September 30, 2013

Page 1 of 8

Student Relief Proposal

Introduction

Gainful employment metrics are a proxy measure for the value of a post-secondary program: 

does it result in employment outcomes for graduates sufficient to justify its cost. The GE metrics 

promote and protect the purpose of the federal student loan program by preventing federal 

dollars from subsidizing programs that do not provide students (and, by extension, the country as 

a whole) a sufficient return on investment. The availability of federally guaranteed student loans 

sends a strong signal that the program has been vetted, and merits the loan of federal taxpayer 

money, because the program will likely put the student in a position to repay the loans.

Under the Department’s proposal, college programs can continue to receive federal aid for many 

years after the Department knows that the program is not succeeding, i.e. is not achieving a 

passing score in either debt-to-income calculation. The fastest that a program may lose 

eligibility is after two years of reporting failing G/E metrics. But even in that fastest case, a twoyear program would have enrolled students and received aid for six years before that point. If 

the program loses eligibility after being in the zone for four years, a failing program may have 

enrolled students for eight years. It is also possible under the Department’s proposal for a school 

to remain eligible indefinitely by passing a debt-to-income measure one out of every four years, 

even if outcomes for three out of four cohorts of completing students fall into the zone or failing 

range.

The Department’s proposal generously allows institutions time to improve their programs before 

losing Title IV eligibility. While this policy may encourage institutions to refine their program’s 

content and cost, and/or invest further in student placement services, it does not offer sufficient 

protection to students and, ultimately, to taxpayers. Multiple cohorts of students will borrow 

federally-guaranteed student loans in order to attend a program that does not, by the 

Department’s own definition, prepare its students for gainful employment in a recognized 

occupation.

The harm to these individual borrowers cannot be undone. They have borrowed loans that, in 

hindsight, never should have been disbursed in the first place. Thus they have incurred debt, 

utilized a portion or all of their lifetime student loan allocation, and foregone other educational 

and employment opportunities on the basis of a false assurance about the nature and quality of 

the program. The availability of federally guaranteed student loans sends a strong signal that the 

program has been vetted, and merits the loan of federal taxpayer money, because the program 

will likely put the student in a position to repay the loans.

For students who reasonably relied on this assurance, simple fairness requires that the 

Department provide relief to borrowers who borrow money to attend programs that are known to 

fall below the Department’s standards.

Relief to Students under the Proposed Regulation
September 30, 2013

Page 2 of 8

Student Relief Proposal

The proposed regulation does not provide for any relief for students who are enrolled in a 

program that becomes ineligible, nor does it provide for any relief for students who attend 

programs with debt-to-income ratios that are in the zone or failing. 

The regulation as currently drafted ensures that students will at least be aware of pending 

ineligibility of their program. Section 668.407(c) mandates that institutions in danger of 

becoming ineligible in the following award year must inform students that Title IV funds may 

not be available in the future. The institution must also explain whether it will continue to 

provide instruction; refund tuition, fees, and other required charges paid by the student or on 

behalf of the student to attend the program. The rule does not mandate that the schools make any 

of these options available to students.

Proposals for Student Relief

1. Recognize Failing or Zone GE Metrics as a Defense to Repayment and/or Collection

Framework:

This proposal calls for the Department to afford relief to the cohort of borrowers who attended a 

program during the time its GE metrics did not pass the Department’s standards (i.e., were in the 

zone or failing). It affords two tiers of relief.

First, for students who borrowed in order to attend a program that becomes ineligible, the 

Department will recognize the GE metrics as an affirmative defense to repayment. Once a 

program loses eligibility, under this proposal, the Department would notify all individuals with 

loans attributable to the program for the award years forming the basis of ineligibility of a 

procedure by which they may request recognition of their affirmative defense to repayment of 

the loan and/or cancellation of their loan.

Example: In 2014-15, Program X, a 2 year program, reports GE metrics for completers 

in 2009-10 and 2010-11 that are in the zone. In 2015-16, Program X’s GE metrics reach the 

passing threshold, but fail for the next two years (2016-17 and 2018-19). The program becomes 

ineligible, and the Department notifies borrowers whose loans were disbursed between award 

years 2008-09 and the time that the program becomes ineligible that they may invoke the 

procedure.

