# Borrower Defense to Repayment

# Negotiated Rulemaking Committee Meetings

# Opening Remarks of

# Jeff Appel, Deputy Under Secretary 

# U.S. Department of Education

# January 12, 2016

# 9 a.m.

Good morning and thank you for being here.  I am Jeff Appel, Deputy Under Secretary of the U.S. Department of Education, and I am pleased to welcome you to the Department and to the first of three negotiating sessions.  As you prepare to consider the important issues before you, I would like to take a few moments to underscore why these efforts are so critical not only to student loan borrowers  but to our nation.  

College remains the best investment students can make in their future – and students deserve a fair and honest deal. While many colleges play a critical role in helping students succeed in their educational and training pursuits, some of America’s colleges are failing to provide the education and training promised to advance students’ careers. Rather than providing students with what they had advertised and had promised, some of these institutions have left students with lots of debt and few job prospects due to the institutions’ actions or omissions, putting both students and taxpayers at risk.  President Obama’s administration is committed to changing that, through actions to ensure Americans are protected from unscrupulous institutions that misrepresent educational opportunities and leave taxpayers holding the bag and holding institutions accountable for actions that violate the law.  Thankfully, most institutions are working hard to provide valuable educational experiences to their students and are not engaging in deceptive practices.  Nonetheless, these protections are needed to ensure the continued support for the student aid programs that make postsecondary education accessible and affordable to all students, regardless of their backgrounds.

Over the past six years, the Department of Education has taken unprecedented actions to protect students and taxpayers.  We’ve issued a package of program integrity regulations, including “gainful employment” regulations, which will help to ensure that students at career colleges don’t end up with debt they cannot repay.  We’ve also cracked down on bad actors through investigations and enforcement.

Current Federal law and regulation provides a "defense to repayment" or "borrower's defense" that allows borrowers to seek loan forgiveness if their school’s actions give rise to a cause of action under state law.  The history of the borrower defense regulations is worth noting.  The borrower defense rule was first adopted in 1994 as a temporary measure pending promulgation of a rule through the negotiated rulemaking process.  The Secretary of Education convened a negotiating committee in April 1995, and during the Committee’s first session, the Department was informed that the non-Federal negotiators had all agreed to recommend that no changes be made to existing regulations. These negotiators stated that the current regulations adequately addressed the issue of borrower defenses and that no further regulatory action was needed. The Secretary accepted this recommendation, and soon after, the Department issued a Notice of Interpretation providing basic guidelines for the borrower defense process.  These guidelines indicated that the Department would acknowledge a Direct Loan borrower’s cause of action under state law as a defense to repayment of a loan only if the cause of action directly relates to the loan or to the school’s provision of educational services for which the loan was provided. Under these regulations, the Department looks to the law of the state where the action took place to determine whether to accept the borrower defense. 

In the nearly 20 years since, these provisions were used only a handful of times. Over the past year, the Department has seen a dramatic increase in “borrower defense” claims and we believe the regulations need to be further refined.  

As you are aware, a Special Master has been appointed to address the influx of claims that resulted from the collapse of the Corinthian Colleges.  Although the Special Master’s process for reviewing existing borrower defense is separate from this rulemaking effort, the large number of claims received makes clear the need for permanent processes to address such claims in the future.  As recently detailed by the Special Master, for example, the Department has begun taking steps to discharge more than $27 million in loans of more than 1,300 borrowers with respect to borrower defense and more than 5,000 additional claims are pending.  In addition, as of November 18, 2015, the Department has processed 5,814 closed school claims, comprising $75,461,790 in loan relief.

Former Education Secretary Arne Duncan directed our team to ensure that students who have been defrauded by their college receive every penny of the debt relief to which they are entitled, as efficiently and easily as possible. 

That need has grown pressing in recent months because of the wind down and ultimate collapse of Corinthian Colleges Inc. following enforcement actions by this Administration and scrutiny by other enforcement entities.  Earlier this year, we announced a series of steps to support students who attended Corinthian schools. We are now extending our commitment to ensuring accountability and to continue working aggressively toward reforms that ensure that schools are held responsible for their actions.  We are committed to ensuring that every student has access to an education that will put them on solid footing for a career, and we will hold schools accountable for illegal practices that undercut their students and taxpayers.  And where students have been harmed by fraudulent practices, we are fully committed to making sure they receive the relief they are entitled to under law.   An ideal borrower defense process should be easily understood, facilitate the submittal of sufficient evidence to adjudicate the claim, establish clear expectations for the borrower regarding next steps and timeframes, and assure claims are addressed fairly and equitably.

Turning to this rulemaking session: After considering the public comments submitted and listening to testimony at two public hearings, the Department has developed a set of topics to be considered by this rulemaking committee.  As non-federal negotiators, you have been asked to work to reach consensus on which acts or omissions of an institution of higher education a borrower may assert as a defense to repayment of a loan made under the Federal Direct Loan Program and the consequences of such borrower defenses for borrowers, institutions, and the Secretary.  We will also consider your suggestions for additional issues that should be considered for regulatory action by the negotiating committee. 

Those of you around the negotiating table represent years of experience and extraordinary dedication to postsecondary education access, affordability, and student success. The work you will undertake throughout these negotiated rulemaking sessions is critical to the development of sound regulations that will further these goals.  Thank you for your willingness to share your time and expertise with us.

I look forward to a productive discussion of the issues.  On behalf of Acting Secretary King and Under Secretary Mitchell, thank you for participating in this important rulemaking effort.  

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