41878 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

DEPARTMENT OF EDUCATION 

34 CFR Parts 600, 668, 674, 682, and 

685 

[Docket ID ED–2021–OPE–0077] 

RIN 1840–AD53, 1840–AD59, 1840–AD70, 

1840–AD71 

Student Assistance General 

Provisions, Federal Perkins Loan 

Program, Federal Family Education 

Loan Program, and William D. Ford 

Federal Direct Loan Program. 

AGENCY: Office of Postsecondary 

Education, Department of Education. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This notice of proposed 

rulemaking (NPRM) covers student 

loans and affordability issues. This 

rulemaking specifically discusses issues 

involving loans under the William D. 

Ford Direct Loan (Direct Loan) Program, 

the Federal Perkins Loan (Perkins) 

Program, and the Federal Family 

Education Loan (FFEL) Program. The 

Secretary proposes to amend the 

regulations governing seven topics 

related to student loans administered by 

the U.S. Department of Education. First, 

we propose to amend the regulations 

governing the William D. Ford Federal 

Direct Loan (Direct Loan) Program to 

establish a new Federal standard and 

process for determining whether a 

borrower has a defense to repayment on 

a loan. We also propose to prohibit the 

use of certain contractual provisions 

regarding dispute resolution processes 

by participating institutions, and to 

require certain notifications and 

disclosures by institutions regarding 

their use of arbitration. Additionally, we 

propose to amend the Perkins, Direct 

Loan, and FFEL Program regulations to 

improve the process for granting total 

and permanent disability (TPD) 

discharges by eliminating the income 

monitoring period and expanding 

allowable documentation allowing 

additional health care professionals to 

provide a certification that a borrower is 

totally and permanently disabled. We 

further propose to amend the closed 

school discharge provisions in the 

Perkins Loan, Direct Loan, and FFEL 

programs to expand borrower eligibility 

for automatic discharges and eliminate 

provisions pertaining to reenrollment in 

a comparable program. We further 

propose to amend the Direct Loan and 

FFEL regulations to streamline the 

regulations governing false certification 

discharges. We propose to amend the 

Direct Loan regulations to eliminate 

interest capitalization in instances 

where it is not required by statute. 

Finally, we propose to amend 

regulations governing Public Service 

Loan Forgiveness (PSLF) in the Direct 

Loan program to improve the 

application process, and to clarify and 

expand definitions for full-time 

employment, qualifying employers, and 

qualifying monthly payments. The 

proposed changes would bring greater 

transparency and clarity and improve 

the administration of Federal student 

financial aid programs to assist and 

protect students, participating 

institutions, and taxpayers. 

DATES: We must receive your comments 

on or before August 12, 2022. 

ADDRESSES: For more information 

regarding submittal of comments, please 

see SUPPLEMENTARY INFORMATION. 

Comments must be submitted via the 

Federal eRulemaking Portal at 

Regulations.gov. However, if you 

require an accommodation or cannot 

otherwise submit your comments via 

Regulations.gov, please contact Mr. 

Jean-Didier Gaina, U.S. Department of 

Education, 400 Maryland Ave. SW, 

Room 2C172, Washington, DC 20202 or 

by phone at (202) 453–7551 or by email 

at jean-didier.gaina@ed.gov. 

Federal eRulemaking Portal: Please go 

to www.regulations.gov to submit your 

comments electronically. Information 

on using Regulations.gov, including 

instructions for finding a rule on the site 

and submitting comments, is available 

on the site under ‘‘FAQ.’’ 

FOR FURTHER INFORMATION CONTACT: For 

assistance to individuals with 

disabilities for reviewing the rulemaking 

record, contact Valerie Lefor at (202) 

453–7724 or valerie.lefor@ed.gov. For 

further information related to interest 

capitalization, contact Vanessa Freeman 

at (202) 453–7378 or by email at 

vanessa.freeman@ed.gov. For further 

information related to borrower 

defenses or pre-dispute arbitration, 

contact Rene Tiongquico at (202) 453– 

7513 or by email at rene.tiongquico@

ed.gov. For further information related 

to TPD, closed school, and false 

certification discharges, contact Brian 

Smith at (202) 453–7440 or by email at 

brian.smith@ed.gov. For further 

information related to PSLF, contact 

Tamy Abernathy at (202) 453–5970 or 

by email at tamy.abernathy@ed.gov. 

If you are deaf, hard of hearing, or 

have a speech disability and wish to 

access telecommunications relay 

services, please dial 7–1–1. 

SUPPLEMENTARY INFORMATION: 

Submission of Comments 

The Department will not accept 

comments submitted by fax or by email 

or those submitted after the comment 

period. To ensure that the Department 

does not receive duplicate copies, 

please submit your comments only 

once. Additionally, please include the 

Docket ID at the top of your comments. 

The Department strongly encourages 

you to submit any comments or 

attachments in Microsoft Word format. 

If you must submit a comment in Adobe 

Portable Document Format (PDF), the 

Department strongly encourages you to 

convert the PDF to ‘‘print-to-PDF’’ 

format, or to use some other commonly 

used searchable text format. Please do 

not submit the PDF in a scanned format. 

Using a print-to-PDF format allows the 

Department to electronically search and 

copy certain portions of your 

submissions to assist in the rulemaking 

process. 

Privacy Note: The Department’s 

policy is to make all comments received 

from members of the public available for 

public viewing in their entirety on the 

Federal eRulemaking Portal at 

www.regulations.gov. Commenters 

should not include in their comments 

any information that identifies other 

individuals or that permits readers to 

identify other individuals. If, for 

example, your comment describes an 

experience of someone other than 

yourself, please do not identify that 

individual or include information that 

would allow readers to identify that 

individual. The Department will not 

make comments that contain personally 

identifiable information (PII) about 

someone other than the commenter 

publicly available on 

www.regulations.gov for privacy 

reasons. This may include comments 

where the commenter refers to a thirdparty individual without using their 

name if the Department determines that 

the comment provides enough detail 

that could allow one or more readers to 

link the information to the third party. 

If your comment refers to a third-party 

individual, to help ensure that your 

comment is posted, please consider 

submitting your comment anonymously 

to reduce the chance that information in 

your comment about a third party could 

be linked to the third party. The 

Department will also not make 

comments that contain threats of harm 

to another person or to oneself available 

on www.regulations.gov. Therefore, 

commenters should be careful to 

include in their comments only 

information that they wish to make 

publicly available. 

Executive Summary 

Purpose of This Regulatory Action: 

College affordability and student loan 

debt have been significant challenges for 

many Americans. Student loan debt has 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41879 

1R. Chakrabarti, N. Gorton, and W. van der 

Klaauw, ‘‘Diplomas to Doorsteps: Education, 

Student Debt, and Homeownership,’’ Federal 

Reserve Bank of New York Liberty Street Economics 

(blog), April 3, 2017, http://

libertystreeteconomics.newyorkfed.org/2017/04/ 

diplomas-to-doorsteps-education-student-debt-andhomeownership.html. 

2No new student loans are currently issued under 

either the FFEL and Perkins Loan programs. There 

have been no new FFEL loans issued since June 30, 

2010, and the Perkins Loan program stopped 

issuing new loans on September 30, 2017. 

3Currently, accrued interest is added to the 

outstanding principal balance and the new 

principal balance is used for future accumulation of 

interest. 

4Section 455(m) of the HEA. 

risen over the past 10 years as student 

loan repayment has slowed, while the 

inability to repay student loan debt has 

been cited as a major obstacle to entry 

into the middle class.1

This NPRM proposes several 

significant improvements to existing 

programs authorized under the Higher 

Education Act of 1965 (HEA), 20 U.S.C. 

1001, et seq., that grant discharges to 

borrowers who meet specific eligibility 

conditions. Despite the presence of 

these discharge authorities for years, if 

not decades, the Department is 

concerned that too many borrowers 

have been unable to access loan relief 

through these opportunities. In some 

situations, this has been due to 

regulatory requirements that have 

created unnecessary or unfair burdens 

for borrowers. 

These proposed changes relate to 

discharges available to borrowers in the 

three major Federal student loan 

programs: Direct Loans, Federal Family 

Education Loan (FFEL), and Perkins 

Loans. The most significant effects 

would be in the Direct Loan program, 

which has been the predominant source 

of all Federal student loans since 2010. 

In this program the Department makes 

loans directly to the borrower and then 

contracts with private companies 

known as student loan servicers to 

manage the borrower’s repayment 

experience on behalf of the Department. 

Several of the components of these 

proposed regulations, such as interest 

capitalization, borrower defense to 

repayment, the ban on the use of 

mandatory pre-dispute arbitration, the 

prohibition on class action waivers, and 

the Public Service Loan Forgiveness 

program are only related to Direct 

Loans. Other provisions, such as closed 

school discharge, total and permanent 

disability discharges, and false 

certification discharges, would affect 

Direct Loans as well as loans previously 

issued under the FFEL Program and the 

Perkins Loan Program.2 In the FFEL 

program, private lenders issue Federal 

student loans using their own funds, 

then receive both a Government 

guarantee against most of the losses in 

the case of default and quarterly Federal 

subsidies. In the Perkins program, 

institutions of higher education 

(institutions) issue Federal student 

loans using a combination of Federal 

and institutional funds. 

Borrower Defense to Repayment, 

Arbitration, and Class Action Waivers 

The proposed regulations for the 

borrower defense to repayment program, 

which applies only for Direct Loan 

borrowers, would expand the current 

basis for a borrower to receive a 

discharge for loans obtained to attend a 

particular institution. As proposed, a 

borrower defense discharge would occur 

when the Department determines an 

institution engaged in substantial 

misrepresentations or substantial 

omissions of fact, breached a loan 

contract, engaged in aggressive 

academic recruitment, or was subject to 

a judgment based on Federal or State 

law in a court or administrative tribunal 

of competent jurisdiction for any of the 

above behaviors. The proposed changes 

to the regulations governing borrower 

defense discharges are designed to 

further protect student loan borrowers 

from the financial effects of certain 

predatory practices. Where a borrower 

defense discharge is warranted, the 

proposed regulations would also 

enhance the Department’s recoupment 

authorities, making it easier for the 

Department to hold institutions 

accountable for costs, reducing the 

financial impact to taxpayers. It would 

also include a process for the 

Department to recoup the cost of these 

discharges from institutions. The 

proposed changes are in direct response 

to numerous instances observed by the 

Department over time in which students 

borrow to attend an institution only to 

find that the institution’s promises were 

untrue, leaving the borrower with a loan 

for a substandard education and often 

lacking the ability to obtain the 

employment they were promised. The 

proposed changes to the borrower 

defense regulations would apply to both 

public and private institutions. To date, 

much of the concerning evidence of 

unacceptable institutional practices 

comes from private for-profit colleges 

and universities; a large share of whose 

enrollment is Black students, Latino 

students, students who are older, 

students who are working full-time 

while enrolled in college, and students 

who did not enroll in postsecondary 

education directly from high school. 

However, the regulations would not be 

limited to only private for-profit schools 

but would cover conduct at public and 

private nonprofit institutions as well. 

As proposed, the regulations would 

also prevent institutions wishing to 

participate in title IV programs from 

requiring either the use of mandatory 

arbitration or waiver of class action 

lawsuits, including prohibiting putting 

such requirements within the loan 

contract for a Direct Loan. 

Interest Capitalization 

The proposed regulations would 

eliminate most interest capitalization on 

Direct Loans by removing the current 

regulatory provisions that require 

capitalization under circumstances 

when capitalization is not required by 

statute.3 As proposed, accrued interest 

would no longer be capitalized when: a 

borrower enters repayment; upon the 

expiration of a period of forbearance; 

annually after periods of negative 

amortization under the alternative 

repayment plan or the ICR plan; when 

a borrower defaults on a loan; when a 

borrower who is repaying under the 

income-driven repayment Pay as You 

Earn (PAYE) plan fails to recertify 

income or chooses to leave the plan; and 

when a borrower who is repaying under 

another income-driven repayment the 

Revised Pay As You Earn (REPAYE) 

plan fails to recertify income or leaves 

the plan. These proposed changes 

would decrease the rate at which a 

borrower’s principal loan balance grows 

over time. 

Public Service Loan Forgiveness 

The Public Service Loan Forgiveness 

(PSLF) program authorizes Direct Loan 

borrowers engaged in public service to 

receive a discharge of remaining loan 

balances after making the equivalent of 

10 years of qualifying payments.4 The 

Department, however, is concerned that 

the current regulations around this 

program are too restrictive, particularly 

in the requirements for a payment to 

qualify toward forgiveness. For instance, 

the Limited PSLF Waiver announced in 

October 2021 has helped more than 1 

million borrowers receive on average an 

additional year of credit toward PSLF by 

addressing many of the same challenges 

in regulations that these proposed 

regulations would seek to fix. 

Accordingly, the regulations propose to 

improve the PSLF application process 

and allow borrowers to receive credit 

toward PSLF for months during which 

they are in certain deferment and 

forbearance periods while working for a 

qualified employer. 


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41880 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

Total and Permanent Disability 

Discharges 

The Higher Education Act provides 

for borrowers to receive a student loan 

discharge if they have a total and 

permanent disability. The proposed 

regulations would allow more borrowers 

who meet the statutory requirements for 

one of these discharges to receive a 

discharge by allowing additional 

categories of disability determinations 

by the Social Security Administration to 

qualify for a discharge. They would also 

allow additional types of medical 

professionals to certify that a borrower 

has a total and permanent disability. 

The regulations would also allow more 

borrowers who received a discharge to 

avoid having their loans reinstated by 

removing the 3-year income monitoring 

period that currently exists in 

regulation. The net effect of these 

changes would be a program that is 

simpler for eligible borrowers to access 

and navigate. 

Closed School Discharges 

Borrowers whose college closes while 

they are enrolled or shortly after they 

have left can receive a closed school 

discharge so long as they have not 

graduated. The Department proposes to 

clarify and streamline the eligibility 

requirements for closed school 

discharges by providing more automatic 

discharges for borrowers within one 

year of their college closing. The 

proposed regulations would also clarify 

existing rules that limit discharges for 

borrowers who enroll in a comparable 

program to only apply in instances 

where a borrower accepts and completes 

an approved teach-out program. 

False Certification Discharges 

Borrowers are eligible for a false 

certification discharge under the HEA if 

the institution that certifies the 

borrower’s eligibility for the loan does 

so under false pretenses, such as when 

the borrower did not have a high school 

diploma or equivalent and did not meet 

alternative criteria; when the borrower 

had a status that disqualified them from 

meeting legal requirements for 

employment in the occupation for 

which they are training; or if the 

institution signed the borrower’s name 

without authorization. A confusing web 

of regulations has established different 

standards and processes for false 

certification discharges depending on 

when the loan was disbursed. 

Furthermore, some borrowers who may 

be eligible for a discharge have not 

received it because the requirements are 

difficult to navigate. The proposed 

regulations would streamline the false 

certification discharge process for 

student loan borrowers by establishing 

standards that apply to all claims, 

regardless of when the loan was first 

disbursed, and providing for a group 

discharge process. 

Summary of the Major Provisions of 

This Regulatory Action 

The proposed regulations would— 

• Amend the Direct Loan regulations 

to establish a new Federal standard for 

borrower defense claims applicable to 

applications received on or after July 1, 

2023. Applications pending before the 

Secretary on July 1, 2023 would also be 

considered under the proposed new 

standard. In addition, the NPRM would 

expand the existing definition of 

misrepresentation, provide an 

additional basis for a borrower defense 

claim based on aggressive and deceptive 

recruitment practices, and allow claims 

based on State law standards. 

• Establish processes for group 

borrower defense claims that may be 

formed in response to evidence 

provided by State requestors or based on 

prior Secretarial Final Actions 

identifying conduct that could lead to 

an approved borrower defense claim 

under the Department’s regulations if 

application were made. Secretarial Final 

Actions would include, but not be 

limited to, program reviews, 

suspension, or termination actions. 

• Stop interest accrual on borrowers’ 

loans 180 days from the initial grant of 

forbearance or stopped collections if the 

Department does not make a 

determination on the borrower defense 

claim within certain timeframes. 

Interest accrual would resume once a 

decision on the claim is made. 

• Establish a reconsideration process 

for review of denied borrower defense 

claims. 

• Require schools to disclose publicly 

and notify the Secretary of judicial and 

arbitration filings and awards pertaining 

to a borrower defense claim. 

• Prohibit schools that wish to 

participate in title IV programs from 

requiring borrowers to agree to 

mandatory pre-dispute arbitration 

agreements or waiver of class action 

lawsuits. 

• Eliminate interest capitalization on 

Direct Loans where such capitalization 

is not required by statute to address 

growth in principal balances. 

• Modify the Perkins, FFEL, and 

Direct Loan regulations to streamline 

the application process for a TPD 

discharge by expanding the 

Department’s use of Social Security 

Administration (SSA) codes beyond 

‘‘Medical Improvement Not Expected’’ 

when deciding if a borrower qualifies 

for TPD discharge. 

• Revise the Perkins, FFEL, and 

Direct Loan regulations to eliminate the 

3-year post-discharge income 

monitoring period for borrowers eligible 

for TPD discharge to allow borrowers to 

retain their discharges to retain their 

discharges without unnecessary 

paperwork burden. 

• Allow borrowers to receive a TPD 

discharge if the onset of their disability 

as determined by SSA was at least 5 

years prior to the application to better 

align the regulations with statutory 

requirements for a TPD discharge. 

• Expand the list of health 

professionals who may certify that a 

borrower is totally and permanently 

disabled to include licensed nurse 

practitioners (NPs), physician’s 

assistants (PAs), and clinical 

psychologists to help borrowers more 

easily complete the application for a 

TPD discharge. 

• Amend the Perkins, FFEL, and 

Direct Loan regulations to simplify the 

closed school discharge process by 

expanding access to automatic 

discharges and eliminating the 

requirement that borrowers who 

reenroll in a comparable program lose 

eligibility for a discharge. 

• Streamline the FFEL and Direct 

Loan false certification regulations to 

provide one set of regulatory standards 

that would cover all false certification 

discharge claims. 

• Clarify that the Department would 

rely on the borrower’s status at the time 

the loan was originated for a Direct 

Loan, and at the time the loan was 

certified for a FFEL loan, to determine 

eligibility for a false certification 

discharge. 

• Revise the regulations for PSLF to 

improve the application process, 

expand what counts as an eligible 

monthly payment, expand the definition 

of ‘‘full-time’’ employment, and provide 

additional clarifying definitions of 

public service employment to reduce 

confusion and to clearly establish the 

definitions of qualifying employment 

for borrowers. 

Please refer to the Summary of 

Proposed Changes section of this NPRM 

for more details on the above proposals. 

Costs and Benefits: As further detailed 

in the Regulatory Impact Analysis, the 

benefits of the proposed regulations 

include: (1) a clarified process for 

borrower defense discharge applications 

assisted by the creation of a single 

upfront Federal standard to streamline 

the Department’s consideration of 

applications, while affording 

institutions an opportunity to respond 

to allegations contained in borrower 


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Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41881 

defense claims; (2) increased 

opportunities for borrowers to seek 

relief from institutional misconduct by 

prohibiting the use of mandatory predispute arbitration and class action 

waivers; (3) improved school conduct 

and reduced cost to taxpayers, by 

holding individual institutions 

financially accountable for borrower 

defense discharges and deterring 

misconduct; (4) increased automated 

discharges for borrowers and additional 

flexibilities in establishing eligibility for 

PSLF and other loan discharges; and (5) 

improved access to and expanded 

eligibility for, where appropriate, closed 

school, TPD, and false certification 

discharges. 

Costs to taxpayers in the form of 

transfers include borrower defense 

claims that are not reimbursed by 

institutions; additional relief through 

closed school, PSLF, TPD, and false 

certification discharges to borrowers 

through programs to which they are 

legally entitled in the HEA; and the 

foregone interest where capitalizing 

interest is not required. The paperwork 

burden associated with reporting and 

disclosure necessary to ensure 

compliance with the proposed 

regulations represents an additional cost 

to institutions. 

Invitation to Comment: We invite you 

to submit comments regarding these 

proposed regulations. To ensure that 

your comments have maximum effect in 

developing the final regulations, we 

urge you to clearly identify the specific 

section or sections of the proposed 

regulations that each of your comments 

addresses and to arrange your comments 

in the same order as the proposed 

regulations. 

We invite you to assist us in 

complying with the specific 

requirements of Executive Orders 12866 

and 13563 and their overall requirement 

of reducing regulatory burden that 

might result from these proposed 

regulations. Please let us know of any 

further ways we could reduce potential 

costs or increase potential benefits 

while preserving the effective and 

efficient administration of the 

Department’s programs and activities. 

During and after the comment period, 

you may inspect all public comments 

about these proposed regulations by 

accessing Regulations.gov. 

Assistance to Individuals With 

Disabilities in Reviewing the 

Rulemaking Record: On request we will 

provide a reasonable accommodation or 

auxiliary aid to an individual with a 

disability who needs assistance to 

review the comments or other 

documents in the public rulemaking 

record for these proposed regulations. If 

you want to schedule an appointment 

for this type of accommodation or 

auxiliary aid, please contact the person 

listed under FOR FURTHER INFORMATION

CONTACT. 

Background 

The Department seeks to address 

longstanding concerns regarding Federal 

student loan debt by improving, 

streamlining, expanding, and 

strengthening regulations governing the 

title IV, HEA programs. Specifically, we 

propose to modify the regulations for 

loan discharge programs to strengthen 

institutional accountability, expand 

program access for eligible borrowers, 

and provide more efficient and 

borrower-friendly processes overall. 

After analyzing the public’s input 

provided during public hearings and 

written comments submitted in 

response to the notice of our intent to 

establish negotiated rulemaking 

committees, the Department identified 

12 issues for consideration by a 

negotiated rulemaking committee. These 

12 issues are: improving the process for 

TPD discharges, improving borrower 

access to closed school discharges, 

eliminating interest capitalization where 

it is not required by statute, improving 

the PSLF application process, clarifying 

employer eligibility and full-time 

employment under PSLF, improving the 

borrower defense adjudication process, 

strengthening borrower defense postadjudication processes, ensuring 

accountability by recovering borrower 

defense claims from institutions, 

prohibiting institutional use of predispute mandatory arbitration clauses or 

class action waivers, improving 

borrower access to false certification 

discharges, creating a new incomedriven repayment plan, and establishing 

regulations for institutions to maintain a 

prison education program. Proposed 

regulations addressing 10 of the 12 

issues listed above are included in this 

NPRM. Proposed regulations relating to 

a new income-driven repayment plan 

and to establish Pell Grant eligibility for 

incarcerated individuals enrolled in 

qualifying prison education programs 

will be published in a future NPRM or 

NPRMs. 

Throughout this NPRM, the 

Department is proposing changes that 

would allow the Secretary to use 

automated application processes for 

granting discharges as well as leverage 

other information available to the 

Secretary, consistent with regulations 

and statute governing the use and 

sharing of borrower data. The proposed 

regulations would also result in more 

borrowers receiving discharges for 

which they are eligible by eliminating 

the need for individual applications 

where possible, expand eligibility 

categories for TPD discharges, authorize 

use of additional documentation for 

TPD and false certification discharges, 

clarify eligibility requirements for PSLF 

and closed school discharges, and 

expand and clarify ways in which a 

borrower can establish a borrower 

defense claim. Increased discharges 

reduce repayments from borrowers, 

resulting in a transfer from taxpayers to 

the affected borrowers. For some 

discharges, especially borrower defense 

and closed school discharges, the 

Department will seek to recover funds 

from the institutions involved, but that 

is not expected to reimburse the full 

amount. Increased discharges are 

expected to increase the cost of the 

student loan programs to taxpayers, as 

detailed in the Regulatory Impact 

Analysis. Despite these increased costs 

in the form of transfers, the Department 

believes the benefits of these changes 

exceed the costs. The discharge 

programs addressed by these proposed 

regulations were all authorized by 

Congress. The Department does not 

believe it would be reasonable to 

presume that when Congress created 

those programs, it intended to limit the 

cost of those programs through the types 

of operational and administrative 

barriers the Department is proposing to 

remove in this notice of proposed 

rulemaking. The proposed changes 

would thus make these discharge 

programs more successful at delivering 

promised benefits under the HEA. 

Public Participation 

The Department engaged the public in 

developing this NPRM through analysis 

of written comments submitted by the 

public outside of this NPRM comment 

solicitation, three public hearings, and 

three negotiated rulemaking sessions. 

On May 26, 2021, the Department 

published a notice in the Federal 

Register (86 FR 28299) announcing our 

intent to establish multiple negotiated 

rulemaking committees to prepare 

proposed regulations on the 

affordability of postsecondary 

education, Federal student loans, and 

institutional accountability. 

The Department developed a list of 

proposed regulatory provisions for the 

Affordability and Student Loans 

Committee (Committee) from advice and 

recommendations submitted by 

individuals and organizations in 

testimony at three virtual public 

hearings held by the Department on 

June 21, June 23, and June 24, 2021. 

Transcripts of the public hearings are 


jspears on DSK121TN23PROD with PROPOSALS2
41882 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

available at https://www2.ed.gov/policy/ 

highered/reg/hearulemaking/2021/ 

index.html?src=rn. 

In addition to oral testimony, the 

Department accepted written comments 

on possible regulatory provisions from 

interested parties and organizations. 

You may view the written comments 

submitted in response to the May 26, 

2021 Federal Register notice on the 

Federal eRulemaking Portal at 

www.regulations.gov, within docket ID 

ED–2021–OPE–0077. Instructions for 

finding comments are also available on 

the site under ‘‘FAQ.’’ 

Negotiated Rulemaking 

Section 492 of the HEA requires the 

Secretary to involve the public in the 

development of proposed regulations 

prior to publication for programs 

authorized by title IV of the HEA. After 

obtaining advice and recommendations 

from the public, including individuals 

and representatives of groups involved 

in the Federal student financial 

assistance programs, the Secretary must 

establish a negotiated rulemaking 

committee and subject the proposed 

regulations to a negotiated rulemaking 

process. All proposed regulations that 

the Department publishes on which the 

negotiators reached consensus must 

conform to final agreements resulting 

from that process, unless the Secretary 

reopens the process or provides a 

written explanation to the participants 

stating why the Secretary has decided to 

depart from the agreements. Further 

information on the negotiated 

rulemaking process can be found at: 

https://www2.ed.gov/policy/highered/ 

reg/hearulemaking/hea08/neg-regfaq.html. 

On August 10, 2021, the Department 

published a notice in the Federal 

Register (86 FR 43609) announcing its 

intention to establish the Committee to 

prepare proposed regulations for the 

title IV, HEA programs. The notice set 

forth a schedule for the Committee 

meetings and requested nominations for 

individual negotiators to serve on the 

Committee. In the notice, the 

Department announced the topics that 

the Committee would address. 

The Committee included the 

following members representing their 

respective constituencies: 

• Accrediting Agencies: Heather 

Perfetti, Middle States Commission on 

Higher Education, and Michale 

McComis (alternate), Accrediting 

Commission of Career Schools and 

Colleges. 

• Dependent Students: Dixie 

Samaniego, California State University, 

and Greg Norwood (alternate), Young 

Invincibles. 

• Departments of Corrections: Anne 

L. Precythe, Missouri Department of 

Corrections. 

• Federal Family Education Loan 

Lenders and/or Guaranty Agencies: Jaye 

O’Connell, Vermont Student Assistance 

Corporation, and Will Shaffner 

(alternate), Higher Education Loan 

Authority of the State of Missouri. 

• Financial Aid Administrators at 

Postsecondary Institutions: Daniel 

Barkowitz, Valencia College, and Alyssa 

A. Dobson (alternate), Slippery Rock 

University. 

• Four-Year Public Institutions: 

Marjorie Dorime-Williams, University of 

Missouri, and Rachelle Feldman 

(alternate), University of North Carolina 

at Chapel Hill. 

• Independent Students: Michaela 

Martin, University of La Verne, and 

Stanley Andrisse (alternate), Howard 

University. 

• Individuals with Disabilities or 

Groups Representing Them: Bethany 

Lilly, The Arc of the United States, and 

John Whitelaw, (alternate) Community 

Legal Aid Society. 

• Legal Assistance Organizations that 

Represent Students and/or Borrowers: 

Persis Yu, National Consumer Law 

Center, and Joshua Rovenger (alternate), 

Legal Aid Society of Cleveland. 

• Minority-serving Institutions: 

Noelia Gonzalez, California State 

University. 

• Private Nonprofit Institutions: 

Misty Sabouneh, Southern New 

Hampshire University, and Terrence S. 

McTier, Jr. (alternate), Washington 

University. 

• Proprietary Institutions: Jessica 

Barry, The Modern College of Design in 

Kettering, Ohio, and Carol Colvin 

(alternate), South College. 

• State Attorneys General: Joseph 

Sanders, Illinois Board of Higher 

Education, and Eric Apar (alternate), 

New Jersey Department of Consumer 

Affairs. 

• State Higher Education Executive 

Officers, State Authorizing Agencies, 

and/or State Regulators: David 

Tandberg, State Higher Education 

Executive Officers Association, and 

Suzanne Martindale (alternate), 

California Department of Financial 

Protection and Innovation. 

• Student Loan Borrowers: Jeri 

O’Bryan-Losee, United University 

Professions, and Jennifer Cardenas 

(alternate), Young Invincibles. 

• Two-year Public Institutions: Robert 

Ayala, Southwest Texas Junior College, 

and Christina Tangalakis (alternate), 

Glendale Community College. 

• U.S. Military Service Members and 

Veterans or Groups Representing Them: 

Justin Hauschild, Student Veterans of 

America, and Emily DeVito (alternate), 

The Veterans of Foreign Wars. 

• Federal Negotiator: Jennifer M. 

Hong, U.S. Department of Education. 

The Committee agreed to add an 

additional constituency for Departments 

of Corrections during its second session 

and approved the membership of Anne 

L. Precythe of the Missouri Department 

of Corrections. In addition, there were 

two non-voting advisors available 

during the negotiations: Rajeev Darolia, 

advisor on Economic and/or Higher 

Education Data, University of Kentucky, 

and Heather Jarvis, advisor on PSLF 

Issues, co-founder of FosterUs. 

The Committee met to develop 

proposed regulations during the months 

of October, November, and December 

2021. 

At its first meeting, the Committee 

reached agreement on its protocols and 

reviewed the 12 issues on the agenda. 

The facilitators reminded the Committee 

that consensus means that there is no 

dissent by any member of the 

Committee and that consensus checks 

would be taken issue-by-issue. 

At its final meeting in December 2021, 

the Committee reached consensus on 

the proposed regulations addressing 

four of the 12 issues on its agenda: 

eliminating nonstatutory interest 

capitalizing events, improving the 

process for TPD discharges, 

streamlining the processes for false 

certification discharges, and 

establishing a framework for Pell Grant 

Eligibility for Prison Education 

Programs. This NPRM includes 

proposed regulations on the first three 

of these consensus items, as well as the 

remaining seven items on the 

Committee’s agenda, summarized 

generally above. Proposed regulations 

for the fourth item on which consensus 

was reached, Pell Grant Eligibility for 

Prison Education Programs will be 

included in a later NPRM. We will also 

include Income-Driven repayment, on 

which consensus was not reached, in a 

future NPRM. 

The proposed regulations also include 

technical changes to the regulations that 

are needed to reflect recent amendments 

to the HEA and to correct certain 

technical errors. These types of changes 

are not normally subject to the statutory 

requirements for negotiated rulemaking 

and public notice and comment. 

However, since these changes affect the 

proposed regulations, the Secretary 

included them in the material 

considered by the Committee to ensure 

that the Committee evaluated the full 

scope of the proposed changes. 

More information on the work of the 

Committee can be found at: https:// 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41883 

5 In New York Legal Assistance Group (‘‘NYLAG’’) 

v. Cardona, Case No. 20–CV–1414 (S.D.N.Y. Mar. 

17, 2021), the District Court found that the 

Department did not comply with rulemaking 

standards in promulgating the 3-year statute of 

limitations for affirmative claims and remanded 

consideration of that rule to the Department for 

further consideration. 

www2.ed.gov/policy/highered/reg/ 

hearulemaking/2021/index.html?src=rn. 

Summary of Proposed Regulations 

We group major issues according to 

subject, with appropriate sections of the 

proposed regulations referenced in 

parentheses. We discuss other 

substantive issues under the sections of 

the proposed regulations to which they 

pertain. Generally, we do not address 

proposed regulatory provisions that are 

technical or otherwise minor in effect. 

Any such change not explicitly 

mentioned in this summary remains 

open for public comment. 

1. Borrower Defense to Repayment

Background: Section 455(h) of the

HEA authorizes the Secretary to specify 

which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to the 

repayment of a Direct Loan (i.e., a 

borrower defense). 20 U.S.C. 1087e(h). 

The Department first issued borrower 

defense regulations in 1994, which went 

into effect in 1995. The 1994 borrower 

defense regulation at § 685.206(c) 

provided that any act or omission of the 

institution attended by the student that 

relates to the making of a Direct Loan for 

enrollment at the school or the 

provision of educational services for 

which the loan was provided, giving 

rise to a cause of action against the 

institution under applicable State law 

(the ‘‘State law standard’’), is a 

‘‘borrower defense.’’ 

In response to the precipitous closure 

of Corinthian Colleges, Inc. (Corinthian) 

in 2015 and the related influx of 

borrower defense claims submitted by 

individuals who attended institutions 

owned by Corinthian, the Department 

realized the need to update the borrower 

defense regulations. The Department 

developed new borrower defense 

regulations in 2016 that were supposed 

to take effect in 2017 to establish a more 

accessible and consistent borrower 

defense standard (the ‘‘Federal 

standard’’). We issued the final 

regulations on November 1, 2016, and 

those final regulations generally applied 

to borrowers with new loans that were 

made on or after July 1, 2017. 81 FR 

75926 (Nov. 1, 2016). The new Federal 

standard clarified and streamlined the 

borrower defense claim process. While 

the Federal standard only applied to 

loans issued after July 1, 2017, the 

borrower defense claim process applied 

to loans regardless of their disbursement 

date. The 2016 regulation also enhanced 

protections for borrowers and improved 

the Department’s ability to hold 

institutions financially accountable for 

their actions and omissions that resulted 

in loan discharges. 

In accordance with the master 

calendar, the 2016 borrower defense 

regulations were originally scheduled to 

be effective on July 1, 2017. However, 

these regulations did not take effect on 

their original effective date. After a legal 

challenge was filed, the Department 

took several actions to delay the 

effective date. See, e.g., 82 FR 27621 

(June 16, 2017). In addition, the 

Department initiated a new negotiated 

rulemaking process to develop new 

regulations, and on July 31, 2018, the 

Department published a NPRM (2018 

NPRM). 83 FR 37242 (July 31, 2018). 

Soon thereafter, in September 2018, a 

Federal court invalidated the 

Department’s actions delaying 

implementation of the 2016 regulations, 

and the 2016 regulation went into effect 

in October 2018. Bauer v. DeVos, 325 F. 

Supp. 3d 74 (D.D.C. 2018). See 

California Ass’n of Private 

Postsecondary Schs. v. DeVos, 344 F. 

Supp. 3d 158 (D.D.C. 2018). Meanwhile, 

the Department did not withdraw the 

2018 NPRM and on September 23, 2019, 

following consideration of public 

comments on the 2018 NPRM, the 

Department published new final 

borrower defense regulations that 

applied to loans made on or after July 

1, 2020. 84 FR 49788 (Sept. 23, 2019). 

Those regulations became effective on 

July 1, 2020, for loans disbursed on or 

after that date. 

The 2019 regulations established a 

more limited Federal standard for 

borrower defense claims by (1) requiring 

borrowers to prove that the institution 

engaged in a misrepresentation that was 

made with knowledge of its false, 

misleading, or deceptive nature or with 

a reckless disregard for the truth, (2) 

eliminating the possibility of using 

common evidence to adjudicate claims 

on a group basis, (3) requiring the 

borrower to document the amount of 

harm suffered, and (4) setting a 3-year 

limitation period on filing a claim.5 The 

2019 regulations do not include a 

reconsideration process. The 2019 

regulations only applied to loans first 

disbursed on or after July 1, 2020. 

The three borrower defense 

regulations are hereinafter referred to as 

‘‘1994 regulation,’’ ‘‘2016 regulation,’’ 

and ‘‘2019 regulation’’ after the 

respective years in which the final 

regulations were issued. 

The Department believes that the 

more restrictive standard for approving 

a borrower defense claim and the 

relatively narrow statute of limitations 

for filing claims under the 2019 

regulations created a standard that 

placed burdens on borrowers to obtain 

relief that were far more onerous than 

any State standard, and went far beyond 

evidentiary requirements and 

argumentation that a reasonable 

borrower could be expected to provide. 

In particular, the Department is 

concerned that expecting a borrower to 

independently document and 

corroborate the misrepresentation and 

specifically show the amount of 

financial harm they suffered in the 

manner contemplated in the 2019 

regulations would require borrowers to 

possess a level of data and knowledge 

about local and national labor market 

trends that would be unrealistic for an 

individual to possess, and would result 

in overly subjective judgments by the 

Department into how a borrower should 

conduct a search for employment. 

Moreover, without being able to rely 

upon evidence generated from in-depth 

investigations that other oversight 

bodies possess, including the ability to 

demand documents, borrowers face 

unreasonable set of requirements. The 

result would be that many borrowers 

who were subject to misrepresentations 

or other wrongdoing by their 

institutions would fail to receive an 

approved claim and discharge because 

they were being judged under an 

unreasonably high standard. The 

Department’s experience reviewing 

borrower defense applications shows 

that many of the schools’ substantial 

misrepresentations are made orally, 

and/or relate to high pressure sales 

tactics. Additionally, many schools do 

not provide enrolling or enrolled 

students with written evidence of the 

misrepresentations, which could result 

in the Department denying borrowers’ 

claims due to a lack of documentation, 

despite the fact that many borrowers do 

not and cannot keep such documents 

over years. When the Department issued 

the 2019 regulations, the Regulatory 

Impact Analysis with that rule 

estimated that only 7.5 percent of the 

volume of borrower defense claims 

would ultimately be approved. This was 

a decline from 65 percent under the 

2016 regulation. The Department 

believes that such a significant change 

in approval amounts suggests that the 

2019 regulation would result in denials 

for too many claims that should have a 

reasonable prospect of being meritorious 


jspears on DSK121TN23PROD with PROPOSALS2
41884 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

6https://www.ed.gov/news/press-releases/usdepartment-education-announces-steps-holdinstitutions-accountable-taxpayer-losses-0. 

upon consideration of evidence from 

additional oversight entities. Moreover, 

the anticipated low approval rate is an 

added concern because the 2019 

regulations did not contain a 

reconsideration process, meaning that 

any borrower whose claim was unfairly 

denied, including through an 

administrative or technical error, would 

have to go to court to have their claim 

properly addressed. 

While the 2019 regulations went into 

effect for new loans disbursed on or 

after July 1, 2020, the Department has 

yet to adjudicate any claims under the 

2019 regulations. This is due to several 

factors. First, the Department is still in 

the process of adjudicating significant 

numbers of claims covered by the 1994 

and 2016 regulations, which represent a 

larger share of currently pending claims. 

Second, repayment of and interest 

accrual on all Federal loans held by the 

Department have been paused since 

March 2020, so borrowers who may 

have been subject to conduct that may 

give rise to a borrower defense claim 

may not have felt the need to apply yet 

because they do not currently have to 

make loan payments. 

Over the last several years, the 

Department has gained significant 

experience and expertise through its 

adjudication of claims and review of 

evidence. Doing so has put the 

Department in the best position to 

understand how to manage the borrower 

defense program efficiently. This 

includes identifying areas for 

improvement and refinement that 

would not have been apparent in prior 

rulemakings when the Department had 

not had as much experience reviewing 

claims. 

In this current NPRM, the Department 

proposes to build upon the lessons 

learned from implementation of those 

previous borrower defense regulations 

and a review of the 2019 regulation to 

construct a borrower defense process 

that is simpler and fairer for all affected 

parties. This process would maintain 

what was available to borrowers during 

the more than two decades between the 

1994 and 2016 regulations; build on the 

clearer processes in the 2016 regulation 

to ensure more consistency for 

borrowers; and, incorporate some 

further refinements of elements from the 

2019 regulation such as including 

institutional responses and clarifying 

certain types of allegations that would 

not lead to a valid borrower defense 

claim. The proposed process would be 

simpler by establishing a single upfront 

Federal standard so that borrowers are 

not subject to differential treatment, 

varying from a full discharge to a 

complete denial, for enrollment at the 

same institution depending solely on 

the date their loans were issued. The 

proposed process also would be fairer 

by establishing claim approval 

requirements that recognize all possible 

sources of evidence, including 

information gleaned from State 

attorneys general, rather than relying on 

the borrower to prove their entire case 

on their own. 

While the Department has modified 

the regulations several times in recent 

years, based on our ongoing and 

growing experience reviewing and 

adjudicating borrower defense claims, 

we have determined that the current 

2019 rules are too limiting to fairly and 

accurately adjudicate claims, and that 

further regulations are needed to 

address issues that have continued to 

arise during the Department’s claim 

review. The current rules require 

evidence that is highly unlikely to be 

available to the borrower, especially 

within the timeframes following their 

departure from the institution that the 

borrower must meet to have their claim 

considered. The current rules also 

exclude evidence of school activity in 

the Department’s possession, gleaned 

from other Department activity, that 

would support borrowers’ claims. These 

proposed regulations would incorporate 

additional information about the nature 

of claims that the Department receives, 

the types of evidence received from 

borrowers, and procedural 

improvements to help ensure timely 

decisions for borrowers. They would 

also more clearly establish the 

importance of the institutional response 

process and leverage existing 

procedures used for establishing and 

collecting liabilities to seek recoupment 

from institutions. 

To achieve these goals, the 

Department proposes to streamline 

multiple regulatory requirements, 

establish a new Federal standard for the 

initial adjudication of a borrower 

defense claim that would be easier for 

borrowers and affected parties to 

understand, and clarify the conduct that 

could result in an approved borrower 

defense claim. The Department believes 

that this approach, and the proposed 

use of common evidence, would 

facilitate a clearer and faster process for 

adjudication of group claims. The 

Department also proposes to clarify how 

discharge amounts will be determined 

for approved claims, including 

establishing a rebuttable presumption of 

full discharge; designing a structured 

process for reconsidering decisions; 

eliminating the limitations period for 

borrowers; and adopting a revised 

limitations period for institutional 

recoupment. These proposed 

regulations would incorporate 

additional information about the nature 

of claims that the Department receives, 

the types of evidence received from 

borrowers, and procedural 

improvements to help ensure timely 

decisions for borrowers. They would 

also more clearly establish the 

importance of the institutional response 

process and leverage existing 

procedures used for establishing and 

collecting liabilities to seek recoupment 

from institutions. 

Finally, to protect the title IV 

programs and ensure accountability, the 

Department believes it is critical that 

borrower defense regulations contain a 

process for the Department to recover 

the cost to the taxpayer caused by 

discharging all or a portion of loans 

associated with approved claims from 

institutions, separate and apart from the 

borrower claim adjudication process. 

The Department proposes to administer 

this recoupment process through its 

existing procedures for collecting other 

institutional liabilities. Separating the 

recoupment process from the borrower 

defense approval process also ensures 

that institutions will not face financial 

consequences from claim approvals tied 

to loans issued prior to July 1, 2023, 

unless the claim would have been 

approved under the borrower defense 

regulation in effect at the time the loans 

were issued. 

The recoupment efforts described 

above complement other executive and 

regulatory actions contemplated by the 

Department to increase institutional 

accountability. The Department 

anticipates that efforts to dissuade 

institutions from harmful behavior as 

well as increases in other forms of 

oversight would result in a reduction in 

future conduct that could lead to a 

borrower defense approval, thus 

reducing instances in which the Federal 

taxpayers would assume the costs of 

discharging loans. These action items 

include reinstating the Office of 

Enforcement within the Department’s 

Federal Student Aid office and changes 

announced earlier this year to increase 

the frequency with which entities that 

own institutions are required to sign 

Program Participation Agreements and 

thus potentially face financial 

consequences if there are liabilities 

against the institution.6 The Department 

is also currently in the process of 

proposing new regulations around the 

90/10 rule to implement a requirement 

included in the American Rescue Plan 

that proprietary institutions derive at 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41885 

7See 90/10 resources under ‘‘Institutional and 

Programmatic Eligibility Committee’’ https://

www2.ed.gov/policy/highered/reg/hearulemaking/ 

2021/index.html. 

least 10 percent of their revenue from 

non-Federal sources.7 This is a change 

from previous requirements, which 

allowed Federal money for veterans and 

servicemembers to count toward the 10 

percent revenue minimum. The 

inclusion of those benefits had in turn 

been a contributing factor toward 

aggressive recruitment of veterans and 

servicemembers. 

During the public hearings and 

negotiated rulemaking sessions in 2021, 

the Department heard from a broad 

range of constituencies on the elements 

of an appropriate borrower defense 

framework. At the negotiated 

rulemaking sessions, negotiators 

expressed interest in developing a 

regulation that would provide for fair 

treatment of borrowers who had been 

harmed by an institution’s act(s) or 

omission(s). Some negotiators expressed 

support for reviving the group claims 

process and establishing a 

reconsideration process that is fair for 

all affected parties. 

One negotiator expressed concern 

about the potential reputational harm to 

institutions from frivolous and 

unsubstantiated borrower defense 

claims. This negotiator also did not 

support recovering funds from 

institutions when a borrower defense 

claim is successful. 

Areas proposed for negotiation during 

the negotiated rulemaking sessions 

included the Federal standard under 

which a borrower may assert a defense 

to repayment; the applicable evidentiary 

standard; creating a group process for 

the adjudication of borrower defense 

claims; consideration of adverse 

Department actions against an 

institution as grounds for a group 

borrower defense claim; the ability of 

individuals to bring borrower defense 

claims; the borrower’s status during 

adjudication of a claim, including a 

pause on interest accrual for a borrower 

with an individual application after 180 

days if the Department fails to make a 

decision on the claim by that time; a 

defined limitations period for bringing 

borrower defense claims; an opportunity 

for the institution to respond to 

borrower defense claims filed against it; 

the time frames associated with 

adjudicating a claim; and issues 

pertaining to loans made under the 

FFEL Program. 

In the first session, the Department 

reviewed the issue papers with 

negotiators and provided a high-level 

summary of borrower defense issues 

with proposed solutions. In the second 

session, the Department provided 

proposed regulatory text to negotiators. 

In the final session, the Department 

provided revised and additional 

regulatory text based on negotiator 

feedback and explained the substantive 

changes made between sessions two and 

three. By the end of the negotiated 

rulemaking sessions, most negotiators 

expressed general support for the 

proposed changes to the borrower 

defense regulations. At the final 

consensus check, 16 negotiators 

indicated they would agree to the 

proposed borrower defense regulations, 

while one negotiator dissented. Because 

the committee’s protocols required 

agreement from all negotiators, 

consensus was not reached. Materials 

from the borrower defense negotiated 

rulemaking sessions may be found on 

the Department’s website at: https://

www2.ed.gov/policy/highered/reg/ 

hearulemaking/2021/index.html. 

Borrower Defense to Repayment— 

Adjudication (§§ 685.206, 685.222) 

Statute: Section 455(h) of the HEA (20 

U.S.C. 1087e(h)) requires the Secretary 

to specify in regulations which acts or 

omissions of an institution a borrower 

may assert as a defense to repayment of 

a Direct Loan, except that the borrower 

may not recover from the Secretary 

more than the amount the borrower has 

repaid on the loan. 

Current Regulations: The current 

borrower defense regulations provide 

different acts or omissions that could 

lead to an approved borrower defense 

claim, depending on when a borrower’s 

loan was first disbursed: 

• Claims pertaining to loans first 

disbursed before July 1, 2017, are 

adjudicated according to the substantive 

standard set forth in the 1994 borrower 

defense regulations in § 685.206(c), and 

use the State law standard. The 1994 

borrower defense regulations do not 

contain a definitions section. 

• Claims pertaining to loans first 

disbursed between July 1, 2017, through 

June 30, 2020, are adjudicated according 

to the substantive standard set forth in 

the 2016 borrower defense regulations 

in § 685.222 and uses the regulatory 

process for claims pertaining to loans 

first disbursed prior to July 1, 2017. 

These claims use definitions in 

§ 685.222, which defines the terms 

‘‘borrower’’ and ‘‘borrower defense,’’ 

and apply the Federal standard. 

• Claims pertaining to loans first 

disbursed after July 1, 2020, are 

adjudicated under the borrower defense 

regulations in § 685.206(e), using 

definitions set forth in § 685.206(e)(1). 

Proposed Regulations: Proposed 34 

CFR part 685, subpart D would establish 

a framework for uniform borrower 

defense discharges based on 

applications received following, or 

already pending with the Secretary on, 

the effective date of these regulations, 

rather than based on a loan’s 

disbursement date. Under the proposed 

rules, institutions would not face 

recoupment for conduct approved solely 

under the new Federal standard if the 

conduct occurred prior to July 1, 2023. 

Nor would they face larger amounts of 

recoupment if the amount of a discharge 

is greater than it would have been under 

the applicable prior regulation. 

The scope and purpose section of 

proposed subpart D is in proposed 

§ 685.400 and would set forth the 

provisions under which a borrower 

defense could be asserted. Subpart D 

would apply to borrower defense 

applications received on or after July 1, 

2023, and to borrower defense 

applications pending with the Secretary 

on July 1, 2023. These are the dates the 

regulation would become effective 

under the master calendar requirements 

in the HEA. 

Proposed § 685.401 contains the 

general definitions applicable to subpart 

D, including definitions for the 

following terms: ‘‘borrower,’’ ‘‘borrower 

defense to repayment,’’ ‘‘Department 

official,’’ ‘‘Direct Loan,’’ ‘‘school/ 

institution,’’ and ‘‘State requestor.’’ 

Proposed subpart D also includes 

regulations regarding the adjudication of 

a borrower defense claim, which are 

described in greater detail below. 

Finally, §§ 685.109 and 685.499 

would make clear that, if any part of the 

proposed regulations is held invalid by 

a court, the remainder would still be in 

effect. 

Reasons: The Department heard from 

representatives of a broad range of 

constituencies, including the nonFederal negotiators in the negotiated 

rulemaking meetings, on what they 

thought was an appropriate basis for a 

borrower defense. The Department 

believes a general definitions section to 

this new subpart D is critical to ensure 

clarity in these proposed regulations. 

For these proposed regulations, the 

Department incorporates the following 

terms wholly or in part as those in the 

2019 regulations: ‘‘borrower,’’ 

‘‘borrower defense to repayment,’’ and, 

‘‘Direct Loan.’’ Because these proposed 

regulations envision a new borrower 

defense framework, it is necessary to 

develop some additional new terms. 

The Department first proposes a 

definition of ‘‘Department official,’’ 

which would be a senior Department 

official or their designee to administer 


jspears on DSK121TN23PROD with PROPOSALS2
41886 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

8See https://fsapartners.ed.gov/knowledgecenter/library/dear-colleague-letters/1995-01-01/ 

gen-95-08-direct-loan-program-schools-will-notface-greater-potential-liabilities-ffelp-schools. 

the borrower defense process. The 

Department also proposes to expand 

upon the definition of ‘‘school/ 

institution’’ to include principals of the 

institution, or of an institution under 

common ownership, who exercised 

substantial control over the institution. 

Finally, the Department proposes a 

definition of ‘‘State requestor’’ to clarify 

which entities may suggest the 

formation of a group claim as described 

in other sections of this NPRM. 

Direct Loans and FFEL 

Section 455(h) of the HEA provides 

that the Secretary may discharge a loan 

pursuant to a borrower defense for a 

loan made ‘‘under this part,’’ a reference 

to the Direct Loan Program. This 

includes Direct Consolidation Loans 

made under § 455(g) of the HEA. Under 

the statute, borrowers may not recover 

more than they have repaid. During 

negotiated rulemaking, the Department 

received inquiries about whether the 

borrower defense process applies to 

FFEL Program loans, in which private 

lenders issued Federal loans using their 

own funds and receive a Federal 

guarantee against most losses in the case 

of default as well as quarterly Federal 

subsidies. FFEL Program loans are 

authorized in a different part of the 

HEA. As the Department noted in the 

preamble of the 2016 regulations, the 

HEA generally requires that Direct 

Loans be made under the same ‘‘terms, 

conditions, and benefits’’ as FFEL 

Program loans. 20 U.S.C. 1087a(b)(2), 

1087e(a)(1). See 81 FR at 75930. In 1995, 

the Department clarified the 

relationship between Direct and FFEL 

Program loans in a Dear Colleague 

Letter: 

Congress intended that schools 

participating in either FFEL or Direct Loan 

programs should receive parallel treatment 

on important issues, and the Department has 

already committed during negotiated 

rulemaking to apply the same borrower 

defense provisions to [both] the Direct Loan 

and FFEL programs. Therefore, schools that 

cause injury to student borrowers that give 

rise to legitimate claims should and, under 

these proposals, will bear the risk of loss, 

regardless of whether the loans are from the 

Direct Loan or FFEL Program. 

Dear Colleague Letter GEN–95–8 (Jan. 1, 

1995).8

In the 2016 and 2019 regulations, the 

Department took the position that a 

FFEL borrower could raise a defense to 

repayment claim and have that claim 

reviewed and approved, but that 

receiving any relief tied to an approval 

of such a claim would require the 

borrower to consolidate any FFEL 

Program loans associated with the 

approved claim into a Direct 

Consolidation Loan. However, the time 

limits on filing a claim in the 2019 

regulation plus the terms of the new 

consolidation loans determining the 

applicable borrower defense regulation 

meant that it would be almost 

impossible for FFEL borrowers to 

receive any borrower defense relief after 

July 1, 2020, regardless of when they 

originally borrowed. For instance, under 

the 2019 regulation, a FFEL borrower 

who took out a loan in 2009 and left 

school in 2010 could have a claim 

approved today under the standards of 

the 1994 regulation but would have no 

way to access the associated relief under 

that regulation because as soon as they 

consolidate their claim, they would fall 

under the 2019 regulation and be denied 

under the three-year limitations period. 

The Department is concerned that the 

2019 regulation results in the 

application of a stricter regulation to 

their claim that was not in effect at the 

time their original loans were disbursed. 

Applying the standard proposed in 

these regulations regardless of 

disbursement date would both solve this 

problem going forward and address the 

inequitable situation that would 

otherwise exist for FFEL borrowers from 

July 1, 2020 through June 30, 2023. 

The Department is also proposing 

sub-regulatory improvements beyond 

the regulations that would help FFEL 

borrowers more easily receive a 

discharge for approved borrower 

defense claims, further streamlining and 

simplifying the process for borrowers. 

The Department has the authority to 

make Direct Consolidation Loans under 

§§ 451 and 455(g) of the HEA. FFEL 

borrowers must consolidate their loans 

into a Direct Consolidation loan to 

obtain a borrower defense discharge; 

however, the Department would allow 

FFEL borrowers to file and receive a 

decision on their borrower defense 

applications before their loans are 

consolidated. The 1994 and 2016 

regulations allow borrowers with FFEL 

Program loans to have their claims 

reviewed and approved by the 

Department, but they must consolidate 

their FFEL Program loans into a Direct 

Loan through a separate process to 

receive the benefit of any loan 

discharges associated with an approved 

claim. The Department has heard, both 

from borrowers and from their 

representatives at negotiated 

rulemaking, that the separate 

consolidation requirement creates 

confusion and roadblocks for borrowers. 

The requirement also results in unequal 

treatment for borrowers with different 

types of loans. To address this concern, 

the Department proposes to streamline 

the borrower defense application 

process by having the application for 

borrower defense also serve as a Direct 

Loan consolidation application for 

borrowers with FFEL and Perkins loans, 

which would only be executed if the 

borrower’s claim is approved, giving the 

borrower a streamlined process for 

receiving discharge of their loans. 

State Requestor 

State requestors, such as State 

attorneys general, have been a 

significant and important source of 

evidence for many of the Department’s 

approvals of borrower defense claims 

and the Department anticipates they 

will continue to be an important source 

of evidence. For example, while 

investigating student complaints, State 

attorneys general may find institutions 

engaging in patterns of 

misrepresentation. The Department 

believes State partners are critical in 

providing evidence that—as part of an 

independent assessment by the 

Department that also includes evidence 

in its possession, submissions from 

borrowers, responses from institutions 

under proposed 485.405, and other 

relevant sources—could result in 

approving borrower defense claims. 

Because this evidence often includes 

information about widespread 

institutional policies or practice, 

evidence from State requestors could be 

particularly beneficial for decisions 

around whether to form and/or approve 

a group borrower defense claim, which 

is when the Department makes a 

decision about whether to approve 

borrower defense relief for a set of 

similarly situated borrowers, including 

those who have not applied. These State 

requestors have fostered, and could 

continue to foster, a more efficient 

borrower defense adjudication process 

by supplying needed evidence to 

support the potential approval of claims 

or expanding the Department’s ability to 

quickly develop the facts in cases by 

identifying systemic issues at an 

institution resulting in several 

borrowers potentially being eligible for 

relief. 

To give these State requestors 

regulatory recognition in the 

consideration of whether to establish a 

group process, the Department proposes 

to define ‘‘State requestors’’ to include 

States, State attorneys general, or State 

oversight or regulatory agencies with 

authority from the State (such as a State 

consumer financial protection agency 

with civil investigative demand 


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9See U.S. Department of Education press 

releases: https://www.ed.gov/news/press-releases/ 

department-education-announces-approval-newcategories-borrower-defense-claims-totaling-500- 

million-loan-relief-18000-borrowers; https://

www.ed.gov/news/press-releases/educationdepartment-approves-415-million-borrowerdefense-claims-including-former-devry-universitystudents; https://www.ed.gov/news/press-releases/ 

department-education-approves-borrower-defenseclaims-related-three-additional-institutions. 

authority from that State). The 

Department proposes limiting 

requestors only to State requestors based 

on the Department’s experience that 

State parties have been the sources of 

the highest-quality evidence in past 

adjudications of borrower defense 

applications. Additionally, the 

Department believes that inviting States 

to share information is consistent with 

the HEA’s expectation that States, 

accrediting agencies, and the 

Department will conduct shared 

oversight through the program integrity 

‘‘triad.’’ Already, States and the 

Department share considerable 

information about institutions through 

oversight and enforcement work; these 

established relationships have yielded 

critical support for the Department’s 

work to ensure institutions comply with 

Federal laws and regulations, including 

those that could give rise to borrower 

defense claims for discharges of Federal 

student loans. 

The proposed position is a change 

from the Department’s conclusions in 

the 2019 regulation and is based upon 

the agency’s experience in continuing to 

review and approve borrower defense 

applications. In 2019, the Department 

dismissed the importance of State 

enforcement actions on the grounds that 

they cover broader issues than what 

may be allowed under borrower 

defense. This conclusion discounted the 

role of evidence from State parties in 

processing borrower defense claims. 

The evidence generated from State 

investigations and enforcement actions 

has repeatedly given the Department 

important information to conduct a 

thorough and rigorous review of 

borrower defense claims against 

institutions such as Corinthian Colleges, 

Inc., ITT Technical Institute, the Court 

Reporting Institute, Minnesota School of 

Business and Globe University, and 

Westwood College.9 In several of these 

instances the Department received from 

State attorneys general internal 

company documents, presentations, 

emails, and memos that assisted in 

establishing that these institutions 

engaged in misrepresentations. In all 

these instances, the Department is not 

proposing to simply accept the Stateoffered evidence unquestioned and 

issue approvals based on it. It is 

recognizing the importance of 

considering evidence from all available 

sources and creating a simpler process 

for receiving such information from 

States. 

Effective Date of Regulations, Claims 

Covered Under Proposed Regulations 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. Section 410 

of the General Education Provisions Act 

(GEPA) provides the Secretary with 

authority to make, promulgate, issue, 

rescind, and amend rules and 

regulations governing the manner of 

operations of, and governing the 

applicable programs administered by, 

the Department. 20 U.S.C. 1221e–3. 

Under Section 414 of the Department of 

Education Organization Act, the 

Secretary is authorized to prescribe such 

rules and regulations as the Secretary 

determines necessary or appropriate to 

administer and manage the functions of 

the Secretary or the Department. 20 

U.S.C. 3474. 

Current Regulations: The ‘‘1994 

regulations’’ at 34 CFR 685.206(c) cover 

loans first disbursed before July 1, 2017 

and became effective July 1, 1995 (see 

59 FR 61664, December 1, 1994); the 

‘‘2016 regulations’’ at 34 CFR 685.222 

cover loans first disbursed on or after 

July 1, 2017 and before July 1, 2020 and 

became effective July 1, 2017 (see 81 FR 

75926, November 1, 2016); and, the 

‘‘2019 regulations’’ at 34 CFR 685.206(e) 

cover loans first disbursed on or after 

July 1, 2020 and became effective July 

1, 2020 (see 84 FR 49788, September 23, 

2019). 

Proposed Regulations: Proposed 34 

CFR part 685, subpart D would establish 

a framework for uniform borrower 

defense discharges based on 

applications received following or 

already pending with the Secretary on 

the effective date of these regulations, 

rather than based on a loan’s 

disbursement date. However, 

institutions would not be subject to 

recoupment actions for applications that 

are granted based upon this regulation 

that would not have been approved 

under the standard applicable based 

upon the loan’s disbursement date, 

which could be the 1994, 2016, or 2019 

regulations. Institutions would also not 

be subject to recoupment for amounts 

greater than what would have been 

approved under the applicable 

regulation at the time the loans were 

disbursed. 

Reasons: Tying the applicability of 

borrower defense regulations to the date 

of a loan’s disbursement can create 

significant complexity for administering 

the program and create inconsistent 

outcomes for borrowers. With 

regulations tied to a loan’s disbursement 

date, it is possible for a single borrower 

to submit a single borrower defense to 

repayment claim that is covered by all 

three sets of regulations, despite 

involving the same act or omission at 

the same institution. The confusion is 

further exacerbated if a borrower 

consolidates their loans, since 

borrowers may have had original loans 

disbursed under one set of regulations, 

but the Department treats the date of the 

consolidation loan as the one used to 

determine what regulation their claim 

should be adjudicated under. 

To streamline and simplify the 

process, the proposed regulations 

provide uniform borrower defense 

regulations for applications pending 

with the Secretary on or after the 

effective date of these regulations. This 

approach would ensure that all 

borrowers whose claims are filed or 

pending within this timeframe are 

subject to the same regulatory 

framework. In promulgating the prior 

borrower defense regulations, the 

Department did not choose to apply this 

single standard because it would have 

changed the types of claims that could 

be approved in ways that might have 

left some borrowers worse off than the 

regulation in place at the time they took 

out their loan. For example, borrowers 

with loans issued prior to July 1, 2017 

could bring a claim under a State law 

standard, which includes some 

instances where a borrower might not 

have to show they relied upon a 

misrepresentation depending on the 

relevant State law being applied. The 

2016 regulation, however, included a 

requirement that a borrower 

demonstrate reliance on the 

misrepresentation without a 

presumption of reasonable reliance for 

an individual claim. Applying that 

standard to those prior loans would thus 

be more restrictive in certain 

circumstances. The same is true of the 

2019 regulation and its effect on loans 

issued on or after July 1, 2020. That 

regulation requires borrowers to 

produce a more individualized 

documentation of harm and eliminates 

the prospect of adjudicating similarly 

situated claims as a group, in contrast to 

what is available under the 2016 

regulation. It would thus not have been 

feasible to have the 2016 regulation 

cover claims from loans that would have 

previously been associated with the 

1994 regulation, nor would the 2019 

regulation have been able to cover 


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claims previously associated with either 

the 1994 or the 2016 regulations. This 

proposed regulation would permit 

borrowers to bring claims under a series 

of acts or omissions that not only 

encompasses what would have been 

available to them under any of the three 

prior applicable regulations, but also 

under some additional circumstances. 

The result is that no borrower would be 

worse off under this regulation than 

they would be under the regulation in 

place at the time they borrowed. Given 

that, the Department believes it is 

appropriate to adopt a single standard 

that applies to all claims pending with 

the Secretary or submitted on or after 

July 1, 2023. As discussed in greater 

detail in the Recovery from Institutions 

section, the Department does not 

propose to apply this single framework 

for the purposes of institutional 

recoupment in all cases. The 

Department does not think it would be 

appropriate to hold an institution 

financially liable when the standard in 

place at the time the loan was disbursed 

would not have resulted in an approved 

claim, since the institution would not 

have had a way of knowing that certain 

types of conduct could later lead to 

financial consequences. The Department 

believes that this approach would also 

protect against any concerns institutions 

might raise related to the reputational 

consequences of an approved borrower 

defense claim. The approval of a 

borrower defense claim concerns the 

legal interaction between the 

Department and the borrower, not the 

institution. Moreover, the Department is 

unaware of any evidence demonstrating 

reputational harm to institutions that 

are still operating resulting from 

approved borrower defense claims. 

Given that lack of evidence, the 

Department believes whatever 

reputational harms to the institution 

might occur based on this regulatory 

change are outweighed by the benefits 

to the borrower. This is because this 

proposed change makes the borrower 

defense program more administrable 

and therefore overall better able to serve 

both borrowers and institutions through 

more efficient and effective 

adjudication. 

While the proposed coverage of this 

regulation could lead to some increased 

costs to the Federal Government in the 

form of greater transfers to borrowers, 

the Department notes that this 

regulation is just one component of a 

larger set of executive and regulatory 

efforts aimed at increasing institutional 

oversight and accountability that should 

deter future conduct that could lead to 

approved borrower defense claims. 

These efforts include the reestablishment of an Office of 

Enforcement within Federal Student 

Aid, which is tasked with conducting 

in-depth investigations of institutions. 

Releasing the results of investigations 

will teach institutions what types of 

risky conduct to avoid in the future. The 

Department also announced earlier in 

2022 that it would start increasing the 

number of entities that sign Program 

Participation Agreements to include 

more outside owners of institutions. 

Doing so will make more entities and 

individuals responsible for liabilities 

against an institution, further deterring 

harmful behavior. The Department is 

also currently conducting separate 

rulemaking efforts to implement a 

statutory change included in the 2021 

American Rescue Plan to require private 

for-profit institutions to derive 10 

percent of their revenue from nonFederal sources, not just Federal student 

aid programs administered by the 

Department. That change will reduce 

incentives for institutions to 

aggressively pursue veterans and service 

members in particular, which had been 

a source of aggressive recruitment in the 

past. 

Federal Standard (§§ 685.206, 685.222, 

& Part 668) 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution a borrower may assert as a 

defense to repayment of a Direct Loan, 

except that a borrower may not recover 

from the Secretary an amount in excess 

of the amount that the borrower has 

repaid. 

Current Regulations: In the current 

regulations, three different regulatory 

standards and limitations periods apply, 

depending on when a borrower’s loan 

was first disbursed: 

• Loans first disbursed prior to July 1, 

2017, are addressed under the 1994 

borrower defense regulations in 

§ 685.206(c). That section provides that 

a borrower may assert a defense to 

repayment under applicable State law. 

The borrower may bring a claim at any 

point during the period in which the 

loan is being collected. 

• Loans disbursed between July 1, 

2017, and June 30, 2020, are adjudicated 

under the 2016 borrower defense 

regulations in § 685.222, which explains 

the acts or omissions that could give rise 

to a borrower defense claim are 

judgments against the institution, 

breaches of contract, and substantial 

misrepresentation. Further, the 

borrower may bring such a claim at any 

time but may only assert a right to 

recover amounts previously collected by 

the Secretary on the grounds of that 

same breach of contract or substantial 

misrepresentation within 6 years of the 

alleged breach or of the date on which 

the substantial misrepresentation 

reasonably could have been discovered. 

• Loans disbursed on or after July 1, 

2020, are adjudicated under the 2019 

borrower defense regulations in 

§ 685.206(e), which allow a borrower to 

assert a defense to repayment if the 

institution at which the borrower 

enrolled made a misrepresentation of 

material fact upon which the borrower 

reasonably relied, and the borrower was 

financially harmed by such 

misrepresentation. Claims adjudicated 

under these regulations have three years 

from the date the student is no longer 

enrolled at the institution to file a claim 

with the Department. 

Proposed Regulations: In proposed 

§ 685.401(b), a claim could be brought 

on any of five grounds: 

• Substantial misrepresentation, 

• Substantial omission of fact, 

• Breach of contract, 

• Aggressive and deceptive 

recruitment, or 

• A Federal or State judgment or 

Departmental adverse action against an 

institution that could give rise to a 

borrower defense claim. 

Also, as proposed, a violation of State 

law could form the basis for a borrower 

defense claim, but only if the borrower 

or, in the case of a group claim brought 

by a State requestor, that State requestor 

requests reconsideration of the 

Secretary’s denial of a claim. Each is 

discussed further below. Borrowers 

would not be subject to a limitations 

period. 

The proposed Federal standard in 

§ 685.401(b) would incorporate the 

existing description of 

misrepresentation in part 668, subpart 

F, which currently defines and sets forth 

three categories of misrepresentation, 

each containing examples of violative 

conduct. However, the Department 

proposes to expand the examples in 

those categories, relating to the nature of 

educational programs, the nature of 

financial charges, and the employability 

of graduates. Proposed § 668.75 also 

would establish a new 

misrepresentation category in the 

regulations that separately would give 

rise to a borrower defense claim under 

the Federal standard: ‘‘omission of fact.’’ 

Proposed § 668.79 would make clear 

that, if any part of the proposed 

regulations is held invalid by a court, 

the remainder would still be in effect. 

We propose to add a new subpart R 

to part 668, which would define and 

prohibit aggressive and deceptive 

recruitment tactics or conduct 


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(aggressive recruitment). As proposed, 

aggressive recruitment would be one of 

five types of acts or omissions that 

comprise the Federal standard for 

borrower defense claims such as: 

obtaining the borrower’s contact 

information through websites that 

falsely present themselves as providing 

assistance with finding a job or 

obtaining government benefits, falsely 

claiming that enrollment spots are 

limited, taking advantage of a student’s 

lack of understanding to pressure the 

student to enroll, pressuring the student 

to make an immediate loan decision, 

discouraging the student or prospective 

student from consulting with an 

independent party prior to signing 

documents, failing to respond to a 

student’s request for additional 

substantive information on enrollment 

or loan obligations, using threatening or 

abusive language, or engaging in 

repeated unsolicited contact. 

Finally, proposed § 668.509 would 

make clear that, if any part of the 

proposed regulations is held invalid by 

a court, the remainder would still be in 

effect. 

Reasons: The Department has issued 

three different sets of regulations in the 

past on borrower defense: 1994, 2016, 

and 2019. Those regulations include 

different acts and omissions as the basis 

for borrower defense claims and 

included different processes. Even 

where some similarities appear to exist 

across the three regulatory structures— 

for example, all generally list 

misrepresentation as a basis for a 

borrower defense—the regulations set 

different requirements for what a 

borrower must prove to have their 

application approved. For example, in 

the 1994 regulations, a borrower could 

have their application approved because 

their State had a standard for 

misrepresentation that did not require a 

demonstration of reliance. That same 

borrower under the 2016 regulation 

could also receive an approval due to a 

misrepresentation but would have to 

show that they relied upon that 

misrepresentation in making the 

decision to enroll. For both the 1994 

and 2016 regulations, the borrower’s 

claim could be supported by common 

evidence in the Department’s 

possession, such as records from a 

college obtained by a State attorney 

general and shared with the 

Department. Under the 2019 regulation, 

that borrower not only has to show they 

relied upon the misrepresentation but 

that the institution had knowledge the 

misrepresentation was false, misleading, 

or deceptive, or acted with reckless 

disregard for the truth. The borrower 

must also document the specific amount 

of financial harm suffered. As a 

consequence, an identical 

misrepresentation by the same 

institution could yield different 

outcomes solely based upon the loan’s 

disbursement date. 

In reviewing the hundreds of 

thousands of claims received from 

borrowers across the country, as well as 

different State laws that could be 

applied to bring a defense to repayment 

application under the 1994 regulations, 

the Department has identified other 

categories of improper actions that it 

believes should give rise to a defense to 

repayment, and examples of the types of 

common misrepresentations that fall 

within those categories. 

As listed above, the proposed Federal 

standard identifies five categories of acts 

or omissions as bases for a borrower 

defense claim: (1) substantial 

misrepresentation, (2) substantial 

omission of fact, (3) breach of contract, 

(4) aggressive recruitment, and (5) State 

or Federal judgment or Departmental 

adverse action against an institution that 

could give rise to a borrower defense 

claim. For substantial 

misrepresentations and substantial 

omissions of fact, the Department 

proposes to use a presumption of 

reasonable reliance for both an 

individual and group claim. 

Each element of the proposed Federal 

standard is discussed in greater detail 

below. 

Substantial Misrepresentation and 

Omission of Fact 

The Department proposes returning to 

the 2016 regulations’ use of substantial 

misrepresentation where a 

misrepresentation is defined in 34 CFR 

668, subpart F, instead of a standalone 

definition in the borrower defense 

regulation. But, as part of adopting that 

framework from the 2016 regulation, we 

also propose adopting a presumption of 

reasonable reliance for all borrowers. 

Misrepresentation was a component 

in both the 2016 and 2019 regulations 

and has been a common source for 

approving claims under the 1994 

regulation. Substantial 

misrepresentations constitute most of 

the claims that the Department has 

approved to date and have consistently 

served as a basis for borrower defense 

discharges across the several sets of 

regulations. 

The Department believes requiring 

borrowers to prove a substantial 

misrepresentation occurred is a more 

reasonable standard to use than the 

stricter one required in the 2019 

regulation that also required a borrower 

to show that an institution’s 

misrepresentation was made with 

knowledge that it was false, misleading, 

or deceptive or with reckless disregard 

for the truth. In constructing the 

proposed standard, the Department 

considered what evidence it sees 

borrowers regularly provide, based upon 

its review of hundreds of thousands of 

claims. This allows the Department to 

gauge what is a reasonable expectation 

of borrowers and what types of 

information that most claims are likely 

to include. Those reviews demonstrate 

that even the most detailed and 

extensive information provided by 

borrowers rarely if ever includes 

information on whether an institution 

had knowledge that a misrepresentation 

was false or misleading, nor an ability 

to gauge if the institution acted with a 

reckless disregard for the truth. 

When the Department obtains such 

information, it generally comes through 

internal company records that require 

the authority to require institutions to 

turn over documents, such as through a 

civil investigation demand, a lawsuit, or 

a request by a Federal agency. The use 

of such a strict standard for a borrower 

thus exceeds what even the most 

detailed individual applications 

received to date are able to include. 

While the Department has in the past 

indicated that this standard could be 

met by showing information provided 

by employees does not match 

information in formal marketing 

materials, the Department is concerned 

that such an approach does not provide 

a reasonable path for a borrower subject 

to the more common situation the 

Department has found in which the 

official placement rates are themselves 

false or calculated in a way that 

produces a misleading result. 

Moreover, the Department does not 

believe the intent of the institution is 

relevant when determining whether to 

provide the borrower with relief due to 

a misrepresentation. Intentional or not, 

the actions by the institution have 

resulted in harm to the borrower and the 

Department’s obligation is to provide 

relief to ameliorate that harm when the 

evidence warrants. Issues related to 

institutional knowledge are better suited 

for considerations about the extent of 

the school’s liability. As between the 

school and the borrower, the school is 

better equipped to prevent, and, where 

appropriate, to bear the cost of, a 

misrepresentation that turns out to be 

inadvertent. 

To meet this proposed substantial 

misrepresentation threshold, the 

borrower would have to articulate to the 

Department the misrepresentation made 

by the institution (e.g., they were told 

credits would transfer and they did not, 

they were guaranteed to get a job, they 


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were told the job placement rate was 90 

percent, etc.). That misrepresentation 

would then have to be one that they 

would have relied upon to make the 

decision to take out a Direct Loan. A 

borrower can achieve that goal by 

relaying with some detail the story of 

their recruitment experience or some 

other interaction with the school. 

The Department similarly proposes to 

remove the requirement that a borrower 

demonstrate individualized harm from 

the definition of a misrepresentation 

and instead to require that the borrower 

demonstrate that the misrepresentation 

caused the borrower to take out a loan 

to their detriment. The Department is 

concerned that the requirements to 

demonstrate financial harm in the 2019 

regulation created a requirement far 

beyond what a reasonable borrower 

should have to do. This concern 

outweighs the taxpayers’ risk that a 

borrower could receive relief even 

without significant financial harm, 

particularly given the Department’s 

statutory obligation to provide access to 

defenses to repayment for borrowers 

affected by the acts or omissions of the 

institutions in which they enroll. For 

instance, the 2019 regulation requires 

borrowers to prove that they could not 

get a job for reasons besides local or 

national recessions, or the borrower 

would have to document the quality of 

their job search and subsequent inability 

to find employment. The Department 

does not believe it is reasonable for a 

borrower to have to act as a labor 

economist to show they were harmed by 

an institution’s misrepresentations. 

Moreover, the approach of 

individualized harm required in the 

2019 regulations has the unintended 

effect of potentially penalizing a 

borrower who succeeds despite their 

program. The Department has received 

many borrower defense applications 

from individuals who asserted under 

penalty of perjury that they were more 

likely to find employment when 

removing the institution they attended 

from their resume. Under the 2019 

regulations, these individuals would 

risk having a claim not approved 

because they did obtain a job, even if 

the institution was a hindering factor in 

their ability to do so. 

Reliance is the final component of the 

substantial misrepresentation standard. 

This requires a borrower to show that 

they were not only subject to the 

misrepresentation but that they relied 

upon it in their decision to take out a 

Direct Loan. While the Department 

believes reliance should be an element 

of a successful borrower defense claim 

that alleges a misrepresentation, we are 

concerned that an overly narrow view of 

what a borrower had to do in order to 

demonstrate reliance could result in a 

borrower’s application being denied for 

lack of the use of specific phrasing. In 

particular, we are worried that there 

could be instances where a borrower 

lays out a misrepresentation that from 

the narrative provided by the borrower 

was a key factor in their decision to take 

out a loan but because the borrower did 

not directly specify they relied upon it 

their claim is denied. To address this 

concern the Department proposes that if 

the claimant does not demonstrate 

reliance, then the Department would 

find reasonable reliance if a prudent 

person would believe and act upon the 

misrepresentation if told it by another 

person. 

The Department also proposes to use 

a similar presumption of reasonable 

reliance for group borrower defense 

claims. The removal of requirements for 

borrowers to demonstrate 

individualized harm and that they could 

personally prove that an institution 

engaged in a misrepresentation that the 

institution made with the knowledge 

that it was false, misleading, or 

deceptive or made with reckless 

disregard for the truth means that the 

Department can and should consider 

claims from similarly situated borrowers 

who attended the same institution as a 

group. Because the idea behind a group 

claim is that all the borrowers in the 

group may have been affected by the 

same misrepresentation or omission, the 

Department believes it is also reasonable 

to use an assumption of reasonable 

reliance for group members. 

The Department has determined 

based on reviews of claims that, 

particularly where misrepresentations 

were especially widespread, the benefits 

of reduction in burden by presuming 

reliance, rather than individually 

determining it, exceed the costs. Efforts 

to individually evaluate these claims 

have substantially delayed—by years, in 

some cases—the provision of relief to 

borrowers. This has negative 

ramifications for borrowers whose 

financial circumstances are affected by 

their outstanding student loan debt in 

the meantime. 

The Federal Trade Commission (FTC) 

follows a similar approach to the 

Department’s proposal to allow the 

Secretary to establish a presumption of 

reliance, whereby it can establish a 

rebuttable presumption that all 

purchasers relied on the defendant’s 

material misrepresentations or 

omissions if they were widely 

disseminated and ‘‘were of a kind 

usually relied upon by reasonable 

prudent persons.’’ FTC v. BlueHippo 

Funding, 762 F.3d 238 (2d Cir. 2014); 

FTC v. Kuykendall, 371 F.3d 745, 765 

(10th Cir. 2004); FTC v. Figgie Int’l, Inc., 

994 F.2d 595, 605–06 (9th Cir. 1993); 

FTC v. Sec. Rare Coin & Bullion Corp., 

931 F.2d 1312, 1316 (8th Cir. 1991). 

Once the FTC establishes the 

presumption, courts typically accept the 

total revenue from the sale of the good 

or service as the amount of monetary 

relief. Accordingly, while the 

Department proposes a substantial 

misrepresentation standard to bring a 

successful borrower defense claim, the 

Department proposes to incorporate a 

presumption of reasonable reliance into 

that standard to reflect natural 

consumer behavior that the reasonable 

and prudent consumer would ‘‘usually’’ 

rely on. 

Substantial Misrepresentation— 

Definitions 

With regard to the specific types of 

actions that could be considered a 

misrepresentation, the Department 

believes using the definition of a 

misrepresentation in subpart F instead 

of a separate definition of the term in 

borrower defense would reduce 

confusion for both borrowers and 

institutions and ensure a more 

consistent approach. In the 2019 

regulation, the Department chose to 

include its own definition of 

misrepresentation. However, it did so 

with a non-exhaustive list of 11 items, 

many of which bear significant 

resemblance to requirements that 

already exist in subpart F. This creates 

unnecessary ambiguity for borrowers 

and institutions. Since the list in the 

regulation is non-exhaustive it is 

unclear whether that would mean 

anything else in subpart F might also 

still qualify as a misrepresentation, 

providing other requirements are met. 

Using the single consistent definition 

from subpart F thus removes that 

ambiguity and ensures that there is a 

clear message to borrowers and 

institutions how borrower defense and 

other oversight and enforcement 

activities can interact. 

In reviewing the definition of 

misrepresentation in subpart F, the 

Department has identified other types of 

misrepresentations that it believes 

should both serve as potential grounds 

for approving a borrower defense 

application as well as possible future 

enforcement actions. These changes 

address areas of concern the Department 

has identified in the course of 

adjudicating borrower defense claims in 

recent years. 

The Department proposes to revise 

the regulations in § 668.72, which 

covers misrepresentation based on the 

nature of the educational program or 


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institution. The Department proposes to 

amend the leading text by adding the 

phrase ‘‘which may be included in the 

institution’s marketing materials, 

website, or communications to 

students,’’ to clarify where 

misrepresentation could occur and to 

ensure congruence with the other types 

of misrepresentation in § 668.73 and 

§ 668.74. The Department also proposes 

to remove sub-section (h) in § 668.72, 

which relates to misrepresentations of 

the nature and availability of equipment 

needed for educational programs, 

because that element is effectively 

incorporated into § 668.72(f), which 

addresses facilities and equipment. The 

Department proposes to remove subsection (j) in § 668.72, related to the 

availability of employment or other 

financial assistance, because that 

element would be effectively covered in 

§ 668.73, which governs 

misrepresentations related to the nature 

of financial charges. 

In new § 668.72(m), the Department 

proposes to add false, erroneous, or 

misleading statements concerning 

institutional selectivity rates or rankings 

as a form of misrepresentation, because 

it has observed institutions leveraging 

false data reported to widely recognized 

national rankings that result in a higher 

institutional or program rank than they 

would otherwise have received, 

inducing enrollment under false 

pretenses. Accordingly, the Department 

believes it is in the public interest to 

include misrepresenting selectivity rates 

or rankings or misrepresenting the data 

underlying the selectivity rates or 

rankings, as a form of misrepresentation. 

In new § 668.72(n), the Department 

proposes to add misrepresenting the 

classification of the institution as 

nonprofit, public, or proprietary for 

purposes of its participation in the title 

IV programs as another basis for a 

borrower defense claim. An institution 

would be deemed to misrepresent its 

classification if it leads students or 

parents to believe that its status for 

purposes of title IV participation is 

something other than the institution’s 

official classification on file with the 

Department for purposes of the title IV 

programs. The Department believes that 

obfuscating the classification of the 

institution for purposes of the title IV 

programs should be considered a 

misrepresentation because there are 

meaningful distinctions between the 

governance and treatment of revenue in 

excess of expenses at for-profit and 

nonprofit businesses. A student who 

chooses a college that markets itself as 

nonprofit may believe they are entering 

into a transaction in which additional 

revenue will be reinvested in the college 

and that those leading the institution do 

not have a direct financial stake in it. 

Institutions may not represent to 

students that they are a nonprofit 

institution for purposes of title IV when 

they have not met the applicable legal 

standards for nonprofit status. This also 

would apply to institutions that are in 

the process of converting from for-profit 

to nonprofit status; such an institution 

may not represent itself as nonprofit 

until the Department has confirmed it 

meets the standards for a nonprofit 

institution and memorialized that 

determination in the classification on 

file with the Department. An institution 

that acts inconsistently with this 

requirement would have misrepresented 

its classification for purposes of a 

borrower defense claim. 

In new § 668.72(o), the Department 

proposes to add misrepresenting the 

existence of certifications or other 

approvals for the institution and/or its 

programs that were not actually 

obtained, and the institution’s failure to 

remove such certifications or approvals 

from marketing materials after they are 

revoked or withdrawn. These 

certifications and other approvals 

include approvals from the State to offer 

certain programs, such as approval to 

offer a nursing program. They also 

include certifications for occupations 

such as medical assisting where a 

license may not be required but there 

are certifications that carry greater labor 

market value. The Department has 

observed that some institutions lagged 

in updating their marketing materials 

with the latest certifications or 

approvals or promised students that 

they would obtain certain certifications 

or approvals by the time the student 

graduated but where the institution 

never in fact obtained these items. The 

result is that when the student went to 

find employment, they discovered they 

were either unable to find a job or 

would be less competitive in the 

workforce than they expected to be 

when they enrolled in the program. 

Similarly, the Department proposes to 

add new § 668.72(p), which would 

address misrepresentations about 

student externships or other similar 

opportunities, because the Department 

has observed that some institutions have 

made false promises about the 

availability of externships for their 

students or falsely represented that they 

held contracts with externship sites. 

The Department has observed that 

students relied on these marketing 

materials to inform their decision about 

whether to enroll at the institution. 

The last two proposed changes to 

§ 668.72 are new § 668.72(q), 

misrepresentation about the institution 

offering assistance to obtain a high 

school diploma or General Education 

Development certificate (GED), and new 

§ 668.72(r), misrepresentation about the 

pace of completing the program or the 

time it would take to complete the 

program contrary to the stated length of 

the educational program. With the rise 

of eligible career pathway programs and 

use of ‘‘ability to benefit’’ mechanisms 

to provide for title IV aid eligibility for 

qualifying students without a high 

school diploma or its recognized 

equivalent, the Department has 

observed an increase in the number of 

institutions making false promises of 

assistance to obtain a high school 

diploma or GED, including through 

program reviews and other oversight 

mechanisms in which a large number of 

students at the institution make similar 

allegations. Finally, the Department has 

seen that some institutions engage in 

widespread substantial 

misrepresentations about the time it 

would take to complete an educational 

program, including misrepresentations 

related to programs that require 

completion of an externship or similar 

program, and programs that are selfpaced and rarely completed in the 

advertised time. These institutions 

wrongly characterize the necessary pace 

or time commitment, such as presenting 

program cost over four years when it 

takes 5 years to finish under the 

schedule set by the institution. 

