Student, Consumer, Legal Aid, Veteran Proposal for Changes to Issue Paper 1

Session 2

§685.222	Borrower defense	and	Department recovery actions against institutions

(a)	Introduction.

(1)	For	the purposes of	this section and § 685.206(c), a “borrower	defense” refers to	an	act or omission	

of an	institution	at which	the borrower enrolled	that relates to	the making of a Direct Loan	for

enrollment at the	institution or the	provision of educational services for which the	loan was made, and

includes one or both	of the following:

(i)	A defense to the repayment	of	amounts owed to the Secretary on a Direct	Loan and

(ii)	A right	to recover	amounts previously collected by the Secretary on the Direct	Loan.

(2)	A borrower	may assert borrower defense	of Direct Consolidation Loan that repaid Direct Loan,

FFEL Program Loan, Federal Perkins Loan, Health Professions Student Loan, or Loan for Disadvantaged

Students under subpart II of part A of title	VII of the	Public Health Service	Act; or Health Education

Assistance Loan, or Nursing Loan	made under part E of the Public Health	Service Act o which	the

borrower had	a basis for a borrower defense claim prior to	the consolidation.

(3)	For	loans first	disbursed prior	to July 1 2019,	the borrower may assert a borrower defense of a

Direct Loan consistent with section 685.206(c).

(4)	For	loans first	disbursed on or	after	July 1, 2019, the borrower	may assert	a borrower	defense of	a

Direct Loan consistent with this section.

(5)	The Department may initiate a recovery action	against an	institution	consistent with	paragraph	(c) of

this section.

(b Borrower defense.

(1)	For	loans first	disbursed on or	after	July 1, 2019, the Secretary shall discharge the borrower’s

obligation	to	repay a Direct Loan	and	shall refund amounts paid on the loan, less any amounts already

refunded	to	the borrower from any source pursuant to	section	685.206(d)(8), if the borrower

establishes a defense	based	on state law consistent with the standard set forth in 685.206(c)(1) or

establishes by that--

1 Preponderance	of the	evidence	places the	burden on the	borrower to demonstrate, with supporting evidence,

that	it	is more likely than not	that	their	claims are true. A higher	evidentiary burden would result	in denials of	

relief	to many borrowers with credible evidence that they were scammed	into	taking out loans simply due to	the

difficulty of gathering overwhelming evidence. According to	February 2017 protocols, the Department interprets

the preponderance of	the evidence standard to require more than a “single	uncorroborated claim.”	 Office	of

a preponderance	of the	evidence1

1

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Deleted: , in whole or in part

Deleted: , in whole or in part

Deleted: (6)	The Department	administers

this section consistent	with the procedures

described	in	section	685.206(c) and	34 CFR	

Part 668, Subpart G.
 

Deleted: will

Deleted: will

Deleted: in whole or in part,

Comment [1]: Temperature check: should

we continue to permit claims based	on state

laws that	schools are already subject to under

the new standard?

Comment [2]: Temperature check: should

we use a preponderance	of the	evidence	

standard? Please	see	footnote	1 for

additional rationale	and context.

Deleted: clear and convincing

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ve a	

but is

 

(i)	There has been an act or omission on the part of the institution	at which	the borrower enrolled	that Deleted: T

was unfair, deceptive, abusive, or unlawful that	relates to a borrower’s acceptance of	loans, or	the

educational or career services the loans are intended	to	pay for, or the borrower’s initial or continued	

enrollment in the	school, and that resulted in, or was reasonably likely to result in, detriment to the	

borrower;

(ii) The institution	at which	the borrower enrolled has made	a misrepresentation upon which the	

borrower reasonably relied	under the circumstances that relates to	a borrower’s acceptance of loans, or

the educational or	career	services the loans are intended to pay for, or	the borrower’s initial or	

continued enrollment in the school, and that resulted in detriment to the borrower;

(iii There has been, from a court	of	competent	jurisdiction, a judgment against the	institution relating

to the loan or	the provision of	educational services	for which the loan was	obtained; or

(iv An arbitrator or a hearing official in	a State or Federal administrative tribunal has promulgated	 a

judgment, or equivalent final	determination against the	institution relating to the	loan or the	provision

of educational services for which	the loan	was obtained.

(2)	“Misrepresentation”	for the purpose of this section	means a false, erroneous or misleading

statement an eligible institution, one of its	representatives, or any ineligible institution, organization, or

person	with	whom the eligible institution	has an	agreement to	provide educational programs, or to

provide marketing, advertising, recruiting or admissions services makes directly or indirectly to	a

student, prospective student or any member of the public, or to an accrediting agency, to a State

agency, or to the	Secretary. A misleading statement is a statement that has	a reasonable likelihood or

tendency to mislead under	the circumstances. A statement	is any communication made in writing,

visually, orally, or through other means. Misrepresentation includes the dissemination of a student

endorsement or	testimonial that	a student	gives either	under	duress or	because the institution required

the student	to make such an endorsement	or	testimonial to participate in a program.

