard to those 

18 services."

19 And then something conforming or 

20 corresponding to that same theme in Romanette 

21 (iii). So, at the end of that sentence Romanette 

22 (iii) it would be, oh, "any future dispute between 

23 the parties relating to the educational services 
193

1 for which the student received Title IV funding."

2 Aaron, does that -- Where did Aaron go? 

3 Oh, there he is.

4 Oh, does that somewhat get to what you 

5 were talking about?

6 MR. LACEY: That addresses that 

7 concern, I think, in putting a box around it, 

8 excluding the parking lots and the athletic 

9 facilities and whatnot.

10 MR. BANTLE: Okay. Final comment from 

11 Abby.

12 MS. SHAFROTH: I also won't relitigate 

13 the issue of whether the Department has authority 

14 to act in this area. I strongly believe that it 

15 does, and I believe that the appropriate way to 

16 address this problem is to, is to not allow 

17 institutions that participate in Title IV to use 

18 these agreements to silence their students and to 

19 prevent -- to take away their right to go to court.

20 But to the extent the Department isn't 

21 willing to do that, my proposals:

22 One would be to address the problem of 

23 secrecy and help protect taxpayers and alert the 
194

1 Department to misconduct at schools by requiring 

2 the schools to notify the Department of arbitration 

3 claims received and results of arbitration 

4 proceedings as they relate to the type of misconduct 

5 that could be a basis of a borrower defense claim.

6 This is language that was -- I won't 

7 read all of the language, but there is language 

8 like this in the 2016 rulemaking. And this is not, 

9 is not limiting institutions from using arbitration 

10 agreements, but saying if you are going to use them, 

11 then we at least need you to -- we need some sunlight 

12 on that, and we need you to inform the Department 

13 of those issues.

14 So that's my first proposal.

15 My second proposal would be, you know, 

16 I'm not convinced that a lot of these disclosures 

17 would have any meaningful effect on students. If 

18 we want it to be meaningful, then I would say we 

19 should make the -- we should be clear about what 

20 the disclosure language has to say. Like it has 

21 to say "warning, if you enroll in this school it 

22 will require you to give up your right to go to 

23 court."
195

1 I would even put a skull and crossbones 

2 there, but we'll just leave that language. And 

3 I would put it on the college scorecard.

4 MS. WEISMAN: So if I can respond to 

5 that first piece, that was something that we did 

6 discuss at the last session. And I believe we had 

7 further discussion to explain that if we are 

8 gathering that type of information, then we of 

9 course need to be prepared to do something with 

10 it.

11 And our feeling was that we could not 

12 commit resources to take on that activity. And 

13 we declined to include that in these papers.

14 MR. BANTLE: I had cut it off, Joseline. 

15 Is it a proposal on modification to the language?

16 MS. GARCIA: If it's possible --

17 MR. BANTLE: Okay. Very quickly. And 

18 then I want to move on, just noting it is 3:00, 

19 and we have four more issues to get through today.

20 MS. GARCIA: I had a question. In 

21 terms of the entrance counseling, does that -- is 

22 that different for every institution or is there, 

23 like, one template of entrance counseling that they 
196

1 all follow?

2 MS. WEISMAN: So, we have outlined in 

3 regulations specifically what topics must be 

4 covered within entrance and exit counseling. We 

5 provide information online on our website that 

6 institutions may choose to use, and many of them 

7 do. But they are not required to use our electronic 

8 or other materials. They can use their own if they 

9 prefer.

10 We only regulate the content of what 

11 must be within both exit and entrance counseling.

12 MS. GARCIA: Gotcha. Makes sense.

13 I'm a little concerned, just because 

14 I don't know how this counseling looks like, and 

15 I don't know if it's actually, like, accessible 

16 to a student to understanding all the financial 

17 language and the decisions that they're actually 

18 taking place.

19 Yesterday my intern, I found her crying 

20 outside because she was talking to her financial 

21 aid office and she had to take out more loans. 

22 And it's a really scary process. And she didn't 

23 have the resources to fully understand that. I 
197

1 didn't even have the resources to, like, break it 

2 down to her.

3 And I don't know if there's any way 

4 within the material that you recommend on your site 

5 if you can perhaps work with some national youth 

6 organizations that work with students to help 

7 reconfigure that language in a way that is more 

8 accessible, and a way that students can actually 

9 understand what their options are and what they're 

10 getting themselves into. Because, I mean, I 

11 remember being in this position. It is very scary. 

12 It's intimidating.

13 And that's why I stepped out of the room 

14 yesterday because I had to calm her down.

15 MS. WEISMAN: Sure, I'd like to respond 

16 to that. That would be outside of the purview of 

17 these negotiations. But it's more of an 

18 operational issue. We do have staff within federal 

19 student aid who work with preparing that counseling 

20 website that we offer.

21 And my understanding is that it has been 

22 kind of pilot tested -- there's a word I'm looking 

23 for and it's not coming to me -- but that students 
198

1 -- focus group, thank you -- I believe that it has 

2 been through that process. We have not made 

3 changes to that in at least a few years. But it's 

4 something that we could recommend to them as well, 

5 is that when they make their next update, or even 

6 just looking at it now, to, you know, consider 

7 having some student input in that process.

8 MS. GARCIA: And I can send you 

9 organizations that you can reference to.

10 MR. BANTLE: Okay. Will, is it a 

11 proposal?

12 MR. HUBBARD: It is.

13 MR. BANTLE: Okay. Final proposal. 

14 And then I want to give -- it is 3:00, so I want 

15 to give us a 10-minute break. And just looking 

16 at body language around the room, I think that would 

17 be appropriate.

18 MR. HUBBARD: I'll keep it brief.

19 So, as a subcomponent of (h), to 

20 Joseline's point a proposal might look something 

21 -- and certainly noting what the Department's 

22 response, a proposal might look something like "the 

23 Secretary may delegate consultation of language 
199

1 to ensure that it's easily accessible," or 

2 something to that effect.

3 MS. WEISMAN: So, I think I need to hear 

4 a little bit more about what the goal is with that 

5 text. The Secretary would always delegate the 

6 responsibility of, say, program review or audit 

7 to federal student aid employees. And they would 

8 be the ones who would be looking at whether somebody 

9 met this requirement, for example.

10 So, if I can hear a little bit more about 

11 where you're going with this proposal to know maybe 

12 how we could finesse it.

13 MR. HUBBARD: Sure. No, that makes 

14 sense. Thank you for that.

15 I would say, and just remaining 

16 consistent with the other text, leaving it at the 

17 Secretary's discretion on whether or not this 

18 occurs, but also encouraging that as something that 

19 might be pursued. I mean, if we want to take the 

20 Secretary out of it, that's fine as well.

21 But just identifying that within 

22 consulta -- with consultation with 

23 student-centric, or however you want to word it, 
200

1 organizations is an option. I mean not necessarily 

2 a requirement, but strongly encouraged option. 

3 That might be kind of some way to put some language 

4 around that concept that Joseline proposed.

5 MS. WEISMAN: So I don't think that we 

6 would be looking at putting that operational 

7 information within this regulation. I think that 

8 would be something that we would consider on the 

9 outside. Because, again, that counseling, the use 

10 of that resource is not a required resource. And 

11 because schools wouldn't be required to use it, 

12 I think we're looking at is there a way to adjust 

13 this text in a way that makes people understand 

14 the idea of notifying the students, whichever 

15 method they are receiving the counseling from.

16 MR. BANTLE: Okay, let's take a 

17 10-minute break. Please be back at 3:10.

18 (Whereupon, a recess was taken.)

19 MS. CARUSO: Okay. Annmarie, would 

20 you kindly take us through 685.304.

21 MS. WEISMAN: So, for 685.304, 

22 "counseling borrowers," we are picking up on the 

23 beginning of 4, at the top of page 4. We do not 
201

1 have any changes to any of the text on page 4 from 

2 the last session. So I'd like to skip over to page 

3 5.

4 "If the school requires borrowers to 

5 enter into a pre-dispute arbitration agreement or 

6 to sign a class-action waiver, as defined in 

7 668.418," then they will provide a description of 

8 that process, the internal dispute resolution 

9 process that is.

10 So this is basically changing the text 

11 in a way that conforms to what we discussed at the 

12 last session where we would not hold everyone 

13 accountable to do this, it would only be the schools 

14 that are using the pre-dispute arbitration 

15 agreement.