Second, for students who borrowed to attend a program that was in the zone or failing during the 

student’s entire period of enrollment, the Department will recognize the program’s GE metrics as 

a defense to any collection action.

Authority:
September 30, 2013

Page 3 of 8

Student Relief Proposal

With respect to Direct Loans, the Secretary has the authority to specific which “acts or omissions 

of an institution . . . a borrower may assert as a defense to repayment of a loan made under this 

part . . . .” 20 U.S.C. § 1087e(h).

The HEA grants the Secretary broad authority to “compromise, waive or release any right, title, 

claim, lien, or demand, however acquired . . . .” 20 U.S.C. § 1082(a)(6). This broad authority is 

reflected in the regulations, which state that “the Secretary may compromise a debt, or suspend 

or terminate collection of a debt, in any amount if the debt arises under the Guaranteed Student 

Loan Program authorized under Title IV, Part B of the Higher Education Act of 1965, as 

amended . . . .” 34 C.F.R. § 30.70(h). In addition, “The head of an executive, judicial, or 

legislative agency . . . may compromise a claim of the Government of not more than $100,000 

(excluding interest) or such higher amount as the Attorney General may from time to time 

prescribe that has not been referred to another executive or legislative agency for further 

collection action . . . .” 31 U.S.C. § 3711(a)(2).

The Department may need to issue subregulatory guidance interpreting the authority mentioned 

above.

Budgetary Impact:

The Department could create a threshold that opens the possibility of cancellation only to 

borrowers who are in IBR, ICR, default, or otherwise demonstrate an inability to pay. Some 

graduates from failed programs would manage to repay loans and add no additional cost to the 

Department. The true cost of this proposal would amount to what the Department expects to 

receive on student loans once they are in default or collection.

Rationale:

This proposal provides a safety valve for student borrowers who attend programs that, in the 

relevant snapshot of time, do not meet the Department’s definition of a passing program in terms 

of the GE metrics. Students who borrow to attend programs that later are deemed, ex post, to be 

ineligible are able to affirmatively defend against repayment of their loans. This compensates 

for the lag time of the metric.

For students who borrow in order to attend programs during a snapshot of time that is later 

determined to be in the zone or passing for the year that the loan was disbursed are able to assert 

GE metrics as a defense to collection, regardless of whether the program ultimately becomes 

ineligible. Thus, for this group, this proposal offers broader relief than the Department’s current 

interpretation of its authority to recognize defenses to collection and repayment, found in its 

policy guidance and the language of the Direct Loan Master Promissory Note. Specifically, it 

does not require a borrower to demonstrate that his or her claim against an institution would form

a cause of action under state law. This difference is crucial because a borrower who attended a 

school that did not prepare him or her for gainful employment will not necessarily have suffered 
September 30, 2013

Page 4 of 8

Student Relief Proposal

a harm that constitutes a cognizable claim under applicable state law. The scope of consumer 

protection laws, if any, vary from state to state. Common-law claims of fraud or fraudulent 

inducement require high factual showings in order to make out a prima facie case. This proposal 

creates a presumption, based on the Department’s own metrics, in favor of a defense to 

collection. In so doing, it relieves the borrower of the burden of investigating the law of his or 

her state, and eliminates additional barriers such as statutes of limitation and the effect of 

mandatory arbitration agreements that impact the availability of a cause of action.

Additionally, this proposal creates an incentive for the Department to exercise its oversight and 

enforcement powers, even beyond the gainful employment process. As discussed, the current 

proposed regulation relies heavily on ex post evaluation of GE programs. Ex ante evaluation 

would prevent the disbursement of loans to programs that fall short of the GE requirement and 

fewer borrowers would be in a position to raise the proposed defense to collection. To the extent 

that the final regulation does not incorporate ex ante evaluation, the Department will have an 

incentive to utilize other oversight and enforcement tools to limit Title IV participation to 

programs and institutions that provide value. 