(ii)	A violation by the institution of	a requirement	of	the Higher	Education Act	o the Department’s

regulations may constitute corroborating evidence but is not a basis for a borrower defense claim unless

the violation would otherwise give rise to a successful borrower	defense claim under	this section or	

section 685.206(c), as	applicable.	 (3)	The Secretary may determine that	a borrower	defense claim

should not be approved based on evidence that rebuts	the borrower’s	claim, including evidence	

provided	by the institution	at which	the borrower enrolled. (4)	For	purposes of	this section, the term

“institution” includes an	eligible institution, its representatives and	agents, or any institution,

Inspector Gen.,	U.S. Dep’t of Educ.,	Federal	Student Aid’s Borrower Defense Loan Discharge Process 36 (2017),	

available	here (citing p.7 of	February 2017 protocols). A heightened standard of	proof	is particularly inappropriate

to an administrative proceeding that	does not	include evidence discovery rights for	the plaintiff	that	would be

available	in court, and in which the	vast majority of	borrowers will not	be represented by lawyers. The

Department recognized as such in 2016, and found that the “preponderance of the evidence” standard “is

appropriate” for borrower defense	claims and “strikes a balance	between ensuring	borrowers who have been

harmed	are not subject to	an	overly burdensome evidentiary standard	and	protecting the Federal Government,

taxpayers, and institutions from unsubstantiated claims.” 81 Fed. Reg. 75,936.

Deleted: unfair,

Deleted: acted

Comment [3]: Temperature check: should

we include more bases than just

"misrepresentation,"	such as	other categories	

of conduct that violate state and	federal

consumer protection statutes	and that have

been	at issue in	recent enforcement actions?

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Roman, 12 pt 

Comment [4]: Temperature Check: 

Should the borrower have to prove the 

intent, knowledge or other "state of mind" 

standard in order to obtain relief? 

Deleted: )with an intent to deceive,

knowledge of the falsity	of a

misrepresentation, or a reckless disregard for

the truth in making a misrepresentation of	

material fact, opinion,	intention,	or law

Deleted: upon which	the borrower

reasonably relied under the circumstances in

deciding to	obtain	a Direct Loan	to	enroll or

continue enrollment in a program at the

institution, and which resulted in financial	

harm to	the borrower

Deleted: The borrower has obtained,

Deleted: nondefault contested	State or

Federal

Deleted: and borrowers were was awarded

monetary damages

Deleted: ii

Deleted: There has been The borrower has

obtained, from a

Deleted: agreed to by the	borrower and the	

institution,

Deleted: nondefault	contested

Deleted: , and was awarded monetary

damages

Formatted ... [1] 

Deleted: For the purposes of this 

section— 

Deleted: (i)	A misrepresentation is a ... [2] 

Deleted: regarding the nature of	the ... [3] 

Deleted: The Secretary will not appro ... [4] 

Deleted: at any time	

Deleted: any

Deleted: Such evidence	may include, ... [5] 

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2
organization, or person	with	whom the eligible institution	has an	agreement to	provide educational

programs, or to	provide marketing, advertising, recruiting or admissions	services.

(c)	Department recovery actions against institutions The Secretary may initiate a recovery action against

an institution when the	Secretary determines that the	borrower has asserted a successful borrower

defense against the institution	as described	in	this section	or section	685.206(c) of this Part.

Deleted: (d)	Limitations period A borrower	

must file a claim	under paragraph (b)(1) of this

section within three years	of the date the

borrower discovered, or reasonably should	

have discovered, the misrepresentation.	

3
 

 

§685.300	Agreements between	an	eligible	school and	the	Secretary for participation	in	the	Direct Loan	

Program.

(a)	General Participation of a school	in the Direct Loan Program means that eligible students at the

school may receive Direct Loans. To participate	in the	Direct Loan Program, school must—

* * *

(8)	Accept responsibility and financial liability stemming from its failure to perform its functions

pursuant to	the agreement;

* * *

(11)	Accept responsibility and financial liability stemming from losses incurred by the Secretary for

repayment	of	amounts discharged by the Secretary pursuant	to sections 685.206, 685.214, 685.216, and

685.222;

§685.308	Remedial actions.

(a)	General The Secretary may require	the	repayment of funds and the	purchase	of loans by the	school

if the Secretary determines that

(1)	The school's violation of	a

the school is liable as a result	of-- --

Federal statute or	regulation;

(2)	The school's negligent	or	willful false certification under section	685.215; or

(3)	The school’s actions that	gave rise to a successful claim for which the Secretary discharged a loan, in

whole or in part, pursuant to sections 685.206, 685.214, 685.216, and 685.222. In determining whether

to seek repayment	of	funds based on a successful borrower	defense claim, the Secretary may consider

factors relating	to the	public benefits of seeking	such repayment, including	but not limited to the

amount of the	claim at issue	and the	likely cost to the	Department of seeking recoupment, the	number

of other successful claims made against the school, whether the school’s	actions	that gave rise to the

claim were inconsistent with or prohibited by	the institution’s	policies, procedures	and training, and

whether the school’s actions that gave rise to the claim were made without intent, knowledge, or

recklessness of	their falsity, deceptiveness, unfairness, or abusiveness.

4

Deleted: Provide	that the	school will accept

Deleted: the unenforceability of	a loan or	

loans, or the disbursement of loan amounts

for	which the borrower	was ineligible,

resulted in whole or	in part	from

Deleted: or

Deleted: [

Comment [5]: Temperature check: 

Should the factor of whether an employee 

acted contrary to school policy be moved 

to the determination of liability of the 

school.