16 Over on the next page, on page 6, we 

17 do a similar thing in Romanette (v) by saying, "If 

18 the school requires borrowers to enter into a 

19 pre-dispute arbitration agreement or to sign a 

20 class-action waiver, as defined" we go on to talk 

21 about the idea of those receiving a loan that they 

22 need to provide that information as specified 

23 within this section.
202

1 We have also removed the words "from 

2 that school" to again parallel the change that we 

3 made earlier because we are not requiring 

4 counseling for those who are attending a school 

5 each time they attend a new school. And it would 

6 be one time only, as we're doing it currently.

7 On page 7, the change we made was to 

8 clarify that we were talking about enrollment in 

9 the same school as opposed to "attendance at." The 

10 idea here is that enrollment more closely aligns 

11 with the language that we have already used, and 

12 covers a broader period of time, which could include 

13 once someone is admitted going forward. You can 

14 obtain a loan before you're actually attending 

15 classes.

16 And then going on to page 8 in Romanette 

17 (xi), doing similar to what we've done earlier. 

18 "If the school is required" -- "If the school 

19 required the borrower to enter into a pre-dispute 

20 arbitration agreement or to sign a class-action 

21 waiver, as defined" then they need to go ahead and 

22 review the student's -- with the borrower the 

23 school's internal dispute resolution process. So 
203

1 we're just carrying over that text again.

2 On page 9, our key changes are to include 

3 the words "to the borrower." So we're again, we 

4 did that on an earlier page, we're conforming here 

5 as well that the school must provide to the borrower 

6 elements of the required information that are not 

7 addressed. And, again, this only would pertain 

8 to those are required to do so.

9 And then we make the change where we 

10 clarify in (2) the idea that it's a written or 

11 electronic form.

12 So that closes out Issue Paper 4. 

13 Again, that covers pages 4 through 10.

14 MS. CARUSO: Any proposed changes for 

15 685.304? Juliana.

16 MS. FREDMAN: I have a question for the 

17 Department. I'm not really, not familiar with the 

18 enforcement side. So I'm wondering what the weight 

19 of this proposal is?

20 In other words, like, how does the 

21 Department know what schools are using for dispute 

22 arbitration waivers? How does the school enforce 

23 it if they are not? What's the process if that's 
204

1 not -- if these disclosures are going to be 

2 provided? What are the consequences?

3 MS. WEISMAN: So, just as with any other 

4 Title IV regulation, if we determine through the 

5 audit resolution process, through a program review, 

6 through a student complaint, we would take the 

7 appropriate steps as we would already have outlined 

8 in those processes.

9 MS. CARUSO: If there are no other 

10 comments, let's move on to Issue Paper Number 5.

11 In the interests of time we're moving 

12 on to Issue Paper Number 5 to make sure we capture 

13 all of the proposed changes.

14 There will be an updated Issue Paper 

15 Number 4 presented by the Department tomorrow 

16 morning; is that right? No? Just 1 and 2.

17 MS. WEISMAN: One, 2, and 3.

18 MS. CARUSO: One, 2, and 3.

19 MR. BANTLE: We did have a number of 

20 items for discussion. I think we'll come back to 

21 votes when we're looking at this in totality. But 

22 as Moira said, just in the interests of time I think 

23 we should move on to 5 and have conversation on 
205

1 that as well.

2 MS. WEISMAN: So I stand corrected 

3 though, just quickly. We will have an updated

4 Issue Paper Number 4. There were some additional 

5 edits and some language that somehow I forgot we 

6 had some proposals out there. So we are going to 

7 put together some additional language for you and 

8 bring that back as well.

9 And also to note one other correction 

10 that was nicely pointed out to us, the statutory 

11 citation in Issue Paper 4 is incorrect at the top. 

12 Instead of saying Section 455(a)(6), that should 

13 be 454(a)(6). So we will note that in the new paper 

14 as well.

15 So, moving on to Issue Paper 5, "Closed 

16 School Discharge," under the summary of changes 

17 we want to remind you that we are providing for 

18 Department review of a closed school discharge 

19 claim denied by a guaranty agency.

20 Other new text appears on page 2. We 

21 updated some language that begins on page 1 where 

22 we talk about a "nondefault, contested Federal or 

23 State court judgment issued by a court of competent 
206

1 jurisdiction, or an adjudication by a Federal or 

2 State administrative agency concluding that the 

3 school violated State or Federal law."

4 So, I think the idea here is adding the 

5 word "concluding," is that there is an actual 

6 decision there.

7 On the last time when we met we had a 

8 couple of places that appear on page 2 where, 

9 although we had stated our intention to move from 

10 120 days to 150, we had forgotten to make those 

11 edits. So we have made them here in paragraph (d) 

12 under 682.402 for closed school. Again, moving 

13 that time frame from 120 days prior to the date 

14 that the school closed, and the idea that we could 

15 extend that period as well, where necessary, at 

16 the Secretary's discretion.

17 So, again, we've updated that text.

18 We continue on to say "but are not 

19 limited to:" -- and, again, these are the 

20 exceptional circumstances -- "revocation or 

21 withdrawal by an accrediting agency of the school's 

22 institution accreditation; the school's 

23 discontinuation of the majority of its programs; 
207

1 the State's revocation or withdrawal of" -- and 

2 I think, oh no, it is there -- we have the "of the 

3 school's license to operate or to award academic 

4 credentials in the State; or a nondefault, 

5 contested Federal or State court judgment issued 

6 by a court of competent jurisdiction or an 

7 adjudication by a Federal or State administrative 

8 agency concluding that the school violated State 

9 or Federal law."

10 On the bottom of page 2, while we were 

11 at it we made the edit from "shall" to "must."

12 We have done that in some other places 

13 as well within this paper, including at the top 

14 of page 3; again in the middle of page 3 in (F).

15 We also state in (F) that "the agency 

16 must notify the borrower in writing of that 

17 determination," -- This is referring to the 

18 guaranty agency -- and "the reasons for the 

19 decision, and how the borrower may ask the Secretary 

20 to review the decision."

21 On the rest of page 3 we are changing 

22 our "shalls" to "must" again.

23 Doing the same over on the top of page 
208

1 4.

2 And then we come to our new text in 

3 (J)(1). "Within 30 days after receiving the 

4 borrower's request for review of its decision that 

5 the borrower did not qualify for a discharge under 

6 paragraph (d)(6)(ii)(F) of this section, the agency 

7 must forward the borrower's discharge request and 

8 all relevant documentation to the Secretary."

9 So this is just kind of outlining what 

10 that process looks like for the Secretary review.

11 In (2) we say, "After reviewing the 

12 documents provided by the agency, the Secretary 

13 notifies the agency and the borrower of the decision 

14 on the borrower's application for a discharge. 

15 If the Secretary determines that the borrower is 

16 not eligible for a discharge under paragraph (d) 

17 of this section, within 30 days after being informed 

18 of the Secretary's decision, the agency must take 

19 the actions described in paragraph (d)(6)(ii)(H) 

20 of this section, as applicable."

21 We then continue on to say, "If the 

22 Secretary determines that the borrower meets the 

23 requirements for a discharge" the agency has 30 
209

1 days after the decision of the Secretary's decision 

2 to take the actions required, as indicated above. 

3 And that "the lender must take the actions 

4 described in paragraph (d)(7)(iv) of this section, 

5 as applicable."

6 And then the last change we have in this 

7 paper is over on page 5 at the top where, again, 

8 we make the conforming change here that we mentioned 

9 earlier stating, "concluding that the school 

10 violated State or Federal law."

11 MS. CARUSO: Ashley Reich, would you 

12 like to open us up with comments and proposals?

13 MS. REICH: Just I have some real minor, 

14 minor like spacing, commas, et cetera. Should I

15 just work with Aaron to --

16 MS. WEISMAN: If they're seriously just 

17 spacing and things like that, I'm fine to have you 

18 work directly with him.

19 MS. REICH: Okay. Yeah, that's all it 

20 is.

21 MS. CARUSO: Juliana.

22 MS. FREDMAN: So, I have a question 

23 about how the Department views some of these 
210

1 exceptional circumstances in terms of the time 

2 frame. So, in other words, if there's a state or 

3 federal administrative agency decision, or one of 

4 these other events, will the Department look back 

5 to when the -- when the conduct underlying those 

6 events began when looking to set a new date for 

7 the school closure in terms of the deterioration 

8 of the services, or whatever it might be?

9 Or is it the date of the actual judgment 

10 or decision, which could come a year later?