Accordingly, the Department believes it 

is in the public interest to include these 

additional misrepresentation elements 

because greater enforcement and 

oversight of institutions’ unlawful 

practices would both ensure such 

behavior is investigated and ended more 

quickly and provide borrowers with 

clearer regulations governing the 

borrower defense discharge standards 

and, at least in some cases, better 

evidence. Including these 

misrepresentations in the regulations 

would also ensure that borrowers have 

more accurate information about the 

costs of their programs. 

We also propose changes to § 668.74. 

In the course of adjudicating borrower 

defense claims, the Department has 

persistently seen misrepresentations 

about the employability of graduates. 

These include job placement rate (JPR) 

misrepresentations, which are reflected 

in § 668.74. The Department is 

explicitly including, as a form of JPR 

misrepresentation, placement rates that 

are inflated through manipulation of 

data inputs. This would help ensure 

that students have access to accurate 

information about the employability of 

graduates and provide access to relief 


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10This language is taken from Delaware’s 

definition of an unlawful practice, but the phrasing 

is similar for the other states with minor wording 

changes. Delaware Code Ann. Title 6, § 2513 

https://delcode.delaware.gov/title6/c025/sc02/ 

index.html; 815 Illinois Comp. Stat. Ann. § 505/2), 

from Ch. 121 1/2, par. 262, https://www.ilga.gov/ 

legislation/ilcs/ 

ilcs3.asp?ActID=2356&ChapterID=67; Iowa Code 

§ 714.16, et seq. https://www.legis.iowa.gov/docs/ 

code/714.16.pdf; New Jersey’s Consumer Fraud Act, 

New Jersey Statutes Annotated. 56:8–2 et seq. 

https://www.njconsumeraffairs.gov/Statutes/ 

Consumer-Fraud-Act.pdf. 

when they do not. These additions 

highlight the Department’s concerns 

about how institutions calculate job 

placement rates, which students often 

rely on in making an informed decision 

about enrolling in an institution or 

program. 

The Department sought input from 

negotiators as to whether our proposed 

language addressed known examples of 

JPR manipulation and how the proposed 

language could interact with existing 

placement rate requirements used by 

accreditors and/or States. One 

negotiator supported a required 

disclosure of information regarding 

graduate employability but expressed 

concern that there is no standardized 

metric for institutions to use. To be 

clear, the Department does not propose 

to create a standardized JPR metric. 

Instead, we outline examples of past 

problematic institutional JPR 

calculations because they were 

misleading to students. These include 

institutions that, for example, excluded 

students who were searching for work 

from the denominator of the placement 

rate calculation if those students did not 

conduct a job search in the exact 

manner set by the institution, or 

published a JPR that included large 

numbers of students who obtained 

employment well before graduating 

from the institution, many of whom 

likely found such employment or were 

already employed even before enrolling. 

These also include institutions that 

disclosed an employment rate, as 

required by their State or accreditor, but 

calculated the rate in a manner 

inconsistent with the applicable State or 

accreditor methodology. Proposed 

§ 668.74 also contains a provision that 

allows the Department to verify that an 

institution correctly calculated its JPR; 

an institution must furnish to the 

Secretary documentation and other data 

that was used to calculate the 

institution’s employment rate 

calculations. 

Substantial Omission of Fact 

The 2019 and 2016 regulations 

included an omission of fact as a 

component within the definition of 

misrepresentation, meaning that either 

false information provided or true 

information omitted could give rise to 

an approved borrower defense claim. 

The Department proposes to continue 

allowing omissions to give rise to a 

borrower defense claim, but to expressly 

provide it in a separate category by 

adding § 668.75 to address substantial 

omissions of fact. Doing so recognizes 

that omissions of fact have the same 

misleading effect on borrowers as other 

forms of misrepresentation, except that 

it occurs through the absence of 

information that would otherwise have 

affected the borrower’s decision to 

enroll or take out loans. The Department 

proposes to list it separately from 

misrepresentation to assist borrowers 

and institutions in better understanding 

the Federal standard for initial 

adjudication, but because it would 

remain closely tied to 

misrepresentation, we propose adding it 

within subpart F. 

The addition of more text to clarify an 

omission of fact allows the Department 

to provide borrowers and institutions 

greater clarity about what must be 

disclosed to avoid an omission of fact. 

The Department proposes moving to 

‘‘substantial omission of fact’’ in place 

of the 2019 treatment of omission of fact 

for the same reasons we are proposing 

to shift from misrepresentation to 

substantial misrepresentation as 

outlined above. Similar to substantial 

misrepresentation, an omission of fact 

would be substantial if a borrower 

would not have otherwise enrolled at 

the institution, obtained a loan, or 

chosen that program. We believe that 

omissions of fact should include a 

reliance requirement to identify whether 

an omission is serious enough to have 

influenced a borrower’s decision to 

enroll. As with substantial 

misrepresentations, we propose to 

include a presumption of reasonable 

reliance, which ensures that claims by 

borrowers—who relied in fact on the 

omission—are not denied simply 

because their applications fail to 

include the specific statement that the 

borrower relied upon the omission. We 

propose to apply this presumption of 

reasonable reliance to both individual 

and group claims. 

The Department derives its definition 

of omission of fact, in part, from the 

2016 amendments to § 668.71(c), where 

the Department refers explicitly to the 

ways in which omissions are considered 

in the regulations. See 81 FR at 76072. 

The Department also sought feedback 

last year from negotiators on the 

parameters of omission of fact, 

including a review of States’ unfair, 

deceptive, and abusive acts or practices 

(UDAP) laws. The Department also 

consulted with the FTC and thoroughly 

analyzed Federal laws on UDAP that 

could help inform the Department’s 

formation of a definition of an omission 

of fact. The Department consulted with 

FTC because of that agency’s longstanding enforcement work regarding 

unfair and deceptive acts and practices 

under Sec. 5 of the Federal Trade 

Commission Act (FTC Act). After 

considering the States’ use of omission 

of fact in consumer protection contexts, 

and the FTC’s authorizing statute under 

the FTC Act, the Department is 

proposing to adopt language that 

appears in similar forms in Delaware, 

Illinois, Iowa, and New Jersey consumer 

laws. These States have the most 

comprehensive language related to 

omission and state that the 

‘‘concealment, suppression, or omission 

of any material fact with intent that 

others rely upon such concealment, 

suppression, or omission’’ is an 

unlawful act.10 We propose to adopt, in 

part, that concept of omission of fact, 

but without the elements of ‘‘intent,’’ 

which appears in all the states’ statutes 

cited above; or ‘‘knowing,’’ which is 

only included in New Jersey’s statute. 

As discussed earlier in justifying the 

movement away from the 2019 

definition of misrepresentation that 

included a requirement that the 

borrower show the institution had 

knowledge that a misrepresentation was 

false, deceptive, or misleading or given 

with a reckless disregard for the truth, 

the Department is concerned that it is 

unreasonable to expect a borrower to be 

able to document the intent or 

knowledge possessed by an institution. 

While there are circumstances where a 

borrower could potentially meet this bar 

if the information provided by a 

recruiter, such as placement rates, is 

different from information provided in 

other public materials, the Department 

has seen to date that most circumstances 

where an institution misrepresents 

student outcomes such as placement 

rates it does so in such a way that all 

the public numbers used are wrong and 

only the private internal numbers reflect 

the actual results. That type of 

information would only be obtainable 

through some way of accessing 

institutional employees or records, 

which is something that takes years of 

work by Federal and State regulators to 

acquire. 

The 2019 regulations required that 

misrepresentations were those ‘‘made 

with knowledge of its false, misleading, 

or deceptive nature or with a reckless 

disregard for the truth’’ (see 34 CFR 

685.206(e)(3)). Upon further 

consideration of these policies and their 


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11https://www2.ed.gov/policy/highered/reg/ 

hearulemaking/2021/nov3pm.pdf. 

implications both for borrowers and 

taxpayers, the Department does not 

believe that misrepresentations or 

omissions that are made without 

knowledge or a reckless disregard 

should be exempt from the 

Department’s oversight. Borrowers who 

relied on such misrepresentations, even 

if they were made unintentionally, may 

still have experienced the harm of 

attending a particular institution or 

borrowing Federal student loans on the 

basis of untruths or omissions. 

Similarly, institutions are not permitted 

under Section 487(c)(3) of the HEA to 

make misrepresentations, even if 

unintentional. And an unintentional 

omission of fact still can result in harm 

for the borrower. 

As proposed, the definition of 

omission of fact would include a nonexhaustive list of examples that could 

amount to an omission of fact in the 

borrower defense context. Examples 

include, but are not limited to, 

concealing, suppressing, or failing to 

provide material information regarding 

the entity that is actually providing the 

educational instruction; the availability 

of slots, or requirements for obtaining 

admission, in a program where the 

institution places students in a 

preprogram at the time of enrollment; 

and factors that would prevent an 

applicant, for reasons such as a prior 

criminal record or preexisting medical 

condition, from qualifying to meet 

requirements that are generally needed 

to be employed in the field for which 

the training is provided. In its oversight 

and compliance work, the Department 

has found some institutions omitted 

material information about the nature of 

their educational programs that, if 

disclosed upfront, could have resulted 

in a different outcome for the student 

and forgone the need for a defense to 

repayment. The Department invites 

comments on this proposed definition 

and whether the proposed definition is 

sufficiently expansive to address known 

types of omissions in which some 

institutions engage. 

Finally, the Department believes that 

each of the proposed borrower defense 

provisions discussed in this NPRM 

pertaining to misrepresentation serves 

one or more important, related, but 

distinct, purposes. Each of the 

requirements provides value to 

students, prospective students, and their 

families; to the public, taxpayers, and 

the Government; and to institutions 

separate from, and in addition to, the 

value provided by the other 

requirements. In particular, we believe 

that including more examples of 

misrepresentations in the regulations 

would more accurately reflect the 

Department’s experiences in overseeing 

institutions; and would inform 

institutions about their obligations, as 

well as provide clearer indications to 

borrowers about what may constitute a 

borrower defense claim. If the 

Department is able to cite to these 

additional regulatory provisions in its 

enforcement work, it will also be able to 

protect taxpayer interests and end 

unlawful behavior more quickly and 

effectively. To best serve these 

purposes, we propose including an 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

Breach of Contract 

The 2019 regulations removed breach 

of contract as an element that could give 

rise to an approved borrower defense to 

repayment application even though it 

was included in the 2016 regulation. 

The 2019 regulation argued that the 

majority of defense to repayment 

applications submitted to the Secretary 

did not allege breach of contract, 

concluding that the borrower defense 

standard should be tailored to the types 

of claims borrowers alleged. See 84 FR 

49810–12. The 2019 regulations further 

rationalized that a standard breach of 

contract claim was potentially 

overbroad, and thus inappropriate as a 

basis for relief since it is not necessarily 

limited to the provision of educational 

services. 

With the benefit of reviewing 

additional borrower defense claims, and 

considering additional input from 

negotiators, including a request from a 

negotiator to be more definitive as to 

what constitutes breach of contract,11

for the reasons discussed below the 

Department believes that breach of 

contract should be restored as a part of 

the Federal borrower defense standard. 

As an initial matter, the 2019 concern 

with overbreadth is inapplicable, 

because the Department proposes to 

clarify in new § 685.401(a) (the 

definition of ‘‘borrower defense to 

repayment’’) that an act or omission 

supporting a borrower defense must be 

related to the making of a Direct Loan 

or the provision of educational services 

for which the Direct Loan was intended. 

With that appropriate qualification, 

inclusion of a breach of contract is 

appropriate. As explained in 2016, 

breach of contract may be an 

appropriate basis for borrower defense 

relief when an institution fails to fulfill 

a specific contractual promise to 

provide certain training or courses. 81 

FR 39341 (June 16, 2016). Breach of 

other terms of the contract that relate to 

the making of a Direct Loan or the 

provision of educational services may 

also serve as an appropriate basis for 

borrower defense relief. The Department 

would grant relief commensurate with 

the specific contractual injury alleged. 

For example, the Department is aware of 

students bringing loan-related breach of 

contract claims against postsecondary 

institutions or for provisions of 

educational services for which those 

loans were intended. See, e.g., Supplee 

v. Miller-Motte Bus. Coll., Inc., 768 

S.E.2d 582 (N.C. Ct. App. 2015); Eckols 

et al. v. Earle et al., No. 2016CI18165 

(37th Jud. Dist., Bexar County), Pltfs.’ 

Orig. Pet., Applic. for TRO and Applic. 

for Temp. Inj. at 10 (Oct. 18, 2016). This 

type of claim would clearly be 

appropriate for borrower defense 

adjudication if the breach is related to 

the making or provision of educational 

services intended for the Direct Loan 

but may not fall under the other four 

elements of the Federal standard 

depending on the nature of the contract 

and its breach. Moreover, even if there 

is some overlap between the types of 

conduct that would constitute a breach 

of contract and would otherwise 

constitute a basis for a borrower defense 

claim, in some instances, borrowers may 

be able to allege breach of contract 

claims more readily. The Department 

would investigate and adjudicate claims 

related to breaches of contract to 

determine whether a claim meets the 

requirements for a defense to 

repayment. 

Aggressive Recruitment 

The Department is also proposing to 

add a new category related to aggressive 

and deceptive recruitment to capture 

other types of acts it believes should 

serve as a basis for a borrower defense 

claim. While this category was not 

included in the 2019 regulation, the 

Department considered aggressive 

recruitment as a factor in the 2016 

regulations in determining whether a 

misrepresentation was substantial 

enough to merit approval. It was not, 

however, conduct that could lead to 

approval on its own in that regulation. 

In other words, the conduct had to be 

a substantial misrepresentation in the 

form of aggressive recruitment to qualify 

for relief pursuant to the 2016 rule. 

The Department first raised the 

proposal for aggressive and deceptive 

recruitment during negotiated 

rulemaking. Some negotiators agreed 


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12https://www.consumerfinance.gov/about-us/ 

newsroom/cfpb-sues-for-profit-college-chain-itt-forpredatory-lending/. 

13https://www.help.senate.gov/imo/media/for_

profit_report/PartI-PartIII-SelectedAppendixes.pdf. 

with including aggressive recruitment as 

a basis of a borrower defense claim and 

indicated that some institutions 

aggressively recruit certain specific 

groups of vulnerable students, such as 

students who are older, are the first in 

their families to attend postsecondary 

education, are attending while working 

full-time and or caring for families, or 

who come from low-income 

backgrounds. To date, the Department 

has received applications from well over 

100,000 borrowers who have made 

allegations relating to admissions and 

urgency to enroll. This includes 

allegations that institutions recruited 

students who lack the basic tools 

needed to succeed in their courses, such 

as recruiting students for online 

programs who have no access to the 

internet because they are homeless. The 

Department has also seen institutions 

discourage students from consulting 

family and friends for additional 

information if they raise concerns about 

enrolling by calling them 

‘‘dreamkillers.’’ And, it has received 

allegations detailing situations where 

recruiters tried to shame borrowers into 

enrolling by criticizing them for not 

providing more for their families. 

Because many existing State 

consumer protection laws include this 

sort of claim in different forms, the 

Department reasoned that including it 

in the Federal standard would ensure a 

more comprehensive Federal standard 

and ensure equitable treatment for 

borrowers regardless of where they live. 

In developing its proposed definition 

of aggressive recruitment, the 

Department incorporated negotiators’ 

proposals and language from the 2016 

regulations. The Department also 

consulted with the FTC and thoroughly 

analyzed Federal laws on UDAP. The 

Department consulted with FTC because 

of that agency’s long-standing 

enforcement work regarding UDAP 

under Sec. 5 of the FTC Act. Similar to 

the Consumer Financial Protection 

Bureau (CFPB) and other Federal 

banking regulators, the Department 

remains convinced that UDAP can cause 

significant financial injury to 

consumers, erode consumer confidence, 

and undermine the financial 

marketplace. The FTC Act has also 

helped other Federal banking regulators 

in crafting their oversight and 

enforcement activities over UDAP. 

Thus, the Department believes that 

consulting with the FTC which has 

applied its standards through case law, 

official policy statements, guidance, 

examination procedures, and 

enforcement—actions could help inform 

the Department’s work regarding UDAP, 

to include elements of aggressive 

recruitment. 

Most negotiators supported the idea of 

including aggressive recruitment in the 

Federal standard. Some negotiators, 

however, expressed concern with the 

potential subjectivity of the concept and 

the risk of sweeping in innocuous 

encouragement or other similar 

recruiting contact by admissions 

representatives, enrollment management 

professionals, or other contractors 

engaged by an institution. These 

negotiators indicated that in the course 

of an admissions representative’s dayto-day work, contact with prospective 

students may include something as 

simple as reminding them of a May 1 

enrollment deadline, and there was 

some concern that such a reminder may 

be considered a form of aggressive 

recruitment. The Department believes 

the clarity of this definition 

demonstrates that isolated instances of 

well-intentioned recruiter behavior 

would not result in an approved claim. 

Rather, this definition would capture 

the types of sustained and aggressive 

behavior the Department has seen across 

more than 100,000 borrower defense 

applications. 

The Department is proposing to 

include aggressive and deceptive 

recruitment as its own category that 

could lead to an approved borrower 

defense claim because it captures an 

important type of behavior that the 

Department has seen institutions engage 

in where the way a borrower is coerced 

into enrolling is so aggressive that even 

if the information presented to them 

was accurate and without omissions the 

borrower is not able to make a full and 

informed choice. The result of that is 

often a borrower enrolling in a program 

that is not providing them what they 

were expecting—such as a certificate in 

an allied health field when they wanted 

to become a nurse—or comes at a price 

that they cannot possibly afford and did 

not freely and fairly take on. The 

Department has seen instances, 

discussed above, where these aggressive 

recruitment tactics prevented or 

strongly discouraged students from 

being able to make an informed choice. 

Other Federal regulators have also seen 

instances where students were affected 

by aggressive recruitment practices that 

played a role in borrowers’ decisions to 

take out private educational loans.12

Borrowers were told not to worry about 

concerns that they voiced, such as 

whether they would graduate or get a 

job. They were pressured to enroll either 

through artificial time constraints (such 

as falsely claiming there were a limited 

number of seats or the only opportunity 

to enroll would expire in just a few 

days) or by exploiting the borrower’s 

lack of experience with higher 

education. Because the recruiter has 

greater information at their disposal 

than the potential borrower and is 

acting in a position of authority and 

power, the recruiter is in a position to 

influence the prospective student’s 

decision to enroll. In these 

circumstances, even absent a 

misrepresentation, such as a falsified job 

placement rate, the entire recruitment 

experience can impede the ability of the 

borrower to understand and appreciate 

what they are signing up for and the 

financial and educational implications 

of their decision. 

The Department also thinks it is 

important to include aggressive 

recruitment in order to clarify the 

interaction between what a recruiter 

may tell a prospective student who later 

enrolls, and the information the student 

may receive in written form. All 

institutions are required to disclose 

various information (see §§ 668.41, 

668.47, and 668.164, among others) 

providing students with disclosures and 

information when they enroll, including 

through course catalogs. These printed 

or digital materials may contain 

factually accurate statements that differ 

from what prospective students have 

been told by a recruiter—such as a more 

accurate presentation of job placement 

rates, the role of accreditation, the 

ability to transfer credit, or other issues 

that would be important to prospective 

students and their families. In 

responding to the allegations in 

borrower defense claims, some 

institutions have asserted that written 

statements, even if buried in material 

provided to the students, are sufficient 

to correct inaccurate information from 

recruiters. The Department disagrees 

with this view. As a practical matter, the 

recruiter is providing personal support 

to the borrower. The recruiter is often 

the borrower’s first interaction and 

gateway to apply for and eventually 

obtain Federal student aid, including 

Federal student loans. Even if the 

borrower examines the written 

disclosures closely before enrolling, the 

information from the recruiter may 

overshadow the disclosures.13 Given the 

information asymmetry between the 

recruiter and the borrower, and that 

perceived relationship of trust, the 

aggressive tactics of the institution may 


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14 Federal Trade Comm. v. Career Educ. Corp., et 

al., Case No. 1:19–cv–05739 (N.D. Ill. Eastern Dist. 

Oct. 9, 2019). 

15https://www2.ed.gov/policy/highered/reg/ 

hearulemaking/2021/transc103pm.pdf. 16See, for example, https://www.ftc.gov/newsevents/news/press-releases/2019/08/operatorcolorado-technical-university-americanintercontinental-university-will-pay-30-million. 

themselves constitute a valid claim for 

borrower defense. 

Moreover, the Department 

acknowledges that the statutory ban on 

incentive compensation for recruiters or 

admissions employees has not fully 

achieved the intended result which was 

to protect students from the harms of 

aggressive recruitment. The incentive 

compensation rule bans incentive 

payments to recruiters based on their 

enrollment success because such 

payments might lead recruiters to 

mislead students in order to earn a 

financial bonus. 20 U.S.C. 1094(a)(20). 

Aggressive recruitment continues to 

proliferate in institutions as the pressure 

for increased enrollment, and in turn, 

receipt of Federal student assistance, 

drives institutions’ continued use of 

such tactics. The Department believes 

enrollment that stems from such tactics 

should provide a path to an approved 

borrower defense claim as a form of 

aggressive recruitment. 

The Department is aware of instances 

where institutions will, either directly 

or through a third party, falsely appear 

to help individuals seeking Federal, 

State or local benefits. For example, in 

the FTC’s action against Career 

Education Corporation (CEC), CEC 

obtained individuals’ contact 

information from websites where the 

institution presented itself, through lead 

generators, as a portal for receiving 

other government benefits, such as 

unemployment insurance, or for job 

seeking.14 These individuals 

unwittingly provided their personal 

information to the lead generator 

believing submission of their 

information was a portal for government 

benefits. Those individuals, in some 

cases, later enrolled at the institution 

after providing their information under 

the guise that they would obtain 

government benefits. An individual 

could not reasonably be expected to 

understand that such websites were lead 

generators that the institution used to 

increase their enrollments. 

The Department considered including 

an aggressive recruitment provision in 

the 2016 regulations, but at that time 

was concerned about the potential 

difficulty of developing clear, consistent 

standards for aggressive conduct. 81 FR 

at 39343. The 2016 regulations did, 

however, include aggressive recruitment 

as an aggravating factor in determining 

whether a borrower relied, or reasonably 

would have relied, on a 

misrepresentation, an indication of the 

Department’s degree of concern about 

such behavior and its likelihood that 

borrowers’ decisions would be affected 

by it. Id. After five more years of 

receiving borrower defense claims, and 

addressing concerns raised by nonFederal negotiators during negotiated 

rulemaking,15 the Department is 

confident that an appropriate standard 

can be articulated and enforced in the 

borrower defense context and that such 

an element is a necessary addition to 

address gaps in the Federal standard. 

Additionally, as described above and 

through program reviews, audits, and 

other investigations, the Department has 

seen that institutions engage in 

aggressive tactics. Such tactics include 

imposing pressure on potential students 

to make enrollment or loan decisions 

immediately, taking advantage of a 

student’s lack of understanding of the 

process, stifling efforts for the borrower 

to consult with a third party, persistent 

and unsolicited contact with a 

prospective student, and other actions 

under which an institution exerts 

unreasonable pressure to induce a 

student to enroll or obtain Federal 

student financial aid. These abuses have 

been well documented and result in 

findings against the institution under 

State or Federal laws,16 but they 

currently do not meet the standards for 

a borrower defense claim. In light of the 

Department’s discovery of extensive acts 

of aggressive recruitment and the harm 

to students, the Department is proposing 

to include aggressive recruitment in the 

Federal borrower defense standard. 

The Department modeled the 

proposed aggressive recruitment 

provision in part 668, subpart R, after 

the misrepresentation regulations in 

part 668, subpart F, because the subpart 

F framework was the most logical 

structure already in place: it had a 

definitions section and outlined a nonexhaustive list of factors that could lead 

to a misrepresentation. In defining the 

types of aggressive recruitment under 

the subpart, § 668.501, the Department 

balanced the need to establish specific 

guidelines to curb institutions’ exertion 

of unreasonable pressure on prospective 

students with the need for general 

standards that broadly cover other forms 

of aggressive recruitment. Placing the 

standard for aggressive recruitment in 

its own subpart instead of within 

borrower defense also would ensure the 

Department applies consistent standards 

for aggressive recruitment across its 

other oversight and compliance work, 

which could in turn result in an 

approved borrower defense claim. 

Additionally, this increased oversight 

and compliance may help to deter such 

behavior from institutions going 

forward, helping to ultimately reduce 

the need for borrowers to submit 

defense to repayment claims. 

To ensure that institutions and the 

public have clear standards for what 

constitutes aggressive recruitment, for 

purposes of borrower defense, the 

Department seeks the public’s input on 

how the Department can identify the 

extent to which an institution engages 

in any form of aggressive recruitment 

and the means to document this 

misconduct through program reviews 

and audits. Policies and procedures that 

law enforcement uses to curb these 

actions would be especially helpful. The 

Department also provides a nonexhaustive list of acts that could warrant 

an aggressive recruitment claim in 

proposed § 668.501. 

Finally, the Department believes that 

each of the proposed provisions 

discussed in this NPRM pertaining to 

aggressive recruitment serves one or 

more important, related, but distinct, 

purposes. Each of the requirements 

provides value to students, prospective 

students, and their families; to the 

public, taxpayers, and the Government; 

and to institutions separate from, and in 

addition to, the value provided by the 

other requirements. To best serve these 

purposes, we would include this 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

Judgments Against Institutions and 

Department Actions 

In the 2016 regulations, the 

Department included as a basis for a 

borrower defense claim a nondefault, 

contested judgment obtained against an 

institution based on any State or Federal 

law, whether obtained in a court or in 

an administrative tribunal of competent 

jurisdiction. Under those regulations, 

the borrower has a defense to repayment 

if the borrower was personally affected 

by the judgment; that is, the borrower 

must have been a party to the case in 

which the judgment was entered, either 

individually or as a member of a class 

that obtained the judgment in a class 

action lawsuit, and the act or omission 

must have pertained to the making of a 

Direct Loan or the provision of 

educational services to the borrower. 

The Department believes retention of 


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this provision is in the public interest 

for the reasons discussed below. 

We believe the Department did not 

fully consider the importance of the 

lawsuits students brought against 

institutions when it removed this 

provision in the 2019 regulation. 

Although judgments are not as common 

as allegations of misrepresentation, they 

are a clear finding by a court that the 

institution engaged in misconduct. See, 

e.g., Supplee v. Miller-Motte Bus. Coll., 

Inc., 768 S.E. 2d 582 (N.C. Ct. App. 

2015). 

In its rationale to include a judgment 

against an institution as part of the 

Federal standard, in 2016 the 

Department stated that including 

judgment against an institution would 

allow for recognition of State law and 

other Federal law causes of action, but 

would also reduce the burden on the 

Department and borrowers of having to 

make determinations on the 

applicability and interpretation of those 

laws. See 81 FR 39340–41. To ensure 

that the scope of the judgment relates 

only to borrower defense claims, the 

favorable judgment against an 

institution would still be required to 

relate to the making of a Federal student 

loan. 

Finally, the Department proposes to 

include Departmental final actions as 

part of a judgment against an institution 

standard. Institutions that participate in 

the title IV programs sign a Program 

Participation Agreement (PPA) with the 

Secretary. If the Secretary or auditor 

identifies through Final Program Review 

Determination (FPRD) or Final Audit 

Determination (FAD), for example, that 

an institution breached its PPA, a 

borrower who was impacted by that 

final action could have a defense to 

repayment claim. 

It is important for the Department to 

consider all information available to it, 

including its own prior investigation 

and oversight work, to reach findings. 

FPRDs are not only the result of the 

Department’s own findings, but schools 

would have also had an opportunity to 

respond to the findings therein. But 

more importantly, where the 

Department has evidence that schools 

have engaged in conduct that 

constitutes the basis for a borrower 

defense, the Department would act on 

its own evidence rather than requiring 

borrowers to independently produce 

this information, which is not available 

to them. 

State Law Standard (§§ 685.206, 

685.222) 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution a borrower may assert as a 

defense to repayment of a Direct Loan, 

notwithstanding any other provision of 

State or Federal law, except that a 

borrower may not recover more from the 

Secretary than the amount that the 

borrower has repaid on the loan. 

Current Regulations: In the current 

regulations, three different regulatory 

standards and limitations periods apply, 

depending on when a borrower’s loan 

was first disbursed: 

• Loans first disbursed prior to July 1, 

2017, are addressed under the former 

1994 borrower defense regulations in 

§ 685.206(c). That section provides that 

a borrower may assert a defense to 

repayment under applicable State law. 

• Loans disbursed between July 1, 

2017, and June 30, 2020, are adjudicated 

under the former 2016 borrower defense 

regulations in § 685.222, which does not 

provide for any adjudications under 

applicable State law. 

• Loans disbursed on or after July 1, 

2020, are adjudicated under the current 

borrower defense regulations in 

§ 685.206(e), which does not allow any 

adjudications under applicable State 

law. 

Proposed Regulations: In proposed 

§ 685.401(b), a violation of State law 

could form the basis for a borrower 

defense claim, but only if the borrower, 

or a State requestor in the case of a 

group claim brought by a State 

requestor, requests reconsideration of 

the Secretary’s denial of a claim. 

Reasons: Achieving the goal of a 

uniform Federal standard that could be 

applied to all claims pending or filed 

after July 1, 2023 requires crafting a 

regulation that covers all borrower 

defense claims that are pending as of 

that date and claims that could be filed 

in the future. However, claims filed 

under the 1994 regulation are based 

upon violations of State law. To ensure 

that no borrower risks losing access to 

the State law standard as a result of the 

uniform Federal standard, the 

Department proposes allowing 

borrowers to seek reconsideration of a 

claim under a State law standard if their 

initial claim is denied or approved only 

for a partial discharge. This approach 

covers the range of acts or omissions 

that the Department has determined 

should form a basis for a valid borrower 

defense to repayment application. It also 

ensures institutions are not unfairly 

subject to the costs of approvals for 

conduct that occurred prior to this 

regulation by indicating that the 

Department may only seek to recoup the 

cost of claims that would have been 

meritorious under the borrower defense 

regulation that would have been in 

effect at the time of the conduct that led 

to the approval. 

Limitations Period (§§ 685.206, 685.222, 

& Part 668) 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan, except that 

a borrower may not receive more relief 

than the borrower has repaid. 

Current Regulations: In the current 

regulations, three different limitations 

periods apply, depending on when a 

borrower’s loan was first disbursed: 

• Loans first disbursed prior to July 1, 

2017, are addressed under the former 

1994 borrower defense regulations in 

§ 685.206(c). The borrower may bring a 

claim at any point during the period in 

which the loan is being collected. 

• Loans disbursed between July 1, 

2017, and June 30, 2020, are adjudicated 

under the former 2016 borrower defense 

regulations in § 685.222. The borrower 

may bring such a claim at any time but 

may only assert a right to recover 

amounts previously collected by the 

Secretary on the grounds of that same 

breach of contract or substantial 

misrepresentation within 6 years of the 

alleged breach or of the date on which 

the substantial misrepresentation 

reasonably could have been discovered. 

• Loans disbursed on or after July 1, 

2020, are adjudicated under the current 

borrower defense regulations in 

§ 685.206(e), which require borrowers to 

file a claim within 3 years from the date 

the student is no longer enrolled at the 

institution to file a claim with the 

Department. 

Proposed Regulations: The 

Department proposes that borrowers 

with outstanding loans would not be 

subject to a limitations period. 

Reasons: The Department proposes to 

remove the limitations period for a 

borrower to assert a borrower defense 

claim under these regulations or to 

receive refunds of amounts previously 

paid on loans still outstanding. This is 

a change from the 2019 regulation, 

which required borrowers to file claims 

within 3 years of the date the borrower 

left the institution. The 2019 regulation 

imposed this limit primarily because of 

the time period institutions would be 

expected to keep records. However, the 

U.S. District Court for the Southern 

District of New York held that the 3-year 

limitations period for claims that were 

subject to a collections proceeding 

(referred to in the 2019 regulation as 

‘‘defensive claims’’) was not a logical 

outgrowth of the rulemaking and 


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17New York Legal Assistance Group (‘‘NYLAG’’) 

v. Cardona, Case No. 20–CV–1414 (S.D.N.Y. Mar. 

17, 2021). 

remanded that provision to the 

Department.17

The Department believes removing 

any limitations period on loans that are 

still outstanding is appropriate for 

several reasons. First, as discussed in 

the section on record retention, the 

records limitation discussed by the 

Department in the 2019 regulation 

relates to specific financial aid records 

that are unlikely to be relevant to the 

allegations most borrowers raise based 

upon what the Department has seen in 

applications for borrower defense to 

date. Most borrower defense 

applications to date relate to allegations 

around what an institution promised 

during the recruitment process and how 

that aligned with either the education 

the borrower ultimately received, such 

as whether they were able to get a job, 

if they could transfer credits, or if key 

data provided during the recruitment 

process such as job placement rates 

were accurate. The typical financial aid 

records that have a three-year retention 

requirement would not have any bearing 

on those allegations since they do not 

include records of recruitment 

activities, but rather cover items like the 

disbursement record of aid. Similarly, 

the Department does not believe it 

would be appropriate to set statutes of 

limitations on loans that are still 

outstanding the way many State laws do 

by tying them to the date that a 

borrower knew or could reasonably 

have been expected to know the 

misconduct occurred. As noted in the 

2019 regulation, properly enforcing 

such a statute of limitations is 

administratively burdensome. It would 

entail information that may not be 

included in a borrower’s application 

and could also rely on other factors such 

as when a State opened an investigation 

or publicized its findings. Moreover, the 

concept of limitations tied to when a 

borrower could reasonably have known 

about misconduct would not align with 

the Department’s proposal to allow 

group claims. Since one of the purposes 

of a group claim is to not require an 

individual application, the Department 

would not be receiving information 

from a borrower about when they knew 

about misconduct. 

The Department also considered 

whether it would be appropriate to 

establish separate statutes of limitations 

for forgiving balances that are still 

outstanding versus refunding amounts 

previously paid on loans that are still 

outstanding. The Department does not 

believe it would be appropriate to place 

a limitation on discharging remaining 

loan balances. Since there is no 

statutory time limit on repayment or 

collections activity, the Department 

does not want to create a situation 

where a borrower is still obligated to 

repay a loan on which the Department 

has concluded that the borrower should 

have received a discharge due to the 

institution’s misconduct solely because 

the individual did not fill out an 

application in time. Such an approach 

is not in keeping with any of the 

Department’s other discharge 

authorities, such as closed school 

discharge, false certification discharges, 

or total and permanent disability 

discharges, none of which require 

borrowers to apply for a discharge 

within a set period of time. 

Similarly, the Department does not 

believe it would be appropriate to set a 

separate statute of limitations for 

refunding amounts previously paid on 

loans that are still outstanding. None of 

the Department’s other discharges limit 

the refunding of amounts previously 

paid based on when a borrower applies, 

and the statute does not specify a 

separate treatment for borrower defense. 

There are no limitations on the issuing 

of refunds when a borrower receives a 

closed school discharge. Other 

discharges limit refunds to the point at 

which the borrower became eligible for 

the discharge, which is also not tied to 

applying within a certain period. For 

false certification, refunds are limited to 

the point after the borrower meets the 

eligibility criteria for a discharge, 

though in essentially all cases this 

means refunding all payments since 

most borrowers meet the eligibility 

criteria for a discharge prior to taking 

out a loan. Similarly, a borrower may 

receive refunds when approved for a 

TPD disability discharge back to the 

date the borrower’s eligibility for a 

discharge was established. Refunds for 

PSLF and Income-Driven Repayment, 

meanwhile, are provided for payments 

made beyond the 120, 240, or 300 

qualifying payment threshold, 

depending on the program. Finally, 

applying a statute of limitations only to 

refunds of amounts paid would create 

significant operational challenges for 

the Department. 

Exclusions 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution a borrower may assert as a 

defense to repayment of a Direct Loan, 

except that a borrower may not receive 

more relief than has been repaid. 

Current Regulations: The 1994 

borrower defense regulations do not 

explicitly address the acts or omissions 

that are excluded from a borrower 

defense to repayment claim. The 2016 

regulations at § 685.222(a)(3) explicitly 

provide that an institution’s violation of 

the title IV regulations alone does not 

constitute a basis for a borrower defense 

claim unless that violation would fulfill 

one of the bases for a borrower defense 

claim. Similarly, under the 2019 

borrower defense regulations at 

§ 685.206(e)(5), the Department 

explicitly excludes an institution’s 

violation of an HEA requirement or 

Department regulation as a basis for a 

borrower defense claim unless the 

violation would otherwise constitute the 

basis for a successful borrower defense 

to repayment. Under current 

regulations, misrepresentations related 

to civil rights violations are not a basis 

for a borrower defense claim. 

Proposed Regulations: Proposed 

§ 685.401(d) would provide exclusions 

that would not constitute a basis for a 

borrower defense claim. Specifically, an 

institution’s violation of institutional 

eligibility or compliance rules under the 

HEA or other laws would not form the 

basis for a defense to repayment claim 

unless the violation would constitute a 

defense to repayment under the Federal 

standard and occurred in connection 

with the making of a loan or provision 

of educational service for which the 

loan was intended. For example, an 

institution’s failure to meet the 

Constitution Day requirements in 36 

U.S.C. 106 would not form the basis for 

a borrower defense to repayment claim. 

Reasons: The Department’s consistent 

position since 1994 has been that the 

Department will acknowledge a 

borrower defense to repayment only if 

the act of omission of the institution 

directly relates to the loan or to the 

institution’s provision of educational 

services for which the loan was 

provided. See 60 FR 37768, 37769 (July 

21, 1995); 81 FR at 75941, 75944. 

As a result, the Department 

consistently has not considered claims 

such as personal injury torts, 

harassment, or a violation of Federal 

civil rights laws to be grounds for 

alleging a defense to repayment. In the 

2019 regulations, the Department 

provided a non-exhaustive list of 

circumstances that would not 

constitute, in and of themselves, 

borrower defenses to repayment that 

were directly related to the borrower’s 

loan or the provision of educational 

services. This list included, among 

others, slander or defamation, property 

damage, and allegations about the 

general quality of the student’s 

education or the reasonableness of an 

educator’s conduct in providing 


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18 It may not be possible to initially identify the 

full number of borrowers in every potential group 

due to data limitations. For example, the 

Department does not have reliable data on programlevel enrollment prior to the 2015–16 financial aid 

award year. That means the Department would not 

be able to accurately identify all members of a 

group claim based on enrollment in a specific 

program prior to that year. In situations where data 

quality prevents the Department from identifying 

all group members, for example, the Department 

would make every effort to identify all members of 

the group and would reserve the opportunity for 

individuals who the Department could not initially 

identify to be included in an opt-in basis. 

educational services. See 84 FR at 

49802, 49824. The Department 

emphasizes that, although the current 

regulations and the proposed 

regulations exclude a violation of civil 

rights as a basis for alleging a borrower 

defense to repayment, the Department’s 

Office for Civil Rights (OCR) enforces 

several Federal civil rights laws related 

to education, including Title VI of the 

Civil Rights Act of 1964, Title IX of the 

Education Amendments of 1972, 

Section 504 of the Rehabilitation Act of 

1973, and Title II of the Americans with 

Disabilities Act of 1990. Individuals 

who believe that a recipient of Federal 

funds or a public entity that is subject 

to Title II has violated these Federal 

civil rights laws can file a complaint 

with OCR. OCR’s authority includes 

obtaining reimbursement of tuition and 

other costs for injured parties when 

appropriate. The availability of this 

form of relief encourages individuals to 

file promptly with OCR. The 

Department believes that OCR’s 

enforcement authority is better suited to 

addressing civil rights harms than 

including them as a new basis for a 

borrower defense to repayment. 

The proposed regulations reflect these 

positions. 

Group Process and Group Timelines 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution a borrower may assert as a 

defense to repayment of a Direct Loan, 

except that a borrower may not receive 

more relief than has been repaid. 

Current Regulations: The current 

borrower defense regulations under 

§ 685.206 require an individualized 

review of every borrower defense 

application and thus do not permit a 

group review process. Under the 2016 

standard, § 685.222(f) outlined a process 

for evaluation of a group claim. Upon 

consideration of factors including, but 

not limited to, common facts and 

claims, fiscal impact, and the promotion 

of compliance by the institution or other 

title IV, HEA program participant, the 

Department could initiate a process to 

determine whether a group of borrowers 

identified by the Secretary, has a 

borrower defense. Members of the group 

may be identified from individual 

applications or from any other source. 

The Department may consolidate 

applications that have common facts 

and claims and resolve the borrowers’ 

claims as group claims. The Department 

established separate group process 

procedures with respect to loans made 

by institutions that have closed in 

§ 685.222(g) and for those that remain 

open in § 685.222(h). The 1994 

regulations did not specify a group 

process, though the Department did 

employ a group process using those 

regulations, including in granting a 

group claim for students who attended 

American Career Institute in early 2017. 

Proposed Regulations: The 

Department proposes two processes for 

pursuing group claims in new § 685.402. 

Under the first process, in proposed 

§ 685.402(a) and (b), the Department 

reserves the right to determine if a group 

of borrowers it identifies have a 

common defense to repayment at the 

same institution, including multiple 

campuses of the same institution. Under 

such a Department-initiated group 

process, the Department would have the 

discretion to create a group based on 

any of the following borrower defense 

basis: actions by the Federal 

Government, State attorneys general or 

other State agencies/officials or law 

enforcement activities; class action 

lawsuits related to educational programs 

at one institution; or State or Federal 

judgments against institutions awarded 

to several borrowers for reasons related 

that could give rise to a defense to 

repayment claim; or a group of 

individual borrower defense claims. 

Under the second process, in 

proposed § 685.402(c), the Department 

may initiate a group process upon 

request from a State requestor, on the 

condition that the State requestor 

submit an application and other 

required information to the Department 

to determine if it should form a group. 

Such an application ensures the 

Department has a consistent and clear 

process for addressing requests to form 

a group but does not confer the ability 

of the State requestor to otherwise 

represent the group during the 

Department’s process of reviewing and 

adjudicating the claims. The Secretary 

would further be able to consolidate 

multiple group applications related to 

the same institution or institutions. The 

proposed provision would require the 

Department to respond to a materially 

complete State requestor’s submission 

within 365 days. That response would 

indicate whether the Department 

decided to form the requested group 

and, if not, would provide the State 

requestor an opportunity to seek 

reconsideration of the group formation 

decision. In both group processes, the 

Department would include any 

individual claims submitted by a 

borrower under new proposed § 685.403 

if that borrower is deemed part of the 

group. That borrower’s claim would 

then be treated as part of the group 

claim, including with respect to 

timelines for adjudication. 

If the Department agrees to form a 

group under this proposed section, the 

Department would designate a 

Department official to adjudicate the 

borrower defense claim. 

For group claims, the Department 

proposes placing those loans in 

forbearance if they are in repayment and 

stopping collection activity if they are in 

default. While every effort would be 

made to identify the group members 

during the initial group formation stage, 

in some cases that may not be possible. 

Any borrower who was not initially 

identified 18 could opt into the group, 

however, and would be granted 

forbearance or stopped collection, as 

appropriate. The Department would 

retroactively apply forbearance or 

stopped collections to the loans of any 

such borrower, and no other 

consequences would apply to any 

borrower that the Department adds to a 

group after the group’s initial formation. 

Reasons: Upon its review of all three 

borrower defense regulations the 

Department believes it is better to return 

to allowing group processes, as was 

permissible for more than two decades 

under the 1994 regulation and explicitly 

allowed under the 2016 regulation. The 

2019 regulation excluded the ability to 

conduct a group process on the grounds 

that each borrower defense claim had to 

be subject to a highly individualized 

review. This included requiring a 

borrower to prove that a 

misrepresentation was made with the 

knowledge that the statement was false, 

deceptive, or misleading, or made with 

reckless disregard for the truth. It also 

required the borrower to make an 

individualized showing of harm. As 

already discussed under the Substantial 

Misrepresentation and Omission of Fact 

section, the Department is proposing to 

remove both of those requirements for a 

misrepresentation out of concerns that 

expecting a borrower to prove 

knowledge of a misrepresentation’s 

falsity or disregard for the truth sets a 

bar that would be essentially impossible 

for any reasonable individual to meet 

because they are not going to have 

inside knowledge of the way an 

institution was operating. Similarly, the 


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Department is concerned that the harm 

documentation as required in the 2019 

regulation risks penalizing borrowers for 

success achieved regardless of their 

education or to prove a level of 

employment analysis best reserved for 

labor economists. 

Removing these two components of 

the definition of a misrepresentation 

allows the Department to then 

determine the effects of a 

misrepresentation across a group of 

borrowers as opposed to an individual 

approach. While the Department does 

not believe that every instance of an 

alleged type of behavior that may result 

in an approved claim should be 

reviewed for a group of borrowers, the 

flexibility to do so when appropriate 

would result in a process that is more 

efficient for borrowers, institutions, and 

the Department. 

As discussed in the 2016 final 

regulations, Congress authorized the 

Department to determine subordinate 

questions of procedure for borrower 

defense cases, including but not limited 

to the scope and nature of alleged acts 

or omissions that satisfy borrower 

defense requirements, how to process 

borrower claims, and whether claims 

should be heard successively or as a 

group. See 81 FR at 75965 (generally 

citing FCC v. Pottsville Broad. Co., 309 

U.S. 134, 138 (1940)). The Department 

thus has general authority to adjudicate 

claims as a group. 

The Department believes that, where 

appropriate, the most efficient way to 

evaluate borrower defense claims is to 

jointly adjudicate the claims of similarly 

situated borrowers that are based on 

common evidence. This is consistent 

with how the Department has 

adjudicated and approved claims to date 

under the 1994 and 2016 regulations. 

Considering the applications of 

similarly situated borrowers as a group 

rather than reviewing all of them 

individually allows addressing the 

conduct that is often pervasive and 

affects many borrowers at once. At the 

same time, a group process may benefit 

the institution by allowing it to present 

its response to the same allegations by 

a group of borrowers once rather than 

having to respond to numerous 

individual claims. 

The Department is mindful of the 

privacy of borrowers’ financial 

information. Under these proposed 

regulations, information about a 

borrower’s individual financial 

circumstances would not be shared with 

other borrowers that are part of the 

group claim. Many negotiators 

supported the Department’s creation of 

a new group process for considering 

borrower defenses to repayment claims. 

They asserted that groups of borrowers 

who were all subject to the same act or 

omission by an institution should have 

their defenses considered as a group, 

and that a group process would be more 

efficient and result in more equitable 

treatment of similarly situated 

borrowers. 

In the 2016 regulations, the 

Department reserved the sole right to 

form groups for purposes of borrower 

defense adjudication. Although the 

Department welcomed cooperation and 

information from non-Federal partners, 

including State attorneys general and 

legal assistance organizations, the 

Department did not extend the right to 

request group formation to these 

external entities. The Department’s 

recent experience with borrower 

defense, however, particularly the 

influx of individual borrower defense 

applications, has convinced the 

Department that State partners can 

provide critical assistance in assessing 

borrower defense claims. For instance, 

every set of approved borrower defense 

to repayment findings to date except for 

those at Marinello Schools of Beauty 

and DeVry University was based at least 

in part on evidence provided by a State 

attorney general. The Department has 

also found that allowing for the 

formation of a group process without a 

formal process for applications has led 

to confusion where States are not told 

what would be useful information to 

submit and are not given a timeline for 

a response. The more structured process 

would address this confusion and make 

it easier for the Department to 

successfully administer the borrower 

defense program. For these reasons, the 

Department proposes to create a 

framework where ‘‘State requestors’’ 

may request the formation of a group 

borrower defense claim. This process 

would allow requestors to share their 

evidence with the Department. The 

requestors however would not represent 

the group in Department proceedings 

and the Department would retain the 

sole responsibility to adjudicate the 

claim. 

The Department initially considered 

allowing legal assistance organizations 

to also submit a group request and 

would have referred to this process as 

a ‘‘third-party group request.’’ However, 

on further consideration, the 

Department believes that it is best to 

limit this process to State requestors. 

The Department has consistently and 

repeatedly received information from 

States that played a key role in 

approving borrower defense 

applications. This evidence often comes 

from multi-year investigations that 

included the State entity obtaining 

internal institutional records through its 

investigatory tools. To date, the 

investigatory authorities granted to State 

attorneys general have yielded the type 

of high-quality evidence that the 

Department needs to fully evaluate a 

claim. Limiting this process to State 

requestors also ensures the Department 

would administer this process by 

working with a more limited group of 

entities. However, nothing in this 

approach precludes legal assistance 

organizations from working with State 

requestors and the Department 

encourages them to collaborate and 

share any additional evidence they may 

possess that could be of use for a group 

request. 

To further ensure the potential 

effectiveness of group claims, the 

Department would require that all State 

requestor group process applications 

include several items to be considered 

materially complete. These items 

include the necessary identifying 

information to define the group, such as 

the institution, campus or campuses 

involved, the time period, and the type 

of allegation. The Department also 

proposes requiring that any group 

application contain evidence beyond 

sworn borrower statements. While 

borrower statements are a crucial form 

of evidence, the Department has found 

that additional evidence brought by 

third parties such as training materials, 

internal communication, statements of 

former staff of the institution, or 

evidence of policies and procedures 

have been among the most effective 

ways of demonstrating that conduct was 

widespread. 

In accepting these group claim 

applications from State requestors, the 

Department changes the position it took 

in the 2019 regulation, in which it 

suggested that State attorneys general 

should work with their own State 

authorizing and regulatory entities 

when they are concerned about an 

institution rather than coming to the 

Department. While the Department 

agrees that State attorneys general 

should pursue matters within their own 

States as appropriate, failing to accept 

evidence that may assist the Department 

in its own efforts to administer the 

borrower defense program would be an 

unnecessary limiting of the triad of the 

Department, States, and accreditors. 

While each part of the triad has its own 

unique area of responsibilities, the 

whole system is more effective when it 

engages in collaboration and 

information sharing; and, it would be a 

disservice to students, institutions, and 

taxpayers for the Department to ignore 

evidence it could easily obtain that 

would help it make fair and accurate 


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determinations as to the validity of a 

borrower defense application. 

Finally, the Department proposes that 

any individual claim filed under new 

§ 685.403 that is also part of a group 

claim be adjudicated with the group 

claim, to allow the Department to more 

easily apply any additional evidence 

used to form the group to that 

individual borrower’s claim. If the 

group claim is ultimately denied, 

individual claims that were included in 

a group would then be adjudicated as 

individual claims. Treating an 

individual claim as part of a group until 

the group process is concluded ensures 

that borrowers are not subject to 

multiple simultaneous processes and 

the Department believes this approach 

would give borrowers a greater 

likelihood of approval. 

Evidentiary Standard 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan, except that 

a borrower may not recover from the 

Secretary an amount in excess of the 

amount that the borrower has repaid. 

Current Regulations: Under both the 

2016 and 2019 borrower defense 

regulations, the Department uses a 

preponderance of the evidence 

evidentiary standard. The 1994 

regulations do not include an 

evidentiary standard. 

Proposed Regulations: Under the 

proposed regulations, the Department 

would continue the practice in the 2019 

and 2016 regulations of using a 

preponderance of the evidence standard 

in resolving individual and group 

borrower defense claims, as set forth in 

proposed § 685.401(b). 

Reasons: The Department believes 

that it is appropriate to use the 

preponderance of the evidence standard 

to adjudicate all borrower defense 

claims pending or filed after July 1, 

2023. The adoption of this standard is 

consistent with both the 2016 and 2019 

regulations, as well as the Department’s 

practice in other proceedings regarding 

borrower debt issues. See § 34.14(b), (c) 

(administrative wage garnishment); 

§ 31.7(e) (Federal salary offset). During 

negotiated rulemaking sessions, the 

Department proposed to continue using 

the preponderance standard, and almost 

all negotiators expressed support for 

this position. One negotiator believed 

that the Department should use a 

stricter clear and convincing evidentiary 

standard. The Department declined to 

accept this suggestion as it would be a 

higher bar than the Department uses for 

any other similar process, including 

what is used in the 2016 and 2019 

regulations. 

Forms of Evidence 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan, except that 

the borrower may not recover from the 

Secretary an amount in excess of the 

amount that the borrower has repaid. 

Current Regulations: The 1994 

regulations do not specify the types of 

evidence acceptable to the Secretary in 

order to adjudicate a claim. The 2016 

and 2019 borrower defense regulations 

specified some types of evidence that 

could be considered but did not address 

whether borrower defense applications 

themselves (attestations from the 

affected borrower) would be considered 

evidence. 

Proposed Regulations: As to evidence 

the Department official might consider 

in adjudicating a group claim, 

§ 685.406(b)(1) specifically would 

permit consideration of: evidence 

submitted as part of the group 

application; evidence submitted in 

connection with individual claims that 

are part of the group; evidence within 

the Department’s possession; evidence 

or other information from the 

institution; and other relevant 

information. The Department official 

would also consider the group and 

individual applications as evidence. 

Reasons: Under the proposed 

regulations, the Department would 

consider information on the application 

(and other information appended to the 

application package) as a form of 

evidence to foster a more uniform and 

fair adjudication process. Because each 

borrower defense claim will depend on 

the circumstances, the Department does 

not want to provide an explicit list that 

limits what could constitute evidence. 

Doing so might inadvertently exclude 

some type of evidence that is relevant in 

some applications. Instead, the 

proposed regulations make clear that the 

application itself, including the 

borrower’s sworn statement, is a form of 

evidence. The proposed regulations also 

list other items that could be considered 

evidence, such as information about the 

institution in the possession of the 

Secretary that are material to the 

borrower defense claim, evidence or 

other information provided by the 

institution during the institutional 

response process, and any other relevant 

information that the Department official 

may obtain to adjudicate the claim. 

Using a broader definition of evidence 

would take any unique circumstances 

into account and would avoid concerns 

that prior rules were not sufficiently 

clear that a borrower’s sworn statements 

are a form of evidence. Borrowers may 

often have first-hand knowledge of the 

alleged act or omission, and the 

information they furnish through a 

borrower defense application may 

provide supporting evidence in areas 

that the Department does not regularly 

review in a routine program review or 

audit. 

The Department proposes in this 

NPRM to allow institutions to provide 

other relevant information for the 

Department official’s consideration 

during the adjudication of the borrower 

defense claim, because other 

information from the institution could 

help the Department official determine 

the veracity of the borrower defense 

claim and to ensure a fair process. The 

only exception to this process would be 

for claims approved based upon final 

Secretarial actions, which are other 

oversight and enforcement actions taken 

by the Department for conduct that also 

could support a borrower defense claim 

such as findings in a final program 

review determination that an institution 

engaged in misrepresentations, or other 

actions to fine, limit, suspend, or 

terminate an institution, and other 

actions that result in a loss of title IV 

eligibility. In those cases, the institution 

would have already had an opportunity 

to provide its evidence to the 

Department through the appropriate 

processes. 

Institutional Response Process 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan, except that 

a borrower may not recover from the 

Secretary an amount in excess of the 

amount that the borrower has repaid. 

Current Regulations: The 1994 

borrower defense regulations do not 

include a process for an institutional 

response to a borrower defense claim. 

Under the 2016 regulations, the 

Department designates a Department 

official to conduct a fact-finding process 

to adjudicate the borrower defense 

claim and considers any additional 

information, including any response or 

submission from the institution. The 

Department official notifies the 

institution of the borrower defense 

application and of any opportunity for 

the institution to respond. Upon 

request, the Department will provide the 

borrower any available information 

about the borrower defense claim 


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19https://fsapartners.ed.gov/sites/default/files/ 

attachments/programrevguide/ 

2017ProgramReviewGuide.pdf. 

(including information that the 

Department has about the institution). 

The 2019 borrower defense 

regulations at § 685.206(e)(10) contain a 

more detailed process. Upon receipt of 

a borrower defense to repayment 

application, the Department notifies the 

institution of the pending application 

and provides the institution with a copy 

of the borrower’s request and any 

supporting documents, a copy of any 

evidence otherwise in the possession of 

the Secretary, and a release of 

information signed by the student 

permitting the institution to provide the 

Department with information from the 

student’s education record relevant to 

the defense to repayment claim to the 

institution. The institution is given at 

least 60 days to respond, and the 

borrower is given at least 60 days to 

reply to the institution’s response. 

Proposed Regulations: In proposed 

§ 685.405, the Department proposes to 

continue to provide for an institutional 

response process but to clarify the role 

of an institutional response in the 

adjudication of a borrower’s claim, give 

institutions more time to respond, and 

ensure institutional responses are held 

to the same standards as what is 

expected of borrowers. Under the 

proposed regulations, the Department 

official would notify the institution of 

the borrower defense claim, and the 

institution would have 90 days to 

respond. With its response, the 

institution would be required to execute 

an affidavit confirming that the 

information contained in the response is 

true and correct under penalty of 

perjury, the same requirements that are 

placed on the borrower’s application. If 

the institution fails to respond, the 

Department would presume that the 

institution does not contest the 

allegations in the borrower defense 

claim. If the institution has closed, the 

Department would use the best contact 

information it has for the former owners 

or operators to notify the institution of 

the claim and give it a chance to 

respond; however, the Department 

would not continue to notify former 

owners or operators after repeated 

instances of nonresponse. As discussed 

further below, the limitations period 

would not apply if the Department 

provided notification to the institution 

of a claim prior to the end of the 

limitations period (see Time Limit for 

Recovery from Institutions section). 

Reasons: The Department believes it 

is vital to give institutions an 

opportunity to respond to allegations in 

a borrower defense claim. An 

institutional response would give the 

Department a more complete record on 

which to evaluate the borrower’s 

application. At the same, the 

Department is concerned that prior 

regulations that included an 

institutional response process did not 

provide sufficient clarity about how the 

response would factor into the 

Department’s adjudication process. Nor 

did those prior regulations specify that 

responses would be held to the same 

standards as the submission made by 

the borrower. 

To timely adjudicate a claim, the 

Department proposes to give institutions 

90 days to respond. The Department 

chose to give institutions 30 days 

beyond what was afforded in the 2019 

regulation to align it with the maximum 

response time afforded to institutions in 

the program review process. This is a 

similar situation in which the 

Department seeks feedback from an 

institution in response to identified 

issues with its administration of the 

Federal financial aid programs. Before 

issuing a Final Program Review 

Determination (FPRD), the Department 

affords institutions an opportunity to 

respond to the Program Review Report 

(PRR) in writing within 30 to 90 days 

(see 6–2 of the 2017 Program Review 

Guide).19 The program review process 

bears a lot of similarities to the borrower 

defense process. In both situations, the 

Department reviews evidence related to 

an institution. In the case of borrower 

defense, this comes from applications 

by a borrower or State requestor or 

evidence in the Department’s 

possession. In the case of program 

reviews, it is based upon the 

Department’s review of the institution’s 

student records, policies, and 

procedures. For program reviews, the 

Department then seeks a response from 

the institution to clarify or challenge the 

findings reached by the Department. 

The institutional response process here 

fulfills a similar role in giving the 

institution an opportunity to review the 

borrower defense claim and provide its 

own evidence to the contrary. 

Accordingly, giving institutions the 

same amount of time to respond to a 

borrower defense application that they 

receive at the maximum for a program 

review is reasonable. In addition to this 

initial institutional response, the 

Department may seek additional 

information from an institution later if 

it deems it necessary. The institution 

would also have a separate opportunity 

to respond to a claim during any 

recoupment proceeding. 

Process Based on Prior Secretarial 

Actions 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan, except that 

a borrower may not recover from the 

Secretary an amount in excess of the 

amount that the borrower has repaid. 

Current Regulations: The 1994 and 

2016 borrower defense regulations do 

not specifically provide for a process for 

adjudicating borrower defense claims 

based on prior Secretarial actions, 

which are other oversight and 

enforcement actions taken by the 

Department for conduct that also could 

support a borrower defense claim. These 

include FPRDs; actions to fine, limit, 

suspend, or terminate an institution; 

and other actions that result in a loss of 

title IV eligibility. The fact-finding 

adjudication process in 

§ 685.222(e)(3)(i) that is applicable in 

both sets of regulations includes 

consideration of Department records, 

however, which could include prior 

Secretarial actions, and so these changes 

make clearer the process for considering 

prior Secretarial actions rather than 

adding a new basis for a borrower 

defense claim. 

The 2019 borrower defense 

regulations, § 685.206(e)(9)(ii), permit 

the Department to consider information 

in its possession, which could include 

prior Secretarial actions, if the 

institution and the borrower have an 

opportunity to review the evidence and 

submit additional evidence. 

Proposed Regulations: Proposed 

§ 685.404 would establish a process by 

which the Department could consider 

prior final Secretarial actions against an 

institution in the context of determining 

whether to form and approve a group 

borrower defense claim. Such final 

action could include a FPRD or final 

audit determination (FAD); an 

institution’s failure to meet the 

administrative capability requirements 

that relate to the provision of 

educational services; an institution’s 

loss of eligibility due to, for example, a 

high cohort default rate (CDR); a fine, 

limitation, suspension, or emergency 

action relating to an institution’s 

misrepresentation or aggressive 

recruitment; or other final Departmental 

actions. Because any action the 

Department would consider in this 

context is already ‘‘final,’’ the 

institution would not have another 

opportunity to provide an additional 

response to the allegations, beyond the 

ample opportunities already afforded it 


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20As provided in 20 U.S.C. 1232f, each recipient 

of Federal funds under a Department program is 

required to keep records that disclose ‘‘the amount 

and disposition of those funds,’’ and to ‘‘maintain 

such records for three years after the completion of 

the activity for which the funds are used.’’ 

in the prior context, before the 

Department makes a decision on the 

group claim. 

Reasons: The Department conducts a 

significant amount of oversight and 

compliance work to ensure compliance 

by institutions with various 

accountability provisions in the HEA. 

Some of these actions may uncover or 

relate to acts or omissions that also 

would provide a basis approving 

borrower defense claims. These 

oversight and compliance processes 

include multiple opportunities for 

institutions to appeal or challenge the 

findings. In the context of a program 

review, for example, an institution may 

respond to program review findings 

before the Department issues a final 

determination. Similarly, institutions 

have options for appealing actions to 

fine them or otherwise limit, suspend, 

or terminate their participation in the 

Federal student aid programs. 

The Department proposes in § 685.404 

to codify a process that better integrates 

such oversight and compliance work 

with borrower defense adjudication, by 

allowing findings generated in the 

course of other Departmental action to 

directly lead to the approval of borrower 

defense claims. Doing so minimizes 

duplication of work for the agency as 

well as the need for the institution to 

respond multiple times to the same set 

of findings. For example, if an FPRD or 

FAD reveals that an institution 

misrepresented job placement rates to 

students in a particular program, the 

Department may use those FPRD or FAD 

findings to form a group and eventually 

grant borrower defense discharges to 

affected borrowers assuming the 

findings also give the Department 

grounds to presume reasonable reliance 

for the members of the group. In the 

case of findings based upon a FPRD or 

FAD, the institution will have already 

had opportunities to respond to the 

findings before they are final, as well as 

appeal any liabilities to the Office of 

Hearings and Appeals as well as the 

Secretary. Because of those existing 

response and appeal opportunities the 

institution would not be given an 

additional opportunity to respond 

during the adjudication process. 

Note that the group process 

determination is distinct from the 

process of collecting the amount of 

discharged loans from an institution, 

which is discussed below. If the 

Department initiated an action to collect 

the amount of the discharged loans from 

the institution, the institution would 

have the opportunity to explain why it 

should not be liable. As also noted 

below, an institution would only be 

subject to a recoupment action if the 

claim would have been approved under 

the borrower defense regulation in place 

at the time the loans that are being 

approved were disbursed. That means 

an institution would not be subject to a 

recoupment action for loans disbursed 

prior to July 1, 2023, under this section 

unless those claims also would have 

been approved under the 1994, 2016, or 

2019 regulations, as applicable. 

Record Retention 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. Moreover, 

Section 443 of GEPA (20 U.S.C. 1232f) 

provides that each recipient of Federal 

funds under a Department program is 

required to keep records that disclose 

‘‘the amount and disposition of those 

funds,’’ and to ‘‘maintain such records 

for three years after the completion of 

the activity for which the funds are 

used. 

Current Regulations: The three sets of 

borrower defense regulations are silent 

as to record retention periods, but since 

all the loan programs eligible for 

borrower defense claims are derived 

from title IV regulations, the record 

retention regulations for purposes of 

title IV apply. This means an institution 

must retain certain records related to the 

management of its financial aid program 

in accordance with the timeframes 

prescribed in § 668.24, which is 

generally three years unless otherwise 

directed by the Secretary.20 The same 

provision also contemplates longer 

retention periods, as appropriate, for all 

records involved in any loan, claim, or 

expenditure questioned in connection 

with a title IV, HEA audit. Any such 

records must be retained until the later 

of the record retention period or until 

the questioned claim has been resolved. 

Proposed Regulations: The 

Department does not propose new 

record retention periods. 

Reasons: The Department believes 

that existing record retention provisions 

are adequate. During negotiated 

rulemaking, some negotiators expressed 

concern about whether the three-year 

retention requirement in § 668.24 was 

compatible with the potentially longer 

timeframes contemplated for borrowers 

to submit borrower defense claims. 

Negotiators were concerned that, if an 

institution no longer has access to 

student records, it might be unable to 

adequately defend itself from a borrower 

defense claim. 

Current regulations establish a 

minimum for records retention, not a 

maximum period. And, the Secretary 

has the discretion to order a longer time 

as appropriate. In circumstances 

involving open claims, moreover, the 

regulations require institutions to retain 

records until the claim is resolved. 

Moreover, the records affected by the 

three-year limitations period are 

unlikely to be the most relevant records 

to a defense to repayment claim. To 

date, approved defense to repayment 

claims have centered on evidence 

related to institutional promises made to 

borrowers about the ability to transfer 

credits or obtain a job, or how many 

former students were successfully 

placed. The records supporting these 

types of claims would likely be based on 

administrative training manuals, 

marketing materials, call logs between 

admissions representative and 

borrowers, internal secret shopping 

programs, and other centralized 

documentation rather than the financial 

aid records of individual borrowers 

which are covered by § 668.24. 

Other elements of the proposed 

regulations would protect institutions 

from concerns about a lack of relevant 

records to respond to a borrower’s 

claim. First, institutions would not be 

subject to any recoupment activity not 

related to a Federal or State judgment 

that occurs outside of the 6-year 

limitations period, which is discussed 

elsewhere in this NPRM. That means 

the institution would be aware of any 

claim for which it might have to repay 

the Department within 6 years after the 

borrower’s last attendance at the 

institution. Because institutions would 

receive formal notification of the claims 

against them through the institutional 

response process, they would be 

informed about the effects of the tolling 

of the limitations period. This formal 

notification would provide institutions 

with sufficient notice to retain pertinent 

records while protecting taxpayers and 

the Department’s ability to recuperate 

funds from an institution. 

Second, as noted elsewhere in this 

document, the Department would not 

conduct a recoupment process against 

an institution for any claims approved 

under this regulation that would not 

have been approved by the relevant 

borrower defense regulation that was in 

place at the time the loans associated 

with the approved claim were 

disbursed. That further limits the 

likelihood that the lack of relevant 

records would result in financial 

consequences for the institution. 


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Borrower Status During Adjudication 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. 

Furthermore, Section 432(a)(6) of the 

HEA authorizes the Secretary to enforce, 

pay, compromise, waive, or release any 

right, title, claim, lien, or demand, 

however acquired, including any equity 

or any right of redemption (settlement 

and compromise authority). 

Current Regulations: When a borrower 

files a borrower defense claim, the 1994 

and 2016 regulations in § 685.222(e), 

and the 2019 borrower defense 

regulations in § 685.206(e)(8), provide 

for forbearance on any of the borrower’s 

nondefaulted loans that are associated 

with the borrower defense claim. The 

1994 and 2016 regulations, in addition, 

cease collection activity on defaulted 

loans that are associated with the 

borrower defense claim. The 2019 

regulations do not include a pause on 

collections activity for defaulted loans 

on which a borrower has submitted a 

defense to repayment application. 

Proposed Regulations: Proposed 

§§ 685.402(d)(2) and 685.403(c)(3) 

would provide that, during adjudication 

of a borrower defense claim, all of the 

borrower’s title IV nondefaulted loans 

would be placed in forbearance and all 

title IV loans in default would be placed 

in stopped collection status, regardless 

of whether they are associated with the 

borrower defense claim. 

Reasons: The proposal to pause all a 

borrower’s loans instead of just those 

associated with the claim would align 

the regulations with the practice the 

Department has used for borrowers who 

apply for other types of discharges or 

forgiveness that have been in place for 

years without material consequences. 

While the 2016 and 2019 regulations 

only require the Department to pause 

loans associated with the borrower 

defense claim, the Department has 

found that there are significant issues 

with data accuracy related to who 

owned different institutions at various 

points in time, as well as ensuring that 

enrollment and loan data align. 

Servicers would also have to manually 

pause relevant loans, adding another 

opportunity for error. The Department 

can ensure it only discharges 

appropriate loans when approving 

claims because doing so requires an 

individualized review of a borrower’s 

loans, but it is concerned that doing 

such a review on the front end would 

take significant time that would be 

better spent on the review and 

adjudication of the borrower’s claim. 

Pausing all loans thus reduces the 

likelihood of errors that would harm a 

borrower and allows the Department to 

devote its resources to rendering timely 

decisions on applications. 

The Department is concerned that a 

partial pause would create confusion for 

borrowers who do not understand that 

they still owe payments on some loans 

but not others. It is also possible that a 

borrower would file a defense to 

repayment claim that pertains to some 

but not all of the loans underlying in a 

Federal Direct Consolidation Loan, in 

which case there is no way to offer 

borrowers a partial pause pertaining 

only to the loans related to the borrower 

defense claim. Placing all of a 

borrower’s loans in forbearance or 

stopped collection status would allow 

the Department to automate the 

adjudication process more easily. 

The Department recognizes that any 

interest-free pause for a borrower with 

an individual claim increases the cost to 

the Government in the form of foregone 

payments and interest accumulation. At 

the same time, the Department is 

concerned that borrowers with 

potentially valid claims may be 

dissuaded from applying for borrower 

defense because they are concerned 

about how much interest could 

accumulate during the months, if not 

years, it takes to review a claim. 

Implementing in the regulation a benefit 

it has already been providing to cease 

interest accrual after an individual 

claim has been pending for a set period 

balances the increased costs to the 

Government from pausing interest with 

the concerns about dissuading 

potentially strong claims. Allowing 

interest to accumulate for some time 

would provide an incentive for 

borrowers to file strong claims but not 

face overly punitive consequences if the 

Department needs multiple years to 

decide a claim. Providing such a benefit 

also minimizes the amount of harm a 

borrower may suffer from the time their 

claim is pending. 

Under current practice, the 

Department ceases interest accrual once 

a claim has been pending for one year. 

In § 685.403 the Department proposes to 

reduce this time to 180 days from the 

initial grant of forbearance or stopped 

collections for an individual borrower if 

the Department does not make a 

determination on the borrower defense 

claim within that timeframe. This 

practice also helps institutions with 

approved claims because it means any 

ultimate liability would not also include 

months or years’ worth of additional 

interest. The Department believes the 

180-day period is appropriate because it 

is concerned that making all borrowers 

face a year of interest accumulation 

could be too strong a disincentive for a 

borrower to file an application for fear 

of the potential added interest costs. 

The Department also believes this time 

frame is appropriate because it 

anticipates it could need multiple years 

at least at first to review a pending claim 

and a borrower would thus face less 

potential harm from the Department’s 

own administrative limitations. The 

Department chose 180 days because the 

Department does not believe it would be 

reasonable to charge interest on a 

borrower’s loans for the entirety of the 

time needed to review a claim, which 

could be longer than a year depending 

on the complexities. 

To avoid accruing interest during 

adjudication, individual borrowers 

would have the option to decline 

forbearance and continue making 

payments, including making payment 

through an income-driven repayment 

plan or, for borrowers in default, 

declining the stopped collection on 

those defaulted loans and making 

voluntary payments to rehabilitate a 

defaulted loan. Borrowers who decline 

the forbearance or pause on collections 

would also continue normal interest 

accumulation policies. The Department 

believes it is critical to build in 

advantageous treatment of borrowers’ 

Federal student loans during 

adjudication, while also giving 

borrowers the choice to decline ceased 

payment options, so that borrowers do 

not forego filing a borrower defense 

claim for fear of facing higher accrued 

interest after adjudication. 

Unlike individual borrowers, 

identifiable borrowers who are covered 

by group claims would have their loans 

placed in an interest-free forbearance or 

stopped collections activity, as 

applicable, upon group formation. The 

Department believes it is appropriate to 

also provide these borrowers an opt-out 

forbearance upon group formation 

because it does not want borrowers to 

have to continue to make payments in 

situations where a claim might be 

approved and a borrower would then 

receive a discharge. This also ensures 

that a borrower currently in repayment 

would not fall into delinquency or 

default while the Department is 

reviewing the group claim. The 

Department proposes different treatment 

for these borrowers in a group claim as 

to interest accumulation, because it 

would be pausing the loans of someone 

who had not applied for borrower 

defense and thus not been presented 

with a choice to pause their loan 

payments and interest. The Department 

is concerned that it would unfairly harm 


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borrowers if it paused a borrower in a 

group’s loans without also ceasing 

interest accumulation. Ceasing interest 

accumulation for these borrowers 

immediately thus ensures the 

Department does not cause a borrower’s 

loan balance to grow when they have 

not explicitly asked to be removed from 

active repayment. This treatment of 

group claims also reduces the potential 

ultimate liability for an institution if the 

group claim is approved. Were the 

Department to continue to allow interest 

to accrue, then the total cost of a full or 

partial discharge, and any resulting 

liability, would be larger. 

Timelines To Adjudicate 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. 

Current Regulations: None of the 

current borrower defense regulations 

imposes a timeline for adjudicating a 

borrower defense claim. 

Proposed Regulations: Proposed 

§ 685.406 includes timelines for 

adjudicating borrower defense claims. 

Group claims formed in response to a 

State requestor would be adjudicated 

within two years of the point at which 

the Department notified the State 

requestor that it would be forming the 

requested group. Individual claims 

would be adjudicated within 3 years 

from the submission of a materially 

complete application package. These 

adjudication timelines, however, would 

not apply to a reconsideration request or 

an additional review under a State law 

standard. A borrower who submitted an 

individual claim that was then included 

in a group claim that was only partially 

approved or denied would have their 3- 

year timeline paused while the group 

claim is under consideration. The 

timeline for reviewing that individual 

borrower’s application would not have 

any effect on the timeline for 

adjudicating the group claim. Under the 

proposed regulations, the Department 

would commit to providing interim 

updates one year after the 

commencement of the adjudication, 

with expected timelines. The 

Department’s failure to render a 

decision by the end of the timeline 

would render the loans unenforceable. 

An institution would not face a 

recoupment action for the cost of a loan 

being deemed unenforceable under this 

requirement because it would not be 

viewed as having received an approved 

borrower defense claim. 

When an individual claim is 

subsequently included in a group 

process, the processing timeline for that 

individual claim would convert to the 

group timeline. The individual 

adjudication timeline and notification 

requirements would pause until the 

group claim is resolved. 

Reasons: The Department is 

concerned that in the past, borrowers 

have not received decisions on their 

borrower defense application in a timely 

fashion. While properly reviewing the 

evidence around a borrower defense 

application is not something that can 

happen immediately, the Department 

believes it is important to provide 

clearer expectations for borrowers about 

how long it may take to process their 

claim. 

Many negotiators strongly supported 

the Department’s proposal to codify 

adjudication timelines in the 

regulations. The proposed regulation 

generally imposes a two-year timeline to 

adjudicate a borrower defense claim 

under a group process, and a 3-year 

timeframe for an individual claim. The 

Department chose two years for group 

processes because this is customarily 

the time it takes to conduct a program 

review. This two-year adjudication 

period would be separate from the 

decision whether to form the group, 

which could take up to one year, thus 

giving group claims the same overall 3- 

year period afforded to individual 

claims. Individual claims would be 

subject to a longer adjudication 

timeframe because they may include 

case-specific research on the merits. 

Timelines and the progress update 

after one year would give borrowers 

greater confidence that their defense to 

repayment claims are receiving prompt 

and serious review. The proposed 

timelines also make clear, however, that 

thorough review of a claim cannot be 

achieved in a few weeks. Finally, to 

hold itself accountable and give 

institutions some closure during the 

adjudication process, the Department 

would forego collection actions against 

an institution if the Department does 

not meet adjudication deadlines. The 

Department would forgo recoupment in 

this situation because the borrower 

would not have an approved borrower 

defense to repayment claim and thus 

there is no borrower defense liability to 

seek from the institution. 

The Department recognizes that 

failing to decide a claim within the set 

period would increase costs for the 

Government. The Department’s goal is 

that this provision would never result in 

any added costs because it will continue 

to engage in regular and thorough 

reviews of borrower defense claims. 

The Department proposes to toll the 

adjudication timeline and notifications 

requirements for individual claims that 

are included in a group process so that 

a borrower is not subject to two separate 

review timelines. The Department 

believes that group processes would 

generally be better for borrowers as they 

are likely to be supported by additional 

evidence, including potential 

submissions from third parties. If a 

group claim is denied, then the 

borrower’s claim would be considered 

separately and the pause on the 

adjudication timelines and notification 

requirements would end. 

Process To Adjudicate Borrower 

Defense Claims 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan except that 

in no event may a borrower recover 

from the Secretary more than the 

borrower repaid. 

Current Regulations: The 1994 

regulations establish that borrowers may 

assert a defense to repayment during 

proceedings which are available to the 

borrower when the Department initiates 

certain collection actions on a Direct 

Loan. The 2016 regulations in 

§ 685.222(e), (f), (g), and (h) establish the 

general procedures to adjudicate a 

borrower defense claim based on 

whether the claim was an individual 

claim, group claim in an open school, or 

a group claim in a closed school. 

The 2019 regulations at 

§ 685.206(e)(9) provide the 

consideration of the order of objections 

and of evidence in possession of the 

Secretary to adjudicate a borrower 

defense claim. 

Proposed Regulations: Under 

proposed § 685.406(a) through (d), the 

Department would adjudicate the 

borrower defense claim in accordance 

with these subsections. If the claim is a 

group claim, under proposed 

§ 685.406(b), the Department official 

considers evidence related to the claim, 

materials in the group application, 

individual claims that were part of the 

group, evidence within the 

Department’s possession, and evidence 

or other information from the institution 

as well as any other relevant 

information. In adjudicating the group, 

the rebuttable presumption would be 

that everyone in the group was affected. 

Under proposed § 685.406(c), the 

Department official adjudicates an 

individual claim based on the 

information available to the official. The 

Department official considers materials 

in the individual application, evidence 

within the Department’s possession, 


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evidence or other information from the 

institution as well as any other relevant 

information. Finally, under proposed 

§ 685.406(d), if the Department official 

requires additional information in order 

to adjudicate the claim, an institution 

must respond to a Department official’s 

request within 90 days of the request 

and an individual must respond within 

a reasonable timeframe. 

Reasons: During negotiated 

rulemaking, the Committee discussed 

the general process to adjudicate 

borrower defense claims. The 

Department proposes to codify the 

general process to adjudicate the 

borrower defense claim based on 

whether it is a group claim or an 

individual claim to make it clear that 

the Department would adjudicate the 

borrower defense claim. In both a group 

or individual claim, in general, the 

Department official considers evidence 

within the Department’s custody and 

other relevant information in order to 

adjudicate the claim. This is a 

streamlined approach compared to the 

2019 regulations, which included both 

an initial institutional response and an 

additional required round of borrower 

responses to whatever materials the 

institution sends the Department. See 34 

CFR 685.206(e)(10). Because 

adjudication of a borrower defense 

claim is an administrative proceeding, 

and not a judicial proceeding that 

generally affords parties rights to crossexamination, the Department proposes 

that upon receipt of an application and 

an institutional response (if any), the 

Department should immediately begin 

adjudicating the borrower defense 

claim. 

Should the Department official 

require information from the institution, 

the Department proposes to give the 

institution 90 days to respond. The 

Department believes this is an adequate 

timeframe for response while promoting 

expeditious adjudication of the 

borrower defense claim. After a program 

review is conducted and, for example, 

the Department generally affords 

institutions 30 days to respond to a 

Department request for information 

prior to the Department’s issuance of a 

Program Review Report. 

Decision Letters 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. 

Current Regulations: The 1994 and 

2016 regulations in § 685.222 establish 

that, after adjudication, the Department 

issues a written decision approving or 

denying the claim. The Department 

official’s written decision is final as to 

both the claim and any relief granted. 

The 2019 regulations at 

§ 685.206(e)(11) require the Secretary to 

issue a written decision informing both 

the borrower and the institution of the 

decision and its basis, as well as the 

relief provided to the borrower, if any. 

Under § 685.206(e)(13), the Department 

official’s decision is final. 

Proposed Regulations: Under 

proposed § 685.406(e), the Department 

would issue a written decision on the 

outcome of an adjudication. If the 

Department official approves some or all 

of the borrower defense claim, the 

written decision would reflect the 

discharge amount and that the 

borrower’s loans associated with the 

claim would be placed in, or continue 

in, an interest-free forbearance until the 

Secretary discharges some portion or all 

of the loans. If the Department official 

denies the borrower defense claim, the 

written decision would include the 

reasons for the denial, the evidence 

relied upon, the loans that are due and 

payable to the Department or that would 

return to the loan’s prior status, and the 

timeframe by which the Department’s 

collection action would resume (90 

days). The written decision also would 

describe the process for the borrower to 

request reconsideration of the decision. 

The written decision would be made 

available to an individual or member of 

a group and, to the extent practicable, 

the institution. 

Reasons: During negotiated 

rulemaking, some negotiators 

recommended that the regulations 

require more specificity in 

communication to borrowers, citing 

court cases that expressed concern with 

the information provided in the 

Department’s communications in the 

past. The Department agrees that 

decision letters should provide 

sufficient information to borrowers so 

they can understand the decision and 

make an informed decision about 

whether to pursue reconsideration of 

their claims. As set forth above, 

proposed § 685.406(e) outlines the 

information that would be provided in 

the Department’s written decision 

letters, including the reasons for the 

decision, its effective date, and 

information about next steps, including 

reconsideration where applicable. The 

Department believes giving borrowers 

this information would ensure that 

borrowers have the details to decide 

their next steps, including a request for 

reconsideration, while balancing the 

Department’s need to keep borrowers 

informed and resolve claims in a timely 

manner. The Department also believes 

its proposed 90-day period before 

resuming collections provides 

borrowers adequate time to return to 

repayment or to request reconsideration 

as discussed in the Reconsideration 

section. 

Borrower Cooperation & Transfer of 

Recovery Rights 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan and that in 

no event may a borrower recover from 

the Secretary an amount in excess of the 

amount the borrower repaid on their 

Direct Loan. 

Current Regulations: The 1994 

regulations do not address borrower 

cooperation and the transfer of a 

borrower’s recovery rights to the 

Secretary. The 2016 regulations in 

section 685.222(j) establish that the 

borrower must reasonably cooperate 

with the Secretary in a borrower defense 

proceeding. Section 685.222(k) provide 

that borrowers transfer to the Secretary 

their rights to recover from a third-party. 

The 2019 regulations at section 

685.206(e)(14) establish that the 

Secretary may revoke any relief granted 

to a borrower who refuses to cooperate 

with the Secretary, and those 

regulations provide a non-exhaustive 

list of what cooperation could entail. 

Section 685.206(e)(15) provides that 

borrowers transfer to the Secretary the 

borrower’s rights to recover from a 

third-party. 

Proposed Regulations: Under 

proposed § 685.410, a borrower would 

be required to reasonably cooperate 

with the Secretary in any proceeding 

under subpart H. Under proposed 

§ 685.411, the borrower would be 

deemed to have assigned to, and 

relinquished in favor of, the Secretary 

any right to a loan refund (up to the 

amount discharged) that the borrower 

may have by contract or applicable law 

with respect to the loan or the contract 

for educational services for which the 

loan was received, against the school, its 

principals, its affiliates, and their 

successors, its sureties, and any private 

fund. 

Reasons: When a borrower files a 

borrower defense claim, the Department 

would require the borrower’s 

cooperation to determine the facts of the 

claim and provide the institution with 

due process, as appropriate. Absent this 

cooperation, the Department could be 

unable to successfully resolve the 

borrower’s request for relief. Rather than 

specifying what would constitute 

cooperation, as was done in the 2019 


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regulations, the Department believes a 

general statement requiring reasonable 

borrower cooperation would be wholly 

sufficient. As discussed in the preamble 

to the 2019 regulations, the Department 

defined cooperation to include (but was 

not limited to) providing testimony 

regarding any representation made by 

the borrower to support a borrower 

defense claim and producing, within 

timeframes established by the Secretary, 

any documentation available to the 

borrower. The Department argued that 

the regulatory text would help to ensure 

that the Department receives the 

borrower’s cooperation in any 

proceedings against the institution. See 

83 FR 37263, July 31, 2018. The 

Department now disagrees that defining 

cooperation would assist the Secretary 

in recovering from the institution. Just 

as borrower defense claims are 

adjudicated on their own merits, the 

Department can also assess whether the 

borrower cooperates based on the 

circumstances of the case. Accordingly, 

the Department need not be prescriptive 

on what constitutes cooperation. 

The HEA clearly articulates that in no 

event may a borrower recover from the 

Secretary an amount in excess that the 

borrower has repaid. For the 

Department to ensure compliance with 

this statutory provision, it is necessary 

that these proposed regulations contain 

a provision to prevent double recovery 

from the Federal Government. Although 

the 2016 and 2019 regulations allow the 

Secretary to reinstate a borrower’s 

obligation to repay for amounts that the 

borrower received relief from a claim 

made to a third-party (e.g.: a borrower 

successfully receives funds from a State 

tuition recovery fund), the Department 

is convinced that this provision is no 

longer necessary. In the borrower 

defense application, the Department 

asks the borrower to attest to any 

attempts made to recover from a thirdparty, and asking this question upfront 

adequately protects the Federal 

Government from a borrower seeking 

double recovery. In the Department’s 

experience, after the borrower defense 

claim is approved and the case is 

considered closed, it is nearly 

impossible to determine if a borrower 

made a claim to a third-party. Therefore, 

the Department believes its proposal 

serves a twofold purpose: it requires 

borrower cooperation and preserves its 

right to recover from third parties to 

mitigate loss to the Federal taxpayer 

investment. 

Borrower Defense to Repayment PostAdjudication—Reconsideration Process 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan except that 

in no event may a borrower recover 

from the Secretary more than the 

borrower repaid. 

Current Regulations: Some of the 

Department’s borrower defense 

regulations provide for a 

reconsideration process. The 1994 and 

2016 regulations in § 685.222(e)(4) and 

(5) make reconsideration available for 

borrower defense claims denied wholly 

or in part, based on new evidence, and 

provide that the Secretary can reopen a 

borrower defense application at any 

time to consider evidence that was not 

considered in making the previous 

decision. The 2019 regulations in 

§ 685.206(e)(13) provide that the 

Department’s written decision is the 

final decision of the Department and is 

not subject to appeal within the 

Department. There is, thus, no 

reconsideration process under the 2019 

regulation. 

