DATE: 

TO: 

JUN 0 4 2015 

Sharon Mar 

Office of Information 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 

Chief Operating Officer, Federal Student Aid 

Emergency 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 included 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 repayment, an act or omission of the school 

attended by the student that would give rise to a cause of action against the school under 

applicable State law." 

A subsequent negotiated rulemaking process was established for the purpose of developing 

regulations for borrower defenses for both the Direct Loan and the Federal 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 defenses could be adequately addressed by current regulation and 

administrative procedures. A further discussion of this is in the Federal Register, Vol. 60, No, 

140, July 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 borrower defense claims have been defined 

or found necessary. 

Federal Student ·r~ An OFFICE of the IJ S OEPARH/f NT of fDUCATIOi~ 

830 F1rst St. N.E . Washington. DC 20202 
Borrower Defense Claims from Corinthian Colleges, Inc. Borrowers 

Corinthian Colleges, Inc. (CCI) was the owner of a number of for-pro tit postsecondary education 

institutions across the country. In January 20 10, CCI purchased Heald College, which had 14 

locations in California, Oregon, and Hawaii. At the time of its purchase by CCI, Heald Coll ege 

participated in the federa l student financial assistance programs authorized under Title IV of the 

Higher Education Act of 1965 (I-lEA), as amended. CCI was also the owner of other title IV 

e ligible institutions, including the Everest and Wyotech chains of schools. 

In January 2014, the Department sent a letter to CCI in which the Department requested that CCI 

provide a copy of school performance disclosure documents for every CCI location, including 

Heald College institutions, for the calendar years 2010, 2011 , 2012, and, when available, 2013. 

The Department also asked that CCI provide the evidence upon which CCI relied to derive each 

ofthe placement rates cited in the disclosures, including a list of all students either placed or 

omitted from the placement calculation due to any type of waiver, and the academic, 

employment, and/or waiver information specified by the Department. 

In June 2014 the Department placed CCI on an increased level of financial oversight after the 

company failed to address concerns about its practices, including concerns that it was falsifying 

job placement data used in marketing claims to prospective students and allegations of altered 

grades and attendance. CCI subsequently agreed to gradually wind down activity as part of 

an operating agreement with the Department. As a part of this, CCI sold 56 Everest and 

Wyotech campuses to the ECMC Group in November 2014. Over 70,000 students were enrolled 

in the programs that were transferred to ECMC. 

In April 2015, the Department issued a notice of intent to fine Heald College $30 million upon 

finding that Heald misrepresented placement rates for a number of its programs going back to 

2010. Upon the issuance ofthe Department's fine letter, CCI announced it would close its 

remaining programs immediately, including all its Heald locations and several Everest and 

Wyotech locations that were not part of the sale to the ECMC group. Almost 16,000 students 

were enrolled in these programs. 

Over the past several months, as the events related to CCI have unfolded, former CCI students, 

supported by various organizations and non-profits, have organized a campaign to assert that the 

Department should discharge their student loan debt pursuant to the borrower defense 

regulations. Over I ,000 students have already submitted borrower defense claims to the 

Department. Several prominent Congressional offices have also voiced their support for this 

position. Many media outlets have also written about the CCI closure and the Department's 

ti ndings of misrepresentation. While coverage has been mixed, most stories imply that the 

Department has not taken sufficient action to protect CCI students. Overall, pressure is 

mounting for the Department to act. 

In the 20 years prior, the Department received 5 claims for borrower defense. Over the last 

several months, the Department has received over I ,000 such claims due to a building debt 

acti vism movement as well as the notoriety of Corinthian 's collapse, creating a need for a clearer 

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process for potential claimants. This exponential increase in demand was unexpected and 

outside of the Department's control. 

Given that borrowers have a right to assert a defense to repayment claim and that the Department 

has made findings against a number ofCCrs former programs, we expect thousands of more 

claims to be submitted as several advocacy groups are working to organize CCl bonowers. 

Many of these borrowers arc struggling or behind on their loan payments or in default. Because 

borrowers have a right to submit defense to repayment claims, the Department must set up a 

process to r((view and adjudicate them. 

To respond to these events and protect harmed borrowers, which the Departn1ent has a legal 

responsibility to timely provide, the Department seeks to announce on June 8, 20 15 that: 

• Student borrowers who attended the Heald College programs that the Department has 

found made false representations wi II have their loans discharged if they complete the 

attached attestation. These borrowers need not prove that Heald College's actions 

violated State law as the Department's find ings show a State law violation. The 

Department estimates that there are potenti ally 50,000 borrowers in this category. 

• I\ process wi ll be set up to review and adjudicate borrower defense claims from other 

borrowers, including other CCI borrowers. Although we will advise that borrowers 

hold their submissions until this process is made public, we cannot bar the submission 

of claims. Thus, the Department will post on its website the attached language 

directing those borrowers who choose not to wait to send their claims to the address 

provided and a short list of information they should include. The Department 

estimates that there are potentially 100,000 borrowers who may exercise this defense. 

It is important to note that borrowers from other schools could also submit borrower 

defense claims if they believe that their school has engaged in a State law violation 

related to their education that has harmed them. 

• A II former CCI borrowers who have filed, or plan to tile, an application for borrower 

defense will have the opportunity to enter forbearance whi le they submit their 

applications and the Department reviews their claim. 

The Department requests that OMB approve the attached Attestation and website language by 

June 4, 2015 and waive the requirement under§ 1320.5(a)( I )(iv) to publish notice of the 

Attestation in the Federal Register, as authorized under § 1320. 13( d). The Department 

anticipates announcing guidance on the borrower defense process on June 8, 2015. The closure 

ofthe Corinthian schools was unexpected and outside of the Department's control. To preserve 

borrowers· rights and meet its fiduciary responsibilities of the Direct Loan program, the 

Department is requesting an emergency approval for an information collection that will allow the 

Department to collect the information in the attestatio n for Heald College borrowers and the 

information needed for borrower defense claims from other borrowers. If the Department is 

unable to collect this information, borrowers will not be able to immediately take advantage of 

the relief being announced. This will raise questions from borrowers and oui call centers risk 

becoming overwhelmed to the point of breaking. Without the attached Attestation, many 

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borrowers may submit incomplete or improperly prepared claims. All of this confusion may 

undermine our efforts to provide relief to harmed borrowers and result in a belief that there is no 

effective recourse available. 

We believe that the facts described here meet the standards for emergency clearance in 

§ l320.13(a)(2)(i) and (iii) because the inability to provide for public comment and notice 

regarding the Attestation would, if normal clearance procedures are fo llowed, cause public harm 

to the borrowers who were enrolled in Heald Colleges. In addition, the use of normal clearance 

procedures would disrupt the Department's ability to protect the borrowers affected by closure of 

the Heald colleges and cause grievous harm to the integrity of the Federal Direct Loan program. 

Thank you for your prompt consideration of this request. If you have additional questions, 

please contact Colleen McGinnis at Colleen.McGinnis@ed.gov or (202)377-4330. 

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