11 MS. WEISMAN: The Secretary already has 

12 the ability to extend the deadline. So I think 

13 that it's within the Secretary's discretion then 

14 to consider information even earlier.

15 MS. FREDMAN: Yeah, I don't -- you'd 

16 consider it information that happened earlier after 

17 the, after the final decision was made, in other 

18 words, like, the conduct underlying, that they 

19 could set the date back further from that decision 

20 date? Is that what you're saying?

21 MS. CARUSO: Anything remaining for 

22 Issue Paper 5?

23 (No response.)
211

1 MS. CARUSO: Moving on to Issue Paper 

2 6.

3 As we have no edits in Issue Paper Number 

4 5, can we see a show of thumbs as to whether we 

5 are at consensus, barring any spacing, periods, 

6 commas?

7 PARTICIPANT: Why didn't we do that 

8 with Number 4?

9 MR. BANTLE: Because we had edits.

10 MS. CARUSO: We're going to have an 

11 updated Issue Paper 4.

12 MS. WEISMAN: So, maybe to clarify, 

13 we're looking for tentative agreement. This is 

14 not final. This is not binding, just what you're 

15 thinking of what you saw.

16 MR. BANTLE: And we are temperature 

17 checking because there were no edits, so we will 

18 not have a new version of it.

19 MS. CARUSO: Given all of that, how do 

20 we feel?

21 (Show of thumbs.)

22 MS. CARUSO: I see no thumbs down. 

23 Thank you.
212

1 MS. WEISMAN: Issue Paper 6 is "False 

2 Certification." Very minimal changes to Issue 

3 Paper 6.

4 On page 1, under 685.215(a)(1)(i) we 

5 now streamlined the language and say, "Certified 

6 eligibility for a Direct Loan for a student who 

7 did not have a high school diploma or its recognized 

8 equivalent and did not meet the alternative 

9 eligibility requirements described in 34 CFR part 

10 668 and section 484(d) of the Act, applicable at 

11 the time the loan was originated."

12 So, as we mentioned at the last session, 

13 the goal here was to conform this language to the 

14 updated requirements that pertain to having a high 

15 school diploma or its equivalent, and what that 

16 equivalent is.

17 And so we make a similar change on page 

18 2. Under Romanette (ii) we say, "Received a Direct 

19 Loan at that school and did not have a high school 

20 diploma or its recognized equivalent, and did not 

21 meet the alternative to graduation from high school 

22 eligibility requirements described" in regulation 

23 or in statute, as "applicable at the time the loan 
213

1 was originated."

2 MS. CARUSO: Questions, proposals for 

3 Issue Paper 6?

4 (No response.)

5 MS. CARUSO: If there are none, can we 

6 see a show of thumbs, temperature checking and 

7 moving on from Issue 6?

8 PARTICIPANT: I was just conferring 

9 with Juliana. We just wanted to make sure we --

10 I appreciate the change to the language in Issue 

11 Paper 6 that the Department made. We are trying 

12 to figure out whether the language would clearly 

13 cover the instance where a school has worked with 

14 another company to issue false high school 

15 diplomas, invalid high school diplomas to students.

16 Could the Department clarify whether 

17 this language would provide borrower's relief in 

18 that instance? And if it wouldn't provide 

19 borrower's relief, maybe we could change the 

20 language by inserting "valid," "who did not have 

21 a valid high school diploma."

22 MS. WEISMAN: So our understanding, 

23 especially given a case that happened fairly 
214

1 recently, is that we have used this for that 

2 purpose, and that the case went forward. And so 

3 we would not expect any issue.

4 But I understand your concern. And so 

5 the idea of saying a "valid high school diploma" 

6 is certainly something we could consider.

7 MS. CARUSO: Mike Busada.

8 MR. BUSADA: You know, any changes I 

9 would want to make sure fully protect schools. 

10 And this is an issue that hits very close to home. 

11 Some of you may be familiar with the United States 

12 vs. Bobby Ray Lowe in the United States District 

13 Court for the Eastern District of Louisiana.

14 Mr. Lowe was convicted through his 

15 printing shop. He was falsifying and creating fake 

16 diplomas for students that were used to get into 

17 primarily one school in New Orleans. This went 

18 on for a good period of time. He has been 

19 sentenced.

20 And I bring that up because this was 

21 a professional printing company that does it for 

22 a living that was creating very, very hi-tech, very 

23 nice diplomas that were being used, and the schools 
215

1 were being defrauded on that with this individual 

2 and with some fraudulent people that were working 

3 with him to scam the system.

4 So I just want to make sure that anything 

5 that we do is going to recognize the fact that there 

6 are these Bob Lowes out there in the world, and 

7 schools need to be able to protect themselves as 

8 well.

9 MS. CARUSO: Alyssa.

10 MS. DOBSON: Just a small concern with 

11 some verbiage. On page 1, Romanette (i), it says, 

12 "as applicable at the time the loan was originated." 

13 And some schools originate very early for cleanup 

14 processes, to provide notice to students a little 

15 bit earlier. Sometimes maybe change that either 

16 to "applicable for the period of enrollment," or 

17 "for the loan period," because that at least means 

18 that they would have had the high school diploma 

19 for the time frame that the loan was intended, maybe 

20 not yet at time of origination, especially for 

21 incoming freshman.

22 And that same issue then on page 2, top 

23 of the page, Romanette (ii), it has the same 
216

1 verbiage that could be problematic just timewise, 

2 not in concept.

3 MS. WEISMAN: So I hear your concern. 

4 But I, in hearing the concept I missed the specific 

5 language that you suggested. So were you saying 

6 applicable for the time that the loan was originated 

7 or something else? I'm sorry.

8 MS. DOBSON: Right. So I guess I'm 

9 suggesting, if you're referencing the first page, 

10 "applicable for the period of enrollment." Or 

11 maybe it's even more clear to say "for the loan 

12 period."

13 Rather than requiring having the high 

14 school diploma at the time of origination, having 

15 the high school diploma prior to the start of that 

16 loan period makes more sense and helps schools be 

17 in compliance.

18 MS. WEISMAN: So just in case anybody 

19 is unclear on why we would make that change, the 

20 issue becomes that an institution who is awarding 

21 students in March for incoming students who begin 

22 in, for example, September, could be awarding a 

23 high school student who does not currently have 
217

1 the high school diploma but will have it.

2 So, again, I understand. So I think 

3 we're there in concept.

4 MS. CARUSO: Aaron and then Michael.

5 MR. LACEY: Unless I'm missing it, I'm 

6 very concerned that knowledge has dropped off. 

7 In the prior version a false certification required 

8 that a school knowingly certified the eligibility 

9 for a Direct Loan for a student who did not have 

10 a high school program or its recognized equivalent.

11 And we had also talked about adding to 

12 the back end something about affording the 

13 institution an opportunity to demonstrate that the 

14 student had represented to the institution.

15 I mean, I think those were redundant, 

16 but one of them's got to be in here. I mean, there 

17 has to be an opportunity for the institution --

18 well, let me state it in the converse.

19 If a student had represented to the 

20 institution at the time of graduation that they 

21 have a high school diploma and provided them with 

22 a false document, and then the institution 

23 certifies the loan, and then it's subsequently 
218

1 determined that that loan was certified but the 

2 student didn't in fact have a high school diploma, 

3 that should not be a false certification.

4 So, I mean, we -- that was in the prior 

5 version. I'm also, respectfully, a little 

6 concerned that this doesn't show knowledge, having 

7 been struck from this version. Makes me a little 

8 nervous.

9 But that's absolutely essential. I 

10 mean, it has to be knowingly certified. And it 

11 was previously.

12 MS. WEISMAN: Okay. So, mystery 

13 solved. The idea of knowingly or knowledge of the 

14 institution was language that we discussed in one 

15 of the sessions but it was not in current text. 

16 So it's not something that we had to redline because 

17 it was only proposed language. And when we decided 

18 we weren't including it, we just eliminated it.

19 So that is why it disappeared.

20 The feeling of why it disappeared, also, 

21 is that there is no requirement that the school 

22 knowingly certified it in that manner. So we're 

23 not holding the school accountable for knowing. 
219

1 We would just say if it's determined that the 

2 document is not valid, or the credential has not 

3 been received, we will review for false 

4 certification.

5 MS. CARUSO: Go ahead, Aaron.

6 MR. LACEY: Yeah. I mean, I'm just --

7 it's, it's very important for me that "knowingly" 

8 be there. I mean, it says, "the Secretary 

9 considers a student's eligibility to borrow to have 

10 been falsely certified if." And then it says if 

11 you certified the loan for a student who didn't 

12 have a high school diploma.