Proposed Regulations: Proposed 

§ 685.407 sets forth the circumstances 

under which a borrower may seek 

reconsideration of a Department 

official’s decision on their borrower 

defense claim. The Department official’s 

written notice would be final, but if the 

borrower’s claim is denied in full or in 

part, that individual borrower or, for a 

group claim, a State requestor, would be 

able to request reconsideration. 

Permissible bases for a reconsideration 

request would be limited to 

administrative or technical errors; the 

availability of new evidence; or a 

request by the borrower (for an 

individual claim) or a State requestor 

(for a group claim) for reconsideration 

under a State law standard. 

While individuals would be able to 

request reconsideration of their claims, 

for group claims the Department 

proposes to limit requests for 

reconsideration to State requestors, 

which would include a State, a State 

attorney general, or a State regulatory 

agency. Individual members of the 

group would not be able to request 

reconsideration on behalf of the entire 

group or for any individual borrower. 

An individual borrower who is part of 

a group that is denied in full or in part 

would not be able to seek 

reconsideration until they received a 

final decision from the Department 

official on a separate individual 

application. If the individual had not 

already done so before group formation, 

the individual could submit an 

individual borrower defense application 

in accordance with § 685.403 after a 

final decision from the Department 

official that resulted in a full or partial 

group denial. 

Group reconsideration requests could 

be made for the same reasons as an 

individual request, but a request for 

reconsideration under State law would 

require additional documentation, 

including an analysis of the applicable 

State law standard and why it would 

lead to an approved borrower defense 

claim. Any reconsideration request, 

whether from an individual or on behalf 

of a group, must be made no later than 

90 days from the date of the Department 

official’s written decision. 

To adjudicate a reconsideration 

request, the Department would 

designate a different Department official 

than the official who conducted the 

initial adjudication. When the 

reconsideration request is received, the 

borrower or group members would be 

placed in forbearance or stopped 

collections. The Department would have 

the option to request an additional 

response from the institution under the 

same procedures as described in new 

§ 685.405. There would be no set 

timeline for the Department to issue a 

decision on a reconsideration request. 

Finally, in new § 685.407(f)(1) the 

Secretary would be able to reopen at any 

time a borrower defense application that 

was partially or fully denied. 

Reasons: The Department expects that 

borrowers or State requestors would 

include their best available evidence at 

the time that they file their original 

claims. Additional evidence may 

become available at a later time, 

however, especially from ongoing 

investigations by State attorneys general 

and other entities. The Department is 

also cognizant that if it made an error in 

its review of the claim, the borrower 

should have a method for asking that 

error to be addressed by the agency 

instead of needing to go to court to 

challenge the denial. 

Allowing a reconsideration process is 

a change from what the Department 

concluded in the 2019 regulation, in 

which it said all decisions would be 

final. It took that position partly out of 

concerns about resources to adjudicate 

claims and concerns about borrowers 

seeking repeated opportunities to have a 

claim be approved. 

Upon further consideration and 

further experience adjudicating claims, 

the Department disagrees with the 

conclusions reached in the 2019 

regulation. We believe the specific 

instances in which a borrower could 

seek reconsideration would limit the 

ability to ask for the same allegations to 

be reviewed repeatedly. Instead, they 

would be receiving a second look at 

their application when additional 


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evidence suggested it, when they could 

demonstrate an error that the 

Department should correct, or when 

they wish to have a review under a 

different standard than the one 

originally used by the Department. 

The Department acknowledges that 

allowing for a reconsideration process 

would be more work for the staff that 

reviews borrower defense applications, 

but it believes that the benefits from 

permitting this approach on net 

outweigh its exclusion. Without a 

reconsideration process the Department 

would risk having to address errors 

made in decisions through court 

proceedings rather than a second 

review. Litigation is more resourceconsuming for the Department than 

reconsideration, and reconsideration is 

also more efficient and less expensive 

for borrowers. The Department also 

believes the ability to move all claims 

under a single upfront Federal standard 

would provide very significant 

operational simplification and 

consistency in decision-making that 

would on net make the program easier 

to administer. 

Allowing for a reconsideration 

process is consistent with other 

positions taken by the Department in 

the past. As explained in the 2016 final 

regulations, the Department believes it 

is important to allow a borrower to 

submit new evidence that he or she may 

have only recently acquired. The 

Department acknowledged that there 

should also be finality in the borrower 

defense process as well. See 81 FR at 

75963. Providing a pathway for 

borrowers to have their borrower 

defense claim reconsidered, under the 

limited circumstances set forth in 

§ 685.407, brings the borrower closer to 

finality in their borrower defense claim 

and such reconsideration process within 

the Department’s borrower defense 

framework mitigates the need for 

complex litigation through the court 

system. In addition, as part of 

establishing a single consistent set of 

rules that apply regardless of when a 

borrower’s loans were disbursed, the 

Department is proposing to allow all 

borrowers to request reconsideration 

based on State law to reflect the 

standard in the 1994 regulations. As 

noted earlier in this NPRM, one of the 

Department’s goals is to provide a single 

upfront Federal standard for reviewing 

all claims pending and received after 

the effective date of this regulation’s 

final rule. To accomplish that, the 

Department must ensure that no 

borrower is presented with a narrower 

standard under the proposed rule than 

what they would have had under the 

prior regulation that would have 

previously applied to their claim. 

Including the State standard thus 

ensures that no one whose claim would 

have been originally subject to the 1994 

regulation is worse off. The Department 

is proposing to make this option 

available to all borrowers, including not 

just those who would have been covered 

by the 1994 regulation. The Department 

is doing so because of concerns that 

varying reconsideration treatment by the 

disbursement date of the loan results in 

a process that is overly confusing for the 

borrower and is more administratively 

complex to administer. While providing 

the State law option to more borrowers 

adds some administrative burden, the 

Department believes that burden is more 

than offset by the efficiencies gained 

from the upfront review process. 

The Department believes that limiting 

the reconsideration process to new 

evidence, administrative errors, or State 

law review would result in only looking 

at an application for the second time 

when there might be a meaningful 

difference that could change the 

outcome of the first review. While it 

takes additional Department resources 

to implement this reconsideration 

process, the Department believes that is 

more efficient than needing to review an 

entirely new application or engaging 

with the borrower in the court system. 

The Department believes that 

providing an opportunity for individual 

claimants or State requestors to request 

reconsideration would expedite final 

adjudication of a borrower defense 

claim. Non-Federal negotiators initially 

proposed that State law standards be 

included in the initial adjudication, as 

one element of the Federal standard. 

The Department believes such an 

upfront analysis would be unduly 

burdensome and delay the ability to 

provide relief to borrowers. 

Adjudication under a State law standard 

could yield the same outcome as under 

the Federal standard but would require 

additional time for the Department to 

analyze the State law in question. 

Reserving State law reviews for 

reconsideration after a full or partial 

denial ensures that they are conducted 

only when there is a possibility that the 

State law standard could yield a better 

result for the borrower than the Federal 

standard. 

The Department considered and 

rejected the proposal to allow an 

individual borrower that is part of a 

group claim to request reconsideration 

of a claim under a State law standard on 

behalf of the group. The Department 

believes State partners, such as State 

attorneys general, would be the most 

knowledgeable about their respective 

State laws. State attorneys general are 

charged with enforcing the laws of their 

states and in some states regulating 

pursuant to those laws. In these roles 

they are the foremost parties to interpret 

and enforce State statute and regulation. 

They would also be the ones who 

furnished the evidence and request that 

led to the initial approval of the group. 

These entities also are recognized to 

have the authority to represent the 

residents of their States in certain 

circumstances. Moreover, a State 

requestor’s analysis of their own State 

law could be considered persuasive 

authority on that State’s standard. The 

Department does not believe the same 

conditions apply to an individual. And 

while an individual could produce 

high-quality analyses of State laws, their 

analyses would not be entitled to the 

same persuasive status. Accordingly, an 

individual borrower who wants to seek 

reconsideration would have to do so on 

their own behalf when they have a 

decision rendered on their individual 

claim. The Department believes an 

individual application is the proper 

route for these borrowers because it is 

possible that an individual who is part 

of a group may have stronger evidence 

related just to themselves than what the 

Department has for the group of 

borrowers. This approach allows the 

Department to consider that individual 

evidence. The Department also believes 

that the work required of the borrower 

to provide their own individualized 

allegations in this situation will would 

yield more useful information to review. 

The Department determined that 

giving borrowers 90 days to seek 

reconsideration—and keeping loan 

repayment and collection activity 

paused during that time—provides a 

sufficient balance for borrowers to make 

a thorough decision about whether to 

seek reconsideration without allowing 

their loans to be paused indefinitely. 

Pausing Department loan collection 

activity to allow time to seek 

reconsideration is similar to the 

Department’s process in debt collection 

proceedings, such as administrative 

wage garnishment under § 488A of the 

HEA. There, collection activity does not 

commence if the borrower has requested 

a pre-offset hearing to review the 

existence or amount of the debt 

(analogous to a reconsideration request 

here). See 34 CFR 32.10. In this 

regulatory package the Department is 

also trying to ensure a consistent time 

period for borrowers to act if their initial 

applications for discharge on various 

programs or qualifying payment counts 

for Public Service Loan Forgiveness are 

denied, and the Department believes a 

consistent 90-day standard would result 


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in consistent procedures for the 

Department. 

Finally, in new § 685.407(f)(1) the 

Department proposes limiting when the 

Secretary may reopen a borrower 

defense application. We propose that 

the Secretary only be allowed to reopen 

a borrower defense application that was 

partially or fully denied. Although this 

should be a rarely used provision, 

limiting the Secretary’s ability to reopen 

cases only when there was a full or 

partial denial lessens the disadvantage 

to the borrower; for borrower defense 

claims that receive full approval, these 

borrowers can be assured that there 

would be finality to their cases. Thus, a 

borrower only stands to benefit from the 

Secretary reopening a borrower defense 

application that was fully or partially 

denied. 

Amounts To Be Discharged/ 

Determination of Discharge 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan except that 

in no event may a borrower recover 

from the Secretary an amount in excess 

of the amount the borrower has repaid. 

Current Regulations: Section 685.212 

establishes the general conditions under 

which the Department discharges a 

borrower’s obligation to repay a loan, or 

a portion of a loan, under various 

discharge provisions of the HEA, 

including borrower defense to 

repayment. 

The 1994 and 2016 regulations in 

§ 685.222(i) provide that the borrower 

may be granted full, partial, or no 

discharge. In general, to determine the 

amount of relief, the Department issued 

examples in Appendix A to part 685, 

subpart B, but also, when calculating 

discharge for a group, can consider 

information derived from a sample of 

borrowers from the group. Any 

discharge cannot exceed the amount of 

the loan and is reduced by the amount 

of any refund, reimbursement, 

indemnification, restitution, 

compensatory damages, settlement, debt 

forgiveness, discharge, cancellation, 

compromise, or any other financial 

benefit received by, or on behalf of, the 

borrower that was related to the 

borrower defense. Nonpecuniary 

damages, such as inconvenience, 

aggravation, emotional distress, or 

punitive damages, are not part of the 

Department’s calculation of harm nor 

the relief provided. 

The 2019 regulations in 

§ 685.206(e)(12) state that the 

Department determines the amount of 

relief, which is limited to the monetary 

loss the borrower incurred as a 

consequence of a misrepresentation. In 

determining the amount to be 

discharged, the Department considers 

the borrower’s application, which 

includes information about any 

payments received by the borrower, 

such as funds from State judgments that 

the borrower is expected to put toward 

their loans, and the financial harm 

alleged by the borrower. 

Proposed Regulations: The 

Department proposes applying a 

rebuttable presumption that the 

borrower or group of borrowers with an 

approved claim should receive a full 

discharge of the loans they received for 

attendance at the institution that is the 

subject of the claim, unless a 

preponderance of the evidence 

demonstrates that the discharge should 

be a lower amount and one of three 

specific criteria is met. 

The three criteria proposed for use by 

Department staff when recommending 

other than full discharge are: 

1. Where the harm to the borrower 

resulted from an action that is easily 

quantifiable, such as failing to provide 

promised supplies or materials that 

have a fair market value of $200 or less. 

2. When the basis for approval of the 

borrower defense claim is based entirely 

on actions that did not involve promises 

by the institution about educational 

outcomes or the quality of educational 

services delivered. 

3. Where an institution provides false 

or inaccurate data unrelated to 

educational outcomes (for example, 

relating to the test scores or grade point 

averages of incoming students) to an 

organization that produces widely 

recognized rankings of institutions or 

programs, resulting in a ranking higher 

than what that institution or its 

program’s true position should be. 

The proposed regulations provide 

examples of the limited circumstances 

under which that presumption would be 

rebutted. These circumstances would 

include situations where the 

misconduct that resulted in an approved 

borrower defense claim relates to an 

easily quantifiable sum, such as the cost 

of a free supplies kit that was promised 

and not delivered; substantial 

misrepresentations, substantial 

omissions, breaches of contract, or 

aggressive recruitment that do not relate 

to the education delivered by the 

institution or the outcomes of such 

education; or substantial 

misrepresentations related to widely 

recognized rankings of institutions or 

programs as a result of the submission 

of false data not relating to the outcomes 

of the education. 

Under proposed § 685.408, for an 

approved claim not receiving a full 

discharge, the Department official 

would recommend to the Secretary a 

discharge amount for a borrower or 

group of borrowers. All borrowers 

within an approved group claim would 

receive the same recommended 

discharge, either in amount or as a 

percentage of their loans. In cases where 

the presumption of full relief is 

rebutted, the Department official would 

recommend the alternative amount, 

which may be an amount equal to the 

full harm suffered by borrowers if such 

sum is easily quantifiable, or 50 percent 

of the outstanding loan balance of the 

loans associated with the borrower 

defense claim if the amount of harm is 

not easily quantifiable. Although the 

Department official determines the 

amount of the discharge, the Secretary 

renders the final decision on the 

discharge based on the Department 

official’s recommendation and the 

records available. 

Reasons: The Department proposes 

that an approved borrower defense to 

repayment claim should result in relief 

equal to the lesser of the full amount of 

harm to the borrower or the full amount 

of the Federal student loans covered by 

their claim, including amounts 

previously paid. We recognize that there 

may be circumstances in which the 

financial harm experienced by a 

borrower is less than the amount of a 

full loan discharge. The Department 

believes the circumstances in which a 

borrower has an approved claim but 

receives a partial discharge would be 

limited. 

In moving to the presumption of full 

discharge except for specific 

circumstances, the Department is 

changing the position it took with 

respect to discharge amounts in the 

2019 regulation. As discussed in the 

section concerning the standards for 

misrepresentation, the Department is 

concerned that the 2019 rule’s 

requirement for a borrower to 

demonstrate individual harm and the 

standards associated with that proposal 

could have the unintended consequence 

of providing lesser amounts of relief for 

a borrower who succeeded despite their 

program. For instance, connecting relief 

amounts to periods of unemployment 

that appear to not be attributable to local 

or national labor market conditions, or 

considering the borrower’s effort to find 

a job could result in no relief for a 

borrower who did manage to find 

employment despite no assistance from 

the institution, even as otherwise 

similar borrowers receive larger 

assistance. The Department is also 

concerned that the criteria for 


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considering harm in the 2019 regulation 

are overly subjective or confusing. The 

Department is not equipped to pass 

judgment on the quality of a borrower’s 

search for employment, and the 2019 

rule is insufficiently clear as to how the 

Department should factor underlying 

labor market conditions into the way it 

then calculates harm. The Department is 

concerned that such ambiguity could 

lead to inconsistent determinations of 

discharge amounts. 

In removing the requirement for 

individualized harm determinations, the 

Department is also changing its position 

to allow it to pursue group borrower 

defense claims, as was explicitly 

authorized in the 2016 regulation and 

permissible under the 1994 one. For 

group claims, the Department believes 

that awarding the same percentage or 

dollar amount of relief to all similarly 

situated borrowers would be 

appropriate. Given that the concept 

underlying the group claim is that 

borrowers were subject to the same 

substantial misrepresentations, 

substantial omissions, breaches of 

contract, aggressive recruitment, or 

judgments or Department actions the 

Department is concerned that trying to 

then establish separate relief 

determinations for those borrowers 

would risk inconsistent determinations 

that would treat similarly situated 

borrowers differently. 

When it comes to determining the 

amount of a discharge, the Department 

is cognizant that it can only make 

judgments about the value of an 

institution or program, not its quality, 

and that the amount of any relief cannot 

exceed the full amount of the loan 

balance and any amounts previously 

paid. The Department is also concerned 

that when past regulations were less 

specific about how to determine the 

proper amount of a discharge the 

Department ended up using formulas 

that resulted in borrowers receiving 

lesser amounts of a discharge than they 

should have, including mathematical 

impossibilities such as requiring average 

earnings for a group of borrowers to be 

below $0. 

The Department believes that the 

clearer framework proposed in these 

regulations would result in consistent 

decision-making and a clearer process 

for the Department to decide not only 

when a partial discharge may be 

appropriate, but also how to calculate 

such a discharge. 

This framework would replace the 

methods for determining the discharge 

amount that existed under the prior 

three borrower defense regulations. 

However, the Department believes that 

the rebuttable presumption of full 

discharge and the clearer structure 

around partial discharges means that no 

borrower whose claim was pending or 

filed after the effective date of the 

regulations would be worse off than 

they would have been under the 

regulation that would previously have 

covered their claim based on their loans’ 

disbursement date. Relatedly, the 

Department would ensure that 

institutions are not subject to a 

recoupment effort from a claim that 

would not have been approved under 

the regulation that would otherwise 

have been applied to the claim based 

upon the loan’s disbursement date. This 

consideration would also apply to the 

discharge amounts in that if the claim 

would have been approved under a 

prior regulation but for a lower amount 

than is approved under this regulation 

then the institution would not be 

subject to the higher recoupment 

amount. 

The move to a rebuttable presumption 

of a full discharge is a change from the 

2019 regulation, but not a change in 

practice from the relief provided on 

borrower defense approvals to date. As 

of May 2022, all approved borrower 

defense discharges have been for full 

discharges. There were some approved 

claims that were initially subjected to 

two different partial relief formulas 

issued by the previous administration, 

but both formulas were challenged in 

court. The previous Administration 

withdrew the first formula, and this 

Administration withdrew the second 

out of concern that it was not accurately 

using data and was resulting in 

insufficient relief for borrowers who 

were harmed. 

The Department believes a rebuttable 

presumption of a full discharge would 

address the past problems around 

properly determining the amount of 

discharges for approved claims. It 

addresses the concerns the Department 

has about inconsistent decision-making 

for similarly situated borrowers. It also 

acknowledges that the act of calculating 

a specific level of harm for a borrower 

is a challenging task that prior efforts by 

the Department to address have resulted 

in legal challenges. The proposed list of 

instances in which a partial discharge 

may be appropriate also captures what 

the Department anticipates the likeliest 

instances in which a partial discharge 

may provide the most appropriate 

amount of relief for a borrower even 

without this framework. 

The proposed regulations include 

principles and examples of how to 

calculate a partial discharge amount. 

The Department anticipates that the 

examples would guide initial decisions 

as the Department reviews discharge 

amounts for approved claims. 

In proposing a framework that 

addresses the challenges with 

determining harm and strives for 

consistency in decision-making, the 

Department identified three specific 

circumstances that it believes should 

merit consideration for a partial 

discharge. The Department identified 

these three circumstances based upon 

allegations it has seen in claims, as well 

as public reports of instances where 

colleges have engaged in high-profile 

misrepresentations. The first is where 

the harm to the borrower is easily 

quantifiable, such as failing to provide 

promised supplies or materials that 

have a fair market value of a clear dollar 

amount. The Department believes this 

situation would make sense for a partial 

discharge because the harm is easily 

calculable and thus the concerns about 

inconsistency of decision-making and 

the use of flawed formulas would not 

apply. 

The second circumstance is when 

approval of the borrower defense claim 

is based entirely on actions that did not 

involve promises by the institution 

about educational outcomes or the 

quality of educational services 

delivered. This would apply, for 

example, when an institution 

misrepresents the profile of its incoming 

class, but the classroom instruction and 

the outcomes of that instruction match 

what was otherwise anticipated and 

marketed. The Department proposes to 

highlight this type of action as a 

candidate for partial discharge because, 

while it is reasonable to expect a 

student to enroll based upon the false 

statements, those statements did not 

affect the value of the education that 

was delivered or the outcomes that 

students experienced. 

The second partial discharge 

circumstance would not apply to 

statements made solely in the 

institution’s marketing materials if they 

pertain to program outcomes. That is, 

materially false statements about the 

institution’s rates of completion, 

passage rate on examinations necessary 

for licensure, or job placement would 

not rebut the presumption of full 

discharge because it is reasonable to 

believe a borrower or borrowers would 

have relied on those false statements 

and would not have achieved the 

inflated outcomes presented. For the 

same reason, misrepresentations in 

marketing materials about the 

educational services delivered also 

would not rebut the presumption of full 

discharge. For instance, evidence that 

an institution promised its classes in a 

nursing program would all be taught by 


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registered nurses when in fact none of 

the instructors were would lead to an 

approved borrower defense claim with 

the presumption of full discharge 

because students were enticed to enroll 

and take out a loan and the institution 

failed to provide the advertised 

instruction. 

The third circumstance in which the 

presumption of a full discharge could be 

rebutted is where an institution 

provides false or inaccurate data 

unrelated to educational outcomes, such 

as inflated test scores or grade point 

averages of incoming students, to an 

organization that produces widely 

recognized rankings of institutions or 

programs, resulting in a ranking higher 

than what that institution or its 

program’s true position should be. The 

Department is concerned about repeated 

instances in which institutions have 

submitted false data to major national 

rankings organizations, resulting in 

schools or programs given unfairly high 

rankings for several years. But the 

Department believes that the harm 

caused to the borrower by relying upon 

such a marginally inflated ranking does 

not rise to the level of a full discharge. 

Many of the institutions or programs 

that have engaged in such behavior 

would have been highly ranked 

otherwise, still reject far more students 

than they accept, and have not been 

subject to allegations of low program 

quality or other misrepresentations that 

would support a claim for full 

discharge. Under these circumstances, 

partial relief could be appropriate. 

Past borrower defense regulations 

have cited additional examples of 

partial relief that the Department does 

not include here because it does not 

believe they would result in an 

approved borrower defense claim. One 

example was where an institution 

claimed to have an award-winning 

professor, but that individual was on 

sabbatical while the borrower enrolled, 

or the individual had left the school and 

the marketing materials remained 

outdated. The Department does not 

contemplate any discharge for such a 

situation in the proposed regulations, 

because we do not believe it is 

reasonable to assume that the borrower 

would be guaranteed a space in the 

professor’s class or relied on the 

particular misrepresentation, the 

presence of a specific professor, to their 

detriment when deciding to enroll and 

take out a student loan. 

Instances where the Department 

official rebuts the presumption of a full 

discharge also would require a 

determination of the partial discharge 

amount a borrower or group of 

borrowers should receive. This amount 

may be expressed in dollar or 

percentage terms, depending on the 

harm experienced by the borrower or 

group of borrowers. For example, a 

breach of contract with an easy-tocalculate effect on the borrower might 

be expressed as a set dollar amount for 

all borrowers, while a more complex 

instance could be expressed as a share 

of the loan amount. The Department 

also recognizes that there could be 

situations in which the level of harm is 

not clear. This could include instances 

where the Department official may need 

to make judgments about the value of 

educational services delivered that are 

too difficult to define and quantify. In 

situations where the Department is not 

able to calculate the value of the 

education, the Department proposes 

borrowers receive a discharge equal to 

50 percent of the loan associated with 

the borrower defense claim. The 

Department chose this threshold 

because it evenly divides the 

uncertainty of quantifying the harm 

between the taxpayer and the borrower 

after the Department has determined 

that the presumption of a full discharge 

has been rebutted. A borrower would 

then have an option to ask for 

reconsideration of this amount and 

furnish different information that might 

support a higher discharge amount. The 

Department seeks feedback on its 

proposal for borrowers to receive a 

discharge equal to 50 percent of the loan 

associated with the borrower defense 

claim in situations where the 

Department is unable to calculate the 

value of the education. 

To clarify how partial and full 

discharges would be considered under 

the proposed regulations, the 

Department offers in this preamble the 

following examples: 

1. A school represents in its marketing 

materials or in an enrollment contract 

that students will receive a supplies kit 

as part of their enrollment that has a 

value of $150. A student chooses that 

program instead of a comparably priced 

program that does not provide the 

supplies kit. The institution ends up 

charging the borrower for the supply kit 

instead of providing it for free. The 

Department does not find any other 

basis for a discharge. 

Adjudication result: The borrower 

should have an approved borrower 

defense claim with a discharge amount 

of $150. The institution breached its 

contract with the student. However, the 

harm from the breach of contract is 

clearly calculable because it stemmed 

from the cost of a specific item that did 

not carry significant value. 

2. An individual wishes to enroll in 

a highly selective graduate program. The 

school gives inflated data to a school 

ranking organization regarding the 25th 

and 75th percentile scores on the GRE 

of recent entrants and includes those 

inflated data in its own marketing 

materials. These inflated data raise the 

place of the program in the ranking 

organization’s published rankings. 

Degrees from the program continue to 

serve as an effective, well-regarded 

credential. 

Adjudication outcome: The borrower 

should receive no discharge or a 

minimal discharge. The institution 

made a false statement that a borrower 

reasonably could have relied upon to 

choose that program instead of another 

one that is similarly ranked. However, it 

was made to an organization that 

publishes widely recognized rankings 

and primarily concerned false data not 

related to the outcomes of the 

education. The Department official 

would rebut the presumption of full 

discharge. The exact amount of the 

discharge would depend on a few 

factors. One would be the program’s 

inflated ranking versus what should 

have been its accurate ranking, which 

may be ascertained by looking at its 

ranking prior to the provision of inflated 

data. If the program still would have 

been among similarly ranked programs 

with accurate data with no other 

evidence that the education delivered is 

different than what was promised, then 

the Department official would likely 

recommend no discharge due to a lack 

of evidence that the reliance upon the 

misrepresentation was to the detriment 

of the borrower. They attended a highly 

ranked and highly selective program 

and programs in that category can move 

around in annual rankings anyway. If 

the inflated data significantly raised the 

program’s rank then a small discharge 

may be appropriate. 

3. An individual wishes to enroll in 

a highly selective graduate program. The 

school gives significantly inflated data 

to a school ranking organization 

regarding the rate at which its graduates 

obtain jobs. These inflated data raise the 

program’s rank in the organization’s 

publications. The institution features 

both the inflated placement rate data 

and the inflated ranking data in a 

national ad campaign and in its 

marketing materials. 

Adjudication outcome: The borrower 

should receive a full discharge. The 

institution misrepresented the 

employability of graduates in a program, 

which is a key factor under 

consideration for students, who often 

cite getting a job as one of the primary 

goals of an education. Even though the 

institution reported the falsified data to 

a national ranking organization, it also 


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featured that data in marketing 

materials. As a result, if the claim is 

approved the Department official would 

be unlikely to rebut the presumption of 

a full discharge. 

Related examples: The same analysis 

would apply to misrepresentations with 

significantly inflated data related to the 

rate at which students passed required 

examinations to obtain State licensure, 

the rate at which students complete the 

program, earnings of graduates, or other 

indicators that speak to the outcomes of 

the education. 

4. A school represents to prospective 

students, in widely disseminated 

materials, that their educational 

program will lead to employment in an 

occupation that requires State licensure. 

The program does not, in fact, meet 

minimum education requirements in 

any State to enable its graduates to sit 

for the exam necessary for them to 

obtain licensure. 

Adjudication outcome: Borrowers 

should receive a full discharge. As a 

result of the school’s misrepresentation, 

the borrowers cannot work in the 

occupation in which they reasonably 

expected to work when they enrolled. 

Accordingly, borrowers received limited 

or no value from this educational 

program. 

Related examples: A similar analysis 

would apply if the institution had said 

it would provide required internships, 

clinicals, or externships that were not in 

fact provided to the students because 

this affects students’ ability to work in 

the fields for which they are trained. 

Borrowers would have similar outcomes 

if a law school lacks accreditation by the 

American Bar Association (ABA) and 

fails to inform students that the lack of 

such accreditation means that they 

cannot sit for the bar exam in specific 

States or omits the fact that only a small 

fraction of graduates of the institution 

passes the bar exam in the limited 

number of States in which a student 

may take that exam without graduating 

from an ABA accredited law school. 

5. A school states to a prospective 

student that all of the faculty in its 

nursing program are nurses or 

physicians. The borrower enrolls in the 

program in reliance on that statement. 

In fact, none of the program’s teachers, 

other than the director, is a nurse or 

physician. The teachers at the school are 

not qualified to teach medical assisting 

and the student is not qualified for 

medical assistant jobs based on the 

education received at the school. 

Adjudication outcome: The borrower 

should receive a full discharge. None of 

the program’s teachers have the 

promised qualifications. In contrast to 

reasonable students’ expectations, based 

on information provided by the school, 

the typical borrower received no value 

from the program. 

6. A school represents in its marketing 

materials that three of its undergraduate 

faculty members in a particular program 

have received the highest award in their 

field. A borrower choosing among two 

comparable, selective programs enrolls 

in that program in reliance on the 

representation about its faculty. 

However, although the program 

otherwise remains the same, the school 

had failed to update the marketing 

materials to reflect the fact that the 

award-winning faculty had left the 

school. 

Adjudication outcome: The 

borrower’s claim would not be 

approved. Although the institution 

made a misrepresentation to the 

borrower and should update its 

marketing materials, it is unreasonable 

to presume that a borrower would have 

relied upon this misrepresentation to 

enroll. The mere presence of awardwinning faculty on a university’s staff 

does not guarantee that the borrower 

would have been able to take classes 

from them. Many universities employ 

well-known faculty who have minimal 

teaching responsibilities. A student may 

have ultimately not chosen to major in 

the field in which the instructor teaches 

or the class might have had limited 

enrollment. 

7. An individual interested in 

becoming a registered nurse meets with 

a school’s admissions counselor, who 

explains that the school does not have 

a nursing program, but incorrectly states 

that completion of a medical assisting 

program is a prerequisite for any 

nursing program. Based on this 

information, the borrower enrolls in the 

school’s medical assisting program 

rather than searching for another 

nursing program, believing that 

completing a medical assisting program 

is a necessary step toward becoming a 

nurse. After one year in the program, the 

borrower realizes that it is not necessary 

to become a medical assistant before 

entering a nursing program. 

Appropriate relief: This borrower 

should receive a full discharge. Because 

it is not necessary to become a medical 

assistant prior to entering a nursing 

program, the borrower has made no 

progress toward the career they sought, 

and in fact has received an education 

that cannot be used for its intended 

purpose. 

In all of the above scenarios, the 

discharge recommendation reached by 

the Department official would be 

presented to the Secretary, who would 

choose whether to accept, reject, or 

modify the Department official’s 

recommendation. The Department seeks 

feedback on these examples of the 

discharge recommendation reached by 

the Department official. 

Borrower Defense to Repayment— 

Recovery From Institutions 

Statute: Section 455(h) of the HEA 

authorizes the Secretary to specify in 

regulation which acts or omissions of an 

institution of higher education a 

borrower may assert as a defense to 

repayment of a Direct Loan. Section 

454(a)(3) of the HEA requires the 

institution to accept responsibility and 

financial liability stemming from its 

failure to perform the functions set forth 

in its program participation agreement— 

the document institutions must sign to 

participate in the Federal financial aid 

programs where they agree to abide by 

the rules and requirements governing 

the programs. 

Current Regulations: Under 

§ 685.206(e)(16), the 2019 regulation 

provides that Secretary uses the 

procedures under 34 CFR part 668 

subpart G to collect the amount of a 

discharged loan associated with an 

approved borrower defense claim from 

an institution for loans first disbursed 

on or after July 1, 2020. In 2017, the 

Department codified the process for the 

Secretary to initiate recovery 

proceedings through the Office of 

Hearings and Appeals (OHA), primarily 

through its regulations at § 668.87. See 

82 FR 6253, January 17, 2017. Under 

this section, claims under either the 

1994 or 2016 regulations are presented 

to a hearing official who renders a 

decision on both the approval of the 

claim(s) and the establishment of any 

resulting liability for the institution. 

Proposed Regulations: The 

Department proposes to remove § 668.87 

in its entirety. In its place, the 

Department proposes to include in 

proposed § 685.409 a general framework 

under which the Department would 

attempt to recover from institutions the 

amounts that the Secretary discharges 

for both individual and group borrower 

defense claims and to leverage the 

procedures already in place at part 668, 

subpart H, which govern how the 

Department pursues liabilities related to 

program reviews. The Department 

would have the option to forego 

recovery proceedings under these 

proposed regulations in situations such 

as where the cost of collecting would be 

more than the amount to recover or 

recovery would be outside of the sixyear limitations period. 

Newly proposed § 668.100 in subpart 

G to part 668 would make clear that, if 

any part of the proposed regulations is 


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21For an overview of the program review process, 

please see the 2017 Program Review Guide for 

Institutions: https://fsapartners.ed.gov/sites/ 

default/files/attachments/programrevguide/ 

2017ProgramReviewGuide.pdf. 

held invalid by a court, the remainder 

would still be in effect. 

Reasons: The Department proposes to 

separate the process of reviewing and 

approving borrower defense 

applications from the recoupment 

process. As part of that change, the 

Department would handle the process of 

recoupment through the same existing 

procedures we currently use to assess 

program review liabilities. This means 

institutions would not have to go 

through a process they might be less 

familiar with to address liabilities from 

borrower defense. The Department is 

concerned that the requirements in 

§ 668.87 that connect the review and 

potential approval of group borrower 

defense applications directly to 

recoupment proceedings is out of 

keeping with the Department’s practices 

for other similar discharge programs and 

could result in extensive delays in 

resolving group claims. Under § 668.87, 

the approval of a group claim and the 

establishment of the institutional 

liability stemming from it are connected 

through a single process that is 

conducted before a hearing official. The 

Department is concerned that such an 

approach conflates two different 

concerns—the interaction between the 

Department and the borrower and the 

interaction between the Department and 

the institution. For instance, the 

processes for discharges related to 

closed schools or false certification have 

separate mechanisms for approving 

discharges for borrowers and then 

seeking any recoupment from an 

institution. This ensures that borrowers 

are able to receive the assistance they 

are guaranteed under the Higher 

Education Act while also preserving the 

due process rights of institutions, which 

can take months if not years to fully 

exhaust. The connected processes in 

§ 668.87 have the added disadvantage of 

creating an entirely new and separate 

process for group claims that is different 

from any other process for assessing a 

liability than institutions currently face. 

Instead of using the procedures in 

§ 668.87, the Department proposes to 

recover from institutions the amounts 

discharged for group claims as outlined 

in the program review process 21

authorized under §§ 498 and 498A of 

the HEA. This includes the procedures 

for institutions to respond to the 

allegations to establish a liability against 

the institution. The institution could 

then contest the liability through the 

procedures laid out in that section. 

Consistent with those procedures, the 

Department would generate a Program 

Review Report (PRR) based upon the 

evidence in its possession, evidence 

from borrower defense applications, any 

institutional response, any other 

relevant information, and the amounts 

that the Secretary discharged. This PRR 

would include a liability amount. The 

set of procedures for contesting 

liabilities through program reviews is 

long-established and many institutions 

will be familiar with this method. It 

includes ample opportunities for 

responding to the liability, as well as a 

process for contesting the liability 

through the Office of Hearings and 

Appeals, appealing to the Secretary, and 

then going to Federal district court. As 

a result, institutions will would not 

have to learn a new process. 

The suggested approach better 

balances the interests of borrower 

defense claimants, the Department, 

taxpayers, and institutions than the 

current structure of § 668.87. Borrower 

defense claimants would receive faster 

answers on group applications by 

having the Department conduct its 

review process separate from 

recoupment. Taxpayers and the 

Department would still preserve a 

process for seeking recoupment for 

liabilities from an institution. And the 

institution would be subject to a 

familiar, long-established process that 

already affords significant due process 

rights before a liability can become 

final. 

In establishing this process, the 

Department also recognizes that there 

may be circumstances where recovery is 

not feasible. Institutions would only 

face recoupment for conduct that would 

have been approved under the 

regulation that governed the conduct at 

the time it occurred in the amount that 

would have been granted under that 

regulation. In other words, for loans first 

disbursed in 2018 that are part of an 

approved claim, the institution would 

only face a recoupment action if the 

claim would have been approved under 

the 2016 regulation. And, if the claim 

would have resulted in a partial 

discharge under the prior regulation but 

received a full discharge under these 

proposed rules, then the Department 

would only seek recoupment for the 

partial amount. If the claim would have 

been approved under the 1994, 2016, or 

2019 regulations, however, the 

Department would seek recoupment 

under the applicable regulation. 

The Department also proposes that it 

would have the option to not seek 

recoupment in circumstances where 

doing so would not make financial 

sense, such as where the cost of 

collecting on the claim would exceed 

the amount of the claim. The 

Department would also not seek to 

recoup on a claim that falls outside the 

six-year limitations period. Finally, the 

Department believes that each of the 

proposed provisions discussed in this 

NPRM serves one or more important, 

related, but distinct, purposes. Each of 

the requirements provides value to 

students, prospective students, and their 

families; to the public, taxpayers, and 

the Government; and to institutions 

separate from, and in addition to, the 

value provided by the other 

requirements. To best serve these 

purposes, we would include this 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

Time Limit for Recovery From the 

Institution 

Statute: Section 454(a)(3) of the HEA 

provides that the institution accepts 

responsibility and financial liability 

stemming from the institution’s failure 

to perform its functions pursuant to its 

program participation agreement. 

Current Regulations: For loans first 

disbursed on or after July 1, 2020, 

§ 685.206(e)(16) provides that Secretary 

may initiate a proceeding to collect the 

amount of a discharged loan associated 

with an approved borrower defense 

claim from an institution within 5 years 

of the final determination to approve the 

claim. This applies to loans disbursed 

on or after July 1, 2020. 

Under § 685.222(e)(7), the 2016 

regulation provides that the Secretary 

may initiate a proceeding to collect the 

amount of a discharge loan associated 

with an approved borrower defense 

claim within 6 years of when the 

borrower discovers or could have 

reasonably discovered a substantial 

misrepresentation or 6 years of when 

the institution breached its contract 

with the student, or at any point for a 

claim approved due to a judgment. The 

6-year limit does not apply if at any 

point during that time the institution is 

notified of the claim by the borrower, a 

representative of the borrower or the 

Department; a class action complaint; or 

written notice from a Federal or State 

agency with the ability to investigate the 

institution for issues that could relate to 

a borrower defense claim. 

For loans first disbursed before July 1, 

2017, the 1994 regulations in 

§ 685.206(c) provide that the Secretary 


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may initiate recovery proceedings that 

align with the record retention period, 

unless the institution did not receive 

notice of the claim during that period. 

Proposed Regulations: Under 

proposed § 685.409(c), the Department 

would adopt a six-year limitations 

period to recover the amount of 

borrower discharge from the institution 

for loans disbursed on or after July 1, 

2023. This period would start on the 

date the institution reported that the 

borrower graduated or withdrew or at 

any time if the act or omission was a 

judgment against an institution. The 

Department proposes the six-year limit 

would not apply if during that period 

the institution received notice of the 

claim from the Department; a class 

action lawsuit; or written notice from a 

Federal or State agency with the ability 

to investigate the institution for issues 

that could relate to a borrower defense 

claim. These time limits would apply 

for both individual and group claims. 

The Department official’s notification to 

the institution of a borrower defense 

claim before the end of the limitations 

period would toll the 6-year limitations 

period. 

Reasons: The Department believes it 

is critical for it to use the authority 

granted to it by Congress in Sec. 

454(a)(3) of the HEA to recoup the cost 

of approved borrower defense claims 

from institutions rather than having 

taxpayers bear all the expenses. To do 

so, the Department proposes to create a 

framework for recouping from 

institutions the cost of discharges 

associated with an approved borrower 

defense claim for loans disbursed on or 

after July 1, 2023, that is similar to what 

was included in the 2016 regulation, but 

with a simpler way of measuring the 

length of the time during which the 

Department could seek to recoup. 

During negotiated rulemaking, some 

negotiators expressed concern about the 

lack of a limitations period for 

borrowers to file claims, which they 

believed could pose significant 

difficulties for institutions that may be 

financially liable for approved claims. 

The Department believes that the 

proposed notice of claims and 

limitations period on recoupment 

provides adequate protection for 

institutions while preserving financial 

remedies for the Department. The 

Department proposes to shift away from 

a time limit on recoupment tied from 

the date of the final determination as 

was used in the 2019 regulation to one 

from the date the institution reported 

that the borrower graduated or 

withdrew. The 2019 rule’s approach 

worked within its overall framework 

because there was an overall limit that 

required claims to be submitted within 

3 years of a borrower’s last date of 

attendance at the institution. Because 

the Department is proposing to remove 

that limitations period the Department 

does not believe a date tied to when the 

claim is approved would be appropriate 

since that could mean seeking to recoup 

from an institution for an approved 

claim that relates to behavior from many 

years earlier. The Department also 

considered the structure used in the 

2016 regulation of basing the time 

period on when a borrower knew or 

could have known about a 

misrepresentation or when the 

institution breached the contract. 

The Department, however, is 

concerned that it would be very difficult 

to properly establish such a date 

because it would require working with 

the borrower to ascertain the 

appropriate date or otherwise inferring 

one from instances such as public filing 

of lawsuits. Moreover, because the 

Department is not proposing a 

limitations period for the borrower, the 

question of when the borrower became 

aware of the misrepresentation or the 

breach of contract occurred become less 

relevant for the borrower. Accordingly, 

the Department believes that using a 

period tied to the last date of the 

borrower’s attendance at the institution 

would be simpler to administer and for 

the institution to track and follow. 

The Department believes having a 

defined limitations period for 

recoupment from institutions is 

important. By law, many Federal 

enforcement and collection actions are 

subject to a defined limitation period. 

28 U.S.C. 2462, for example, provides a 

five-year limitation period for certain 

Federal enforcement, fine, and forfeiture 

actions. The 2019 regulations also 

incorporate a five-year limitations 

period against institutions. The 

Department reviewed various States’ 

limitations periods for consumer 

protection claims. Some States have a 

limitations period for claims relating to 

consumer protection that is six years 

long. This includes States such as Maine 

(14 M.R.S. § 752), Minnesota (Minn. 

Stat. § 541.05), and New Jersey (N.J.S.A. 

2A:14–1). Given the different uses of a 

five- or six-year limitations period, the 

Department seeks feedback on which 

period would be better to use for 

borrower defense recoupment 

proceedings. 

While the limitations period generally 

restricts how long after a given date the 

Department may initiate a recoupment 

action, the Department believes that 

period should be suspended when the 

institution receives formal notice of the 

allegations related to the claim. Such 

notice would make the institution aware 

of the issue and the possibility of related 

action, essentially alleviating the 

concerns that a limitations period is 

meant to address. Receiving such formal 

notice would result in the institution 

needing to maintain relevant records 

and thus addresses any concerns about 

institutions no longer retaining any 

relevant records. The Department 

proposes to define formal notice that 

could cause the limitations period to no 

longer apply as: being notified by the 

Department of borrower defense claims; 

a class action complaint asserting relief 

for a class that may include the 

borrower and that may form the basis of 

a borrower defense claim; or written 

notice, including a civil investigative 

demand or other written demand for 

information, from a Federal or State 

agency that has power to initiate an 

investigation into conduct of the school 

relating to specific programs, periods, or 

practices that may have affected the 

borrower, for underlying facts that may 

form the basis of a borrower defense 

claim. Including class actions and 

written notice tied to investigations 

captures major instances in which an 

institution would be made aware that 

there is alleged conduct that could 

relate to a borrower defense claim. 

Moreover, both of those processes also 

require the institution to maintain 

records, which avoids the concerns 

about lacking sufficient information to 

respond to older allegations. 

The Department also proposes that 

the limitations period should not apply 

to Department actions to recoup claims 

approved as a result of a judgment. As 

we reasoned in the 2016 NPRM, the 

availability of evidence for a borrower 

defense that is based on a judgment in 

a court or administrative tribunal is not 

a concern, as the only evidence required 

is the judgment itself. In that NPRM, we 

proposed no limitations period. See 81 

FR 39344. We therefore find it 

compelling to adopt a similar approach 

of no limitations period for judgments 

against an institution. 

2. Pre-Dispute Arbitration Agreements— 

General Background 

In 2016, the Department amended the 

Direct Loan Program regulations in 

§ 685.300 to condition an institution’s 

participation in the Direct Loan Program 

on its PPA not to utilize pre-dispute 

mandatory arbitration agreements or 

class action waivers that (1) are related 

to the making of a Direct Loan or the 

provision of educational services for 

which the Direct Loan was provided, 

and (2) could form the basis of borrower 

defense claims. This limitation was 

consistent with the HEA, which allows 


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institutions to participate in the Federal 

Direct Loan program and allow their 

students to borrow funds through that 

program, subject to certain terms and 

conditions. In 2019, the Department 

removed the prohibition of mandatory 

pre-dispute arbitration and class action 

waivers from the regulations and 

instead provided that institutions that 

required borrowers to sign a mandatory 

pre-dispute arbitration agreement or 

class action waiver as a condition of 

enrollment to make plain language 

disclosures about the use of such 

agreements. The Department argued that 

disclosures about institutions’ use of 

these agreements would allow students 

to make informed decisions about their 

enrollment (see 84 FR 49879). 

Pre-Dispute Arbitration Agreements 

and Class Action Waivers 

Statute: Section 454 of the HEA 

authorizes the Secretary to impose 

conditions on institutions that wish to 

participate in the Direct Loan Program. 

Institutions that participate in the Direct 

Loan Program must enter into a PPA 

with the Department. 20 U.S.C. 1087d. 

Section 454(a)(6) of the HEA authorizes 

the Secretary to include in that PPA 

‘‘provisions as the Secretary determines 

are necessary to protect the interest of 

the United States and to promote the 

purposes of’’ the Direct Loan Program. 

Current Regulations: If institutions 

use a pre-dispute mandatory arbitration 

agreement or class action waiver, they 

are required to make disclosures and 

issue notices to borrowers about the 

terms and conditions of those 

agreements. 

Specifically, in § 668.41(h) 

institutions are required to disclose 

information about these agreements in a 

plain language disclosure, available to 

enrolled and prospective students and 

to the public, on the institution’s 

website where admissions and tuition 

and fees information are made available. 

Further, in § 685.304(a)(6)(xiii) through 

(x)(v) institutions must include in their 

required entrance counseling 

information on the institution’s internal 

dispute resolution process and who the 

borrower may contact regarding a 

dispute related to educational services 

for which the Direct Loan was made. 

Institutions are required to review with 

the student borrower the pre-dispute 

arbitration or class action waiver 

agreement and when it will apply, how 

to enter into the process and who to 

contact with questions. 

Proposed Regulations: The 

Department proposes to prohibit the use 

of mandatory arbitration or class action 

waivers as discussed below. Under the 

proposed rules at § 685.300(d), as part of 

the PPA, each institution would have to 

agree, as a condition of participating in 

the Direct Loan Program, that it will not 

require students to use an internal 

dispute resolution process before the 

student pursues a borrower defense 

claim. As proposed, this provision 

would apply to all PPAs executed after 

the rule is effective. 

In addition, in proposed § 685.300(e), 

under the PPA, institutions would be 

prohibited from relying on a mandatory 

pre-dispute arbitration agreement, or 

any other mandatory pre-dispute 

agreement with a student who obtained 

or benefitted from a Direct Loan, in any 

aspect of a class action related to a 

borrower defense claim, until the 

presiding court rules that the case 

cannot proceed as a class action. The 

proposed regulations include a nonexhaustive list of what would constitute 

reliance on a mandatory pre-dispute 

arbitration agreement with respect to a 

class action, including seeking 

dismissal, deferral, or stay of a class 

action; excluding a person or persons 

from joining a class action; avoiding 

discovery; and/or filing an arbitration 

claim. Finally, the Department proposes 

to require that certain provisions 

regarding class action bans be included 

in any agreement with a student who 

receives a Direct Loan to attend the 

school or who for whom a Direct PLUS 

Loan was obtained. 

Proposed § 685.300(f) would provide 

that, as part of the PPA, the institution 

would agree that it will not enter into 

a mandatory pre-dispute arbitration 

agreement to arbitrate a borrower 

defense claim or rely in any way on a 

pre-dispute arbitration agreement with 

respect to any aspect of a borrower 

defense claim. The proposed regulations 

include a non-exhaustive list of what 

would constitute reliance on a predispute arbitration agreement, including 

seeking dismissal, deferral, or stay of a 

judicial action; avoiding discovery; and/ 

or filing an arbitration claim. Finally, 

the Department proposes to require that 

certain provisions relating to notices 

and the terms of the pre-dispute 

arbitration agreements be included in 

any agreement with a student who 

receives a Direct Loan to attend the 

school or for whom a Direct PLUS Loan 

was obtained. 

Under the proposed rules at 

§ 685.300(g) and (h), institutions would 

be required to submit certain arbitral 

records and judicial records connected 

with any borrower defense claim filed 

against the school to the Secretary by 

certain deadlines. The Department 

would maintain a centralized database 

of these records that would be 

accessible to the public. 

Finally, the proposed rules at 

§ 685.300(i) provide a general 

definitions section. This includes a 

revised definition of ‘‘borrower defense 

claim’’ that maintains congruence with 

definitions elsewhere in the title IV 

regulations. The Department achieves 

this by cross-referencing the definition 

of ‘‘borrower defense claims’’ as defined 

in the 1994, 2016, 2019, and new 

subpart D to part 685. 

Reasons: These proposed regulations 

would add limitations pertaining to 

arbitration and class action waivers. 

Section 454(a)(6) of the HEA authorizes 

the Secretary to include in the PPA 

‘‘provisions as the Secretary determines 

are necessary to protect the interest of 

the United States and to promote the 

purposes of’’ the Direct Loan Program. 

From compliance reviews, reports from 

the public, and a review of institutions’ 

enrollment agreements, the Department 

has seen instances when institutions 

have compelled borrowers to arbitrate a 

borrower defense claim, required an 

internal dispute process prior to filing a 

borrower defense claim, and prohibited 

a class of affected borrowers from filing 

borrower defense claims. These 

restrictive provisions in students’ 

enrollment agreements stymie a 

borrower’s ability to fully reap the rights 

and benefits of the Direct Loan Program 

by hindering their rights to pursue a 

borrower defense claim or unduly 

delaying when a borrower defense claim 

was filed or could be filed. As discussed 

in the 2016 NPRM (see 81 FR 39381), for 

these Direct Loans to be repayable, the 

loans must be enforceable obligations of 

borrowers. Acts and omissions that give 

rise for a borrower to assert a defense to 

repayment frustrate the purposes of the 

Direct Loan Program—financing 

students’ postsecondary expenses and 

obtaining repayment. Mandatory predispute arbitration agreements and class 

action waivers further impede 

borrowers’ ability to file borrower 

defense claims and receive appropriate 

relief and discharges. Absent these 

proposed regulations, borrowers in 

distress would likely default, 

institutions would be insulated from 

recovery actions, and the risk and 

liabilities would be transferred to the 

Federal taxpayer. For these reasons, 

these proposed regulations would 

protect the interests of the United States 

for borrower defense claims asserted on 

Direct Loans, while ensuring the 

successful financing of postsecondary 

education by providing loans repayable 

by current recipients of this Federal 

public benefit. 

In the preamble of the NPRM 

published on June 16, 2016, we 

described the concerns regarding 


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22We note that regulations issued by the U.S. 

Department of Health and Human Services in 2019, 

which barred health care facilities participating in 

the Medicare and Medicaid programs from 

requiring residents to agree to binding arbitration as 

a condition for admission, were similarly upheld 

based on the agency’s authority to condition 

participation in those programs. Northport Health 

Servs. of Arkansas v. U.S. Dep’t of Health and 

Human Servs., 14 F.4th 856, 866–69 (8th Cir. 2021). 

mandatory arbitration and class action 

waiver requirements. 81 FR at 39380– 

86. The preamble to the June 16, 2016, 

NPRM described how Corinthian 

Colleges used the mandatory arbitration 

and class action waiver provisions in its 

student enrollment agreements to shift 

the cost of its misrepresentations from 

the company to the Federal taxpayers. 

81 FR at 39382–83. Moreover, the 

NPRM noted that there was a lack of 

transparency both to students and the 

public regarding the outcome of 

arbitrations, the results of which are 

generally not public. See generally 81 

FR at 39381–85. The 2019 regulations 

took a different approach and concluded 

that the general Federal policy in favor 

of arbitration outweighed the particular 

issues of mandatory arbitration and 

class action waivers in the context of the 

Department’s Federal student financial 

aid programs. 

The Department has taken another 

look at mandatory arbitration and class 

action waiver requirements as they 

relate to the Federal Direct Loan 

Program. The Department reviewed both 

the 2016 NPRM and the 2019 final rule. 

The Department has determined that the 

lack of information for students cited in 

the 2016 NPRM remains a concern and 

makes it extremely difficult for current 

and prospective students to judge the 

potential burdens and risks they are 

assuming when they choose to attend an 

institution that includes mandatory 

arbitration and class action waivers in 

its enrollment agreement. 

The 2019 regulations removed the 

restrictions on the use of mandatory 

arbitration agreements and class action 

waivers, based on the general Federal 

policy in favor of arbitration and a view 

that arbitration is generally less costly 

for the parties and results in more 

timely resolutions. The Department 

specifically cited the Supreme Court’s 

decision in Epic Systems Corp. v. Lewis, 

138 S. Ct. 1612 (2018), and Congress’ 

disapproval of regulations issued by the 

Consumer Financial Protection Bureau 

that would have limited mandatory 

arbitration and class action waivers. See 

84 FR at 49839–40. 

Both the 2016 and 2019 regulations 

note that the Federal Arbitration Act 

(FAA) reflects the Federal policy 

favoring arbitration. In issuing the 2016 

regulations, the Department specifically 

acknowledged that the agency lacks 

‘‘the authority, and does not propose, to 

displace or diminish the effect of the 

FAA.’’ 81 FR at 76023. The Department 

also specifically noted that the 2016 rule 

‘‘does not invalidate any arbitration 

agreement, whether already in existence 

or obtained in the future.’’ Id. Instead, 

the 2016 regulations conditioned an 

institution’s future participation in the 

Federal Direct Loan Program on its 

agreement not to impose mandatory 

arbitration and class action waiver 

requirements relating to borrower 

defense claims on borrowers of Federal 

Direct Loans. As noted by the District 

Court in California Ass’n of Private 

Postsecondary Sch. v. DeVos, 436 F. 

Supp. 3d 333, 344 (D.D.C. 2020), 

vacated as moot, No. 20–5080, (D.C. Cir. 

Oct. 14, 2020), ‘‘if a school wants to 

participate in a federal program and to 

benefit from the many billions of dollars 

that the United States distributes in 

Direct Loans every year, it must agree to 

abide by the conditions that the 

Secretary reasonably determines are 

necessary to protect the public and the 

integrity of the program.’’ 22 In that case, 

the court concluded that the 

Department’s 2016 regulations were 

consistent with the Secretary’s authority 

under the HEA and did not conflict with 

the FAA. 

The 2019 regulations permit 

institutions to include pre-dispute 

arbitration agreements or class action 

waivers in enrollment agreements with 

their students or in other documents 

that must be signed by the student as a 

condition of enrollment. The student 

often has little or no say in the selection 

of the arbitrator, the choice of venue, or 

the ability to appeal, among other 

factors. 

As the court cases above demonstrate, 

the decision reflected in the 2019 

regulations to permit institutions to 

include these required provisions was 

based on an incorrect understanding of 

the interplay between the HEA and the 

FAA and the mistaken conclusion that 

the FAA undercut the policy reflected 

in the 2016 regulations. The 2019 

regulations also failed to adequately 

balance the costs and benefits of 

arbitration, focusing too heavily on the 

conclusion that arbitration provides 

speedier results and failing to take into 

account the protection of the interests of 

the United States, whose funds are at 

stake for borrower defense claims 

asserted on Federal Direct Loans. 

As discussed in the preamble of both 

the 2016 and 2019 regulations, there 

have been a variety of studies regarding 

the relative costs and benefits of 

arbitration versus litigation, with mixed 

conclusions. 81 FR 31982 (2016 NPRM); 

84 FR at 49841–49844 (2019 Final Rule). 

Moreover, no study the Department is 

aware of has addressed arbitration in the 

context of higher education and student 

loans. Therefore, in proposing 

regulations regarding arbitration and 

class actions in the borrower defense 

context, the Department is relying on its 

experience in the student loan area. As 

discussed in depth in the preamble to 

the 2016 NPRM, 81 FR at 39382–83, the 

Department’s experience with 

Corinthian Colleges and other 

institutions demonstrates that, had class 

actions been permitted, borrowers may 

have been able to directly pursue relief 

from the institution rather than relying 

on recovery from the Federal taxpayer 

through borrower defense discharges of 

their student loans. The impediment to 

class actions and the institutions’ ability 

to force students into arbitration 

removed a significant deterrent threat. 

When students have the option to 

pursue class action relief, they have the 

chance to recover compensation for the 

damages they may have suffered, 

including the costs related to their 

loans. 

Moreover, we note that, to prevent 

double recovery, and as discussed more 

fully in the Borrower Cooperation & 

Transfer of Recovery Rights section of 

this NPRM, Sec. 455(h) of the HEA 

provides that in no event may a 

borrower recover from the Secretary 

relief in excess of the amount such 

borrower has repaid on their Direct 

Loan. 

The Department also is concerned 

that the use of arbitration clauses or 

class action waivers in enrollment 

agreements would stifle students’ ability 

to bring complaints to the attention of 

oversight bodies, leaving taxpayers to 

assume the financial risk if those 

borrowers fail to repay their loans. As 

discussed in the 2016 NPRM, 81 FR at 

39380, agreements that bar relief by 

class action lawsuits remove the 

financial risk to an institution because 

the institution is insulated from the acts 

or omissions that gave rise to the 

borrower defense claim for which the 

taxpayers would assume the losses 

associated with the discharge. 

Moreover, class action waivers could 

impede borrowers from obtaining 

compensatory relief for themselves and 

further prevent borrowers from 

obtaining injunctive relief to compel an 

institution, in a timely manner, to desist 

from the conduct that caused them 

injury and could continue to cause other 

borrowers, injury in the future. Class 

action waivers effectively allow an 

institution to perpetuate misconduct 

with much less risk of adverse financial 

consequences than if the institution 


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could be held accountable in a class 

action lawsuit. 81 FR at 39382. 

As discussed in the 2016 NPRM, 

Corinthian Colleges included explicit 

class action waiver provisions in 

enrollment agreements, and used those, 

with mandatory pre-dispute arbitration 

clauses, to resist class actions by 

students. Suits brought against 

Corinthian Colleges were dismissed, 

and taxpayers were left to assume the 

financial losses resulting from the 

institution’s misconduct. 81 FR at 

39383. 

The Department reiterates its 2016 

position that regulating institutions’ use 

of these agreements is necessary to 

‘‘protect the interests of the United 

States and to promote the purposes’’ of 

the Direct Loan Program under 

§ 454(a)(6) of the HEA, 20 U.S.C. 

1087d(a)(6). 81 FR at 76022. By using 

these agreements, institutions could 

evade accountability, curtail borrowers’ 

rights to bring a borrower defense claim 

to the Department, and leave the Federal 

taxpayer on the hook for the 

institution’s misconduct. 

Another issue that impedes the 

Department’s oversight of institutions’ 

use of these mandatory arbitration 

agreements is that arbitral records are 

often shielded from public view. 

Borrowers and prospective students are 

unable to access records reflecting the 

outcomes of arbitration proceedings and 

their potential impact on the borrower’s 

enrollment at the institution, as these 

records are not required to be made 

available publicly. Prospective students 

may not be able to make informed 

choices about their decision to attend a 

postsecondary institution or obtain a 

Direct Loan without public knowledge 

of these arbitration and judicial records. 

The opacity of these arbitral records 

under current regulations also weakens 

the Department’s ability to exercise 

oversight over institutions and to 

‘‘protect the interests of the United 

States,’’ by hampering the Department’s 

ability to identify patterns of abuse and 

wrongdoings and take appropriate 

corrective action. Moreover, allowing 

arbitration but requiring notice to the 

Department when such arbitration was 

initiated undermines the deterrent effect 

that these proposed regulations would 

have: to prevent and discourage 

institutions’ wrongdoing upfront, rather 

than waiting until an institution engages 

in wrongdoing. 

We note that the prohibition on 

institutions’ use of mandatory 

arbitration and class action waiver 

provisions regarding borrower defense 

claims in their enrollment agreements 

was in effect between July 1, 2017, and 

July 1, 2020. At no time during that 

period or during the negotiated 

rulemaking hearings or committee 

meetings that preceded this NPRM did 

institutions identify any significant 

problems or issues from removing such 

provisions from their student 

agreements or otherwise complying 

with the regulations. On the other hand, 

since issuance of the 2019 regulations, 

the Department has heard from 

borrowers, advocates representing 

students, State attorneys general, and 

the public about problems stemming 

from these mandatory pre-dispute 

arbitration agreements and class action 

waivers and the lack of transparency 

regarding arbitral records. Collectively, 

these constituency groups highlighted 

the difficulties these agreements or class 

action waivers present in bringing a 

lawsuit based on the type of 

institutional conduct that would give 

rise to a borrower defense claim, as well 

as concerns that institutions may try to 

use internal dispute processes to 

dissuade the filing of a borrower defense 

claim. 

In light of the constituency groups’ 

concerns that institutions foreclosed on 

borrowers’ right to bring a lawsuit and 

created challenges to filing a borrower 

defense claim, the Department revived 

the issues surrounding pre-dispute 

arbitration agreements and class action 

waivers. During the negotiated 

rulemaking sessions, the Department 

proposed to prohibit institutions that 

participate in the Direct Loan program 

from obtaining, through the use of 

contractual provisions or other 

agreements, a pre-dispute agreement for 

arbitration to resolve claims brought by 

a borrower against the institution that 

could form the basis of a borrower 

defense claim. The Department 

proposed to restore prohibitions on 

institutions obtaining from a borrower, 

either in an arbitration agreement or in 

another form, a waiver of their right to 

initiate or participate in a class action 

lawsuit regarding such claims, and from 

requiring students to engage in internal 

dispute processes before contacting 

accrediting or government agencies with 

authority over the institution regarding 

such claims. Institutions would be 

required to notify the Department and to 

disclose to students the institution’s use 

of arbitration on acts or omissions 

related to the making of a Direct Loan 

or the provision of educational services 

for which the Direct Loan was provided, 

and to provide certain arbitral records 

and judicial records connected with any 

borrower defense claim filed against the 

school to the Department, which would 

be shared with the public. 

All but one non-Federal negotiator 

supported the Department’s 

reinstatement of the requirements in the 

2016 regulations; the one dissenting 

non-Federal negotiator opposed the 

reinstatement of the restrictions on predispute arbitration agreements and class 

action waivers. Some of the negotiators 

suggested that the Department should 

expand the limitation by defining a 

borrower defense claim for this purpose 

as any unlawful act or omission by the 

institution. Other negotiators urged the 

Department to extend the prohibition on 

mandatory pre-dispute arbitration to 

include private loans. Some negotiators 

also suggested that the regulations 

should include a specific enforcement 

provision that would require the 

Secretary to enforce the provisions of 

the PPA. Other negotiators suggested 

that the disclosure and notice 

requirements should ensure the 

language in the disclosures meet 

students at their level, as these students 

often get lost in the ‘‘legalese’’ of the 

documents they are required to sign as 

a condition of enrollment. 

One negotiator disagreed with the 

Department’s proposal. This negotiator 

generally agreed that transparency 

relating to arbitration and class action 

waivers is important but argued that 

alternative dispute resolution processes 

such as arbitration are less costly for 

students and more efficient in resolving 

complaints. This negotiator noted that 

the Department already has an FSA 

Feedback System to address Federal 

student aid complaints and, for 

institutions that participate in 

Department of Veterans Affairs (VA) 

educational programs, the VA has a 

complaint resolution system that 

provides aggrieved servicememberstudents a path for lodging complaints 

affecting VA programs. The negotiator 

who disagreed with the Department’s 

proposal also expressed concern over 

cybersecurity and student privacy 

regarding reporting and disclosure of 

arbitral and judicial records related to 

borrower defense claims. The 

Department discusses these provisions 

below. 

After hearing from the negotiators and 

carefully reviewing the current 

regulations, the Department proposes a 

prohibition against the use of predispute arbitration agreements and class 

action waivers for the reasons discussed 

above. 

General––Applicability to Direct Loans 

During negotiated rulemaking, the 

Department proposed limiting the 

prohibition against pre-dispute 

arbitration agreements to agreements 

related to the making of a Direct Loan 

or provision of educational services for 

which the Direct Loan was intended. 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41917 

23Carr et al. v. Grand Canyon Univ., Inc. et al., 

Case No. 1:19–cv–01707–TCB (N.D. Ga. Aug. 19, 

2019). 

Some negotiators requested an 

expansion of the prohibition to include 

other actions taken by agents of the 

institution, including online program 

managers (OPM). These negotiators 

reasoned that an OPM should also be 

subject to the prohibition against predispute arbitration agreements. One 

negotiator argued that the Department’s 

authority under 20 U.S.C. 1094(a)(27) to 

regulate preferred lender arrangements 

would allow the Department to extend 

the reach of the prohibition. 

Consistent with the Department’s 

position since 1995, see 60 FR at 37769, 

the Department’s authority with respect 

to the terms and conditions of the 

institution’s PPA with the Secretary 

only pertains to the making of a Direct 

Loan or the provision of educational 

services for which the Direct Loan was 

intended. OPMs may be covered under 

these regulations only to the extent they 

are providing services that are part of 

the borrower’s educational program for 

which the Direct Loan was intended. 

Pre-Dispute Arbitration Agreements— 

Agreements Currently in Force 

The Department acknowledges that 

many existing loan agreements include 

mandatory arbitration provisions or 

class action waivers or may be executed 

prior to the effective date of the final 

regulations. In that circumstance, 

similar to the Department’s approach in 

developing the 2016 regulations, 81 FR 

at 39386, the proposed regulations 

would prohibit a participating 

institution from attempting to exercise 

such agreements and would require a 

participating institution to either amend 

the agreements or notify the students 

who executed those agreements that the 

institution will not attempt to exercise 

those agreements in a manner 

proscribed by the regulations. Note that 

in September 2018, a Federal court 

invalidated the Department’s actions to 

delay implementation of the 2016 

regulations, including the provisions on 

the prohibition of the pre-dispute 

arbitration agreements and class action 

waivers, and those rules went into effect 

in October 2018. The Court held that the 

rule did not have retroactive effect. 

California Ass’n of Private 

Postsecondary Schs. v. DeVos, 344 F. 

Supp. 3d 158, 173 (D.D.C. 2018). 

It is important to note that these 

regulations would not invalidate those 

past contracts. These regulations would 

simply condition the institution’s future 

participation in the Direct Loan program 

on the institution not enforcing of 

certain provisions in those contracts 

going forward. As discussed in the 2016 

regulations (see 81 FR 76024, November 

1, 2016): 

Regulations commonly change the future 

consequences of permissible acts that 

occurred prior to adoption of the regulations, 

and such regulations are not retroactive, 

much less impermissibly retroactive, if they 

affect only future conduct, and impose no 

fine or other liability on a school for lawful 

conduct that occurred prior to the adoption 

of the regulations. The regulations do not 

make an institution prospectively ineligible 

because it has already entered into contracts 

with arbitration provisions. The regulations 

impose no fine or liability on a school that 

has already obtained such agreements. The 

regulations address only future conduct by 

the institution, and only as that conduct is 

related to the institution’s participation in 

the Federal Direct Loan Program. 

The PPAs that institutions enter into 

with the Secretary provide notice to 

institutions that they must comply with 

all statutory provisions of or applicable 

to title IV of the HEA, and all applicable 

regulatory provisions, including new 

regulations that go into effect during the 

institution’s participation. See 34 CFR 

668.14(b)(1). And as discussed in 2016, 

the HEA gives the Secretary authority to 

modify the terms of the PPA as needed 

to protect Federal interests and promote 

the objectives of the Direct Loan 

program. See 81 FR 76023. 

Pre-Dispute Arbitration Agreements–– 

Public Disclosure of Agreements and 

Judicial Proceedings 

Some negotiators expressed privacy 

concerns for individuals, or the 

institution, if the regulations required 

public disclosure of arbitration 

agreements and judicial proceedings 

related to borrower defense claims. 

They argued that these records contain 

confidential information. These 

negotiators also raised the potential of a 

cybersecurity incident if these records 

are made publicly available. 

The Department notes that 

institutions are already required to 

furnish other sensitive information to 

the Department, some of which is made 

public, including Tier 1 and Tier 2 

arrangements under the cash 

management regulations at part 668, 

subpart K; and Clery Act campus safety 

and security reports, among others. 

Under the proposed regulations and to 

protect privacy, the Department expects 

institutions to submit arbitral and 

judicial records with personally 

identifiable information redacted. The 

Department would subsequently 

disclose these redacted records publicly. 

Separate and apart from this proposed 

provision, the Department maintains its 

general authority to request information 

from institutions, including original, 

unredacted versions of arbitral or 

judicial records that relate to Direct 

Loans or the educational program for 

which a Direct Loan was intended. 

The Department remains committed 

to protecting students’ information to 

the extent permissible under applicable 

privacy laws, such as the Family 

Educational Rights and Privacy Act 

(FERPA), while ensuring compliance 

with requirements under the Freedom of 

Information Act (FOIA). 

Pre-Dispute Arbitration Agreements–– 

Definitions 

The Department proposes to align the 

definition of ‘‘borrower defense claim’’ 

for purposes of the prohibition on 

mandatory arbitration and class action 

waivers with the definition in the 

applicable borrower defense regulations. 

The Department believes that 

referencing the applicable borrower 

defense regulations themselves would 

make the meaning of ‘‘borrower defense 

claims’’ clear for each set of regulations. 

In Young v. Grand Canyon Univ., 980 

F.3d 814 (11th Cir. 2020), the court 

considered a mandatory arbitration 

agreement that forced a borrower to 

arbitrate his borrower defense claims 

rather than file a lawsuit. The 

institution moved to compel arbitration 

pursuant to the agreement, which the 

student signed as part of his application 

for admission. The district court granted 

the institution’s motion to compel, 

holding that the borrower’s claims for 

misrepresentation and breach of 

contract were not ‘‘borrower defense 

claims’’ as defined in the Department’s 

regulations prohibiting mandatory predispute arbitration agreements.23 The 

Court of Appeals for the 11th Circuit 

reversed, concluding that the plain 

language of the pre-dispute arbitration 

regulations contemplated such claims, 

and thus that the borrower could not be 

compelled to arbitrate them. The court 

noted, however, that the definition of 

‘‘borrower defense claim’’ for purposes 

of the pre-dispute arbitration 

prohibition could have been written 

more clearly. 

A negotiator urged the Department to 

add a definition of ‘‘provision of 

educational services’’ in the regulations 

addressing mandatory pre-dispute 

arbitration agreements. However, the 

Department believes that this concept is 

sufficiently defined in the borrower 

defense regulations, under the existing 

regulations in § 685.20Ö)(1)(iv) and in 

proposed § 685.401(a). 


jspears on DSK121TN23PROD with PROPOSALS2
41918 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

Pre-Dispute Arbitration Agreements– 

Technical Conforming Changes 

Section 668.41(h) provides that 

institutions that require pre-dispute 

arbitration agreements and/or class 

action waivers as a condition of 

enrollment must make certain plain 

language disclosures to enrolled 

students, prospective students, and the 

public about the use of such agreements. 

The plain language disclosure must 

state that the institution cannot compel 

a student to use an internal dispute 

process and cannot require the student 

to waive their right to file a borrower 

defense claim with the Department. The 

disclosure also must confirm that 

arbitration tolls any limitation period 

for filing such claims. The format of the 

plain language disclosure must be in at 

least 12-point font and must be on the 

institution’s website or in the college 

catalog. Institutions are prohibited from 

relying solely on an intranet site to 

provide such disclosures and notices to 

prospective students or the public. 

Finally, § 668.41(h)(2) defines ‘‘class 

action’’, ‘‘class action waiver’’, and 

‘‘pre-dispute arbitration agreement’’ for 

purposes of this section. 

For loans first disbursed on or after 

July 1, 2020, current § 685.304(a)(6) 

requires certain additional written 

disclosures if an institution requires a 

student to sign a pre-dispute arbitration 

agreement or a class action waiver as a 

condition of enrollment. Specifically, if 

an institution requires either form to be 

signed, § 685.304(a)(6)(xiii) requires the 

institution to provide a written 

description of its dispute resolution 

process and who the student may 

contact at the school if the student has 

a dispute relating to Direct Loans or the 

educational services for which the loans 

were provided. With respect to predispute arbitration agreements, 

§ 685.304(a)(6)(xiv) requires the 

institution to provide a written 

description of how and when any predispute arbitration agreement applies, 

how such arbitration agreement 

functions, and whom the student may 

contact with questions. Finally, for class 

action waivers, § 685.304(a)(6)(xv) 

requires the institution to provide a 

written description of the applicability 

of class action waivers, alternatives to 

class action waivers, and whom the 

student may contact with questions. 

The Department proposes to remove 

§ 668.41(h) because they would be 

unnecessary given other proposed 

changes. The proposed regulations at 

§ 685.300 would contain provisions 

requiring institutions to make specific 

disclosures about their use of mandatory 

pre-dispute arbitration agreements and 

class action waivers. 

The Department also proposes to 

remove § 685.304(a)(6)(xiii) through 

(xv). The proposed regulations at 

§ 685.300 would state the conditions 

under which disclosures would be 

required and provide deadlines for such 

disclosures. 

The Department proposes deleting the 

identified provisions because these 

issues would be addressed by the 

proposed regulations and render the 

requirements in § 668.41(h) 

unnecessary. Because § 668.41(h) would 

be unnecessary, the cross references to 

that provision in § 685.304 would reflect 

these technical changes. 

3. Interest Capitalization (§§ 685.202, 

685.209) 

Background: Interest capitalization 

occurs when any accrued, unpaid 

interest becomes part of the principal 

balance of a borrower’s loan. 

Capitalization is triggered by certain 

events, as provided by either the statute 

or by regulation. For student loans, 

interest capitalization is most often 

triggered after a period of deferment or 

forbearance. Once interest is capitalized 

and becomes part of the loan principal, 

the new principal balance begins to 

accrue interest at the rate applicable to 

the loan, which increases the overall 

cost of the loan. Thus, interest 

capitalization effectively causes a 

borrower to pay interest on principal 

and accrued interest. 

This issue was subject to negotiated 

rulemaking and consensus was reached 

on the proposal to remove interest 

capitalization on Direct Loans where it 

is not required by the HEA. As 

proposed, interest capitalization on 

Direct Loans would be retained only 

where it is specifically required by the 

HEA. Because there would be fewer 

situations in which interest is 

capitalized, this proposal would result 

in a loss in revenue and therefore would 

increase costs for the Government and 

consequently U.S. taxpayers. However, 

the proposal is expected to result in 

lower total payments over time for 

borrowers, thereby increasing the 

likelihood that borrowers would repay 

their loans in full. Given this benefit, 

the Department believes that the 

benefits for borrowers exceed these 

costs and justify the change. 

Statute: Section 428H(e)(2) of the 

HEA, which applies to the Direct Loan 

Program under the parallel terms and 

conditions provisions in § 455(a)(1) of 

the HEA, provides that interest may be 

capitalized: when a loan enters 

repayment, at the expiration of the grace 

period (in the case of a loan that 

qualifies for a grace period), at the 

expiration of a period of deferment or 

forbearance, or when the borrower 

defaults. 

Section 455(f)(1) requires 

capitalization at the end of a deferment 

period for Direct Unsubsidized Loans, 

Direct PLUS Loans, and Direct 

Unsubsidized Consolidation Loans. 

Section 493C(b)(3)(B) requires 

capitalization when a borrower who is 

repaying under the income-based 

repayment (IBR) plan stops repaying 

under that plan or is determined to no 

longer have a partial financial hardship. 

Current Regulations: Under 

§ 685.202(b)(2), the Secretary may 

capitalize interest on a Direct Loan 

when a borrower enters repayment. 

Section 685.202(b)(3) provides that for 

an unsubsidized Direct Loan and for all 

Direct Loans during periods of 

forbearance, the Secretary capitalizes 

the unpaid interest that has accrued on 

the loan upon the expiration of the 

deferment or forbearance. Section 

685.202(b)(4) provides that the Secretary 

annually capitalizes unpaid interest on 

a Direct Loan during any period of 

negative amortization under the 

alternative repayment plan described in 

§ 685.201(l) or under the incomecontingent repayment (ICR) plan 

described in § 685.209(b). Section 

685.202(b)(5) provides that the Secretary 

may capitalize unpaid interest on a 

Direct Loan when a borrower defaults 

on the loan. 

Section 685.209(a)(2)(iv) provides that 

interest is capitalized on a Direct Loan 

when a borrower who is repaying under 

the Pay As You Earn (PAYE) repayment 

plan is determined to no longer have a 

partial financial hardship or chooses to 

leave the PAYE plan. Under 

§ 689.209(a)(5)(iii)(B), unpaid interest is 

also capitalized when a borrower 

repaying under the PAYE plan fails to 

annually recertify their income. 

Under § 685.209(c)(2)(iv), any unpaid 

interest is capitalized at the time a 

borrower leaves the Revised Pay As You 

Earn plan. 

Finally, § 685.221(b)(4) and 

§ 685.221(e)(3)(ii) incorporate the 

requirements from § 493C(b)(3)(B) of the 

HEA that interest is capitalized at the 

time a borrower chooses to leave the IBR 

plan or begins making payments that are 

not based on income, which includes 

when a borrower repaying under the 

IBR plan no longer has a partial 

financial hardship or fails to recertify 

income. 

Proposed Regulations: The 

Department proposes to remove the 

provisions in §§ 685.202 and 685.209 on 

interest capitalization of Direct Loans 

where it is not required by the HEA, 


jspears on DSK121TN23PROD with PROPOSALS2
Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41919 

24https://www.pewtrusts.org/en/research-andanalysis/articles/2020/04/08/policymakers-shouldconsider-impact-of-growing-student-loan-balanceson-borrowers-and-taxpayers. 

including when capitalization is 

permitted (but not required) under the 

HEA. We propose to eliminate the 

regulatory provisions stating that 

unpaid interest is capitalized or may be 

capitalized when a borrower enters 

repayment; upon the expiration of a 

period of forbearance; annually during 

periods of negative amortization under 

the alternative repayment plan or the 

ICR plan; when a borrower defaults; 

when a borrower who is repaying under 

the PAYE plan fails to recertify income, 

or chooses to leave the plan; and when 

a borrower who is repaying under the 

REPAYE plan leaves the plan. 

Specifically, we propose to remove— 

• § 685.202(b)(2), which provides that 

for a Direct Unsubsidized Loan, a Direct 

Unsubsidized Consolidation Loan that 

qualifies for a grace period under the 

regulations that were in effect for 

consolidation applications received 

before July 1, 2006, a Direct PLUS Loan, 

or for a Direct Subsidized Loan for 

which the first disbursement is made on 

or after July 1, 2012, and before July 1, 

2014, the Secretary may capitalize the 

unpaid interest that accrues on the loan 

when the borrower enters repayment. 

• The provision in § 685.202(b)(3) 

that provides that the Secretary 

capitalizes interest that accrues on 

Direct Loans during periods of 

forbearance. 

• Section 685.202(b)(4), which 

provides that, subject to some 

exceptions, the Secretary annually 

capitalizes unpaid interest when a 

borrower is paying under the alternative 

repayment plan or the incomecontingent repayment plan described in 

§ 685.209(b) and the borrower’s 

scheduled payments do not cover the 

interest that has accrued on the loan. 

• Section 685.202(b)(5), which states 

that the Secretary may capitalize unpaid 

interest when a borrower defaults on a 

loan. 

• Section 685.209(a)(2)(iv)(A)(2), 

providing that accrued interest is 

capitalized at the time a borrower 

chooses to leave the PAYE repayment 

plan. 

• Section 685.209(a)(2)(iv)(B), which 

provides that the amount of accrued 

interest capitalized when a borrower is 

determined to no longer have a partial 

financial hardship is limited to 10 

percent of the original principal balance 

at the time the borrower entered 

repayment under the PAYE repayment 

plan and after the amount of accrued 

interest reaches that limit, interest 

continues to accrue, but is not 

capitalized while the borrower remains 

on the PAYE repayment plan. 

• Section 685.209(c)(2)(iv), providing 

that any unpaid accrued interest is 

capitalized at the time a borrower leaves 

the REPAYE plan. 

The Department is not proposing 

changes to the regulations related to 

interest capitalization where 

capitalization is required by the statute. 

This includes when a borrower exits a 

period of deferment on an unsubsidized 

loan or when a borrower who is 

repaying loans under the IBR plan is 

determined to no longer have a partial 

financial hardship, including if they fail 

to annually recertify income. 

Reasons: The Department is 

concerned that frequent interest 

capitalization increases what a Direct 

Loan borrower owes and may extend the 

time it takes for some borrowers to 

repay their loans. This may result in 

delinquency and or default for 

borrowers who cannot manage 

payments on higher loan balances. 

Recent studies have shown that growing 

loan balances lead to both financial and 

psychological challenges to successful 

repayment by borrowers. Borrowers 

reported being overwhelmed with their 

increasing loan balances, with many 

expressing frustration and diminished 

motivation to make payments toward 

balances that continue to grow.24 The 

Department is concerned that such 

diminished motivation may result in 

higher rates of delinquency and or 

default, which has significant negative 

consequences for borrowers, including 

negative credit reporting and the 

possibility of garnished wages or loss of 

tax refunds. The Department believes 

that the negative effects on borrowers of 

interest capitalization outweigh the 

added costs that come from ending this 

practice where allowed. Furthermore, 

there may be many circumstances where 

borrowers are not aware that 

capitalization may occur or do not 

understand the impact that interest 

capitalization has on their loan balance. 

The act of rolling unpaid interest into a 

borrower’s principal balance can be a 

frustrating experience for borrowers 

who are confused as to what triggered 

the capitalization or surprised by the 

higher amount they owe because of 

capitalization. Borrowers also frequently 

express frustration and surprise with 

interest capitalization, at least in part 

because this is not an occurrence they 

are likely to have experienced with 

other financial products. Given that 

borrowers already express significant 

confusion from the overall complexity 

of student loan repayment and the 

various options available to them, the 

Department does not believe alternative 

approaches to eliminating interest 

capitalization, such as improved 

education, would successfully address 

the problem. As mentioned in the 

background section for this provision, 

the Department recognizes the cost 

impact of this proposal from lost 

revenue but believes the benefits for 

borrowers exceed these costs and justify 

the change. Therefore, the Department 

proposes to eliminate interest 

capitalization for Direct Loans in 

instances where it has the authority to 

do so. 

The Department also proposes to 

eliminate instances where the 

regulations currently permit but do not 

require interest capitalization. This 

change provides greater clarity for 

borrowers since it may not be clear 

when the Department does or does not 

capitalize interest. This change also 

eliminates concerns that such 

permissive instances could be applied 

inconsistently. 

The Committee reached consensus on 

this issue. The proposal to eliminate 

interest capitalization where not 

statutorily required was enthusiastically 

received by all the committee members 

and received unanimous support. Many 

committee members applauded the 

Department for its efforts to remove 

interest capitalization in the situations 

described above. 

Some committee members requested 

that the Department provide this benefit 

to borrowers who consolidate their 

other Federal student loans into a 

Federal Direct Consolidation Loan. The 

Department could not agree to that 

request because a consolidation loan 

does not result in capitalization; rather, 

it is a new loan with a new principal 

balance made up of the principal and 

interest that the borrower owed on each 

of the underlying loans. 

Some negotiators asked the 

Department to extend this approach to 

FFEL loans. However, the Department 

noted that it does not have the authority 

to prohibit a FFEL lender from 

capitalizing interest. 

One committee member requested 

that the Department provide more 

information to help the committee 

members understand how interest 

capitalization impacts certain groups of 

borrowers and requested that the 

Department apply this benefit 

retroactively. The Department replied 

that the regulatory changes to eliminate 

interest capitalization would be 

prospective, consistent with our 

standard rulemaking procedures. 


jspears on DSK121TN23PROD with PROPOSALS2
41920 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

4. Closed School Discharge 

(§§ 674.33(g), 682.402(d), and 685.214) 

Statute: Sections 437(c)(1) and 464(g) 

of the HEA provide for closed school 

loan discharges for borrowers in the 

Perkins Loan and FFEL Programs who 

are unable to complete a program of 

study because their school closed. The 

closed school discharge provisions also 

apply to Direct Loans, under the parallel 

terms, conditions, and benefits 

provision in section 455(a) of the HEA. 

Current Regulations: Sections 

674.33(g), 682.402(d), and 685.214 

describe the qualifications and 

procedures in the Perkins, FFEL, and 

Direct Loan Programs for a borrower to 

receive a closed school loan discharge. 

Pursuant to §§ 674.33(g)(4) and 

685.214(c)(1), a Perkins or Direct Loan 

borrower must submit a written request 

and sworn statement to apply for a 

closed school discharge. 

If a loan holder in the Perkins, FFEL 

or Direct Loan Program or a FFEL 

guaranty agency determines that a 

borrower may qualify for a closed 

school discharge, the loan holder 

provides the borrower with a discharge 

application and an explanation of the 

qualifications and procedures for 

obtaining a discharge. The loan holder 

or guaranty agency promptly suspends 

any efforts to collect from the borrower 

on any affected loan. Under 

§§ 674.33(g)(8)(v), 682.402(d)(6)(ii)(H), 

682.402(d)(7)(ii), 685.214(f)(4) and 

685.214(g)(4), if a borrower fails to 

submit an application for a closed 

school discharge within 60 days of the 

loan holder or guaranty agency 

providing the application to the 

borrower, the loan holder or guaranty 

agency resumes collection and grants 

forbearance of principal and interest for 

the period in which collection activity 

was suspended. 

Sections 674.33(g)(4)(i)(B), 

682.402(d)(1)(i), and 685.214(c)(1)(i)(B) 

provide that to qualify for a closed 

school discharge, a borrower must have 

been enrolled in the school at the time 

the school closed or must have 

withdrawn from the school not more 

than 120 days before the school closed. 

These regulations also provide that the 

Secretary may extend the 120-day 

timeframe if exceptional circumstances 

justify an extension. 

Under §§ 674.33(g)(4)(i)(C) and 

685.214(c)(1)(i)(C), a Perkins or Direct 

Loan borrower may qualify for a closed 

school discharge if the borrower did not 

complete, and is not in the process of 

completing, the program of study 

through a teach-out at another school or 

by transferring academic credits earned 

at the closed school to another school. 