2. Require Schools to Refund Tuition as a Consequence of Ineligibility

Framework:

Amend § 668.407(c)(1)(ii): Inform the student that, in the event that the program loses its 

eligibility for Title IV, HEA program funds, the institution will—

(A)inform the student of the option, if any, to transfer to another program at the 

institution, and the financial impact of such a transfer on the overall cost to the student;

(B) inform the student of the option, if any, to transfer to another institution in order to 

complete the program, and the extent to which the student’s credits will transfer;

(C) in the event that the institution will continue to offer instruction in the program, 

inform the student of the option to complete the program at the institution, and provide 

information on the total cost and amount of time associated with completion;

(D) inform the student that the school will refund the tuition, fees, and other required 

charges paid by, or on behalf of, the student for attending the program, and refund the same, if 

the student opts not to exercise the options in (A), (B), or (C).

Authority

The potential liability of an institution for return of tuition for an ineligible program is something 

that must be factored into the financial responsibility requirements of 20 U.S.C. §1099c(c).
September 30, 2013

Page 5 of 8

Student Relief Proposal

Budgetary Impact

This proposal will not have any budgetary impact.

Rationale

Each award year, the institution attests, in the PPA, that its program prepares students for gainful 

employment in a recognized occupation, for example that the program length is reasonable in 

light of entry level qualifications in the specified occupation, and that there is a need for the 

training in order for the student to obtain a job in the specified occupation. 34 C.F.R. § 

668.14(b)(26). When a school’s program is in the zone or failing, even though it is not yet 

ineligible, it is not meeting the Department’s definition of a passing program. When an 

institution receives notice from the Department that it is in the zone or failing the GE 

requirement, it should bear the risk that it will not improve outcomes for completers of the 

program. 

Information asymmetry between the institution and the Department, and the institution and the 

student, justifies allocating the risk to the institution. In the first instance, the school has access 

to internal information about the cohort of student completers whose earnings will factor in to 

the subsequent year’s calculations, as well as additional metrics that may indicate an 

improvement (or not) in completer outcomes. Unlike the Department, the institution is 

positioned to predict whether a program will become ineligible. Further, in most instances, nonpassing programs will not be required to make any disclosures to current and prospective 

students under proposed § 668.407(c), which only requires disclosures in the year just prior to 

potential ineligibility. 

In other areas of the HEA, the Department requires an institution to assume the financial risk that 

a future event will compromise its Title IV eligibility. For example, 34 C.F.R. § 600.10(c)(3) 

requires institutions to repay all Title IV HEA program funds received by or on behalf of 

students enrolled in a GE program that the school incorrectly concluded did not need to be 

approved by the Department as a “new program.” Institutions are also liable for all Title IV 

funds distributed to or for the benefit of students enrolled in a branch campus that the school 

incorrectly concluded did not require authorization as a “new location” by the Secretary. See 34 

C.F.R. § 600(h).

The proposed relief to students enrolled in non-passing programs is similar to that available 

indirectly to students enrolled in provisionally eligible institutions, once eligibility fails. 

Although a provisionally eligible institution is not required by the Department to repay all Title 

IV funds disbursed during its period of provisional eligibility, in effect the majority of students 

enrolled during the period of provisional institutional eligibility will be eligible for a closed 

school discharge. The reason for this is that the majority of institutions that fail to attain full 

eligibility cannot continue absent Title IV funds.
September 30, 2013

Page 6 of 8

Student Relief Proposal

3. Require Schools to Post a Surety Bond or Letter of Credit 

Framework

Add § 668.407(d)(2): Zone or Failing Program: An institution with a program with final GE 

rates in the Zone or Failing range must post an irrevocable letter of credit or surety bond in an 

amount sufficient to cover refund of Title IV funds disbursed to or on behalf of students for 

attending the program in the event the program becomes ineligible. Institutions covered by the 

full faith and credit of a state are exempt from this provision.