13 Well, if you didn't knowingly do it, 

14 it's not a false certification. "False" implies 

15 knowledge; right? If someone represents to you 

16 that they have a high school diploma and you certify 

17 the loan based on that representation, which 

18 schools are able to do; right?

19 MS. WEISMAN: So it's not talking, it's 

20 not referring to the conduct of the institution. 

21 It's just referring to the fact that it was not 

22 certified under the conditions that are part of 

23 the Title IV eligibility requirements.
220

1 MR. LACEY: Okay. I'll have to think 

2 about it. But you understand my concern? If the 

3 definition of a false certification is certifying 

4 the, you know, the loan who did not have -- for 

5 a student who didn't have a high school diploma, 

6 I don't think that's sufficient. I think there 

7 has to be a knowledge element there.

8 So I'll look at it, but I would not be 

9 able to agree to a concept that if a school certified 

10 a loan, that in and of itself would be false 

11 certification to certify a loan for a student that 

12 didn't have a high school diploma and it's a false 

13 certification if they did it and did not have 

14 knowledge that it was -- that the student didn't 

15 have the high school diploma.

16 MS. WEISMAN: So this is currently 

17 regulation and outlined as a basis of statute. 

18 And this is what we call it.

19 MR. LACEY: Yeah. Well, it's --

20 MS. WEISMAN: So this is not new.

21 MR. LACEY: -- ability to benefit right 

22 now; right? I mean, there's nothing there about 

23 high school diploma in the reg.
221

1 But I'll, I'll -- let me go back and 

2 look at it. I'll look at it.

3 MS. CARUSO: Michael.

4 MR. BOTTRILL: I just, to Ashley's 

5 point and, Annmarie, where you had said, I just 

6 want to make sure because I think Ashley had said 

7 "for the period." When we were talking about loan 

8 origination she said maybe "for the period that 

9 the loan covers."

10 I think you had said "prior to." And 

11 I just, I would support the "prior to" the period 

12 that the loan covers as opposed to "during the 

13 period," meaning that they get that documentation 

14 or they, they do the certification prior to. Maybe 

15 not at the time of origination but prior.

16 MS. WEISMAN: So that was Alyssa's 

17 comment.

18 MR. BOTTRILL: I'm sorry. Alyssa, I'm 

19 sorry.

20 MS. WEISMAN: So, maybe we can look at 

21 the language up on the screen and kind of look at 

22 what we might best say. Noting that we're starting 

23 in 685.215(a)(1)(i), at the bottom of that where 
222

1 it talks about at the time the loan was originated, 

2 and trying to find a place that would then be 

3 parallel on the next page as well.

4 MR. BOTTRILL: So, I'm suggesting it 

5 would say "prior to" the period of enrollment for 

6 the loan period. So that's in between the time 

7 that the loan was originated and the period; is 

8 that correct? Am I --

9 MS. CARUSO: Alyssa, do you want to 

10 weigh in on that?

11 MR. BOTTRILL: Yeah, I'm a little out 

12 of my depth. But I just, from an accreditation 

13 perspective, we typically have an expectation that 

14 that admissions documentation is secured prior to 

15 when the students start class. So that would be 

16 the appropriate time to have it in.

17 MS. DOBSON: Right. But to me, that 

18 makes it just the same as it was before, which is 

19 when it was originated. Because you can originate 

20 a loan prior to the period of enrollment. However, 

21 the requirement is simply to have the high school 

22 diploma or equivalent right as of that day of the 

23 period of enrollment.
223

1 I think -- and maybe the Department can 

2 correct me if I'm wrong -- but I think it still 

3 retains the essence of the meaning if we simply 

4 say the period of enrollment or the loan period, 

5 without have the "prior to." Because putting the 

6 "prior to" puts us right back into the spot that 

7 I'm trying to avoid from the school perspective.

8 MS. HARRINGTON: Could it just be prior 

9 to the period for which the loan was intended or 

10 made, prior to the start of that period, or 

11 something like that?

12 MS. CARUSO: That was Ashley 

13 Harrington. Ashley, do you want to repeat that?

14 MS. HARRINGTON: I'm just trying to be 

15 helpful and help find some language. Prior to the 

16 period -- to the academic period for which the loan 

17 was intended or made?

18 MR. BOTTRILL: I mean, that's what I 

19 have in my notes is prior to the period that the 

20 loan covers or for which it was made. That's what 

21 I'm -- But, look, this is your wheelhouse and I'm 

22 not trying to monkey around in there. But I think 

23 that the "prior to," if you're certifying the 
224

1 eligibility for that individual.

2 MS. CARUSO: Microphone issues.

3 PARTICIPANT: So, I think even 

4 especially now, with the recent advent of early 

5 pass for this, it becomes even more important. 

6 As time frames are being shifted forward, all in 

7 an effort to be more forthcoming and allow more 

8 time for students and borrowers, that it's going 

9 to become even more problematic if we leave the 

10 "prior to" in there.

11 I'm just trying to avoid a loophole 

12 because there can be -- we can be, you know, 

13 determining awards months, and months, and months, 

14 and months prior to the period of enrollment where 

15 they're actually still in high school.

16 MR. BOTTRILL: So, can I ask a practical 

17 question then? So would an institution certify 

18 eligibility for a Direct Loan without knowledge 

19 that it has, that that applicant in fact has these 

20 credentials?

21 PARTICIPANT: I'm going to give you the 

22 financial aid response of "it depends." And so 

23 --
225

1 MR. BOTTRILL: Does that mean that 

2 there's a real response?

3 PARTICIPANT: Technically what, what 

4 we would do is we would originate early and prior 

5 to the start of the semester. But prior to 

6 disbursement we would go through all of those 

7 certifications and make sure that they had them.

8 I don't know if we want to get that muddy 

9 or cloudy in this.

10 MS. WEISMAN: I don't think we do.

11 PARTICIPANT: Yeah.

12 MS. WEISMAN: I mean, I understand the 

13 practice and how it's done. And you're correct, 

14 for the current high school senior you're going 

15 to originate the loan as soon as you can so they 

16 know what they would be eligible for. And then 

17 go back and reconfirm later.

18 It's a matter of trying to find 

19 streamlined language that doesn't go on and on and 

20 on, and catches all of what we're trying to intend.

21 PARTICIPANT: Right. We have our own 

22 accreditation standards in this area that require 

23 documentation prior to the student starting class. 
226

1 That's good enough, you know, for me along those 

2 particular lines.

3 MS. CARUSO: Okay, we've got a 

4 suggestion from Kelli.

5 MS. HUDSON PERRY: Unless I'm totally 

6 missing it, too, is there a reason that we can't 

7 just say "prior to disbursement"?

8 MS. WEISMAN: No, because that's really 

9 the test. You don't, you do not want to disburse 

10 the funds if you'd certified that this has happened.

11 PARTICIPANT: You know, I don't think 

12 you want to say "prior to the loan period" because 

13 do you not have students that come in after the 

14 loan period has begun --

15 PARTICIPANT: Yes.

16 PARTICIPANT: -- and you're certifying 

17 them?

18 PARTICIPANT: Yes.

19 PARTICIPANT: So you could have ones 

20 that come in late, for late certification.

21 MS. WEISMAN: Okay.

22 MR. BOTTRILL: So I just had one more. 

23 Are we moving on?
227

1 MS. WEISMAN: So I think "disbursed." 

2 Gold star for Kelli for today. I think 

3 "disbursed" gets us to where we need to be and we 

4 feel like we're not missing anything there.

5 I'm seeing some head nods. And then 

6 I'm seeing some looks that just say "I don't know."

7 Does anybody have any objection to using 

8 the idea of "disbursed"? Is there something we're 

9 not thinking of? I think that covers us for people 

10 who get disbursements just prior to enrollment or 

11 just prior to the disbursement being ten days prior 

12 to the semester start or the date of period of 

13 enrollment. I think it covers those who disburse 

14 after a term begins. I think it gets us to what 

15 we're looking for.

16 MS. CARUSO: Okay. So we'll do a 

17 temperature check at the end after we have any other 

18 suggested changes. But we're ready to move on to 

19 Abby and Dan.

20 MS. SHAFROTH: Thanks. So, I was just 

21 looking back over the transcript from Session 2. 