This also applies to FFEL borrowers 

under former § 682.402(d)(3)(ii)(C), 

which was inadvertently removed from 

the Code of Federal Regulations as of 

July 1, 2019. 

Under §§ 674.33(g)(1)(ii)(A), 

682.402(d)(1)(ii)(A), and 

685.214(a)(2)(i), a school’s closure date 

is the date the school ceases to provide 

educational instruction in all of its 

programs, as determined by the 

Department. 

Under §§ 674.33(g)(3)(i)(B), 

682.402(d)(8) and 685.214(c)(3)(i), the 

Secretary (and a guaranty agency, in the 

case of a FFEL Program loan) may 

discharge a loan without an application 

for an eligible borrower based on 

information in the Secretary’s or 

guaranty agency’s possession. The 

Secretary (and a guaranty agency in the 

case of a FFEL loan) discharges a 

Perkins or FFEL borrower’s loan if the 

borrower did not subsequently re-enroll 

in a title IV school within three years of 

the school’s closure, for schools that 

closed on or after November 1, 2013, 

pursuant to §§ 674.33(g)(3)(ii) and 

682.402(d)(8)(ii). The Secretary 

discharges a Direct Loan if the borrower 

did not re-enroll within three years of 

the school’s closure for schools that 

closed on or after November 1, 2013 and 

before July 1, 2020, pursuant to 

§ 685.214(c)(3)(ii). 

Current regulations in part 674, 

subpart B of the Perkins regulations and 

part 682, subpart D of the FFEL 

regulations do not address severability. 

Current regulations in part 685, subpart 

B and subpart C of the Direct Loan 

regulations address severability. 

Proposed regulations: The 

Department proposes to revise § 685.214 

to remove the separate closed school 

discharge application requirements for 

Direct Loans disbursed on or after July 

1, 2020, and Direct Loans disbursed 

before July 1, 2020, that appear in 

current § 685.214(c), (d)(1), (f) and (g). 

Proposed §§ 674.33(g)(4) and 

685.214(d)(1) would provide that the 

borrower must submit a completed 

closed school discharge application to 

the Secretary and that the factual 

assertions in the application must be 

true and made by the borrower under 

penalty of perjury. 

Proposed §§ 674.33(g)(8)(v), 

682.402(d)(6)(ii)(H) and 685.214(g)(4) 

would extend the time period that a 

borrower has to submit a closed school 

discharge application before the 

forbearance period expires to 90 days of 

the Secretary or other loan holder 

providing the discharge application to 

the borrower. Under proposed 

§ 685.214(g)(4), if the Secretary resumes 

collection on a Direct Loan after the 90 

days the Secretary would not capitalize 

unpaid interest that accrued on the loan 

during the period of suspension of 

collection activity that exists in current 

§ 685.214(f)(4) and (g)(4). 

Proposed §§ 674.33(g)(1)(ii)(A), 

682.402(d)(1)(ii)(A), and 685.214(a)(2)(i) 

would specify that, for purposes of a 

closed school discharge, a school’s 

closure date is the earlier of the date 

that the school ceases to provide 

educational instruction in most 

programs, as determined by the 

Secretary, or a date chosen by the 

Secretary that reflects when the school 

had ceased to provide educational 

instruction for most of its students. 

Proposed §§ 674.33(g)(1)(ii)(D), 

682.402(d)(1)(ii)(D), and 

685.214(a)(2)(iii) would define 

‘‘program’’ for purposes of determining 

the school’s closure date as the 

credential defined by the level and 

Classification of Instructional Program 

(CIP) code in which a student is 

enrolled. Under the proposed definition, 

the Secretary may define a borrower’s 

program as multiple levels or CIP codes 

if: 

• The enrollment occurred at the 

same institution in closely proximate 

periods; 

• The school granted a credential in 

a program while the student was 

enrolled in a different program; or 

• The programs must be taken in a set 

order or were presented as necessary for 

borrowers to complete to succeed in the 

relevant field of employment. 

Proposed §§ 674.33(g)(3)(i)(B), 

682.402(d)(8)(i)(B) and 685.214(c)(1) 

would provide that the Secretary—and 

a guaranty agency in the case of a FFEL 

Program loan—may discharge a loan 

without an application for an eligible 

borrower based on information in the 

Secretary or guaranty agency’s 

possession if the borrower did not 

complete an institutional teach-out plan 

implemented by the school or a teachout agreement at another school, 

approved by the school’s accrediting 

agency and, if applicable, the school’s 

State authorizing agency. 

Proposed §§ 674.33(g)(3)(ii), 

682.402(d)(8)(ii) and 685.214(c)(1) 

would remove the current requirement 

that a borrower may only qualify for a 

closed school discharge without an 

application if the borrower does not reenroll in an eligible title IV school 

within three years of the school’s 

closure date. 

Proposed § 682.402(d)(3) would 

restore provisions to the FFEL 

regulations that were inadvertently 

removed as of July 1, 2019. 

Proposed §§ 674.33(g)(4)(i)(C), 

682.402(d)(3)(iii) and 685.214(d)(1)(i)(C) 


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25 Government Accountability Office. (2021). 

‘‘College Closures: Many Impacted Borrowers 

Struggled Financially Despite Being Eligible for 

Loan Discharges.’’ Testimony before the 

Subcommittee on Higher Education and Workforce 

Investment, Committee on Education and Labor, 

House of Representatives. (GAO Publication No. 

21–105373). Washington, DC: U.S. Government 

Printing Office. 

would retain the current requirement 

that a borrower state on the closed 

school discharge application that the 

borrower did not complete an eligible 

institutional teach-out plan performed 

by the school or a teach-out agreement 

at another school and remove the 

requirement that the borrower state that 

they did not complete a comparable 

program of study at another school. 

Under proposed §§ 674.33(g)(3)(ii), 

682.402(d)(8)(ii) and 685.214(c)(2), if a 

borrower accepts but does not complete 

an institutional teach-out plan 

implemented by the school or a teachout agreement at another school, 

approved by the school’s accrediting 

agency and, if applicable, the school’s 

State authorizing agency, the Secretary 

would discharge the loan within one 

year of the borrower’s last date of 

attendance in the teach-out program. 

Proposed §§ 674.33(g)(4)(i)(B), 

682.402(d)(1)(i) and 685.214(d)(1)(i)(A) 

would provide that a borrower who 

withdrew from the school not more than 

180 days before the school closed may 

qualify for discharge, an increase in 

time from the 120-day period under 

current regulations for Perkins and 

FFEL loans. The Secretary would be 

able to extend the 180-day period if 

exceptional circumstances justify an 

extension. 

Proposed §§ 674.33(g)(9), 

682.402(d)(9) and 685.214(h) would 

contain an expanded, but 

nonexhaustive, list of exceptional 

circumstances that would justify the 

Secretary extending the new 180-day 

timeframe. The expanded list of 

exceptional circumstances would 

include, but not be limited to: 

• Revocation or withdrawal by an 

accrediting agency of the school’s 

institutional accreditation; 

• Placement of the school on 

probation by its accrediting agency or 

the issuance of a show-cause order by 

the institution’s accrediting agency, or 

placement on an accreditation status, by 

its accrediting agency for failing to meet 

one or more of the agency’s standards; 

• Revocation or withdrawal by the 

State authorization or licensing 

authority to operate or to award 

academic credentials in the State; 

• Termination by the Department of 

the school’s participation in a title IV, 

HEA program; 

• A finding by a State or Federal 

government agency that the school 

violated State or Federal laws related to 

education or services to students; 

• A State or Federal court judgment 

that a school violated State or Federal 

laws related to education or services to 

students; 

• The teach-out of the student’s 

educational program exceeds the 180- 

day look back period for a closed school 

discharge; 

• The school responsible for the 

teach-out of the student’s educational 

program fails to perform the material 

terms of the teach-out plan or 

agreement, such that the student does 

not have a reasonable opportunity to 

complete his or her program of study; 

• The school discontinued a 

significant share of its academic 

programs; 

• The school permanently closed all 

or most of its in-person locations while 

maintaining online programs; or 

• The Department placed the school 

on the heightened cash monitoring 

payment method as defined in 

§ 668.162(d)(2). 

Conforming changes reflecting the 

revisions discussed above would be 

made to §§ 682.402(d)(6)(ii) and 

682.402(d)(7) of the FFEL regulations. 

Proposed § 682.424 would make it 

clear that, if any part of the proposed 

regulations is held invalid by a court, 

the remainder would still be in effect. 

Reasons: Under the current 

regulations, to qualify for a closed 

school discharge, a borrower must have 

been enrolled at the institution on the 

date of its closure or have withdrawn no 

more than 120 days prior to its closure 

for loans made before July 1, 2020, or 

180 days prior to the school’s closure for 

loans made on or after July 1, 2020. The 

borrower may not have graduated from 

the school or transferred their credits to 

complete the same or a comparable 

program at another school to qualify for 

the discharge. Through this rulemaking, 

the Department proposes to address the 

disparity in eligibility criteria for receipt 

of a closed school discharge based on 

the disbursement date of the loan, as 

well as to address other issues that we 

believe impede borrowers from 

obtaining closed school discharges. We 

propose to modify the current 

regulations in several ways to increase 

access to closed school discharges for 

borrowers who have experienced the 

disruption of being enrolled in a school 

that closes, and who are burdened by 

student loan debt for an educational 

program that they were unable to 

complete through no fault of their own. 

Automatic closed school discharges, 

which are granted by the Department 

based on information in its possession, 

are available to certain borrowers under 

different conditions. The Department is 

proposing to make automatic closed 

school discharges available to all Direct 

Loan, FFEL and Perkins Loan borrowers 

under the same criteria. In addition, the 

proposed regulations would reduce the 

time frame for a borrower to qualify for 

an automatic closed school discharge 

from three years to one year after the 

school has closed. The U.S. General 

Accountability Office (GAO) found that 

over 70 percent of borrowers who 

received automatic closed school 

discharges under the three-year 

provision were in default on the loan.25

The GAO has also noted that, without 

an automatic discharge option, only a 

small percentage of eligible borrowers 

ever obtain relief through a closed 

school discharge. Providing for 

automatic closed school discharges for 

all qualified Direct Loan, FFEL loan and 

Perkins Loan borrowers and 

automatically discharging loans more 

quickly (e.g., within one year instead of 

the current three years) would make it 

far less likely that borrowers who are 

qualified for discharges but who fail to 

apply would default on their loan before 

receiving relief through an automatic 

discharge. The Department weighed the 

risks to borrowers of defaulting on a 

loan for which they are eligible for a 

discharge against the possibility that 

some students may opt to re-enroll and 

transfer their credits after one year. 

However, the Department believes that 

students are best protected by 

establishing a one-year period for 

automatic discharges. In addition to 

protecting borrowers against default, a 

one-year period still provides borrowers 

time to decide whether they want to 

continue their studies through an 

approved teach-out plan. A borrower 

may need some time after a school 

closes to sort out their educational 

options. Providing an automatic 

discharge one year after closure should 

give borrowers enough time to make 

thoughtful educational decisions but not 

be so long that there is a risk that those 

who are struggling would have their 

loans default. 

The non-Federal negotiators were 

generally supportive of the 

Department’s proposal. Several nonFederal negotiators were concerned 

about the Department’s initial proposal 

that would not have extended the 

possibility of automatic discharges for 

borrowers who attended schools that 

closed before 2014. The Department 

initially proposed this limitation on 

automatic closed school discharges 

because the Department’s enrollment 


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information for those years is not 

sufficient to determine if a borrower reenrolled in a comparable program. NonFederal negotiators argued that the 

borrowers who attended schools that 

closed before 2014 are the borrowers 

who are least likely to be aware that 

they may qualify for closed school 

discharges. 

Several non-Federal negotiators also 

proposed eliminating the comparable 

program requirement that prevents a 

borrower who has enrolled in a 

comparable program from qualifying for 

a closed school discharge in its entirety. 

Without this limitation on eligibility for 

a closed school discharge, the lack of 

Departmental data showing whether 

borrowers re-enrolled in comparable 

programs for those years would be a 

moot point. In the view of these 

negotiators, the existing requirement 

disincentivizes re-enrollment. As noted 

by the negotiators, the best outcome for 

a borrower who attended a school that 

closed would be for the borrower to reenroll elsewhere and complete their 

education. However, if a borrower is 

faced with the decision to either reenroll or to obtain a loan discharge, the 

borrower is likely to opt for the 

discharge. 

One non-Federal negotiator expressed 

a concern that the proposed automatic 

discharges would result in fewer 

students completing teach-out plans or 

transferring their credits to other 

schools. This negotiator felt that the 

Department’s proposal could result in 

the Department discharging student 

loans for thousands of borrowers who 

withdrew from their institution for 

personal reasons and were not impacted 

by the school closure or by any potential 

degradation of educational quality prior 

to the school closing. 

Other non-Federal negotiators noted 

that institutions that close have, in 

many cases, been spiraling downward, 

and that school closure does not occur 

in a vacuum. In the case of sudden 

closures, there are often a string of 

events that occurred before the school’s 

accreditation is terminated or the school 

has its front doors locked with no 

warning. For an institution that has 

been steadily declining prior to closure, 

the credits earned at the school may not 

be transferrable. 

In contrast to this view, one of the 

non-Federal negotiators made the point 

that each school closure is unique, and 

that while there are many examples of 

schools that have not handled closure 

well, some schools do effectuate an 

orderly, planned closure. This 

negotiator stated that school closure is 

not necessarily a sign that the quality of 

instruction at the school has 

deteriorated and that there can be 

unique transactions such as mergers, 

consolidations, or acquisitions that end 

with an institution officially closing, but 

prior to the closure the school was still 

in good standing. According to the 

negotiator, the transaction that resulted 

in the school closure may have been 

intended to result in a stronger 

institution, and schools that close under 

these circumstances are likely to have 

established effective teach-out programs 

or to have ensured that their credits are 

transferrable to another institution. 

Several non-Federal negotiators 

disagreed with this line of reasoning. 

They argued that, regardless of whether 

the school closure is precipitous or 

carefully planned, a student attending a 

school that closes is harmed. Even for a 

student who can transfer credits to 

another school, the experience of going 

through a school closure can still be 

devastating. The student may have 

given up a job to attend the school or 

may have spent months or years in a 

program that the student will not be 

able to finish. Students may have taken 

out private or institutional loans to 

further their education at the school. 

These types of loans are not covered 

under the closed school discharge 

provisions, which only apply to Federal 

title IV loans. 

During the first negotiating session 

and in explaining our initial proposal, 

the Department emphasized that our 

goal with these proposed regulations is 

to create more ways for a borrower to 

qualify for an automatic discharge. 

Under the proposed rules, re-enrolling 

would not preclude a borrower from 

obtaining a closed school discharge. 

However, the Department did not 

collect and does not have reliable data 

on students’ programs prior to 2014; 

therefore, the borrower could not 

qualify for an automatic discharge prior 

to 2014. Such borrowers could still 

apply for a closed school discharge by 

providing an attestation that they did 

not enroll in a comparable program. 

Initially, the Department’s proposed 

regulations would have defined 

‘‘comparable program’’ as a program 

with the same credential level and in 

the same field of study, and which 

accepted most of the credits transferred 

from the closed school. The Department 

pointed out that this would be a less 

stringent standard than the standard in 

the 2016 rule pertaining to automatic 

closed school discharges, which 

provided that a borrower who enrolled 

elsewhere would not qualify for an 

automatic discharge. 

Under current practice, a borrower 

applying for a closed school discharge 

must certify under penalty of perjury 

whether the borrower is enrolled in or 

has completed a comparable program at 

another school. If the borrower has 

enrolled in or completed a comparable 

program, the borrower must certify 

whether the new school accepted 

transfer credits from the closed school 

or did not require the borrower to 

complete core credits after evaluating 

the borrower’s competency. If transfer 

credits were accepted or the borrower 

was not required to complete core 

credits, the borrower is not eligible for 

a closed school discharge. Since reenrollment information at that level of 

detail would not normally be in the 

Department’s routine databases, in the 

case of an automatic closed school 

discharge, if the Department has 

information indicating that the borrower 

has re-enrolled in a comparable 

program, the Department does not grant 

an automatic discharge. However, the 

borrower may still apply directly for a 

closed school discharge, and, by 

providing the certifications discussed 

above and meeting the additional 

eligibility criteria, qualify for a closed 

school discharge. 

The Department’s initial proposal 

would have provided a more generous 

set of eligibility criteria for granting 

automatic closed school discharges. 

The Department emphasized that we 

would retain a wait-out period because 

we believe that it is important to allow 

time between the school closure and the 

automatic discharge to give a borrower 

an opportunity to decide whether to reenroll in another program. For many 

borrowers, particularly those close to 

completing their credential, obtaining 

the degree or certificate they were 

pursuing will be their preferred option 

following a school closure. However, we 

believe that the current three-year 

period is too long. If the timeframe is 

longer than one year, it is possible that 

the loan will go into default before the 

automatic closed school discharge 

would be granted, as evidenced by the 

high number of automatically 

discharged loans in default status as 

found by GAO. Specifically, GAO 

reported that more than half of 

borrowers who eventually received an 

automatic discharge on their loans 

following a closure first defaulted on 

their loans; and more than half of those 

borrowers did so within 18 months of 

their school closing. 

A non-Federal negotiator proposed 

removing the re-enrollment limitation 

entirely but retaining the one-year 

timeframe. This proposal was supported 

by many members of the negotiating 

committee. The Department agreed to 

consider this proposal. 


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The Department also noted that, 

under the proposed regulations, the 

clock on the automatic discharge 

timeframe would be paused while the 

borrower is in a teach-out program and 

would re-start after they leave the teachout without graduating the program. 

The non-Federal negotiators were 

generally supportive of this proposal. 

The Department noted the disparity in 

the timeframe for a borrower to have 

withdrawn from the school to qualify 

for a closed school discharge which, 

depending on the loan disbursement 

date, could be 120 or 180 days prior to 

the school closing. The Department 

proposed making the timeframe 

consistent at 180 days for all borrowers. 

As outlined in the 2018 NPRM (83 FR 

at 37268), when we last amended the 

closed school regulations, we 

determined that 180 days is a reasonable 

timeframe after considering summer 

breaks and the potential for a student to 

have withdrawn one semester prior to a 

school’s precipitous closure, which 

could be as many as 180 days earlier. 

The proposed changes also ensure 

equity for all borrowers regardless of 

loan disbursement date. 

The non-Federal negotiators 

supported this proposal, although some 

expressed concern that schools might 

manipulate the date of closure, 

rendering borrowers ineligible for a 

closed school discharge. They asked 

whether there are specific triggering 

events that the Department uses to 

determine whether a school is 

considered closed for purposes of a 

closed school discharge. The 

Department indicated that there are and 

provided the negotiators with a chart 

that is used to make these 

determinations. 

Determining the date of an 

institutional closure to include 

circumstances where an institution has 

ceased instruction in most programs or 

for most students allows the Department 

to address situations where an 

institution may effectively cease 

operating without formally closing to 

limit discharges for borrowers. This 

provision would not automatically 

apply if, for example, a small institution 

remains open but ends a program or two 

but would capture a circumstance 

where an institution continues only one 

small program while otherwise ceasing 

all other enrollment. This would limit 

the ability of an institution to 

manipulate the closed school discharge 

process. 

The Department noted that the 

existing regulations give the Secretary 

the authority to extend the discharge 

timeframe (whether 120 or 180 days) 

under exceptional circumstances. The 

existing regulations provide illustrative 

examples of exceptional circumstances, 

and the Department proposed adding 

additional illustrative examples to that 

list. The proposed six additional 

examples illustrate circumstances that 

the Department believes justify an 

extension of the look-back timeframe. 

While the current regulations include 

revocation or withdrawal of 

accreditation by the institutional 

accrediting agency, the Department 

proposes that other actions—such as an 

accrediting agency putting the 

institution on probation or issuing a 

show cause order—could indicate that 

the institution is at risk of losing its 

accreditation, thereby placing the 

borrower in an untenable situation 

should a resulting closure occur outside 

the look-back timeframe. Similarly, after 

receiving comments and feedback from 

legal aid representatives and State 

attorneys general, the Department 

proposes to add administrative findings 

and court judgments that a school 

violated State or Federal law related to 

education or services to students as 

additional examples that would warrant 

an extension of the look-back timeframe. 

Finally, based on its experience, the 

Department proposes three additional 

examples that could indicate that the 

school is in danger of closing and 

placing its borrowers at risk: when a 

school discontinues a significant share 

of its academic programs; when a school 

permanently closes all or most of its inperson locations while maintaining 

online programs; and when the school 

has been placed on heightened cash 

monitoring as defined under 

§ 668.162(d)(2). Each of these 

circumstances indicates that the 

institution may be at risk of closing, and 

we propose to include these examples 

as situations that warrant an extension 

for the borrower. 

Non-Federal negotiators expressed 

concerns relating to stackable 

credentials and the issuance of 

retroactive credentials as methods 

schools use to prevent borrowers from 

qualifying for closed school discharges. 

The Department agreed that closing 

schools issuing retroactive credentials to 

borrowers to prevent them from 

qualifying for closed school discharges 

is a concern. Non-Federal negotiators 

also discussed the problem of schools 

forcing borrowers into an associate 

degree program before a bachelor’s 

degree program, even when the student 

is only interested in obtaining the 

bachelor’s degree. Negotiators argued 

that, in some cases, borrowers are 

unknowingly placed in associate degree 

programs but are led to believe that they 

are working toward a bachelor’s degree. 

In these cases, if a school closes, the 

loans used to obtain the associate degree 

are not eligible for discharge. Only the 

loans used to obtain the subsequent 

bachelor’s degree may qualify. 

To address these concerns, the 

Department proposed expanding the 

definition of ‘‘program’’ to give the 

Department the discretion to determine 

whether an institution has placed a 

student in a different program or 

awarded the student a different degree 

to make the student ineligible for a 

closed school discharge. The revised 

definition would cover enrollments that 

occurred at the same institution in close 

proximate periods, or if a school granted 

a credential for one program while the 

student was enrolled in a different 

program. While there are many 

circumstances in which dual enrollment 

or reverse credentialing can benefit 

students, the Department is concerned 

about past instances where some 

institutions have required students to 

start in programs other than the ones the 

students wanted to pursue, broken up 

programs into multiple pieces when a 

student needs to complete all of them to 

succeed in the relevant field of 

employment, or retroactively awarded 

credentials in a way that then reduces 

the amount of closed school discharges 

because a borrower cannot receive a 

discharge related to a program from 

which they graduated. 

The Department is proposing to 

eliminate the current regulations 

relating to a borrower re-enrolling in a 

comparable program. However, we are 

not proposing to remove the limitation 

regarding a borrower completing the 

program through a teach-out agreement. 

A borrower would only qualify for a 

closed school discharge if the borrower 

did not complete an institutional teachout plan performed by the school or 

through a teach-out agreement with 

another school approved by the school’s 

accrediting agency and, if applicable, 

the school’s state authorizing agency. 

The Department believes removing 

the re-enrollment criteria would better 

reflect the legislative intent of the HEA 

and avoids the significant challenges 

that exist in implementing the 

requirement. Under § 437(c) of the HEA, 

a borrower may receive a closed school 

discharge if they are unable to complete 

the program in which they are enrolled. 

The HEA does not mention the 

possibility that enrollment in a 

comparable program would limit the 

borrower’s eligibility for a discharge. 

The intent of the comparable program 

requirement in the regulations is to 

encourage borrowers to get a degree or 

certificate. However, this may result in 


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too many situations where a borrower 

loses the ability to receive a discharge 

even though the program they are 

enrolled in is not a true extension of the 

program they were in at the institution 

that closed. Similarly, there is no 

definition of what constitutes a 

comparable program, creating a risk that 

a borrower will incorrectly believe a 

program to be comparable when it is 

objectively not comparable. The 

Department proposes to address this 

issue by only barring discharges to 

situations in which the borrower 

accepts and completes an approved 

teach-out program. The purpose of a 

teach-out program is to provide students 

a smooth path to completion of their 

program while minimizing the common 

problems that occur during transfer. 

Approved teach-out plans include 

agreements between the two institutions 

around credit transfer and programs and 

ensure the new program provides 

similar content. Teach-out programs 

with these features may be more clearly 

viewed as an extension of the student’s 

original program. Schools that are 

engaged in a planned closure or a 

planned closure of a program are in a 

better position to arrange a formal teachout than schools that close 

precipitously. A school that closes 

precipitously, unless it already has a 

teach-out plan in place, may not be able 

to provide a teach-out for its students. 

Though participating in a teach-out 

program may be the most expeditious 

way for a borrower to complete their 

original program, the Department 

proposes that students who start a 

teach-out program be eligible for an 

automatic discharge if they do not 

complete it. This proposal would 

minimize the high-stakes nature of a 

borrower’s decision of whether to 

continue in a teach-out program and 

would encourage more students to 

attempt to continue their education. It 

also acknowledges that, despite a 

student’s effort to continue the prior 

program, there may be meaningful 

differences between the schools and 

programs that make completion 

nonviable. These differences can 

include the teach-out option being too 

far away for the borrower or that the 

teach-out program is taught online when 

the borrower was previously attending 

an in-person program. The Department 

also believes that it is inappropriate to 

limit a borrower’s eligibility for a 

discharge solely on the basis that they 

have been offered a teach-out program. 

Under such a policy, an institution 

could limit its possible closed school 

discharge liability simply by offering 

teach-out options in inconvenient 

locations that are not feasible for 

borrowers. 

As noted above, during the negotiated 

rulemaking, the Department shared 

subregulatory guidance in the form of a 

table that indicates when certain 

conditions constitute a closed school. 

The non-Federal negotiators requested 

that the subregulatory guidance be 

publicly available to provide 

institutions with a clearer 

understanding of when a school is 

considered closed, beyond the 

regulatory language. The negotiators 

recommended putting the guidance in 

the FSA Handbook or including it as 

part of the preamble to this NPRM. 

The Department agreed to make the 

document available in a more public 

forum but noted that the document 

needed some technical updating and 

revisions. The updated and revised 

version of the information will be made 

available in Volume 2 of the Federal 

Student Aid Handbook, which will be 

made available on the Department’s 

website at https://fsapartners.ed.gov/ 

knowledge-center/fsa-handbook. 

One non-Federal negotiator had 

significant concerns about the proposed 

language. This negotiator objected to the 

proposal to define a closed school to 

include a school that has ceased to 

provide educational instruction for most 

of its students. The non-Federal 

negotiator added that this would mean 

a student attending a school that has not 

closed would be eligible for closed 

school discharge. The non-Federal 

negotiator noted that institutions add 

and discontinue program offerings 

routinely in response to student demand 

and changes in the labor market and 

argued that programmatic innovation 

should be encouraged so that 

institutions continuously improve 

offerings to help students succeed in the 

workforce. The non-Federal negotiator 

felt that the Department’s proposal 

could be particularly damaging to small 

institutions that want to switch up 

program offerings and only offer three or 

four programs in total. Under the 

proposed regulations, instead of starting 

new programs and discontinuing old 

programs, some colleges may keep old 

programs afloat simply to avoid a closed 

school discharge liability. In this 

negotiator’s view, the proposed 

definition of a closed school departs 

from the plain meaning of that term in 

the HEA. The negotiator contended that 

to obtain relief under the statute, the 

school must have closed. 

This non-Federal negotiator also 

noted that the proposed regulations 

would represent a significant shift away 

from the concept that a borrower who 

enrolls in a comparable program would 

not qualify for a closed school 

discharge. The Department’s new 

proposal would provide loan discharges 

to all borrowers who attend a school 

that closed except those who completed 

their programs through a teach-out 

agreement. In the negotiator’s view, this 

would create a perverse incentive for 

borrowers not to enroll in a teach-out 

program because it would be more 

financially rational for a borrower to 

transfer credits to another school than to 

participate in a teach-out. The 

negotiator believed that teach-out 

arrangements are generally positive for 

students and expressed disappointment 

that the Department would propose a 

policy that would disincentivize 

enrollment in a teach-out program. If a 

borrower is close to completing their 

program when the school closes and can 

transfer all of their credits, they may 

only need to take one or two classes at 

the new school. However, they can still 

be eligible for full student loan relief 

under the proposal. The negotiator 

stated that this creates a windfall for 

students, which would primarily be 

paid by taxpayers. Lastly, the negotiator 

objected to the Department’s intention 

to make these changes to the closed 

school discharge regulations apply 

retroactively to all title IV borrowers. 

The Department responded that the 

objections raised by the non-Federal 

negotiator represented general 

differences of opinion over the direction 

of the proposed regulations. The 

Department emphasized that the 

proposed revisions to the regulations are 

intended to ensure that borrowers who 

have experienced school closures have 

easier access to closed school discharges 

and to address a multitude of potential 

closed school situations that could 

adversely affect borrowers. In particular, 

the proposed regulations seek to ensure 

that borrowers are not left worse off if 

they accept a teach-out agreement 

following a closure and that teach-out 

opportunity does not meet the student’s 

needs or live up to the promise of the 

program they originally signed up for— 

a situation that has been a reality for 

many students affected by precipitous 

school closures in the past. We do not 

believe that offering choices to students 

disincentivizes the use of a teach out 

and agree that we want to provide 

pathways for students to complete their 

academic program. Moreover, the 

Department believes that the proposal in 

these regulations would be more likely 

to encourage a borrower to accept a 

teach out because doing so would not 

eliminate their ability to receive a 

discharge just by trying the program at 

the new institution. The choice of 


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whether to take a teach out is thus lower 

stakes for a borrower than it is under 

current circumstances. 

The Department did not believe that 

there was a feasible way to bridge the 

differences between the proposed 

regulatory language and the non-Federal 

negotiator’s objections. The non-Federal 

negotiator agreed. Therefore, the 

Committee was not able to reach 

consensus on these proposed 

regulations. 

With regard to severability, we believe 

that each of the proposed provisions 

discussed in this NPRM serves one or 

more important, related, but distinct, 

purposes. Each of the requirements 

provides value to students, prospective 

students, and their families; to the 

public, taxpayers, and the Government; 

and to institutions separate from, and in 

addition to, the value provided by the 

other requirements. To best serve these 

purposes, we would include this 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

5. Total and Permanent Disability 

Discharge (§§ 674.61, 682.402, and 

685.213) 

This issue was subject to negotiated 

rulemaking and consensus was reached 

on the proposal. 

Statute: Sections 437(a)(1) and 

464(c)(1)(F) of the HEA provide for a 

discharge of a borrower’s Perkins or 

FFEL program loan if the borrower 

becomes totally and permanently 

disabled as determined in accordance 

with the Secretary’s regulations, or if the 

borrower is unable to engage in any 

substantial gainful activity by reason of 

any medically determinable physical or 

mental impairment that can be expected 

to result in death or has lasted, or can 

be expected to last, for a continuous 

period of not less than 60 months. The 

TPD discharge provisions also apply to 

Direct Loans under § 455(a) of the HEA. 

Current Regulations: Under 

§§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), 

and 685.213(b)(2), a TPD discharge may 

be certified by a doctor of medicine 

(MD) or a doctor of osteopathy (DO). In 

addition, under certain circumstances, a 

borrower may qualify for a TPD 

discharge based on an SSA notice of 

award indicating that the borrower 

qualifies for Social Security Disability 

Insurance (SSDI) or Supplemental 

Security Income (SSI) benefits. The SSA 

has different time frames for conducting 

follow-up disability reviews depending 

on the nature and severity of the 

individual’s disability. If the borrower’s 

next scheduled SSA disability review 

will be within five to seven years, the 

borrower would fulfill the requirements 

in the HEA for a total and permanent 

disability discharge. 

Sections 674.61(b)(6)(I), 682.402(c)(6), 

and 685.213(b)(7)(i) state that a 

borrower’s Perkins, FFEL, or Direct 

Loan program loan may be reinstated 

after the borrower has received a TPD 

discharge if the borrower: 

• Has annual employment earnings 

that exceed 100 percent of the poverty 

guideline for a family of two; 

• Receives a new TEACH Grant or 

title IV loan; 

• Fails to ensure that the full amount 

of any disbursement of a title IV loan or 

TEACH Grant received prior to the 

discharge date that is made is returned; 

or 

• Receives a notice from SSA 

indicating that the borrower is no longer 

disabled or that the borrower’s 

continuing disability review will no 

longer be within the five- to seven-year 

period. 

If a loan is reinstated, 

§§ 674.61(b)(6)(iii), 682.402(c)(6)(iii), 

and 685.213(b)(7)(iii) specify that the 

notice of reinstatement sent to the 

borrower explain that the first payment 

due date following reinstatement would 

be no earlier than 60 days. 

Current regulations in part 674, 

subpart D (Perkins) and part 682, 

subpart D (FFEL) do not address 

severability. 

Proposed Regulations: Under 

proposed §§ 674.61(b)(2)(iv), 

682.402(c)(2)(iv), and 685.213(b)(2), a 

TPD discharge application may be 

certified by an NP, a PA licensed by a 

State, or a licensed certified 

psychologist at the independent practice 

level, in addition to an MD or DO. The 

type of SSA documentation that may 

qualify a borrower for a TPD discharge 

would be expanded to include an SSA 

Benefit Planning Query or other SSA 

documentation deemed acceptable by 

the Secretary. In addition to SSA 

documentation indicating that a 

borrower qualifies for SSDI or SSI 

benefits with a next scheduled disability 

review in five years to seven years, a 

borrower would qualify for a TPD 

discharge based on SSA documentation 

indicating that the borrower— 

• Qualifies for SSDI or SSI benefits 

with a next scheduled disability review 

within three years, and the borrower’s 

eligibility for disability benefits in the 

three-year review category has been 

renewed at least once; 

• Has a disability onset date for SSDI 

or SSI of at least five years prior to the 

application for a disability discharge or 

has been receiving SSDI or SSI benefits 

for at least five years prior to the 

application for TPD; 

• Qualifies for the SSA 

compassionate allowance program; or 

• Is currently receiving SSA 

retirement benefits and met any of the 

above requirements prior to qualifying 

for SSA retirement benefits. 

Conforming changes identifying the 

additional medical professionals who 

would be authorized to certify a TPD 

discharge application, and the 

additional SSA documentation that 

would be acceptable for a TPD discharge 

would be made throughout §§ 674.61(b), 

682.402(c), and 685.213(b) of the 

Perkins, FFEL, and Direct Loan 

regulations. 

Proposed §§ 674.61(b)(6)(i), 

682.402(c)(6), and 685.213(b)(7)(i) 

would eliminate the existing 

reinstatement requirements, except for 

the provision which provides that a 

borrower’s loan is reinstated if the 

borrower receives a new TEACH Grant 

or a new title IV loan within three years 

of the date the TPD discharge was 

granted. 

For a loan that is reinstated, proposed 

§§ 674.61(b)(6)(iii), 682.402(c)(6)(iii), 

and 685.213(b)(7)(iii) would revise the 

regulations governing the notification of 

reinstatement to provide that the notice 

will explain to the borrower that the 

first payment due date following 

reinstatement will be no earlier than 90 

days after the date of the notification of 

reinstatement, instead of no earlier than 

60 days. 

The provisions in §§ 674.61(b)(7), 

682.402(c)(7), and 685.213(b)(8) that 

describe a borrower’s responsibilities 

after receiving a total and permanent 

disability discharge would be removed. 

Proposed § 685.213(d) would provide 

that the Secretary will grant a TPD 

discharge without an application if the 

Secretary obtains the appropriate 

documentation from the Department of 

Veterans Affairs (VA) or SSA. 

Proposed §§ 674.65 and 682.424 

would make it clear that, if any part of 

the proposed regulations is held invalid 

by a court, the remainder would still be 

in effect. 

Reasons: Prior to the negotiations that 

resulted in this NPRM, the Department 

took important steps to improve the 

TPD discharge process for eligible 

borrowers. On November 26, 2019, the 

Department published in the Federal 

Register an interim final rule (IFR) 

amending and updating the regulations 

pertaining to TPD discharges for 

veterans. The IFR removed 

administrative burdens that may have 

prevented at least 20,000 totally and 


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permanently disabled veterans from 

obtaining discharges of their student 

loans by automating the process for 

granting TPD discharges based on a data 

match with the VA. On August 23, 2021, 

we published a final rule in the Federal 

Register that adopted and amended the 

regulations established in the IFR. The 

final rule: 

• Expanded the automatic TPD 

discharge process to borrowers who are 

eligible for SSDI and/or SSI benefits and 

whose next scheduled disability review 

is no earlier than five to seven years; 

• Clarified that borrowers determined 

to be eligible for a TPD discharge based 

on data that the Secretary obtains from 

VA or the SSA are not required to 

submit a TPD application to have their 

Federal student loans discharged; 

• Described the process used by the 

Secretary to automatically discharge 

Federal student loans for a borrower 

who is determined to be eligible for a 

TPD discharge based on data obtained 

from either VA or the SSA; 

• Specified the contents of the notice 

the Secretary sends to borrowers who 

are determined to be eligible for a TPD 

discharge based on data that the 

Secretary obtains from VA or from the 

SSA; and 

• Provided for the return of payments 

to the person who made payments on 

the loan on or after the effective date of 

the determination by VA or SSA for 

borrowers who receive the automatic 

TPD discharge. 

In addition to these regulatory 

changes, the Department also 

announced in March 2021 that we 

would relax the TPD monitoring period 

requirements during the national 

emergency due to the pandemic and 

reinstate TPD discharges for any 

borrower who had not responded to 

requests for earnings information. 

With this rulemaking, the Department 

proposes to build on the reforms to the 

TPD discharge process described above. 

During the negotiated rulemaking 

sessions, the Department proposed 

eliminating the TPD income monitoring 

period altogether. The Department has 

found that, rather than acting as a 

guardrail, requiring borrowers who are 

totally and permanently disabled to 

submit annual income information has 

caused significant numbers of loans 

discharged due to TPD to be reinstated 

simply because the borrower did not 

respond to a paperwork request and not 

because they had earnings above the 

threshold for reinstatement. The 

Department noted that around half of 

the loans discharged due to total and 

permanent disability are reinstated 

because of a failure by the borrower to 

respond to the request for earnings 

information. 

The non-Federal negotiators agreed 

with this proposal as part of reaching 

consensus on the overall total and 

permanent disability regulatory text. 

However, since the Department was not 

proposing to eliminate the reinstatement 

requirements regarding borrowers who 

obtain additional title IV loans after 

receiving a TPD discharge, they 

recommended that the three-year 

monitoring period be reduced to one 

year. The Department considered this 

proposal, but ultimately determined that 

retaining the three-year monitoring 

period for this purpose is appropriate. 

Because we are taking steps with these 

regulations to make it easier for 

borrowers to receive TPD discharges, 

the Department has not been presented 

with a reason to change our current 

position on having a three-year 

limitation on borrowers taking out 

additional title IV loans. 

Under current regulations, a borrower 

may qualify for a TPD discharge based 

on an SSA determination that a 

borrower is in SSA’s Medical 

Improvement Not Expected (MINE) 

disability status. The MINE status is the 

only current SSA disability status that 

the Department uses for TPD discharges 

based on SSA disability determinations. 

The Department noted that there are 

other SSA disability categories that may 

meet the Department’s criteria for a TPD 

discharge. These statuses include 

qualifying for SSA’s Compassionate 

Allowance Program, which is a status 

where the borrower has one of a 

predefined set of serious conditions that 

is highly likely to result in the borrower 

qualifying for disability benefits. 

Another status is Medical Improvement 

Possible (MIP). MIP requires a disability 

review within three years, so a borrower 

whose MIP status was renewed at least 

once would meet the HEA requirement 

that a borrower’s medical impairment 

last, or be expected to last, at least five 

years. 

Individuals in the MIP category are 

required to undergo a medical review 

within three years of SSA’s initial 

determination that they are qualified for 

SSA disability benefits. Therefore, a 

borrower who is in the MIP category 

and whose approval for disability 

benefits is subsequently renewed would 

be in that disability status for six years 

and would meet the HEA definition of 

a medical condition that has lasted or is 

expected to last at least five years. To 

address this situation, the Department is 

proposing to allow borrowers whose 

MIP status has been renewed at least 

once to qualify for a TPD discharge 

based on SSA documentation. 

Finally, the Department noted that 

when an individual in the MINE or MIP 

category reaches retirement age, the 

individual becomes eligible for SSA 

retirement benefits. These individuals 

would now receive SSA retirement 

benefits rather than disability benefits 

and would no longer appear in the 

Department’s data match as eligible for 

SSA disability benefits. 

The non-Federal negotiators agreed 

with allowing borrowers in these 

additional SSA disability categories to 

qualify for TPD discharges and 

recommended that individuals who may 

not be in the MINE or MIP categories 

but have a disability onset date for SSDI 

or SSI purposes of at least five years 

prior to applying for a TPD discharge 

qualify for the discharge. 

One negotiator supportive of these 

proposals asked why the proposed 

regulatory language continued to 

provide for a TPD application process 

for borrowers who qualify for a TPD 

discharge based on the data match with 

SSA. The Department responded that 

applications for TPD discharge are also 

based on a physician’s certification. 

Borrowers would still need to submit an 

application that is reviewed by the 

Department. In addition, borrowers who 

qualify based on SSA documentation 

may want to apply for the discharge 

prior to being reflected in an SSA data 

match or may want to apply at a later 

time after initially turning down an 

automatic TPD discharge. Finally, 

retaining the application process allows 

borrowers who may be inadvertently 

missed in the SSA data match to apply 

directly to the Department for the 

discharge. This could include borrowers 

who have reached retirement age after 

previously being in an eligible SSA 

category but who are no longer 

identified in the Department’s data 

matches. 

In addition to expanding the types of 

SSA categories that would qualify a 

borrower for a TPD discharge, the 

Department also proposed expanding 

the type of SSA documentation that a 

borrower may provide when applying 

for the discharge. Currently the only 

SSA documentation submitted by a 

borrower that is acceptable under the 

regulations is the SSA Notice of Award. 

However, the Department has also 

commonly accepted an SSA Benefit 

Planning Query (BPQY) which contains 

similar information to the Notice of 

Award. A BPQY is also easier for a 

borrower to obtain than an SSA Notice 

of Award. This technical change would 

conform with current practice. 

The non-Federal negotiators agreed 

with this proposal but were concerned 

that the proposed regulation may limit 


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the Department’s flexibility to accept 

other types of SSA documentation. The 

non-Federal negotiators mentioned 

other types of documentation that might 

serve the same purpose, such as 1099 

tax forms that indicate that an 

individual has received SSA disability 

benefits for at least five years and 

printouts from the MINE social security 

website. Non-Federal negotiators 

recommended that the proposed 

regulations allow the Department to 

retain flexibility to accept other types of 

documentation not specifically 

referenced in the regulatory language. 

To address this concern the Department 

adjusted the proposed language to 

indicate the other types of 

documentation it could accept was a 

non-exhaustive list. 

The Department also proposed 

expanding the list of the types of 

healthcare professionals authorized to 

certify a TPD discharge application. We 

proposed expanding the list of eligible 

certifiers to include both NPs and PAs 

who are licensed to practice in the 

United States. As noted by one 

negotiator, a shortage of physicians is a 

major problem in poor and rural areas. 

Allowing NPs and PAs to certify TPD 

applications would be an enormous 

benefit for borrowers who seek care 

from these providers—particularly for 

those who do not have access to doctors. 

The Department raised the concern 

that, while at the time of the 

negotiations we had identified a source 

verifying licensure of NPs, we had still 

not identified a source for verifying 

licensure status of PAs. Another 

concern related to allowing PAs to 

certify TPD applications was raised by 

a non-Federal negotiator, who noted 

that a PA’s scope of practice is often 

defined by a collaboration agreement 

with the physician, and that such 

agreements are often required by 

insurance companies to cover 

procedures carried out by PAs. This 

negotiator recommended that the 

proposed regulation include a qualifier 

noting that a PA can certify a TPD 

discharge application if it is within the 

PA’s scope of practice. The Department 

did not adopt this proposal. The types 

of agreements often required by 

insurance companies defining a PAs 

scope of practice would not routinely 

address the PA’s authority to certify 

TPD applications. One non-Federal 

negotiator, supportive of the proposal, 

also raised the issue of borrowers living 

abroad, who may have difficulty getting 

certifications from healthcare 

practitioners licensed to practice ‘‘in a 

State.’’ This negotiator recommended 

building in some flexibility regarding 

the State licensure requirement for 

health care professionals certifying TPD 

applications for borrowers living 

outside the United States. 

The Department did not agree with 

this recommendation. The State 

licensure requirement provides 

assurances that individuals certifying 

TPD are qualified to make disability 

determinations. It would not be feasible 

for the Department to verify comparable 

licensing standards in foreign countries. 

Finally, the Department proposed 

adding language to the regulations that 

would provide greater protection 

around the certification of the TPD 

discharge applications. We proposed 

adding language stating that the 

Department would analyze physician’s 

certification forms to verify any patterns 

that suggest potential cause for concern. 

This could include large numbers of 

forms certified by a single individual, 

for example. In such cases, the 

regulatory language would authorize the 

Department to refer concerning 

practices to the Office of Inspector 

General (OIG), and to decline to accept 

health care practitioners’ certifications 

in such cases. We noted that this would 

provide added protection for taxpayers, 

considering that we are also proposing 

to eliminate the income monitoring 

period and give more options for the 

current physician’s certification. 

In general, the non-Federal 

negotiators did not support this 

proposal. They were concerned about 

the term ‘‘patterns of concern,’’ which 

some felt was ambiguous. Another 

concern was that opening the certifying 

authority to NPs and PAs would have 

the potential of an individual certifying 

a high volume of TPD applications 

simply because that individual could 

not assist patients in this way before the 

regulatory change. The negotiators 

noted that this could be a problem 

especially in rural communities, where 

PAs and NPs serve many patients due 

to the lack of doctors in these areas. 

The negotiators expressed concern 

that the proposed regulation would 

create a chilling effect, and that some 

health care professionals would be less 

likely to feel comfortable certifying TPD 

applications if the Department retained 

this proposed language in the final 

regulations. 

The Department responded that every 

few years there are some significant 

criminal prosecutions involving 

physicians who falsified TPD discharge 

applications. The proposed regulatory 

language was intended to address those 

situations and was designed to put 

people on notice that we are going to 

analyze the information that we receive 

through the TPD discharge process, and 

we will take action to protect the 

Federal fiscal interest when warranted. 

The Department noted that we already 

have the authority to do this, regardless 

of whether the language is included in 

the regulations. However, we were 

proposing to include the language as a 

way of providing notice that we intend 

to conduct this level of oversight to the 

TPD discharge process. Ultimately, the 

Department agreed to remove the 

language from the proposed regulations 

since the language is not needed for the 

Department to refer such cases to OIG. 

The Department made further changes 

to the proposed regulatory language in 

response to the concerns raised by the 

non-Federal negotiators. We propose to 

accept SSA disability determinations 

showing a disability onset date of at 

least five years prior to the date of 

application for TPD or an indication 

that the borrower has been receiving 

SSDI or SSI benefits for at least five 

years prior to the application for TPD. 

We propose expanding the SSA 

documentation requirements to include 

‘‘other documentation deemed 

acceptable by the Secretary,’’ in 

response to the recommendation that 

the proposed regulations allow the 

Department to accept documentation 

not specified in the regulations. This 

would provide the Department with 

flexibility to accept documentation that 

we may not have been aware of at the 

time the regulation is finalized, but that 

when presented by a borrower indicates 

that they meet the criteria for discharge. 

The non-Federal negotiators 

supported the proposed TPD 

regulations, as revised based on their 

recommendations, and reached 

consensus on this issue. 

With regard to severability, we believe 

that each of the proposed provisions 

discussed in this NPRM serves one or 

more important, related, but distinct, 

purposes. Each of the requirements 

provides value to students, prospective 

students, and their families; to the 

public, taxpayers, and the Government; 

and to institutions separate from, and in 

addition to, the value provided by the 

other requirements. To best serve these 

purposes, we propose including an 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

6. False Certification Discharge 

(§§ 682.402(e), 685.215(c) and 

685.215(d) 

Statute: Section 484(d) of the HEA 

contains the requirements that an 


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individual who does not have a high 

school diploma or a recognized 

equivalent of a high school diploma 

must meet to qualify for title IV, HEA 

aid. Section 437(c) of the HEA provides 

for the discharge of a borrower’s liability 

to repay a FFEL Program Loan if the 

student’s eligibility to borrow was 

falsely certified by the school. The false 

certification discharge provisions also 

apply to Direct Loans, under § 455(a) of 

the HEA. 

Current Regulations: Sections 

682.402(e), 685.215(c) and 685.215(d) 

describe the qualifications and 

procedures for receiving a false 

certification discharge in the FFEL and 

Direct Loan programs. 

Section 682.402(e)(1)(i)(A) provides 

that a FFEL borrower may qualify for a 

false certification discharge if the school 

certified the eligibility of a borrower 

who was admitted based on the ‘‘ability 

to benefit’’ (ATB) from its training, but 

the borrower did not meet the eligibility 

requirements in part 668 and in § 484(d) 

of the HEA. Section 682.402(e)(13) 

describes a variety of different ATB 

standards that have been applicable to 

different enrollment periods. 

Section 685.215(a)(1) provides that a 

Direct Loan borrower who does not 

meet the applicable alternative to high 

school graduation eligibility criteria 

qualifies for the discharge if the 

borrower reported not having a high 

school diploma or equivalent to the 

school. 

Sections 682.402(e)(1)(i)(B) and 

685.215(a)(1)(iii) provide that a 

borrower qualifies for a false 

certification discharge if the school 

signed the borrower’s name on the loan 

application or promissory note without 

the authorization of the borrower. 

Sections 682.402(e)(1)(i)(C) and 

685.215(a)(1)(v) state that a borrower 

qualifies for a false certification 

discharge if the school certified the 

borrower’s eligibility for a FFEL or 

Direct Loan as a result of the crime of 

identity theft. 

Section 685.215(a)(1)(iv) provides that 

a Direct Loan borrower may qualify for 

a false certification discharge if the 

school certified the eligibility of a 

student who would not meet the 

requirements for employment in the 

occupation for which the training 

program supported by the loan was 

intended due to a physical or mental 

condition, age, criminal record, or other 

requirement accepted by the Secretary 

that was imposed by State law. 

Current FFEL regulations in part 682, 

subpart D, do not address severability. 

Proposed Regulations: Proposed 

§§ 682.402(e)(6) and 685.215(d) would 

amend the procedures for applying for 

a false certification discharge. The 

proposed regulations would remove the 

provisions in § 685.215(a)(1), (c), (d) and 

(e) that established separate false 

certification discharge procedures and 

eligibility requirements for loans 

disbursed before July 1, 2020, and loans 

disbursed on or after July 1, 2020. 

Under proposed §§ 682.402(e)(6)(iii) 

and 685.215(d)(3), if a FFEL or Direct 

Loan borrower submits an application 

for discharge that a FFEL program loan 

holder or the Secretary determines is 

incomplete, the loan holder or Secretary 

would notify the borrower of that 

determination and allow the borrower 

30 days to amend the application and 

provide supplemental information. If 

the borrower does not amend the 

application within 30 days of receiving 

the notification, the borrower’s 

application would be closed as 

incomplete, and the loan holder or 

Secretary would resume collection on 

the loan and grant forbearance to the 

borrower for the period in which 

collection activity was suspended. 

Under proposed § 682.402(e)(6)(iv) 

and (v), if a FFEL borrower submits a 

complete application to the loan holder, 

the holder would file a claim with the 

guaranty agency no later than 60 days 

after the holder receives the borrower’s 

complete application. The guaranty 

agency would determine whether the 

available evidence supports the claim 

for discharge. Proposed 

§ 682.402(e)(6)(vii) would require a 

guaranty agency to issue a decision that 

explains the reasons for any adverse 

determination on a false certification 

discharge application, describes the 

evidence on which the decision was 

made, and provides the borrower, upon 

request, copies of the evidence. The 

guaranty agency would consider any 

response or additional information from 

the borrower and notify the borrower as 

to whether the determination is 

changed. Proposed § 682.402(e)(6)(ix) 

would provide the borrower with the 

option to request that the Secretary 

review the guaranty agency’s decision. 

Proposed §§ 682.402(e)(6)(x) and 

685.215(d)(7) would provide that a 

borrower whose discharge request is 

denied is not precluded from reapplying for a false certification 

discharge if the borrower has additional 

supporting evidence. We do not propose 

to impose a deadline by which a 

borrower who seeks to re-apply must do 

so. 

We propose to eliminate the reference 

to ‘‘ability to benefit’’ in current 

§ 602.402(e)(1)(i)(A). Instead, 

§ 682.402(e)(1)(ii)(A) would specify that 

a FFEL borrower qualifies for a false 

certification discharge if the borrower 

reported not having a high school 

diploma or its equivalent and did not 

satisfy the alternative to graduation from 

high school requirements under section 

484(d) of the HEA and § 668.32(e). 

The earlier ATB standards were all 

based in statute. Since there have been 

many changes to the statutory 

requirements over the years, and could 

be more changes in future years, we are 

proposing to remove the regulatory 

language and simply cross-reference the 

relevant HEA section. The detailed 

descriptions of ability to benefit 

eligibility criteria applicable to different 

cohorts of borrowers in § 682.402(e)(13) 

of the FFEL regulations would be 

removed. This is a conforming change to 

a change that we made to the Direct 

Loan regulations several years ago. 

Under proposed § 682.402(e)(1)(ii)(B), 

if a school certified the eligibility of a 

FFEL borrower who is not a high school 

graduate (and who does not meet the 

applicable alternative to high school 

graduate requirements) the borrower 

would qualify for a false certification 

discharge if the school: 

• Falsified the borrower’s high school 

graduation status; 

• Falsified the borrower’s high school 

diploma; or 

• Referred the borrower to a third 

party to obtain a falsified high school 

diploma. 

Proposed § 685.215(a)(1)(i) and (ii) 

would remove the language in the Direct 

Loan regulations that limited the 

provisions described above to Direct 

Loans made before July 1, 2020, add a 

cross-reference to the alternative to 

graduation from high school 

requirements in § 668.32(e), and provide 

that a borrower would qualify for the 

discharge if the borrower did not meet 

the alternative to high school graduation 

requirements that were in effect when 

the loan was originated. 

Proposed § 682.402(e)(3)(ii) would 

describe the requirements a FFEL 

borrower must meet to qualify for a 

discharge due to a false certification of 

high school graduation status. Proposed 

§ 685.215(c)(1)(i) and (ii) would specify 

that a Direct Loan borrower would 

qualify for the discharge if the borrower 

did not meet high school graduation 

requirements at the time the loan was 

originated, rather than at the time the 

loan was disbursed. 

Proposed § 682.402(e)(1)(ii)(C) would 

specify that a FFEL borrower qualifies 

for a false certification discharge if the 

borrower failed to meet the applicable 

State requirements for employment due 

to a physical or mental condition, age, 

criminal record, or other reason 

accepted by the Secretary that would 

prevent the borrower from obtaining 


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employment in the occupation for 

which the training program supported 

by the loan was intended in the 

student’s State of residence at the time 

the loan was certified. Proposed 

§ 682.402(e)(3)(iii) would state the 

requirements a FFEL borrower must 

meet to obtain a discharge based on a 

disqualifying condition. 

Proposed § 685.215(a)(1)(iv) would 

specify that a Direct Loan borrower 

qualifies for a discharge due to a 

disqualifying condition if the borrower 

did not meet the applicable State 

requirements at the time the loan was 

originated. 

Proposed § 685.215(a)(3) would 

describe what it means for a loan to be 

‘‘originated’’ for purposes of a false 

certification discharge of a Direct Loan. 

Proposed §§ 682.402(e)(3)(iv), 

682.402(e)(3)(v), 685.215(c)(3), and 

685.215(c)(4) would remove the 

requirements that a borrower applying 

for a false certification discharge based 

on an unauthorized signature or 

unauthorized payment provide 

signature samples. 

Proposed §§ 682.402(e)(3)(vi) and 

685.215(c)(5) would replace the 

documentation requirements for a false 

certification discharge due to identity 

theft, including the signature sample 

requirements, and replace them with a 

nonexhaustive list of documentation a 

borrower may provide to apply for the 

discharge. The list includes: 

• A judicial determination of identity 

theft relating to the individual; 

• A FTC identity theft affidavit; 

• A police report alleging identity 

theft relating to the individual; 

• Documentation of a dispute of the 

validity of the loan due to identity theft 

filed with at least three major consumer 

reporting agencies; and 

• Other evidence acceptable to the 

Secretary. 

Proposed § 682.402(e)(15) would 

change the provisions for granting a 

false certification discharge without an 

application in the FFEL Program to 

include cases in which the Department 

or the guaranty agency has information 

in its possession showing that the 

school has falsified the Satisfactory 

Academic Progress (SAP) of its students. 

Proposed §§ 682.402(e)(16) and 

685.215(c)(10) would provide that a 

State Attorney General or non-profit 

legal services representative may submit 

an application for a group false 

certification discharge to the Secretary. 

The proposed FFEL program 

regulations would include conforming 

changes to § 682.402(e)(7) through 

§ 682.402(e)(14) reflecting the changes 

discussed above. 

Proposed § 682.424 would make it 

clear that, if any part of the proposed 

regulations is held invalid by a court, 

the remainder would still be in effect. 

Reasons: As noted above, FFEL and 

Direct Loan borrowers may currently 

qualify for false certification discharges 

if the borrower’s eligibility to borrow 

was falsely certified by the school or 

was falsely certified due to the crime of 

identity theft. A borrower may currently 

qualify for false certification discharge 

if: 

• The borrower did not have a high 

school diploma or its recognized 

equivalent and did not meet the 

applicable alternative eligibility criteria; 

• The borrower had a status, 

including either a physical or mental 

condition, age, criminal record, or other 

circumstance, that disqualified them 

from meeting the legal requirements for 

employment in the occupation for 

which the training program supported 

by the loan was intended; 

• The school signed the borrower’s 

name on the loan application or 

promissory note without authorization; 

or 

• The borrower was a victim of 

identity theft. 

The current false certification 

regulations have two separate sets of 

eligibility criteria depending on when 

the loans were first disbursed, either 

before July 1, 2020, or after July 1, 2020. 

The regulations effective on or after July 

1, 2020, make it more difficult for 

borrowers to obtain false certification 

discharges than the regulations that 

were in place prior to July 1, 2020. The 

proposed regulations are more in 

keeping with the statutory intent of the 

false certification discharge by 

providing easier access to the discharge 

for eligible borrowers. The Department 

believes that maintaining the stricter 

standards effective July 1, 2020, for one 

cohort of borrowers while providing 

more equitable standards for another 

cohort of borrowers would be unfair and 

arbitrary. Unless there is a 

programmatic reason for different 

cohorts of borrowers seeking the same 

Federal benefit to apply under different 

requirements, we believe the 

requirements should be consistent. 

Therefore, we are proposing consistent 

false certification discharge standards 

for all cohorts of borrowers. In addition 

to the equity issues, it is challenging for 

the Department to process false 

certification discharge applications 

under two sets of eligibility criteria. 

With these proposed regulations, the 

Department seeks to standardize the 

eligibility criteria for a false certification 

discharge, regardless of when a 

borrower’s FFEL or Direct Loan was 

made. In addition, we are proposing to 

revise some of the current provisions in 

the false certification regulations that 

we believe are overly burdensome for 

borrowers. By proposing standards that 

cover all false certification discharge 

claims, regardless of when the loan was 

first disbursed, and by reducing the 

administrative burden created by some 

of the existing regulatory requirements, 

we hope to provide more clarity to 

borrowers and to make it easier for 

borrowers who qualify for a false 

certification discharge to receive that 

relief. For this purpose, a loan is 

considered originated when the school 

has certified the loan and the loan is 

created within the FSA system. The 

actual disbursement of the loan could 

take place months thereafter. This 

proposal would help to ensure that 

students meet the title IV eligibility 

requirements by discouraging 

institution from authorizing loan 

disbursements to ineligible students. 

The non-Federal negotiators were 

supportive of this proposal. One 

negotiator noted that using the 

disbursement date rather than the 

origination date allows the school to 

falsify the eligibility of a borrower and 

then, during the months that may elapse 

between origination date and 

disbursement date, try to cure it by 

allowing the borrower to complete six 

credit hours of their program. This 

negotiator requested that the 

Department include in the regulatory 

language a definition of ‘‘origination.’’ 

The negotiator was concerned that the 

determination of the origination date for 

purposes of a false certification should 

be close to the time a student signs the 

promissory note. 

Another non-Federal negotiator noted 

that a student may lie to an institution 

and to the Department about the 

student’s high school graduation status 

to access the Federal student aid 

programs. When a student is lying and 

the lie was not coached or coerced by 

an institution, the negotiator asked for 

assurances that the Department would 

not hold institutions accountable for 

false certification liability concerning 

high school completion. 

Other non-Federal negotiators stated 

that mistakes can be made both by 

institutions and students and noted that 

there is a distinction between an honest 

mistake and intentional fraud on the 

part of either party. These negotiators 

asserted that unless there is evidence 

that the institution has intentionally 

misled or deceived the student, the 

school should not be liable. 

The Department responded that if a 

participant in the student financial aid 

programs is found to have lied on a form 


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or committed fraud, the Department 

pursues that liability through 

appropriate steps that can include 

assessing liabilities against the school or 

seeking restitution from the student 

under the False Claims Act. 

The Department emphasized that the 

purpose of these proposed regulations is 

to address situations under which a 

student would qualify for a false 

certification discharge. For the 

Department to hold a school liable for 

the discharge, the Department would 

have to go through an administrative 

process to establish the liability and 

then prove that liability before a hearing 

official. We would need sufficient 

evidence to demonstrate that the school 

is responsible for the discharged 

amount. The school is not automatically 

liable for the discharged amount. 

The Department pointed out that the 

proposed regulations would rescind the 

provision that any borrower who 

attested to having a high school diploma 

or equivalent does not qualify for false 

certification discharge. This would 

ensure that borrowers can seek a 

discharge through the false certification 

regulations if they were coerced or 

deceived by their school and had 

reported not having a valid high school 

diploma or equivalent. The non-Federal 

negotiators were generally supportive of 

this proposal. 

Non-Federal negotiators also 

expressed concern that schools would 

falsely certify satisfactory academic 

progress for enrolled students who are 

not meeting minimal requirements to 

continue in an educational program. 

The Department agreed that the 

proposal to allow the Department to 

grant false certification discharges 

without an application due to 

falsification of satisfactory academic 

progress would provide clarity to 

borrowers and institutions and ensure 

that all borrowers are treated under the 

same standards. 

One non-Federal negotiator 

recommended expanding the 

disqualifying status false certification 

conditions to include de facto 

prohibitions to employment as well as 

legal prohibitions. The negotiator 

provided examples of such type of 

prohibitions, including the inability of 

students to obtain employment because 

the school lacked the type of 

programmatic accreditation needed for 

the occupation or because the student 

does not speak English. The Department 

considered this proposal but determined 

that including prohibitions that are not 

established by State law would not be 

feasible. De facto prohibitions, which 

may simply be standard practices of a 

particular industry, as opposed to 

clearly defined rules that would render 

a borrower unemployable in that 

industry, could not reasonably be 

considered grounds for a false 

certification discharge. The Department 

also noted that claims by a school that 

it had certain programmatic 

accreditation that it did not would be 

more appropriately adjudicated as a 

borrower defense discharge. 

The Department’s current regulations 

require borrowers to submit an 

application within 60 days of their loan 

being placed into forbearance. The 

proposed regulations would allow 

borrowers whose initial application is 

incomplete 30 days to submit 

supplemental information. This would 

expand the time frame by which 

borrowers can send information to 

support their false certification 

application. If the borrower does not 

amend their application within 30 days, 

the claim would be closed as 

incomplete, and collection would 

resume on the loan. The borrower 

would still have the option to reapply. 

These reforms would make it easier for 

a borrower to obtain and provide the 

information to support their false 

certification discharge application. The 

Department sees no downside in making 

it easier for borrowers to demonstrate 

eligibility for a benefit to which they are 

statutorily entitled. We are proposing to 

limit this time period for submitting 

additional information to 30 days 

because it would not be in the interests 

of the borrower for the loan to stay in 

forbearance indefinitely, and the total of 

90 days should be sufficient time for a 

borrower to collect and submit the 

evidence needed to support the 

discharge claim. 

The non-Federal negotiators generally 

supported the Department’s proposal to 

remove the requirement that borrowers 

submit signature samples to qualify for 

certain categories of false certification 

discharge. However, they were 

concerned that, in certain claims, a 

signature would be helpful and by 

removing the requirement to submit 

them, borrowers may not realize that 

they may still have the option to submit 

signature samples. Negotiators asked if 

there was a mechanism for the 

Department to inform a borrower that 

signature samples would be helpful in 

reviewing the borrower’s claim. 

The Department responded that in 

cases where there may be other 

evidence that could support the 

borrower’s claim, the Department does 

now, and will continue to, inform 

borrowers that, if they have additional 

information, such as a signature sample, 

it would be helpful to provide it. 

In discussing the proposed revisions 

to the identity theft provisions, the 

Department pointed out that we are 

proposing to replace the current 

requirement that a borrower must 

provide a judicial determination of 

identity theft as the sole acceptable 

evidence with a list of possible 

alternative forms of evidence, such as an 

FTC identity theft affidavit, or a police 

report, or a dispute of a loan with all 

three credit bureaus. We explained that 

we decided to include multiple types of 

evidence for a borrower to prove 

identity theft since a single type of 

evidence may not be sufficient, and, in 

most cases, a judicial determination of 

identity theft would be difficult and 

time consuming for a borrower to 

obtain. 

The negotiators supported these 

proposed revisions. One negotiator 

noted that the FTC identity theft 

affidavit is lengthy, and that requiring 

the use of additional evidence to 

demonstrate identify theft creates 

multiple hurdles for borrowers. The 

negotiator cautioned against requiring 

multiple sources of evidence to prove 

identify theft and requested that the 

Department ensure that there is some 

flexibility in the kinds of evidence that 

can be presented to the Department to 

make a claim of false certification due 

to identity theft. 

The Department noted that allowing 

the use of additional evidence of 

identity theft was not intended to make 

it more difficult for borrowers to qualify 

for a discharge under these provisions 

but is intended to broaden the current 

categories of acceptable documentation 

for identity theft false certification 

claims while protecting against 

insufficient claims. The Department also 

noted that the proposed regulations also 

would include ‘‘other evidence accepted 

by the Secretary’’ to allow for flexibility 

for the borrower in requesting a 

discharge. We propose this provision to 

allow the Secretary to accept evidence 

that the Department may not be aware 

of at the time these regulations are 

promulgated, but that make a strong 

case that the borrower qualifies for the 

discharge. 

As noted above, a non-Federal 

negotiator asserted that if a school 

falsely certified its own institutional or 

programmatic eligibility to participate 

in the title IV programs, it should 

constitute a false certification of a 

borrower under the statute. The 

Department, however, believes this 

proposal is not consistent with the 

statute. The statute refers to a school 

falsely certifying the eligibility of a 

borrower and not to the school falsely 

certifying its own eligibility. In our 


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26Parents who take out Federal Direct PLUS 

Loans to pay the costs of attendance for their 

dependent children are not eligible to repay the 

parent PLUS loans under any of the income-driven 

repayment plans. However, if a parent PLUS loan 

is consolidated into a Direct Consolidation Loan, 

the consolidation loan may be paid under the 

income-contingent repayment plan and would then 

qualify for PSLF. 

view, the latter might be a basis for 

borrower defense discharge, not a false 

certification or borrower eligibility 

issue. 

Some negotiators raised concerns 

about the determination of when a loan 

is considered originated for purposes of 

a false certification discharge, 

particularly in reference to the mention 

of the Common Origination and 

Disbursement (COD) system in the 

proposed regulation. Negotiators were 

concerned that future successor systems 

to COD are not mentioned. The 

Department clarified that reference to a 

successor system to COD is not 

necessary since loan origination is not 

tied to a specific Department of 

Education system. 

A non-Federal negotiator proposed 

adding a group discharge provision to 

the regulations. This negotiator felt that, 

although the Department has existing 

authority to grant group discharges and 

has done so in the past, amending the 

regulations to identify the instances in 

which the Department would provide 

for group discharges would be beneficial 

to borrowers. The negotiator believed 

that it would be particularly useful for 

borrowers who attended the same 

school and who attest to similar 

violations for which there is common 

evidence that would allow for an 

accurate discharge for a group of 

borrowers. The non-Federal negotiator 

contended that a regulatory provision 

that requires the Department to accept 

group discharge applications is a 

necessity. The negotiator noted that 

many borrowers do not know of their 

right to file for a false certification 

discharge and so the group process is 

particularly important. The negotiator 

also asserted that the Department has 

not responded to group applications in 

the past. Without regulatory language 

that explicitly provides for group 

discharge, the negotiator stated that it is 

difficult for advocates and borrowers to 

obtain relief through a group discharge 

process. 

The negotiator also argued that it is 

much more difficult for an advocate to 

seek to compel unlawfully withheld 

action or unreasonably delayed conduct 

without statutory or regulatory language 

specifically requiring the Department to 

act on a group discharge application. 

After considering these arguments, 

the Department agreed with the 

negotiator and added language to the 

proposed regulations providing for 

group applications for false certification 

discharges. The proposed new language 

would provide that a State attorney 

general or nonprofit legal services 

representative may submit an 

application for a group discharge to the 

Secretary. 

The Department also clarified that, in 

the FFEL Program, guaranty agencies 

(GAs) would not be expected to accept 

group applications. Group applications 

for FFEL borrowers would be submitted 

to the Department and, if the 

Department approved the application, 

the Department would notify the 

appropriate GAs to discharge the loan, 

as the Department currently does under 

34 CFR 682.402(e)(11)(iii) for false 

certification discharge applications for 

which a borrower requests a review of 

a false certification discharge 

application by the Secretary. 

With this final issue resolved, the 

Committee reached consensus on the 

proposed false certification discharge 

regulations. 

With regard to severability, we believe 

that each of the proposed provisions 

discussed in this NPRM serves one or 

more important, related, but distinct, 

purposes. Each of the requirements 

provides value to students, prospective 

students, and their families; to the 

public, taxpayers, and the Government; 

and to institutions separate from, and in 

addition to, the value provided by the 

other requirements. To best serve these 

purposes, we would include this 

administrative provision in the 

regulations to make clear that the 

regulations are designed to operate 

independently of each other and to 

convey the Department’s intent that the 

potential invalidity of one provision 

should not affect the remainder of the 

provisions. 

7. Public Service Loan Forgiveness 

(PSLF) 

Qualifying Employer and Definitions for 

PSLF (§ 685.219(b)) 

Background: The Department has 

received significant public input 

regarding the requirement that a 

borrower be employed full-time with a 

qualifying public service employer to 

qualify for PSLF. The Department 

believes that additional definitions in 

the regulations, including defining the 

term ‘‘full-time’’ in a manner that takes 

into consideration the traditional work 

schedule for non-tenured faculty at 

institutions, and adds flexibility in 

determining full-time employment, 

would clarify eligibility for the PSLF 

program. The Department reviews and 

responds to numerous borrower 

inquiries regarding the issues with the 

Department’s determination of 

qualifying employers, qualifying 

payments, and overall requirements for 

PSLF. The Department uses this 

information to formalize changes in the 

PSLF program that would assist 

borrowers in achieving loan forgiveness, 

clarify steps for our servicers, and 

provide more transparency in the PSLF 

processes. 

Statute: Section 455(m) of the HEA 

provides for forgiveness of the 

remaining balance due on an eligible 

non-defaulted Federal Direct Loan 

(Federal Direct Stafford Loan, Federal 

Direct PLUS Loan,26 Federal Direct 

Unsubsidized Stafford Loan, or Federal 

Direct Consolidation Loan) after the 

borrower has made 120 monthly 

payments on the eligible Federal Direct 

Loan while the borrower is employed 

full-time in a public service job. The 120 

monthly payments must be made under 

at least one of the following qualifying 

repayment plans: the income-based 

repayment plan; the standard repayment 

plan based on a 10-year repayment 

period; the income contingent 

repayment plan; or, except for the 

alternative repayment plan, any other 

repayment plan if the monthly payment 

amount is not less than what would 

have been paid under the standard 10- 

year repayment plan. The 120 payments 

do not have to be made consecutively. 

Section 455(m)(3)(B) of the HEA 

defines a ‘‘public service job’’ as a fulltime job in: 

• Emergency management; 

• Government (excluding serving as a 

member of Congress); 

• Military service; 

• Public safety; 

• Law enforcement; 

• Public health (including nurses, 

nurse practitioners, nurses in a clinical 

setting, and full-time professionals 

engaged in health care practitioner 

occupations and health care support 

occupations), as such terms are defined 

by the Bureau of Labor Statistics; 

• Public education; 

• Social work in a public child or 

family service agency; 

• Public interest law services 

(including public defense or legal 

advocacy on behalf of low-income 

communities at a nonprofit 

organization); 

• Early childhood education 

(including licensed or regulated 

childcare, Head Start, and State funded 

prekindergarten); 

• Public service for individuals with 

disabilities; 


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• Public service for the elderly; 

• Public library sciences; or 

• School-based library sciences and 

other school-based services. 

A public service job may also include: 

• A full-time job at an organization 

that is described in section 501(c)(3) of 

Title 26 and exempt from taxation under 

section 501(a) of such title; 

• Teaching as a full-time faculty 

member at a Tribal College or University 

as defined in section 316(b); or 

• Teaching as a full-time faculty 

member in high-needs subject areas or 

areas of shortage (including nurse 

faculty, foreign language faculty, and 

part-time faculty at community 

colleges), as determined by the 

Secretary. 

The statute does not include separate 

definitions of any of the listed public 

service jobs, nor does it include 

definitions of other terms or specify 

what constitutes full-time employment. 

Current Regulations: Current 

§ 685.219(b) contains definitions of key 

terms, including the definitions of ‘‘fulltime’’ and ‘‘public service 

organization.’’ The current regulations 

incorporate the concept of qualifying 

employment into the defined term 

‘‘public service organization.’’ Under 

the current regulations, qualifying 

employers generally include Federal, 

State, local, and Tribal Government 

agencies; nonprofit organizations that 

are described in section 501 (c)(3) of the 

Internal Revenue Code and exempt from 

taxation under § 501(a) of the Internal 

Revenue Code; and other organizations 

that provide certain specific public 

services listed in § 455(m)(3)(B) of the 

HEA, other than a business organized 

for profit, a labor union, or a partisan 

political organization. 

Proposed Regulations: The 

Department proposes adding new 

definitions and modifying some existing 

definitions in § 685.219(b) to clarify 

what are ‘‘qualifying employers’’ and 

‘‘full-time’’ work under PSLF. 

Specifically, the Department proposes 

to add the following 11 definitions: 

• ‘‘civilian services to the Military,’’ 

• ‘‘early childhood education 

program,’’ 

• ‘‘non-tenure track employment,’’ 

• ‘‘public health,’’ 

• ‘‘non-governmental public service,’’ 

• ‘‘public service for individuals with 

disabilities,’’ 

• ‘‘public service for the elderly,’’ 

• ‘‘public education service,’’ 

• ‘‘public library services,’’ 

• ‘‘school library services,’’ and 

• ‘‘qualifying repayment plan.’’ 

As with existing regulations, these 

new definitions would relate to 

qualifying services only relevant for 

organizations that provide certain 

specific public services listed in 

§ 455(m)(3)(B) of the HEA, other than a 

business organized for profit, a labor 

union, or a partisan political 

organization. 

The Department further proposes to 

expand or clarify the current five 

definitions: ‘‘employee or employed,’’ 

‘‘full-time,’’ ‘‘military service,’’ ‘‘other 

school-based service,’’ and ‘‘qualifying 

employer.’’ With regard to ‘‘civilian 

services to military’’ in particular, the 

Department proposes to clarify that this 

definition speaks to providing services 

to or on behalf of members, veterans, or 

the families or survivors of members or 

veterans of the U.S. Armed Forces. 

Military service, while technically 

government employment, is generally 

considered and referred to as military 

service or non-civilian Federal 

employment rather than just 

government employment for the 

purposes of qualifying for PSLF. 

The Department proposes to define 

‘‘full-time’’ as: (1) working in qualifying 

employment in one or more jobs at least 

an average of 30 hours per week for the 

time period certified; (2) working at 

least 30 hours per week throughout a 

contractual or employment period of at 

least 8 months in a 12-month period, 

such as in the situation of elementary 

and secondary school teachers, in which 

case the borrower is deemed to have 

worked full-time; or (3) working the 

equivalent of 30 hours per week as 

determined by multiplying each credit 

or contact hour taught per week by at 

least 3.35 in non-tenure track 

employment at an institution of higher 

education. 

The Department proposes to define 

‘‘non-governmental public service’’ as 

services provided directly by employees 

of a nonprofit organization where the 

organization has devoted a majority of 

its full-time equivalent employees to 

work in at least one of the following 

areas: emergency management, civilian 

service to military personnel and 

military families, public safety, law 

enforcement, public interest law 

services, early childhood education, 

public service for individuals with 

disabilities and/or the elderly, public 

health, public education, public library 

services, school library, or other schoolbased services. 

The Department proposes to define 

‘‘public service for individuals with 

disabilities’’ as services performed for or 

to assist individuals with disabilities (as 

defined in the Americans with 

Disabilities Act (42 U.S.C. 12102)) that 

are provided to a person because of the 

person’s status as an individual with a 

disability. 

The Department proposes to define 

‘‘public service for the elderly’’ as 

services that are provided to individuals 

who are aged 62 years or older and that 

are provided to a person because of the 

person’s status as an individual of that 

age. 

The Department proposes to define 

‘‘public education service’’ as the 

provision of educational enrichment 

and/or support to students in a public 

school or a school-like setting, including 

teaching. 

The Department proposes to define 

‘‘public library service’’ as the operation 

of public libraries or services that 

support their operation. 

The Department proposes to define 

‘‘school library services’’ as the 

operations of school libraries or services 

that support their operation. 

The Department proposes to remove 

the current definition of ‘‘public service 

organization’’ and replace it with a 

definition of the term ‘‘qualifying 

employer.’’ The proposed definition 

includes (1) A United States-based 

Federal, State, local, or Tribal 

Government organization, agency, or 

entity, including the U.S. Armed Forces 

or the National Guard; (2) a public child 

or family service agency; (3) a non-profit 

organization under section 501(c)(3) of 

the Internal Revenue Code of 1986 that 

is exempt from taxation under section 

501(a) of the Internal Revenue Code; (4) 

a Tribal college or university; or (5) a 

nonprofit organization that provides a 

non-governmental public service, 

attested to by the employer on a form 

approved by the Department, and that is 

not a business organized for profit, a 

labor union, or a partisan political 

organization. 

Reasons: The proposed definitions 

would provide greater certainty, 

simplicity, and clarity to borrowers and 

employers and ensure that the 

Department is fulfilling the statutory 

intent of encouraging borrowers to work 

in public service. 

Since the creation of the PSLF 

program almost 15 years ago, the 

Department has interpreted public 

service to mean employment with a 

government organization, a nonprofit 

organization under section 501(c)(3) of 

the Internal Revenue Code that is 

exempt from taxation under section 

501(a) of the Internal Revenue Code, or 

another type of nonprofit organization 

that provides services in areas specified 

by Congress so long as it is not a labor 

union or a partisan political 

organization. During the negotiations, 

some non-Federal negotiators cited the 

exclusion of for-profit organizations as 

qualifying employers that provide 

services in specified areas as a primary 


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27https://www.irs.gov/affordable-care-act/ 

employers/identifying-full-time-employees. 

28https://leginfo.legislature.ca.gov/faces/ 

home.xhtml. 

reason for not agreeing with the 

Department’s proposed regulations. In 

considering any changes to the eligible 

employers, the Department must craft 

proposals that are operationally viable 

to ensure that the Department is able to 

process PSLF benefits in a timely 

manner. In particular, the Department 

currently could not implement any 

changes that require it to: (i) perform an 

in-depth and individualized review of 

the eligibility for any significant number 

of additional employers and particularly 

for for-profit employers, which have far 

less required transparency than 

nonprofit organizations and thus require 

more extensive investigation; or (ii) 

assess individual borrowers’ job 

descriptions to determine whether 

some, but not all, positions within an 

employer qualify for PSLF. Based upon 

those operational considerations, the 

Department seeks feedback on two 

possible changes where the Department 

is assessing operational and legal 

feasibility and policy alignment. The 

first is around the concerns raised by 

some non-Federal negotiators about 

some doctors in California and Texas 

who work full-time at private, nonprofit hospitals but who are ineligible 

for PSLF because State law prohibits 

them from being hired by the hospital 

itself. This is a change that would not 

expand the universe of qualifying 

employers but rather adjust for whom a 

qualifying employer may sign a PSLF 

form. ED invites comment on whether 

borrowers who provide services to a 

qualifying employer but are ineligible to 

provide those services as an employee 

due to State law should be able to 

participate in the program through the 

qualifying employer. The second is 

around whether for-profit early 

childhood education employers, as 

defined in § 103(8) of the Higher 

Education Act (20 U.S.C. 1003) and for 

which the majority of full-time 

equivalent employees provide a 

qualifying service such as education for 

young children, should be qualifying 

employers for purposes of PSLF. Among 

other potential reasons, this might be 

operationally feasible because early 

childhood education is a category of 

employment that already has a specific 

definition in the HEA which references 

licensure and regulation and the 

universe of eligible employers might be 

simpler to identify. In responding to 

comments on operational issues as well 

as the two possible items above, the 

Department is particularly interested in 

the following questions: (1) What 

criteria and sources of information can 

the Department use to identify eligible 

for-profit early childhood education 

employers in a consistent and simple 

manner that does not require an 

individualized review of employer or 

borrower specific activities? As 

mentioned above, an expansion of 

eligible employers without simple and 

clear criteria that minimizes the 

judgment required by the Department 

would be impossible to administer. The 

Department is interested in potential 

solutions for addressing these 

operational limitations. For example, 

are there sources that could identify IRS 

employer identification numbers for 

licensed and regulated early childhood 

education programs, as defined in 

§ 103(8) of the Higher Education Act (20 

U.S.C. 1003)? Could those same sources 

identify whether the employer meets 

other requirements in this regulation, 

such as having a majority of an 

employer’s full-time equivalent 

employees provide a qualifying service 

in the form of early childhood education 

for young children? 

(2) Should the Department use the 

eligibility for, or receipt of, certain 

Federal funding as a requirement for a 

for-profit early childhood education 

employer to be a qualifying employer 

for the purposes of PSLF? Are there 

sources of information identifying 

employer identification numbers of 

Federally funded early childhood 

education programs, consistent with the 

definition of early childhood education 

noted above? 

(3) Could the Department limit PSLF 

eligibility to only for-profit early 

childhood education employers for 

which another Federal agency such as 

the U.S. Department of Health and 

Human Services has provided employer 

identification numbers and information 

that would help the Department easily 

assess eligibility? 

(4) Is it consistent with the purposes 

and goals of the PSLF program to 

include for-profit early childhood 

education as qualifying employment? 

For instance, to what extent would the 

inclusion of for-profit licensed and 

regulated early childhood education 

providers as eligible employers improve 

recruitment and retention of the early 

childhood workforce, increase early 

educator degree and credential 

attainment, and improve access to 

quality early childhood education for 

children and families? 

(5) Are there other considerations for 

including for-profit early childhood 

education as a type of qualifying 

employer for PSLF? For example, this 

could include Congress’ specific 

mention of licensed and regulated 

childcare programs in § 103(8) of the 

Higher Education Act (20 U.S.C. 1003), 

or the PSLF legislative history. 

The Department’s proposed definition 

of ‘‘qualifying employer’’ reflects the 

statutory requirements and the goals of 

public service. We believe that the 

additional definitions would help to 

clarify the meaning of public service 

toward that end and align the 

regulations with the statutory intent of 

the PSLF Program. 

Through these proposed regulations, 

the Department would also modify the 

regulations in response to public 

comments we received during the 

public hearings and negotiation 

sessions. Specifically, the Department 

would modify the definition of ‘‘fulltime’’ to include any employee who 

works a minimum average of 30 hours 

of work per week during the period 

being certified.27 Currently, in most 

cases, if the borrower has a single 

employer, ‘‘full-time’’ is defined as the 

greater of 30 hours per week or the 

number of hours the employer considers 

full-time or a minimum of 30 hours 

throughout a contractual employment 

period of at least 8 months in a 12- 

month period, such as elementary and 

secondary school teachers. The 

Department’s proposed definition also 

would include a conversion calculation 

to use in determining whether someone 

in non-tenure track employment at 

institutions is employed full-time. The 

determination of how many hours these 

borrowers worked for PSLF purposes 

would be calculated by multiplying 

each credit or contact hour the 

employee has by at least 3.35. The 

calculation aligns with the conversion 

rates used in California and Oregon to 

certify that an adjunct instructor is 

eligible for PSLF.28 This ratio would 

require an adjunct to teach at least nine 

credit hours a term to be considered 

full-time. That figure is three-quarters of 

the hours needed for a student to be 

considered full-time for Federal 

financial aid purposes (12). That is the 

same relationship between the number 

of weekly hours required to be 

considered full-time for PSLF (30), 

which is three-quarters of the standard 

40-hour workweek. Originally, the 

Department proposed multiplying each 

credit hour by 2.5. The negotiators felt 

this number was too low because the 

Department did not consider contact 

hours as hours worked and did not 

accurately reflect of the hours that nontenured staff work when teaching 

courses. The Department agreed that 

multiplying each credit or contact hour 

by 3.35 would more accurately reflect 


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the hours worked by non-tenured staff 

and the negotiators agreed. The 

proposed regulations would also add a 

definition to clarify the meaning of 

‘‘non-tenure track employment’’ based 

on current practice. Providing greater 

clarity in the regulations would help 

employers who may be unsure how to 

properly certify PSLF applications for 

these individuals. 

As suggested by the negotiators, the 

Department has also proposed 

definitions of ‘‘public health’’ and ‘‘nongovernmental public service,’’ including 

public service for individuals with 

disabilities and the elderly, to provide 

clarity for borrowers. 

Some negotiators suggested that the 

Department should determine a 

borrower’s eligibility for PSLF by 

evaluating the borrower’s job 

description instead of determining 

eligibility based on the activities of their 

employer. The Department notes that 

making individual determinations about 

PSLF eligibility based upon a borrower’s 

specific job would be administratively 

infeasible. The Department does not 

have the capacity to review individual 

job descriptions. Further, obtaining the 

necessary documentation to make 

borrower-by-borrower decisions would 

add a significant burden to anyone 

participating in the program. 

One Committee member suggested 

that the Department use the Standard 

Occupational Classification (SOC) 

System codes which classify workers 

into occupational categories for the 

purpose of collecting, calculating, or 

disseminating data. As discussed during 

the negotiations, the Department did not 

have a viable way to operationalize a 

process to review individual job 

descriptions to determine borrower 

eligibility and still does not. Moreover, 

the statute does not require such 

individual review. The statute refers to 

broad eligibility for certain types of 

services traditionally embedded in the 

government or nonprofit sectors. The 

Department is concerned that 

determining eligibility based on job 

description rather than employer would 

lead to borrowers working for the same 

employer having different eligibility 

statuses, creating significant confusion 

and disparities within an organization. 