Authority

20 U.S.C. § 1099c (e) provides that “to the extent necessary to protect the financial interests of 

the United States,” the Secretary may require financial guarantees from institutions participating

in Title IV programs, in an amount “sufficient to satisfy the institution’s potential liability to the 

Federal Government, student assistance recipients, and other program participants.”

The Department already requires posting of letter of credit in certain circumstances. See 34 

C.F.R. §§ 668.15(b)(5), (d)(1)(i), and (d)(2)(ii); 668.173(d); 668.175(b). For institutions that do 

not meet the financial responsibility standards in 34 C.F.R. § 668.171, 34 C.F.R. § 668.175 

provides for irrevocable letters of credit in certain circumstances.

Budgetary Impact

This proposal would have no effect on the budgetary impact of the regulation.

Rationale: 

This proposal requires schools with programs that are underperforming to bear the risk that the 

program will not improve.

4. Create a common pool to redress injuries to those attending closed programs

Framework: In order to be eligible for Title IV funds, institutions offering programs intended to 

prepare students for gainful employment in a recognized occupation must pay into a student 

protection fund administered by the Department, at a per-student rate established by the 

Secretary. In the event the program becomes ineligible, student borrowers enrolled in the 

program during an award year that the program’s GE metrics were below the passing rate may 

apply for reimbursement from the fund.

Budgetary Impact

This proposal would impose administrative costs on the Department.
September 30, 2013

Page 7 of 8

Student Relief Proposal

Rationale

This proposal mimics the practice in some states that protects students in the event of 

institutional closing. In some states, either for-profit schools or their students (passed through 

schools) pay into a student protection fund when students enroll. Students typically may seek 

reimbursement from the fund if (1) they were in attendance when school closed; or (2) they 

obtained a judgment against the school that they are unable to collect. Some states also provide 

relief when schools violate certain state laws. The fund is usually administered by the state 

agency responsible for the oversight of for-profit schools. 

To the extent that schools pass this cost off to students, it will have an impact on their GE 

metrics.

5. Provisional Program Eligibility and False Certification Discharge

While we recognize that the Department will not consider False Certification Discharges during 

this rulemaking session, we include the analysis below for future consideration. 

Framework:

Add subpart (f) to § 668.403: Provisionally eligible program. A GE program that is not a 

passing program.1 

In the event that the school eventually becomes ineligible under the gainful employment 

standards, the Department could then revoke the program’s provisional eligibility and provide 

false certification discharges to any student who was enrolled in the program during the 

provisional eligibility period, for loans paid by, or on behalf of the student, for attendance in the 

provisionally ineligible program. 

Authority: 

20 U.S.C. § 1087(c)(1) authorizes the Secretary to discharge a borrower’s liability on a loan “if 

such student’s eligibility to borrow...was falsely certified by the eligible institution.” An 

“eligible student” is defined as a “regular student enrolled, or accepted for enrollment, in an 

eligible program at an eligible institution . . . .” 34 C.F.R. § 668.32(a)(1)(i) (emphasis added). 

Budgetary Impact: 

The Department has the authority to pursue the institution for repayment of loans discharged 

through false certification. The statute provides, “If a borrower who received, on or after January 

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1

 Provisional certification is not a new concept. In certain circumstances, the Department may 

provisionally certify and later revoke institutional eligibility. See 34 C.F.R. § 668.13(c) and (d).
September 30, 2013

Page 8 of 8

Student Relief Proposal

1, 1986, a loan made, insured, or guaranteed under this part and . . . if such student’s eligibility to 

borrower under this part was falsely certified by the eligible institution . . . then the Secretary 

shall discharge the borrower’s liability on the loan (including interest and collection fees) by 

repaying the amount owed on the loan and shall subsequently pursue any claim available to such 

borrower against the institutions and its affiliates and principals . . . .” 20 U.S.C. § 1087(c)(1) 

(emphasis added). Moreover, a regulation provides, “The Secretary may require the repayment 

of funds . . . by the school if the Secretary determines that 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—(1) The school’s violation of a Federal statute or regulation; or (2) The school’s 

negligent or willful false certification.” 34 C.F.R. § 685.308.

Rationale:

Same as for Proposal 3.