22 We had a, we had a really long and I think robust 

23 discussion of whether, whether "knowingly" should 
228

1 be in the requirement or not. And it seems that 

2 we as a group had largely reached consensus that 

3 it should not be in there.

4 And one of the reasons I discussed last 

5 time that it shouldn't be in there is, you know, 

6 that it's the school's responsibility to determine 

7 if the borrower has a high school diploma and if 

8 they're going to certify that the student does have 

9 a high school diploma and is eligible on that 

10 basis,.

11 And if we include "knowingly" in there, 

12 then that's a problem in that, for one reason, that 

13 some schools just don't ask whether the borrower 

14 has a high school diploma or not is an issue we 

15 have seen. And if the school doesn't ask but they 

16 go ahead and certify, then the student should be 

17 able to get a discharge if they didn't have a high 

18 school diploma.

19 So that, so, you know, essentially that 

20 gives the school's still falsely certifying if they 

21 didn't bother to certify but they say they did. 

22 And you don't need the knowledge language in there 

23 to do that.
229

1 So, you know, I think that the 

2 Department's change since last time was based on 

3 that discussion. And I don't see a reason to 

4 reinsert a knowledge standard in there, which would 

5 make it, again, like really hard for a borrower 

6 to demonstrate that the school did or did not know. 

7 And we'd get into some proof issues.

8 And, regardless, if the school 

9 certifies without knowing, that's a problem, and 

10 the student failed to get relief.

11 The other thing I just wanted to point 

12 out is that this is the standard for the borrower 

13 to get relief. There's a different standard for 

14 the borrower to seek a recoupment from the school. 

15 You know, that exact language is referenced 

16 actually in Issue Paper 2 that the school's only 

17 going to be liable if the school was negligent or 

18 willful in its false certification. So I think 

19 that might address some of the concerns here as 

20 well from the school side.

21 MS. CARUSO: Okay. So, Dan, was that 

22 your point? Okay.

23 Aaron and then Mike Busada.
230

1 PARTICIPANT: Just make a quick comment 

2 just to clarify that what is in Issue Paper 2 is 

3 a process related strictly to borrower defense. 

4 And that would not cover false certification. 

5 Subpart G does but --

6 PARTICIPANT: Whoa, whoa. That's not 

7 what it says. It says remedial actions of the 

8 school's negligent or willful false certification 

9 under 685.215.

10 PARTICIPANT: I did get that advice 

11 from counsel.

12 (Laughter.)

13 PARTICIPANT: I said I'm not an 

14 attorney. Thank you.

15 No, it's fine. I stand corrected. You 

16 are correct, it is covered by Issue Paper 2. 

17 Rewind, splice that out, start again.

18 MS. CARUSO: Aaron.

19 MR. LACEY: We did have a robust 

20 conversation about knowledge last time. And I had 

21 proposed at a different place here in this 

22 regulation that the institutions have the 

23 opportunity to provide an affirmative defense that 
231

1 the borrower had represented to them at the time 

2 that they did have a high school diploma.

3 And the agreement was -- and I think 

4 if you do look at the notes and the transcript you'll 

5 see that the agreement was that it should be in 

6 one place or the other. And we were willing to 

7 drop knowledge from the front end, provided that 

8 there was the opportunity for the institution to 

9 assert an affirmative defense and demonstrate on 

10 the back end, before there was a decision made, 

11 that the borrower had represented to the 

12 institution that he or she did have a high school 

13 diploma.

14 So there wasn't an agreement to drop 

15 knowledge, it was a tradeoff.

16 Second, I will note that I am okay with 

17 the idea of the institution having to provide that 

18 defense. My experience is -- and we were talking 

19 about this -- in the vast majority of the cases 

20 where there is a dispute, institutions will have 

21 some sort of documentation besides the FAFSA. And 

22 I want to point out to everybody, this happens all 

23 the time. You have home schooled students, you 
232

1 have students who can't find their high school 

2 transcript, their high school is closed, et cetera. 

3 I mean, it is not an uncommon occurrence to have 

4 a student who cannot produce a transcript and who 

5 will certify to you, even apart from the FAFSA, 

6 on some other document that they have a high school 

7 diploma.

8 So, schools should have to prove that. 

9 But my point is before you grant a false 

10 certification discharge there should be a mechanism 

11 by which the institution has an opportunity to 

12 demonstrate to the Department at the time of 

13 enrollment the student certified to the 

14 institution, apart from the FAFSA, certified to 

15 the institution that he or she had a high school 

16 diploma. And that's not here.

17 Now, the reason I think that you don't 

18 see knowledge here presently is because this is 

19 a revision of the ability to benefit standard. 

20 And the ability to benefit determined required a 

21 decision on the part of the institution; right?

22 So a school -- a student was not going 

23 to certify to a school that they had the ability 
233

1 to benefit. A student was going to -- a school 

2 was going to put them through a test or process 

3 and reach that conclusion. So you would need a 

4 knowledge qualifier.

5 But the problem here is it is a common 

6 occurrence that students will have to represent 

7 to institutions that they have that high school 

8 diploma. And many times they do legitimately. 

9 They were home schooled, so they don't have one. 

10 Again, they may not have access to a transcript. 

11 And I think we all agree those students ought to 

12 be able to get access to Title IV and higher 

13 education. But if an institution is relying on 

14 that certification, it ought in the least to have 

15 an opportunity to demonstrate that it has that 

16 documentation.

17 And the way I would suggest doing that 

18 is by saying, if you don't like "knowingly," let's 

19 see, certified eligibility for a Direct Loan, et 

20 cetera, et cetera, et cetera, prior to 

21 disbursement, and the institution cannot 

22 substantiate that the student certified at the time 

23 of enrollment that the student had a high school 
234

1 diploma, or something like that. Valid high school 

2 diploma or its equivalent.

3 MS. CARUSO: Sure. I just want to make 

4 sure that the language gets right.

5 Aaron, can you review that sentence, 

6 please?

7 MR. LACEY: I can try.

8 MS. CARUSO: Thank you.

9 MR. LACEY: I'm getting old.

10 Let's see. Let's see, prior to 

11 disbursement and the institution cannot 

12 substantiate that at the time of enrollment -- or, 

13 yeah, could not substantiate that at the time of 

14 enrollment --

15 PARTICIPANT: I thought we'd 

16 determined "disbursement."

17 MR. LACEY: "Disbursement," is that 

18 what we want? I mean --

19 PARTICIPANT: That's what we want.

20 MR. LACEY: Okay. If that's the 

21 standard.

22 And the institution cannot substantiate 

23 -- wait, shouldn't it be "prior to disbursement"?
235

1 Okay. And the institution could not 

2 substantiate that by the time of disbursement the 

3 student -- Wait. The institution could not 

4 substantiate that by the time of disbursement the 

5 student had represented, or had certified to the 

6 institution, let's say that, certified to the 

7 institution that he or she had a -- There you go. 

8 Sure. Recognized, or its recognized equivalent.

9 MS. CARUSO: Dan and Michael, are your 

10 comments in relation to that sentence? Okay. So 

11 Dan, Michael, and then Kelli.

12 MR. MADZELAN: If you're going to say 

13 "valid high school diploma" here, are you going 

14 to make, need to make a conforming change back in 

15 Subpart 8, student eligibility? Because I think 

16 that just says to be eligible you have to have a 

17 high school diploma and recognized equivalent. 

18 I don't think the word "valid" is in there.

19 MS. CARUSO: Michael.

20 MS. WEISMAN: Okay. So I think we're 

21 ready to regroup. The feeling is at this point 

22 that we feel we need to go back to the original 

23 language, as proposed, regarding the idea of not 
236

1 including knowledge and not including the 

2 information up here that Aaron had proposed.

3 The feeling here is that we would be 

4 going beyond our statutory authority; that we have 

5 been doing this discharge and this process has been 

6 in existence, and that we are following what the 

7 statute asks of us. Schools are required to have 

8 a process in place to verify the validity of high 

9 school diplomas received. That's part of the 

10 verification requirements and student eligibility 

11 requirements.

12 So while we agree that changing the text 

13 to "at the time the loan was disbursed" makes sense, 

14 we do not feel we're able to make the other changes 

15 requested here.

16 MS. CARUSO: Do you agree to adding 

17 "valid" in front of "high school diploma"?

18 MS. WEISMAN: No. Our feeling is that 

19 that's not necessary, given the processes already 

20 in place through verification, through student 

21 eligibility, and that the student would then make 

22 their case about what they are presenting. And 

23 we would talk about the idea of going after a school 
237

1 separately if we were to do that.