Such a process would also require 

employers to make potentially new 

determinations about what SOC code a 

borrower’s occupation should fall into 

for the sole purpose of PSLF. The 

Department also proposes to continue 

using the employer approach because it 

would be more equitable for all 

employees of an organization. If the 

Department relied on individual job 

descriptions, it is likely that many 

support staff who provide services to 

the organization rather than to its clients 

would not qualify even though their 

services are vital to keeping the 

organization itself in operation. The 

Department would not have adequate 

processes to monitor the complexities 

around reviewing these applications to 

ensure borrowers would not lose 

benefits if they changed jobs while 

working for the same employer. 

Moreover, the Department would not 

have the ability to review the accuracy 

or appropriateness of every job 

description. 

The Department is proposing one 

clarifying change from its continued 

approach of using the services provided 

by the organization to determination 

eligibility for PSLF. In the past, the 

Department considered an organization 

to be a qualifying employer for the 

purposes of PSLF if its primary purpose 

was to provide a qualifying service. The 

idea behind this concept was that an 

entire organization should not be 

designated as a qualifying employer if 

only a couple of its employees are 

providing a qualifying service because 

that demonstrates that the qualifying 

service is not in fact a core part of the 

organization’s work. However, the 

Department has found that determining 

an organization’s primary purpose can 

be confusing and hard to apply. 

Therefore, the Department proposes to 

use a more quantitative standard for 

determining that an employer is 

providing a public service—that the 

majority of an organization’s full-time 

equivalent employees must be providing 

a qualifying service for the organization 

to be a qualifying employer for PSLF. 

The Department heard concerns from 

several negotiators and public 

commenters during the negotiated 

rulemaking process that there are 

borrowers who are working with 

qualifying government and nonprofit 

organizations but who are not eligible 

for PSLF because they are employed 

either directly through a contract with 

the qualifying employer or as the 

employee of an organization that has a 

contract with the qualifying employer. 

For instance, the Department heard from 

borrowers who work as contractors to 

provide support to K–12 students on a 

full-time basis but who are not eligible 

for PSLF because they are not 

employees of a qualifying employer. We 

also heard negotiators discuss public 

defenders in rural areas who work on a 

contract basis and also do not qualify for 

PSLF. The Department also heard about 

nonprofit hospitals where doctors work 

as contractors even while nurses or 

other medical professionals work as 

full-time employees. The Department is 

considering whether it should adjust 

eligibility to account for these types of 

situations. For example, a provision 

would note that, only for the purposes 

of PSLF, the eligible borrowers would 

include a borrower who works as a 

contractor at a qualifying employer if 

that qualifying employer is willing to 

certify the periods worked by that 

individual. 

The Department seeks comments on 

whether to revise the program in this 

way or to address these issues in 

another manner. The Department also 

seeks feedback on whether qualifying 

employers would be willing to sign 

PSLF forms on behalf of their 

contractors; how to ensure consistency 

within and among employers about 

signing PSLF forms for contractors so 

there are not disparities based upon a 

borrower’s pay, level of education, or 

job function; and what additional 

guidance employers would need to 

implement this change. The Department 

is also interested in feedback about 

whether there could be ways to 

distinguish which types of contractors 

should be eligible, such as restricting 

eligibility to a contractor whose job site 

is co-located with a qualifying 

employer—either virtually, in-person, or 

with individuals served by the 

qualifying employer, such as students— 

versus one who works completely 

separately from the qualifying employer. 

8. Improving the PSLF Processes 

(§§ 685.219 and 682.414(b)) 

Statute: Section 455(m) provides that 

the Secretary shall cancel the balance of 

interest and principal due on any 

eligible Federal Direct Loan for 

borrowers who are not in default, have 

repaid their loans under a qualifying 

repayment plan, and have made 120 

payments while employed in a public 

service job and at the time of 

forgiveness. The statute does not define 

the PSLF application process. 

Current Regulations: Section 685.219 

establishes the conditions under which 

a borrower may qualify for PSLF and 

lists the specific eligibility criteria that 

a borrower must meet to receive PSLF. 

The regulations specify that the 

borrower must make each of the 

required 120 monthly payments within 

15 days of the scheduled due date for 

the full scheduled installment amount 

for that payment to qualify toward 

PSLF. Under § 685.219(e), after a 

borrower makes 120 qualifying 

payments on a loan, the borrower may 

request forgiveness of the remaining 

balance by submitting a request on a 

form approved by the Department. The 

payments do not have to be made 

consecutively. If the Department 


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29https://fsapartners.ed.gov/knowledge-center/ 

library/electronic-announcements/2020-10-28/ 

changes-public-service-loan-forgiveness-pslfprogram-and-new-single-pslf. 

30Press Release, U.S. Department of Education, 

‘‘U.S. Department of Education Announces 

Transformational Changes to the Public Service 

Loan Forgiveness Program, Will Put Over 550,000 

Public Service Workers Closer to Loan 

Forgiveness,’’ October 6, 2021, https://www.ed.gov/ 

news/press-releases/us-department-educationContinued 

determines the eligibility criteria is not 

met, the Department resumes repayment 

obligations the loan. 

Proposed Regulations: The 

Department proposes to revise 

§ 685.219(c)(1)(iii) so that borrowers 

have more ways to have payments count 

toward forgiveness. This includes 

counting payments that are equal to the 

full scheduled payment, even if the 

payment is made in multiple 

installments or outside the 15-day 

period in current regulations so long as 

the loan is not in default. The 

Department also would revise in 

§ 685.219(c)(2) so that a borrower who 

makes a lump sum or monthly 

payments equal to or greater than the 

full scheduled amount made in advance 

of the borrower’s scheduled payment 

due date may also receive credit toward 

forgiveness on those additional payment 

amounts. These lump sum payments 

can be counted for a period of months 

not to exceed the date of the borrower’s 

next annual repayment plan 

recertification date under the qualifying 

repayment plan. For example, a 

borrower who makes a $50 monthly 

payment on an income-driven 

repayment plan could pay that $50 a 

month or make a one-time payment of 

$600 during that year and receive credit 

for a year of payments. 

Current regulations do not allow any 

periods of deferment or forbearance to 

count toward PSLF. In 

§ 685.219(c)(2)(v), the Department 

proposes to allow each month in which 

a borrower is in one of the following 

deferment or forbearance periods to 

count as a month of payment for PSLF 

purposes if the borrower certifies 

qualifying employment for the period of 

time covered by the deferment or 

forbearance: 

• Cancer treatment deferment under 

§ 455(f)(3) of the Act; 

• Economic hardship deferment 

under § 685.204(g), including a Peace 

Corps service deferment; 

• Military service deferment under 

§ 685.204(h); 

• Post-active-duty student deferment 

under § 685.204(i); 

• AmeriCorps forbearance under 

§ 685.205(a)(4); 

• National Guard Duty forbearance 

under § 685.205(a)(7); 

• U.S. Department of Defense Student 

Loan Repayment Program forbearance 

under § 685.205(a)(9); and 

• Administrative forbearance and 

mandatory administrative forbearance 

under § 685.205(b)(8) or § 685.205(b)(9). 

In § 685.219(c)(3), the Department 

proposes to count toward the required 

120 monthly qualifying payments, those 

qualifying payments made by a 

borrower on an eligible Direct Loan that 

the borrower later consolidates into a 

Direct Consolidation Loan. 

Proposed § 685.219(e), which broadly 

reflects the Department’s current 

practice, explains the process by which 

a borrower documents qualifying 

employment and requests forgiveness 

after making 120 qualifying payments 

on the eligible loans for which 

forgiveness is requested. In proposed 

new § 685.219(f), the Department would 

authorize forgiveness on eligible loans 

without an application from the 

borrower when the Department has 

sufficient information to determine the 

borrower’s eligibility without an 

application. For example, the 

Department has announced its 

intentions to enter into data matching 

agreements with the U.S. Office of 

Personnel Management so that it can 

identify Federal employees who are 

eligible for PSLF. Once those matches 

are active, the Department could 

possibly award sufficient PSLF credit 

for forgiveness without the borrower 

taking any action. The same could be 

true with other data matches under 

consideration. All other borrowers 

would be required to provide the 

necessary information on a form 

approved by the Department along with 

the employer’s certification. 

If a borrower is unable to obtain the 

employer’s certification, the Department 

would attempt to determine if the 

borrower was working for a qualifying 

employer at the time the qualifying 

payment was made based on the 

documentation provided by the 

borrower or otherwise available to the 

Department. If the Department 

determines the borrower meets the 

requirements for loan forgiveness, the 

Department would notify the borrower 

of this determination and the remaining 

balance of principal and accrued 

interest on the eligible loans would be 

forgiven. For borrowers who do not 

meet the requirements for forgiveness, 

the Department would notify the 

borrower of the decision, resume loan 

repayment obligations, and grant 

forbearance of payment on both 

principal and interest for the period in 

which collection activity was 

suspended. No interest would be 

capitalized per changes proposed in 

other sections of this NPRM. 

The Department also proposes new 

regulations to create a reconsideration 

process under proposed § 685.219(g) for 

borrowers whose applications for 

forgiveness were denied or who disagree 

with the Department’s determination of 

the number of qualifying payments or 

months of qualifying employment that 

have been earned by the borrower, 

which formalizes the current nonregulatory process. Borrowers whose 

applications have been denied would 

have 90 days to request reconsideration 

on a form approved by the Department. 

The Department proposes that 

borrowers whose forgiveness 

applications were denied before the 

effective date of the final regulations 

would have 180 days from the effective 

date of the regulations to request 

reconsideration. 

In new § 685.219(g)(6), the 

Department would also propose to 

count time toward forgiveness for a 

borrower who postponed monthly 

payments under a deferment or 

forbearance that would not lead to a 

qualifying payment under the proposed 

regulations. The Department proposes 

that a borrower would have to meet 

certain criteria to have a month counted 

as a qualifying payment for this 

purpose. First, the borrower would have 

to have been employed full-time at a 

qualifying employer as defined under 

§ 685.219 during the forbearance or 

deferment period. Second, the borrower 

would have to make a payment equal to 

or greater than the amount they would 

have paid at that time on a qualifying 

repayment plan. For example, a 

borrower with a monthly payment of 

$100 under the standard 10-year plan 

who spent a year on a forbearance while 

employed at a qualifying employer 

could make an additional payment of 

$600 and receive credit for six of those 

months. 

In § 682.414(b)(4), the Department 

would propose to require FFEL Program 

lenders to report detailed information 

related to a borrower’s deferments, 

forbearances, repayment plans, 

delinquency, and contact information 

on any FFEL loan to the Department by 

an established deadline. 

Reasons: In August 2020, the 

Department updated the description of 

a qualifying payment by allowing the 

payment to count as a qualifying 

payment if it was made in full within 15 

days of the payment due date.29 On 

October 6, 2021, the Department 

announced a limited PSLF waiver 

during which borrowers may receive 

credit for payments that previously did 

not qualify for PSLF or TEPSLF.30 These 


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announces-transformational-changes-publicservice-loan-forgiveness-program-will-put-over550000-public-service-workers-closer-loanforgiveness. 

31 Ibid. 

32https://studentaid.gov/announcements-events/ 

pslf-limited-waiver. 

administrative steps demonstrated 

improvements to the PSLF process for 

borrowers. In addition, in October 2021, 

the Department waived certain PSLF 

rules, such as the requirement to make 

a qualifying payment within a specified 

time, under a specific repayment plan, 

and on a loan from a particular program 

for a limited time due to the COVID–19 

pandemic.31 Through the proposed 

rules described in this NPRM, the 

Department seeks to continue to 

improve upon the program and convert 

certain of the temporary changes into 

permanent regulatory changes under a 

continuing basis. 

Specifically, the Department proposes 

to amend the regulations governing 

PSLF to treat months in which a 

borrower is in certain deferment and 

forbearance periods as months of 

qualifying payments. The proposed 

changes would also streamline and 

clarify the application process for PSLF, 

provide increased flexibility to 

borrowers, remove application barriers 

where practicable, and allow the 

Department to communicate with 

borrowers from the FFEL Program 

instead of (or in addition to) lenders, 

and provide overall improvements to 

the process. While consensus was not 

reached on the proposed regulations for 

PSLF, the negotiating committee 

generally agreed with the Department’s 

proposals regarding expanded 

qualifying payment periods; eliminating 

the 15-day payment date requirement; 

clarifying requirements related to lump 

sum payments; allowing months spent 

in certain forbearances and deferments 

to count as months in repayment; 

allowing prior payments on Direct 

Loans to count toward the 120 payments 

required for forgiveness if the borrower 

repays the loan on which the payments 

were made through a Direct 

Consolidation Loan; automating the 

application process where practicable; 

requiring FFEL Program lenders to 

report additional details to the 

Department related to the loans; and 

formalizing a reconsideration process 

where borrowers seeking PSLF may 

request a review and redetermination of 

the decision on whether the borrower 

had a qualifying employer, qualifying 

payments, or on the denial of an 

application for forgiveness. 

Many of the negotiators did not agree 

with the Department’s proposed 

regulatory language that would provide 

a path for borrowers to receive credit for 

past periods of deferment or forbearance 

while the borrower was working for a 

qualifying employer. The negotiators 

requested instead that the Department 

automate the PSLF process. These 

negotiators also wanted the Department 

to allow payments made on FFEL 

Program loans that are repaid through a 

Direct Consolidation Loan to count 

toward PSLF forgiveness. Under the 

current interpretation of the law, the 

120 monthly payments have to be made 

on the loan for which the borrower 

requests forgiveness. So, a borrower 

who consolidates a Direct Loan and 

later applies for forgiveness of the 

Consolidation Loan does not receive 

credit for payments made on the loan 

before it was consolidated. However, the 

negotiators advanced a different 

interpretation of the HEA, suggesting 

that counting payments made on loans 

later consolidated into the Direct Loan 

Program and regardless of whether the 

loan consolidated was a Direct Loan 

would also be a permissible 

interpretation of the HEA. 

Negotiators also wanted to include 

additional forbearances and deferments 

and proposed to provide a forbearance 

to borrowers seeking PSLF until the 

effective date of the regulations and to 

count the months in this forbearance as 

qualifying payments. 

The Department proposes to include 

certain specific forbearance and 

deferment periods as qualifying periods 

for PSLF because of concerns based on 

past practices that borrowers, who are 

likely to have a $0 payment on an 

income-driven repayment plan which 

would make them eligible to receive 

PSLF credit, could instead be offered 

one of these deferments or forbearances. 

A borrower who chose to pause their 

payments through one of these 

deferments or forbearances would be 

giving up the opportunity to receive 

credit toward PSLF. For example, 

deferments tied to military service, 

Peace Corps or post-active duty or 

forbearances related to AmeriCorps, 

National Guard Duty, or U.S. 

Department of Defense student loan 

repayment are instances in which a 

borrower is engaging in employment 

that would qualify for PSLF. Allowing 

these deferments and forbearances to 

count toward PSLF prevents the 

borrower from losing months or years of 

progress toward forgiveness by making 

the wrong choice or getting inaccurate 

advice. We also seek feedback on 

whether, if possible to operationalize, 

the Department should include 

comparable deferments for Direct Loan 

borrowers with FFEL Program loans 

described in 34 CFR 685.204(j). The 

Department is aware that this problem 

has affected a substantial number of 

borrowers. For instance, in October 

2021, the Department announced a 

limited PSLF waiver that allows 

borrowers to count other repayment 

plans, and deferments or forbearances 

used while working for a qualifying 

employer, toward forgiveness. As a 

result of that time-limited waiver, 

approximately 127,000 borrowers have 

been approved for $7.3 billion in 

forgiveness as of mid-May 2022. More 

than 1 million additional borrowers also 

receive an average of 12 months credit 

toward forgiveness. These data indicate 

that even better servicing and clearer 

information for borrowers would likely 

be unable to address the scale of the 

challenge.32 The Department also 

proposes to provide credit toward PSLF 

for periods in which a borrower is on an 

economic hardship or cancer deferment. 

Borrowers on an economic hardship 

deferment would have a $0 payment on 

an income-driven repayment plan, 

which already counts toward 

forgiveness. Borrowers on a cancer 

treatment deferment should not have to 

choose between pausing their loan 

payments while receiving life-saving 

medical treatment or receiving credit 

toward PSLF. The Department also 

proposes to allow months spent in 

administrative or certain mandatory 

administrative forbearances to count as 

a qualifying payment where the 

borrower does not control whether their 

loans are paused. While borrowers 

would not receive credit for qualifying 

months when a servicer pauses a 

borrower’s payments while it reviews 

PSLF paperwork or other circumstances, 

the Department proposes that a 

borrower be able to receive credit for 

these months by making any required 

payment under the hold harmless 

period. The Department believes that 

this measure will would ensure 

borrowers do not lose forgiveness credit 

during prolonged time spent in a 

forbearance due to paperwork 

processing. 

The negotiators requested that 

additional deferment and forbearance 

periods be counted as time toward 

forgiveness. The Department has not 

included the other deferment periods, 

such as the period of an unemployment 

deferment, in the proposed regulations 

because borrowers utilizing that 

deferment would not meet the 

employment requirements for PSLF. 

The Department also did not include the 

rehabilitation training deferment in the 

proposed regulations because eligibility 

for this deferment requires that the 


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borrower be in a program that prevents 

them from being employed for more 

than 30 hours a week, which is an 

employment requirement for PSLF. The 

Department believes that granting credit 

toward PSLF for those periods would 

create a conflict because under the 

deferment, the borrower would not be 

engaging in the 30 hours a week of work 

required to qualify for PSLF. 

The Department recognizes that many 

borrowers may have paused their 

payments through deferments or 

forbearances that we are not proposing 

to credit toward PSLF. The Department 

announced in April 2022 improvements 

to past challenges with the use of 

deferments and forbearances that will 

help many of these individuals. 

Specifically, the Department will be 

awarding credit toward PSLF for 

borrowers who spent more than 3 years 

cumulatively in a forbearance or 12 

consecutive months in a forbearance, 

and for months spent in any deferment 

prior to 2013 besides an in-school 

deferment. These changes will only 

result in PSLF credit for periods after 

the program’s creation in October 2007, 

and borrowers must have qualifying 

employment during those months. The 

Department believes that these changes 

will address many of the most 

concerning instances of forbearance, but 

for other periods as well as in the future 

the Department proposes to offer a hold 

harmless period. This would provide 

those borrowers who were working for 

a qualifying employer during the 

periods of forbearance or deferment an 

opportunity to get PSLF credit for those 

months by making payments equal to 

what the borrowers would have owed 

during that time. A borrower would 

receive credit toward forgiveness 

without the need to make an additional 

payment for any month in which the 

borrower would have had a $0 payment 

on an income-driven repayment plan 

but obtained a forbearance instead. The 

Department believes, that with these 

proposed regulations, borrowers would 

have an opportunity to regain progress 

toward forgiveness that would 

otherwise be lost without putting them 

through a burdensome process of 

proving they were steered, misled, or 

otherwise taken advantage of. 

The Department has manually 

reviewed PLSF applications to 

determine qualifying payments and/or 

qualifying employment on an informal 

basis. The Department believes that by 

formalizing and codifying a 

reconsideration process, borrowers 

would be able to officially request the 

Department take another look at their 

qualifying payment and/or qualifying 

employer eligibility through a process 

determined by the Secretary. The 

Department believes that 90 days from 

the denial notice is more than adequate 

time for a borrower to submit a 

reconsideration request. This 

reconsideration period also aligns with 

what the Department is proposing for 

the borrower defense to repayment 

reconsideration process. 

The Department could not agree to the 

negotiators’ request that payments on 

FFEL loans or other Federal student 

loans not made under Part D of the HEA 

count for PSLF purposes. Section 

455(m)(1)(A) of the HEA specifically 

provides that the 120 monthly payments 

must have been made on an eligible 

Federal Direct Loan. 

The Department already requires 

FFEL Program lenders to contact FFEL 

Program borrowers and provide 

information about PSLF. The 

Department proposes to require FFEL 

lenders to report additional information 

under 682.414 so that borrowers 

(particularly those with loans from 

multiple programs) are receiving 

accurate, timely, and helpful messages 

directly from the Department about the 

repayment and forgiveness of their 

Federal student loans to ensure that all 

Federal loan borrowers are informed on 

PSLF information and information 

about other digital tools offered by the 

Department. 

The Department believes that these 

proposed regulations would improve 

the Department’s ability to administer 

forgiveness to borrowers who qualify for 

PSLF, increase the number of qualifying 

borrowers who receive forgiveness, and 

increase the number of borrowers who 

receive forgiveness by aligning with the 

number of months of qualifying 

employment. The corresponding 

increase in discharges would represent 

a greater cost to the taxpayer, but the 

Department believes that the benefits 

received by borrowers by obtaining 

discharges under the PSLF statute 

justify the costs. 

Executive Orders 12866 and 13563 

Regulatory Impact Analysis 

Under Executive Order 12866, the 

Office of Management and Budget 

(OMB) must determine whether this 

regulatory action is ‘‘significant’’ and, 

therefore, subject to the requirements of 

the Executive Order and subject to 

review by OMB. Section 3(f) of 

Executive Order 12866 defines a 

‘‘significant regulatory action’’ as an 

action likely to result in a rule that 

may— 

(1) Have an annual effect on the 

economy of $100 million or more, or 

adversely affect a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local, or Tribal governments or 

communities in a material way (also 

referred to as an ‘‘economically 

significant’’ rule); 

(2) Create serious inconsistency or 

otherwise interfere with an action taken 

or planned by another agency; 

(3) Materially alter the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or 

(4) Raise novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

stated in the Executive Order. 

The Department estimates the 

quantified annualized economic and net 

budget impacts to be $85.1 billion in 

increased transfers among borrowers, 

institutions, and the Federal 

Government, including annualized 

transfers of $9.1 at 3 percent 

discounting and $10.0 billion at 7 

percent discounting, and annual 

quantified costs of $5.3 million related 

to paperwork burden. Therefore, this 

proposed action is ‘‘economically 

significant’’ and subject to review by 

OMB under section 3(f) of Executive 

Order 12866. Notwithstanding this 

determination, based on our assessment 

of the potential costs and benefits 

(quantitative and qualitative), we have 

tentatively determined that the benefits 

of this proposed regulatory action 

would justify the costs. 

We have also reviewed these 

regulations under Executive Order 

13563, which supplements and 

explicitly reaffirms the principles, 

structures, and definitions governing 

regulatory review established in 

Executive Order 12866. To the extent 

permitted by law, Executive Order 

13563 requires that an agency— 

(1) Propose or adopt regulations only 

on a reasoned determination that their 

benefits justify their costs (recognizing 

that some benefits and costs are difficult 

to quantify); 

(2) Tailor its regulations to impose the 

least burden on society, consistent with 

obtaining regulatory objectives and 

taking into account—among other things 

and to the extent practicable—the costs 

of cumulative regulations; 

(3) In choosing among alternative 

regulatory approaches, select those 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety, 

and other advantages; distributive 

impacts; and equity); 

(4) To the extent feasible, specify 

performance objectives, rather than the 

behavior or manner of compliance a 

regulated entity must adopt; and 


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(5) Identify and assess available 

alternatives to direct regulation, 

including economic incentives—such as 

user fees or marketable permits—to 

encourage the desired behavior, or 

provide information that enables the 

public to make choices. 

Executive Order 13563 also requires 

an agency ‘‘to use the best available 

techniques to quantify anticipated 

present and future benefits and costs as 

accurately as possible.’’ The Office of 

Information and Regulatory Affairs of 

OMB has emphasized that these 

techniques may include ‘‘identifying 

changing future compliance costs that 

might result from technological 

innovation or anticipated behavioral 

changes.’’ 

We are issuing these proposed 

regulations as these policies are better in 

light of the facts and to comply with 

executive orders. In choosing among 

alternative regulatory approaches, we 

selected those approaches that 

maximize net benefits. Based on the 

analysis that follows, the Department 

believes that these regulations are 

consistent with the principles in 

Executive Order 13563. 

We have also determined that this 

regulatory action would not unduly 

interfere with State, local, and Tribal 

governments in the exercise of their 

governmental functions. 

As required by OMB Circular A–4, we 

compare the final regulations to the 

current regulations. In this regulatory 

impact analysis, we discuss the need for 

regulatory action, potential costs and 

benefits, net budget impacts, and the 

regulatory alternatives we considered. 

1. Need for Regulatory Action 

The Department has identified a 

significant need for regulatory action to 

address regulatory burdens, alleviate 

administrative burden, and ensure 

Federal student loan borrowers are more 

easily able to access the loan discharges 

to which they are entitled under the 

Higher Education Act of 1965, as 

amended (HEA). Accordingly, these 

proposed regulations would alleviate 

some of the burden on students, 

institutions, and the Department, as 

discussed further in the Costs and 

Benefits section of this RIA. 

In recent years, outstanding Federal 

student loan debt has increased 

considerably and, for too many 

borrowers, that burden has been costly. 

More than 1 million borrowers 

defaulted on a Federal student loan each 

year in the periods prior to the 

nationwide pause of student loan 

interest and repayment first 

implemented by the Department and 

then extended by Congress in the 

Coronavirus Aid, Relief, and Economic 

Security (CARES) Act. Millions of 

others fell behind on their payments 

and risked default. For those who have 

defaulted, consequences can be 

significant, with many borrowers having 

their tax refunds or other expected 

financial resources garnished or offset, 

their credit histories marred, and their 

financial futures put on hold. To 

alleviate some of this burden, the 

administration enacted the American 

Rescue Plan Act of 2021 where all 

student loan forgiveness and discharges 

of any loan type is Federal tax-free 

through December 31, 2025. 

We continually examine our 

regulations to improve the Federal 

student loan programs and it was the 

primary goal of this negotiated 

rulemaking. This NPRM specifically 

addresses regulatory changes to 

discharges that will help borrowers to 

reduce or eliminate debt for which they 

should not be responsible to pay. The 

Department will also propose regulatory 

changes to income driven repayment 

plans in a future NPRM that would 

greatly benefit borrowers. 

The Department seeks to reduce the 

burden for students and borrowers to 

access the benefits to which they are 

entitled through several provisions in 

these proposed regulations. This 

includes streamlining the borrower 

defense regulations and establishing a 

process for group consideration of 

claims from borrowers with common 

claims or affected by the same 

unacceptable institutional act or 

omission; easing the process of 

accessing false certification discharges; 

clarifying the rules borrowers must 

comply with for the PSLF program; 

reducing the burden caused by interest 

capitalization; ensuring totally and 

permanently disabled borrowers have 

the ability to access and maintain a 

discharge more easily; and allowing 

borrowers to automatically access a 

closed school loan discharge. 

Throughout these proposed regulations, 

we accommodate and, where possible, 

require, that these benefits are provided 

automatically, so that borrowers are not 

required to submit unnecessary 

paperwork to benefit from provisions 

included in the HEA. We also preserve 

borrowers’ ability to pursue their 

grievances in court by prohibiting predispute arbitration clauses or class 

action waivers in institutions’ 

enrollment agreements. 

These efforts to reduce burden for 

students and institutions would also 

indirectly reduce the burden on the 

Department by, for example, limiting 

the need for adjudication of individual 

claims for borrower defense in some 

cases, simplifying the criteria that need 

to be checked to determine if payments 

count toward PSLF, and limiting the 

need for the Department to process 

paperwork by providing discharges on a 

more automatic basis for borrowers 

whose schools close or when a borrower 

has a total and permanent disability. 

These proposed regulations would 

affect each of the three major Federal 

student loan programs. This includes 

the Direct Loan program, which is the 

sole source of Federal student loans 

issued by the Department of Education 

today, as well as loans from the Federal 

Family Education Loan Program, which 

stopped issuing new loans in 2010 and 

the Perkins Loan Program, which 

stopped issuing new loans in 2017. 

Changes to TPD, closed school 

discharges, and false certification 

discharges would affect all three 

programs. Changes to interest 

capitalization, borrower defense, 

arbitration, and Public Service Loan 

Forgiveness would only affect Direct 

Loans. 

Interest Capitalization 

Virtually all struggling borrowers 

likely saw their balances increase due to 

interest capitalization. Interest 

capitalization may have occurred due to 

time in forbearances or deferments. 

Furthermore, interest capitalization 

following in-school grace periods affects 

all borrowers with unsubsidized loans. 

Eliminating interest capitalization stops 

compounding the costs and makes loans 

more affordable for borrowers. While 

eliminating interest capitalization 

doesn’t remove borrowers’ debt burden, 

it would help to increase affordability 

for students whose balances might 

continue to grow. That’s particularly 

true for the low-income or struggling 

borrowers who tend to use deferments 

and forbearances more heavily, and thus 

see more capitalizing events throughout 

their repayment periods. 

Pre-Dispute Arbitration 

Often, schools that have taken 

advantage of students have forced those 

students to shield their complaints by 

requiring students to participate in 

private arbitration proceedings, where 

the terms are set by the institution, 

rather than allowing them their day in 

court. These pre-dispute arbitration 

agreements require students to agree to 

the terms before a conflict ever arises 

and often dictate whether the student 

can appeal the decision. Though predispute agreements are not inherently 

predatory in practice, they can be 

applied in predatory ways toward 

borrowers such as undermining 

borrowers’ rights to avail themselves of 


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33Habash, T. and Shireman, R., (April 28, 2016). 

How College Enrollment Contracts Limit Students’ 

Rights, The Century Foundation. Retrieved from 

https://tcf.org/content/report/howcollegeenrollment-contracts-limit-students-rights/. 

34Consumer Financial Protection Bureau. (2015.) 

‘‘Arbitration Study: Report to Congress.’’ https://

files.consumerfinance.gov/f/201503_cfpb_

arbitration-study-report-to-congress-2015.pdf. 

certain loan discharges, depriving 

borrowers of the protections in the HEA. 

We have seen arbitration applied across 

different industries including consumer 

protection and employment, and in the 

realm of education, pre-dispute 

arbitration agreements are often linked 

to propriety education enrollment 

agreements.33 As a result, successive 

cohorts of students may have 

experienced the same predatory 

behavior. Additionally, while the 

Department is aware of arguments that 

arbitration lowers the costs of dispute 

resolution for borrowers relative to 

litigation, a study of consumer finance 

cases analyzed by the Consumer 

Financial Protection Bureau found that 

most resulted in no determination on 

the merits of the allegation by the 

arbitrator, and those that did (and where 

counsel was retained) resulted in 

attorney’s fees awarded at a similar rate 

to both consumers and companies.34

The Department observed several 

issues and problems around pre-dispute 

arbitration and class action waivers. 

First, institutions may use arbitration 

clauses in enrollment agreements to 

effectively discourage students from 

pursuing complaints. This enables an 

institution to avoid financial risk 

associated with its wrongdoing and shift 

the risk to the taxpayers and federal 

government through subsequent 

borrower defense discharges. 

Additionally, borrowers cannot have 

their day in court because some 

enrollment agreements prevent their 

ability to participate in lawsuits, 

including class action litigation. This 

further insulates institutions from the 

potential financial risk of their 

wrongdoing and the lack of 

transparency surrounding institutions’ 

arbitration requirements and limits on 

class actions. 

Closed School Discharge 

Borrowers have also faced the 

negative financial impacts of 

institutions closing, often without 

adequate warning, interrupting 

borrowers’ ability to continue and 

complete their desired educational 

programs. Many of these borrowers were 

left with debt but no degree, sometimes 

facing new barriers to education such as 

geographic location, nontransferable 

credits, and inability to complete their 

degree. This has negatively affected 

borrowers’ ability to make their 

payments, creating a need for improved 

processes for closed school discharges. 

Several aspects of the closed school 

discharge process have limited the 

ability of borrowers to receive closed 

school discharges. Final regulations 

published in the Federal Register on 

November 1, 2016, provided for 

automatic closed school discharges to 

borrowers who were eligible for a closed 

school discharge but did not apply for 

one, and who did not enroll elsewhere 

within three years of the institution’s 

closure. Final regulations published on 

Sept. 23, 2019, eliminated this 

provision. The proposed ruleset would 

reinstate a form of the 2016 provision. 

Closed school discharges for 

borrowers who withdrew from a school 

prior to the school closing are also not 

consistent across years in the discharge 

window available to borrowers. 

Additionally, under 

§ 685.214(c)(1)(i)(B), the Secretary may 

extend the closed school discharge 

window under ‘‘exceptional 

circumstances.’’ The non-exhaustive list 

of exceptional circumstances provided 

in the regulations does not include 

many events that may occur on the path 

to closure and could reasonably be 

associated as a cause of that closure. In 

addition, the September 23, 2019, 

regulations removed some of the 

exceptional circumstances that were 

included in the prior regulations, such 

as ‘‘a finding by a State or Federal 

government agency that the school 

violated State or Federal law,’’ and that 

remain highly relevant factors in some 

college closures. This proposed 

regulation aims to remedy these issues. 

Total and Permanent Disability 

Discharge 

Another area in which the current 

regulations create gaps for borrowers is 

related to total and permanent disability 

discharge. For borrowers who are 

unable to meaningfully work, their 

student loan debt became exceedingly 

burdensome, leaving many in dire 

financial circumstances, despite being 

eligible for discharges of their Federal 

student loans under the HEA. Some 

eligible borrowers are not fully aware of 

existing relief pathways, but for those 

who are aware of TPD discharges, they 

face a complex and onerous procedure 

to ensure borrowers continue to meet 

the statutory test of not being able to 

engage in gainful employment to 

acquire and maintain discharges. 

The Department has identified several 

aspects of the TPD discharge process 

that could be improved through 

regulation. First, the Department 

currently runs a 3-year post-discharge 

income monitoring period, for which 

the documentation requirements are 

burdensome for affected borrowers. 

Since 2013, loans for more than half of 

the 1 million borrowers who received a 

TPD discharge were reinstated because 

the borrower did not respond to 

requests for income documentation, 

although an analysis conducted by the 

Department with Internal Revenue 

Service (IRS) data suggests that 92 

percent of these borrowers did not 

exceed the earnings threshold, and that 

these results are similar for borrowers 

whose discharge is based on the SSA or 

physician’s certification process. 

Second, borrowers who currently 

qualify for TPD discharges based on 

SSA disability determinations must be 

in SSA’s Medical Improvement Not 

Expected (MINE) category to qualify, 

although there are other SSA disability 

categories that may support a discharge. 

For borrowers applying for a TPD 

discharge based on a disability 

determination by the SSA, acceptable 

documentation for the TPD discharge is 

limited to the notice of award that the 

borrower receives from the SSA and for 

borrowers applying for a TPD discharge 

based on a physician’s certification, 

only a Doctor of Medicine or a Doctor 

of Osteopathy may certify the TPD 

discharge form. This ruleset aims to 

mitigate and to streamline total and 

permanent disability discharge process. 

False Certification Discharge 

The Department also identified 

opportunities to improve false 

certification discharges. These are 

discharges available to borrowers under 

the HEA if the institution that certifies 

the borrower’s eligibility for the loan 

does so under false pretenses, such as 

when the borrower did not have a high 

school diploma or equivalent and did 

not meet alternative criteria; when the 

borrower had a status that disqualified 

them from meeting legal requirements 

for employment in the occupation for 

which they are training; or if the 

institution signed the borrower’s name 

without authorization. 

One challenge the Department 

identified with false certification 

discharges is that the different standards 

and processes for false certification 

discharges depending on when the loan 

was disbursed that can create confusion 

for borrowers. The proposed regulations 

would streamline the false certification 

discharge process for student loan 

borrowers to establish standards that 

apply to all claims, regardless of when 

the loan was first disbursed, and 

provide for a group discharge process. 

The proposed rules would also reduce 


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the burden on borrowers to prove 

eligibility for false certification 

discharges if they did not have a high 

school diploma, if the institution falsely 

signed the borrower’s name for the loan, 

or if the borrower had a disqualifying 

condition (those that would prevent the 

borrower from obtaining employment 

due to applicable State requirements 

related to criminal record, age, physical 

or mental condition, or other factors) at 

the time they took out the loan. 

Public Service Loan Forgiveness 

The HEA provides forgiveness of 

remaining balances for borrowers who 

work in qualifying employment in 

public service and who make 120 

qualifying payments. However, the 

Department is concerned that too many 

borrowers have found it difficult to 

navigate the program’s requirements 

due to unclear or complex definitions 

and complex, overly stringent 

requirements regarding the payments 

made on the loan. For instance, the 

current regulations leave the definition 

of what constitutes full-time 

employment up to interpretation by 

each employer, even though the 

underlying statutory requirement is only 

that the borrower be employed for at 

least 30 hours a week. This creates 

inconsistency, such as through 

scenarios where one employer considers 

40 hours a week as full-time 

employment and another employer may 

consider 35 hours as full-time 

employment, so a borrower employed 

35 hours a week may be denied or 

granted qualifying employment 

depending on their employer, despite 

working in the same type of work. There 

are also situations where professors and 

contingent faculty have difficulty 

obtaining employer certification of their 

qualifying employment because their 

employers are unsure of what 

conversion factor to use in converting 

course load into hours worked per 

week. 

The Department would like to 

improve the PSLF application process 

and provide automation in instances 

where the Secretary has enough 

information to determine eligibility for 

forgiveness. This will significantly 

reduce the borrower’s burden, as well as 

the Department’s burden, to review and 

approve applications. The current PSLF 

application process is difficult for many 

borrowers, who often struggle both with 

meeting the complex terms of the 

program and with the process of 

applying to demonstrate their eligibility. 

Borrower Defense to Repayment 

Borrowers whose colleges take 

advantage of them, such as by 

misrepresenting job placement rates or 

other important information about the 

program, are eligible for a borrower 

defense discharge on their loans. 

However, the process—which was 

rarely used prior to 2015—has resulted 

in many borrowers filing claims that 

remain pending due to burdensome 

review processes and differing 

standards and processes depending on 

when the borrower took out their loan. 

The Department proposes changes to the 

borrower defense regulations to make 

these policies more consistent, 

regardless of when the borrower took 

out the loan, and to ensure a more 

timely and effective process for 

reviewing borrowers’ claims. The 

Department also seeks to implement 

measures that would reduce the burden 

on institutions of participating in 

borrower defense proceedings with the 

proposed changes in group claims and 

recoupment. Allowing group claims 

ensures that institutions with large 

numbers of outstanding claims would 

likely only have to respond once to a 

request for information regarding the 

allegations that could lead to an 

approved borrower defense claim. 

Institutions would not face some 

financial liabilities because the 

Department would only seek 

recoupment for discharges tied to 

conduct that would have been approved 

under the applicable prior regulation in 

place at the time the loans were 

disbursed. Additionally, separating the 

approval of borrower defense claims 

from recoupment of loan discharge costs 

from the institution also limits the 

burden on educational institutions, 

when we seek to establish liabilities 

from a discharge paid. The use of preexisting processes for recoupment 

proceedings also means institutions will 

not need to learn and participate in an 

entirely new liability and appeals 

process. 

2. Summary 

Provision Reg section Description of provision 

Borrower Defense to Repayment 

Uniform Borrower Defense to 

Repayment Framework.

§ 685, subpart D .................... Would establish a new uniform borrower defense to repayment framework 

based on applications received following or already pending with the Secretary on the effective date of these regulations, rather than based on a 

loan’s disbursement date. 

Grounds for Borrower Defense 

Claims.

§ 685.401(b) .......................... Outlines the five grounds on which a defense to repayment claim could be 

brought: substantial misrepresentation, substantial omission of fact, breach 

of contract, aggressive recruitment, or a State or Federal judgment or final 

Department action against an institution that could give rise to a borrower 

defense claim. A misrepresentation or omission would be substantial if a 

borrower relied upon it, with the Department using a presumption of reasonable reliance for individual and group claims. 

Preponderance of Evidence 

Standard.

§ 685.401(b) .......................... Would establish that the Department would review the claims based on a preponderance of the evidence standard. 

Group Process ......................... § 685.402 ............................... Would establish two processes for pursuing group borrower defense claims. 

Under the first, the Department determines if a group of borrowers it identifies has a defense to repayment. Under the second, the Department may initiate a group process upon request from a State requestor. 

Forbearance and Stop Collection.§ 685.402(d)(2), 

§ 685.403(c)(3).

Would establish that, during adjudication of a borrower defense claim, all of the 

borrower’s Title IV loans would be placed in forbearance or stopped collection status, including loans that are not associated with the borrower defense 

claim. Loans associated with an individual claim would cease accumulating 

interest after the claim has been pending for 180 days. Loans associated 

with a group claim would cease accumulating interest upon formation of the 

group. 


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Provision Reg section Description of provision 

Prior Final Departmental Actions.§ 685.404 ............................... Would establish a process by which the Department could consider prior final 

Departmental actions against an institution in the context of determining 

whether to form a group borrower defense claim. 

Institutional Response Process § 685.405 ............................... Would establish that the institution would have 90 days to respond to the Department official’s notification to the institution of the borrower defense claim 

and its basis. 

Timeline .................................... § 685.406(f) ........................... Would establish that group claims would be adjudicated within 2 years of the 

Department’s notification of group claim formation, while individual claims 

would be adjudicated within 3 years from the submission of a materially 

complete application package. 

Written Decision ....................... § 685.406(e) .......................... Would establish that the Department would issue a written decision on the outcome of an adjudication. The written decision also would describe the process for the borrower to request reconsideration of the decision. The written 

decision would be made available to an individual or member of a group 

and, to the extent practicable, the institution. 

Reconsideration Process ......... § 685.407 ............................... Sets forth the circumstances under which a borrower would be able to seek reconsideration of a Department official’s decision on their borrower defense 

claim. The Department official’s written notice would be final, but if the borrower’s claim is denied in full or in part, that individual borrower, or for a 

group claim, a State requestor, would be able to request reconsideration. A 

reconsideration request would be allowed if there were administrative or 

technical errors, new evidence became available, or the borrower or State 

requestor wishes the claim to be reconsidered under a State law standard. 

Group reconsideration requests could be made for the same reasons as an 

individual request, but a request for reconsideration under State law would 

require additional documentation, including an analysis of the applicable 

State law standard and why it would lead to an approved borrower defense 

claim. 

Discharge ................................. § 685.408 ............................... Would establish discharge process. For an approved claim, the Department official would recommend a discharge amount for a borrower or group of borrowers. All borrowers within an approved group claim would receive the 

same recommended discharge, either in amount or as a percentage of their 

loans. In making a discharge recommendation, the Department official would 

apply a rebuttable presumption that the borrower or group of borrowers with 

an approved claim should receive a full discharge of the loans they received 

for attendance at the institution that is the subject of the claim, unless in certain circumstances a preponderance of the evidence demonstrates that the 

discharge should be for a lower amount. 

Recovery from Institution ......... § 685.409 ............................... Would strike 34 CFR 668.87 in its entirety and establish a general framework 

to recover from institutions the amounts that the Secretary discharges and to 

leverage the processes already in place at 34 CFR Part 668, part H. 

Limitations Period ..................... § 685.409(c) ........................... Would adopt a 6-year limitations period to recover from the institution the 

amount of the borrower defense discharge received by borrowers who attended the institution, running from the borrower’s last date of attendance at 

the institution or at any time if the act or omission was a judgment against 

an institution. 

False Certification Discharge 

Uniform Standard ..................... § 685.215(a)(1) ...................... Would use the borrower’s status regarding having a high school diploma or its 

recognized equivalent or meeting the alternative to graduation from high 

school eligibility requirements at the time the loan was originated, not at the 

time the loan was disbursed. 

Specification ............................. § 685.215(c), § 682.402(e)(3) Would explicitly state in the regulations that all loans may qualify for the discharge based on a false certification of high school diploma or equivalent by 

the school. 

Disqualifying Status .................. § 685.215(c)(2), 

§ 682.402(e)(3).

Would include disqualifying status as a false certification discharge condition 

for all loans. 

Signature Specimen ................. § 685.215(c)(3), 

§ 685.215(c)(4), 

§ 682.402(e)(3).

Would remove the requirement that borrowers submit signature specimens. 

Judicial Determination .............. § 685.215(c)(5), 

§ 682.402(e)(3).

Would replace the provision which requires a judicial determination of identity 

theft with provisions allowing alternative evidence. 

Grant Without Applying ............ § 685.215(c)(9), 

§ 682.402(e)(15).

Would specify that the Secretary may grant a false certification discharge without an application due to the institution’s falsification of Satisfactory Academic Progress for all loans. 

Timeline .................................... § 685.215(d), § 682.402(e)(6) Would require borrowers to submit an application for a false certification discharge within 60 days of their loan being placed into forbearance but allow 

borrowers an additional 30days to submit supplemental information. 

Rescind Regulation .................. § 685.215(e) .......................... Would rescind the provision that any borrower who attests to a high school diploma or equivalent does not qualify for a false certification discharge. 


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Provision Reg section Description of provision 

PSLF 

Definitions ................................. § 685.219(b) .......................... Would add eleven new terms: ‘‘civilian service to the Military,’’ ‘‘early childhood 

education program,’’ ‘‘non-tenure track employment,’’ ‘‘public health,’’ ‘‘nongovernmental public service,’’ ‘‘public service for individuals with disabilities,’’ 

‘‘public service for the elderly,’’ ‘‘public education service,’’ ‘‘public library 

services,’’ ‘‘school library services,’’ and ‘‘qualifying repayment plan.’’ Would 

modify five existing terms: ‘‘employee or employed,’’ ‘‘full-time,’’ ‘‘military 

service,’’ ‘‘other school-based service,’’ and ‘‘qualifying employer.’’ These 

definitions are relevant for nonprofit organizations that provide certain specific public services listed in § 455(m)(3)(B) of the HEA, other than a business organized for profit, a labor union, or a partisan political organization. 

Amounts Paid ........................... § 685.219(c)(1)(iii) ................. Would establish amounts paid by the borrower on a loan that are equal to the 

full scheduled payment due would count toward forgiveness even if the payment is made in multiple installments or outside the 15-day period in current 

regulations. 

Amounts Paid ........................... § 685.219(c)(2) ...................... Would clarify that the lump sum or monthly payments equal to or greater than 

the full scheduled amount made in advance of the borrower’s scheduled 

payment due date could count for a period of months not to exceed the date 

of the borrower’s next annual repayment plan recertification date under the 

qualifying repayment plan. 

Deferment or Forbearance Period.§ 685.219(c)(2)(v) .................. Would allow months in which a borrower is in an identified determent or forbearance period to count as a month of payment for PSLF if the borrower 

certifies qualifying employment for the period of time covered by the 

deferment or forbearance. 

Direct Consolidation Loan ........ § 685.219(c)(3) ...................... Would count those payments made on an eligible Direct Loan that the borrower later consolidates into a Direct Consolidation Loan as qualifying payments for PSLF. 

Current Practice ....................... § 685.219(e) .......................... Would reflect the Department’s current practice and process for borrowers to 

document qualifying employment and request PSLF after making 120 qualifying payments. 

Automation ............................... § 685.219(f) ........................... Would establish that the Department would grant PSLF without an application 

if the Department has sufficient information to determine eligibility without an 

application. The Department would attempt to determine if the borrower was 

working for a qualifying employer at the time the payment was made. If the 

Department determines the borrower is eligible for PSLF, the Department 

would notify the borrower and forgive the remaining balance. If the borrower 

is ineligible for PSLF, the Department would notify the borrower, resume 

loan repayment obligation, and grant forbearance for the time spent in forbearance. 

Reconsideration Process ......... § 685.219(h) .......................... Would formalize a reconsideration process for PSLF applications who were denied or disagree with the Department’s determination regarding the number 

of qualifying payments or months of qualifying employment. Borrowers would 

have 90 days from application denial to request consideration and 180 days 

from the effective date of the regulation to request reconsideration if denied 

prior to the effective date of these final regulations. 

Qualified Payment During 

Deferment or Forbearance.

§ 685.219(h)(6) ...................... Would count time toward PSLF for a borrower who postponed monthly payments under a deferment or forbearance that would not lead to a qualifying 

payment. During the forbearance or deferment period, the borrower must 

have been employed full-time at a qualifying employer and then make an additional payment or payments equal to or greater than the amount the borrower would have paid at the time of a qualifying repayment plan. 

Federal Family Education 

Loans (FFEL).

§ 682.414(b)(4) ...................... Would require FFEL Program guaranty agencies to report detailed information 

related to deferments, forbearances, repayment plans, delinquency, and contact information on any FFEL. 

Interest Capitalization 

When Entering Repayment ...... § 685.202(b)(2) ...................... Would remove section that provides that, for Direct Unsubsidized Loans, Direct 

Unsubsidized Consolidation Loans that qualify for a grace period under the 

regulations that were in effect for consolidation applications received before 

July 1, 2006, and for Direct PLUS Loans, or Direct Subsidized Loans for 

which the first disbursement is made on or after July 1, 2012, and before 

July 1, 2014, the Secretary may capitalize the unpaid interest that accrues 

on the loan when the borrower enters repayment. 

During Forbearance ................. § 685.202(b)(3) ...................... Would remove provision that provides that the Secretary capitalizes interest 

that accrues on Direct Loans during periods of forbearance. 

Under Alternative Repayment 

or ICR Plan.

§ 685.202(b)(4) ...................... Would remove section that provides that, subject to some exceptions, the Secretary annually capitalizes unpaid interest when a borrower is paying under 

the alternative repayment plan or the income-contingent repayment plan described in § 685.209(b) and the borrower’s scheduled payments do not cover 

the interest that has accrued on the loan. 


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Provision Reg section Description of provision 

Upon Loan Default ................... § 685.202(b)(5) ...................... Would remove section that provides that the Secretary may capitalize unpaid 

interest when a borrower defaults on a loan. 

When Leaving PAYE Plan ....... § 685.209(a)(2)(iv)(A)(2) ........ Would remove section that provides that accrued interest is capitalized at the 

time a borrower chooses to leave PAYE repayment plan. 

Under PAYE Plan .................... § 685.209(a)(2)(iv)(B) ............ Would remove section that limits the amount of accrued interest capitalized 

under § 685.209(a)(2)(iv)(A)(1) to 10 percent of the original principal balance 

at the time the borrower entered repayment under PAYE repayment plan, 

and that, after the amount of accrued interest reaches that limit, interest continues to accrue, but is not capitalized while the borrower remains on PAYE 

repayment plan. 

When Leaving REPAYE Plan .. § 685.209(c)(2)(iv) ................. Would remove section that provides that any unpaid accrued interest is capitalized at the time a borrower leaves REPAYE plan. 

Total and Permanent Disability Discharge 

Certification and SSA Documentation.§ 674.61(b)(2)(iv), 

§ 682.402(c)(2)(iv), 

§ 685.213(b)(2).

Would add language to provide that, in addition to an MD or DO, a Total and 

Permanent Disability (TPD) discharge application may be certified by an NP, 

a PA licensed by a State, or a licensed certified psychologist at the independent practice levels. 

Would expand the types of SSA documentation that may qualify a borrower for 

a TPD discharge to include an SSA Benefit Planning Query or other SSA 

documentation deemed acceptable by the Secretary; in addition to SSA documentation indicating that a borrower qualifies for SSDI or SSI benefits with 

a next scheduled disability review in 5 years to 7 years, a borrower would 

qualify for a TPD discharge based on SSA documentation indicating that the 

borrower— 

• Qualifies for SSDI or SSI benefits with a next scheduled disability review 

within 3 years, and the borrower’s eligibility for disability benefits in 3-year 

review category has been renewed at least once; 

• Has a disability onset date for SSDI or SSI of at least 5 years prior or has 

been receiving SSDI or SSI benefits for at least 5 years prior to application 

for TPD; 

• Qualifies for SSA compassionate allowance program; or 

• Is currently receiving SSA retirement benefits and met any of the above requirements prior to qualifying for SSA retirement benefits. 

Certification Conforming 

Changes.

§ 674.61(b), § 682.402(c), 

§ 685.213(b).

Would add conforming changes to Perkins, FFEL, and Direct Loan regulations 

identifying the additional medical professionals who would be authorized to 

certify a TPD discharge application, and the additional SSA documentation 

that would be acceptable for a TPD discharge. 

Reinstatement Requirements ... § 674.61(b)(6)(i), 

§ 682.402(c)(6), 

§ 685.213(b)(7)(i).

Would remove existing reinstatement requirements, except for provision that 

provides that a borrower’s loan is reinstated if borrower receives a new 

TEACH Grant or a new Title IV loan within 3 years of date the TPD discharge was granted. 

Reinstatement Notification ....... § 674.61(b)(6)(iii), 

§ 682.402(c)(6)(iii), 

§ 685.213(b)(7)(iii).

Would revise language regarding notification of reinstatement to borrowers; 

provides that notice would explain to the borrower that first payment due 

date following reinstatement would be no earlier than 90 days after date of 

the notification of reinstatement, instead of no earlier than 60 days. 

Borrower Responsibilities ......... § 674.61(b)(7), 

§ 682.402(c)(7), 

§ 685.213(b)(8).

Would remove provisions that describe a borrower’s responsibilities after receiving a total and permanent disability discharge. 

VA or SSA Documentation ...... § 685.213(d) .......................... Would add language that provides that the Secretary would grant a TPD discharge without an application if the Secretary obtains appropriate documentation from the Department of Veterans Affairs (VA) or SSA. 

Closed School Discharge 

Application Requirements ........ § 685.214 ............................... Would remove separate closed school discharge application requirements for 

Direct Loans disbursed on or after July 1, 2020, and Direct Loans disbursed 

before July 1, 2020, that appear in current §§ 685.214(c), (d)(1), (f) and (g). 

Application Completion ............ § 674.33(g)(4) and 

§ 685.214(d)(1).

Would codify current practice by adding language that provides that the borrower must submit a completed closed school discharge application to the 

Secretary and that factual assertions in the application must be true and 

made by the borrower under penalty of perjury. 

Application Extension ............... § 674.33(g)(8)(v), 

§ 682.402(d)(6)(ii)(H), 

§ 685.214(g)(4).

Would extend the time period that a borrower has to submit a closed school 

discharge application before the forbearance period expires to within 90 

days of the Secretary or other loan holder providing the discharge application to the borrower. 

Under § 685.214(g)(4), if the Secretary resumes collection on Direct Loan after 

the 90 days the Secretary would not capitalize unpaid interest that accrued 

on the loan during the period of suspension of collection activity that exists 

in current § 685.214(f)(4) and (g)(4). 


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41944 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

Provision Reg section Description of provision 

School Closure Date ................ § 674.33(g)(1)(ii)(A), 

§ 682.402(d)(1)(ii)(A), 

§ 685.214(a)(2)(i).

Would specify that, for purposes of a closed school discharge, a school’s closure date is the earlier of the date that school ceases to provide educational 

instruction in most programs, as determined by the Secretary, or a date chosen by the Secretary that reflects when school had ceased to provide educational instruction for most of its students. 

Definition of Program ............... § 674.33(g)(1)(ii)(D), 

§ 682.402(d)(1)(ii)(D), 

§ 685.214(a)(2)(iii).

Would add definition of ‘‘program’’ for purposes of determining school’s closure 

date as credential defined by level and Classification of Instructional Program (CIP) code in which a student is enrolled; under the proposed definition, the Secretary may define a borrower’s program as multiple levels or 

CIP codes if: 

• The enrollment occurred at same institution in closely proximate periods; 

• The school granted a credential in a program while the student was enrolled 

in a different program; or 

• The programs were presented as necessary for borrowers to complete to 

succeed in relevant field of employment. 

Discharge for Teach-Out .......... § 674.33(g)(3)(i)(B), 

§ 682.402(d)(8)(i)(B), 

§ 685.214(c)(1).

Would add language to provide that the Secretary (and a guaranty agency, in 

the case of a FFEL loan) may discharge a loan without an application for an 

eligible borrower based on information in the Secretary or guaranty agency’s 

possession if the borrower did not complete an institutional teach-out plan 

implemented by the school or a teach-out agreement at another school, approved by the school’s accrediting agency and, if applicable, the school’s 

State authorizing agency. 

Borrower Does Not Re-Enroll .. § 674.33(g)(3)(ii), 

§ 682.402(d)(8)(ii), 

§ 685.214(c)(1).

Would remove limitation that a borrower may only qualify for a closed school 

discharge without an application if the borrower does not re-enroll in an eligible Title IV school within 3 years of the school’s closure date. Instead, would 

provide a discharge automatically if a borrower within 1 year of the school’s 

closure date unless the borrower accepts and completes an approved teachout agreement. 

Teach-Out Plan on Application § 674.33(g)(4)(i)(C), 

§ 682.402(d)(3)(iii), 

§ 685.214(d)(1)(i)(C).

Would maintain requirement that a borrower state on the closed school discharge application that the borrower did not complete an eligible institutional 

teach-out plan performed by the school or a teach-out agreement at another 

school and would remove requirement that the borrower state that they did 

not complete a comparable program of study at another school. 

Discharge For Not Completing 

Teach-Out Plan.

§ 674.33(g)(3)(ii), 

§ 682.402(d)(8)(ii), 

§ 685.214(c)(2).

Would add language that provides if a borrower accepts but does not complete 

an institutional teach-out plan implemented by the school or a teach-out 

agreement at another school, approved by the school’s accrediting agency 

and, if applicable, the school’s State authorizing agency, then the Secretary 

would discharge the loan within one year of the borrower’s last date of attendance in the teach-out program. 

Discharge for Borrowers 180 

Days Before Closure.

§ 674.33(g)(4)(i)(B), 

§ 682.402(d)(1)(i), 

§ 685.214(d)(1)(i)(A).

Would add language to standardize the time frame for closed school discharge 

eligibility to allow borrowers who withdrew from the school not more than 

180 days before the school closed to qualify. 

List of Exceptional Circumstances.§ 674.33(g)(9), 

§ 682.402(d)(9), 

§ 685.214(h).

Would expand non-exhaustive list of exceptional circumstances that would justify the Secretary extending the 180-day time frame. The expanded list of exceptional circumstances would include, but not be limited to: 

• Revocation or withdrawal by an accrediting agency of school’s institutional 

accreditation; 

• Placement of school on probation, issuance of a show-cause order, or an 

equivalent status by the institution’s accrediting agency for failing to meet 

one or more of the agency’s standards; 

• Revocation or withdrawal by State authorization or licensing authority to operate or to award academic credentials in the State; 

• Termination by the Department of school’s participation in a Title IV, HEA 

program; 

• A finding by a State or Federal government agency that school violated 

State or Federal law related to education or services to students; 

• A State or Federal court judgment that a school violated State or Federal 

law related to education or services to students; 

• The teach-out of student’s educational program exceeds 180-day look back 

period for a closed school discharge; 

• The school responsible for teach-out of student’s educational program fails 

to perform the material terms of teach-out plan or agreement, such that the 

student does not have a reasonable opportunity to complete his or her program of study; 

• The school discontinued a significant share of its academic programs; 

• The school permanently closed all or most of its in-person locations while 

maintaining online programs; or 

• The Department placed the school on heightened cash monitoring payment 

method as defined in section 668.162(d)(2). 


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Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41945 

35Scott-Clayton, J. (2018, January 10). The 

looming student loan default crisis is worse than we 

thought. Brookings Institution Evidence Speaks 

Report, vol. 2 #34. Retrieved from: https://

www.brookings.edu/research/the-looming-studentloan-default-crisis-is-worse-than-we-thought/. 

36Scott-Clayton, J. (2016, October 10). Blackwhite disparity in student loan debt more than 

triples after graduation. Brookings Institution 

Evidence Speaks Report, vol. 2 #3. Retrieved from: 

https://www.brookings.edu/wp-content/uploads/ 

2016/10/es_20161020_scott-clayton_evidence_

speaks.pdf. 

37Hillman, N.W. (2014). College on credit: A 

multilevel analysis of student loan default. The 

Review of Higher Education, 37(2), 169–195. 38 Itzkowitz, M. (2018, August 8). Want More 

Students To Pay Down Their Loans? Help Them 

Graduate. Third Way report. Retrieved from: http:// 

thirdway.imgix.net/pdfs/want-more-students-topay-down-their-loans-help-them-graduate.pdf. 39 Department analysis of the 2004/2009 

Beginning Postsecondary Students Study, estimated 

via PowerStats (table references: ivbztb and qobjsb). 

Provision Reg section Description of provision 

Pre-Dispute Arbitration 

Complaint Through Internal 

Dispute Process.

§ 685.300(d) .......................... Would prohibit institutions, as a condition of participating in the Direct Loan 

program, from requiring students to pursue a complaint based on a borrower 

defense claim through an internal dispute process before presenting it to an 

accreditor or relevant government agency. 

Relying on Pre-Dispute Arbitration Agreement with Respect 

to a Class Action.

§ 685.300(e) .......................... Would prohibit institutions from relying on a pre-dispute arbitration agreement, 

or any other pre-dispute agreement with a student who obtained or benefitted from a Direct Loan, in any aspect of a class action related to a borrower defense claim, until presiding court rules that case cannot proceed as 

a class action. 

Would include a non-exhaustive list of what would constitute reliance on a predispute arbitration agreement with respect to a class action, including seeking dismissal, deferral, or stay of a class action; excluding a person or persons from joining a class action; avoiding discovery; and/or filing an arbitration claim. 

Would add provisions regarding class action bans being included in any agreement with a student who receives a Direct Loan to attend the school or for 

whom a Direct PLUS Loan was obtained. 

Arbitrate Borrower Defense 

Claim and List of What Constitutes Reliance.

§ 685.300(f) ........................... Would require an institution, as part of the PPA, to agree it would not enter 

into a pre-dispute arbitration agreement to arbitrate a borrower defense 

claim or rely in any way on a pre-dispute arbitration agreement with respect 

to any aspect of a borrower defense claim. 

Would include a non-exhaustive list of what would constitute reliance on a predispute arbitration agreement, including seeking dismissal, deferral, or stay 

of a judicial action; avoiding discovery; and/or filing an arbitration claim. 

Would add provisions relating to notices and the terms of the pre-dispute arbitration agreements be included in any agreement with a student who receives a Direct Loan to attend the school or for whom a Direct PLUS Loan 

was obtained. 

Arbitral and Judicial Records ... § 685.300(g), § 685.300(h) .... Would require institutions to submit certain arbitral records and judicial records 

connected with any borrower defense claim filed against the school to the 

Secretary by certain deadlines. 

Definitions ................................. § 685.300(i) ............................ Would add general definitions section that includes a revised definition of ‘‘borrower defense claims’’ that maintains congruence with definitions elsewhere 

in the Title IV regulations. 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as a ‘‘major rule,’’ 

as defined by 5 U.S.C. 804(2). 

3. Discussion of Costs and Benefits 

The proposed regulations are broadly 

intended to provide benefits to 

struggling borrowers by improving the 

administration of specific aspects of 

Federal student loan programs. These 

are borrowers who have difficulty 

keeping up with their payments, often 

ending up in forbearance, delinquency, 

or default, and as a result, see their 

balances grow through interest accrual 

and capitalization. Borrowers often 

struggle to manage their student loan 

debt due, in part, to acts or omissions 

by the institution of higher education 

they attended, a category that includes 

closed schools and schools that engage 

in the types of behaviors that can lead 

to approved borrower defense claims. 

The Department believes that these 

proposed regulations will provide 

critical support to underserved 

borrowers. For instance, Black 

borrowers are disproportionately likely 

to face repayment difficulties and 

growing balances. Within recent 

cohorts, Black college graduates faced a 

likelihood of default that was five times 

larger than that of white borrowers.35

Black borrowers enter repayment after 

earning a bachelor’s degree with higher 

debt than borrowers in other racial 

groups, and also continue to see their 

balances increase rather than fall.36

Family income, college completion 

status, and the type of college a student 

borrowed to attend are additional 

factors that relate to repayment 

difficulties. One study finds that 

students who borrowed to attend twoyear for-profit colleges were 26 percent 

more likely to default than those who 

borrowed at four-year public colleges, 

and that family income is a strong 

predictor of default risk.37 Using data 

from the College Scorecard, a different 

analysis finds that across all institution 

types, undergraduate noncompleters 

have substantially higher default rates 

compared to those who completed a 

degree or credential.38 Borrowers in 

these groups also spend more time with 

their loans in forbearance and are more 

likely to see their balances increase after 

entering repayment.39

The remainder of this subsection of 

the RIA summarizes the conclusions 

and information which the Department 

relied on, such as technical studies, 

assumptions, data, and methodologies, 

to develop this regulation. 

3.1 Borrower Defense 

These proposed regulations seek to 

improve the process for adjudicating 

borrower defense claims and for 


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41946 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

40 Department analysis of data retrieved from the 

CEMS Borrower Defense System in June 2022. 

Values were rounded to the nearest 10. 

recouping from institutions the cost of 

discharges associated with approved 

claims. The Department anticipates that 

these proposed regulations would have 

many benefits for borrowers, as well as 

some reduction of burden for 

institutions of higher education. In total, 

the Department believes the expected 

increase in borrower defense discharges 

and the expected increase in 

recoupment, as compared with the 2019 

regulations, would deter behavior that 

could form the basis for a borrower 

defense claim and ensure more 

borrowers are able to access a loan 

discharge, as provided for in the HEA. 

The Department’s proposal would 

establish a uniform Federal standard for 

initial adjudication of borrower defense 

claims, regardless of when a loan was 

disbursed, which would streamline 

administration of the borrower defense 

regulations and increase protections for 

students. This would ensure that all 

borrower defense claims could be 

adjudicated under the same standard. 

However, institutions would not be 

subject to recoupment actions for 

applications that are granted based upon 

this regulation that would not have been 

approved under the standards of the 

1994, 2016, or 2019 regulations. Nor 

would institutions be subject to a 

recoupment amount greater than what 

they would have faced under the 

standards of the 1994, 2016, or 2019 

regulations, as applicable. A uniform 

standard also would significantly 

reduce the time necessary to determine 

eligibility and relief for borrower 

defense claims, ensuring that borrowers 

would receive faster determinations. 

The use of a uniform Federal standard 

for initial adjudication would also 

ensure all borrowers receive consistent 

review, unlike current rules that outline 

different requirements depending on 

when a loan was disbursed. 

The Federal standard would provide 

a clearer path for approval of borrower 

defense claims while still limiting 

approval to circumstances where the 

Department determines that serious 

improper behavior occurred. We 

propose to add aggressive recruitment as 

grounds for a borrower defense to 

repayment. The Department is adding 

this category based upon its experience 

in administering the borrower defense 

regulation and because the Department 

is concerned about instances in which 

aggressive and deceptive recruitment 

tactics have prevented a borrower from 

making an informed choice. The 

proposed language would also clarify 

that if a recruiter engages in these tactics 

but then provides accurate written 

disclosures, the latter cannot undo the 

actions of the former. We also propose 

to restore the categories of breach of 

contract and judgment as grounds for a 

borrower defense claim, which were 

included in the 2016 regulation but 

removed in the 2019 regulation. We 

have also expanded the category of 

judgment to include final Department 

actions against an institution that could 

give rise to a borrower defense claim. 

This includes actions such as a final 

program review determination that finds 

an institution has engaged in 

misrepresentations. To clearly delineate 

that omission of fact is a form of 

misrepresentation we have listed it 

separately. 

The regulations also propose clearer 

protections for borrowers while their 

cases are under consideration by 

Department officials by placing a 

borrower’s loan in forbearance or 

stopping collections activity would stop 

while the case is being adjudicated. 

Interest accumulation would cease 

immediately in the case of a group claim 

or after 180 days for an individual 

claim. Individual claims would be 

adjudicated within 3 years from the 

receipt of a complete application. Group 

claims would be adjudicated within 2 

years from the receipt of a complete 

application. Previously, there was no 

timeline for adjudicating borrower 

defense claims. As a result, many 

borrowers who filed claims have found 

themselves waiting for years to have 

their claims adjudicated; of nearly 

81,000 claims submitted in 2017, for 

instance, more than 15,000 (nearly one 

in five) remaining pending. More than 

one in five claims submitted in 2018 

and nearly one in four claims submitted 

in 2019 also remain pending.40 In late 

June 2022, the Department announced it 

had reached a settlement agreement 

with the plaintiffs in Sweet v. Cardona, 

a lawsuit challenging the Department’s 

timeliness in rendering decisions on 

borrower defense claims, as well as 

other matters. Because that settlement 

process is still underway any effects of 

that agreement are not contemplated in 

this regulation. The Department’s failure 

to render a decision by the end of the 

timeline would render the loans 

unenforceable. Loans in such a 

circumstance would not be viewed as a 

borrower defense claim so an institution 

would not face a recoupment action for 

the cost of those loans. 

The Department has proposed to 

include a group process for borrower 

defense to repayment claims. This 

process would allow for the use of 

existing information within the 

Department’s records, such as prior 

Secretarial actions, which were limited 

by the 2019 regulations. This would 

ensure a more efficient process. The 

process would also invite State 

requestors to provide evidence that 

could lead the Department to initiate a 

group claim, which would provide 

critical assistance for the Department in 

investigating and assessing borrower 

defense claims. The Department 

estimates that as much as 75 percent of 

borrower defense volume associated 

with private for-profit colleges could be 

associated with group claims, with the 

rates in public and private nonprofit 

sectors a minority of volume. While the 

staff time required to investigate the 

evidence behind a group claim could be 

longer than what is needed for an 

individual claim, applying the same 

adjudication result to a group of 

borrowers would result in an overall 

reduction in staff time. Approving group 

claims would also result in the filing of 

fewer individual claims, as the 

approved group claims would result in 

discharges for borrowers who have not 

yet applied, eliminating the need for 

such borrowers to submit applications. 

The Department proposes to presume 

that a borrower with an approved claim 

is eligible for a full discharge and 

specify limited instances in which the 

Department could rebut that 

presumption. All borrowers with 

approved claims to date have been 

approved for a full discharge. However, 

as the Department continues to review 

and adjudicate claims, there may be 

circumstances where a claim is 

approved, and a partial discharge is 

warranted. The Department believes a 

presumption that borrowers would get a 

full discharge would help to ease the 

burden on both the borrower and the 

Department by limiting the cases in 

which it must determine the relief 

amount to a subset of claims. 

If a claim is not approved, or is not 

approved for full discharge, a 

reconsideration process would allow a 

borrower to submit new evidence that 

was not available in the initial 

application. This process would afford 

borrowers an opportunity to be 

considered under a State law standard 

if a decision under the Federal standard 

does not result in an approved claim for 

a full discharge. 

By increasing relief to borrowers, 

improving the borrower defense 

standard, restoring a group process, 

establishing the presumption of full 

relief, and providing a reconsideration 

process, these proposed regulations 

would result in additional transfers 

from the Department to borrowers, or 

from institutions to borrowers when the 


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Department successfully recovers from 

the institutions. All borrowers would 

fall under a single, more expansive rule 

and would be able to receive relief more 

quickly and efficiently. 

The process that the Department 

proposes would also afford institutions 

an appropriate opportunity to respond. 

The Department’s allowance for group 

processes in the proposed regulations 

means that institutions would need to 

respond only once regarding a group 

claim, instead of sending responses to a 

potentially large number of individual 

claims. While institutions would be 

expected to provide a response within 

90 days to claims, the separation of 

approval and recovery processes means 

that institutions would not be expected 

to engage in extended contestation of 

claims for which the Department 

decides not to pursue recoupment. 

In the past, the Department has seen 

institutions attempt to increase 

enrollment by resorting to conduct that 

later leads to borrower defense 

approvals. For instance, institutions 

aggressively marketed inflated job 

placement rates to encourage students to 

enroll in their institution. Holding 

institutions accountable for this type of 

misrepresentation, as well as adding in 

aggressive recruitment as a type of 

conduct that can lead to approved 

borrower defense claims, would benefit 

institutions that do not engage in these 

tactics. This is because approved 

borrower defense claims may deter 

institutions from providing students 

with inaccurate information and from 

using aggressive recruitment tactics, 

helping institutions with better conduct 

and outcomes more successfully 

compete for enrollment. 

The proposed rules provide for a 

process to recover the discharged 

amount from institutions after the 

adjudication of borrower defense cases. 

Recovery from institutions is important 

to offset costs to the Federal government 

and taxpayers from approved borrower 

defense claims. It also holds institutions 

accountable for past behavior and 

would help to deter future practices that 

could form the basis for additional 

borrower defense claims. The 

Department anticipates that, by 

establishing a process for recoupment 

from institutions and by providing for a 

faster adjudication process, it would be 

able to recover more funds from 

institutions because those schools 

would be less likely to have closed by 

the time liabilities are assessed than is 

the case under current regulations. 

The Department also believes that a 

stronger and more expansive borrower 

defense process would result in positive 

changes in institutional behavior. For 

instance, as past title IV policy changes 

to increase accountability, such as the 

cohort default rate measure and the 90/ 

10 rule, have demonstrated, institutions 

are likely to change their practices to 

respond and conform to new 

regulations. Accordingly, we expect 

that, over time, institutions would 

engage less frequently in acts or 

omissions that could give rise to a 

borrower defense claim. 

Costs of the Regulatory Changes 

As detailed in the Net Budget Impact 

section, the proposed changes to 

borrower defense are expected to reduce 

transfers from affected borrowers to the 

Federal government as their obligation 

to repay loans is discharged. We 

estimate this transfer to have an 

annualized net budget impact of $2.6 

billion and $2.3 billion at 7 percent and 

3 percent discount rates, respectively. 

This would be partially reimbursed by 

affected institutions with the annualized 

recoveries estimated at $51 and $49 

million at 7 percent and 3 percent 

discount rates. The Department 

anticipates that all costs are transfers, 

other than minimal costs related to 

implementation. If the Department 

recoups from institutions the forgiven 

dollars, they are transfer from 

institutions to borrowers. Otherwise, 

they are transfers from Federal budget to 

borrowers. Details about these estimates 

are in the Net Budget Impacts section of 

this document, and the Department 

invites further feedback on the 

estimates. 

In the proposed Federal standard for 

defense to repayment claims, a claim 

could be brought on any of the 

following five grounds: substantial 

misrepresentation, substantial omission 

of fact, breach of contract, aggressive 

recruitment, and a State or Federal 

judgment or final Department action 

against an institution that could give 

rise to a borrower defense claim. The 

first two grounds incorporate and 

expand 34 CFR part 668, subpart F, 

which currently defines three categories 

of misrepresentation, relating to the 

nature of education programs, the 

nature of financial charges, and the 

employability of graduates. Aggressive 

recruitment is added as a new ground 

for a borrower defense to repayment 

application and is outlined in 34 CFR 

part 668, subpart R. The proposed 

Federal standard would be applied to all 

borrowers regardless of when their loans 

were disbursed. Borrower defense to 

repayment applications that are 

currently awaiting adjudication upon 

the effective date of the regulations 

would be adjudicated based on the 

proposed regulations. Since the 

proposed regulations expanded on the 

categories in which borrowers may be 

eligible for a borrower defense claim, 

these pending cases could be approved 

where they otherwise may not be under 

existing regulations. In addition, the 

Department expects an increase in the 

number of borrower defense to 

repayment applications when the 

proposed regulations would go into 

effect due to the expanded coverage of 

types of institutional misconduct. 

However, the Department also expects a 

deterrent effect from the proposed 

regulations as institutions adjust their 

behavior according to the proposed 

rules. 

The proposal to expand group 

borrower defense claims includes a 

process initiated by State requestors and 

a process based on prior Secretarial final 

actions, as well as general ability for the 

Secretary to form a group. With these 

changes, the Department expects that 

individuals who have a valid borrower 

defense to repayment claim they could 

assert, but who were previously 

unaware of their eligibility or unfamiliar 

with the process, could become 

members of a group claim. The 

Department would presume that a 

borrower with an approved claim is 

eligible for a full discharge, except in 

limited situations. All borrowers with 

approved claims to date have been 

approved for a full discharge. 

The proposed reconsideration process 

could increase costs in the form of 

burden for the Department, although 

these costs are likely to be small. In 

general, there are three possible 

outcomes for a borrower defense to 

repayment application: denial, approval 

with partial discharge, and approval 

with full discharge. The Department 

expects a percentage of borrowers 

whose borrower defense applications 

are denied or approved with partial 

discharge to seek reconsideration, 

which would increase administrative 

costs and time compared to previous 

regulations that do not have 

reconsideration processes. In addition, 

cases brought by State requestors may 

also seek reconsideration, provided that 

the State requestor specifies the exact 

State standard that applies and why 

they think it would result in a different 

decision. 

While these proposed regulations 

would result in higher short-term costs 

for the Federal government in the form 

of transfers to borrowers, the 

Department expects that some of these 

payments would be recovered from 

institutions over time. While the 

Department would likely be unable to 

recover from institutions that are no 

longer operating when borrower defense 


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41 Department analysis of data retrieved from the 

CEMS Borrower Defense System in June 2022. 

School Type is determined using the ‘‘School 

Type’’ field on each case in the system. Each value 

is rounded to the nearest 10. 42 Data analysis of borrower defense applicants. 

claims have been adjudicated, the 

proposed regulations would increase the 

likelihood that the Department could 

recover from relevant institutions before 

they are closed because (1) group claims 

against an institution would increase 

the expected benefit of recovering from 

the institution since it would result in 

large amounts of discharge if approved; 

(2) the Department is expected to 

respond to group claims within 2 years 

of a materially complete application, 

which would increase the possibility 

that the institution is still in operation; 

and (3) the streamlined process of 

borrower defense claims would allow 

borrowers, State requestors, and the 

Department to act more quickly on 

borrower defense applications. As a 

result, the costs in the form of transfers 

to borrowers that would result from the 

proposed regulations on borrower 

defense to repayment could be smaller 

for the Federal government in the long 

term as it receives transfers from 

institutions. 

Benefits of the Regulatory Changes 

The proposed regulations would 

result in administrative cost savings for 

the Department, efficiencies in 

responding to claims for institutions, 

and benefits to borrowers. In addition, 

borrowers may benefit from a deterrent 

effect of these proposed regulations. 

Borrowers who would benefit the 

most from these proposed regulations 

are relatively disadvantaged. To date, 

borrower defense applicants have 

disproportionately attended schools in 

the proprietary sector. Of more than 

487,000 borrower defense claims 

received since 2015, more than 

367,000—about three out of four 

borrower defense applicants—attended 

proprietary institutions. Meanwhile, just 

5 percent of applicants attended public 

institutions.41 These numbers 

understate the share of borrowers who 

attended private for-profit institutions 

because the data reflect the sector of an 

institution at the time a borrower 

applied, not when they attended. That 

means a borrower who attended a 

college when it was a proprietary 

institution but applied after it became a 

nonprofit would be coded as an 

application from a nonprofit institution. 

Borrowers who received Pell Grants 

while enrolled and borrowers who 

struggle to repay their loans and default 

would benefit from these proposed 

regulations. Eighty-two percent of 

borrower defense applicants received a 

Pell Grant indicating they were lowincome while in college, and at least 22 

percent of applicants are currently in 

default on their loans, consisting of 

approximately 95,000 borrowers.42 This 

number does not include borrowers 

previously in default who have had 

their claims approved and discharged, 

but it does include some borrowers 

whose claims have been approved and 

are in the process of being discharged. 

As a result, it potentially understates the 

potential degree to which borrower 

defense applicants have been in default. 

The proposed single Federal standard 

for initial adjudication, uniform 

borrower defense regulations, and a 

more streamlined process (such as 

presuming a full discharge) would 

reduce the staff time per borrower 

needed to adjudicate borrower defense 

applications. These savings would 

largely come from being able to apply 

consistent rules across all borrowers 

while still ensuring that each case 

receives a thorough and rigorous review 

to determine whether their claims 

should be approved or denied. 

The proposed group process would 

significantly reduce the staff time 

required to investigate and adjudicate 

borrower defense cases on a perborrower basis. The proposed 

regulations include two means by which 

the Department can pursue a group 

process. Specifically, a group process 

can be initiated by the Department 

based on either common evidence from 

cases being adjudicated or prior 

Secretarial final action, or a State may 

request that a group process be initiated. 

When the Department initiates a 

group process, it would thus be 

considering the possibility of approval 

for tens of borrowers all at once, if not 

hundreds or thousands. While the scope 

of this work would require significantly 

more time than reviewing any one 

individual claim, it is far more efficient 

than on a per-borrower basis. In 

addition, the evidence available during 

group claims is expected to be more 

extensive than what the Department 

may possess for an individual claim. 

The process for group claims tied to 

prior final actions by the Secretary 

would be particularly efficient because 

the Department would draw upon prior 

work done by the agency, minimizing 

the amount of duplication in 

investigation that needs to occur. This 

would result in a significant saving of 

Department staff time and ensure faster 

adjudication for borrowers, as well as a 

straightforward process for subsequent 

recoupment. This proposed process is 

more efficient than how the Department 

has addressed borrower defense claims 

to date. For those claims, it has first 

worked to reach common findings—a 

process similar to what would be done 

to determine a group claim. But after 

reaching those common findings for 

approval, the Department then conducts 

reviews of individual claims to 

determine if the allegations provided by 

the borrower match the common 

findings. This results in a second step 

of claim review that has disqualified 

some borrowers who may have 

experienced the misconduct that led to 

approvals, but whose claims did not 

necessarily articulate those experiences. 

Such a secondary review would not be 

necessary in the proposed group 

process, though the Department would 

continue to review borrower eligibility 

to ensure findings are applied 

appropriately only to affected 

borrowers. 

The use of group processes can also 

provide some efficiencies for 

institutions in the process of responding 

to claims. Institutions would have to 

respond to individual claims separately, 

which could require them to respond to 

hundreds if not thousands of separate 

claims from similarly situated 

borrowers. By contrast, a group 

approach would require institutions to 

offer only a single response back. 

The proposed regulations could also 

result in significant benefits to 

borrowers who qualify for a borrower 

defense to repayment approval. In 

particular, it would help to reduce the 

burden of applying where the 

Department is able to identify eligible 

borrowers for relief on their loans but 

where some borrowers might not know 

they are eligible or how to access relief. 

These borrowers who are eligible for 

borrower defense discharges, but may 

not know how to access relief, are 

unlikely to have benefited from the 

education they received and may be 

distressed borrowers who are 

delinquent, in default, or have 

previously defaulted on their student 

loans. These loan repayment struggles 

create further barriers for borrowers’ 

personal financial circumstances, but 

also add to the Department’s 

administrative burden when there are 

borrowers in the system who are eligible 

for a discharge but instead are in 

default. The proposed regulation would 

allow more eligible borrowers access to 

relief through group claims, which 

would bring benefit to both borrowers 

and the Department. 

The Department believes that the 

expansion of eligibility for borrower 

defense to repayment claims and the 

reintroduction of a rigorous group 

process would result in positive change 


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in institutional behaviors due to the 

deterrent effect. It would also benefit 

institutions that do not engage in 

conduct that leads to approved borrower 

defense claims. The Department has 

seen in the past that some institutions 

with poor outcomes have used 

fraudulent or misleading materials in 

marketing and recruitment to attract 

new students. This may place 

institutions that remain truthful about 

their outcomes at a competitive 

disadvantage in attracting and enrolling 

students. Curbing the conduct that leads 

to approved borrower defense claims 

thus helps institutions that never 

engaged in those behaviors in the first 

place. It is possible that in some limited 

circumstances tied to the worst 

behavior, the approval of borrower 

defense claims could result in the exit 

of an institution from the Federal 

financial aid programs. An institution 

that engages in problematic practices for 

years could face significant liabilities 

from approved borrower defense claims 

that they cannot afford. As with 

deterring institutions from engaging in 

misleading or other questionable 

marketing practices, having the 

institutions with the worst behaviors 

exit the Federal aid programs would 

provide benefits to all other institutions 

that are operating in more truthful and 

ethical manners. 

3.2 False Certification Discharge 

False certification discharges ensure 

that borrowers whose institutions 

falsely certified their eligibility for a 

Federal student loan are able to access 

relief on that debt. The Department 

decided in September 2019 that 

borrowers who took out loans after July 

1, 2020, are ineligible for a false 

certification discharge if they were 

unable to provide an official high school 

transcript or diploma, and loans 

disbursed after July 1, 2020, are not 

eligible for disqualifying status 

discharge as well. After these regulatory 

changes, we observed a sharp decline in 

the number of borrowers and total 

amounts of false certifications 

discharged in 2021. The number of 

borrowers who were granted false 

certification discharge was 400 in 2020 

but was only 100 in 2021, and the total 

amount of false certification discharges 

was $4.8 million in 2020 but only $0.8 

million in 2021, suggesting that 

borrowers were facing increased barriers 

to accessing false certification 

discharges to which they were entitled. 

TABLE 1—FALSE CERTIFICATION DISCHARGES, BY CALENDAR YEAR

Calendar year Borrowers Amount 

($ M) 

Average per 

borrower 

($ K) 

2019 ............................................................................................................................................. 300 3.8 12.7 

2020 ............................................................................................................................................. 400 4.8 12.0 

2021 ............................................................................................................................................. 100 0.8 8.0 

Total ...................................................................................................................................... 800 9.4 11.8 

The effects for borrowers could be 

significant. In 2020, prior to the new 

regulations, the discharge approval rate 

was about 7.3 percent, and the average 

amount discharged per application was 

$9,310. 

TABLE 2—NUMBER OF FALSE CERTIFICATION APPROVALS AND DISCHARGE AMOUNTS, BY REASON

Discharge type 7/1/19 to 

6/30/20 

7/1/20 to 

6/30/21 

2020 calendar 

year estimated 2020 subtotal 

Applications Approved .................... FC—ATB 520 145 330 470 

FC—DQS 30 10 30 

FC—UNS 200 30 120 

Applications Denied ........................ FC—ATB 3500 1510 2510 6000 

FC—DQS 1500 770 1130 

FC—UNS 3530 1190 2360 

Loans Discharged ........................... FC—ATB 1170 250 710 980 

FC—DQS 50 40 50 

FC—UNS 400 40 220 

Amount Discharged ........................ FC—ATB $5,764,280 $1,274,520 $3,519,400 $4,404,220 

FC—DQS $219,130 $305,600 $262,370 

FC—UNS $1,161,290 $83,610 $622,450 

Average amount discharged 

per application.

............................................................. ........................ ........................ ........................ $9,310 

Average amount discharged 

per loan.

............................................................. ........................ ........................ ........................ $4,510 

Average approve rate .............. ............................................................. ........................ ........................ ........................ 7.3% 

Data source: Federal Student Aid (FSA) 

Note: 2020 calendar year is estimated with the average of 2020 and 2021 fiscal years. ATB stands for the ability to benefit, DQS for disqualifying status, and UNS for unauthorized signature. All figures are rounded to the nearest 10. 

To address the decline in borrower 

access to necessary discharges on their 

loans, and to ensure the regulations 

governing these discharges are 

streamlined and understandable to 

eligible borrowers, the Department 

proposes one set of regulatory standards 

to cover all false certification discharge 

claims. 

