UNITED STATES DEPARTMENT OF EDUCATION

 OFFICE OF POSTSECONDARY EDUCATION

Issue Paper #8: Borrower Defense to Repayment

Session 1: October 4-8, 2021

Issue: Borrower Defense to Repayment – Recovery from Institutions

Statutory cites: §455(h) of the Higher Education Act of 1965, as amended

Regulatory cites: 34 CFR 685.206(c) and (e)

34 CFR 685.222

34 CFR 668.87

Summary of issues: Section 455(h) of the Higher Education Act of 1965, as amended (HEA), requires the 

Secretary to specify in regulation which acts or omissions by an institution of higher education a 

borrower may assert as a defense to repayment of a Direct Loan. This issue paper covers recovery from 

institutions for the amount of relief granted to borrowers under a successful borrower defense (BD) 

claim.

The Secretary has the right to recover from institutions the amount of relief granted to borrowers under 

a successful BD claim. The 2016 rules established the general framework for recovery proceedings, and

2017 regulations [82 FR 6257] detailed the process for the Secretary to initiate recovery proceedings 

through the Office of Hearings and Appeals (OHA), though the Department has not yet pursued recovery 

proceedings through this channel.

The original 1995 regulations provided that the Secretary may initiate a proceeding to collect the 

discharged loan amount from the institution and included a general timeframe that aligned to the 

record retention period (see 34 CFR 685.309(c)) unless the institution received notice of the claim during 

that period. The 2016 regulations limited the timeframe to recover from an institution to the later of: 

three years from when the student last attended, the timeframe permitted under State law, or at any 

time if the institution received notice of the claim. The 2019 regulations also allowed for institutional 

recoupment with a limitations period of five years after the date of final determination. 

The Department wants to clarify how the recoupment process would work and adopt a clearer 

limitations period. 

Solutions: The Department believes it is critical that a borrower defense rule contain a process for 

recouping funds from institutions for the cost of approved claims. In doing so, the Department strives to 

balance reasonable adjudication timeframes for borrowers with sufficient due process for institutions.

To accomplish this goal and address the issues identified above, the Department proposes the following 

initial solutions for discussion with the negotiating committee:

Recovery from institutions. The Department must maintain the ability to recoup funds from institutions 

with approved borrower defense claims. This serves as an important deterrent and, in some cases, limits 

the cost to the government as a result of institutions’ misconduct. 
Borrower Defense to Repayment – Recovery from Institutions 2

The Department proposes separating the process of institutional recoupment from the borrower 

approval process. This proposed separation balances delivering adjudication decisions for borrowers in a 

reasonable time period while still affording sufficient time for institutional due process. It also 

recognizes that collecting from institutions after the fact instead of stronger accountability upfront will 

often be unsuccessful, because institutions may have closed, settlements may have limited liability, 

statutes of limitations may have expired, or other factors. The recoupment process would apply to new 

loans issued after the effective date of the rule.

The Department proposes a recovery process that affords due process to institutions and leverages 

existing Departmental processes. After approving borrower defense claims, the Department would 

determine whether to seek recoupment from institutions and the amount it would seek to recoup. This 

amount could be no greater than the amount of approved discharges but could also be less. If the 

Department decides to recoup from the institution, it will generate a Program Review Report (PRR)

based upon the evidence in its possession, evidence from borrower defense applications, any 

institutional response, and any other relevant information. This will include a liability amount. The 

institution will then have the opportunity to respond to that report much as they would for any other 

program review. The process will then follow the one used for other program reviews. The Department 

will take the institution's response into account and issue a final program review determination (FPRD). 

Institutions may then appeal any liabilities from the FPRD to OHA and then to the Secretary, as 

applicable. In cases where borrower defense claims stem from an already issued FPRD, the Department 

will not conduct another round of institutional response. 

Limitations period. The Department proposes adopting a six-year limitations period. This clock would 

stop when the institution is notified of claims during the institutional response process. 

Last updated 9/29/2021