2 MS. CARUSO: Mike Busada and then 

3 Ashley and then Aaron.

4 MR. BUSADA: And this is just to get 

5 on the record. I understand the point.

6 I just want to make sure under the 

7 scenario, the real life scenario that I laid out 

8 that went through the court process, and this was 

9 actually determined by an undercover agent with 

10 the Department was the one that uncovered this when 

11 he went and bought one of these diplomas.

12 This school that accepted these 

13 diplomas would not face any penalty, they would 

14 not have to undertake legal costs to defend 

15 themselves. I mean, basically these schools that 

16 accepted this, these diplomas that were fake, they 

17 had no idea.

18 MS. WEISMAN: So, what I'm saying is 

19 that through other regulations that we have on the 

20 books through part of student eligibility as well 

21 as verification, we require the institution to have 

22 a process in place to determine the validity of 

23 diplomas. That said, we understand that, you know, 
238

1 there could be a time that you would be fooled.

2 We would look at whether to grant a 

3 discharge to a student first. We would then have 

4 a process in place where we may discuss with the 

5 institution the idea of restitution for that, but 

6 that would be a separate process as we have outlined 

7 already in regulations. And the school would have 

8 the ability to say what their process is for looking 

9 at the validity of high school diplomas.

10 And that's not to say that one couldn't 

11 ever get past this.

12 MR. BUSADA: Well, I guess more 

13 specifically when a -- if a loan was discharged, 

14 the school still would have the opportunity before 

15 that loan is discharged to provide the Department 

16 with information showing that they were given what 

17 they believed to be a valid diploma.

18 In other words, the taxpayer is not left 

19 on the hook. I mean, it's not, you know, the loan 

20 is discharged and then after it's discharged you 

21 come to the school, and the school says, look, we 

22 can show you. And then the taxpayer's on the hook.

23 I just want to make sure the taxpayer's 
239

1 not left on the hook if there's a bifurcated process 

2 there.

3 MS. CARUSO: I appreciate your concern 

4 for the taxpayer. As a member of the Department 

5 that, we appreciate that. But this is statutory. 

6 And Congress didn't have so much concern in that 

7 regard in directing us to do it a certain way.

8 However, in recovery against the 

9 school, as others have corrected me since I'm of 

10 dubious us as counsel, you know, in recovering 

11 against institution we don't -- a recovery action 

12 is only brought if it's willful or negligent. So 

13 the institution, if recovery action is brought 

14 against the school, would then have opportunity 

15 to demonstrate that it was neither willful nor 

16 negligent, if that, if that's helpful.

17 MR. BUSADA: Well, and I appreciate 

18 that. I mean, obviously if you don't have the 

19 statutory authority to do it, there's nothing you 

20 can do. So, I mean, I think that it's something 

21 though that Congress, just to put on the record, 

22 it's something that Congress ought to look at 

23 because it does leave a situation where taxpayers 
240

1 can be left on the hook. And, you know, we've seen 

2 a situation where that occurred.

3 So, thank you, I appreciate it.

4 MS. CARUSO: Ashley.

5 MS. HARRINGTON: I just have a 

6 clarifying question. We were talking about this 

7 kind of in the back here. But is -- does the 

8 Department consider career pathway programs to be 

9 a recognized equivalent? Because some of these 

10 they won't have one but they can go through a 

11 different process.

12 And under the -- within the FSA handbook 

13 it doesn't lump career pathway programs under the 

14 recognized equivalent language. It's kind of its 

15 own subset on the side.

16 So do you consider that to be part of 

17 this or should that be clearly spelled out here?

18 MS. WEISMAN: So, we've used the term 

19 "alternate eligibility requirements" and then we 

20 referenced our student eligibility regulations in 

21 Part 668. And we also referenced the statute in 

22 484(b), with the idea here that it covers what 

23 Congress is doing now, but also what they might 
241

1 do in the future without us having to go back and 

2 amend our regulations.

3 MS. HARRINGTON: So this would fall 

4 under alternative eligibility basically, because 

5 there are high school grad -- or, they haven't 

6 necessarily graduated, but they're still eligible, 

7 and they won't have a diploma. So I just wanted 

8 to know where they fell.

9 So is it alternative?

10 MS. WEISMAN: Yeah.

11 MS. HARRINGTON: Okay.

12 MS. WEISMAN: Anything that's not 

13 specifically the high school diploma or recognized 

14 equivalent, which would be the GED, if it meets 

15 the requirements under the statute, that's when 

16 it's included as alternative eligibility 

17 requirements.

18 Again, we've changed this to reflect 

19 that we're taking out the ability to benefit test 

20 due to the change back in 2012 for that. So, when 

21 things are added in, then that would be the box 

22 that we would consider them under.

23 MS. CARUSO: Mike.
242

1 MR. BUSADA: In this, for informational 

2 purposes too, and I just want to point out I don't 

3 want anybody to get the wrong idea, for schools 

4 -- and I can't speak for every school but I can 

5 tell you just our accrediting body we have to, in 

6 order to stay accredited have to have 60 percent 

7 completion rate, 70 percent placement rate, 70 

8 percent license or exam rate.

9 There is no incentive, for at least 

10 schools that I know about, to want somebody without 

11 a high school diploma because all it means is that 

12 you are going to lose your accreditation on the 

13 back end.

14 So, my fear is that a lot of times a 

15 lot of our students are second, you know, are coming 

16 to school they're your non-traditional students. 

17 I mean, some of them are 40, 50 years old. Their 

18 high schools it's almost impossible to get a 

19 transcript sometimes. They have a copy of their 

20 diploma. And, you know, it's very taxing on small 

21 schools to say now you have to put this piece of 

22 paper through, you know, a TSA screening in blue 

23 lights and everything else, I mean.
243

1 And I think that some of the others here 

2 can testify to that, especially when you're dealing 

3 with older students from out of state. So, I know 

4 we can't do anything about that specifically now, 

5 but I just wanted to make clear why that's 

6 important. Because it's to the detriment of 

7 schools if somebody slips in with a fake diploma. 

8 But it's also very taxing, with limited resources, 

9 to determine whether documents are real or not, 

10 especially in this day and age with computers and 

11 technology.

12 MS. CARUSO: Are there any other 

13 suggested changes to Issue Paper 6?

14 (No response.)

15 MS. CARUSO: Okay. So if we are going 

16 back to the, just the initial change offered by 

17 Alyssa to "prior to disbursement" can we get a 

18 temperature check, with all other things in place, 

19 whether this version of Issue Paper 6 would be 

20 acceptable?

21 PARTICIPANT: Changes at the time of 

22 disbursement.

23 MS. CARUSO: Prior to the time of 
244

1 disbursement?

2 PARTICIPANT: No, at the time.

3 MS. CARUSO: At the time of 

4 disbursement. Okay. Thank you.

5 (Show of thumbs.)

6 MS. CARUSO: We have a thumbs down. 

7 Aaron, can you please offer an alternative?

8 MR. LACEY: I've offered an 

9 alternative. And I respectfully disagree with the 

10 Department. I've look at the statute. You know, 

11 it is well within the discretion of the Department 

12 to define what constitutes a false certification. 

13 And I believe that defining it in the way that 

14 I suggested, again, is well within the statutory 

15 authority.

16 I would just point out we created the 

17 entire bar defense framework out of one paragraph 

18 in the statute. I just cannot imagine that the 

19 Department lacks the regulatory authority to 

20 indicate that a false certification on the basis 

21 of a high school diploma would only be the case 

22 if X is not true.

23 And I think it is just extraordinarily 
245

1 unfair to institutions to suggest that if an 

2 individual certified to, and you can provide 

3 documentation that the individual certified to you 

4 that they had a high school diploma prior to 

5 disbursement that that still constitutes a false 

6 certification. It's a problem for me.

7 MS. CARUSO: Shall we have any more 

8 discussion?

9 MS. WEISMAN: Can we take a 5-minute 

10 break?

11 MS. CARUSO: Sure. The time is 4:17. 

12 Please come back -- okay, come back at 4:25, 

13 please.

14 (Whereupon, the above-entitled session 

15 recessed at 4:17 p.m., to reconvene at 4:25 p.m.)

16 MS. CARUSO: So, the Department has 

17 heard enough information on Issue Paper 6; is that 

18 what I'm hearing? So, Annmarie, can you open up 

19 Issue Paper 7 for us, please. Thank you.

20 MS. WEISMAN: Yes. Thank you.

21 Moving on to Issue Paper 7, "Guaranty 

22 Agency Collection Fees." The only changes that 

23 we made on this issue paper are found on page 2. 
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1 We've added "(b) Administrative requirements."