The Department proposes a uniform 

standard that would improve borrower 

access to false certification discharges 

by clarifying that eligibility for the 

discharge begins at the time the loan 


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was originated, not at the time the loan 

was disbursed. Current regulations for 

Direct Loan and FFEL (FFEL) Program 

loans also contain separate requirements 

for loans first disbursed before July 1, 

2020, and loans first disbursed on or 

after July 1, 2020, which confuse 

borrowers and create equity issues for 

borrowers who may struggle to navigate 

this complexity. This uniform standard 

would ensure that more borrowers have 

access to the proposed expanded 

eligibility and that they are not forced 

to navigate a complex and overlapping 

set of regulatory frameworks. As with 

the proposed borrower defense 

standard, we believe that this uniform 

standard would streamline the 

administration of the regulations and 

better protect students while reducing 

confusion among borrowers, 

institutions, servicers, and the 

Department. 

The Department proposes to rescind 

the requirement that any borrower who 

falsely attests that they have a high 

school diploma or its equivalent does 

not qualify for a false certification 

discharge. This would ensure that 

borrowers can seek a discharge if they 

were coerced or deceived by their 

institution of higher education and as a 

result reported having a valid high 

school diploma or its equivalent when 

they in fact did not, further expanding 

access to false certification discharges. 

The Department also proposes to 

specify that the Secretary may grant a 

false certification discharge, including 

without an application, if the institution 

falsified Satisfactory Academic Progress 

(SAP) for all loans. We would grant 

group discharges based on the 

falsification of SAP and the Department 

would establish the dates and borrowers 

affected. The discharge would only 

cover loans for those borrowers for the 

period covered by the falsification of 

SAP and does not discharge all the 

borrower’s other loans or all loans at the 

institution. The Department is aware of 

problematic practices by institutions 

that have falsified SAP, which is a basic 

eligibility requirement for continued 

access to Title IV, HEA aid, and believes 

that this proposed addition would 

ensure that borrowers whose 

institutions falsely confirmed their 

eligibility through these practices have 

access to loan relief, and that 

institutions may be held accountable for 

their actions. 

The Department proposes to remove 

the requirement that borrowers submit 

signature specimens when applying for 

discharge due to unauthorized loan, 

unauthorized payment, or identity theft, 

and replace the need that a borrower 

provides a judicial determination of 

identity theft with the ability to submit 

alternative evidence. This would 

expand access to false certification 

discharges by reducing the burden of 

documents-preparation on borrowers 

and simplifying the application process. 

The Department’s proposal would 

also establish a group process for 

awarding discharges to similarly 

situated borrowers. In part, this addition 

was in response to negotiators who 

noted that the Department has rarely 

utilized its authority to grant group false 

certification discharges. As a result, the 

Department believes that borrowers 

would receive more equitable and 

consistent treatment, because they 

would be able to access relief on their 

loans regardless of whether they 

applied, based on evidence the 

Department collects or has in its 

possession. A State attorney general or 

nonprofit legal services representative 

would be able to submit an application 

for a group false certification discharge 

to the Department. This would ensure a 

more efficient process than is typically 

available, whereby third-party 

requestors and other stakeholders would 

be able to contribute directly to the factfinding process required before 

adjudicating the application. The group 

process, and associated improvements, 

would also help to significantly reduce 

staff time required to investigate and 

adjudicate individuals’ applications 

when common facts and circumstances 

are present. 

Costs of the Regulatory Changes 

Increased accessibility of discharges 

may encourage more borrowers to file 

claims or may result in additional 

discharges as a result of borrowers’ 

access to a group process. The 

Department expects an increase in the 

Federal government’s expenditure and 

an increase in the time in processing the 

claims in the short term, but a minimal 

long-term cost. The Department 

anticipates the costs associated from 

these proposed changes will be transfer 

costs. The short-term increase in 

expenditures would come from the 

following proposed regulations: 

The Department proposes to rescind 

the provision that any borrower who 

attests to having obtained a high school 

diploma or equivalent does not qualify 

for a false certification discharge on that 

basis. The Department is aware of 

numerous instances in which borrowers 

were forced or misled by their 

institution into attesting to holding a 

high school diploma, or into obtaining 

a diploma on false pretenses. In cases 

where such evidence is available, the 

Department believes the institution 

should be held accountable for its 

misconduct, and the borrower should be 

able to access a discharge of their 

eligible loans. This could lead to more 

borrowers applying and being granted 

loan discharges in the future. 

The Department also proposes to 

remove the requirement that borrowers 

submit signature specimens and 

replaces the provision of a judicial 

determination of identity theft with 

alternative evidence. Similarly, the 

Department anticipates that removing 

this barrier would allow more eligible 

borrowers to apply without having their 

applications rejected, and may, 

therefore, increase the costs of approved 

false certification discharges. 

Benefits of the Regulatory Changes 

The proposed process, which would 

be more streamlined, would ease the 

administrative burden on the 

Department for the review of claims and 

for appeals of denials that are escalated 

for further review. Most importantly, the 

proposed process contemplates the 

benefits to the borrowers themselves 

who are entitled to discharges when 

their institution wrongfully saddles 

them with debt they are not eligible for 

and wastes their aid eligibility. 

The Department also expects that 

there would be some behavioral impact 

as institutions respond to changes in the 

regulations and reduce their use of such 

predatory practices, since the 

Department could assess liabilities 

against the institution for the 

discharges. In addition, this deterrent of 

strengthening and streamlining these 

regulations is expected to offer some 

benefit to taxpayers. Therefore, the longterm transfer costs may be reduced. 

Taken together, the proposed 

regulations would result in a more 

streamlined process, rescind limitations 

on borrower eligibility from current 

regulations, and remove and replace 

requirements, which are expected 

collectively to improve borrowers’ 

accessibility to false certification 

discharge. The Department expects that 

these proposed rules would ensure more 

borrowers have access to relief. While 

this would increase costs to taxpayers 

through additional false certification 

discharges, the Department also 

anticipates that some of these costs 

would be recouped from the institutions 

responsible, and that these proposed 

rules would be more efficient. 

3.3 PSLF 

The Department proposes to clarify its 

regulations on PSLF to help borrowers 

better understand and access the 

program, particularly by simplifying the 

rules regarding what constitutes a 

qualifying payment, and to streamline 


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the Department’s processing of the 

applications it receives for forgiveness. 

Overall, we anticipate that these 

proposed regulations would increase the 

amounts of Federal student loan 

forgiveness through PSLF. 

The Department proposes to further 

clarify the types of employers whose 

employees can qualify for PSLF and to 

clarify the definition of full-time 

employment that meets the terms of the 

program to address inconsistencies in 

how different employers may consider 

full-time employment and in how nontenured faculty are treated. While most 

of these changes are modest, we believe 

they would bring benefits to borrowers 

in the form of more consistent 

treatment. This may also provide 

additional clarity to employers, 

ensuring they can better understand the 

program and inform borrowers of their 

eligibility. 

Where possible, the Department 

would seek to automate the process of 

identifying public servants and 

accounting for their time worked to 

ensure they automatically receive 

progress toward PSLF. For instance, the 

Department is working to implement 

data matches with other Federal 

agencies that would enable it to account 

for federal employees and service 

members. The benefit of these data 

matches for borrowers is increased 

access for those who would otherwise 

not have met the paperwork 

requirements, but who may be eligible 

for relief on their loans. The Department 

has also announced longer-term efforts 

to work with States and private 

nonprofit organizations to obtain data 

that would similarly allow for 

discharges without an application. We 

anticipate a significant percentage 

increase in the total amount of loans 

forgiven due to greater use of 

automation made possible by changes 

proposed in these regulations. Most 

borrowers employed by the Federal 

government would be able to receive 

PSLF benefits without submitting an 

application. We also expect that 

borrowers identified for forgiveness 

through these data matches would have 

information that is validated by 

government agencies, ensuring greater 

program integrity among a larger share 

of applicants who receive forgiveness. 

Automation would also have 

considerable benefits, both for the 

Department and for borrowers, in terms 

of reducing the administrative burden. 

While there are initial costs associated 

with developing the automation, the 

future cost savings far outweigh the 

development costs. In 2021, the 

Department received 776,000 

applications for employment 

certification and/or forgiveness, all of 

which needed to be evaluated 

individually. Prior to any data match, 

the Department was aware of 

approximately 110,000 Federal 

employees and 17,000 service members 

who had certified some employment 

toward PSLF and anticipates that many 

others could opt to certify employment 

in the future. Automating the 

consideration of those borrowers’ 

employment and/or PSLF applications 

would reduce the investment of staff 

resources required to analyze PSLF 

applications. 

The Department proposes to relax the 

requirements around loan payments to 

ensure more eligible borrowers have 

access to PSLF, partially addressing the 

low success rate of PSLF applications. 

Currently, the regulations governing 

qualifying payments are extremely rigid. 

Payments must be made on-time (within 

15 days of the due date), or they do not 

count as qualifying payments. Payments 

also must be made in full, so payments 

off by only a few cents or payments that 

are made in more than one installment 

are disqualified. Additionally, some 

public servants have opted for 

deferments or forbearances available to 

borrowers who are working in public 

service jobs—such as for AmeriCorps 

and Peace Corps—without realizing 

those months would not qualify for 

PSLF. The Department believes simpler 

payment rules and counting some 

deferments and forbearances would 

significantly reduce confusion around 

the program. In addition, borrowers 

would significantly benefit by being 

able to make qualifying payments for 

prior deferment or forbearances where 

there was no qualifying payment. This 

change grants borrowers the ability to 

make up payments that did not 

previously qualify as well as not reset 

the clock toward consolidation. 

These changes would increase costs to 

the government in the form of greater 

transfers to borrowers eligible for PSLF, 

as take-up of the benefit increases due 

to automation and as more borrowers 

become eligible for PSLF outside of the 

narrow constraints of the existing rules 

but consistent with the statutory 

purpose of the PSLF program. 

Borrowers who work in Federal 

agencies where data matching 

agreements are arranged will benefit as 

a higher fraction of eligible borrowers 

receive forgiveness and the burden in 

applying for benefits is reduced. All 

other things equal, among borrowers for 

whom receiving forgiveness becomes 

more likely, borrowers with higher debt 

levels, including some graduate 

borrowers, will experience greater 

amounts of loan forgiveness. 

The Department also proposes to 

formalize a reconsideration process and 

establish a clear timeline by which 

borrowers must submit a 

reconsideration request. These 

refinements would streamline the 

application process and provide a 

clearer timeline to apply for PSLF or 

request a reconsideration. The 

Department anticipates that this 

reconsideration process would increase 

administrative burden for the agency 

and for borrowers, but that it would 

allow for a fairer and more equitable 

process to access PSLF where borrowers 

believe the Department has erred in its 

determination. 

Costs of the Regulatory Changes 

As detailed in the Net Budget Impact 

section, the proposed changes to PSLF 

are expected to reduce transfers from 

affected borrowers to the Federal 

government as their loans are forgiven. 

We estimate this transfer to have an 

annualized net budget impact of $3.0 

billion and $2.8 billion at 7 percent and 

3 percent discount rate, respectively. 

The Department anticipates most of 

these costs would be transfers as 

borrowers who are employed by a nonprofit organization that provides nongovernmental public services more 

easily access PSLF benefits. In 

particular, we expect that the expansion 

of eligibility, the inclusion of additional 

payments as qualifying payments, and 

increases in take-up facilitated by 

automating the benefit where it is 

possible to identify eligible borrowers 

through a data match would increase 

transfers from the government to eligible 

borrowers. The revised definitions of 

qualifying services are not anticipated to 

impact a significant number of 

borrowers but will provide greater 

clarity about eligibility. 

Benefits of the Regulatory Changes 

The Department anticipates several 

benefits based on these regulatory 

changes to PSLF. The Department seeks 

to reduce the burden of accessing PSLF 

benefits for borrowers who are 

employed by a non-profit organization 

that provides non-governmental public 

services and streamline the process to 

obtain these benefits. The Department 

received over 917,000 employment 

certification forms in 2019, certifying 

that borrowers are working toward 

forgiveness, and 825,000 employment 

certification forms in 2020. The 

Department also received 96,000 

forgiveness applications in 2019 and 

135,000 forgiveness applications in 

2020 from borrowers who may believe 

they completed the requirements of the 

program to qualify for forgiveness. 


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43Report by the FSA Ombudsman, in Federal 

Student Aid. (2019, November 15). Annual Report 

FY 2019. https://www2.ed.gov/about/reports/ 

annual/2019report/fsa-report.pdf. 

44 Delisle, J. & Holt, A. (2015, March). Why 

student loans are different: Findings from six focus 

groups of student loan borrowers. New America 

Foundation. Retrieved from: https://

files.eric.ed.gov/fulltext/ED558774.pdf; Pew 

Charitable Trusts (2020, May). Borrowers Discuss 

the Challenges of Student Loan Repayment. https:// 

www.pewtrusts.org/-/media/assets/2020/05/ 

studentloan_focusgroup_report.pdf. 

45Herbst, D. (forthcoming.) ‘‘The Impact of 

Income-Driven Repayment on Student Borrower 

Outcomes.’’ American Economic Journal: Applied 

Economics. Retrieved from: https://

djh1202.github.io/website/IDR.pdf. 

46 Department analysis of the 2004/2009 

Beginning Postsecondary Students Study, estimated 

via PowerStats (table reference: qobjsb). 

47 Department analysis of the 2004/2009 

Beginning Postsecondary Students Study, estimated 

via PowerStats (table reference: ivbztb). 

Starting in late 2020, the combined form 

replaced the separate process of 

borrowers submitting employment 

certification forms and forgiveness 

applications. The Department received 

130,000 combined forms in 2020 and 

776,000 combined forms in 2021. Over 

the last few years, the Department has 

seen fewer submitted PSLF forms, with 

1,013,000 forms submitted in 2019; 

1,090,000 forms submitted in 2020; and 

776,000 forms submitted in 2021. 

However, after the announcement of the 

Limited PSLF Waiver in October 2021 

that temporarily waived some program 

requirements through the end of 

October 2023, the Department has seen 

significant growth in applications 

compared to earlier periods. Due to the 

implementation of an automated 

process for some eligible borrowers, we 

are anticipating a significant decrease in 

the number of applications received 

because an application would not need 

to be submitted if the Department has 

the necessary information to assess 

whether the borrower met the PSLF 

requirements during the automated 

process. Under this proposed process, a 

borrower would be notified if the 

borrower meets the requirements for 

loan forgiveness. After the borrower is 

notified, the Department would suspend 

collection and the remaining balance of 

principal and accrued interest would be 

forgiven. 

By streamlining the PSLF process, the 

Department anticipates a reduction in 

the administrative burden and time 

savings for application processing. 

There would also be a burden reduction 

on qualifying employers as the 

employers would have a simpler time 

verifying what they are attesting to, such 

as the hours worked by the borrower. 

We anticipate these regulations would 

impact numerous borrowers who would 

now qualify for PSLF under the clarified 

definitions of qualifying employment 

but previously did not qualify for PSLF. 

The updated list of deferments and 

forbearances are anticipated to benefit a 

significant number of borrowers who 

would otherwise not be able to consider 

those months toward forgiveness. A 

significant number of borrowers who 

would ordinarily have to apply for PSLF 

are anticipated to receive student loan 

forgiveness without submitting an 

application, namely military service 

members and Federal employee 

borrowers who would automatically 

receive credit toward PSLF using 

Federal data matches. 

3.4 Interest Capitalization 

Interest capitalization occurs when 

any unpaid interest is added to the 

principal loan amount of a Federal 

student loan, further increasing the 

outstanding principal balance. Interest 

is then charged on the higher principal 

balance, and the overall cost of repaying 

the loan increases. Capitalization can 

occur when a borrower changes 

repayment plans, as well as after 

periods of deferment or forbearance. 

The Department is concerned that 

interest capitalization can adversely 

affect student loan borrowers by 

significantly increasing what they owe 

on their loans, which may extend the 

time it takes to repay them. 

Additionally, borrowers may not fully 

understand the impact of interest 

capitalization. While there are 

circumstances where interest 

capitalization is required by statute, 

such as when borrowers exit a 

deferment period and when they leave 

Income-Based Repayment plans, the 

Department believes that it is important 

to eliminate capitalization events where 

it has the authority to do so. Borrower 

misunderstanding of interest accrual 

and capitalization and resulting 

confusion about the accuracy of one’s 

loan balance contributed to the most 

frequent type of borrower complaint 

received by the Department.43

Qualitative evidence from focus groups 

with struggling borrowers also has 

shown that borrowers find capitalized 

interest to be complex and burdensome, 

noting that many borrowers do not 

realize which decisions result in 

capitalization and feel overwhelmed 

and frustrated by growing balances on 

loans.44 A recent study suggests that 

among borrowers enter an incomedriven repayment plan after becoming 

delinquent on their payments, most fail 

to recertify and, as a result, have their 

interest capitalize.45

Data from the 2003–04 Beginning 

Postsecondary Students Study (BPS), 

which tracked students from entry in 

2003–04 through 2009 with an 

additional administrative match through 

2015, sheds greater light on the 

distributional consequences of interest 

capitalization and the forbearance 

events that are a source of 

capitalization. The statistics that follow 

all concern students who first entered 

college in 2003–04 and borrowed a 

Federal student loan at some point 

within 12 years of entry (as of 2015). 

Among those students, 43 percent had 

a larger amount of principal balance 

outstanding in 2015 compared to what 

they originally borrowed. 

Among borrowers who did not 

consolidate their loans (e.g., the group 

for whom the growth in balance can be 

attributed to interest capitalization), 27 

percent had a higher principal balance 

as seen in Table 3. Borrowers who are 

Black, received a Pell Grant, and 

borrowers from low-income families are 

overrepresented in this group. 

Specifically, 52 percent of Black 

borrowers had a higher principal 

balance compared to 22 percent of 

White borrowers. There are also 

differences based upon income, with 33 

percent of Pell Grant recipients (versus 

14 percent of non-recipients), and 34 

percent of borrowers from families with 

income at or below the federal poverty 

line at college entry (versus 22 percent 

of borrowers with income at least 2.5 

times the federal poverty line) having 

principal balances that exceed their 

original amount borrowed. Gaps also 

exist by attainment. Among borrowers 

who did not consolidate their loans, 

those who did not complete any degree 

or credential were 60 percent more 

likely to see their principal balance 

grow than bachelor’s degree 

recipients.46

While the BPS data cannot break 

down the exact sources of interest 

capitalization, this analysis indicates 

that borrowers in the groups most likely 

to experience capitalization also are 

more likely to experience periods in 

forbearance, which is one cause of 

interest capitalization. Nearly 80 

percent of Black or African-American 

student loan borrowers in the BPS 

sample had a forbearance at some point 

within 12 years of first enrollment as 

seen in Table 3 below. Among American 

Indian or Alaska Native or Hispanic or 

Latino borrowers, the rates of 

forbearance usage were 64 percent and 

59 percent respectively. By contrast, 

about half of white students used a 

forbearance.47

The results are similar by Pell Grant 

receipt and family income at college 

entry. Nearly two-thirds of Pell Grant 

recipients who also borrowed had a 


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48 Ibid. 

forbearance at some point compared to 

just 40 percent of non-Pell students. 

Among borrowers from families with 

income at or below the federal poverty 

line in 2003–04, 64 percent had a 

forbearance at some point compared 

with 46 percent of borrowers from 

families with income at least 2.5 times 

the federal poverty line at college entry. 

Finally, 62 percent of borrowers who 

did not complete a degree or credential 

had a forbearance, compared with 46 

percent of those who earned a 

bachelor’s degree. 

Data from the same study also show 

that the groups of borrowers that are 

more likely to have had a forbearance 

also had more total forbearances within 

12 years of entering college. On average, 

Black or African American borrowers 

who had at least one forbearance had 

nearly six forbearances compared to 

four for white borrowers as seen in 

Table 3. Similarly, borrowers who 

received a Pell Grant and had a 

forbearance had an average of nearly 

five forbearances, compared to just over 

three for non-Pell students.48 This 

means borrowers in these groups would 

be subject to more capitalizing events 

than their peers. 

TABLE 3—PRINCIPAL BALANCE GROWTH AND FORBEARANCE USAGE AMONG 2003–04 COLLEGE ENTRANTS WHO

BORROWED

Borrower type 

Share of borrowers 

whose principal 

balance exceeds 

original amount 

borrowed within 12 

years of entry 

(among those who 

did not consolidate) 

(%) 

Share of borrowers 

who had a 

forbearance at 

any time within 

12 years of 

entry 

(%) 

Average number of 

forbearances 

among borrowers 

who ever had a 

forbearance 

within 12 years 

of entry 

All ......................................................................................................................... 27 56 4.5 

Black or African American ................................................................................... 52 79 5.7 

White .................................................................................................................... 22 50 4.0 

Hispanic or Latino ................................................................................................ 25 59 4.5 

American Indian or Alaska Native ....................................................................... *** 64 3.1 

Asian or Native Hawaiian/other Pacific Islander ................................................. 13 39 3.0 

Received a Pell Grant ......................................................................................... 33 64 4.8 

Never received a Pell Grant ................................................................................ 14 41 3.4 

Family income at or below 100 FPL in 2003–04 ................................................ 34 64 5.0 

Family income 101–250 FPL in 2003–04 ........................................................... 31 63 4.7 

Family income above 250 FPL in 2003–04 ........................................................ 22 48 3.9 

No degree or credential as of 2009 .................................................................... 31 62 4.8 

Earned undergraduate certificate or associate degree as of 2009 ..................... 30 61 4.6 

Earned bachelor’s degree as of 2009 ................................................................. 19 46 3.8 

Source: Beginning Postsecondary Students Study, estimated via PowerStats. 

Capitalizing events present a 

significant burden to borrowers as they 

see their balances quickly rise with 

interest capitalization that is 

compounded over time. The events 

described in the table below are 

circumstances in which the Department 

proposes to eliminate interest 

capitalization. 

CAPITALIZATION EVENTS BEING ELIMINATED

Borrower who repaying under the PAYE plan fails to recertify income, or chooses to leave the plan. 

Borrower who is repaying under the REPAYE plan leaves the plan. 

Negative Amortization Under the alternative repayment plan or the ICR plan. 

Exiting Forbearance. 

Entering Repayment. 

Default. 

Costs of the Regulatory Changes 

As detailed in the Net Budget Impact 

section, the changes to interest rate 

capitalization are expected to reduce 

transfers from affected borrowers to the 

Federal government as their obligation 

to repay loans is lessened by the 

removal of capitalizing events. We 

estimate this transfer to have an 

annualized net budget impact of $1.29 

billion and $1.26 billion at 7 percent 

and 3 percent discount rate, 

respectively. The main costs associated 

with the ruleset represent a transfer of 

benefits from the Federal government to 

the eligible borrower, primarily forgone 

revenue from payments on the higher 

balance and resulting increase in 

interest due to elimination the 

capitalizing events listed above. In 

addition, as less interest income is 

received by the government, the costs of 

the programs to taxpayers increase, as 

less income is available to offset losses. 

More details on the costs to the 

government are provided in the Net 

Budget Impact Section. 

Benefits of the Regulatory Changes 

The Department anticipates that some 

borrowers may see the lack of 

capitalizing events for borrowers exiting 

certain Income-Driven Repayment (IDR) 

plans as enabling them to switch out of 

IDR and instead enroll in a Standard or 

other repayment plan. For some 

borrowers, this could mean that they 

pay less on either a monthly basis or 

over the life of the loan (e.g., if they exit 

an IDR plan and enter an Extended or 

Graduated repayment plan with lower 


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49 Department analysis of the 2004/2009 

Beginning Postsecondary Students Study, estimated 

via PowerStats (table reference: ivbztb and qobjsb). 

50Mezza, A., Ringo, D., Sherlund, S., & Sommer, 

K. (2020). Student loans and homeownership. 

Journal of Labor Economics, 38(1), 215–260. 

51U.S. Census Bureau (2019). Table 22: 

Homeownership Rates by Race and Ethnicity of 

Householder. Retrieved from https://

www.census.gov/housing/hvs/data/ann19ind.html. 

52For evidence on the correlation between 

student debt and entrepreneurship, see Krishnan, 

K., & Wang, P. (2019). The cost of financing 

education: can student debt hinder 

entrepreneurship? Management Science, 65(10), 

4522–4554. 

For evidence on gaps in entrepreneurship by race, 

see Hipple, S.F. & Hammond, L.A. (2016). SelfEmployment in the United States. U.S. Bureau of 

Labor Statistics. https://hdl.handle.net/1813/79426. 

53 Government Accountability Office. (2016). 

‘‘Social Security Offsets: Improvements to Program 

Design Could Better Assist Older Student Loan 

Borrowers with Obtaining Permitted Relief.’’ (GAO 

Publication No. GAO–17–45.) Washington, DC: U.S. 

Government Printing Office. Retrieved from https:// 

www.gao.gov/products/gao-17-45. 

54Note that 44.9 percent of the SSA data also 

contains missing reason code for medical reexamination where there is no data available, but 

applicable to the beneficiary having a populated 

date of initial SSDI or SSI eligibility, so it is likely 

that the MIP and MINE categories may represent a 

higher portion of the overall data; however, no 

additional description is publicly available. 

monthly payments). For some, they 

could pay more; a borrower could 

switch out of IDR and into a Standard 

plan, for instance, before their IDR 

monthly payment reaches that amount. 

The lack of capitalizing events can 

also have broader societal benefits by 

reducing debt burdens for groups that 

may be most affected by interest 

capitalization—borrowers from lowincome families, Black borrowers, and 

borrowers who do not complete a 

college credential.49 First, student debt 

has been shown to reduce households’ 

ability to accumulate wealth through 

homeownership.50 Thus, eliminating 

interest capitalization for these events 

may help reduce existing disparities in 

this wealth-building asset by race and 

family income.51 Additionally, student 

loan debt is negatively correlated with 

the probability that a borrower starts a 

business, suggesting that gaps in 

entrepreneurship by race may decrease 

if eliminating capitalization events 

reduces disparities in debt burdens for 

borrowers of color.52

3.5 Total and Permanent Disability 

Discharge 

The Department is committed to 

simplifying the Total and Permanent 

Disability (TPD) process for eligible 

borrowers. In addition to allowing for 

automatic discharges when a borrower 

is identified through a data match with 

the Social Security Administration 

(SSA), which was announced in 

summer 2021, the Department is also 

proposing new regulations for TPD to 

ensure it provides relief to eligible 

borrowers uniformly across its loan 

programs, including Federal Perkins 

Loans, FFEL loans, and William D. Ford 

Federal Direct Loans. 

The Department proposes to expand 

the categories of SSA disability status 

that qualify for TPD discharges. 

Currently regulations only allow 

borrowers to qualify for a discharge if 

their status is Medical Improvement Not 

Expected (MINE). In this status, an 

individual’s status is reviewed every 5 

to 7 years, which fits the requirement in 

the HEA that a borrower have a 

disability that is expected to result in 

death or that has persisted or is 

expected to persist for at least 60 

consecutive months while the borrower 

does not engage in gainful employment. 

The Department proposes to add 

additional categories for Compassionate 

Allowance (applied where the applicant 

has one of a certain set of predefined 

conditions); Medical Improvement 

Possible (MIP), if that status has been 

renewed at least once and therefore has 

been or would be in a disability status 

for at least 6 years; if the borrower had 

one of the qualifying statuses and has 

since aged into retirement; and 

borrowers with a disability onset data 

for SSDI or SSI that is at least 5 years 

prior to the TPD application. More 

borrowers would be eligible for TPD 

discharges with the addition of these 

categories. 

The Department also proposes to 

eliminate the post-discharge income 

monitoring period. Currently, borrowers 

must supply their income information 

annually through a 3-year postdischarge monitoring period to ensure 

that they continue to meet the criteria 

for the program. If borrowers do not 

respond to these requests, their loans 

are reinstated, regardless of whether the 

borrowers’ earnings are above set 

thresholds. The Department is 

concerned that high numbers of 

borrowers have their loans reinstated 

not because they fail to meet the criteria 

but simply because they fail to submit 

the required paperwork. The 

Government Accountability Office’s 

(GAO) 2016 report on Social Security 

offsets reported that more than 61,000 

loans discharged through TPD, totaling 

more than $1.1 billion, were reinstated 

in fiscal year 2015 alone; and that 98 

percent of those were reinstated because 

the borrower did not provide the 

requisite information for the monitoring 

period.53 Meanwhile, an analysis 

conducted by the Department using 

Internal Revenue Service (IRS) data 

suggests that 92 percent of these 

borrowers did not exceed the earnings 

criteria required to retain their 

eligibility. 

The Department also proposes to 

streamline the process for applying for 

a TPD discharge where automation is 

not feasible. We propose to amend the 

TPD regulations to expand allowable 

documentation that can be submitted as 

evidence of a qualifying disability 

status, including the current practice of 

accepting a Benefit Planning Query 

Handbook, and to expand the list of 

medical professionals eligible to certify 

an individual’s total and permanent 

disability to include nurse practitioners, 

physician assistants, and licensed or 

certified psychologists at independent 

practice level who are licensed to 

practice in the United States. 

Costs of the Regulatory Changes 

As detailed in the Net Budget Impact 

section, the changes to total and 

permanent disability are expected to 

reduce transfers from affected borrowers 

to the Federal government as their 

obligation to repay loans is discharged. 

We estimate this transfer to have an 

annualized net budget impact of $2.4 

billion and $2.2 billion at 7 percent and 

3 percent discount rate, respectively. 

As a result of expanding the SSA 

categories that qualify for TPD 

discharges, the Department estimates 

increased costs to the taxpayer in the 

form of transfers to the additional 

borrowers who would be eligible for, 

and receive, TPD discharges. 

Because more borrowers would also 

be able to retain their discharges and not 

see their loans reinstated, the 

Department also anticipates that this 

proposed change would increase costs 

to taxpayers in the form of transfers in 

direct benefits to those borrowers. 

The proposed changes to expand 

allowable documentation and the list of 

certifying medical professionals are 

expected to modestly increase the 

amounts discharged through TPD 

through transfers to affected borrowers, 

as more borrowers overcome these 

barriers and apply for discharges. 

Benefits of the Regulatory Changes 

The Department believes that many 

more borrowers would be eligible for 

TPD discharges with the addition of 

SSA categories. Based on the Social 

Security Administration’s Disability 

Analysis File (DAF) Public Use File for 

2019 (PUF19), the MINE population 

represented approximately 24.5 percent 

of total SSI recipients, while the MIP 

category represented 22.9 percent at first 

reexamination.54


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55 81 FR 75926. 56 84 FR 49788. 

Eliminating the post-discharge 

income monitoring period would also 

ensure consistency between borrowers 

with an SSA determination of disability 

status and those with a VA 

determination. Total and permanent 

disability discharges based on 

determinations by the Department of 

Veteran Affairs are not subject to a postdischarge monitoring period (though 

some veterans may apply for or receive 

a TPD discharge based on an SSA 

determination instead). The Department 

believes this change would reduce the 

burden that borrowers with a total and 

permanent disability face in retaining 

their discharge, as the time and effort 

involved in providing income 

information during the monitoring 

process would be eliminated. 

The Department also believes that 

expanding allowable documentation 

and the list of certifying medical 

professionals would increase transfers 

to borrowers through discharges by 

lowering administrative burdens that 

borrowers face, including in reducing 

the costs that borrowers face in 

obtaining the necessary documentation 

of their disability. 

3.6 Closed School Discharge 

The Department proposes to improve 

access to closed school loan discharges 

for borrowers who are unable to 

complete their programs due to the 

closure of their institution. While there 

are many closures that occur in an 

orderly fashion with advance notice, the 

majority of students affected by closures 

in the last several years were midprogram and unable to complete their 

program at the college where they 

started. 

Presently, the process for closed 

school discharges includes specific 

eligibility requirements that can limit 

borrowers who have been affected by 

school closure from receiving the loan 

discharge. Through the proposed 

regulations, the Department aims to 

expand eligibility for closed school 

discharges. In 2016, the Department 

issued regulations that provided 

automatic closed school discharges to 

borrowers who were eligible for a closed 

school discharge but did not apply for 

one and who did not enroll elsewhere 

within 3 years of the institution’s 

closure.55 A 2021 GAO report on college 

closures found that 43 percent of those 

eligible for a CSD had not re-enrolled 3 

years later. Moreover, the report found 

that 70 percent of borrowers who 

eventually received an automatic 

discharge were in default or past due, a 

sign of significant financial distress 

among this subset of borrowers. Given 

this, the Department proposes to 

implement the automatic process for 

borrowers. We propose to provide such 

automatic discharges within 1 year of 

closure, which would significantly 

benefit affected borrowers. 

Borrowers who left a school shortly 

before it closed can also receive a closed 

school discharge. However, the 

discharge windows have not been 

consistent across years for these 

borrowers. Loans made prior to July 1, 

2020, were generally subject to a 120- 

day window, while borrowers with 

loans made after that date were subject 

to a 180-day window. The Department 

proposes to standardize the window, 

making it 180 days for all borrowers, 

regardless of when the loan was 

disbursed. 

The Secretary can also extend this 

180-day window under exceptional 

circumstances. However, the current 

non-exhaustive list under 

§ 685.214(c)(1)(i)(B) does not include 

many events that may reasonably be 

associated with a closure, such as the 

school being placed on probation. 

Additionally, the 2019 regulations 

removed items that were included in 

prior regulations, such as ‘‘a finding by 

a State or Federal government agency 

that the school violated State or Federal 

law.’’ 56 The Department proposes to 

expand this list to include this and 

several other items. 

Finally, the Department proposes to 

remove the requirement that borrowers 

may not receive a closed school 

discharge if they opt to transfer credits 

to a ‘‘comparable program.’’ Borrowers 

currently lose access to a closed school 

discharge if they transfer any of their 

credits to another program, even if they 

only transfer a single credit and 

otherwise reset their progress to 

completion. This makes the borrower’s 

choice to continue their education 

needlessly high stakes. The possibility 

of losing the discharge, even if a 

borrower only transfers a low number of 

credits, could also dissuade borrowers 

from even trying to continue their 

education; and risks punishing a 

borrower who chooses to continue their 

education but determines the new 

program is not working for them, as they 

would have lost the ability to discharge 

their loans. The Department proposes to 

address these concerns by removing the 

‘‘comparable program’’ requirement and 

instead providing discharges for all 

borrowers unless they accept and 

complete an approved teach-out. 

Costs of the Regulatory Changes 

As detailed in the Net Budget Impact 

section, the changes to closed school 

discharge are expected to reduce 

transfers from affected borrowers to the 

Federal government as their obligation 

to repay loans is discharged. We 

estimate this transfer to have an 

annualized net budget impact of $763 

million and $697 million at 7 percent 

and 3 percent discount rate, 

respectively. The Department will work 

to recover from institutions the amounts 

that the Secretary discharges and to 

leverage the processes already in place 

at 34 CFR part 668, part H. Based on 

historical Closed School Discharge data, 

the average discharge amount at the 

institutional level was $2.4 million 

based on discharge amounts from 573 

closed institutions. Based on the same 

data, the majority of closed school 

discharge loan amounts (88.5 percent), 

were from closed proprietary schools. 

The table below illustrates the historical 

average closed school discharge 

amounts by institution type from 1991 

through early April 2022, which are a 

good estimate of the discharge costs per 

loan by institution type for future closed 

school loan discharges. 

TABLE 4—CLOSED SCHOOL DISCHARGE AMOUNTS BY INSTITUTION GROUP

Institution group 

Average 

discharge 

amount 

Sum of 

closed school 

discharges 

% of Total 

closed school 

discharges 

Private 2 to 3 Years ..................................................................................................................... $2,876 $5,771,862 0.41 

Private 4 Years or More .............................................................................................................. 5,030 106,347,003 7.60 

Private Less Than 2 Years .......................................................................................................... 2,610 1,461,896 0.10 

Proprietary 2 to 3 Years .............................................................................................................. 3,265 387,352,052 27.68 

Proprietary 4 Years or More ........................................................................................................ 5,074 823,679,386 58.85 

Proprietary Less Than 2 Years ................................................................................................... 3,002 74,336,389 5.31 


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57Sovern, Jeff and Greenberg, Elayne E. and 

Kirgis, Paul F. and Liu, Yuxiang, ‘Whimsy Little 

Contracts’ with Unexpected Consequences: An 

Empirical Analysis of Consumer Understanding of 

Arbitration Agreements (February 19, 2015). 75 

Maryland Law Review 1 (2015), St. John’s Legal 

Studies Research Paper No. 14–0009, http://

dx.doi.org/10.2139/ssrn.2516432. 

TABLE 4—CLOSED SCHOOL DISCHARGE AMOUNTS BY INSTITUTION GROUP—Continued 

Institution group 

Average 

discharge 

amount 

Sum of 

closed school 

discharges 

% of Total 

closed school 

discharges 

Public 4 Years or More ................................................................................................................ 3,258 570,211 0.04 

Public Less Than 2 Years ........................................................................................................... 3,692 116,264 0.01 

In addition to the cost that the closed 

institutions will bear, the Department 

will also incur costs associated with the 

closed school discharges. These costs 

would represent a transfer of benefits 

between the Federal government and 

the borrower. The Department would 

have to discharge the affected loans 

prior to trying to recover the funds from 

the institutions in order to provide a 

timely discharge for the borrower. 

Ultimately, the size of the transfer from 

the Department to borrowers would be 

the difference in funds between the 

discharge amount and the recovery 

amount from the institution. The 

Department would also incur 

administrative costs associated with the 

process of recovering funds from closed 

institutions, especially in cases where 

the institutions may be facing litigation, 

such as due to bankruptcy or legal 

violations. This represents net new costs 

to the Department. 

Benefits of the Regulatory Changes 

Automatic loan discharges would 

significantly benefit affected borrowers 

who are eligible for a discharge. In 

particular, after entering repayment, 

affected borrowers may receive a 

discharge before they could default on 

their loans. The Department would also 

face a reduced administrative burden 

due to the reduced staff time required to 

review applications for borrowers who 

meet the eligibility criteria for a closed 

school discharge. 

Regarding the proposal to standardize 

the closed school discharge window, the 

Department believes this would 

modestly increase eligibility for the 

discharge for some borrowers, though 

application rates for closed school 

discharge tend to be relatively low and 

are not likely to increase significantly. 

The Department is also proposing to 

expand the non-exhaustive list of 

exceptional circumstances required for 

the Secretary to use their authority to 

extend the 180-day window. In certain 

cases, this would increase eligibility for 

closed school discharges, potentially by 

several years. However, this authority 

would be employed on a case-by-case 

basis and thus the overall impact is 

expected to be modest. 

The Department believes that by 

removing the ‘‘comparable program’’ 

requirement and instead providing 

discharges for all borrowers unless they 

accept and complete an approved teachout would encourage borrowers to 

continue their education because they 

would still be able to keep their 

discharge if the teach out option does 

not work for them. It also means a 

borrower who continues seeking higher 

education but loses all or most progress 

toward their degree would not have to 

worry about whether they would receive 

relief. 

This approach would also encourage 

institutions to manage closures more 

carefully. In particular, institutions 

would have a stronger incentive to make 

sure borrowers have access to highquality and affordable teach-out options; 

otherwise, the institution that is closing 

would face larger liabilities associated 

with closed school discharges. 

3.7 Pre-Dispute Arbitration 

The Department proposes to prohibit 

pre-dispute arbitration and class action 

waivers in institutions’ enrollment 

agreements to ensure borrowers have 

access to fair processes and to provide 

insight and evidence to the Department 

that may be needed to adjudicate 

borrower defense claims. Mandatory 

pre-dispute arbitration and class action 

waivers may allow institutions to 

minimize financial risk associated with 

wrongdoing and instead may shift the 

risk of wrongdoing to taxpayers and the 

Federal government through subsequent 

borrower defense discharges. In 

addition, a quick result provided by 

arbitration does not necessarily consider 

the interests of taxpayers who have 

funds at stake for borrower defense 

claims and Direct Loans. While the 

Department included a similar 

provision in its 2016 borrower defense 

regulations, the prohibition was 

rescinded by the 2019 regulations. 

Borrowers also may not understand 

the implications of agreeing to a 

mandatory pre-dispute arbitration 

requirement or a class action waiver and 

what that means for future attempts to 

seek relief. In a study on arbitration 

clauses, legal researchers surveyed a 

random sample of consumers and 

concluded respondents generally lacked 

an understanding about the terms of the 

arbitration agreement and what that 

meant for their ability to seek relief in 

court. These researchers expressed 

concern about whether the consent 

consumers provide when they enter into 

a contract that contains an arbitration 

clause is knowing consent, and 

therefore valid.57

By prohibiting Direct Loanparticipating institutions from using 

certain restrictive contractual provisions 

regarding dispute resolution and 

requiring notification and disclosure 

regarding their use of arbitration, 

schools would be prevented from 

keeping complaint information hidden 

from borrowers facing potential 

borrower defense issues faced by their 

borrowers. Keeping complaint and 

arbitration information hidden from 

public view hinders the Department’s 

ability to investigate patterns of student 

complaints. 

In addition, borrowers’ ability to 

pursue individual and class-action 

litigation would make it difficult for 

schools to hide potentially deceptive 

practices from current or prospective 

students and would allow students who 

have been harmed by an institution to 

sue for damages and recoup their 

financial losses. Providing a litigation 

option could also mitigate the potential 

conflict of interest between the 

arbitrators and the institutions that hire 

them, leading to more fair outcomes for 

students. Taxpayer dollars would be 

better protected by ensuring that 

grievances from enrollees in 

problematic schools could be publicly 

aired through the court system. 

The Department notes that the impact 

of these proposed changes would be 

largely limited to the for-profit sector. In 

a 2016 study by an independent think 

tank, researchers looked at enrollment 

contracts of more than 270 institutions 

across the country. None of the public 

colleges surveyed and only one private 

nonprofit college required its students 

to agree to arbitration as a condition of 

enrollment. Among private for-profit 

colleges, the researchers found 


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Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41957 

58Habash, Tariq, and Robert Shireman. ‘‘How 

College Enrollment Contracts Limit Students’ 

Rights.’’ The Century Foundation, 28 Apr. 2018, 

https://tcf.org/content/report/how-collegeenrollment-contracts-limit-students-rights/. 

59Shierholz, Heidi. ‘‘Correcting the Record: 

Consumers Fare Better under Class Actions than 

Arbitration.’’ Economic Policy Institute, 1 Aug. 

2017, https://www.epi.org/publication/correctingthe-record-consumers-fare-better-under-classactions-than-arbitration/. 

60Arbitration Study: Report to Congress, pursuant 

to Dodd–Frank Wall Street Reform and Consumer 

Protection Act § 1028(a). Consumer Financial 

Protection Bureau. (2015, March). Retrieved from 

https://files.consumerfinance.gov/f/201503_cfpb_

arbitration-study-report-to-congress-2015.pdf. 

61Urban Institute. (2020, June). Racial and Ethnic 

Representation in Postsecondary Education. Toma ́s 

Monarrez, Kelia Washington. https://

www.urban.org/research/publication/racial-andethnic-representation-postsecondary-education. 

significant differences depending on 

whether the institution participated in 

the Federal student aid programs. A 

majority (93 of the 158) private for-profit 

colleges that participate in the Federal 

aid programs used a forced arbitration 

clause compared to just one of the 49 

that do not participate in the aid 

programs.58

Costs of the Regulatory Changes 

The costs associated with the 

proposed changes would be affected by 

whether institutions are less likely to 

engage in behavior that could lead to an 

approved borrower defense claim as a 

result of not using mandatory predispute arbitration clauses or class 

action waivers. If institutions that 

engage in conduct that could lead to an 

approved borrower defense claim do not 

change their behavior, then there could 

be a number of costs related to more 

grievances ending up in court. This 

would include the cost to students of 

seeking judicial intervention, though 

such costs may be offset if their claims 

in court are successful. Costs can also 

increase for institutions, as they tend to 

incur higher legal fees during litigation. 

Institutions would not only face higher 

administrative costs, but institutions are 

also likely to face higher number of 

settlements and the costs associated 

with them, as it is expected that the 

students will be able to reach more 

favorable decisions in court than during 

arbitration. These costs would, however, 

decrease if institutions currently 

engaging in conduct that could lead to 

an approved borrower defense claim 

cease such conduct as a result of this 

change. These external factors do not 

represent any additional costs for the 

Department. 

In addition to costs in the form of 

transfers to borrowers and 

administrative burden for the 

Department, there may be an increase in 

the time it takes to resolve disputes 

through non-arbitration means, as 

litigation proceedings rely on more 

detailed discovery and presentation of 

evidence than arbitration. Finally, 

bringing additional cases to court that 

have generally been resolved through 

arbitration may create a burden on the 

courts, leading to longer litigation time 

and increased costs for students and 

institutions. 

Benefits of the Regulatory Changes 

Borrowers will see benefits due to a 

prohibition on arbitration clauses and 

class-action waivers. Research indicates 

that the rate at which consumers receive 

favorable decisions in arbitration is 

quite low and the amounts they secure 

when they do are very small. Only 9 

percent of disputes that go to arbitration 

end with relief for the consumer.59

When a 2015 CFPB report looked at 

cases from one of the major arbitration 

companies it found that consumers won 

just over $172,000 in damages and 

$189,000 in debt forbearance across 

more than 1,800 disputes in six different 

financial markets. By contrast, the 

CFPB’s analysis of individual cases 

brought in Federal court for all but one 

of these markets found that consumers 

were awarded just under $1 million in 

cases where the judge issued a decision. 

It is difficult to directly compare the 

success rate for an individual in 

arbitration compared to those who take 

their claims to court because the 

overwhelming majority of cases end in 

settlements in which the results are not 

easily ascertainable. The same CFPB 

study referenced above found that about 

50 percent of the more than 1,200 

individual cases filed in federal court 

that were analyzed resulted in 

settlement. But the analysis could not 

determine what share of those 

settlements were favorable to 

borrowers.60

Given that pre-arbitration agreements 

are prevalent in for profit institutions’ 

enrollment agreements, these benefits 

would have a greater impact on Black 

students, who tend to be 

overrepresented at for-profit institutions 

compared to other educational 

institutions.61 The prohibition would 

also support these students in filing 

borrower defense claims where 

warranted. 

4. Net Budget Impacts 

These proposed regulations are 

estimated to have a net Federal budget 

impact in costs over the affected loan 

cohorts of $85.1 billion, consisting of a 

modification of $46.3 billion for loan 

cohorts through 2022 and estimated 

costs of $38.7 billion for loan cohorts 

2023 to 2032. A cohort reflects all loans 

originated in a given fiscal year. 

Consistent with the requirements of the 

Credit Reform Act of 1990, budget cost 

estimates for the student loan programs 

reflect the estimated net present value of 

all future non-administrative Federal 

costs associated with a cohort of loans. 

The provisions most responsible for 

the costs of the proposed regulations are 

those related to the discharge of 

borrower’s loans, especially the changes 

to borrower defense, closed school 

discharges, and total and permanent 

disability discharges. The specific costs 

for each provision are described in the 

following subsections covering the 

relevant topics. 

4.1 Borrower Defense 

As noted in this preamble, the 

regulatory provisions related to 

borrower defense have undergone 

revisions starting in 2016 and then again 

in 2019 and the patterns of claim 

submission and processing have not 

reached a steady level to serve as a clear 

basis for estimating future claims. 

Additional claims are expected from 

existing loan cohorts, and the level and 

timing of claims from older cohorts is 

not likely to be indicative of claims for 

future cohorts because borrower defense 

was not an active area of loan discharges 

during the early years in repayment of 

those older cohorts. In addition, the 

institutions that to date have been 

among the largest sources of borrower 

defense claims have been closed for 

many years. Therefore, we are using a 

revised version of the approach used to 

estimate the costs of borrower defense 

for the 2016 and subsequent regulations 

to generate estimates for the proposed 

borrower defense provisions. The 

Department has used the data it has 

available on borrower defense claims, 

projected loan volumes, Departmental 

expertise, the discussions at negotiated 

rulemaking, and information about past 

investigations into the type of 

institutional acts or omissions that 

would give rise to borrower defense 

claims to develop scenarios that the 

Department believes would capture the 

range of net budget impacts associated 

with the borrower defense proposed 

regulations. The estimated cost of the 

proposed borrower defense changes is a 

modification to cohorts through 2022 of 

$17.26 billion and a cost of $2.75 billion 

for cohorts 2023–2032. The Department 

would continue to refine these 

estimates, welcomes comments about 

the assumptions used in developing 

them, and would consider those 

comments as the final regulations are 

developed. 


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62 81 FR 211 p. 76057. 63 84 FR 184 p. 49894. 

Where possible, we are adjusting the 

assumptions made about school 

conduct, borrowers’ chances of making 

a successful claim, and recovery rates to 

reflect information from pending claims. 

Almost 90 percent of borrower 

defense claims are from the proprietary 

sector. This also includes institutions 

that have a significant number of claims 

and therefore may be more likely to 

have a group claim process applied to 

them. This is reflected in the school 

conduct assumption in Table 5. 

While there are many factors and 

details that would determine the cost of 

the proposed regulations, ultimately a 

borrower defense claim entered into the 

student loan model (SLM) by risk group, 

loan type, and cohort would result in a 

reduced stream of cash flows compared 

to what the Department would have 

expected from a particular cohort, risk 

group, and loan type. The net present 

value of the difference in those cashflow 

streams generates the expected cost of 

the proposed regulations. 

In order to generate an expected level 

of claims for processing in the SLM, the 

Department used President’s Budget 

2023 (PB2023) loan volume estimates to 

identify the maximum potential 

exposure to borrower defense claims for 

each cohort, loan type, and sector. The 

Department expects only a fraction of 

that amount to be affected by 

institutional behavior that results in a 

borrower defense claim. Other factors 

that would affect the cost are the rate of 

consolidation from the FFEL program, 

the percentage of claims that go through 

a group process, the potential deterrent 

effect of claims on school practices, 

investigative activities of State 

authorities, increased borrower 

awareness of borrower defense, and 

borrower eligibility for other discharges, 

especially closed school discharges. 

As costs are estimated against a 

specific baseline, it is important to note 

that the President’s Budget for 2023 

assumed a higher level of borrower 

defense claims based more on the 2016 

assumptions 62 than the 2019 regulation 

assumptions.63 This was based on 

processing of claims and other 

announcements that led the 

Department’s Budget Service to assume 

successful claims would be increasing. 

Some of the costs that could have been 

attributed to the proposed regulations 

are already in the baseline as a result of 

this modeling change. As the 2016 

borrower defense assumptions were 

fairly conservative, the borrower 

defense adjustment for some cohort and 

risk group combinations may be lower 

than the current baseline levels. In order 

to provide some information about this 

factor, the Department ran the 

President’s Budget Fiscal Year 2023 

(PB23) baseline with any addition for 

borrower defense removed and also 

with the 2019 regulatory assumptions 

applied. Removing the borrower defense 

adjustment had a net budget impact of 

$-8.6 billion and using the reduced 

adjustment associated with the 2019 

regulations resulted in a net budget 

impact of $-8.0 billion in savings 

compared to the PB23 baseline. 

The model to estimate borrower 

defense claims under the proposed 

regulations relies upon the following 

factors: 

Conduct Percent, which represents 

the share of loan volume estimated to be 

affected by institutional behavior 

resulting in a defense to repayment 

application. 

Group Process percent, which is the 

share of affected loan volume we expect 

to be subject to a group claim. 

Claim Balance Adjustment Factor, 

which captures the potential change in 

borrowers’ balances from origination to 

the time of their discharge and was 

added because this regulation addresses 

claims from older cohorts, not just 

future loan cohorts so this factor could 

be more significant. 

Borrower Percent, which is the 

percent of loan volume associated with 

approved defense to repayment 

applications; and 

Recovery Percent, which estimates the 

percent of gross claims for which funds 

are recovered from institutions, with 

both of these varying by inclusion in a 

group process or not. 

To generate gross claims volume (gc), 

loan volumes (lv) by risk group were 

multiplied by the Conduct Percent (cp), 

Group Process percent (gpp), the Claim 

Balance Adjustment factor (cbf), and the 

Borrower Percent for groups and 

individual claims (bp_g or bp_i). To 

generate net claims volume (nc) 

processed in the Student Loan Model, 

gross claims were then multiplied by 

the Recovery Percent. That is, gc = gc_

g + gc_i when gc_g = (lv * cp *¥cbf * 

gc¥* bp_g) and gc_i¥= (lv * cp *¥cbf 

* (1¥gc) * bp_i) and nc = nc_g + nc_

i where nc_g = gc_g¥(gc_g * rp_g) and 

nc_i = gc_i¥(gc_i * rp_i). 

Additional discussion of these factors 

follows their presentation in Table 5, 

with the comparable values for the 2016 

and 2019 borrower defense regulations 

presented in Table 6. 

TABLE 5—ASSUMPTIONS FOR PRIMARY BORROWER DEFENSE SCENARIO

Cohort range 

2-yr 

Proprietary 

% 

2-yr NFPT/ 

Public 

% 

4-yr 

Proprietary 

% 

4-yr NPFT/ 

Public 

% 

GRAD 

% 

Loan volume related to borrower defense claims 

pre–2000 .............................................................................. 5.0 1.0 5.0 1.0 1.6 

2000–2005 ........................................................................... 10.0 2.0 10.0 2.0 3.2 

2006–2010 ........................................................................... 16.0 2.0 16.0 2.0 4.1 

2011–2016 ........................................................................... 18.0 1.7 18.0 1.7 4.1 

2017–2022 ........................................................................... 14.0 1.5 14.0 1.5 3.4 

2023–2028 ........................................................................... 10.0 1.3 10.0 1.3 2.6 

2028+ ................................................................................... 8.0 1.1 8.0 1.1 2.1 

Percentage of borrower defense volume from group claims 

pre–2000 .............................................................................. 15.0 5.0 15.0 5.0 8.0 

2000–2005 ........................................................................... 35.0 12.0 35.0 12.0 15.5 

2006–2010 ........................................................................... 65.0 14.0 65.0 14.0 20.7 

2011–2016 ........................................................................... 75.0 14.0 75.0 14.0 28.0 

2017–2022 ........................................................................... 65.0 9.5 65.0 9.5 20.0 

2023–2028 ........................................................................... 45.0 5.5 45.0 5.5 14.0 


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TABLE 5—ASSUMPTIONS FOR PRIMARY BORROWER DEFENSE SCENARIO—Continued 

Cohort range 

2-yr 

Proprietary 

% 

2-yr NFPT/ 

Public 

% 

4-yr 

Proprietary 

% 

4-yr NPFT/ 

Public 

% 

GRAD 

% 

2028+ ................................................................................... 35.0 5.0 35.0 5.0 10.0 

Percentage of borrower defense volume from individual claims 

pre–2000 .............................................................................. 85.0 95.0 85.0 95.0 92.0 

2000–2005 ........................................................................... 65.0 88.0 65.0 88.0 84.6 

2006–2010 ........................................................................... 35.0 86.0 35.0 86.0 79.3 

2011–2016 ........................................................................... 25.0 86.0 25.0 86.0 72.0 

2017–2022 ........................................................................... 35.0 90.5 35.0 90.5 80.0 

2023–2028 ........................................................................... 55.0 94.5 55.0 94.5 86.0 

2028+ ................................................................................... 65.0 95.0 65.0 95.0 90.0 

Share of volume approved in group claims 

pre–2000 .............................................................................. 25.0 15.0 25.0 15.0 20.0 

2000–2005 ........................................................................... 65.0 50.0 65.0 50.0 60.0 

2006–2010 ........................................................................... 70.0 50.0 70.0 50.0 60.0 

2011–2016 ........................................................................... 75.0 50.0 75.0 50.0 60.0 

2017–2022 ........................................................................... 75.0 50.0 75.0 50.0 60.0 

2023–2028 ........................................................................... 75.0 60.0 75.0 60.0 65.0 

2028+ ................................................................................... 75.0 60.0 75.0 60.0 65.0 

Share of volume approved in individual claims 

pre–2000 .............................................................................. 5.0 2.0 5.0 2.0 4.0 

2000–2005 ........................................................................... 8.0 2.0 8.0 2.0 6.0 

2006–2010 ........................................................................... 12.0 5.0 12.0 5.0 8.0 

2011–2016 ........................................................................... 12.0 5.0 12.0 5.0 10.0 

2017–2022 ........................................................................... 12.0 8.0 12.0 8.0 10.0 

2023–2028 ........................................................................... 12.0 8.0 12.0 8.0 10.0 

2028+ ................................................................................... 12.0 8.0 12.0 8.0 10.0 

Recovery percentage on approved claims 

pre–2000 .............................................................................. 1.0 1.0 1.0 1.0 1.0 

2000–2005 ........................................................................... 6.0 4.0 6.0 4.0 4.0 

2006–2010 ........................................................................... 10.0 8.0 10.0 8.0 8.0 

2011–2016 ........................................................................... 10.0 8.0 10.0 8.0 8.0 

2017–2022 ........................................................................... 10.0 8.0 10.0 8.0 8.0 

2023–2028 ........................................................................... 15.0 12.0 15.0 12.0 12.0 

2028+ ................................................................................... 15.0 12.0 15.0 12.0 12.0 

TABLE 6—ASSUMPTIONS FOR PRIMARY BORROWER DEFENSE SCENARIOS IN 2016 AND 2019 REGULATIONS

Cohort 

2016 Regulation 2019 Regulation 

Public Private Proprietary Public Private Proprietary 

Conduct Percent 

2017 ......................................................... 3.0 3.0 20 N/A N/A N/A 

2018 ......................................................... 2.4 2.4 16 N/A N/A N/A 

2019 ......................................................... 2.0 2.0 13.6 N/A N/A N/A 

2020 ......................................................... 1.7 1.7 11.6 1.62 1.62 11.02 

2021 ......................................................... 1.5 1.5 9.8 1.43 1.43 9.31 

2022 ......................................................... 1.4 1.4 8.8 1.33 1.33 8.36 

2023 ......................................................... 1.3 1.3 8.4 1.24 1.24 7.98 

2024 ......................................................... 1.2 1.2 8.0 1.14 1.14 7.6 

2025 ......................................................... 1.2 1.2 7.8 1.14 1.14 7.41 

2026 ......................................................... 1.2 1.2 7.7 1.05 1.05 7.32 

2027 ......................................................... N/A N/A N/A 1.05 1.05 7.32 

2028 ......................................................... N/A N/A N/A 1.05 1.05 7.32 

2029 ......................................................... N/A N/A N/A 1.05 1.05 7.32 

Allowable Applications Percent 

All Cohorts ............................................... N/A N/A N/A 70 70 70 

Borrower Percent 

2017 ......................................................... 35 35 45 N/A N/A N/A 


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TABLE 6—ASSUMPTIONS FOR PRIMARY BORROWER DEFENSE SCENARIOS IN 2016 AND 2019 REGULATIONS—Continued 

Cohort 

2016 Regulation 2019 Regulation 

Public Private Proprietary Public Private Proprietary 

2018 ......................................................... 36.8 36.8 47.3 N/A N/A N/A 

2019 ......................................................... 38.6 38.6 49.6 N/A N/A N/A 

2020 ......................................................... 42.4 42.4 54.6 3.3 3.3 4.95 

2021 ......................................................... 46.7 46.7 60 3.75 3.75 5.475 

2022 ......................................................... 50 50 63 4.125 4.125 5.925 

2023 ......................................................... 50 50 65 4.5 4.5 6.3 

2024 ......................................................... 50 50 65 4.8 4.8 6.75 

2025 ......................................................... 50 50 65 5.25 5.25 6.975 

2026 ......................................................... 50 50 65 5.25 5.25 7.5 

2027 ......................................................... N/A N/A N/A 5.25 5.25 7.5 

2028 ......................................................... N/A N/A N/A 5.25 5.25 7.5 

2029 ......................................................... N/A N/A N/A 5.25 5.25 7.5 

Recovery Percent 

2017 ......................................................... 75 23.8 23.8 N/A N/A N/A 

2018 ......................................................... 75 23.8 23.8 N/A N/A N/A 

2019 ......................................................... 75 26.18 26.18 N/A N/A N/A 

2020 ......................................................... 75 28.8 28.8 75 16 16 

2021 ......................................................... 75 31.68 31.68 75 20 20 

2022 ......................................................... 75 33.26 33.26 75 20 20 

2023 ......................................................... 75 34.93 34.93 75 20 20 

2024 ......................................................... 75 36.67 36.67 75 20 20 

2025 ......................................................... 75 37.4 37.4 75 20 20 

2026 ......................................................... 75 37.4 37.4 75 20 20 

2027 ......................................................... N/A N/A N/A 75 20 20 

2028 ......................................................... N/A N/A N/A 75 20 20 

2029 ......................................................... N/A N/A N/A 75 20 20 

Conduct Percent 

As with previous estimates, the 

conduct percent reflects the experience 

with existing claims coming 

predominantly from the proprietary 

sector. This factor also captures the 

potential deterrent effect of the 

proposed regulations. As claims are 

processed and examples of conduct that 

results in claims become better known, 

we believe institutions would strive to 

avoid similar behavior. We also expect 

that the improvement or closing of some 

institutions that have significant 

findings against them should reduce the 

level of potential claims in future loan 

cohorts. 

Group Process Percent 

The share of claims suitable for a 

group process is expected to vary by 

institutional control and loan cohort. 

The further back a cohort of loans were 

originated, the less likely there is to be 

evidence of conduct that would support 

a group claims process, so the group 

process percent for the pre-2000 loan 

cohort group is lower than for more 

recent years. Of current pending claims, 

approximately 90 percent of those 

expected to be subject to a group claims 

process have come from cohorts 2006 to 

2016 and we would expect that period 

to generate the highest share of group 

claims. We expect conduct that would 

generate a group claim to decrease 

following the 2016 regulation and 

subsequent attention to borrower 

defense, with more of an effect in future 

years when more claims have been 

processed through the system. 

Claim Balance Factor 

The assumptions generating our 

borrower defense claims are applied to 

volume estimates at origination, but 

borrower defense claims are likely to 

happen several years into repayment 

when payments that have been made 

would be subject to refund or balances 

will have grown through accrued 

interest or fees. To account for this, the 

Department looked at borrower defense 

claims in 2021 and determined the 

maximum potential claim between the 

claim amount, the current outstanding 

balance, and the balance when the loan 

entered repayment plus accumulated 

interest through 2021. This maximum 

balance was compared to the origination 

amount to generate an adjustment factor 

that was averaged across loan type. The 

factors applied to Stafford, PLUS, and 

Unsubsidized loans are 1.32, 1.68, and 

1.54, respectively. These factors are 

based on balance comparisons for 

existing loans and include capitalization 

events that will be eliminated under this 

rule as well as potential interest accrual 

beyond the 180-day window for loan 

subject to a borrower defense claim 

established in these regulations. Other 

changes such as the revisions to the 

REPAYE plan anticipated in a separate 

regulatory package could also affect 

these adjustment factors. We are not 

reducing the adjustment factors for 

those potential effects to provide a 

conservative estimate of borrower 

defense claims, but the interaction with 

other regulatory or legislative actions is 

a source of uncertainty for the net 

budget impact of the borrower defense 

provisions. 

The claim balance factor also 

acknowledges that borrower defense 

gives discharge of outstanding balance 

(and potentially refunds payments 

made) so an estimate starting from 

volumes (origination amounts) needs to 

be increased to account for interest or 

payments. 

Borrower Percent—Group and 

Individual 

This assumption captures the share of 

claims expected to lead to a discharge. 

Factors such as the federal standard, 

reconsideration process, the number of 

claims against individual institutions, 

enrollment periods associated with the 

claims, and type of allegations seen to 

date affect these figures. This is higher 

for group claims based on the potential 


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referrals and common reliance on 

evidence from investigations. 

Recovery Percent—Group and 

Individual 

The recovery percent would vary by 

cohort and institutional control. 

Recoveries for existing borrower defense 

claims have not been high, which is 

consistent with other discharge 

recoveries, particularly closed school 

discharges. Another factor that affects 

potential recoveries is the timing as the 

limitations period and application of a 

standard to all claims pending or 

submitted after the effective date of the 

regulations may limit the Department’s 

ability to recover claims related to 

activities many years ago. We expect 

claims for future cohorts to happen 

earlier in the repayment period of the 

loans and therefore to have a somewhat 

increased chance of having a recovery. 

As noted throughout this RIA, the 

Department recognizes the uncertainty 

associated with the factors contributing 

to the primary budget assumptions 

presented in Table 6. To provide some 

information about the effect of this 

uncertainty, the Department developed 

two alternate scenarios to capture a 

range of net budget impact from the 

proposed borrower defense regulations. 

The low budget impact scenario reduces 

the group percentage and increases 

recoveries to the 37 percent maximum 

assumed in the 2016 regulations. The 

high budget impact scenario assumes a 

slower deterrent effect and keeps the 

highest conduct percent for an 

additional cohort range, increases the 

highest group percentage and maintains 

that level for future cohorts, and 

eliminates all recoveries. The revised 

assumptions for these scenarios are 

detailed in Table 7 with the results 

presented in Table 8. 

TABLE 7—REVISED ASSUMPTIONS FOR ALTERNATE SCENARIOS

Cohort range 

Proprietary_

low 

(%) 

NPFT/public_

low 

(%) 

GRAD_low 

(%) 

Proprietary_

high 

(%) 

NPFT/public_

high 

(%) 

GRAD_high 

(%) 

Loan volume related to borrower defense claims 

pre–2000 .................................................. 5.00 1.0 1.6 5.0 1.0 1.6 

2000–2005 ............................................... 10.00 2.0 3.2 10.0 2.0 3.2 

2006–2010 ............................................... 16.00 2.0 4.1 16.0 2.0 4.1 

2011–2016 ............................................... 18.0 1.7 4.1 18.0 2.0 4.1 

2017–2022 ............................................... 14.00 1.50 3.38 18.0 1.7 4.1 

2023–2028 ............................................... 10.00 1.30 2.61 14.00 1.50 3.38 

2028+ ....................................................... 8.00 1.10 2.14 10.00 1.30 2.61 

Percentage of borrower defense volume from group claims 

pre–2000 .................................................. 5 2.5 4 15 5 8 

2000–2005 ............................................... 30 6.0 8 35 12 15 

2006–2010 ............................................... 50 7.0 11 70 14 24 

2011–2016 ............................................... 60 7.0 14 80 14 30 

2017–2022 ............................................... 50 5.0 10 80 10 30 

2023–2028 ............................................... 40 3.0 7 80 6 30 

2028+ ....................................................... 30 2.5 5 80 5 30 

Percentage of borrower defense volume from individual claims 

pre–2000 .................................................. 95 98 96 85 95 92 

2000–2005 ............................................... 70 94 93 65 88 85 

2006–2010 ............................................... 50 93 90 30 86 76 

2011–2016 ............................................... 40 93 86 20 86 70 

2017–2022 ............................................... 50 95 90 20 91 70 

2023–2028 ............................................... 60 97 93 20 95 70 

2028+ ....................................................... 70 98 95 20 95 70 

Recovery percentage on approved claims 

pre–2000 .................................................. 1.0 1.0 1.0 0 0 0 

2000–2005 ............................................... 6.0 6.0 6.0 0 0 0 

2006–2010 ............................................... 10.0 10.0 10.0 0 0 0 

2011–2016 ............................................... 23.8 23.8 23.8 0 0 0 

2017–2022 ............................................... 37.4 37.4 37.4 0 0 0 

2023–2028 ............................................... 37.4 37.4 37.4 0 0 0 

2028+ ....................................................... 37.4 37.4 37.4 0 0 0 

TABLE 8—BUDGET ESTIMATES FOR BORROWER DEFENSE SCENARIOS SENSITIVITY RUNS

$ (mns) Low budget 

impact 

Primary 

budget impact 

High budget 

impact 

Modification .................................................................................................................................. 11,535 17,259 22,158 

Outlays for Cohorts 2023–2032 .................................................................................................. 1,565 2,750 6,966 

Total ...................................................................................................................................... 13,100 20,010 29,124 


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64 Department of Education analysis based on 

estimates of United States sample SSA data as of 

2019 of those with a status of MINE or MIP and data 

provided by the Department in August 19, 2021, 

press release, ‘‘Over 323,000 Federal Student Loan 

Borrowers to Receive $5.8 Billion in Automatic 

Total and Permanent Disability Discharges,’’ 

retrieved from https://www.ed.gov/news/pressreleases/over-323000-federal-student-loanborrowers-receive-58-billion-automatic-total-andpermanent-disability-discharges. 

4.2 Closed School 

These proposed regulations are 

expected to increase closed school 

discharges by creating a uniform 180- 

day enrollment window, increasing the 

use of administrative data to provide 

discharges without an application, 

eliminating the re-enrollment condition, 

and some other process changes. To 

estimate the effect of these changes, the 

Department generated a data file 

summarizing borrower loan amounts for 

different enrollment windows prior to 

closure as well as any existing 

discharges associated with those loans. 

This was used to generate a ratio of 

potential additional claims compared to 

current discharges to be applied to the 

closed school component of the 

discharge assumption. The adjustment 

factor varied by loan model risk group 

from 1.11 to 7.46 and was applied to all 

cohorts for claims from 2023 on. 

Together, the changes related to the 

closed school provisions cost $3.47 

billion for past cohorts and $3.043 

billion for cohorts 2023–2032. 

4.3 Total and Permanent Disability 

The main driver of the Department’s 

estimated costs for the total and 

permanent disability provisions of the 

proposed regulation is the inclusion of 

additional SSA determination categories 

that qualify a borrower for a discharge 

without an application and the 

inclusion of those receiving SSA 

retirement benefits who fit into those 

categories. These proposed changes are 

expected to result in additional transfers 

to borrowers. The Department’s existing 

data match with SSA does not provide 

the data needed to estimate the 

increased discharge from this change. 

We know from SSA data that the added 

categories have 300,000 additional 

borrowers compared to approximately 

323,000 borrowers included in the 

categories already eligible through the 

match from September 2021.64

However, this is not necessarily 

indicative of student loan borrower 

distributions across those categories, 

since data are not currently available to 

the Department on the disability 

statuses of student loan borrowers. 

Additionally, these figures are inclusive 

of borrowers who might be eligible 

through the current regulations and/or 

who would apply for a discharge, rather 

than receiving the discharge 

automatically through a data match as 

under the proposed regulations. Thus, 

some of these borrowers would not be 

a new discharge but rather could simply 

be moving between categories. To 

estimate this effect, the Department 

used an adjustment factor in the TPD 

match with SSA in the Death, Disability, 

and Bankruptcy (DDB) assumption from 

1.5 to 2.25, resulting in the $10.67 

billion modification to past cohorts and 

$9.588 billion for cohorts 2023–2032. 

The initial adjustment factor was based 

on data related borrowers in the SSA 

match prior to September 2020 when it 

was an opt-in process that indicated 

total discharges were around 40 percent 

of total loan disbursements and around 

70 percent of outstanding balances 

across all risk groups and cohorts. The 

other provisions to expand the types of 

medical professionals who can support 

an application and otherwise make the 

process of obtaining a discharge easier 

could also increase transfers to 

borrowers through total and permanent 

disability discharges. The Department 

does not have information to estimate 

this increase but assumes most of the 

future discharges will be through the 

automatic matches so the effect of these 

changes will be lower than the recent 

opt-out match provisions. We did not 

explicitly assign a certain percentage of 

the increased adjustment factor to these 

administrative changes but would not 

expect it to be more than 0.10 percent 

of the total effect with the additional 

eligibility categories being more 

significant. By itself, that increase in 

TPD discharges would increase costs by 

$4.1 billion. We do not estimate a 

significant cost impact from the 

elimination of the 3-year monitoring 

period for reinstatement of payment 

obligations because our baseline is 

conservative in assuming that many of 

those income monitoring issues 

eventually get resolved. To estimate the 

effect of this provision, we did run a 

version of the DDB assumption that 

excluded any reinstatements from the 

disability claims from the PB23 

baseline, but the resulting effect was not 

significant enough to change the overall 

discharge rate at the four decimal level 

used in the student loan model. We 

welcome comments on these 

assumptions and will consider any 

received in estimating the costs of the 

final regulations. 

4.4 PSLF 

The proposed changes to the public 

service loan forgiveness regulations 

have an estimated cost of $12.7 billion 

as a modification to cohorts through 

2022 and $13.2 billion for cohorts 2023– 

2032. One important factor to note is 

that the baseline for this estimate did 

not include any effect of the limited 

PSLF waiver announced in October 

2021 as well as adjustments to the 

counting of progress toward incomedriven repayment announced in April 

2022, so the modification to past cohorts 

in this estimate is picking up some of 

that effect. The change to include 

certain periods of deferment or 

forbearance to count toward PSLF and 

to count payments made on underlying 

loans prior to consolidation will reduce 

the time period for some existing PSLF 

recipients to achieve forgiveness. The 

Department used information linking 

consolidations to underlying loans to 

determine the months paid prior to 

consolidation and used that to reduce 

the time to PSLF forgiveness for affected 

borrowers. A similar process was 

followed for the deferments and 

forbearances that count toward PSLF. 

Estimated deferments and forbearances 

are tracked for PSLF borrowers in the 

budget model, and for the proposed 

change, time associated with qualifying 

deferments and forbearances were 

included toward the 10 years of 

payments required for forgiveness. 

Together, these changes led to the $25.9 

billion estimated cost increase for the 

PSLF changes. Allowing lump sum 

payments, installments, and late 

payments to count toward PSLF will 

result in borrowers being more likely to 

reach 120 qualifying payments at the 

same time they have 120 months of 

qualifying employment. This is in 

contrast to the current situation where 

large numbers of payments not being 

counted means borrowers may need far 

more than 120 months of qualifying 

employment to reach that same number 

of qualifying payments. Reconsideration 

should also help those who had issues 

with their initial applications. These 

factors are not specifically modeled in 

this estimate. The Department does not 

have data at this time regarding these 

factors and welcomes comments on the 

expected increase from them. These 

factors are not explicitly accounted for 

in the Department’s baseline which is 

fairly conservative in assuming those 

assumed to have qualifying employment 

would make the appropriate payments 

other than periods of deferment or 

forbearance. These administrative and 

definitional factors are captured to some 

degree by a ramp up to the maximum 

percentage of borrowers assumed to 

receive PSLF forgiveness in our 

modeling, with levels that reflect the 

low percent of PSLF forgiveness in the 


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65 Data from the American Community Survey 

from the U.S. Census Bureau on employment by 

sector (employer ownership) and educational 

attainment among workers age 25 to 64. 

initial years of borrowers potentially 

being eligible. To provide a sense of the 

effect of these changes, the Department 

considered an alternate scenario that 

increased the PSLF percent to the 

highest level we consider reasonable 

given the level of employment in 

government or nonprofit sectors based 

on U.S. Census bureau data on 

employment sector by educational 

attainment.65 In the alternate scenario, 

we increased the maximum PSLF 

percent and shifted the ramp-up so each 

cohort range was one level higher than 

in the baseline, resulting in the PSLF 

percentages shown in Table 5. The PSLF 

percent is the percentage of borrowers 

assumed to receive PSLF in our 

modeling and ramps up across years. An 

increase in the PSLF percent results in 

additional forgiveness. We are showing 

increases in the PSLF percent because 

nothing in the regulations would lead to 

reduced PSLF forgiveness compared to 

our baseline level. The alternate 

scenario is on top of the deferment, 

forbearance, and consolidation changes. 

TABLE 9—ALTERNATE ASSUMPTIONS FOR PSLF 

PB23 max 

(%) 

Alternate 

scenario max 

(%) 

2-year ....................................................................................................................................................................... 14.65 20.00 

4-year ....................................................................................................................................................................... 28.88 32.00 

Graduate .................................................................................................................................................................. 30.74 38.00 

Alternate scenario PSLF percents 

Cohort range 2-year 

(%) 

4-year 

(%) 

Graduate 

(%) 

2010 or less ................................................................................................................................. 6.28 10.83 13.18 

2011–2015 ................................................................................................................................... 10.46 18.05 21.96 

2016–2020 ................................................................................................................................... 14.65 28.88 30.74 

2021 and above ........................................................................................................................... 20.00 32.00 38.00 

The net budget impact of the reduced 

transfers from borrowers to the 

government from increased forgiveness 

in this alternate scenario is shown in 

Table 10. 

TABLE 10—NET BUDGET IMPACTS OF PSLF IN PRIMARY AND ALTERNATE ASSUMPTIONS

$ (mns) PSLF_primary PSLF_alternate 

Modification ...................................................................................................................................................... 12,724 36,379 

Outlays for Cohorts 2023–2032 ...................................................................................................................... 13,175 23,116 

Total .......................................................................................................................................................... 25,898 59,494 

The modification cost for early 

cohorts is significantly affected by the 

increase in the alternative scenario 

because the baseline PSLF level for the 

2010 cohort and earlier are lower than 

the outyear cohorts. This reflects the 

level of forgiveness seen in the program 

to date. 

4.5 Interest Capitalization 

The proposed provisions to remove 

all interest capitalization on Direct 

Loans that is not required by the HEA 

is estimated to cost $12.4 billion, 

consisting of a modification to cohorts 

through 2022 of $2.2 billion and 

increased outlays of $10.2 billion for 

cohorts 2023–2032. The estimated 

impact of $12.4 billion is for loans in all 

types of repayment plans, but the 

estimation process differs for non-IDR 

and IDR loans as noted below. Interest 

capitalization is calculated in the 

Student Loan Model in accordance with 

specific conditions, so to estimate this 

cost for non-IDR loans, we must turn off 

that capitalization as applicable. We 

expect capitalization upon entering 

repayment to be the primary driver of 

the net budget impact for these 

provisions since it affects all borrowers 

from the effective date of the 

regulations. For this NPRM, we 

calculated an adjustment factor by loan 

type, cohort, non-IDR repayment plan, 

years since loan origination, and SLM 

risk group to represent the effect of 

removing capitalization upon entering 

repayment to generate the net budget 

impact for non-IDR loans. The 

adjustment factors vary significantly 

with later cohorts having increased 

adjustment since more of the cohort will 

enter repayment following the effective 

date of the proposed regulations. The 

SLM is being revised to fully 

incorporate the change to the rule and 

is expected to be completed by the 

publication of the final regulations. 

For the interest capitalization that 

affects IDR borrowers, we adjusted the 

calculations in our IDR sub-model that 

capitalized interest. One limitation to 

note is that our current IDR modeling 

does not estimate borrowers leaving IDR 

plans so there is no capitalization for 

that in the baseline and no impact of 

that provision (leaving PAYE and 

REPAYE) in this estimate. However, we 

did create a capitalization event based 

on the estimated probability that a 

borrower would leave PAYE or REPAYE 

in 2023 or later. This estimate does not 

change the borrowers’ plan or 

subsequent payments and just captures 

the effect of capitalization at that point. 

The proposed regulations would result 

in reduced repayments from borrowers 

by removing capitalization for leaving 


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PAYE or REPAYE, and we estimate a 

net budget impact of $108.3 million, 

consisting of a modification to past 

cohorts of $29.8 million and $79.5 

million for cohorts 2023–2032. While 

interest capitalization is a fairly 

straightforward calculation, there are 

several sources of uncertainty for these 

estimates. As mentioned, the SLM is 

being revised to fully account for all the 

potential effects and our current 

adjustment factors may not account for 

the full level or timing of capitalization 

events that are being eliminated for nonIDR borrowers. Additionally, while 

entering repayment and the timing 

patterns for that are supported by 

significant history, other capitalization 

events affected by the proposed 

regulations may be more subject to 

behavioral changes. Predicting effects of 

eliminating capitalization related to 

forbearances or defaults does depend on 

having the level, timing, repayment 

plan, and risk group mix of those 

underlying events estimated accurately. 

If the pattern of those events changes 

from historical trends as borrowers 

return to payment following the Covid 

payment pause, the costs associated 

with eliminating capitalization for those 

events will vary from what we have 

estimated here. For IDR borrowers, the 

level of leaving plans or borrowers 

initial plan selection could be affected 

by other developments related to the 

IDR plans. The Department welcomes 

comments on the estimates presented 

here and will consider them in analysis 

of the final rule. 

4.6 Pre-Dispute Arbitration Clauses 

At this time, the Department does not 

estimate a significant budget impact on 

title IV programs from the prohibition 

on pre-dispute arbitration agreements 

and the related disclosures. It is possible 

that borrowers not having to go through 

arbitration could result in some 

additional borrower defense claims, but 

we expect those costs have been 

captured in the borrower defense score. 

Disclosure of certain judicial and 

arbitral records may cause some 

borrowers to enroll at other institutions 

than they would have attended, but we 

expect that borrowers would receive 

similar amounts of aid overall, so we do 

not estimate a significant impact on the 

Title IV portfolio from these changes. 

4.7 False Certification 

The proposed regulations would also 

change the false certification discharge 

rules to establish common false 

certification discharge procedures and 

eligibility requirements, regardless of 

when a loan was originated, and to 

clarify that the Department would rely 

on the borrower’s status at the time the 

loan was originated, rather than when 

the loan was certified, for determining 

false certification discharge. The 

proposed revisions to the identity theft 

provisions would make it easier for 

affected borrowers to provide evidence 

for a discharge. 

All of the provisions related to false 

certification should increase transfers to 

borrowers through additional false 

certification discharges. Under existing 

regulations, false certification 

discharges represent a very low share of 

discharges granted to borrowers. Over 

the past 3 years, approximately 800 

borrowers have received a total of $9.4 

million in false certification discharges, 

compared with approximately 455,000 

borrowers and $10.67 billion in 

disability discharges or 573 closed 

institutions and $1.38 billion in closed 

school discharges. The Department does 

not expect an increase in false 

certification claims to result in a 

significant budget impact. The 

Department would continue to evaluate 

the changes to the false certification 

discharge and welcomes comments to 

consider as the final analysis of the 

proposed regulations is developed. 

5. Accounting Statement 

As required by OMB Circular A–4, we 

have prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of these regulations. This 

table provides our best estimate of the 

changes in annual monetized transfers 

as a result of these proposed regulations. 

Expenditures are classified as transfers 

from the Federal Government to affected 

student loan borrowers. 

TABLE 11—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES

[In millions] 

Category Benefits 

Updated and clarified borrower defense process and Federal standard to increase protection for 

student borrowers and taxpayers.

not quantified 

Improved awareness and usage of closed school, TPD, and false certification discharges and PSLF not quantified 

Improved consumer information about institutions’ performance and practices ................................... not quantified 

Category Costs 

7% 3% 

Costs of compliance with paperwork requirements ............................................................................... $5.83 $5.85 

Category Transfers 

7% 3% 

Borrower Defense claims from the Federal government to affected borrowers ................................... Primary 2,632.3 2,292.2 

Reimbursements of borrower defense claims from affected institutions to the Federal government ... Primary 51.2 48.6 

Closed school discharges from the Federal government to affected students ..................................... 763 697 

Total and Permanent discharges from the Federal government to affected students .......................... 2,375 2,172 

Increased PSLF amounts to eligible borrowers from administrative changes, better definitions of 

qualifying employment, allowing lump sum and installment payments, and counting payments 

prior to consolidation, and counting certain periods of deferment and forbearance.

3,000 2,761 

Elimination of non-statutory interest capitalization ................................................................................. $1,290 $1,260.5 

6. Alternatives Considered 

As part of the development of these 

regulations, the Department engaged in 

a negotiated rulemaking process in 

which we received comments and 

proposals from non-Federal negotiators 

representing numerous impacted 

constituencies. These included higher 

education institutions, consumer 


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advocates, students, financial aid 

administrators, accrediting agencies, 

and State attorneys general, among 

others. Non-Federal negotiators 

submitted a variety of proposals relating 

to the issues under discussion. 

Information about these proposals is 

available on our rulemaking website at 

https://www2.ed.gov/policy/highered/ 

reg/hearulemaking/2021/index.html. 

6.1 Borrower Defense 

Some non-Federal negotiators 

believed that State standards should be 

a primary consideration rather than 

secondary, such as during 

reconsideration. The Department 

believes that a single Federal standard 

for initial adjudication would be easier 

for borrowers and affected parties to 

understand. Requiring adjudication of 

State laws at the outset would be 

confusing, burdensome, and can lead to 

inconsistent treatment across States. 

The Department thinks that the 

proposed single Federal standard for 

initial review of claims encompasses 

most items that would be in State 

standards and would result in fewer 

situations where something would be 

approved under a State standard but not 

a Federal one. While the Department 

believes there would be few 

circumstances where a claim could be 

approved under State law but not the 

Federal standard, we propose allowing 

claims to be reconsidered under a State 

law. In the case of group claims brought 

by a State requestor this review could 

occur prior to the issuance of a formal 

denial. 

It was also suggested during the 

negotiations that the Department should 

allow more types of third parties to 

propose group claims, including 

individual borrowers and legal 

assistance organizations. However, the 

Department believes the State requestors 

have been the most consistent source of 

high-quality external evidence that have 

led to the approval of claims so far. 

While legal assistance organizations 

have provided useful information as 

well, the Department is concerned about 

the administrability of allowing dozens 

more entities to submit requests for a 

group process. The Department also 

already has existing collaborative 

oversight responsibilities with States as 

both are members of the regulatory triad 

that also includes accreditation 

agencies. With respect to individual 

borrowers, the Department thinks it is 

unlikely that an individual borrower 

would possess the type of evidence 

needed for forming a group claim. 

Having legal assistance organizations 

and individuals instead work with 

States to put together a group claim 

would thus result in applications that 

are more likely to be turned into group 

claims. 

The Department had considered tying 

together recovery from institution to 

adjudication for borrower defense to 

repayment cases, as under the 2016 rule, 

but ultimately decided against 

proposing that. The Department is 

concerned that the recovery process 

could significantly slow the process of 

providing relief to borrowers, which 

could result in significant costs for 

borrowers who are forced to put their 

lives on hold while they wait for relief. 

The Department would continue to 

recoup liabilities once claims have been 

approved and liabilities assessed, 

consistent with the Department’s 

practices in other types of discharges 

where the school may be liable. The 

Department expects the deterrent effect 

that would result from the proposed 

regulation to be similar to that of the 

2016 rule. Some non-Federal negotiators 

recommended that the Department 

identify broader instances in which it 

would not recoup funds out of concern 

that the Department would only 

approve claims in which it is going to 

be able to recoup funds. While the 

Department has a strong commitment to 

recoupment, it also recognizes that there 

are many instances of institutional 

conduct that could lead to approved 

borrower defense claims that either 

occurred at institutions that have since 

closed and lack assets to recoup against 

or that occurred outside the limitations 

period for recoupment. 

The Department also considered 

whether it should provide a full 

discharge for all borrowers with 

approved claims or adopt a higher 

evidentiary standard to rebut the 

presumption of full relief. The 

Department believes that adopting a 

higher evidentiary standard for 

rebutting the presumption of full relief 

would be inappropriate because the rest 

of the borrower defense regulation uses 

preponderance of the evidence, and it 

should use a consistent standard. 

Similarly, while borrowers are 

presumed to have a full discharge when 

their cases are approved in the proposed 

regulations, the Department believes 

that there would be circumstances 

where a borrower was subject to a 

substantial misrepresentation or other 

conduct that led to an approved claim, 

but the degree of harm suffered by the 

borrower is less than the amount of a 

full discharge. The Department believes 

that the use of a rebuttable presumption 

in limited circumstances balances the 

goal of erring on the side of full 

discharges while preserving flexibility 

to discharge lesser amounts when 

warranted. 

