DAT E : TO: JUN 0 4 2015
S haron Mar Office of Info rm at ion and Regulatory Affairs Office ofManagement and Budget
THROUGH: Kathy Axt

FROM:

SUBJECT: Privacy , Information Collection Clearance Division U .S. Department of Education
James W. Runcie C hi ef Operating Officer, Federal Student Aid
Eme rgency Clearance oflnformation Collection to Allow for Receipt of Borrower Defense to Repayment Loan Discharge Claims 

### Background on Borro-vver Defense to Repayment Loan Discharge Regulations Following a negotiated rulemaking process, the U

. S

. Department of Education (the "Department ") published amendments to the Federal Direct Loan Program (Direct Loan) regulations on December 1 , 1994. These regulations includ ed borrower defenses specified in 34 CFR 685.206(c). The regulation , in part , states "( I) [i]n any proceeding to collect on a Direct Loan, the bon-ower may assert as a defense against repa yment, an act or omission of the school attended by the student that wou ld give rise to a cause of action against the school under applicable State law. "
A subseq u e nt negotiated rulemaking process was established for the purpose of developing regulations for borrower defenses for both the Direct Loan and the Federa l Family Education Loan Program (FFEL) programs. However , during the first session of the negotiations , the nonFederal negotiators recommended to the Department that no additional sessions were warranted and that no further regulatory provisions for borrower defenses would be needed. It was determined that borrower def e ns es could be adequately addressed by current regulation a nd admin istrat ive procedures. A further discussion of this is in the Federa l Register , Vol. 60, No, 140 , Jul y 21, 1995,37767-37770.
Prior to 2015 , the borrower defense identified above was rarely asserted by any borrowers and no specific methods of collecting information regarding borrow e r defens e claims have been defined or found necessary. 

# Federal Student**·r~** An OFFICE of the IJ S OEPARH/f NT of**fDUCATIOi~** 830 F 1rst St. N.E

. Washington. DC 20202

### Borrower Defense Claims from Corinthian Colleges, In c. Borrow e r s
Co rinthian Colleg es, In c . (CCI) was the owner of a number of for-pro tit po stse condary education institutions across th e country. In January 20 10 , CC I purchased H ea ld Co ll ege, which had 14 locations in Californi a, Oregon , and Hawaii. At th e time of its purchase by CC I , Heald Co ll ege participated in the federa l s tudent financial ass ista nce programs authorized und er Title IV of the Hi ghe r E ducation Act o f 1965 (I-lEA) , as amended. CC I was also the owner of o ther ti tle IV e li g ible insti tution s , including th e Everest and Wyotech chains of schools.
In January 2014 , the Depa rtment se nt a letter to CC I in which the De partm e nt re quested that CC I provide a copy of schoo l pe rformance disclo s ure d oc uments for every CC I location, including Heald College institutions , for th e calendar years 20 10 , 2011 , 2012 , and , when available, 2013. The Department a lso as ked that CCI provid e the ev idence upon which CC I re li ed to derive each of th e placement rates cited in the disclosures, including a list of all studen ts either placed or omitted from the plac e me nt calculation due to any ty pe of waiver, and th e academic, employment, and/or wa i ver information specified by the Department.
In June 2014 th e Dep artm e nt placed CCI on an increased l evel of fin anc i al oversight after the company failed to address concerns about its practices, including concerns that it was falsifying job placement data u se d in marketing claims to pro s pective students and allegations of altered grades and attendanc e . CC I subsequently agreed to gradually wind down activity as part of a n operating agreement with the Department. As a part of this , CC I sold 56 Everest and Wyotech campuses to the EC MC Group in November 20 14. Over 70,000 s tud e nt s were enrolled in the programs that were transferred to ECMC.
In April 2015, the D epartment issued a noti ce of inte nt to fine Heald College $3 0 million up o n finding that Heald m isrepre se nted plac e ment rates for a number of its p rog rams going back to 2 010. Upon the issu ance ofthe Department 's fin e le tter , CC I announ ced it wo uld close its remaining programs immediately , including a ll its Heald location s and seve ral E verest and Wyotech location s that were not part of the sa le to the ECM C group. Almo s t 16 ,000 students were enrolled in th ese programs . Over the past severa l months , as the events r e lated to CC I have unfold e d , f o rmer CCI students , s upported by va ri ous o rgan izations and no n-pro fit s, have organized a camp aig n to assert that the Department s hould di sc h arge their student loan debt pursuant to the borrower defen se regulat ions . Over I , 000 st udents have already sub mitted borro we r def ense clai m s to the Department. Several prominent Cong ressional offices have a lso vo ic ed th e ir s upport for this pos i t ion. Many me di a outlets have also written about the CCI clo s ure and the Department 's ti ndings of mi sreprese nt at ion. While coverage has been mixed , most s torie s imply that the D e partment has no t take n s ufficient action to protect CC I stu dent s. Ov e rall , pressure is mounting for th e De p artme nt to act.
In the 20 ye ars prior , th e Department received 5 claims for borrower d efense. Over the last several months , the Department has received over I ,00 0 such claims due to a building debt ac ti v ism mo ve men t as we ll as the notori ety of Corinthi an 's collapse , creat in g a n eed for a clearer