2 We have changed in one, two, three, four 

3 locations from "shall" to "must." I'm sorry, from 

4 "shall" to "may" or from "will" to "must."

5 And we've done some other cleanup in 

6 clarifying some regulatory citations in Romanette 

7 -- in numeral (2), Romanette (ii), as well as in 

8 (iii).

9 I believe all are items we discussed 

10 and agreed on at the last session, but we are open 

11 to hearing comments.

12 MS. CARUSO: Mike.

13 MR. BUSADA: I hope you'll pardon this 

14 personal privilege. But some of you may have seen 

15 recent -- just now that there was a school shooting 

16 in Florida, 14 people wounded and some fatalities. 

17 And so, just as we are here to talk about education 

18 just wanted to ask for a moment of silence for those 

19 that are involved right now in Florida. It's a 

20 high school.

21 (Moment of silence.)

22 MS. CARUSO: Any comments, proposals, 

23 suggestions, edits for Issue Paper 7?
247

1 Jaye.

2 MS. O'CONNELL: Just thank you for the 

3 technical corrections. And no further comments.

4 MS. CARUSO: Okay. Can I see a --

5 Seeing a show of thumbs, is Issue Paper 7 as is, 

6 and are we ready to move on to Issue Paper 8? Show 

7 of thumbs, please.

8 (Show of thumbs.)

9 MS. CARUSO: No thumbs down.

10 Issue Paper 8, Annmarie, please.

11 MS. WEISMAN: Issue Paper 8 has no 

12 adjustments from the last session. So we are going 

13 with language as proposed and reviewed in Session 

14 2.

15 MS. CARUSO: Questions, comments, 

16 proposals for Issue Paper 8?

17 (No response.)

18 MS. CARUSO: Seeing no tents pop up, 

19 can I see a show of thumbs for Issue Paper 8 as 

20 is?

21 (Show of thumbs.)

22 MS. CARUSO: So, no thumbs down. So 

23 I think we have made it at least through Issue Paper 
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1 8. I know we have to go back to Issue Papers 1 

2 through 4 tomorrow morning. So, we go through that 

3 piece.

4 So, the time is now 4:37. I'm wondering 

5 now if we can open the floor up to public comment.

6 Are there any public comments this 

7 afternoon? One. Okay, if you could come -- Two.

8 Okay. Do you know how long they'll be, 

9 like?

10 PARTICIPANT: Two minutes.

11 MS. CARUSO: Two minutes. Okay.

12 Okay, so I know we're a little early, 

13 but we still want to leave it to five minutes apiece 

14 for public comment. And we will work in that time 

15 for that one person who's on their way, so.

16 MR. HALPERIN: Well, I'm David 

17 Halperin. I have heard it said by representatives 

18 of the for-profit schools in this rulemaking and 

19 in the past that the industry has changed. That 

20 with Corinthian and ITT gone, all that is left are 

21 good schools who are trying to do the right thing.

22 There are many good schools, but that 

23 is not a true statement. Many schools that have 
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1 engaged in predatory behavior still operate, still 

2 enroll students. Examples: Career Education, 

3 Kaplan, Bridgepoint, College America, and many 

4 more. And there have been many law enforcement 

5 investigations and actions against these schools. 

6 And those are still ongoing.

7 You've heard student stories. There 

8 are also employee stories. And I've spoken with 

9 hundreds of employees who were pressed by their 

10 superiors to do the wrong thing. And I just want 

11 to read you one of those many accounts. This is 

12 one that we provided a few years ago to law 

13 enforcement. It's from a school still in operation 

14 called the Art Institutes. They're all across the 

15 country.

16 "Overcoming objections was what this 

17 job was all about. There are only so many 

18 objections that a person can have to attend 

19 college." This is from a recruiter. "Money, 

20 time, fear, family support, to name a few."

21 "Once you knew what the objections were 

22 you could have an answer for each one memorized 

23 and tailor your response to each individual 
250

1 student. Essentially, we would use hope and fear 

2 to drive our results. We would guilt parents into 

3 supporting their students, while painting a vision 

4 of the student succeeding with their course and 

5 career."

6 "What we didn't tell them was that our 

7 associate degrees cost $60,000, and our bachelor's 

8 degrees cost $90,000. What we would tell them was 

9 that the cost of tuition was $473 per credit hour."

10 "What we would tell them, if they asked, 

11 was if they wanted to know more they could go to 

12 financial aid for a consultation. Our job was to 

13 sell the American dream and a degree at the Art 

14 Institute at the only way that the student could 

15 fulfill that dream."

16 "Our work environment were tightly 

17 packed cubicles that resembled any sales bullpen. 

18 We could hear everyone speaking, and that would 

19 benefit the new people who were constantly 

20 overcoming objections and selling the school in 

21 their own way."

22 "We had beautiful interview rooms, one 

23 for each degree program. If a student wanted to 
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1 study animation, we interviewed him in our 

2 animation room. Same for our interior design and 

3 other programs."

4 "It pains me to think of the lives that 

5 I helped derail with massive amounts of student 

6 debt. The first student I signed up for the school 

7 was a 46-year-old father of three named Donald. 

8 I think about him often. I manipulated this man's 

9 religious beliefs, hopes, and fears to get him to 

10 sign up for a graphic design program."

11 "Donald already had a master's degree 

12 and only enough financial aid to complete two 

13 quarters of school. When he came to the school 

14 late one Monday night he told me he wanted to learn 

15 graphic design to spread the word of the Lord. 

16 I gave him the standard tour. And during my final 

17 closing pitch I said to him, 'Donald, I feel like 

18 something larger than you and I brought us here 

19 today.'"

20 "His eyes lit up and he said, 'I feel 

21 exactly the same way.'"

22 "I signed up Donald right then and there 

23 and afterwards had a long walk home. I remember 
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1 not sleeping that night. The next day when I told 

2 my director that Donald will run out of financial 

3 aid and could not possibly finish the program, he 

4 told me -- he said that each student is responsible 

5 for their own decisions. That's what everyone said 

6 when a student would drop out. They were 

7 responsible. They didn't work hard enough, et 

8 cetera."

9 "But what I knew was the truth: many 

10 of these students did not belong in this program, 

11 were not prepared for the task in front of them. 

12 None of these things mattered to EDMC, the owner 

13 of the Art Institutes. The only thing that 

14 mattered were the numbers."

15 Now, I would just say to conclude, the 

16 difference between a strong borrower defense rule 

17 as issued by the Department in 2016, and a weak 

18 rule as proposed so far by the Department this year, 

19 is that a strong rule would separate the good 

20 schools from the bad schools, penalize and deter 

21 predatory behavior, allow honest operators to 

22 thrive, improve student outcomes and, in the end, 

23 save taxpayers a lot of money.
253

1 A weak rule, by contrast, will allow 

2 bad behavior to increase, causing immense harm to 

3 students and taxpayers, and ultimately, I believe, 

4 trashing the reputation and imperiling the survival 

5 of for-profit colleges, good and bad.

6 That is the choice that you face and 

7 the Department faces.

8 MS. CARUSO: Thank you.

9 Other public comments? Any idea on 

10 time, Joseline? Do we want to -- Okay.

11 Just step up right here. And I know 

12 you're just hustled through, but we are trying to 

13 keep it to five minutes, please. Thank you.

14 MS. LIVIA: Hello. My name is Livia. 

15 I'm a student in higher ed, and I'm here to read 

16 a number of students' stories because, once again, 

17 I feel like it's very important for this 

18 conversation that you all are having at the table.

19 "My name is Anders Tavares and I am a 

20 student victim who attended the Art Institute of 

21 San Diego. I did so only after being shown what 

22 I, what I now know to be false job placement 

23 statistics. These complete fabrications were used 
254

1 to ease my fears that I had regarding the debt. 

2 They were used to cover up the fact that the schools 

3 were actually viewed unfavorably in the industry 

4 they worked.

5 "I never considered that a college would 

6 outright lie to its students. My future wife also 

7 went there after believing that those statistics 

8 represented the school's legitimacy."