Some non-Federal negotiators noted 

that it is difficult for the Department to 

ensure that collection is in fact stopped 

after a borrower has submitted a 

borrower defense application. These 

negotiators proposed that the Secretary 

should reimburse the borrower for the 

amount collected if the Secretary 

collects on a loan placed in forbearance 

or stopped collections in violation of 

proposed § 685.403(d) or § 685.403(e). 

While the Department appreciates the 

concerns of negotiators and agrees that 

forbearances must be implemented 

accurately, the Department does not 

believe it is necessary or appropriate to 

mandate a reimbursement amount in 

regulations, as other remedies exist for 

correcting such administrative errors. 

The Department also considered 

whether it should mandate that 

borrower defense claims be reviewed 

and decided by an individual who is 

completely independent from the rest of 

the Department. The Department, 

however, does not think it could 

mandate such a structure in regulations 

since it would require promising 

resources that are subject to annual 

appropriations. 

6.2 False Certification 

The Department previously 

considered a new form for a common 

law forgery loan discharge for borrowers 

whose signature was forged by someone 

other than a school employee. This 

applied only to Department-held 

Federal student loans, but the 

Department is encouraging other loan 

holders to create a process like this one. 

Until we launched this form, the 

Department evaluated all forgery claims 

using the discharge forms that only 

apply where the school falsified a 

signature or if there was a judicially 

proven crime of identity theft. This new 

form for a common law forgery loan 

discharge provides borrowers an 

alternative option. But it would not 

benefit many borrowers who do not fit 

into the false certification categories 

since the number of applications under 

the FFEL Program is very small and 

would continue to shrink. 

The Department considered relying 

on the disbursement date as an 

alternative to relying on the origination 

date, but the Department is concerned 

that relying on the disbursement date 

allows institutions time to remedy an 

already completed false certification 

that a student was eligible for a loan 

(e.g., a student without a high school 

diploma or equivalent did not meet the 

ability to benefit requirement of having 

completed six credits toward their 


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credential at the time of origination, but 

did at the time of disbursement). 

Instead, relying on the origination date 

would ensure that institutions may be 

held accountable for their misconduct 

even if it is subsequently corrected prior 

to disbursement. 

The Department considered whether 

to expand eligibility for false 

certification discharges to cover 

circumstances such as barriers to 

employment. However, we are 

concerned that de facto barriers to 

employment (e.g., jobs that likely would 

not hire someone with a criminal 

background, despite there being no 

specific related requirement for state 

licensure in that field) rather than being 

explicit prohibitions (e.g., jobs that 

cannot legally be held by someone with 

a criminal background) would create a 

substantial burden on institutions to be 

aware of such barriers and may not 

reliably identify borrowers eligible for 

such discharge. 

6.3 PSLF 

Several alternatives to better define 

and improve PSLF were recommended 

by non-Federal negotiators. Currently, 

government employees and those who 

work for a nonprofit organization under 

section 501(c)(3) of the Internal Revenue 

Code of 1986 and exempt from taxation 

under section 501(a) of the Internal 

Revenue Code are eligible for qualifying 

PSLF employment. Furthermore, 

employees of other organizations (other 

than a business organized for profit, a 

labor union, or a partisan political 

organization) can only have their 

employment qualify if their organization 

provides one of the other public services 

identified in the HEA and mirrored in 

regulations. 

One alternative proposed was to 

include PSLF eligibility for borrowers 

working to provide public services at 

nonprofit hospitals in certain states who 

are employed by for-profit organizations 

because they are barred by state law 

from working directly for the hospital. 

This negotiator stated that most of those 

borrowers provide public services under 

a for-profit organization. Other 

negotiators and documents submitted by 

negotiators mentioned low-wage 

workers in areas such as home health 

care or early childhood education who 

are similarly more likely to work at a 

for-profit employer and are thus 

ineligible for PSLF under existing 

regulations. Some suggested that the 

Department assess eligibility based on 

SOC codes that classify workers into 

occupational categories. While the 

Department agrees that the other 

occupations identified by the 

negotiators provide valuable services, 

the Department lacks the resources to 

review for-profit employers, which also 

have far less required transparency than 

nonprofit organizations and which 

would thus require an even more 

extensive investigation, or to assess 

individual borrowers’ job descriptions 

to determine whether their occupations 

should qualify for PSLF. The 

Department’s longstanding position has 

been that there are meaningful 

distinctions between for-profit and 

nonprofit organizations that have been 

encoded in broader tax law and that it 

should honor those distinctions. 

Because of these concerns the 

Department is seeking additional 

comments on this issue from the public, 

as discussed in greater detail in the 

preamble. 

The Department also heard from 

public commenters who expressed 

concerns about the presence of laws in 

certain states that prevent physicians 

from being directly employed by private 

nonprofit hospitals. The result is that 

those doctors are legally unable to get 

access to PSLF as employees. The 

Department is considering whether this 

issue could be addressed by creating a 

separate eligibility test for situations 

such as these. We have included 

requests for additional public comment 

on this issue as described in the 

preamble. 

The Department also considered 

whether it should count all deferments 

and forbearances toward PSLF, or all 

deferments or forbearances used before 

a certain date to capture when the 

Department made improvements to 

discourage practices that steered 

borrowers into deferments or 

forbearances unnecessarily. The 

Department is concerned that counting 

all forbearance and deferments could 

create a disincentive to make PSLF 

payments. In addition, there are some 

deferments and forbearances that 

directly conflict with PSLF employment 

requirements, for example, 

unemployment and rehabilitation 

training. The Department intends for 

those qualifying forbearances and 

deferments to align with the purpose of 

PSLF. 

Several non-federal negotiators 

brought up forbearance-steering and 

wanted to include situations of 

forbearance steering as qualifying 

payments. While the Department is 

concerned about instances where 

borrowers have ended up in 

forbearances due to poor advice, there is 

not a clear definition of what 

forbearance-steering would include. In 

addition, this would require the 

borrower to prove steering, which the 

Department believes is a difficult and 

unattainable bar for most borrowers and 

would have the effect of creating a 

process akin to borrower defense for 

loan repayment counting. Instead, the 

hold harmless period would provide 

borrowers a way to gain credit for those 

months in deferment or forbearance 

without needing to adjudicate why they 

ended up in that status. 

6.4 Interest Capitalization 

While the Department put forth a 

proposal eliminating interest 

capitalization on non-statutory 

capitalizing events, some non-Federal 

negotiators suggested eliminating it for 

all capitalizing events in order to reduce 

confusion and inconsistency. However, 

certain capitalizing events are statutory, 

such as for IBR, FFEL, and deferments. 

The Department proposes to eliminate 

interest capitalization where we have 

the discretion to do so in order to 

reduce the cost of borrowing for 

students. 

Some federal negotiators proposed not 

capitalizing interest when a borrower 

consolidates their federal student loans. 

The Department considered this 

proposal but thinks the capitalization 

that occurs in this instance is different 

than the other areas where the 

Department is eliminating it. A 

borrower must take intentional steps to 

consolidate their loans and is not 

required to do so. By contrast, many of 

the other instances of interest 

capitalization occur either without the 

borrower understanding that 

capitalization would occur or as an 

added penalty for a borrower who is 

already struggling on their loan and 

pauses their payments. 

The Department also considered 

whether the concerns of capitalization 

could instead be addressed by providing 

borrowers with greater education on 

what is capitalization and why it occurs. 

However, the Department concluded 

that such an approach would be 

unlikely to work because many 

instances of capitalization are either 

unavoidable or reflect borrower 

struggles. In the former category, all 

borrowers must eventually enter 

repayment, so educating them more 

about capitalization in that instance 

would not provide any benefits. The 

area where education could potentially 

make a greater difference is 

capitalization tied to forbearance usage. 

However, many borrowers rely on 

forbearance in times of struggle, so it is 

unclear that greater education could 

work. 


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Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 41967 

66Horton, D. and Chandrasekher, A. After the 

Revolution: An Empirical Study of Consumer 

Arbitration (June 4, 2015), Georgetown Law Journal, 

Vol. 104, 2015, Forthcoming, UC Davis Legal 

Studies Research Paper No. 436, Available at SSRN: 

https://papers.ssrn.com/sol3/papers.cfm?abstract_

id=2614773. ‘‘. . . consumers facing corporations 

that arbitrate routinely suffer a pronounced 

disadvantage’’ (page 110). 

6.5 Total and Permanent Disability 

Discharge 

Some proposed that the Department 

fully eliminate monitoring of borrowers’ 

eligibility for loans following a total and 

permanent disability discharge. 

However, while the Department 

supports removing the income 

monitoring period, we feel it should be 

maintained for new loans. The 

Department is concerned that we should 

not be distributing new loans if 

borrowers have a demonstrated 

disability that prevents them from 

working and ultimately repaying that 

loan. A student’s borrowing eligibility is 

made under the assumption that 

repayment can be made. If a borrower is 

trying to take out loans already knowing 

that repayment will not be possible, 

then the Department is taking on the 

risk of default and should not distribute 

the loan. We have a duty to protect 

taxpayer money, and if there is no 

probability of repayment, we do not 

deem it prudent to provide such loans. 

6.6 Closed School Discharge 

Some non-federal negotiators 

suggested a different definition of 

closure that would have restricted 

discharges in circumstances where other 

nearby institutions were willing to 

allow the borrower to continue their 

program, among other conditions. The 

Department believes such an approach 

would have unfairly made discharges 

unavailable to borrowers for reasons we 

would struggle to judge, such as how 

accessible a nearby program is for 

specific borrowers. Negotiators also 

wrestled with difficulties in defining 

adequate proximity regarding closed 

schools. However, the Department is 

concerned that identifying nearby 

programs within ‘‘reasonable 

proximity’’ would be highly subjective, 

and a narrowed definition could mean 

that a borrower loses their discharge 

unfairly. 

When looking at automatic 

discharges, the Department decided to 

reduce the period before automatic 

discharges occur following closure from 

3 years (as provided for under the 2016 

regulations) to 1 year. GAO noted in its 

report on college closures that a 

majority of the borrowers who received 

automatic discharges were in default, 

and that without automatic relief, only 

a small percentage of eligible borrowers 

ever got the relief they were owed. This 

change would make it less likely that 

borrowers who do not apply for closed 

school discharges could end up in 

default before receiving automatic relief. 

Regarding the window to qualify for 

a discharge, some non-Federal 

negotiators questioned whether this 

period of time should be increased, but 

the Department notes that 180 days is 

consistent with past regulations. Our 

expanded list of exceptional 

circumstances would address other 

circumstances where the path to closure 

begins earlier. 

At present, a borrower loses access to 

a discharge if they transfer any of their 

credits to another program. The 

Department assessed the potential value 

of retaining that requirement but is 

proposing to eliminate the requirement 

that the borrower cannot have 

transferred credits (other than through 

an approved teach-out that they 

complete) because we are concerned it 

is confusing to borrowers and may be 

preventing them from accessing 

discharges. We believe that, instead, it 

is preferable to ensure borrowers are 

able to access the loan relief benefits to 

which they are entitled. Looking ahead, 

the Department believes the 

improvement of data sources would 

allow us to better identify and automate 

closed school discharges. 

Negotiators also suggested making the 

set of exceptional circumstances 

included in the regulations as required 

rather than possible extensions of the 

eligibility window for closed school 

discharges. The Department feels that 

this standard should be on a case-bycase basis, and notes that the use of the 

exceptional circumstance’s provisions 

would require individualized 

determinations to assess the individual 

case of each school closure. However, 

the Department believes that its 

proposal to expand the non-exhaustive 

list would send clear signals on how the 

Secretary may use this authority going 

forward. 

6.7 Pre-Dispute Arbitration 

During rulemaking sessions, 

negotiators considered expanding the 

proposed prohibition on pre-dispute 

arbitration clauses to include all types 

of complaints, not just those related to 

borrower defense. The Department’s 

legal authority is based on the relevance 

of arbitration to the making of a Direct 

Loan or provision of educational 

services for which the Direct Loan was 

intended. In this NPRM, the Department 

takes the position that, in order to 

protect the interests of the United States 

and to promote the purposes of the 

Direct Loan Program in accordance with 

the HEA and the Department’s PPA with 

institutions, mandatory pre-dispute 

arbitration agreements cannot foreclose 

on borrowers’ right to file a borrower 

defense claim with the Secretary. 

Additionally, some negotiators 

proposed that the Department should 

not collect arbitral and judicial records. 

However, the Department needs to be 

able to see and understand the patterns 

of complaints to anticipate and 

investigate possible claims since these 

arbitral records and outcomes from 

arbitration are largely not publicly 

accessible but are highly relevant for 

enforcement and investigation purposes. 

Negotiators also proposed allowing 

institutions to require arbitration 

clauses through enrollment agreements. 

At the crux of these proposed rules, the 

Department aims to protect borrowers 

by prohibiting mandatory arbitration 

clauses and believes borrowers should 

have an opportunity to have their day in 

court. Allowing borrowers the 

opportunity to go through the judicial 

system could help deter bad acting 

schools from engaging in behaviors that 

the Department does not endorse or 

allow. Borrowers’ ability to litigate can 

also provide a certain level of 

transparency to the general public and 

to the Department and allows for 

understanding of resolutions in 

instances of litigation. Litigation may 

also allow claimants to band together to 

bring class action lawsuits and reduce 

potential legal costs, as well as bring 

about attention to misconduct that may 

also be affecting other students. 

Additionally, although arbitration is 

conducted by a third party, there is 

some evidence of bias in favor of the 

company over the consumer, at least 

where the company is regularly 

involved in such claims.66 With 

litigation, that problem is eliminated as 

the judge acts as an impartial body 

without receiving payment from either 

of the parties. 

7. Regulatory Flexibility Act 

Section 605 of the Regulatory 

Flexibility Act (5 U.S.C. 603(a)) allows 

an agency to certify a rule if the 

rulemaking does not have a significant 

economic impact on a substantial 

number of small entities. 

The Small Business Administration 

(SBA) defines ‘‘small institution’’ using 

data on revenue, market dominance, tax 

filing status, governing body, and 

population. The majority of entities to 

which the Office of Postsecondary 

Education’s (OPE) regulations apply are 

postsecondary institutions, however, 

which do not report such data to the 


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41968 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

67 In previous regulations, the Department 

categorized small businesses based on tax status. 

Those regulations defined ‘‘non-profit 

organizations’’ as ‘‘small organizations’’ if they were 

independently owned and operated and not 

dominant in their field of operation, or as ‘‘small 

entities’’ if they were institutions controlled by 

governmental entities with populations below 

50,000. Those definitions resulted in the 

categorization of all private nonprofit organization 

as small and no public institutions as small. Under 

the previous definition, proprietary institutions 

were considered small if they are independently 

owned and operated and not dominant in their field 

of operation with total annual revenue below 

$7,000,000. Using FY2017 IPEDs finance data for 

proprietary institutions, 50 percent of 4-year and 90 

percent of 2-year or less proprietary institutions 

would be considered small. By contrast, an 

enrollment-based definition captures a similar share 

of proprietary institutions, allowing consistent 

comparison to other types of institutions. 

68How College Enrollment Contracts Limit 

Students’ Rights. (2016, April 28). The Century 

Foundation. https://tcf.org/content/report/howcollege-enrollment-contracts-limit-students-rights/. 

Department. As a result, for purposes of 

this NPRM, the Department proposes to 

continue defining ‘‘small entities’’ by 

reference to enrollment, to allow 

meaningful comparison of regulatory 

impact across all types of higher 

education institutions.67

TABLE 12—SMALL INSTITUTIONS UNDER ENROLLMENT-BASED DEFINITION

Level Type Small Total Percent 

2-year .............................................................. Public .............................................................. 328 1,182 27.75 

2-year .............................................................. Private ............................................................ 182 199 91.46 

2-year .............................................................. Proprietary ...................................................... 1,777 1,952 91.03 

4-year .............................................................. Public .............................................................. 56 747 7.50 

4-year .............................................................. Private ............................................................ 789 1,602 49.25 

4-year .............................................................. Proprietary ...................................................... 249 331 75.23 

Total ......................................................... 3,381 6,013 56.23 

Source: 2018–19 data reported to the Department. 

Table 12 summarizes the number of 

institutions affected by these proposed 

regulations. 

TABLE 13—ESTIMATED COUNT OF SMALL INSTITUTIONS AFFECTED BY THE PROPOSED REGULATIONS

Small 

institutions 

affected 

As percent 

of small 

institutions 

Borrower Defense .................................................................................................................................................... 50 1.47 

False Certification .................................................................................................................................................... 0 0 

PSLF ........................................................................................................................................................................ 0 0 

Eliminate Interest Capitalization .............................................................................................................................. 0 0 

Total Permanent Disability Discharge ..................................................................................................................... 0 0 

Closed School Discharge ........................................................................................................................................ 0 0 

Pre-dispute Arbitration ............................................................................................................................................. 1,285 38.0 

The Department has determined that 

the negative economic impact on small 

entities affected by the regulations 

would not be significant. The proposed 

changes to False Certification, PSLF, 

Total Permanent Disability Discharge, 

and Closed School Discharge would not 

have an impact on small institutions. 

These types of discharges are between 

the borrower and the lender, which 

often is the Department. The 

Department anticipates this will impact 

310 small lenders that will be required 

to expand their current reporting and 

will take approximately 50 hours to 

update their systems. A few small 

institutions could be impacted by the 

proposed regulations where there is a 

large group Borrower Defense claim. 

Based on recent experience of the 

Department, adjudicating borrower 

defense to repayment cases and 

recouping from institutions, small 

institutions are not expected to be 

impacted by the proposed regulations in 

BD because the Department is unlikely 

to recoup from isolated BD cases from 

small institutions. The proposed 

changes to eliminate interest 

capitalization will not have an impact 

on small institutions as this is also an 

action between the borrower and lender. 

The Department anticipates 

approximately 38 percent of small 

institutions will be impacted by these 

pre-dispute arbitration proposed 

regulations. We derived the percentage 

that would be impacted from a report by 

the Century Foundation which sampled 

schools using arbitration clauses in their 

enrollment contracts.68 Of the sampled 

schools, 62 percent of proprietary 

institutions and 2.9 percent of private 

nonprofit institutions used arbitration 

clauses. The study found public schools 

did not utilize arbitration clauses. We 

applied those proportions to the number 

of small proprietary institutions (both 2 

year and 4 year) and Private nonprofit 

(both 2 year and 4 year) and arrived at 

1,285 or 38.01 percent of total small 

business institutions. We would not 

anticipate there is a significant cost 

impact to amend future contracts. 


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TABLE 14—ESTIMATED COST RANGE FOR SMALL INSTITUTIONS AFFECTED BY THE PROPOSED REGULATIONS

Compliance area Small 

institutions 

affected 

Cost range per institution Estimated overall cost range 

BD employment rate background check ............................. 50 500 750 25,000 37,500 

Pre-dispute arbitration update future agreements ............... 1,285 125 160 160,625 205,600 

Lenders ................................................................................ 310 2,231 2,343 691,622.40 726,330 

While these proposed regulations 

would have an impact on some small 

institutions, there will not be a 

significant cost and compliance impact. 

8. Paperwork Reduction Act of 1995 

As part of its continuing effort to 

reduce paperwork and respondent 

burden, the Department provides the 

general public and Federal agencies 

with an opportunity to comment on 

proposed and continuing collections of 

information in accordance with the 

Paperwork Reduction Act of 1995 (PRA) 

(44 U.S.C. 3506(c)(2)(A)). This helps 

ensure that: The public understands the 

Department’s collection instructions, 

respondents can provide the requested 

data in the desired format, reporting 

burden (time and financial resources) is 

minimized, collection instruments are 

clearly understood, and the Department 

can properly assess the impact of 

collection requirements on respondents. 

Sections 668.41, 668.74, 674.33, 

674.61, 682.402, 682.414, 685.213, 

685.214 685.215, 685.219, 685.300, 

685.304, 685.402, 685.403, and 685.407, 

of this proposed rule contain 

information collection requirements. 

Under the PRA, the Department has or 

will at the required time submit a copy 

of these sections and an Information 

Collections Request to OMB for its 

review. 

A Federal agency may not conduct or 

sponsor a collection of information 

unless OMB approves the collection 

under the PRA and the corresponding 

information collection instrument 

displays a currently valid OMB control 

number. Notwithstanding any other 

provision of law, no person is required 

to comply with, or is subject to penalty 

for failure to comply with, a collection 

of information if the collection 

instrument does not display a currently 

valid OMB control number. In the final 

regulations, we will display the control 

numbers assigned by OMB to any 

information collection requirements 

proposed in this NPRM and adopted in 

the final regulations. 

Section 668.41 Reporting and 

Disclosure of Information 

Requirements: The Department 

proposes to remove the requirements in 

current § 668.41(h). 

Burden Calculation: With the removal 

of the regulatory language in § 668.41(h) 

the Department would remove the 

associated burden of 4,720 hours under 

OMB Control Number 1845–0004. 

STUDENT ASSISTANCE GENERAL PROVISIONS—STUDENT RIGHT TO KNOW (SRK)—OMB CONTROL NUMBER: 1845–0004 

Affected entity Respondent Responses Burden hours 

Cost $44.41 per 

institution from 

the 2019 final 

rule 

For-Profit ...................................................................................................... ¥944 ¥944 ¥4,720 ¥$209,615 

Section 668.74 Employability of 

Graduates 

Requirements: In the course of 

adjudicating borrower defense claims, 

the Department has persistently seen 

misrepresentations about the 

employability of graduates. In this 

NPRM, the Department is explicitly 

including as a form of job placement 

rate misrepresentation placement rates 

that are inflated through manipulation 

of data inputs. Proposed section 

668.74(g)(2) contains a provision that 

allows the Department to verify that an 

institution correctly calculated its job 

placement rate by requiring an 

institution to furnish to the Secretary, 

upon request, documentation and other 

data that was used to calculate the 

institution’s employment rate 

calculations. 

Burden Calculation: The Department 

believes that such a request will impose 

only a modest burden on the part of any 

institution to provide the existing 

background data upon which the 

employment rates that are presented 

were calculated. We believe that such 

required reporting would be made by 2 

Private Not-for-profit, 2 For-Profit and 2 

Public institutions annually. It is 

anticipated that 6 institutions will 

receive such a request and that it will 

take 8 hours to copy and prepare for 

submission to the Department such 

evidence of their calculated 

employment rates for a total of 48 

burden hours (6 institutions X 1 

response x 8 hours = 48 burden hours). 

STUDENT ASSISTANCE GENERAL PROVISIONS—OMB CONTROL NUMBER 1845–0022 

Affected entity Respondent 

Responses 

per 

respondent 

Burden hours 

= 8 hours per 

response 

Cost $46.59 

per hour for 

institutions 

Private Not-for-Profit ........................................................................................ 2 1 16 $745 

For-Profit .......................................................................................................... 2 1 16 $745

Public ............................................................................................................... 2 1 16 $745 

Total .......................................................................................................... 6 48 $2,235 


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41970 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

Sections 674.33(g), 682.402(d), and 

685.214 Closed School Discharge 

Requirements: The proposed 

regulations would amend the Perkins, 

FFEL, and Direct Loan regulations to 

simplify the closed school discharge 

process. Proposed §§ 674.33(g)(4), 

682.402(d)(3) and 685.214(d)(1) would 

provide that the borrower must submit 

a completed closed school discharge 

application to the Secretary and that the 

factual assertions in the application 

must be true and made by the borrower 

under penalty of perjury. Additionally, 

the number of days that a borrower had 

withdrawn from a closed school to 

qualify for a closed school discharge 

would be extended from 120 days to 180 

days. 

Burden Calculation: These changes 

would require an update to the current 

closed school discharge application 

form. We do not believe that the 

language update will significantly 

change the amount of time currently 

assessed for the borrower to complete 

the form from those which has already 

been approved. The form update would 

be completed and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. The burden changes would 

be assessed to OMB Control Number 

1845–0058, Loan Discharge 

Applications (DL/FFEL/Perkins). 

Sections 674.61, 682.402(d), and 

685.213 Total and Permanent 

Disability (TPD) Discharge 

Requirements: Under proposed 

changes to §§ 674.61(b)(2)(iv), 

682.402(c)(2)(iv), and 685.213(b)(2), a 

TPD discharge application would be 

allowed to be certified by a nurse 

practitioner, a physician’s assistant 

licensed by a State, or a licensed 

certified psychologist at the 

independent practice level in addition 

to a physician who is a Doctor of 

Medicine or Osteopathy legally 

authorized to practice in a State. The 

type of Social Security Administration 

(SSA) documentation that may qualify a 

borrower for a TPD discharge would be 

expanded to include an SSA Benefit 

Planning Query or other SSA 

documentation deemed acceptable by 

the Secretary. The NPRM also proposes 

to amend the Federal Perkins Loan 

(Perkins), Direct Loan, and Federal 

Family Education Loan (FFEL) Program 

regulations to improve the process for 

granting total and permanent disability 

(TPD) discharges by eliminating the 

income monitoring period. Proposed 

§§ 674.61(b)(6)(i), 682.402(c)(6), and 

685.213(b)(7)(i) would eliminate the 

existing reinstatement requirements, 

except for the provision which provides 

that a borrower’s loan is reinstated if the 

borrower receives a new TEACH Grant 

or a new title IV loan within 3 years of 

the date the TPD discharge was granted. 

Burden Calculation: These proposed 

changes would require an update to the 

current total and permeant disability 

discharge application form. We do not 

believe that the language update will 

significantly change the amount of time 

currently assessed for the borrower to 

complete the Discharge Application 

(TPD–APP) application form from those 

which has already been approved. 

These proposed rules would eliminate 

the Post-Discharge Monitoring form 

(TPD–PDM) from the collection and will 

create a decrease in overall burden from 

the 1845–0065 collection. The forms 

update would be completed and made 

available for comment through a full 

public clearance package before being 

made available for use by the effective 

date of the regulations. The burden 

changes would be assessed to OMB 

Control Number 1845–0065, Direct 

Loan, FFEL, Perkins and TEACH Grant 

Total and Permanent Disability 

Discharge Application and Related 

Forms. 

682.402(e), 685.215(c) and 685.215(d)

False Certification Discharge 

Requirements: These proposed 

regulations streamline the FFEL and 

Direct Loan false certification 

regulations to provide one set of 

regulatory standards that would cover 

all false certification discharge claims. 

Sections 682.402(e) and 685.215(c)(5) 

state that a borrower qualifies for a false 

certification discharge if the school 

certified the borrower’s eligibility for a 

FFEL or Direct Loan as a result of the 

crime of identity theft. Additionally, 

685.215(c)(10) would provide for a new 

application to allow a state Attorney 

General or nonprofit legal services 

representative to submit a request to the 

Secretary for a group discharge under 

section (c). 

Burden Calculation: These changes 

would require an update to the current 

false certification discharge application 

forms. We do not believe that the 

language update will significantly 

change the amount of time currently 

assessed for the borrower to complete 

the forms from those which has already 

been approved. The forms update would 

be completed and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. New forms to capture the 

requirements of the identity theft 

section and the group discharge request 

will be created and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. The burden changes would 

be assessed to OMB Control Number 

1845–0058, Loan Discharge 

Applications (DL/FFEL/Perkins). 

Requirements: Under proposed 

§ 682.402(e)(6)(i) if a holder of a 

borrower’s FFEL loan determines that a 

borrower may be eligible for a false 

certification discharge the holder 

provides the borrower with the 

appropriate application and explanation 

of the process for obtaining a discharge. 

The borrower burden to complete the 

form is captured under the form 

collection 1845–0058. Under proposed 

§ 682.402(e)(6)(iii) if a FFEL borrower 

submits an application for discharge 

that a FFEL program loan holder 

determines is incomplete, the loan 

holder would notify the borrower of that 

determination and allow the borrower 

30 days to amend the application and 

provide supplemental information. 

Burden Calculation: The Department 

believes that such a request will require 

burden on the part of any FFEL lender. 

Of the 310 FFEL lenders it is anticipated 

that 31 lenders will make such 

determinations of borrower discharge 

eligibility and that it will take 20 

minutes to send an estimated 100 

borrowers the correct form for 

completion for a total of 33 burden 

hours (100 borrowers applications × 20 

minutes per application (.33 hours) = 33 

burden hours). 

It is anticipated that 15 lenders would 

make a determination of 25 borrower’s 

incomplete application and that it 

would take 15 minutes to send 

borrowers the notice to amend their 

application for a total of 6 burden hours 

(25 borrowers receiving lender notices × 

15 minutes (.25 hours) = 6 burden 

hours). 

It is anticipated that of the 25 

borrowers who receive notice of an 

incomplete application, 20 will 

resubmit an amended application or 

provide additional documentation and 

it would take 30 minutes to make such 

amendments for a total of 10 burden 

hours (20 borrowers amending initial 

filings × 30 minutes (.50 hours) = 10 

hours under OMB Control Number 

1845–0020. 

Requirements: Proposed 

§ 682.402(e)(6)(vii) would require a 

guaranty agency to issue a decision that 

explains the reasons for any adverse 

determination on a false certification 

discharge application, describes the 

evidence on which the decision was 

made, and provides the borrower, upon 

request, copies of the evidence. The 


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guaranty agency would consider any 

response or additional information from 

the borrower and notify the borrower as 

to whether the determination is 

changed. 

Burden Calculation: The Department 

believes that such a request will require 

burden on the part of any guaranty 

agency. Of the 18 guaranty agencies it is 

anticipated that the guaranty agencies 

will make such adverse determinations 

of 75 borrower discharge eligibility and 

that it will take 30 minutes to send 

borrowers the decision for a total of 38 

burden hours (75 borrowers receiving 

adverse determination notifications × 30 

minutes (.50 hours) = 38 burden hours) 

under OMB Control Number 1845–0020. 

Requirements: Proposed 

§ 682.402(e)(6)(ix) would provide the 

borrower with the option to request that 

the Secretary review the guaranty 

agency’s decision. 

Burden Calculation: The Department 

believes that such a request will require 

burden on the part of any borrower. Of 

the 75 borrowers whose applications 

were denied by the guaranty agency, it 

is anticipated that 30 borrowers will 

request Secretarial review of the 

guaranty agencies decision and that it 

will take 30 minutes to send such a 

borrower request for a total of 15 burden 

hours (30 borrowers × 30 minutes (.50 

hours) = 15 burden hours) under OMB 

Control Number 1845–0020. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM REGULATIONS—OMB CONTROL NUMBER 1845–0020 

Affected entity Respondent Responses Burden hours 

Cost $46.59 

institutional 

$22.00 

individual 

Individual .......................................................................................................... 50 50 25 $550 

Private Not-for-Profit ........................................................................................ 14 55 23 1,071.57

For-Profit .......................................................................................................... 24 99 31 1,444.29 

Public ............................................................................................................... 11 46 23 1,071.57 

Total .......................................................................................................... 99 250 102 4,137.43 

Section 682.414 Reports 

Requirements: In § 682.414(b)(4), the 

Department proposes to require FFEL 

Program lenders to report detailed 

information related to a borrower’s 

deferments, forbearances, repayment 

plans, delinquency, and contact 

information on any FFEL loan to the 

Department by an established deadline. 

Burden Calculation: The Department 

believes that such a request will require 

burden on the part of any FFEL lender. 

It is anticipated that 310 lenders will be 

required to expand their current 

reporting and that it will take 50 hours 

to update systems and to initially 

provide the additional data for a total of 

15,500 burden hours (310 institutions × 

50 hours = 15,500 burden hours) under 

OMB Control Number 1845–0020. 

FEDERAL FAMILY EDUCATION LOAN PROGRAM REGULATIONS—OMB CONTROL NUMBER 1845–0020 

Affected entity Respondent Responses Burden hours Cost $46.59 

institutional 

Private Not-for-Profit ........................................................................................ 64 64 3,200 $149,088 

For-Profit .......................................................................................................... 246 246 12,300 573,057 

Totals ........................................................................................................ 310 310 15,500 722,145 

Section 685.219 Public Service Loan 

Forgiveness 

Requirements: The Department 

proposes new, modified, and 

restructured definitions in § 685.219(b) 

which would expand the use of the 

form. 

Burden Calculation: These changes 

would require an update to the current 

Public Service Loan Forgiveness form. 

We do not believe that the language 

update will significantly change the 

amount of time currently assessed for 

the borrower to complete the form from 

those which has already been approved. 

The form update would be completed 

and made available for comment 

through a full public clearance package 

before being made available for use by 

the effective date of the regulations. The 

burden changes would be assessed to 

OMB Control Number 1845–0110, 

Application and Employment 

Certification for Public Service Loan 

Forgiveness. 

Requirements: In this NPRM, the 

Department also proposes regulations to 

create a reconsideration process under 

proposed § 685.219(g) for borrowers 

whose applications for Public Service 

Loan Forgiveness were denied or who 

disagree with the Department’s 

determination of the number of 

qualifying payments or months of 

qualifying employment that have been 

earned by the borrower which 

formalizes the current non-regulatory 

process. 

Burden Calculation: The Department 

is currently in the clearance process for 

an electronic Public Service Loan 

Forgiveness Reconsideration Request, 

OMB Control Number 1845–0164. 

Public comment on the web-based 

format is currently being accepted 

through the normal information 

clearance process under docket number 

ED–2022–SCC–0039. 

Section 685.300 Agreements Between 

an Eligible School and the Secretary for 

Participation in the Direct Loan Program 

Requirements: The Department 

proposes to reinstate prior regulations 

that barred institutions, as a condition 

of participating in the Direct Loan 

program, from requiring borrowers to 

accept pre-dispute arbitration 

agreements and class action waivers as 

they relate to borrower defense claims. 

Specifically, in proposed § 685.300(e), 

institutions would be prohibited from 

relying on a pre-dispute arbitration 

agreement, or any other pre-dispute 

agreement with a student who obtained 

or benefitted from a Direct Loan, in any 

aspect of a class action related to a 

borrower defense claim, until the 


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presiding court rules that the case 

cannot proceed as a class action. In 

proposed § 685.300(f) of the regulations, 

the Department proposes to require that 

certain provisions relating to notices 

and the terms of the pre-dispute 

arbitration agreements be included in 

any agreement with a student who 

receives a Direct Loan to attend the 

school or for whom a Direct PLUS Loan 

was obtained. 

Burden Calculation: There will be 

burden on any school that meets the 

conditions for supplying students with 

the changes to any agreements. Based on 

the Academic Year 2020–2021 Direct 

Loan information available, there were 

1,026,437 Unsubsidized Direct Loan 

recipients at 1,587 for-profit 

institutions. Assuming 66 percent of 

these students will continue to be 

enrolled at the time these regulations 

become effective, about 677,448 

students will be required to receive the 

agreements or notices required in 

§ 685.300(e) or (f). We anticipate that it 

will take 1,587 for-profit institutions .17 

hours (10 minutes) per student to 

develop these agreements or notices, 

research who is required to receive 

them, and forward the information 

accordingly for 115,166 burden hours 

(677,448 students × .17 hours) under 

OMB Control Number 1845–0021. 

Requirements: Under the proposed 

rules at § 685.300(g) and (h), institutions 

would be required to submit certain 

arbitral records and judicial records 

connected with any borrower defense 

claim filed against the school to the 

Secretary by certain deadlines. 

Burden Calculation: The Department 

believes that such a request will require 

burden on any school that meets the 

conditions for supplying the records to 

the Secretary. We continue to estimate 

that 5 percent of 1,587 for-profit 

institutions or an estimated 79 for-profit 

institutions would be required to submit 

documentation to the Secretary to 

comply with the proposed regulations. 

We anticipate that each of the 79 

schools will have an average of four 

filings thus there will be an average of 

four submissions for each filing. 

Because these are copies of documents 

required to be submitted to other 

parties, we anticipate 5 burden hours to 

produce the copies and submit to the 

Secretary for an increase in burden of 

6,320 hours (79 institutions × 4 filings 

× 4 submissions/filing × 5 hours) under 

OMB Control Number 1845–0021. 

WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM (DL) REGULATIONS—OMB CONTROL NUMBER 1845–0021 

Affected entity Respondent Responses Burden hours 

Cost 

$46.59 

institutional 

For-Profit .......................................................................................................... 1,587 678,712 121,486 $5,660,033 

Total .......................................................................................................... 1,587 678,712 121,486 $5,660,033 

Section 685.304 Counseling Borrowers 

Requirements: The Department 

proposes to remove § 685.304(a)(6)(xiii) 

through (xv). The proposed regulations 

at § 685.300 would state the conditions 

under which disclosures would be 

required and provide deadlines for such 

disclosures. 

Burden Calculation: With the removal 

of the regulatory language in 

§ 685.304(a)(6)(xiii) through (xv) the 

Department would remove the 

associated burden of 30,225 hours under 

OMB Control Number 1845–0021. 

WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM (DL) REGULATIONS—OMB CONTROL NUMBER 1845–0021 

Affected entity Respondent Responses Burden hours 

Cost 

$44.41 per 

institution; 

$16.30 per 

individual from 

2019 final rule 

Individual .......................................................................................................... ¥342,407 ¥342,407 ¥27,393 ¥$446,506 

For-Profit .......................................................................................................... ¥944 ¥944 ¥2,832 ¥$125,769 

Total .......................................................................................................... ¥343,351 ¥343,351 ¥30,225 ¥$572,275 

Section 685.402 Group Process for 

Borrower Defense 

Requirements: In these proposed 

§ 685.402(c), the Department may 

initiate a group process upon request 

from a state requestor, on the condition 

that the state requestor submit an 

application and other required 

information to the Department to 

adjudicate the claim. 

Burden Calculation: A new form to 

capture the requirements of § 685.402(c) 

will be created and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. 

Section 685.405 Institutional response 

Requirements: In proposed § 685.405, 

the Department proposes to continue to 

provide for an institutional response 

process to borrower defense claims. 

Under the proposed regulations in 

§ 685.405(a), the Department official 

would notify the institution of the 

borrower defense claim and its basis for 

any group or individual borrower 

defense claim. Under the proposed 

regulations in § 685.405(b) the 

institution would have 90 days to 

respond. Under the proposed 

regulations in § 685.405(c), with its 

response, the institution would be 

required to execute an affidavit 

confirming that the information 

contained in the response is true and 

correct under penalty of perjury on a 

form approved by the Secretary. 

Burden Calculation: A new form to 

capture the requirements of § 685.405(c) 

will be created and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. 


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Section 685.407 Reconsideration 

Requirements: Proposed § 685.407 

sets forth the circumstances under 

which a borrower or a State requestor 

may seek reconsideration of a 

Department official’s denial of their 

borrower defense claim. Proposed 

§ 685.407(a)(4) identifies the 

reconsideration process, which includes 

an application approved by the 

Secretary. 

Burden Calculation: A new form to 

capture the requirements of § 685.407(a) 

will be created and made available for 

comment through a full public clearance 

package before being made available for 

use by the effective date of the 

regulations. 

Consistent with the discussions 

above, the following chart describes the 

sections of the proposed regulations 

involving information collections, the 

information being collected and the 

collections that the Department will 

submit to OMB for approval and public 

comment under the PRA, and the 

estimated costs associated with the 

information collections. The monetized 

net cost of the increased burden for 

institutions, lenders, guaranty agencies 

and students, using wage data 

developed using Bureau of Labor 

Statistics (BLS) data. For individuals we 

have used the median hourly wage for 

all occupations, $22.00 per hour 

according to BLS. https://www.bls.gov/ 

oes/current/oes_nat.htm#00-0000. For 

institutions, lenders, and guaranty 

agencies we have used the median 

hourly wage for Education 

Administrators, Postsecondary, $46.59 

per hour according to BLS. https://

www.bls.gov/oes/current/ 

oes119033.htm. 

COLLECTION OF INFORMATION

Regulatory section Information collection OMB control number and 

estimated burden 

Estimated cost $46.59 

institutional $22.00 

individual unless otherwise 

noted 

§ 668.41 ............................... The Department proposes to remove the requirements 

in current § 668.41(h).

1845–0004; ¥4,720 hrs .... Cost from the 2019 Final 

Rule ($44.41 per institution) ¥$209,615. 

§ 668.74 ............................... Proposed section 668.74(g)(2) contains a provision 

that allows the Department to verify that an institution correctly calculated its job placement rate by requiring an institution furnish to the Secretary, upon 

request, documentation and other data that was 

used to calculate the institution’s employment rate 

calculations.

1845–0022 +48 hrs ........... +$2,235 

§§ 674.33(g), 682.402(d), 

685.214.

Proposed §§ 674.33(g)(4), 682.402(d)(3) and 

685.214(d)(1) would provide that the borrower must 

submit a completed closed school discharge application to the Secretary and that the factual assertions in the application must be true and made by 

the borrower under penalty of perjury.

1845–0058 Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 

§§ 674.61, 682.402(d), 

685.213.

Proposed changes expand the type of medical professional who can certify the Total Permanent Disability 

(TPD) application. The proposed changes also include an expansion of the acceptable Social Security Administration documentation for filing a TPD 

application. The proposed regulations also eliminate 

the income monitoring period for all TPD applicants 

except those who receive a new TEACH Grant or 

new title IV loan within 3 years of the TPD discharge.

1845–0065 Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 

§§ 682.402(e), 685.215(c) 

and 685.215(d).

These proposed regulations streamline the FFEL and 

Direct Loan false certification regulations to provide 

one set of regulatory standards that would cover all 

false certification discharge claims. Sections 

682.402(e) and 685.215(c)(5) adds qualification for 

a false certification discharge if the school certified 

the borrower’s eligibility for a FFEL or Direct Loan 

as a result of the crime of identity theft. Additionally, 

685.215(c)(10) provides for a new application to 

allow a state Attorney General or nonprofit legal 

services representative to submit a request to the 

Secretary for a group discharge.

1845–0058 Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 


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COLLECTION OF INFORMATION—Continued 

Regulatory section Information collection OMB control number and 

estimated burden 

Estimated cost $46.59 

institutional $22.00 

individual unless otherwise 

noted 

§ 682.402(e)(6) .................... Under proposed § 682.402(e)(6)(i) if a holder of a borrower’s FFEL loan determines that a borrower may 

be eligible for a false certification discharge the 

holder provides the borrower with the appropriate 

application and explanation of the process for obtaining a discharge. Under proposed 

§ 682.402(e)(6)(iii) if a FFEL borrower submits an 

application for discharge that a FFEL program loan 

holder determines is incomplete, the loan holder 

would notify the borrower of that determination and 

allow the borrower 30 days to amend the application 

and provide supplemental information. Proposed 

§ 682.402(e)(6)(vii) would require a guaranty agency 

to issue a decision that explains the reasons for any 

adverse determination on a false certification discharge application, describes the evidence on which 

the decision was made, and provides the borrower, 

upon request, copies of the evidence. The guaranty 

agency would consider any response or additional 

information from the borrower and notify the borrower as to whether the determination is changed. 

Proposed § 682.402(e)(6)(ix) would provide the borrower with the option to request that the Secretary 

review the guaranty agency’s decision.

1845–0020 +102 hrs ......... +$4,137.43 

§ 682.414(b) ......................... In § 682.414(b)(4), the Department proposes to require 

FFEL Program lenders to report detailed information 

related to a borrower’s deferments, forbearances, 

repayment plans, delinquency, and contact information on any FFEL loan to the Department by an established deadline.

1845–0020 +15,500 .......... +$722,145 

§ 685.219 ............................. The Department proposes new, modified, and restructured definitions for the Public Service Loan Forgiveness Program in § 685.219(b) which would expand the use of the form.1845–0110 Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 

§ 685.219(g) ......................... The Department proposes regulations to create a reconsideration process for borrowers whose applications for Public Service Loan Forgiveness were denied or who disagree with the Department’s determination of the number of qualifying payments or 

months of qualifying employment that have been 

earned by the borrower which formalizes the current 

non-regulatory process.

1845–0164 This process is 

currently in public review 

under docket number 

ED–2022–SCC–0039..

Costs will be cleared 

through separate information collection for the 

form. 

§ 685.300 ............................. The Department proposes to reinstate prior regulations that barred institutions, as a condition of participating in the Direct Loan program, from requiring 

borrowers to accept pre-dispute arbitration agreements and class action waivers. Also, institutions 

would be required to submit certain arbitral records 

and judicial records connected with any borrower 

defense claim filed against the school to the Secretary by certain deadlines.

1845–0021 +121,486 ........ +$5,660,033 

§ 685.304 ............................. The Department proposes to remove§ 685.304(a)(6)(xiii) through (xv). The proposed regulations at § 685.300 would state the conditions under which disclosures would be required 

and provide deadlines for such disclosures..

1845–0021 ¥27,393 individual hrs.; ¥2,832 institutional hrs. = ¥30,225 

hrs.

Costs from 2019 Final 

Rule ($44.41 per institution; $16.30 per individual) ¥$446,506 individual costs; ¥$125,769 

institutional costs = 

¥$572,275. 

§ 685.402 ............................. In these proposed § 685.402(c), the Department may 

initiate a group process upon request from a State 

requestor, on the condition that the State requestor 

submit an application and other required information 

to the Department to adjudicate the claim.

1845–NEW Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 


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COLLECTION OF INFORMATION—Continued 

Regulatory section Information collection OMB control number and 

estimated burden 

Estimated cost $46.59 

institutional $22.00 

individual unless otherwise 

noted 

§ 685.405 ............................. Under the proposed regulations in § 685.405(a), the 

Department official would notify the institution of the 

borrower defense claim and its basis for any group 

or individual borrower defense claim. Under the proposed regulations in § 685.405(b) the institution 

would have 90 days to respond. Under the proposed regulations in § 685.405(c), with its response, 

the institution would be required to execute an affidavit confirming that the information contained in the 

response is true and correct under penalty of perjury on a form approved by the Secretary.

1845–NEW Burden will be 

cleared at a later date 

through a separate information collection for the 

form.

Costs will be cleared 

through separate information collection for the 

form. 

§ 685.407 ............................. Proposed § 685.407 sets forth the circumstances 

under which a borrower or a State -requestor may 

seek reconsideration of a Department official’s denial of their borrower defense claim. Proposed 

§ 685.407(a)(4) identifies the reconsideration process, which includes an application approved by the 

Secretary.

1845–NEW Burden will be 

cleared at a later date 

through a separate information collection for the 

form..

Costs will be cleared 

through separate information collection for the 

form. 

The total burden hours and change in 

burden hours associated with each OMB 

Control number affected by the 

proposed regulations follows: 

Control No. Total proposed 

burden hours 

Proposed 

change in 

burden hours 

1845–0004 ............................................................................................................................................................... 24,016 ¥4,720 

1845–0020 ............................................................................................................................................................... 8,265,122 +15,602 

1845–0021 ............................................................................................................................................................... 831,007 +91,261 

1845–0022 ............................................................................................................................................................... 2,288,248 +48 

Total .................................................................................................................................................................. 11,413,065 +102,191 

We have prepared Information 

Collection Requests for these 

information collection requirements. If 

you wish to review and comment on the 

Information Collection Requests, please 

follow the instructions in the ADDRESSES

section of this notification. Note: The 

Office of Information and Regulatory 

Affairs in OMB and the Department 

review all comments posted at 

www.regulations.gov. 

In preparing your comments, you may 

want to review the Information 

Collection Requests, including the 

supporting materials, in 

www.regulations.gov by using the 

Docket ID number specified in this 

notification. These proposed collections 

are identified as proposed collections 

1845–0004, 1845–0020, 1845–0021, 

1845–0022. 

We consider your comments on these 

proposed collections of information in— 

• Deciding whether the proposed 

collections are necessary for the proper 

performance of our functions, including 

whether the information will have 

practical use; 

• Evaluating the accuracy of our 

estimate of the burden of the proposed 

collections, including the validity of our 

methodology and assumptions; 

• Enhancing the quality, usefulness, 

and clarity of the information we 

collect; and 

• Minimizing the burden on those 

who must respond. 

This includes exploring the use of 

appropriate automated, electronic, 

mechanical, or other technological 

collection techniques. Between 30 and 

60 days after publication of this 

document in the Federal Register, OMB 

is required to make a decision 

concerning the collections of 

information contained in these 

proposed regulations. Therefore, to 

ensure that OMB gives your comments 

full consideration, it is important that 

OMB receives your comments on these 

Information Collection Requests by 

[MONTH DAY, YEAR]. This does not 

affect the deadline for your comments to 

us on the proposed regulations. If your 

comments relate to the Information 

Collection Requests for these proposed 

regulations, please specify the Docket ID 

number and indicate ‘‘Information 

Collection Comments’’ on the top of 

your comments. 

Intergovernmental Review 

This program is subject to Executive 

Order 12372 and the regulations in 34 

CFR part 79. One of the objectives of the 

Executive Order is to foster an 

intergovernmental partnership and a 

strengthened federalism. The Executive 

order relies on processes developed by 

State and local governments for 

coordination and review of proposed 

Federal financial assistance. 

This document provides early 

notification of our specific plans and 

actions for this program. 

Assessment of Educational Impact 

In accordance with section 411 of the 

General Education Provisions Act, 20 

U.S.C. 1221e–4, the Secretary 

particularly requests comments on 

whether these proposed regulations 

would require transmission of 

information that any other agency or 

authority of the United States gathers or 

makes available. 

Accessible Format: On request to the 

program contact person(s) listed under 

FOR FURTHER INFORMATION CONTACT, 

individuals with disabilities can obtain 


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41976 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

this document in an accessible format. 

The Department will provide the 

requestor with an accessible format that 

may include Rich Text Format (RTF) or 

text format (txt), a thumb drive, an MP3 

file, braille, large print, audiotape, or 

compact disc, or other accessible format. 

Electronic Access to This Document: 

The official version of this document is 

the document published in the Federal 

Register. You may access the official 

edition of the Federal Register and the 

Code of Federal Regulations at 

www.govinfo.gov. At this site you can 

view this document, as well as all other 

documents of this Department 

published in the Federal Register, in 

text or Portable Document Format 

(PDF). To use PDF, you must have 

Adobe Acrobat Reader, which is 

available free at the site. 

You may also access documents of the 

Department published in the Federal 

Register by using the article search 

feature at www.federalregister.gov. 

Specifically, through the advanced 

search feature at this site, you can limit 

your search to documents published by 

the Department. 

(Assistance Listing Numbers: 84.032 

Federal Family Education Loan 

Program; 84.038 Federal Perkins Loan 

Program; 84.268 William D. Ford 

Federal Direct Loan Program) 

List of Subjects 

34 CFR Part 600 

Colleges and universities, Foreign 

relations, Grant programs—education, 

Loan programs—education, Reporting 

and recordkeeping requirements, 

Selective Service System, Student aid, 

Vocational education. 

34 CFR Part 668 

Administrative practice and 

procedure, Colleges and universities, 

Consumer protection, Grant programs— 

education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Selective Service System, 

Student aid, Vocational education. 

34 CFR Part 674 

Loan programs—education, Reporting 

and recordkeeping requirements, 

Student aid. 

34 CFR Part 682 

Administrative practice and 

procedure, Colleges and universities, 

Loan programs—education, Reporting 

and recordkeeping requirements, 

Student aid, Vocational education. 

34 CFR Part 685 

Administrative practice and 

procedure, Colleges and universities, 

Education, Loan programs—education, 

Reporting and recordkeeping 

requirements, Student aid, Vocational 

education. 

Miguel A. Cardona, 

Secretary of Education. 

For the reasons discussed in the 

preamble, the Secretary proposes to 

amend parts 600, 668, 674, 682, and 685 

of title 34 of the Code of Federal 

Regulations as follows: 

PART 600—INSTITUTIONAL 

ELIGIBILITY UNDER THE HIGHER 

EDUCATION ACT OF 1965, AS 

AMENDED 

■ 1. The authority citation for part 600 

continues to read as follows: 

Authority: 20 U.S.C. 1001, 1002, 1003, 

1088, 1091, 1094, 1099b, and 1099c, unless 

otherwise noted. 

■ 2. Section 600.41 is amended by 

revising paragraphs (a) introductory 

text, (a)(1) introductory text, and (a)(1)(i) 

to read as follows: 

§ 600.41 Termination and emergency 

action proceedings. 

(a) If the Secretary believes that a 

previously designated eligible 

institution as a whole, or at one or more 

of its locations, does not satisfy the 

statutory or regulatory requirements that 

define that institution as an eligible 

institution, the Secretary may— 

(1) Terminate the institution’s 

eligibility designation in whole or as to 

a particular location— 

(i) Under the procedural provisions 

applicable to terminations contained in 

34 CFR 668.81, 668.83, 668.86, 668.88, 

668.89, 668.90(a)(1) and (4) and (c) 

through (f), and 668.91; or 

* * * * * 

PART 668—STUDENT ASSISTANCE 

GENERAL PROVISIONS 

■ 3. The authority citation for part 668 

is revised to read as follows: 

Authority: 20 U.S.C. 1001–1003, 1070g, 

1085, 1088, 1091, 1092, 1094, 1099c, 1099c– 

1, and 1231a, unless otherwise noted. 

Section 668.14 also issued under 20 

U.S.C. 1085, 1088, 1091, 1092, 1094, 

1099a–3, 1099c, and 1141. 

Section 668.41 also issued under 20 

U.S.C. 1092, 1094, 1099c. 

Section 668.91 also issued under 20 

U.S.C. 1082, 1094. 

Section 668.171 also issued under 20 

U.S.C. 1094 and 1099c and section 4 of 

92 Stat. 1101–1109. 

Section 668.172 also issued under 20 

U.S.C. 1094 and 1099c and section 4 of 

92 Stat. 1101–1109. 

Section 668.175 also issued under 20 

U.S.C. 1094 and 1099c. 

■ 4. Section 668.41 is amended by 

revising paragraph (c)(2) introductory 

text and removing paragraph (h). 

The revision reads as follows: 

§ 668.41 Reporting and disclosure of 

information. 

* * * * * 

(c) * * * 

(2) An institution that discloses 

information to enrolled students as 

required under paragraph (d), (e), or (g) 

of this section by posting the 

information on an internet website or an 

Intranet website must include in the 

notice described in paragraph (c)(1) of 

this section— 

* * * * * 

■ 5. Subpart F is revised to read as 

follows: 

Subpart F—Misrepresentation 

Sec. 

668.71 Scope and special definitions. 

668.72 Nature of educational program or 

institution. 

668.73 Nature of financial charges or 

financial assistance. 

668.74 Employability of graduates. 

668.75 Omission of fact. 

668.79 Severability. 

Subpart F—Misrepresentation 

§ 668.71 Scope and special definitions. 

(a) If the Secretary determines that an 

eligible institution has engaged in 

substantial misrepresentation, the 

Secretary may— 

(1) Revoke the eligible institution’s 

program participation agreement, if the 

institution is provisionally certified 

under § 668.13(c); 

(2) Impose limitations on the 

institution’s participation in the title IV, 

HEA programs, if the institution is 

provisionally certified under 

§ 668.13(c); 

(3) Deny participation applications 

made on behalf of the institution; or 

(4) Initiate a proceeding against the 

eligible institution under subpart G of 

this part. 

(b) This subpart establishes the types 

of activities that constitute substantial 

misrepresentation by an eligible 

institution. An eligible institution is 

deemed to have engaged in substantial 

misrepresentation when the institution 

itself, one of its representatives, or any 

ineligible institution, organization, or 

person with whom the eligible 

institution has an agreement to provide 

educational programs, marketing, 

advertising, recruiting or admissions 

services, makes a substantial 

misrepresentation about the nature of its 

educational program, its financial 

charges, or the employability of its 

graduates. Substantial 


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misrepresentations are prohibited in all 

forms, including those made in any 

advertising, promotional materials, or in 

the marketing or sale of courses or 

programs of instruction offered by the 

institution. 

(c) The following definitions apply to 

this subpart: 

Misrepresentation. Any false, 

erroneous or misleading statement an 

eligible institution, one of its 

representatives, or any ineligible 

institution, organization, or person with 

whom the eligible institution has an 

agreement to provide educational 

programs, or to provide marketing, 

advertising, recruiting or admissions 

services makes directly or indirectly to 

a student, prospective student or any 

member of the public, or to an 

accrediting agency, to a State agency, or 

to the Secretary. A misleading statement 

includes any statement that has the 

likelihood or tendency to mislead under 

the circumstances. A misleading 

statement may be included in the 

institution’s marketing materials, 

website, or any other communication to 

students or prospective students. A 

statement is any communication made 

in writing, visually, orally, or through 

other means. Misrepresentation 

includes any statement that omits 

information in such a way as to make 

the statement false, erroneous, or 

misleading. Misrepresentation includes 

the dissemination of a student 

endorsement or testimonial that a 

student gives either under duress or 

because the institution required such an 

endorsement or testimonial to 

participate in a program. 

Misrepresentation also includes the 

omission of facts as defined under 

§ 668.75. 

Prospective student. Any individual 

who has contacted an eligible 

institution for the purpose of requesting 

information about enrolling at the 

institution or who has been contacted 

directly by the institution or indirectly 

through advertising about enrolling at 

the institution. 

Substantial misrepresentation. Any 

misrepresentation, including omission 

of facts as defined under § 668.75, on 

which the person to whom it was made 

could reasonably be expected to rely, or 

has reasonably relied, to that person’s 

detriment. 

§ 668.72 Nature of educational program or 

institution. 

Misrepresentation concerning the 

nature of an eligible institution’s 

educational program includes, but is not 

limited to, false, erroneous or 

misleading statements concerning— 

(a) The particular type(s), specific 

source(s), nature and extent of its 

institutional, programmatic, or 

specialized accreditation; 

(b)(1) The general or specific 

transferability of course credits earned 

at the institution to other institution(s); 

or 

(2) Acceptance of credits earned 

through prior work or at another 

institution toward the educational 

program at the institution. 

(c) Whether successful completion of 

a course of instruction qualifies a 

student— 

(1) For acceptance into a labor union 

or similar organization; or 

(2) To receive, to apply to take, or to 

take the examination required to receive 

a local, State, or Federal license, or a 

nongovernmental certification required 

as a precondition for employment, or to 

perform certain functions in the States 

in which the educational program is 

offered, or to meet additional conditions 

that the institution knows or reasonably 

should know are generally needed to 

secure employment in a recognized 

occupation for which the program is 

represented to prepare students; 

(d) The requirements for successfully 

completing the course of study or 

program and the circumstances that 

would constitute grounds for 

terminating the student’s enrollment; 

(e) Whether its courses are 

recommended or have been the subject 

of unsolicited testimonials or 

endorsements by: 

(1) Vocational counselors, high 

schools, colleges, educational 

organizations, employment agencies, 

members of a particular industry, 

students, former students, or others; or 

(2) Governmental officials for 

governmental employment; 

(f) Its size, location, facilities, 

equipment, or institutionally-provided 

equipment, books, or supplies; 

(g) The availability, frequency, and 

appropriateness of its courses and 

programs in relation to the employment 

objectives that it states its programs are 

designed to meet; 

(h) The number, availability, and 

qualifications, including the training 

and experience, of its faculty, 

instructors, and other personnel; 

(i) The nature and availability of any 

tutorial or specialized instruction, 

guidance and counseling, or other 

supplementary assistance it will provide 

to its students before, during or after the 

completion of a course; 

(j) The nature or extent of any 

prerequisites established for enrollment 

in a course; 

(k) The subject matter, content of the 

course of study, or any other fact related 

to the degree, diploma, certificate of 

completion, or any similar document 

that the student is to be, or is, awarded 

upon completion of the course of study; 

(l) Whether the academic, 

professional, or occupational degree that 

the institution will confer upon 

completion of the course of study has 

been authorized by the appropriate State 

educational agency; 

(m) Actual institutional selectivity 

rates, rankings, or student admissions 

profiles or requirements, if they are 

materially different from those included 

in the institution’s marketing materials, 

website, or other communications made 

to the student or from those provided by 

the institution to national ranking 

companies, accrediting agencies, the 

Secretary, or others; 

(n) The classification of the institution 

(nonprofit, public or proprietary) for 

purposes of its participation in title IV, 

HEA programs, if that is different from 

the classification determined by the 

Secretary; 

(o) Specialized, programmatic, or 

institutional certifications, 

accreditation, or approvals that were not 

actually obtained, or that the institution 

fails to remove from marketing 

materials, websites, or other 

communications to students within a 

reasonable period of time after such 

certifications or approvals are revoked 

or withdrawn; 

(p) Assistance that will be provided in 

securing required externships or the 

existence of contracts with specific 

externship sites; 

(q) Assistance that will be provided to 

obtain a high school diploma or General 

Educational Development Certificate 

(GED); 

(r) The pace of completing the 

program or the time it would take to 

complete the program contrary to the 

stated length of the educational 

program; or 

(s) Any matters required to be 

disclosed to prospective students under 

§§ 668.42, 668.43, and 668.45. 

§ 668.73 Nature of financial charges or 

financial assistance. 

Misrepresentation concerning the 

nature of an eligible institution’s 

financial charges, or the financial 

assistance provided includes, but is not 

limited to, false, erroneous, or 

misleading statements concerning— 

(a) Offers of scholarships to pay all or 

part of a course charge; 

(b) Whether a particular charge is the 

customary charge at the institution for a 

course; 

(c) The cost of the program and the 

institution’s refund policy if the student 

does not complete the program; 


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(d) The availability, amount, or nature 

of any financial assistance available to 

students from the institution or any 

other entity to pay the costs of 

attendance at the institution, including 

part-time employment, housing, and 

transportation assistance; 

(e) A student’s responsibility to repay 

any loans provided, regardless of 

whether the student is successful in 

completing the program and obtaining 

employment; 

(f) The student’s right to reject any 

particular type of financial aid or other 

assistance, or whether the student must 

apply for a particular type of financial 

aid, such as financing offered by the 

institution; or 

(g) The amount, method, or timing of 

payment of tuition and fees that the 

student would be charged for the 

program. 

§ 668.74 Employability of graduates. 

Misrepresentation regarding the 

employability of an eligible institution’s 

graduates includes, but is not limited to, 

false, erroneous, or misleading 

statements concerning— 

(a) The institution’s relationship with 

any organization, employment agency, 

or other agency providing authorized 

training leading directly to employment; 

(b) The institution’s intentions to 

maintain a placement service for 

graduates or to otherwise assist its 

graduates to obtain employment, 

including any requirements to receive 

such assistance; 

(c) The institution’s knowledge about 

the current or likely future conditions, 

compensation, or employment 

opportunities in the industry or 

occupation for which the students are 

being prepared; 

(d) Whether employment is being 

offered by the institution exclusively for 

graduates of the institution, or that a 

talent hunt or contest is being 

conducted, including, but not limited 

to, through the use of phrases such as 

‘‘Men/women wanted to train for 

. . . ,’’ ‘‘Help Wanted,’’ ‘‘Employment,’’ 

or ‘‘Business Opportunities’’; 

(e) Government job market statistics 

in relation to the potential placement of 

its graduates; 

(f) Actual licensure passage rates, if 

they are materially lower than those 

included in the institution’s marketing 

materials, website, or other 

communications made to the student or 

prospective student; or 

(g)(1) Actual employment rates, if 

they are materially lower than those 

included in the institution’s marketing 

materials, website, or other 

communications made to the student or 

prospective student, including but not 

limited to: 

(i) Rates that are calculated in a 

manner that is inconsistent with the 

standards or methodology set forth by 

the institution’s accreditor or a State 

agency that regulates the institution, or 

in its institutional policy. 

(ii) Actual rates that the institution 

discloses are inflated by means such as: 

(A) Including individuals in an 

employment rate calculation who are 

not bona fide employees, such as 

individuals placed on a 1-day job fair, 

an internship, externship, or in 

employment subsidized by the 

institution; 

(B) Including students in the 

employment rate calculation who were 

employed in the field prior to 

graduation; 

(C) Excluding students from an 

employment rate calculation due to the 

difficulty of placing that student; or 

(D) Excluding non-respondents to a 

survey for calculating an employment 

rate. 

(2) Upon request, the institution must 

furnish to the Secretary documentation 

and other information used to calculate 

the institution’s employment rate 

calculations. 

§ 668.75 Omission of fact. 

An omission of fact includes the 

concealment, suppression, or absence of 

material information relating to the 

nature of the institution’s educational 

programs, financial charges, or the 

employability of the institution’s 

graduates. An omission of fact is a 

misrepresentation under § 668.71 if a 

reasonable person would have 

considered the omitted information in 

making a decision to enroll or continue 

attendance at the institution. An 

omission of fact includes, but is not 

limited to, the concealment, 

suppression, or absence of material 

information or statement concerning— 

(a) The entity that is actually 

providing the educational instruction, 

or implementing the institution’s 

recruitment, admissions, or enrollment 

process; 

(b) The availability of enrollment 

openings, or requirements for obtaining 

admission; 

(c) The factors that would prevent an 

applicant from meeting the legal or 

other requirements to be employed in 

the field for which the training is 

provided, for reasons such as prior 

criminal record or preexisting medical 

conditions; 

(d) The factors that would prevent an 

applicant from meeting the legal or 

other requirements to be employed, 

licensed, or certified in the field for 

which the training is provided because 

the academic, professional, or 

occupational degree or credential that 

the institution will confer upon 

completion of the course of study has 

not been authorized by the appropriate 

State educational or licensure agency, or 

requires specialized accreditation that 

the institution does not have; or, 

(e) The nature of the institution’s 

educational programs, the institution’s 

financial charges, or the employability 

of the institution’s graduates. 

§ 668.79 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

■ 6. Section 668.81 is amended by 

revising paragraph (a)(5)(i) to read as 

follows: 

§ 668.81 Scope and special definitions. 

(a) * * * 

(5) * * * 

(i) Borrower defense to repayment 

claims that are brought by the 

Department against an institution under 

§ 685.206, § 685.222 or part 685, subpart 

D, of this chapter; and 

* * * * * 

§ 668.87 [Removed and Reserved] 

■ 7. Section 668.87 is removed and 

reserved. 

■ 8. Section 668.89 is amended by 

revising paragraph (b)(3)(iii) to read as 

follows: 

§ 668.89 Hearing. 

* * * * * 

(b) * * * 

(3) * * * 

(iii) For borrower defenses under 

§§ 685.206(c) and (e) and 685.222 of this 

chapter, the designated department 

official has the burden of persuasion in 

a borrower defense and recovery action; 

however, for a borrower defense claim 

based on a substantial misrepresentation 

under § 682.222(d) of this chapter, the 

designated department official has the 

burden of persuasion regarding the 

substantial misrepresentation, and the 

institution has the burden of persuasion 

in establishing any offsetting value of 

the education under § 685.222(i)(2)(i). 

* * * * * 

§ 668.91 [Amended] 

■ 9. Section 668.91 is amended by: 

■ a. Removing paragraph (a)(2)(ii); 

■ b. Redesignating paragraph (a)(2)(i) as 

(a)(2); and 

■ c. Removing paragraph (c)(2)(x). 

■ 10. Section 668.100 is added to 

subpart G to read as follows: 


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§ 668.100 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

■ 11. Subpart R is added to read as 

follows: 

Subpart R—Aggressive and Deceptive 

Recruitment Tactics or Conduct 

Sec. 

668.500 Scope and purpose. 

668.501 Aggressive and deceptive 

recruitment tactics or conduct. 

668.509 Severability. 

Subpart R—Aggressive and Deceptive 

Recruitment Tactics or Conduct 

§ 668.500 Scope and purpose. 

(a) This subpart identifies the types of 

activities that constitute aggressive and 

deceptive recruitment tactics or conduct 

by an eligible institution. An eligible 

institution has engaged in aggressive 

and deceptive recruitment tactics or 

conduct when the institution itself, one 

of its representatives, or any ineligible 

institution, organization, or person with 

whom the eligible institution has an 

agreement to provide educational 

programs, marketing, advertising, lead 

generation, recruiting or admissions 

services, engages in one or more of the 

prohibited practices in § 668.501. 

Aggressive and deceptive recruitment 

tactics or conduct are prohibited in all 

forms, including the effects of those 

tactics or conduct reflected in the 

institution’s advertising or promotional 

materials, or in the marketing or sale of 

courses or programs of instruction 

offered by the institution. 

(b) If the Secretary determines that an 

eligible institution has engaged in 

aggressive and deceptive recruitment 

tactics or conduct, the Secretary may: 

(1) Revoke the eligible institution’s 

program participation agreement, if the 

institution is provisionally certified 

under § 668.13(c); 

(2) Impose limitations on the 

institution’s participation in the title IV, 

HEA programs, if the institution is 

provisionally certified under 

§ 668.13(c); 

(3) Deny participation applications 

made on behalf of the institution; 

(4) Initiate a proceeding against the 

eligible institution under subpart G of 

this part. 

§ 668.501 Aggressive and deceptive 

recruitment tactics or conduct. 

(a) Aggressive and deceptive 

recruitment tactics or conduct include 

but are not limited to actions by the 

institution, any of its representatives, or 

any institution, organization, or person 

with whom the institution has an 

agreement to provide educational 

programs, marketing, recruitment, or 

lead generation that: 

(1) Demand or pressure the student or 

prospective student to make enrollment 

or loan-related decisions immediately, 

including on the same day of first 

contact; 

(2) Falsely claim that the student or 

prospective student would lose the 

opportunity to attend the institution if 

they did not enroll immediately or 

otherwise place an unreasonable 

emphasis on unfavorable consequences 

of delay; 

(3) Take advantage of a student’s or 

prospective student’s lack of knowledge 

about, or experience with, 

postsecondary institutions, 

postsecondary programs, or financial 

aid to pressure the student into 

enrollment or borrowing funds to attend 

the institution; 

(4) Discourage the student or 

prospective student from consulting an 

adviser, a family member, or other 

resource or individual prior to making 

enrollment or loan-related decisions; 

(5) Fail to respond to the student’s or 

prospective student’s requests for more 

information, including about the cost of 

the program and the nature of any 

financial aid; 

(6) Obtain the student’s or prospective 

student’s contact information through 

websites that: 

(i) Falsely appear to offer assistance to 

individuals seeking Federal, state or 

local benefits; 

(ii) Falsely advertise employment 

opportunities; or, 

(iii) Present false rankings of the 

institution or its programs; 

(7) Use threatening or abusive 

language or behavior toward the student 

or prospective student; or, 

(8) Repeatedly engage in unsolicited 

contact for the purpose of enrolling or 

reenrolling after the student or 

prospective student has requested not to 

be contacted further. 

(b) [Reserved]. 

§ 668.509 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

PART 674—FEDERAL PERKINS LOAN 

PROGRAM 

■ 12. The authority citation for part 674 

continues to read as follows: 

Authority: 20 U.S.C. 1070g, 1087aa– 

1087hh; Pub. L. 111–256, 124 Stat. 2643; 

unless otherwise noted. 

■ 13. Section 674.33 is amended by: 

■ a. Revising paragraph (g)(1); 

■ b. In paragraph (g)(2)(iv) removing the 

words ‘‘credit bureaus’’ and adding in 

their place the words ‘‘consumer 

reporting agencies’’; 

■ c. Revising paragraphs (g)(3) and (4); 

■ d. In paragraph (g)(6)(i) introductory 

text, removing the words ‘‘In order to’’ 

and adding in their place the word 

‘‘To’’; 

■ e. In paragraph (g)(8)(i), removing the 

number ‘‘120’’ and adding in its place 

the number ‘‘180’’; 

■ f. Revising paragraphs (g)(8)(v) and 

(vii); and 

■ g. Adding paragraph (g)(9). 

The revisions and addition read as 

follows: 

§ 674.33 Repayment. 

* * * * * 

(g) * * * 

(1) General. (i) The holder of an NDSL 

or a Federal Perkins Loan discharges the 

borrower’s (and any endorser’s) 

obligation to repay the loan if the 

borrower did not complete the program 

of study for which the loan was made 

because the school at which the 

borrower was enrolled closed. 

(ii) For the purposes of this section— 

(A) A school’s closure date is the 

earlier of the date that the school ceases 

to provide educational instruction in 

most programs, as determined by the 

Secretary, or a date chosen by the 

Secretary that reflects when the school 

ceased to provide educational 

instruction for most of its students; 

(B) ‘‘School’’ means a school’s main 

campus or any location or branch of the 

main campus regardless of whether the 

school or its location or branch is 

considered title IV eligible; 

(C) The ‘‘holder’’ means the Secretary 

or the school that holds the loan; and 

(D) ‘‘Program’’ means the credential 

defined by the level and Classification 

of Instructional Program code in which 

a student is enrolled, except that the 

Secretary may define a borrower’s 

program as multiple levels or 

Classification of Instructional Program 

codes if— 

(1) The enrollment occurred at the 

same school in closely proximate 

periods; 

(2) The school granted a credential in 

a program while the student was 

enrolled in a different program; or 

(3) The programs must be taken in a 

set order or were presented as necessary 

for students to complete in order to 

succeed in the relevant field of 

employment. 

* * * * * 


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(3) Discharge without an application. 

(i) The Secretary may discharge the 

borrower’s obligation to repay an NDSL 

or Federal Perkins Loan without an 

application from the borrower if the— 

(A) Borrower qualified for and 

received a discharge on a loan pursuant 

to § 682.402(d) (Federal Family 

Education Loan Program) or § 685.214 

(Federal Direct Loan Program) of this 

chapter, and was unable to receive a 

discharge on an NDSL or Federal 

Perkins Loan because the Secretary 

lacked the statutory authority to 

discharge the loan; or 

(B) Secretary determines that the 

borrower qualifies for a discharge based 

on information in the Secretary’s 

possession. The Secretary discharges the 

loan without an application from the 

borrower if the borrower did not 

complete an institutional teach-out plan 

performed by the school or a teach-out 

agreement with another school, 

approved by the school’s accrediting 

agency and, if applicable, the school’s 

State authorizing agency. 

(ii) If the borrower accepts but does 

not complete an institutional teach-out 

plan performed by the school or a teachout agreement at another school 

approved by the school’s accrediting 

agency and, if applicable, the school’s 

State authorizing agency, then the 

Secretary discharges the loan within 1 

year of the borrower’s last date of 

attendance in the teach-out program. 

(4) Borrower qualification for 

discharge. Except as provided in 

paragraph (g)(3) of this section, to 

qualify for discharge of an NDSL or 

Federal Perkins Loan, a borrower must 

submit to the holder of the loan a 

completed closed school discharge 

application on a form approved by the 

Secretary, and the factual assertions in 

the application must be true and must 

be made by the borrower under penalty 

of perjury. The application explains the 

procedures and eligibility criteria for 

obtaining a discharge and requires the 

borrower to— 

(i) State that the borrower— 

(A) Received the proceeds of a loan, 

in whole or in part, on or after January 

1, 1986, to attend a school; 

(B) Did not complete the program of 

study at that school because the school 

closed while the student was enrolled, 

or the student withdrew from the school 

not more than 180 days before the 

school closed. The Secretary may 

extend the 180-day period if the 

Secretary determines that exceptional 

circumstances such as those described 

in paragraph (g)(9) of this section justify 

an extension; and 

(C) On or after July 1, 2023, did not 

complete an institutional teach-out plan 

performed by the school or a teach-out 

agreement at another school, approved 

by the school’s accrediting agency and, 

if the applicable, the school’s State 

authorizing agency. 

(ii) State whether the borrower has 

made a claim with respect to the 

school’s closing with any third party, 

such as the holder of a performance 

bond or a tuition recovery program, and, 

if so, the amount of any payment 

received by the borrower or credited to 

the borrower’s loan obligation; and 

(iii) State that the borrower— 

(A) Agrees to provide to the holder of 

the loan upon request other 

documentation reasonably available to 

the borrower that demonstrates that the 

borrower meets the qualifications for 

discharge under this section; and 

(B) Agrees to cooperate with the 

Secretary in enforcement actions in 

accordance with paragraph (g)(6) of this 

section and to transfer any right to 

recovery against a third party to the 

Secretary in accordance with paragraph 

(g)(7) of this section. 

* * * * * 

(v) If the borrower fails to submit the 

completed application described in 

paragraph (g)(4) of this section within 

90 days of the holder of the loan’s 

mailing the discharge application, the 

holder of the loan resumes collection 

and grants forbearance of principal and 

interest for the period during which 

collection activity was suspended. 

* * * * * 

(vii) If the holder of the loan 

determines that a borrower who 

requests a discharge meets the 

qualifications for a discharge, the holder 

of the loan notifies the borrower in 

writing of that determination and the 

reasons for the determination. 

* * * * * 

(9) Exceptional circumstances. For 

purposes of this section, exceptional 

circumstances include, but are not 

limited to— 

(i) The revocation or withdrawal by 

an accrediting agency of the school’s 

institutional accreditation; 

(ii) The school is or was placed on 

probation or issued a show-cause order, 

or placed on an equivalent accreditation 

status, by its accrediting agency for 

failing to meet one or more of the 

agency’s standards; 

(iii) The revocation or withdrawal by 

the State authorization or licensing 

authority to operate or to award 

academic credentials in the State; 

(iv) The termination by the 

Department of the school’s participation 

in a title IV, HEA program; 

(v) A finding by a State or Federal 

government agency that the school 

violated State or Federal law related to 

education or services to students; 

(vi) A State or Federal court judgment 

that a School violated State or Federal 

law related to education or services to 

students; 

(vii) The teach-out of the student’s 

educational program exceeds the 180- 

day look back period for a closed school 

discharge; 

(viii) The school responsible for the 

teach-out of the student’s educational 

program fails to perform the material 

terms of the teach-out plan or 

agreement, such that the student does 

not have a reasonable opportunity to 

complete his or her program of study; 

(ix) The school discontinued a 

significant share of its academic 

programs; 

(x) The school permanently closed all 

or most of its in-person locations while 

maintaining online programs; 

(xi) The Department placed the school 

on the heightened cash monitoring 

payment method as defined in 

§ 668.162(d)(2). 

■ 14. Section 674.61 is amended by: 

■ a. Revising paragraphs (b)(2) through 

(6); 

■ b. Removing paragraph (b)(7); 

■ c. Redesignating paragraph (b)(8) as 

paragraph (b)(7); 

■ d. Revising newly redesignated 

paragraph (b)(7); and 

■ e. Revising paragraphs (d) and (e). 

The revisions read as follows: 

§ 674.61 Discharge for death or disability. 

* * * * * 

(b) * * * 

(2) Discharge application process for 

borrowers who have a total and 

permanent disability as defined in 

§ 674.51(aa)(1). (i) If the borrower 

notifies the institution that the borrower 

claims to be totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the institution must direct the borrower 

to notify the Secretary of the borrower’s 

intent to submit an application for total 

and permanent disability discharge and 

provide the borrower with the 

information needed for the borrower to 

notify the Secretary. 

(ii) If the borrower notifies the 

Secretary of the borrower’s intent to 

apply for a total and permanent 

disability discharge, the Secretary— 

(A) Provides the borrower with 

information needed for the borrower to 

apply for a total and permanent 

disability discharge; 

(B) Identifies all title IV loans owed 

by the borrower and notifies the lenders 

of the borrower’s intent to apply for a 

total and permanent disability 

discharge; 


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(C) Directs the lenders to suspend 

efforts to collect from the borrower for 

a period not to exceed 120 days; and 

(D) Informs the borrower that the 

suspension of collection activity 

described in paragraph (b)(2)(ii)(C) of 

this section will end after 120 days and 

the collection will resume on the loans 

if the borrower does not submit a total 

and permanent disability discharge 

application to the Secretary within that 

time. 

(iii) If the borrower fails to submit an 

application for a total and permanent 

disability discharge to the Secretary 

within 120 days, collection resumes on 

the borrower’s title IV loans. 

(iv) The borrower must submit to the 

Secretary an application for total and 

permanent disability discharge on a 

form approved by the Secretary. The 

application must contain— 

(A) A certification by a physician, 

who is a doctor of medicine or 

osteopathy legally authorized to practice 

in a State, that the borrower is totally 

and permanently disabled as defined in 

§ 674.51(aa)(1); 

(B) A certification by a nurse 

practitioner or physician’s assistant 

licensed by a State or a licensed 

certified psychologist at the 

independent practice level, that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1); 

(C) A Social Security Administration 

(SSA) Benefit Planning Query (BPQY) or 

an SSA notice of award or other 

documentation deemed acceptable by 

the Secretary indicating that— 

(1) The borrower qualifies for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits and the borrower’s next 

scheduled disability review will be 

within 5 to 7 years; 

(2) The borrower qualifies for SSDI or 

SSI benefits and the borrower’s next 

scheduled disability review will be 

within 3 years, and that the borrower’s 

eligibility for disability benefits in the 3- 

year review category has been renewed 

at least once; 

(3) The borrower has a disability onset 

date for SSDI or SSI of at least 5 years 

prior to the application for a disability 

discharge or has been receiving benefits 

for a least 5 years prior to the 

application for a disability discharge; 

(4) The borrower qualifies for the SSA 

compassionate allowance program; or 

(5) For borrowers currently receiving 

SSA retirement benefits, documentation 

that, prior to the borrower qualifying for 

SSA retirement benefits, the borrower 

met the requirements in paragraph 

(b)(2)(iv)(C) of this section. 

(v) The borrower must submit the 

application described in paragraph 

(b)(2)(iv) of this section to the Secretary 

within 90 days of the date the 

physician, nurse practitioner, 

physician’s assistant or psychologist 

certifies the application, if applicable. 

(vi) After the Secretary receives the 

application described in paragraph 

(b)(2)(iv) of this section, the Secretary 

notifies the holders of the borrower’s 

title IV loans that the Secretary has 

received a total and permanent 

disability discharge application from the 

borrower. 

(vii) If the application is incomplete, 

the Secretary notifies the borrower of 

the missing information and requests 

the missing information from the 

borrower, the borrower’s representative, 

or the physician, nurse practitioner, 

physician’s assistant or psychologist 

who provided the certification, as 

appropriate. The Secretary does not 

make a determination of eligibility until 

the application is complete. 

(viii) The lender notification 

described in paragraph (b)(2)(vi) of this 

section directs the borrower’s loan 

holders to suspend collection activity or 

maintain the suspension of collection 

activity on the borrower’s title IV loans. 

(ix) After the Secretary receives a 

disability discharge application, the 

Secretary sends a notice to the borrower 

that— 

(A) States that the application will be 

reviewed by the Secretary; 

(B) Informs the borrower that the 

borrower’s lenders will suspend 

collection activity or maintain the 

suspension of collection activity on the 

borrower’s title IV loans while the 

Secretary reviews the borrower’s 

application for discharge; and 

(C) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(3) Secretary’s review of the total and 

permanent disability discharge 

application. (i) If, after reviewing the 

borrower’s completed application, the 

Secretary determines that the data 

described in paragraph (b)(2) of this 

section supports the conclusion that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the borrower is considered totally and 

permanently disabled as of the date— 

(A) The physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s application; or 

(B) The Secretary received the SSA 

data described in paragraph (b)(2)(iv)(C) 

of this section. 

(ii) If the Secretary determines that 

the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

defined in § 674.51(aa)(1), the Secretary 

may require the borrower to submit 

additional medical evidence. As part of 

the Secretary’s review of the borrower’s 

discharge application, the Secretary may 

require and arrange for an additional 

review of the borrower’s condition by an 

independent physician or other medical 

professional identified by the Secretary 

at no expense to the borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the Secretary notifies the borrower and 

the borrower’s lenders that the 

application for a disability discharge has 

been approved. With this notification, 

the Secretary provides the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s loan discharge 

application or the date the Secretary 

received the SSA data described in 

paragraph (b)(2)(iv)(C) of this section 

and directs each institution holding a 

Defense, NDSL, or Perkins Loan made to 

the borrower to assign the loan to the 

Secretary. 

(iv) The institution must assign the 

loan to the Secretary within 45 days of 

the date of the notice described in 

paragraph (b)(3)(iii) of this section. 

(v) After the loan is assigned, the 

Secretary discharges the borrower’s 

obligation to make further payments on 

the loan and notifies the borrower and 

the institution that the loan has been 

discharged. The notification to the 

borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(b)(6) of this section. Any payments 

received after the date the physician, 

nurse practitioner, physician’s assistant, 

or psychologist certified the borrower’s 

loan discharge application or the date 

the Secretary received the SSA data 

described in paragraph (b)(2)(iv)(C) of 

this section are returned to the person 

who made the payments on the loan in 

accordance with paragraph (b)(7) of this 

section. 

(vi) If the Secretary determines that 

the physician, nurse practitioner, 

physician’s assistant, or psychologist 

certification or the SSA data described 

in paragraph (b)(2)(iv)(C) of this section 

provided by the borrower does not 

support the conclusion that the 

borrower is totally and permanently 

disabled as defined in § 674.51(aa)(1), 

the Secretary notifies the borrower and 

the institution that the application for a 

disability discharge has been denied. 

The notification includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the institution under the 


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terms of the promissory note and that 

the loan will return to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; 

(C) A statement that the institution 

will notify the borrower of the date the 

borrower must resume making 

payments on the loan; 

(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional information that supports the 

borrower’s eligibility for discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 

of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to reevaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 

(vii) If the borrower requests 

reevaluation in accordance with 

paragraph (b)(3)(vi)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (b)(3)(vi)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for a total 

and permanent disability discharge. 

(4) Treatment of disbursements made 

during the period from the certification 

or the date the Secretary received the 

SSA data until the date of discharge. If 

a borrower received a title IV loan or 

TEACH Grant before the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s discharge 

application or before the date the 

Secretary received the SSA data 

described in paragraph (b)(2)(iv)(C) of 

this section and a disbursement of that 

loan or grant is made during the period 

from the date of the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certification or the date the 

Secretary received the SSA data 

described in paragraph (b)(2)(iv)(C) of 

this section until the date the Secretary 

grants a discharge under this section, 

the processing of the borrower’s loan 

discharge application will be suspended 

until the borrower ensures that the full 

amount of the disbursement has been 

returned to the loan holder or to the 

Secretary, as applicable. 

(5) Receipt of new title IV loans or 

TEACH Grants after the certification or 

after the date the Secretary received the 

SSA data. If a borrower receives a 

disbursement of a new title IV loan or 

receives a new TEACH Grant made on 

or after the date the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certified the borrower’s 

discharge application or on or after the 

date the Secretary received the SSA data 

described in paragraph (b)(2)(iv)(C) of 

this section and before the date the 

Secretary grants a discharge under this 

section, the Secretary denies the 

borrower’s discharge request and 

collection resumes on the borrower’s 

loans. 

(6) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates the borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(3)(v) of 

this section if, within 3 years after the 

date the Secretary granted the discharge, 

the borrower receives a new TEACH 

Grant or new loan under the Perkins or 

Direct Loan programs, except for a 

Direct Consolidation Loan that includes 

loans that were not discharged. 

(ii) If the borrower’s obligation to 

repay a loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(6)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 90 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(7) Payments received after the 

certification of total and permanent 

disability. (i) If the institution receives 

any payments from or on behalf of the 

borrower on or attributable to a loan that 

has been assigned to the Secretary based 

on the Secretary’s determination of 

eligibility for a total and permanent 

disability discharge, the institution must 

return the payments to the sender. 

(ii) At the same time that the 

institution returns the payments, it must 

notify the borrower that there is no 

obligation to make payments on the loan 

after it has been discharged due to a 

total and permanent disability unless 

the loan is reinstated in accordance with 

§ 674.61(b)(6), or the Secretary directs 

the borrower otherwise. 