2proce ss for potential c laimants. T his exponent ial increase in demand was un expec t e d and outside of th e Dep artment's co ntrol.
Gi ven that bo rrowers hav e a right to assert a defense to repay ment claim and th at th e Departmen t has made findings against a number ofCCrs former program s, we expect thousands of more claims to be s ubmitted as several advocacy g roups are working to organize CC l bonowe rs. Man y of th ese bor r owers arc st ru gg ling o r be hind on the ir loan payments o r in default. Becau se bo rrowers have a right to sub mit defen se to repayme nt claim s, the Departme nt must set up a process to r((view and adjudicate them.
To r espond to these events and protect harmed borrowers, which the Dep art n1 ent has a leg al
responsib ilit y to timely prov ide, the Departme nt seeks to a nnounce on June 8, 20 15 that:

• Student borrowers w h o attended the Heald Co ll ege programs that the Department has found made false representations wi II have their l oa ns discharged if they complete the attached attestation. T hese borrowers need not prove that Heald College's actions vio lated State law as the Departm en t ' s find in gs show a State l aw vio lation. The Department est im ates that th ere are p otenti ally 50 , 000 borrowe rs in t hi s category.

• I\ process wi ll be set up to rev i ew and ad jud icate borrower defen se c l aims from other borrowers , inc luding other CCI borrowers. Althoug h we will advise that borro wers hold their submissions until thi s process is made public , we canno t bar the s ubmission of claims. Thus , the Department will post on it s webs ite the attached language direct in g th ose bo rrowers who c hoose not to wait to se nd the ir claims to the address prov id ed and a s h ort li s t of inf ormation th ey s hould include. The Department
es ti mates that there are potentially 100,000 borrowers who may exercise this defen se. It is importa nt to note that borrowers from other schoo l s could al so submit borrower defense claims if th ey believe th at their school has engage d in a State law v iolation
re lated to their education that ha s harmed them.

• A II former CCI borrower s who h ave fi led , o r plan to til e, an application for borrower defense wi ll have the opportunity to e nter forbearance whi l e t hey s ubmit their applicatio n s and the Department reviews th e i r claim.
The Department requests that OM B approve the attached Attestat ion and webs ite lang u age by J un e 4, 2015 and wa ive th e r equ irem e nt under§ 1320.5(a)( I )(iv) to publish notice of the A ttesta ti on in the Fe dera l Register , as autho ri zed under 

### § 1 320. 1 3( d )

. The Department ant i cipates a nnouncin g gu idance on th e borrower defense process on June 8 , 2015. The cl osu r e of th e Corinthian schools was un expected a nd outside of the Depa r tmen t 's contro l. To preserve borrowers· ri ghts and meet its fiduciary responsibilities of th e Dir ect Loan program , the Departm ent is req uesting an e mergency approval for an information collection that will allow th e D epa rtm ent to co ll ect the information in th e attestat i o n for H eald Co ll ege bo rrowers a nd th e inf ormat ion needed for borrower defense c la ims from ot her borrowers. If th e Depa rtme nt is unable to collect this information, borrow ers will not be able to immed iate ly take advantage of the relief being announced. Thi s will raise quest ions from borrowers and oui call centers risk becoming ove rwhelmed to the point of breaking. Without the attached Attestation , many

3borrowers may submit incomp lete or improperly prepared claims. All of this confus ion may undermine our effo rt s to provide relie f to h arm ed bo rrowers and res ul t in a belief that there is no effec tive recour se available.
We b e lie ve that th e facts d escribed here meet the stand a rds for emergency cl ea rance in 

### § l320.13(a)(2)(i) and ( iii ) because the in ab ili ty to provide for pub li c comment and notice regarding the Attestation would, if norm al clearance proced ure s are fo ll owed , cau se public harm to the b orrowers who were enrolled in H eald Co ll eges. In ad diti on , th e use of norm al clearance proce dures would disrupt the D epartm ent ' s abil ity to protect th e borrowers affected by closure of the H eald colleges and cause gr ie vo u s harm t o th e integr ity of th e Federal Dir ect Loan program. Thank you for yo ur pro mpt cons id erat ion of thi s r eq uest. If you have additi onal qu es tion s, ple ase contact Co ll ee n McGinn is at Colle e n.McGinni s@ ed.gov or (202)377-4330.

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