9 "Together we graduated at about the same 

10 time, owing $96,000 in debt. Although we both --

11 we were both outstanding students and very active 

12 in our job searching, we can definitely say that 

13 --" Sorry, I'm a little out of breath. "-- we 

14 can say that we have never benefitted from our 

15 degrees or education at the Art Institute of San 

16 Diego."

17 "Now, ten years later, we have paid over 

18 $100,000 towards the degrees, but due to interest 

19 that we acquired, we will have to pay an additional 

20 $160,000 before it is paid off. We will both be 

21 in our fifties."

22 "I submitted my detail in August of 

23 2015. It goes without saying that it is still in 
255

1 pending status. I'm not an economist, a lawyer, 

2 or historian. I went to school to learn film. 

3 But I can still see the way that our current higher 

4 education system functions and is morally wrong."

5 "Schools being allowed to defraud their 

6 students for profit and then face no consequences 

7 or accountability is wrong. The U.S. Government 

8 profiting off the debt of all these student victims, 

9 who are all sold on American taxpayers funding their 

10 jobs, is wrong. Higher education should not pay 

11 the risk of financial ruin."

12 "My wife and I are examples of how even 

13 trying to pay this debt has dramatically altered 

14 the course of our lives. Whether or not a person 

15 is able to pay, their lives are put on hold, their 

16 life choices become more limited, dreams seem less 

17 attainable. I have become tired of telling my 

18 story, of adding it to the sea of woe that is a 

19 part of an inept system."

20 "You all know in your hearts that our 

21 system is broken, that it's dragging our economy 

22 down. You all know that students are dramatically 

23 under served because the predators are protected 
256

1 while the victims are ignored. By now you have 

2 encountered so many of what you probably refer to 

3 as student fraud stories, that you have developed 

4 a callous type of selective hearing when you hear 

5 them."

6 They are disturbing stories on their 

7 own. But equally disturbing is how nobody seems 

8 willing or able to truly help these students. Our 

9 parents, grandparents, no other generation in our 

10 nation's history has collectively held debt of this 

11 magnitude from higher education. Shame on anyone 

12 that does not refer to this as a crisis. Shame 

13 on anyone who is actively trying to be a part of 

14 the solution but -- trying to be a part of the 

15 solution but instead stalling it in favor of 

16 defending the predators.

17 During this network I have witnessed 

18 so much opposition of regulations under the premise 

19 that these regulations could potentially hurt the 

20 good schools. So much work for this hypothetical 

21 when we have actual tens of thousands of people 

22 who have laid out their reasons for their suffering 

23 in their DTRs. These students, like myself, are 
257

1 suffering every single day due to lack of action. 

2 Each day that passes, more desperate people are 

3 trapped in debt and are falling victim to debt 

4 relief scams.

5 Arbitration has stripped them of their 

6 rights. Not hearing or sensing a lot of concern 

7 for these actual current victims in this committee, 

8 we students are the only variable in the U.S. higher 

9 education equation that bears any risk. The 

10 schools should bear the risk and be forced to prove 

11 their worth, to compete based on their reputations 

12 rather than how they can get away with charging.

13 I'm sorry if this is difficult, but I 

14 refuse to believe that it is not possible. You 

15 postponed the results from the last reg and now 

16 you are on track to do it once again. Every single 

17 dollar that is added to the $1.4 trillion -- every 

18 -- sorry. Every single dollar that is added to 

19 the $1.4 trillion, every person that gambles with 

20 their dreams by enrolling, every desperate person 

21 that falls victim to debt relief scams you should 

22 feel that weight on you.

23 There are people -- these people are 
258

1 wronged. You have the chance to do truly great 

2 things, but all I see in here are arguments over 

3 the semantics of a failing system. The efforts 

4 of this negotiated rulemaking committee will 

5 ultimately be remembered more for the strange 

6 predictable and telling battle over the 

7 transparency of the life stream. It will not be 

8 remembered as a victory for students.

9 When you allowed the bad actors to the 

10 bargaining table, you ensured that there would be 

11 no way that student interests were served. The 

12 $1.4 trillion is not going away. The multitudes 

13 of people who are now student victims, as well as 

14 taxpayers, are not going away. They are growing.

15 We see each day more sensible minds 

16 advocating for the tangible idea of tuition-free 

17 college and total debt cancellation. This is the 

18 kind of bold progress that we need in order to make 

19 any sort of meaningful difference in people's lives 

20 and return the dignity of the education system of 

21 the United States.

22 Each day more victims are waking up to 

23 the fact that education that they were sold was 
259

1 a lie. They are waking up to the fact that there 

2 are so many people in Washington who are willing 

3 to stand up for them. They are uniting and 

4 informing others about our education system and 

5 how it has been broken.

6 Despite our best attempts, I have faith 

7 that progress will be made. I am sorry that you 

8 cannot be part of it. We gave you a shot when we 

9 entrusted you with all the evidence submitted in 

10 our DTRs, but at this point we are tired of sitting 

11 and waiting. At this point we are out of trust.

12 Thank you.

13 MS. CARUSO: Thank you.

14 Annmarie, does the Department have any 

15 last logistical information before we adjourn for 

16 the day?

17 MS. WEISMAN: Yes. We are circulating 

18 a letter. At this time we only have copies for 

19 the primary negotiators. I apologize. We will 

20 try to obtain additional copies.

21 This is a letter from Congresswoman 

22 Maxine Waters from the 43rd District in California. 

23 Congresswoman Waters wanted to be here, and was 
260

1 not able to do so, during the public comment period. 

2 So she asked that we distribute her letter to the 

3 Borrower Defense Committee, to you, and so we are 

4 doing that on her behalf.

5 So those are coming around, down each 

6 side.

7 In addition to that, I do want to thank 

8 everybody for their hard work today. And just as 

9 a note on looking at the time, there are a lot of 

10 people who said we would not do what we just did. 

11 So, again, I know we did rush through some of it 

12 a little bit more than we would have liked. But 

13 I would like to thank you for the discussions that 

14 we had today that I think were very helpful.

15 We have some issue papers to bring you 

16 back tomorrow, so we will be revisiting with some 

17 edits that have been discussed around the table, 

18 and with some proposed language where the 

19 Department had some homework to go and craft some 

20 new language. So, we will have a pretty busy day 

21 tomorrow as well.

22 If you are bringing luggage through, 

23 please be aware that that would need to go through 
261

1 security, so leave a little extra time in the 

2 morning because we will be starting promptly at 

3 9:00. But you may certainly bring that with you 

4 if that's easier for you. Just, again, note that

5 it would need to go through security.

6 MS. CARUSO: Joseline, did you have one 

7 comment?

8 MS. GARCIA: Yeah, just one quick 

9 comment.

10 I wanted to thank those who have 

11 appeared in public comments. And I also wanted 

12 to thank the people here at the table, and the people 

13 in the audience, and the Department for sticking 

14 through this very difficult process and putting 

15 in the work.

16 But I especially want to give a shout 

17 out to those who are coming out of their way to 

18 give information to those at the table. And I think 

19 it is very disrespectful when negotiators, also 

20 alternative negotiators, Linda, when they're on 

21 their phone and not paying attention to people who 

22 are coming here out of their way to give us 

23 information, to tell us stories.
262

1 The story that Livia just shared and 

2 the comments that David made were very disturbing 

3 to hear. And the thing is that these are people's 

4 lives. And I think the least that we can do as 

5 negotiators is give them their undivided attention 

6 because people are asking us to work for them and 

7 to put in the work. And I just think that being 

8 on our phones and being on our laptops is not okay.

9 PARTICIPANT: I have a client with a 

10 student threatening to blow up the school, so 

11 sometimes we have to work. I apologize for that. 

12 But it's important.

13 MS. CARUSO: Okay. So, tomorrow is a 

14 new day.

15 PARTICIPANT: I'm sorry, I'll keep this 

16 extra brief. But I also feel distressed with the 

17 fact that when student voices are brought into the 

18 room they are not being heard. It's not a one-time 

19 thing. I just would, would ask that when student 

20 voices are in the room, whether that's a story being 

21 read or being read in public comment, that the room 

22 pay full attention.

23 And if there's a scenario where someone 
263

1 has to step out, it's understood, but while in the 

2 room choose to provide that level of respect. I 

3 think that's absolutely critical.

4 MS. CARUSO: Okay. So, tomorrow is a 

5 new day. And we will take that information back 

6 with us. We will see you tomorrow at 9:00 a.m., 

7 because we have a lot of work to do.

8 Thank you.

9 (Whereupon, Session 3 recessed, to 

10 reconvene at 9:00 a.m., Thursday, February 15, 

11 2018.)

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