(iii) When the Secretary discharges 

the loan, the Secretary returns to the 

sender any payments received on the 

loan after the date the borrower became 

totally and permanently disabled. 

* * * * * 

(d) Discharge without an application. 

(1) The Secretary will discharge a loan 

under this section without an 

application or any additional 

documentation from the borrower if the 

Secretary— 

(i) Obtains data from the Department 

of Veterans Affairs (VA) showing that 

the borrower is unemployable due to a 

service-connected disability; or 

(ii) Obtains data from the Social 

Security Administration (SSA) 

described in paragraph (b)(2)(iv)(C) of 

this section. 

(e) Notifications and return of 

payments. (1) After determining that a 

borrower qualifies for a total and 

permanent disability discharge under 

paragraph (d) of this section, the 

Secretary sends a notification to the 

borrower informing the borrower that 

the Secretary will discharge the 

borrower’s title IV loans unless the 

borrower notifies the Secretary, by a 

date specified in the Secretary’s 

notification, that the borrower does not 

wish to receive the loan discharge. 

(2) Unless the borrower notifies the 

Secretary that the borrower does not 

wish to receive the discharge, the 

Secretary notifies the borrower’s lenders 

that the borrower has been approved for 

a disability discharge. 

(3) In the case of a discharge based on 

a disability determination by VA— 

(i) The notification— 

(A) Provides the effective date of the 

disability determination by VA; and 

(B) Directs each institution holding a 

Defense, NDSL, or Perkins Loan made to 

the borrower to discharge the loan; and 

(ii) The institution returns to the 

person who made the payments any 

payments received on or after the 

effective date of the determination by 

VA that the borrower is unemployable 

due to a service-connected disability. 


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(4) In the case of a discharge based on 

a disability determination by the SSA— 

(i) The notification— 

(A) Provides the date the Secretary 

received the SSA data described in 

paragraph (b)(2)(iv)(C) of this section; 

and 

(B) Directs each institution holding a 

Defense, NDSL, or Perkins Loan made to 

the borrower to assign the loan to the 

Secretary within 45 days of the notice 

described in paragraph (e)(2) of this 

section; and 

(ii) After the loan is assigned, the 

Secretary discharges the loan in 

accordance with paragraph (b)(3)(v) of 

this section. 

(5) If the borrower notifies the 

Secretary that they do not wish to 

receive the discharge, the borrower will 

remain responsible for repayment of the 

borrower’s loans in accordance with the 

terms and conditions of the promissory 

notes that the borrower signed. 

* * * * * 

■ 15. Section 674.65 is added to read as 

follows: 

§ 674.65 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

PART 682—FEDERAL FAMILY 

EDUCATION LOAN (FFEL) PROGRAM 

■ 16. The authority citation for part 682 

continues to read as follows: 

Authority: 20 U.S.C. 1071–1087–4, unless 

otherwise noted. 

■ 17. Section 682.402 is amended by: 

■ a. Revising paragraphs (c)(2)(iv) 

through (vii) and (c)(3) through (6); 

■ b. Removing paragraph (c)(7); 

■ c. Redesignating paragraphs (c)(8) 

through (11) as paragraphs (c)(7) 

through (10), respectively; 

■ d. Revising newly redesignated 

paragraphs (c)(7),(9), and (10); 

■ e. Revising paragraphs (d)(1) through 

(3); 

■ f. In paragraph (d)(6)(ii)(B) 

introductory text, removing the number 

‘‘120’’ and adding in its place the 

number ‘‘180’’; 

■ g. In paragraph (d)(6)(ii)(B)(2), 

removing the number ‘‘120’’ and adding 

in its place the number ‘‘180’’; 

■ h. In paragraph (d)(6)(ii)(H), removing 

the number ‘‘60’’ and adding in its place 

the number ‘‘90’’; 

■ i. In paragraph (d)(7)(ii), removing the 

number ‘‘60’’ and adding in its place the 

number ‘‘90’’; 

■ j. Revising paragraph (d)(8); 

■ k. Adding paragraph (d)(9); 

■ l. Revising paragraph (e)(1); 

■ m. In paragraph (e)(2)(v) removing the 

citation ‘‘(e)(1)(ii)’’ and adding in its 

place the citation ‘‘(e)(1)(iii)’’; 

■ n. Revising paragraph (e)(3); 

■ o. Removing paragraph (e)(13); 

■ p. Redesignating paragraphs (e)(6) 

through (12) as (e)(7) through (13), 

respectively; 

■ q. Adding a new paragraph (e)(6); 

■ r. Revising redesignated paragraphs 

(e)(7) through (13) and paragraphs 

(e)(14) and (15); and 

■ s. Adding paragraph (e)(16). 

The revisions and additions read as 

follows: 

§ 682.402 Death, disability, closed school, 

false certification, unpaid refunds, and 

bankruptcy payments. 

* * * * * 

(c) * * * 

(2) * * * 

(iv) The borrower must submit to the 

Secretary an application for a total and 

permanent disability discharge on a 

form approved by the Secretary. The 

application must contain— 

(A) A certification by a physician, 

who is a doctor of medicine or 

osteopathy legally authorized to practice 

in a State, that the borrower is totally 

and permanently disabled as described 

in paragraph (1) of the definition of that 

term in § 682.200(b); 

(B) A certification by a nurse 

practitioner or physician’s assistant 

licensed by a State, or a licensed or 

certified psychologist at the 

independent practice level, that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b); or 

(C) An SSA Benefit Planning Query 

(BPQY) or an SSA notice of award or 

other documentation deemed acceptable 

by the Secretary, indicating that— 

(1) The borrower qualifies for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits and the borrower’s next 

scheduled disability review will be 

within 5 to 7 years; 

(2) The borrower qualifies for SSDI or 

SSI benefits and the borrower’s next 

scheduled disability review will be 

within 3 years, and that the borrower’s 

eligibility for disability benefits in the 3- 

year review category has been renewed 

at least once; 

(3) The borrower has a disability onset 

date for SSDI or SSI of at least 5 years 

prior or has been receiving benefits for 

a least 5 years prior to the application 

for a disability discharge; 

(4) The borrower qualifies for the SSA 

compassionate allowance program; or 

(5) For a borrower who is currently 

receiving SSA retirement benefits, 

documentation that, prior to the 

borrower qualifying for SSA retirement 

benefits, the borrower met any of the 

requirements in paragraph (c)(2)(iv)(C) 

of this section. 

(v) The borrower must submit the 

application described in paragraph 

(c)(2)(iv) of this section to the Secretary 

within 90 days of the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certifies the application, if applicable. 

(vi) After the Secretary receives the 

application described in paragraph 

(c)(2)(iv) of this section, the Secretary 

notifies the holders of the borrower’s 

title IV loans that the Secretary has 

received a total and permanent 

disability discharge application from the 

borrower. The holders of the loans must 

notify the applicable guaranty agency 

that the total and permanent disability 

discharge application has been received. 

(vii) If the application is incomplete, 

the Secretary notifies the borrower of 

the missing information and requests 

the missing information from the 

borrower or the physician, nurse 

practitioner, physician’s assistant or 

psychologist who provided the 

certification, as appropriate. The 

Secretary does not make a 

determination of eligibility until the 

application is complete. 

* * * * * 

(3) Secretary’s review of total and 

permanent disability discharge 

application. (i) If, after reviewing the 

borrower’s completed application, the 

Secretary determines that the data 

described in paragraph (c)(2)(iv) of this 

section supports the conclusion that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 682.200(b), the borrower is considered 

totally and permanently disabled— 

(A) As of the date the physician, nurse 

practitioner, physician’s assistant or 

psychologist certified the borrower’s 

application; or 

(B) As of the date the Secretary 

received the SSA data described in 

paragraph (c)(2)(iv)(C) of this section. 

(ii) If the Secretary determines that 

the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 682.200(b) 

the Secretary may require the borrower 

to submit additional medical evidence. 

As part of the Secretary’s review of the 

borrower’s discharge application, the 

Secretary may require and arrange for an 

additional review of the borrower’s 

condition by an independent physician 

or other medical professional identified 


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by the Secretary at no expense to the 

borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

borrower and the borrower’s lenders 

that the application for a disability 

discharge has been approved. With this 

notification, the Secretary provides the 

date the physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s loan discharge 

application or the date the Secretary 

received the SSA data described in 

paragraph (c)(2)(iv)(C) of this section 

and directs each lender to submit a 

disability claim to the guaranty agency 

so the loan can be assigned to the 

Secretary. The Secretary returns any 

payment received by the Secretary after 

the date the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certified the borrower’s 

loan discharge application or received 

the SSA data described in paragraph 

(c)(2)(iv)(C) of this section to the person 

who made the payment. 

(iv) After the loan is assigned, the 

Secretary discharges the borrower’s 

obligation to make further payments on 

the loan and notifies the borrower and 

the lender that the loan has been 

discharged. The notification to the 

borrower explains the terms and 

conditions under which the borrower’s 

obligation to repay the loan will be 

reinstated, as specified in paragraph 

(c)(6)(i) of this section. 

(v) If the Secretary determines that the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certification or SSA data described in 

paragraph (c)(2)(iv)(C) of this section 

does not support the conclusion that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 682.200(b), the Secretary notifies the 

borrower and the lender that the 

application for a disability discharge has 

been denied. The notification 

includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the lender under the 

terms of the promissory note and that 

the loan will return to the status that 

would have existed had the total and 

permanent disability discharge 

application not been received; 

(C) A statement that the lender will 

notify the borrower of the date the 

borrower must resume making 

payments on the loan; 

(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the application 

for discharge by providing, within 12 

months of the date of the notification, 

additional information that supports the 

borrower’s eligibility for discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 

of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to re-evaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 

(vi) If the borrower requests reevaluation in accordance with 

paragraph (c)(3)(v)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (c)(3)(v)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for a total 

and permanent disability discharge. 

(4) Treatment of disbursements made 

during the period from the date of the 

physician, nurse practitioner, 

physician’s assistant or psychologist 

certification or the date the Secretary 

received the SSA data described in 

paragraph (c)(2)(iv)(C) of this section 

until the date of discharge. If a borrower 

received a title IV loan or TEACH Grant 

before the date the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certified the borrower’s 

discharge application or before the date 

the Secretary received the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section and a disbursement of that 

loan or grant is made during the period 

from the date of the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certification or the 

Secretary’s receipt of the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section until the date the Secretary 

grants a discharge under this section, 

the processing of the borrower’s loan 

discharge request will be suspended 

until the borrower ensures that the full 

amount of the disbursement has been 

returned to the loan holder or to the 

Secretary, as applicable. 

(5) Receipt of new title IV loans or 

TEACH Grants after the date of the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certification or after the date the 

Secretary received the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section. If a borrower receives a 

disbursement of a new title IV loan or 

receives a new TEACH Grant made on 

or after the date the physician, nurse 

practitioner, physician’s assistant or 

psychologist certified the borrower’s 

discharge application or the date the 

Secretary received the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section and before the date the 

Secretary grants a discharge under this 

section, the Secretary denies the 

borrower’s discharge request and 

collection resumes on the borrower’s 

loans. 

(6) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates the borrower’s obligation to 

repay a loan that was discharged in 

accordance with (c)(3)(iii) of this section 

if, within 3 years after the date the 

Secretary granted the discharge, the 

borrower receives a new TEACH Grant 

or a new loan under the Perkins or 

Direct Loan programs, except for a 

Direct Consolidation Loan that includes 

loans that were not discharged. 

(ii) If the borrower’s obligation to 

repay a loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (c)(6)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 90 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

(7) Lender and guaranty agency 

actions. (i) If the Secretary approves the 

borrower’s total and permanent 

disability discharge application— 

(A) The lender must submit a 

disability claim to the guaranty agency, 

in accordance with paragraph (g)(1) of 

this section; 


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(B) If the claim satisfies the 

requirements of paragraph (g)(1) of this 

section and § 682.406, the guaranty 

agency must pay the claim submitted by 

the lender; 

(C) After receiving a claim payment 

from the guaranty agency, the lender 

must return to the sender any payments 

received by the lender after the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s loan discharge 

application or after the date the 

Secretary received the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section as well as any payments 

received after claim payment from or on 

behalf of the borrower; 

(D) The Secretary reimburses the 

guaranty agency for a disability claim 

paid to the lender after the agency pays 

the claim to the lender; and 

(E) The guaranty agency must assign 

the loan to the Secretary within 45 days 

of the date the guaranty agency pays the 

disability claim and receives the 

reimbursement payment, or within 45 

days of the date the guaranty agency 

receives the notice described in 

paragraph (c)(3)(iii) of this section if a 

guaranty agency is the lender. 

(ii) If the Secretary does not approve 

the borrower’s total and permanent 

disability discharge request, the lender 

must resume collection of the loan and 

is deemed to have exercised forbearance 

of payment of both principal and 

interest from the date collection activity 

was suspended. The lender may 

capitalize, in accordance with 

§ 682.202(b), any interest accrued and 

not paid during that period, except if 

the lender is a guaranty agency it may 

not capitalize accrued interest. 

* * * * * 

(9) Discharge without an application. 

The Secretary will discharge a loan 

under this section without an 

application or any additional 

documentation from the borrower if the 

Secretary— 

(i) Obtains data from the Department 

of Veterans Affairs (VA) showing that 

the borrower is unemployable due to a 

service-connected disability; or 

(ii) Obtains data from the Social 

Security Administration (SSA) 

described in paragraph (c)(2)(iv)(C) of 

this section. 

(10) Notifications and return of 

payments. (i) After determining that a 

borrower qualifies for a total and 

permanent disability discharge under 

paragraph (c)(9) of this section, the 

Secretary sends a notification to the 

borrower informing the borrower that 

the Secretary will discharge the 

borrower’s title IV loans unless the 

borrower notifies the Secretary, by a 

date specified in the Secretary’s 

notification, that the borrower does not 

wish to receive the loan discharge. 

(ii) Unless the borrower notifies the 

Secretary that the borrower does not 

wish to receive the discharge, the 

Secretary notifies the borrower’s loan 

holders that the borrower has been 

approved for a disability discharge. 

With this notification the Secretary 

provides the effective date of the 

determination by VA or the date the 

Secretary received the SSA data 

described in paragraph (c)(2)(iv)(C) of 

this section and directs the holder of 

each FFEL Program loan made to the 

borrower to submit a disability claim to 

the guaranty agency in accordance with 

paragraph (g)(1) of this section. 

(iii) If the claim meets the 

requirements of paragraph (g)(1) of this 

section and § 682.406, the guaranty 

agency pays the claim and must— 

(A) Discharge the loan, in the case of 

a discharge based on data from VA; or 

(B) Assign the loan to the Secretary, 

in the case of a discharge based on data 

from the SSA. 

(iv) The Secretary reimburses the 

guaranty agency for a disability claim 

after the agency pays the claim to the 

lender. 

(v) Upon receipt of the claim payment 

from the guaranty agency, the loan 

holder returns to the person who made 

the payments any payments received on 

or after— 

(A) The effective date of the 

determination by VA that the borrower 

is unemployable due to a serviceconnected disability; or 

(B) The date the Secretary received 

the SSA data described in paragraph 

(c)(2)(iv)(C) of this section. 

(vi) For a loan that is assigned to the 

Secretary for discharge based on data 

from the SSA, the Secretary discharges 

the loan in accordance with paragraph 

(c)(3)(iv) of this section. 

(vii) If the borrower notifies the 

Secretary that they do not wish to 

receive the discharge, the borrower will 

remain responsible for repayment of the 

borrower’s loans in accordance with the 

terms and conditions of the promissory 

notes that the borrower signed. 

* * * * * 

(d) * * * 

(1) General. (i) The Secretary 

reimburses the holder of a loan received 

by a borrower on or after January 1, 

1986, and discharges the borrower’s 

obligation with respect to the loan in 

accordance with the provisions of 

paragraph (d) of this section, if the 

borrower (or the student for whom a 

parent received a PLUS loan) could not 

complete the program of study for 

which the loan was intended because 

the school at which the borrower (or 

student) was enrolled closed, or the 

borrower (or student) withdrew from the 

school not more than 180 days prior to 

the date the school closed. The 

Secretary may extend the 180-day 

period if the Secretary determines that 

exceptional circumstances, as described 

in paragraph (d)(9) of this section, 

justify an extension. 

(ii) For purposes of the closed school 

discharge authorized by this section— 

(A) A school’s closure date is the 

earlier of the date that the school ceases 

to provide educational instruction in 

most programs, as determined by the 

Secretary, or a date chosen by the 

Secretary that reflects when the school 

had ceased to provide educational 

instruction for most of its students; 

(B) The term ‘‘borrower’’ includes all 

endorsers on a loan; 

(C) A ‘‘school’’ means a school’s main 

campus or any location or branch of the 

main campus, regardless of whether the 

school or its location or branch is 

considered title IV eligible, and 

(D) ‘‘Program’’ means the credential 

defined by the level and Classification 

of Instructional Program code in which 

a student is enrolled, except that the 

Secretary may define a borrower’s 

program as multiple levels or 

Classification of Instructional Program 

codes if— 

(1) The enrollment occurred at the 

same school in closely proximate 

periods; 

(2) The school granted a credential in 

a program while the student was 

enrolled in a different program; or 

(3) The programs must be taken in a 

set order or were presented as necessary 

for borrowers to complete in order to 

succeed in the relevant field of 

employment. 

(2) Relief available pursuant to 

discharge. (i) Discharge under this 

paragraph (d) relieves the borrower of 

any existing or past obligation to repay 

the loan and any charges imposed or 

costs incurred by the holder with 

respect to the loan that the borrower is, 

or was otherwise obligated to pay. 

(ii) A discharge of a loan under this 

paragraph (d) qualifies the borrower for 

reimbursement of amounts paid 

voluntarily or through enforced 

collection on a loan obligation 

discharged under this paragraph (d). 

(iii) A borrower who has defaulted on 

a loan discharged under this paragraph 

(d) is not regarded as in default on the 

loan after discharge, and is eligible to 

receive assistance under the title IV, 

HEA programs. 


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(iv) A discharge of a loan under this 

paragraph (d) must be reported by the 

loan holder to all consumer reporting 

agencies to which the holder previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned 

to the loan. 

(3) Borrower qualification for 

discharge. Except as provided in 

paragraph (d)(8) of this section, to 

qualify for a discharge of a loan under 

this paragraph (d), a borrower must 

submit a completed closed school 

discharge application on a form 

approved by the Secretary and the 

factual assertions in the application 

must be true and must be made under 

penalty of perjury. The application 

explains the procedures and eligibility 

criteria for obtaining a discharge and 

requires the borrower to state that the 

borrower (or the student on whose 

behalf a parent borrowed)— 

(i) Received the proceeds of a loan, in 

whole or in part, on or after January 1, 

1986, to attend a school; 

(ii) Did not complete the program of 

study at that school because the school 

closed while the student was enrolled, 

or the student withdrew from the school 

not more than 180 calendar days before 

the school closed. The Secretary may 

extend the 180-day period if the 

Secretary determines that exceptional 

circumstances, as described in 

paragraph (d)(9) of this section, justify 

an extension; 

(iii) On or after July 1, 2023, state that 

the borrower did not complete an 

institutional teach-out plan performed 

by the school or a teach-out agreement 

at another school, approved by the 

school’s accrediting agency and, if 

applicable, the school’s State 

authorizing agency; and 

(iv) State that the borrower (or 

student)— 

(A) Agrees to provide to the Secretary 

or the Secretary’s designee upon request 

other documentation reasonably 

available to the borrower that 

demonstrates that the borrower meets 

the qualifications for discharge under 

this section; and 

(B) Agrees to cooperate with the 

Secretary or the Secretary’s designee in 

enforcement actions in accordance with 

paragraph (d)(4) of this section and to 

transfer any right to recovery against a 

third party to the Secretary in 

accordance with paragraph (d)(5) of this 

section. 

* * * * * 

(8) Discharge without an application. 

(i) A borrower’s obligation to repay a 

FFEL Program loan may be discharged 

without an application from the 

borrower if the— 

(A) Borrower received a discharge on 

a loan pursuant to § 674.33(g) of this 

chapter under the Federal Perkins Loan 

Program, or § 685.214 of this chapter 

under the William D. Ford Federal 

Direct Loan Program; or 

(B) Secretary or the guaranty agency, 

with the Secretary’s permission, 

determines that the borrower qualifies 

for a discharge based on information in 

the Secretary or guaranty agency’s 

possession. The Secretary or guaranty 

agency discharges the loan without an 

application from the borrower if the 

borrower did not complete an 

institutional teach-out plan performed 

by the school or a teach-out agreement 

at another school, approved by the 

school’s accrediting agency and, if 

applicable, the school’s State 

authorizing agency. 

(ii) If the borrower accepts but does 

not complete an institutional teach-out 

plan performed by the school or a teachout agreement at another school, 

approved by the school’s accrediting 

agency and, if applicable, the school’s 

State authorizing agency, then the 

Secretary or guaranty agency discharges 

the loan within 1 year of the borrower’s 

last date of attendance in the teach-out 

program. 

(9) Exceptional circumstances. For 

purposes of this section, exceptional 

circumstances include, but are not 

limited to— 

(i) The revocation or withdrawal by 

an accrediting agency of the school’s 

institutional accreditation; 

(ii) The school is or was placed on 

probation or issued a show-cause order, 

or placed on an accreditation status that 

poses an equivalent or greater risk to its 

accreditation, by its accrediting agency 

for failing to meet one or more of the 

agency’s standards; 

(iii) The revocation or withdrawal by 

the State authorization or licensing 

authority to operate or to award 

academic credentials in the State; 

(iv) The termination by the 

Department of the school’s participation 

in a title IV, HEA program; 

(v) A finding by a State or Federal 

government agency that the school 

violated State or Federal law related to 

education or services to students; 

(vi) A State or Federal court judgment 

that a School violated State or Federal 

law related to education or services to 

students; 

(vii) The teach-out of the student’s 

educational program exceeds the 180- 

day look back period for a closed school 

discharge; 

(viii) The school responsible for the 

teach-out of the student’s educational 

program fails to perform the material 

terms of the teach-out plan or 

agreement, such that the student does 

not have a reasonable opportunity to 

complete his or her program of study; 

(ix) The school discontinued a 

significant share of its academic 

programs. 

(x) The school permanently closed all 

or most of its ground-based or in -person 

locations while maintaining online 

programs. 

(xi) The school was placed on the 

heightened cash monitoring payment 

method as defined in § 668.162(d)(2). 

(e) * * * 

(1) General. (i) The Secretary 

reimburses the holder of a loan received 

by a borrower on or after January 1, 

1986, and discharges a current or former 

borrower’s obligation with respect to the 

loan in accordance with the provisions 

of this paragraph (e), if the borrower’s 

(or the student for whom a parent 

received a PLUS loan) eligibility to 

receive the loan was falsely certified by 

an eligible school. On or after July 1, 

2006, the Secretary reimburses the 

holder of a loan, and discharges a 

borrower’s obligation with respect to the 

loan in accordance with the provisions 

of this paragraph (e), if the borrower’s 

eligibility to receive the loan was falsely 

certified as a result of a crime of identity 

theft. For purposes of a false 

certification discharge, the term 

‘‘borrower’’ includes all endorsers on a 

loan. 

(ii) A student’s or other individual’s 

eligibility to borrow will be considered 

to have been falsely certified by the 

school if the school— 

(A) Certified the eligibility for a FFEL 

Program loan of a student who— 

(1) Reported not having a high school 

diploma or its equivalent; and 

(2) Did not satisfy the alternative to 

graduation from high school 

requirements in 34 CFR 668.32(e) and 

section 484(d) of the Act that were in 

effect at the time the loan was certified, 

as applicable. 

(B) Certified the eligibility of a 

student who is not a high school 

graduate based on— 

(1) A high school graduation status 

falsified by the school; or 

(2) A high school diploma falsified by 

the school or a third party to which the 

school referred the borrower; 

(C) Certified the eligibility of the 

student who, because of a physical or 

mental condition, age, criminal record, 

or other reason accepted by the 

Secretary, would not meet State 

requirements for employment (in the 

student’s State of residence when the 

loan was certified) in the occupation for 

which the training program supported 

by the loan was intended; 


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(D) Signed the borrower’s name 

without authorization by the borrower 

on the loan application or promissory 

note; or 

(E) Certified the eligibility of an 

individual for a FFEL Program loan as 

a result of the crime of identity theft 

committed against the individual, as 

that crime is defined in paragraph 

(e)(14) of this section. 

(iii) The Secretary discharges the 

obligation of a borrower with respect to 

a loan disbursement for which the 

school, without the borrower’s 

authorization, endorsed the borrower’s 

loan check or authorization for 

electronic funds transfer, unless the 

student for whom the loan was made 

received the proceeds of the loan either 

by actual delivery of the loan funds or 

by a credit in the amount of the 

contested disbursement applied to 

charges owed to the school for that 

portion of the educational program 

completed by the student. However, the 

Secretary does not reimburse the lender 

with respect to any amount disbursed 

by means of a check bearing an 

unauthorized endorsement unless the 

school also executed the application or 

promissory note for that loan for the 

named borrower without that 

individual’s consent. 

(iv) If a loan was made as a result of 

the crime of identity theft that was 

committed by an employee or agent of 

the lender, or if at the time the loan was 

made, an employee or agent of the 

lender knew of the identity theft of the 

individual named as the borrower— 

(A) The Secretary does not pay 

reinsurance, and does not reimburse the 

holder, for any amount disbursed on the 

loan; and 

(B) Any amounts received by a holder 

as interest benefits and special 

allowance payments with respect to the 

loan must be refunded to the Secretary, 

as provided in paragraphs (e)(8)(ii)(B)(4) 

and (e)(10)(ii)(D) of this section. 

* * * * * 

(3) Borrower qualification for 

discharge. Except as provided in 

paragraph (e)(15) of this section, to 

qualify for a discharge of a loan under 

this paragraph (e), the borrower must 

submit to the holder of the loan an 

application for discharge on a form 

approved by the Secretary. The 

application need not be notarized, but 

must be made by the borrower under 

penalty of perjury, and, in the 

application, the borrower must— 

(i) State whether the student has made 

a claim with respect to the school’s false 

certification with any third party, such 

as the holder of a performance bond or 

a tuition recovery program, and if so, 

the amount of any payment received by 

the borrower (or student) or credited to 

the borrower’s loan obligation; 

(ii) In the case of a borrower 

requesting a discharge based on not 

having had a high school diploma and 

not having met the alternative to 

graduation from high school eligibility 

requirements in 34 CFR 668.32(e) and 

under section 484(d) of the Act 

applicable when the loan was certified, 

and the school or a third party to which 

the school referred the borrower 

falsified the student’s high school 

diploma, the borrower must state in the 

application that the borrower (or the 

student for whom a parent received a 

PLUS loan)— 

(A) Received, on or after January 1, 

1986, the proceeds of any disbursement 

of a loan disbursed, in whole or in part, 

on or after January 1, 1986, to attend a 

school; 

(B) Reported not having a valid high 

school diploma or its equivalent when 

the loan was certified; and 

(C) Did not satisfy the alternative to 

graduation from high school statutory or 

regulatory eligibility requirements 

identified on the application form and 

applicable when the loan was certified. 

(iii) In the case of a borrower 

requesting a discharge based on a 

condition that would disqualify the 

borrower from employment in the 

occupation that the training program for 

which the borrower received the loan 

was intended, the borrower must state 

in the application that the borrower (or 

student for whom a parent received a 

PLUS loan) did not meet State 

requirements for employment in the 

student’s State of residence in the 

occupation that the training program for 

which the borrower received the loan 

was intended because of a physical or 

mental condition, age, criminal record, 

or other reason accepted by the 

Secretary. 

(iv) In the case of a borrower 

requesting a discharge because the 

school signed the borrower’s name on 

the loan application or promissory note 

without the borrower’s authorization 

state that he or she did not sign the 

document in question or authorize the 

school to do so. 

(v) In the case of a borrower 

requesting a discharge because the 

school, without authorization of the 

borrower, endorsed the borrower’s name 

on the loan check or signed the 

authorization for electronic funds 

transfer or master check, the borrower 

must— 

(A) State that he or she did not 

endorse the loan check or sign the 

authorization for electronic funds 

transfer or master check, or authorize 

the school to do so; and 

(B) State that the proceeds of the 

contested disbursement were not 

received either through actual delivery 

of the loan funds or by a credit in the 

amount of the contested disbursement 

applied to charges owed to the school 

for that portion of the educational 

program completed by the student. 

(vi) In the case of an individual whose 

eligibility to borrow was falsely certified 

because he or she was a victim of the 

crime of identity theft and is requesting 

a discharge— 

(A) Certify that the individual did not 

sign the promissory note, or that any 

other means of identification used to 

obtain the loan was used without the 

authorization of the individual claiming 

relief; 

(B) Certify that the individual did not 

receive or benefit from the proceeds of 

the loan with knowledge that the loan 

had been made without the 

authorization of the individual; and 

(C) Provide a statement of facts and 

supporting evidence that demonstrate, 

to the satisfaction of the Secretary, that 

the individual’s eligibility for the loan 

in question was falsely certified as a 

result of identity theft committed 

against that individual. Supporting 

evidence may include— 

(1) A judicial determination of 

identity theft relating to the individual; 

(2) A Federal Trade Commission 

identity theft affidavit; 

(3) A police report alleging identity 

theft relating to the individual; 

(4) Documentation of a dispute of the 

validity of the loan due to identity theft 

filed with at least three major consumer 

reporting agencies; and 

(5) Other evidence acceptable to the 

Secretary. 

(vii) That the borrower agrees to 

provide upon request by the Secretary 

or the Secretary’s designee, other 

documentation reasonably available to 

the borrower, that demonstrates, to the 

satisfaction of the Secretary or the 

Secretary’s designee, that the student 

meets the qualifications in this 

paragraph (e); and 

(viii) That the borrower agrees to 

cooperate with the Secretary or the 

Secretary’s designee in enforcement 

actions in accordance with paragraph 

(e)(4) of this section, and to transfer any 

right to recovery against a third party in 

accordance with paragraph (e)(5) of this 

section. 

* * * * * 

(6) Discharge procedures—general. (i) 

If the holder of the borrower’s loan 

determines that a borrower’s FFEL 

Program loan may be eligible for a 


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discharge under this section, the holder 

provides the borrower the application 

described in paragraph (e)(3) of this 

section and an explanation of the 

qualifications and procedures for 

obtaining a discharge. The holder also 

promptly suspends any efforts to collect 

from the borrower on any affected loan. 

The holder may continue to receive 

borrower payments. 

(ii) If the borrower fails to submit the 

application for discharge and 

supporting information described in 

paragraph (e)(3) of this section within 

60 days of the holder providing the 

application, the holder resumes 

collection and grants forbearance of 

principal and interest for the period in 

which collection activity was 

suspended. 

(iii) If the borrower submits an 

application for discharge that the holder 

determines is incomplete, the holder 

notifies the borrower of that 

determination and allows the borrower 

an additional 30-days to amend their 

application and provide supplemental 

information. If the borrower does not 

amend their application within 30 days 

of receiving the notification from the 

holder the borrower’s application is 

closed as incomplete and the holder 

resumes collection of the loan and 

grants forbearance of principal and 

interest for the period in which 

collection activity was suspended. 

(iv) If the borrower submits a 

complete application described in 

paragraph (e)(3) of this section, the 

holder files a claim with the guaranty 

agency no later than 60 days after the 

holder receives the borrower’s complete 

application. 

(v) The guaranty agency determines 

whether the available evidence supports 

the claim for discharge. Available 

evidence includes evidence provided by 

the borrower and any other relevant 

information from the guaranty agency’s 

records or gathered by the guaranty 

agency from other sources, including 

the Secretary, other guaranty agencies, 

Federal agencies, State authorities, test 

publishers, independent test 

administrators, school records, and 

cognizant accrediting associations. 

(vi) The guaranty agency issues a 

decision that explains the reasons for 

any adverse determination on the 

application, describes the evidence on 

which the decision was made, and 

provides the borrower, upon request, 

copies of the evidence. The guaranty 

agency considers any response from the 

borrower and any additional 

information from the borrower and 

notifies the borrower whether the 

determination is changed. 

(vii) If the guaranty agency determines 

that the borrower meets the applicable 

requirements for a discharge under this 

paragraph (e), the guaranty agency 

notifies the borrower in writing of that 

determination. 

(viii) If the guaranty agency 

determines that the borrower does not 

qualify for a discharge, the guaranty 

agency notifies the borrower in writing 

of that determination and the reasons 

for the determination. 

(ix) If the guaranty agency determines 

that the borrower does not qualify for a 

discharge, the borrower may request 

that the Secretary review the guaranty 

agency’s decision. 

(x) A borrower is not precluded from 

re-applying for a discharge under this 

paragraph (e) if the discharge request is 

closed as incomplete, or if the guaranty 

agency or Secretary determines that the 

borrower does not qualify for a 

discharge if the borrower provides 

additional supporting evidence. 

(7) Guaranty agency responsibilities— 

general. (i) A guaranty agency shall 

notify the Secretary immediately 

whenever it becomes aware of reliable 

information indicating that a school 

may have falsely certified a student’s 

eligibility or caused an unauthorized 

disbursement of loan proceeds, as 

described in paragraph (e)(3) of this 

section. The designated guaranty agency 

in the State in which the school is 

located shall promptly investigate 

whether the school has falsely certified 

a student’s eligibility and, within 30 

days after receiving information 

indicating that the school may have 

done so, report the results of its 

preliminary investigation to the 

Secretary. 

(ii) If the guaranty agency receives 

information it believes to be reliable 

indicating that a borrower whose loan is 

held by the agency may be eligible for 

a discharge under this paragraph (e), the 

agency shall immediately suspend any 

efforts to collect from the borrower on 

any loan received for the program of 

study for which the loan was made (but 

may continue to receive borrower 

payments), and inform the borrower of 

the procedures for requesting a 

discharge. 

(iii) If the borrower fails to submit the 

Secretary’s approved application 

described in paragraph (e)(3) of this 

section within 60 days of being notified 

of that option, the guaranty agency shall 

resume collection and shall be deemed 

to have exercised forbearance of 

payment of principal and interest from 

the date it suspended collection activity. 

(iv) If the borrower submits an 

application for discharge that the 

guaranty agency determines is 

incomplete, the guaranty agency notifies 

the borrower of that determination and 

allows the borrower an additional 30- 

days to amend their application and 

provide supplemental information. If 

the borrower does not amend their 

application within 30 days of receiving 

the notification from the guaranty 

agency the borrower’s application is 

closed as incomplete and the guaranty 

agency resumes collection of the loan 

and grants forbearance of principal and 

interest for the period in which 

collection activity was suspended. 

(v) Upon receipt of a discharge claim 

filed by a lender or a complete 

application submitted by a borrower 

with respect to a loan held by the 

guaranty agency, the agency shall have 

up to 90 days to determine whether the 

discharge should be granted. The agency 

shall review the borrower’s application 

in light of information available from 

the records of the agency and from other 

sources, including other guaranty 

agencies, State authorities, and 

cognizant accrediting associations. 

(vi) A borrower’s application for 

discharge may not be denied solely on 

the basis of failing to meet any time 

limits set by the lender, the Secretary or 

the guaranty agency. 

(8) Guaranty agency responsibilities 

with respect to a claim filed by a lender. 

(i) The agency shall evaluate the 

borrower’s application request and 

consider relevant information it 

possesses and information available 

from other sources, and follow the 

procedures described in this paragraph 

(e)(8). 

(ii) If the agency determines that the 

borrower satisfies the requirements for 

discharge under this paragraph (e), it 

shall, not later than 30 days after the 

agency makes that determination, pay 

the claim in accordance with paragraph 

(h) of this section and— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the loan has been discharged, and that 

the lender has been informed of the 

actions required under paragraph 

(e)(8)(ii)(C) of this section; 

(B) Refund to the borrower all 

amounts paid by the borrower to the 

lender or the agency with respect to the 

discharged loan amount, including any 

late fees or collection charges imposed 

by the lender or agency related to the 

discharged loan amount; and 

(C) Notify the lender that the 

borrower’s liability with respect to the 

amount of the loan has been discharged, 

and that the lender must— 

(1) Immediately terminate any 

collection efforts against the borrower 

with respect to the discharged loan 

amount and any charges imposed or 


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costs incurred by the lender related to 

the discharged loan amount that the 

borrower is, or was, otherwise obligated 

to pay; and 

(2) Within 30 days, report to all credit 

reporting agencies to which the lender 

previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan; and 

(D) Within 30 days, demand payment 

in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not 

received, pursue collection action 

thereafter against the perpetrator. 

(iii) If the agency determines that the 

borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination— 

(A) Notify the lender that the 

borrower’s liability on the loan is not 

discharged and that, depending on the 

borrower’s decision under paragraph 

(e)(8)(iii)(B) of this section, the loan 

shall either be returned to the lender or 

paid as a default claim; and 

(B) Notify the borrower that the 

borrower does not qualify for discharge 

and state the reasons for that 

conclusion. The agency shall advise the 

borrower that he or she remains 

obligated to repay the loan and warn the 

borrower of the consequences of default, 

and explain that the borrower will be 

considered to be in default on the loan 

unless the borrower submits a written 

statement to the agency within 30 days 

stating that the borrower— 

(1) Acknowledges the debt and, if 

payments are due, will begin or resume 

making those payments to the lender; or 

(2) Requests the Secretary to review 

the agency’s decision. 

(iv) Within 30 days after receiving the 

borrower’s written statement described 

in paragraph (e)(8)(iii)(B)(1) of this 

section, the agency shall return the 

claim file to the lender and notify the 

lender to resume collection efforts if 

payments are due. 

(v) Within 30 days after receiving the 

borrower’s request for review by the 

Secretary, the agency shall forward the 

claim file to the Secretary for his review 

and take the actions required under 

paragraph (e)(12) of this section. 

(vi) The agency shall pay a default 

claim to the lender within 30 days after 

the borrower fails to return either of the 

written statements described in 

paragraph (e)(8)(iii)(B) of this section. 

(9) Guaranty agency responsibilities 

with respect to a claim filed by a lender 

based only on the borrower’s assertion 

that he or she did not sign the loan 

check or the authorization for the 

release of loan funds via electronic 

funds transfer or master check. (i) The 

agency shall evaluate the borrower’s 

request and consider relevant 

information it possesses and 

information available from other 

sources, and follow the procedures 

described in this paragraph (e)(9). 

(ii) If the agency determines that a 

borrower who asserts that he or she did 

not endorse the loan check satisfies the 

requirements for discharge under 

paragraph (e)(3)(v) of this section, it 

shall, within 30 days after making that 

determination— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the contested disbursement of the loan 

has been discharged, and that the lender 

has been informed of the actions 

required under paragraph (e)(9)(ii)(B) of 

this section; 

(B) Notify the lender that the 

borrower’s liability with respect to the 

amount of the contested disbursement 

of the loan has been discharged, and 

that the lender must— 

(1) Immediately terminate any 

collection efforts against the borrower 

with respect to the discharged loan 

amount and any charges imposed or 

costs incurred by the lender related to 

the discharged loan amount that the 

borrower is, or was, otherwise obligated 

to pay; 

(2) Within 30 days, report to all credit 

reporting agencies to which the lender 

previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan; 

(3) Refund to the borrower, within 30 

days, all amounts paid by the borrower 

with respect to the loan disbursement 

that was discharged, including any 

charges imposed or costs incurred by 

the lender related to the discharged loan 

amount; 

(4) Refund to the Secretary, within 30 

days, all interest benefits and special 

allowance payments received from the 

Secretary with respect to the loan 

disbursement that was discharged; and 

(C) Transfer to the lender the 

borrower’s written assignment of any 

rights the borrower may have against 

third parties with respect to a loan 

disbursement that was discharged 

because the borrower did not sign the 

loan check. 

(iii) If the agency determines that a 

borrower who asserts that he or she did 

not sign the electronic funds transfer or 

master check authorization satisfies the 

requirements for discharge under 

paragraph (e)(3)(v) of this section, it 

shall, within 30 days after making that 

determination, pay the claim in 

accordance with paragraph (h) of this 

section and— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the contested disbursement of the loan 

has been discharged, and that the lender 

has been informed of the actions 

required under paragraph (e)(9)(iii)(C) of 

this section; 

(B) Refund to the borrower all 

amounts paid by the borrower to the 

lender or the agency with respect to the 

discharged loan amount, including any 

late fees or collection charges imposed 

by the lender or agency related to the 

discharged loan amount; and 

(C) Notify the lender that the 

borrower’s liability with respect to the 

contested disbursement of the loan has 

been discharged, and that the lender 

must— 

(1) Immediately terminate any 

collection efforts against the borrower 

with respect to the discharged loan 

amount and any charges imposed or 

costs incurred by the lender related to 

the discharged loan amount that the 

borrower is, or was, otherwise obligated 

to pay; and 

(2) Within 30 days, report to all credit 

reporting agencies to which the lender 

previously reported the status of the 

loan, so as to delete all adverse credit 

history assigned to the loan. 

(iv) If the agency determines that the 

borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination— 

(A) Notify the lender that the 

borrower’s liability on the loan is not 

discharged and that, depending on the 

borrower’s decision under paragraph 

(e)(9)(iv)(B) of this section, the loan 

shall either be returned to the lender or 

paid as a default claim; and 

(B) Notify the borrower that the 

borrower does not qualify for discharge 

and state the reasons for that 

conclusion. The agency shall advise the 

borrower that he or she remains 

obligated to repay the loan and warn the 

borrower of the consequences of default, 

and explain that the borrower will be 

considered to be in default on the loan 

unless the borrower submits a written 

statement to the agency within 30 days 

stating that the borrower— 

(1) Acknowledges the debt and, if 

payments are due, will begin or resume 

making those payments to the lender; or 

(2) Requests the Secretary to review 

the agency’s decision. 

(v) Within 30 days after receiving the 

borrower’s written statement described 

in paragraph (e)(9)(iv)(B)(1) of this 

section, the agency shall return the 

claim file to the lender and notify the 

lender to resume collection efforts if 

payments are due. 

(vi) Within 30 days after receiving the 

borrower’s request for review by the 

Secretary, the agency shall forward the 

claim file to the Secretary for his review 


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and take the actions required under 

paragraph (e)(12) of this section. 

(vii) The agency shall pay a default 

claim to the lender within 30 days after 

the borrower fails to return either of the 

written statements described in 

paragraph (e)(9)(iv)(B) of this section. 

(10) Guaranty agency responsibilities 

in the case of a loan held by the agency 

for which a discharge request is 

submitted by a borrower. (i) The agency 

shall evaluate the borrower’s 

application and consider relevant 

information it possesses and 

information available from other 

sources, and follow the procedures 

described in this paragraph (e)(10). 

(ii) If the agency determines that the 

borrower satisfies the requirements for 

discharge under paragraph (e)(3) of this 

section, it shall immediately terminate 

any collection efforts against the 

borrower with respect to the discharged 

loan amount and any charges imposed 

or costs incurred by the agency related 

to the discharged loan amount that the 

borrower is, or was otherwise obligated 

to pay and, not later than 30 days after 

the agency makes the determination that 

the borrower satisfies the requirements 

for discharge— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the loan has been discharged; 

(B) Report to all credit reporting 

agencies to which the agency previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned 

to the loan; 

(C) Refund to the borrower all 

amounts paid by the borrower to the 

lender or the agency with respect to the 

discharged loan amount, including any 

late fees or collection charges imposed 

by the lender or agency related to the 

discharged loan amount; and 

(D) Within 30 days, demand payment 

in full from the perpetrator of the 

identity theft committed against the 

individual, and if payment is not 

received, pursue collection action 

thereafter against the perpetrator. 

(iii) If the agency determines that the 

borrower does not qualify for a 

discharge, it shall, within 30 days after 

making that determination, notify the 

borrower that the borrower’s liability 

with respect to the amount of the loan 

is not discharged, state the reasons for 

that conclusion, and if the borrower is 

not then making payments in 

accordance with a repayment 

arrangement with the agency on the 

loan, advise the borrower of the 

consequences of continued failure to 

reach such an arrangement, and that 

collection action will resume on the 

loan unless within 30 days the 

borrower— 

(A) Acknowledges the debt and, if 

payments are due, reaches a satisfactory 

arrangement to repay the loan or 

resumes making payments under such 

an arrangement to the agency; or 

(B) Requests the Secretary to review 

the agency’s decision. 

(iv) Within 30 days after receiving the 

borrower’s request for review by the 

Secretary, the agency shall forward the 

borrower’s discharge request and all 

relevant documentation to the Secretary 

for his review and take the actions 

required under paragraph (e)(12) of this 

section. 

(v) The agency shall resume collection 

action if within 30 days of giving notice 

of its determination the borrower fails to 

seek review by the Secretary or agree to 

repay the loan. 

(11) Guaranty agency responsibilities 

in the case of a loan held by the agency 

for which a discharge request is 

submitted by a borrower based only on 

the borrower’s assertion that he or she 

did not sign the loan check or the 

authorization for the release of loan 

proceeds via electronic funds transfer or 

master check. (i) The agency shall 

evaluate the borrower’s application 

request and consider relevant 

information it possesses and 

information available from other 

sources, and follow the procedures 

described in this paragraph (e)(11). 

(ii) If the agency determines that a 

borrower who asserts that he or she did 

not endorse the loan check satisfies the 

requirements for discharge under 

paragraph (e)(3)(v) of this section, it 

shall refund to the Secretary the amount 

of reinsurance payment received with 

respect to the amount discharged on 

that loan less any repayments made by 

the lender under paragraph 

(e)(11)(ii)(D)(2) of this section, and 

within 30 days after making that 

determination— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the contested disbursement of the loan 

has been discharged; 

(B) Report to all credit reporting 

agencies to which the agency previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned 

to the loan; 

(C) Refund to the borrower all 

amounts paid by the borrower to the 

lender or the agency with respect to the 

discharged loan amount, including any 

late fees or collection charges imposed 

by the lender or agency related to the 

discharged loan amount; 

(D) Notify the lender to whom a claim 

payment was made that the lender must 

refund to the Secretary, within 30 

days— 

(1) All interest benefits and special 

allowance payments received from the 

Secretary with respect to the loan 

disbursement that was discharged; and 

(2) The amount of the borrower’s 

payments that were refunded to the 

borrower by the guaranty agency under 

paragraph (e)(11)(ii)(C) of this section 

that represent borrower payments 

previously paid to the lender with 

respect to the loan disbursement that 

was discharged; 

(E) Notify the lender to whom a claim 

payment was made that the lender must, 

within 30 days, reimburse the agency 

for the amount of the loan that was 

discharged, minus the amount of 

borrower payments made to the lender 

that were refunded to the borrower by 

the guaranty agency under paragraph 

(e)(11)(ii)(C) of this section; and 

(F) Transfer to the lender the 

borrower’s written assignment of any 

rights the borrower may have against 

third parties with respect to the loan 

disbursement that was discharged. 

(iii) In the case of a borrower who 

requests a discharge because he or she 

did not sign the electronic funds 

transfer or master check authorization, if 

the agency determines that the borrower 

meets the conditions for discharge, it 

shall immediately terminate any 

collection efforts against the borrower 

with respect to the discharged loan 

amount and any charges imposed or 

costs incurred by the agency related to 

the discharged loan amount that the 

borrower is, or was, otherwise obligated 

to pay, and within 30 days after making 

that determination— 

(A) Notify the borrower that his or her 

liability with respect to the amount of 

the contested disbursement of the loan 

has been discharged; 

(B) Refund to the borrower all 

amounts paid by the borrower to the 

lender or the agency with respect to the 

discharged loan amount, including any 

late fees or collection charges imposed 

by the lender or agency related to the 

discharged loan amount; and 

(C) Report to all credit reporting 

agencies to which the lender previously 

reported the status of the loan, so as to 

delete all adverse credit history assigned 

to the loan. 

(iv) The agency shall take the actions 

required under paragraphs (e)(10)(iii) 

through (v) of this section if the agency 

determines that the borrower does not 

qualify for a discharge. 

(12) Guaranty agency responsibilities 

if a borrower requests a review by the 

Secretary. (i) Within 30 days after 

receiving the borrower’s request for 

review under paragraph (e)(8)(iii)(B)(2), 

(e)(9)(iv)(B)(2), (e)(10)(iii)(B), or 

(e)(11)(iv) of this section, the agency 


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shall forward the borrower’s discharge 

application request and all relevant 

documentation to the Secretary for 

review. 

(ii) The Secretary notifies the agency 

and the borrower of a determination on 

review. If the Secretary determines that 

the borrower is not eligible for a 

discharge under this paragraph (e)n, 

within 30 days after being so informed, 

the agency shall take the actions 

described in paragraphs (e)(9)(iv) 

through (vii) or (e)(10)(iii) through (v) of 

this section, as applicable. 

(iii) If the Secretary determines that 

the borrower meets the requirements for 

a discharge under paragraph (e) of this 

section, the agency shall, within 30 days 

after being so informed, take the actions 

required under paragraph (e)(8)(ii), 

(e)(9)(ii) or (iii), (e)(10)(ii), or (e)(11)(ii) 

or (iii) of this section, as applicable. 

(13) Lender responsibilities. (i) If the 

lender is notified by a guaranty agency 

or the Secretary, or receives information 

it believes to be reliable from another 

source indicating that a current or 

former borrower may be eligible for a 

discharge under this paragraph (e), the 

lender shall immediately suspend any 

efforts to collect from the borrower on 

any loan received for the program of 

study for which the loan was made (but 

may continue to receive borrower 

payments) and, within 30 days of 

receiving the information or 

notification, inform the borrower of the 

procedures for requesting a discharge. 

(ii) If the borrower fails to submit the 

Secretary’s approved application within 

60 days of being notified of that option, 

the lender shall resume collection and 

shall be deemed to have exercised 

forbearance of payment of principal and 

interest from the date the lender 

suspended collection activity on the 

loan. The lender may capitalize, in 

accordance with § 682.202(b), any 

interest accrued and not paid during 

that period. 

(iii) If the borrower submits an 

application for discharge that the lender 

determines is incomplete, the lender 

notifies the borrower of that 

determination and allows the borrower 

an additional 30-days to amend their 

application and provide supplemental 

information. If the borrower does not 

amend their application within 30 days 

of receiving the notification from the 

lender the borrower’s application is 

closed as incomplete and the lender 

resumes collection of the loan and 

grants forbearance of principal and 

interest for the period in which 

collection activity was suspended. 

(iv) The lender shall file a claim with 

the guaranty agency in accordance with 

paragraph (g) of this section no later 

than 60 days after the lender receives 

the borrower’s complete application 

described in paragraph (e)(3) of this 

section. If a lender receives a payment 

made by or on behalf of the borrower on 

the loan after the lender files a claim on 

the loan with the guaranty agency, the 

lender shall forward the payment to the 

guaranty agency within 30 days of its 

receipt. The lender shall assist the 

guaranty agency and the borrower in 

determining whether the borrower is 

eligible for discharge of the loan. 

(v) The lender shall comply with all 

instructions received from the Secretary 

or a guaranty agency with respect to 

loan discharges under this paragraph 

(e). 

(vi) The lender shall review a claim 

that the borrower did not endorse and 

did not receive the proceeds of a loan 

check. The lender shall take the actions 

required under paragraphs (e)(9)(ii)(A) 

and (B) of this section if it determines 

that the borrower did not endorse the 

loan check, unless the lender secures 

persuasive evidence that the proceeds of 

the loan were received by the borrower 

or the student for whom the loan was 

made, as provided in paragraph 

(e)(1)(iii) of this section. If the lender 

determines that the loan check was 

properly endorsed or the proceeds were 

received by the borrower or student, the 

lender may consider the borrower’s 

objection to repayment as a statement of 

intention not to repay the loan and may 

file a claim with the guaranty agency for 

reimbursement on that ground but shall 

not report the loan to consumer 

reporting agencies as in default until the 

guaranty agency, or, as applicable, the 

Secretary, reviews the claim for relief. 

By filing such a claim, the lender shall 

be deemed to have agreed to the 

following— 

(A) If the guarantor or the Secretary 

determines that the borrower endorsed 

the loan check or the proceeds of the 

loan were received by the borrower or 

the student, any failure to satisfy due 

diligence requirements by the lender 

prior to the filing of the claim that 

would have resulted in the loss of 

reinsurance on the loan in the event of 

default will be waived by the Secretary; 

and 

(B) If the guarantor or the Secretary 

determines that the borrower did not 

endorse the loan check and that the 

proceeds of the loan were not received 

by the borrower or the student, the 

lender will comply with the 

requirements specified in paragraph 

(e)(9)(ii)(B) of this section. 

(vii) Within 30 days after being 

notified by the guaranty agency that the 

borrower’s request for a discharge has 

been denied, the lender shall notify the 

borrower of the reasons for the denial 

and, if payments are due, resume 

collection against the borrower. The 

lender shall be deemed to have 

exercised forbearance of payment of 

principal and interest from the date the 

lender suspended collection activity, 

and may capitalize, in accordance with 

§ 682.202(b), any interest accrued and 

not paid during that period. 

(14) Definition of Identity theft. (i) For 

purposes of this section, identity theft is 

defined as the unauthorized use of the 

identifying information of another 

individual that is punishable under 18 

U.S.C. 1028, 1028A, 1029, or 1030, or 

substantially comparable State or local 

law. 

(ii) Identifying information includes, 

but is not limited to— 

(A) Name, Social Security number, 

date of birth, official State or 

government issued driver’s license or 

identification number, alien registration 

number, government passport number, 

and employer or taxpayer identification 

number; 

(B) Unique biometric data, such as 

fingerprints, voiceprint, retina or iris 

image, or unique physical 

representation; 

(C) Unique electronic identification 

number, address, or routing code; or 

(D) Telecommunication identifying 

information or access device (as defined 

in 18 U.S.C. 1029(e)). 

(15) Discharge without an application. 

A borrower’s obligation to repay all or 

a portion of an FFEL Program loan may 

be discharged without an application 

from the borrower if the Secretary, or 

the guaranty agency with the Secretary’s 

permission, determines based on 

information in the Secretary’s or the 

guaranty agency’s possession that the 

borrower qualifies for a discharge. Such 

information includes, but is not limited 

to, evidence that the school has falsified 

the Satisfactory Academic Progress of its 

students, as described in § 668.34 of this 

chapter. 

(16) Application for a group discharge 

from a State Attorney General or non 

profit legal services representative. A 

State Attorney General or nonprofit 

legal services representative may submit 

to the Secretary an application for a 

group discharge under this section. 

* * * * * 

■ 18. Section 682.414 is amended by 

revising paragraph (b)(4) to read as 

follows: 

§ 682.414 Reports. 

* * * * * 

(b) * * * 

(4) A report to the Secretary of the 

borrower’s enrollment and loan status 

information, details related to the loans 


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41992 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

or borrower’s deferments, forbearances, 

repayment plans, delinquency and 

contact information, or any title IV loanrelated data required by the Secretary, 

by the deadline date established by the 

Secretary. 

* * * * * 

■ 19. Section 682.424 is added to 

subpart D to read as follows: 

§ 682.424 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

PART 685—WILLIAM D. FORD 

FEDERAL DIRECT LOAN PROGRAM 

■ 20. The authority citation for part 685 

is revised to read as follows: 

Authority: 20 U.S.C. 1070g, 1087a, et seq., 

unless otherwise noted. 

■ 21. Section 685.103 is amended by 

revising paragraph (d) to read as 

follows: 

§ 685.103 Applicability of subparts. 

* * * * * 

(d) Subpart D of this part contains 

provisions regarding borrower defense 

to repayment in the Direct Loan 

Program. 

■ 22. Section 685.109 is added to 

subpart A to read as follows: 

§ 685.109 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

■ 23. Section 685.202 is amended by: 

■ a. Removing paragraphs (b)(2), (4), 

and (5); 

■ b. Redesignating paragraph (b)(3) as 

paragraph (b)(2) and revising it. 

The revision reads as follows: 

§ 685.202 Charges for which Direct Loan 

Program borrowers are responsible. 

* * * * * 

(b) * * * 

(2) Notwithstanding § 685.208(l)(5), 

for a Direct Loan not eligible for interest 

subsidies during periods of deferment, 

the Secretary capitalizes the unpaid 

interest that has accrued on the loan 

upon the expiration of the deferment. 

* * * * * 

■ 24. Section 685.205 is amended by 

revising paragraph (b)(6) to read as 

follows: 

§ 685.205 Forbearance. 

* * * * * 

* * * * * 

(b) * * * 

(6) Periods necessary for the Secretary 

to determine the borrower’s eligibility 

for discharge— 

(i) Under § 685.206(c) through (e); 

(ii) Under § 685.214; 

(iii) Under § 685.215; 

(iv) Under § 685.216; 

(v) Under § 685.217; 

(vi) Under § 685.222; 

(vii) Under subpart D of this part; or 

(viii) Due to the borrower’s or 

endorser’s (if applicable) bankruptcy; 

* * * * * 

■ 25. Section 685.206 is amended by 

revising paragraph (e) to read as follows: 

§ 685.206 Borrower Responsibilities and 

Defenses. 

* * * * * 

(e) Borrower defense to repayment for 

loans first disbursed on or after July 1, 

2020, and before July 1, 2023. This 

paragraph (e) applies to borrower 

defense to repayment for loans first 

disbursed on or after July 1, 2020, and 

before July 1, 2023. 

(1) Definitions. For the purposes of 

this paragraph (e), the following 

definitions apply: 

(i) A ‘‘Direct Loan’’ under this 

paragraph (e) means a Direct Subsidized 

Loan, a Direct Unsubsidized Loan, or a 

Direct PLUS Loan. 

(ii) ‘‘Borrower’’ means: 

(A) The borrower; and 

(B) In the case of a Direct PLUS Loan, 

any endorsers, and for a Direct PLUS 

Loan made to a parent, the student on 

whose behalf the parent borrowed. 

(iii) A ‘‘borrower defense to 

repayment’’ under this paragraph (e) 

includes— 

(A) A defense to repayment of 

amounts owed to the Secretary on a 

Direct Loan, or a Direct Consolidation 

Loan that was used to repay a Direct 

Loan, FFEL Program Loan, Federal 

Perkins Loan, Health Professions 

Student Loan, Loan for Disadvantaged 

Students under subpart II of part A of 

title VII of the Public Health Service 

Act, Health Education Assistance Loan, 

or Nursing Loan made under part E of 

the Public Health Service Act; and 

(B) Any accompanying request for 

reimbursement of payments previously 

made to the Secretary on the Direct 

Loan or on a loan repaid by the Direct 

Consolidation Loan. 

(iv) The term ‘‘provision of 

educational services’’ under this 

paragraph (e) refers to the educational 

resources provided by the institution 

that are required by an accreditation 

agency or a State licensing or 

authorizing agency for the completion of 

the student’s educational program. 

(v) The terms ‘‘school’’ and 

‘‘institution’’ under this paragraph (e) 

may be used interchangeably and 

include an eligible institution, one of its 

representatives, or any ineligible 

institution, organization, or person with 

whom the eligible institution has an 

agreement to provide educational 

programs, or to provide marketing, 

advertising, recruiting, or admissions 

services. 

(2) Federal standard for loans first 

disbursed on or after July 1, 2020, and 

before July 1, 2023. For a Direct Loan or 

Direct Consolidation Loan first 

disbursed on or after July 1, 2020, and 

before July 1, 2023, a borrower may 

assert a defense to repayment under this 

paragraph (e), if the borrower 

establishes by a preponderance of the 

evidence that— 

(i) The institution at which the 

borrower enrolled made a 

misrepresentation, as defined in 

§ 685.206(e)(3), of material fact upon 

which the borrower reasonably relied in 

deciding to obtain a Direct Loan, or a 

loan repaid by a Direct Consolidation 

Loan, and that directly and clearly 

relates to: 

(A) Enrollment or continuing 

enrollment at the institution or 

(B) The provision of educational 

services for which the loan was made; 

and 

(ii) The borrower was financially 

harmed by the misrepresentation. 

(3) Misrepresentation. A 

‘‘misrepresentation,’’ for purposes of 

this paragraph (e), is a statement, act, or 

omission by an eligible school to a 

borrower that is false, misleading, or 

deceptive; that was made with 

knowledge of its false, misleading, or 

deceptive nature or with a reckless 

disregard for the truth; and that directly 

and clearly relates to enrollment or 

continuing enrollment at the institution 

or the provision of educational services 

for which the loan was made. Evidence 

that a misrepresentation defined in this 

paragraph (e) may have occurred 

includes, but is not limited to: 

(i) Actual licensure passage rates 

materially different from those included 

in the institution’s marketing materials, 

website, or other communications made 

to the student; 

(ii) Actual employment rates 

materially different from those included 

in the institution’s marketing materials, 

website, or other communications made 

to the student; 

(iii) Actual institutional selectivity 

rates or rankings, student admission 

profiles, or institutional rankings that 


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are materially different from those 

included in the institution’s marketing 

materials, website, or other 

communications made to the student or 

provided by the institution to national 

ranking organizations; 

(iv) The inclusion in the institution’s 

marketing materials, website, or other 

communication made to the student of 

specialized, programmatic, or 

institutional certifications, 

accreditation, or approvals not actually 

obtained, or the failure to remove within 

a reasonable period of time such 

certifications or approvals from 

marketing materials, website, or other 

communication when revoked or 

withdrawn; 

(v) The inclusion in the institution’s 

marketing materials, website, or other 

communication made to the student of 

representations regarding the 

widespread or general transferability of 

credits that are only transferrable to 

limited types of programs or institutions 

or the transferability of credits to a 

specific program or institution when no 

reciprocal agreement exists with another 

institution, or such agreement is 

materially different than what was 

represented; 

(vi) A representation regarding the 

employability or specific earnings of 

graduates without an agreement 

between the institution and another 

entity for such employment or sufficient 

evidence of past employment or 

earnings to justify such a representation 

or without citing appropriate national, 

State, or regional data for earnings in the 

same field as provided by an 

appropriate Federal agency that 

provides such data. (In the event that 

national data are used, institutions 

should include a written, plain language 

disclaimer that national averages may 

not accurately reflect the earnings of 

workers in particular parts of the 

country and may include earners at all 

stages of their career and not just entry 

level wages for recent graduates.); 

(vii) A representation regarding the 

availability, amount, or nature of any 

financial assistance available to students 

from the institution or any other entity 

to pay the costs of attendance at the 

institution that is materially different in 

availability, amount, or nature from the 

actual financial assistance available to 

the borrower from the institution or any 

other entity to pay the costs of 

attendance at the institution after 

enrollment; 

(viii) A representation regarding the 

amount, method, or timing of payment 

of tuition and fees that the student 

would be charged for the program that 

is materially different in amount, 

method, or timing of payment from the 

actual tuition and fees charged to the 

student; 

(ix) A representation that the 

institution, its courses, or programs are 

endorsed by vocational counselors, high 

schools, colleges, educational 

organizations, employment agencies, 

members of a particular industry, 

students, former students, governmental 

officials, Federal or State agencies, the 

United States Armed Forces, or other 

individuals or entities when the 

institution has no permission or is not 

otherwise authorized to make or use 

such an endorsement; 

(x) A representation regarding the 

educational resources provided by the 

institution that are required for the 

completion of the student’s educational 

program that are materially different 

from the institution’s actual 

circumstances at the time the 

representation is made, such as 

representations regarding the 

institution’s size; location; facilities; 

training equipment; or the number, 

availability, or qualifications of its 

personnel; and 

(xi) A representation regarding the 

nature or extent of prerequisites for 

enrollment in a course or program 

offered by the institution that are 

materially different from the 

institution’s actual circumstances at the 

time the representation is made, or that 

the institution knows will be materially 

different during the student’s 

anticipated enrollment at the 

institution. 

(4) Financial harm. Under this 

paragraph (e), financial harm is the 

amount of monetary loss that a borrower 

incurs as a consequence of a 

misrepresentation, as defined in 

paragraph (e)(3) of this section. 

Financial harm does not include 

damages for nonmonetary loss, such as 

personal injury, inconvenience, 

aggravation, emotional distress, pain 

and suffering, punitive damages, or 

opportunity costs. The Department does 

not consider the act of taking out a 

Direct Loan or a loan repaid by a Direct 

Consolidation Loan, alone, as evidence 

of financial harm to the borrower. 

Financial harm is such monetary loss 

that is not predominantly due to 

intervening local, regional, or national 

economic or labor market conditions as 

demonstrated by evidence before the 

Secretary or provided to the Secretary 

by the borrower or the school. Financial 

harm cannot arise from the borrower’s 

voluntary decision to pursue less than 

full-time work or not to work or result 

from a voluntary change in occupation. 

Evidence of financial harm may include, 

but is not limited to, the following 

circumstances: 

(i) Periods of unemployment upon 

graduating from the school’s programs 

that are unrelated to national or local 

economic recessions; 

(ii) A significant difference between 

the amount or nature of the tuition and 

fees that the institution represented to 

the borrower that the institution would 

charge or was charging, and the actual 

amount or nature of the tuition and fees 

charged by the institution for which the 

Direct Loan was disbursed or for which 

a loan repaid by the Direct 

Consolidation Loan was disbursed; 

(iii) The borrower’s inability to secure 

employment in the field of study for 

which the institution expressly 

guaranteed employment; and 

(iv) The borrower’s inability to 

complete the program because the 

institution no longer offers a 

requirement necessary for completion of 

the program in which the borrower 

enrolled and the institution did not 

provide for an acceptable alternative 

requirement to enable completion of the 

program. 

(5) Exclusions. The Secretary will not 

accept the following as a basis for a 

borrower defense to repayment under 

this paragraph (e)— 

(i) A violation by the institution of a 

requirement of the Act or the 

Department’s regulations for a borrower 

defense to repayment under paragraph 

(c) or (d) of this section or under 

§ 685.222, unless the violation would 

otherwise constitute the basis for a 

successful borrower defense to 

repayment under this paragraph (e); or 

(ii) A claim that does not directly and 

clearly relate to enrollment or 

continuing enrollment at the institution 

or the provision of educational services 

for which the loan was made, including, 

but not limited to— 

(A) Personal injury; 

(B) Sexual harassment; 

(C) A violation of civil rights; 

(D) Slander or defamation; 

(E) Property damage; 

(F) The general quality of the 

student’s education or the 

reasonableness of an educator’s conduct 

in providing educational services; 

(G) Informal communication from 

other students; 

(H) Academic disputes and 

disciplinary matters; and 

(I) Breach of contract unless the 

school’s act or omission would 

otherwise constitute the basis for a 

successful defense to repayment under 

this paragraph (e). 

(6) Limitations period. A borrower 

must assert a defense to repayment 

under this paragraph (e) within 3 years 

from the date the student is no longer 

enrolled at the institution. A borrower 


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may only assert a defense to repayment 

under this paragraph (e) within the 

timeframes set forth in this paragraph 

(e)(6) and paragraph (e)(7) of this 

section. 

(7) Extension of limitation periods 

and reopening of applications. For loans 

first disbursed on or after July 1, 2020, 

and before July 1, 2023, the Secretary 

may extend the time period when a 

borrower may assert a defense to 

repayment under § 685.206(e)(6) or may 

reopen a borrower’s defense to 

repayment application to consider 

evidence that was not previously 

considered only if there is: 

(i) A final, non-default judgment on 

the merits by a State or Federal Court 

that has not been appealed or that is not 

subject to further appeal and that 

establishes the institution made a 

misrepresentation, as defined in 

paragraph (e)(3) of this section; or 

(ii) A final decision by a duly 

appointed arbitrator or arbitration panel 

that establishes that the institution 

made a misrepresentation, as defined in 

paragraph (e)(3) of this section. 

(8) Application and forbearance. To 

assert a defense to repayment under this 

paragraph (e), a borrower must submit 

an application under penalty of perjury 

on a form approved by the Secretary and 

sign a waiver permitting the institution 

to provide the Department with items 

from the borrower’s education record 

relevant to the defense to repayment 

claim. The form will note that pursuant 

to § 685.205(b)(6)(i), if the borrower is 

not in default on the loan for which a 

borrower defense has been asserted, the 

Secretary will grant forbearance and 

notify the borrower of the option to 

decline forbearance. The application 

requires the borrower to— 

(i) Certify that the borrower received 

the proceeds of a loan, in whole or in 

part, to attend the named institution; 

(ii) Provide evidence that supports the 

borrower defense to repayment 

application; 

(iii) State whether the borrower has 

made a claim with any other third party, 

such as the holder of a performance 

bond, a public fund, or a tuition 

recovery program, based on the same act 

or omission of the institution on which 

the borrower defense to repayment is 

based; 

(iv) State the amount of any payment 

received by the borrower or credited to 

the borrower’s loan obligation through 

the third party, in connection with a 

borrower defense to repayment 

described in paragraph (e)(2) of this 

section; 

(v) State the financial harm, as 

defined in paragraph (e)(4) of this 

section, that the borrower alleges to 

have been caused and provide any 

information relevant to assessing 

whether the borrower incurred financial 

harm, including providing 

documentation that the borrower 

actively pursued employment in the 

field for which the borrower’s education 

prepared the borrower if the borrower is 

a recent graduate (failure to provide 

such information results in a 

presumption that the borrower failed to 

actively pursue employment in the 

field); whether the borrower was 

terminated or removed for performance 

reasons from a position in the field for 

which the borrower’s education 

prepared the borrower, or in a related 

field; and whether the borrower failed to 

meet other requirements of or 

qualifications for employment in such 

field for reasons unrelated to the 

school’s misrepresentation underlying 

the borrower defense to repayment, 

such as the borrower’s ability to pass a 

drug test, satisfy driving record 

requirements, and meet any health 

qualifications; and 

(vi) State that the borrower 

understands that in the event that the 

borrower receives a 100 percent 

discharge of the balance of the loan for 

which the defense to repayment 

application has been submitted, the 

institution may, if allowed or not 

prohibited by other applicable law, 

refuse to verify or to provide an official 

transcript that verifies the borrower’s 

completion of credits or a credential 

associated with the discharged loan. 

(9) Consideration of order of 

objections and of evidence in possession 

of the Secretary under this paragraph 

(e). (i) If the borrower asserts both a 

borrower defense to repayment and any 

other objection to an action of the 

Secretary with regard to a Direct Loan 

or a loan repaid by a Direct 

Consolidation Loan under this 

paragraph (e), the order in which the 

Secretary will consider objections, 

including a borrower defense to 

repayment under this paragraph (e), will 

be determined as appropriate under the 

circumstances. 

(ii) With respect to the borrower 

defense to repayment application 

submitted under this paragraph (e), the 

Secretary may consider evidence 

otherwise in the possession of the 

Secretary, including from the 

Department’s internal records or other 

relevant evidence obtained by the 

Secretary, as practicable, provided that 

the Secretary permits the institution and 

the borrower to review and respond to 

this evidence and to submit additional 

evidence. 

(10) School response and borrower 

reply under this paragraph (e). (i) Upon 

receipt of a borrower defense to 

repayment application under this 

paragraph (e), the Department will 

notify the school of the pending 

application and provide a copy of the 

borrower’s request and any supporting 

documents, a copy of any evidence 

otherwise in the possession of the 

Secretary, and a waiver signed by the 

student permitting the institution to 

provide the Department with items from 

the student’s education record relevant 

to the defense to repayment claim to the 

school, and invite the school to respond 

and to submit evidence, within the 

specified timeframe included in the 

notice, which shall be no less than 60 

days. 

(ii) Upon receipt of the school’s 

response, the Department will provide 

the borrower a copy of the school’s 

submission as well as any evidence 

otherwise in possession of the Secretary, 

which was provided to the school, and 

will give the borrower an opportunity to 

submit a reply within a specified 

timeframe, which shall be no less than 

60 days. The borrower’s reply must be 

limited to issues and evidence raised in 

the school’s submission and any 

evidence otherwise in the possession of 

the Secretary. 

(iii) The Department will provide the 

school a copy of the borrower’s reply. 

(iv) There will be no other 

submissions by the borrower or the 

school to the Secretary unless the 

Secretary requests further clarifying 

information. 

(11) Written decision under this 

paragraph (e). (i) After considering the 

borrower’s application and all 

applicable evidence under this 

paragraph (e), the Secretary issues a 

written decision— 

(A) Notifying the borrower and the 

school of the decision on the borrower 

defense to repayment under this 

paragraph (e); 

(B) Providing the reasons for the 

decision; and 

(C) Informing the borrower and the 

school of the relief, if any, that the 

borrower will receive, consistent with 

paragraph (e)(12) of this section and 

specifying the relief determination. 

(ii) If the Department receives a 

borrower defense to repayment 

application that is incomplete and is 

within the limitations period in 

paragraph (e)(6) or (7) of this section, 

the Department will not issue a written 

decision on the application and instead 

will notify the borrower in writing that 

the application is incomplete and will 

return the application to the borrower. 

(12) Borrower defense to repayment 

relief under this paragraph (e). (i) If the 

Secretary grants the borrower’s request 


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for relief based on a borrower defense to 

repayment under this paragraph (e), the 

Secretary notifies the borrower and the 

school that the borrower is relieved of 

the obligation to repay all or part of the 

loan and associated costs and fees that 

the borrower would otherwise be 

obligated to pay or will be reimbursed 

for amounts paid toward the loan 

voluntarily or through enforced 

collection. The amount of relief that a 

borrower receives under this paragraph 

(e) may exceed the amount of financial 

harm, as defined in paragraph (e)(4) of 

this section, that the borrower alleges in 

the application pursuant to paragraph 

(e)(8)(v) of this section. The Secretary 

determines the amount of relief and 

awards relief limited to the monetary 

loss that a borrower incurred as a 

consequence of a misrepresentation, as 

defined in paragraph (e)(3) of this 

section. The amount of relief cannot 

exceed the amount of the loan and any 

associated costs and fees and will be 

reduced by the amount of refund, 

reimbursement, indemnification, 

restitution, compensatory damages, 

settlement, debt forgiveness, discharge, 

cancellation, compromise, or any other 

financial benefit received by, or on 

behalf of, the borrower that was related 

to the borrower defense to repayment 

under this paragraph (e). In awarding 

relief under this paragraph (e), the 

Secretary considers the borrower’s 

application, as described in paragraph 

(e)(8) of this section, which includes 

information about any payments 

received by the borrower and the 

financial harm alleged by the borrower. 

In awarding relief under this paragraph 

(e), the Secretary also considers the 

school’s response, the borrower’s reply, 

and any evidence otherwise in the 

possession of the Secretary, which was 

previously provided to the borrower and 

the school, as described in paragraph 

(e)(10) of this section. The Secretary also 

updates reports to consumer reporting 

agencies to which the Secretary 

previously made adverse credit reports 

with regard to the borrower’s Direct 

Loan or loans repaid by the borrower’s 

Direct Consolidation Loan under this 

paragraph (e). 

(ii) The Secretary affords the borrower 

such further relief as the Secretary 

determines is appropriate under the 

circumstances. Further relief may 

include determining that the borrower is 

not in default on the loan and is eligible 

to receive assistance under title IV of the 

Act. 

(13) Finality of borrower defense to 

repayment decisions under this 

paragraph (e). The determination of a 

borrower’s defense to repayment by the 

Department included in the written 

decision referenced in paragraph (e)(11) 

of this section is the final decision of the 

Department and is not subject to appeal 

within the Department. 

(14) Cooperation by the borrower 

under this paragraph (e). The Secretary 

may revoke any relief granted to a 

borrower under this section who refuses 

to cooperate with the Secretary in any 

proceeding under this paragraph (e) or 

under part 668, subpart G. Such 

cooperation includes, but is not limited 

to— 

(i) Providing testimony regarding any 

representation made by the borrower to 

support a successful borrower defense 

to repayment under this paragraph (e); 

and 

(ii) Producing, within timeframes 

established by the Secretary, any 

documentation reasonably available to 

the borrower with respect to those 

representations and any sworn 

statement required by the Secretary with 

respect to those representations and 

documents. 

(15) Transfer to the Secretary of the 

borrower’s right of recovery against third 

parties under this paragraph (e). (i) 

Upon the grant of any relief under this 

paragraph (e), the borrower is deemed to 

have assigned to, and relinquished in 

favor of, the Secretary any right to a loan 

refund (up to the amount discharged) 

that the borrower may have by contract 

or applicable law with respect to the 

loan or the provision of educational 

services for which the loan was 

received, against the school, its 

principals, its affiliates and their 

successors, or its sureties, and any 

private fund, including the portion of a 

public fund that represents funds 

received from a private party. If the 

borrower asserts a claim to, and recovers 

from, a public fund, the Secretary may 

reinstate the borrower’s obligation to 

repay on the loan an amount based on 

the amount recovered from the public 

fund, if the Secretary determines that 

the borrower’s recovery from the public 

fund was based on the same borrower 

defense to repayment and for the same 

loan for which the discharge was 

granted under this section. 

(ii) The provisions of this paragraph 

(e)(15) apply notwithstanding any 

provision of State law that would 

otherwise restrict transfer of those rights 

by the borrower, limit or prevent a 

transferee from exercising those rights, 

or establish procedures or a scheme of 

distribution that would prejudice the 

Secretary’s ability to recover on those 

rights. 

(iii) Nothing in this paragraph (e)(15) 

limits or forecloses the borrower’s right 

to pursue legal and equitable relief 

arising under applicable law against a 

party described in this paragraph (e)(15) 

for recovery of any portion of a claim 

exceeding that assigned to the Secretary 

or any other claims arising from matters 

unrelated to the claim on which the 

loan is discharged. 

(16) Recovery from the school under 

this paragraph (e). (i) The Secretary may 

initiate an appropriate proceeding to 

require the school whose 

misrepresentation resulted in the 

borrower’s successful borrower defense 

to repayment under this paragraph (e) to 

pay to the Secretary the amount of the 

loan to which the defense applies in 

accordance with part 668, subpart G. 

This paragraph (e)(16) would also be 

applicable for provisionally certified 

institutions. 

(ii) Under this paragraph (e), the 

Secretary will not initiate such a 

proceeding more than 5 years after the 

date of the final determination included 

in the written decision referenced in 

paragraph (e)(11) of this section. The 

Department will notify the school of the 

borrower defense to repayment 

application within 60 days of the date 

of the Department’s receipt of the 

borrower’s application. 

■ 26. Section 685.209 is amended by: 

■ a. Revising paragraph (a)(2)(iv); 

■ b. In paragraph (b)(1)(vii), removing 

the parenthetical phrase ‘‘(including 

amount capitalized)’’; 

■ c. Removing and reserving paragraph 

(b)(3)(iv); 

■ d. Removing paragraph (c)(2)(iv); 

■ e. Redesignating paragraphs (c)(2)(v) 

and (vi) as paragraphs (c)(2)(iv) and (v), 

respectively. 

■ f. In paragraph (c)(4)(iii)(B), removing 

the words ‘‘paragraphs (c)(2)(iv) and’’, 

and adding in their place ‘‘paragraph’’. 

The revision reads as follows: 

§ 685.209 Income-contingent repayment 

plans. 

(a) * * * 

(2) * * * 

(iv) Except as provided in paragraph 

(a)(2)(iii) of this section, accrued interest 

is capitalized when a borrower is 

determined to no longer have a partial 

financial hardship. 

* * * * * 

■ 27. Section 685.212 is amended by 

adding paragraph (k)(4) to read as 

follows: 

§ 685.212 Discharge of a loan obligation. 

* * * * * 

(k) * * * 

(4) If a borrower’s application for a 

discharge of a loan based on a borrower 

defense is approved under 34 CFR part 

685, subpart D, the Secretary discharges 

the obligation of the borrower, in whole 

or in part, in accordance with the 


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procedures described in subpart D of 

this part. 

■ 28. Section 685.213 is amended by: 

■ a. Revising paragraphs (b)(2) through 

(7); 

■ b. Removing paragraph (b)(8); and 

■ c. Revising paragraphs (d) and (e). 

The revisions read as follows: 

§ 685.213 Total and permanent disability 

discharge. 

* * * * * 

(b) * * * 

(2) Disability certification or Social 

Security Administration (SSA) disability 

determination. The application must 

contain— 

(i) A certification by a physician, who 

is a doctor of medicine or osteopathy 

legally authorized to practice in a State, 

that the borrower is totally and 

permanently disabled as described in 

paragraph (1) of the definition of that 

term in § 685.102(b); 

(ii) A certification by a nurse 

practitioner or physician’s assistant 

licensed by a State, or a licensed 

certified psychologist at the 

independent practice level, that the 

borrower is totally and permanently 

disabled as described in paragraph (1) of 

the definition of that term in 

§ 685.102(b); 

(iii) An SSA Benefit Planning Query 

(BPQY) or an SSA notice of award, or 

other documentation deemed acceptable 

by the Secretary, indicating that— 

(A) The borrower qualifies for Social 

Security Disability Insurance (SSDI) or 

Supplemental Security Income (SSI) 

benefits and the borrower’s next 

scheduled disability review will be 

within 5 to 7 years; 

(B) The borrower qualifies for SSDI or 

SSI benefits and the borrower’s next 

scheduled disability review will be 

within 3 years, and that the borrower’s 

eligibility for disability benefits in the 3- 

year review category has been renewed 

at least once; 

(C) The borrower has a disability 

onset date for SSDI or SSI of at least 5 

years prior to the application for a 

disability discharge or has been 

receiving benefits for at least 5 years 

prior to the application for a TPD 

discharge; 

(D) The borrower qualifies for the SSA 

compassionate allowance program; or 

(E) For borrowers currently receiving 

SSA retirement benefits, documentation 

that, prior to the borrower qualifying for 

SSA retirement benefits, the borrower 

met the requirements in paragraphs 

(b)(2)(iii)(A) through (D) of this section. 

(3) Deadline for application 

submission. The borrower must submit 

the application described in paragraph 

(b)(1) of this section to the Secretary 

within 90 days of the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certifies the application, if applicable. 

Upon receipt of the borrower’s 

application, the Secretary— 

(i) Identifies all title IV loans owed by 

the borrower, notifies the lenders that 

the Secretary has received a total and 

permanent disability discharge 

application from the borrower and 

directs the lenders to suspend collection 

activity or maintain the suspension of 

collection activity on the borrower’s 

title IV loans; 

(ii) If the application is incomplete, 

notifies the borrower of the missing 

information and requests the missing 

information from the borrower or the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

who certified the application, as 

appropriate, and does not make a 

determination of eligibility for discharge 

until the application is complete; 

(iii) Notifies the borrower that no 

payments are due on the loan while the 

Secretary determines the borrower’s 

eligibility for discharge; and 

(iv) Explains the process for the 

Secretary’s review of total and 

permanent disability discharge 

applications. 

(4) Determination of eligibility. (i) If, 

after reviewing the borrower’s 

completed application, the Secretary 

determines that the data described in 

paragraph (b)(2) of this section supports 

the conclusion that the borrower meets 

the criteria for a total and permanent 

disability discharge, as described in 

paragraph (1) of the definition of that 

term in § 685.102(b), the borrower is 

considered totally and permanently 

disabled— 

(A) As of the date the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certified the borrower’s 

application; or 

(B) As of the date the Secretary 

received the SSA data described in 

paragraph (b)(2)(iii) of this section. 

(ii) If the Secretary determines that 

the borrower’s application does not 

conclusively prove that the borrower is 

totally and permanently disabled as 

described in paragraph (1) of the 

definition of that term in § 685.102(b), 

the Secretary may require the borrower 

to submit additional medical evidence. 

As part of the Secretary’s review of the 

borrower’s discharge application, the 

Secretary may require and arrange for an 

additional review of the borrower’s 

condition by an independent physician 

or other medical professional identified 

by the Secretary at no expense to the 

borrower. 

(iii) After determining that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 685.102(b), the Secretary discharges 

the borrower’s obligation to make any 

further payments on the loan, notifies 

the borrower that the loan has been 

discharged, and returns to the person 

who made the payments on the loan any 

payments received after the date the 

physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s loan discharge 

application or the date the Secretary 

received the SSA data described in 

paragraph (b)(2)(iii) of this section. The 

notification to the borrower explains the 

terms and conditions under which the 

borrower’s obligation to repay the loan 

will be reinstated, as specified in 

paragraph (b)(7)(i) of this section. 

(iv) If the Secretary determines that 

the physician, nurse practitioner, 

physician’s assistant, or psychologist 

certification or the SSA data described 

in paragraph (b)(2)(iii) of this section 

provided by the borrower does not 

support the conclusion that the 

borrower is totally and permanently 

disabled, as described in paragraph (1) 

of the definition of that term in 

§ 685.102(b), the Secretary notifies the 

borrower that the application for a 

disability discharge has been denied. 

The notification to the borrower 

includes— 

(A) The reason or reasons for the 

denial; 

(B) A statement that the loan is due 

and payable to the Secretary under the 

terms of the promissory note and that 

the loan will return to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; 

(C) The date that the borrower must 

resume making payments; 

(D) An explanation that the borrower 

is not required to submit a new total and 

permanent disability discharge 

application if the borrower requests that 

the Secretary re-evaluate the borrower’s 

application for discharge by providing, 

within 12 months of the date of the 

notification, additional information that 

supports the borrower’s eligibility for 

discharge; and 

(E) An explanation that if the 

borrower does not request re-evaluation 

of the borrower’s prior discharge 

application within 12 months of the 

date of the notification, the borrower 

must submit a new total and permanent 

disability discharge application to the 

Secretary if the borrower wishes the 

Secretary to re-evaluate the borrower’s 

eligibility for a total and permanent 

disability discharge. 


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(v) If the borrower requests reevaluation in accordance with 

paragraph (b)(4)(iv)(D) of this section or 

submits a new total and permanent 

disability discharge application in 

accordance with paragraph (b)(4)(iv)(E) 

of this section, the request must include 

new information regarding the 

borrower’s disabling condition that was 

not provided to the Secretary in 

connection with the prior application at 

the time the Secretary reviewed the 

borrower’s initial application for total 

and permanent disability discharge. 

(5) Treatment of disbursements made 

during the period from the date of the 

certification or the date the Secretary 

received the SSA data until the date of 

discharge. If a borrower received a title 

IV loan or TEACH Grant before the date 

the physician, nurse practitioner, 

physician’s assistant, or psychologist 

certified the borrower’s discharge 

application or before the date the 

Secretary received the SSA data 

described in paragraph (b)(2)(iii) of this 

section and a disbursement of that loan 

or grant is made during the period from 

the date of the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certification or the receipt 

of the SSA data described in paragraph 

(b)(2)(iii) of this section until the date 

the Secretary grants a discharge under 

this section, the processing of the 

borrower’s loan discharge request will 

be suspended until the borrower 

ensures that the full amount of the 

disbursement has been returned to the 

loan holder or to the Secretary, as 

applicable. 

(6) Receipt of new title IV loans or 

TEACH Grants certification, or after the 

date the Secretary received the SSA 

data. If a borrower receives a 

disbursement of a new title IV loan or 

receives a new TEACH Grant made on 

or after the date the physician, nurse 

practitioner, physician’s assistant, or 

psychologist certified the borrower’s 

discharge application or on or after the 

date the Secretary received the SSA data 

described in paragraph (b)(2)(iii) of this 

section and before the date the Secretary 

grants a discharge under this section, 

the Secretary denies the borrower’s 

discharge request and resumes 

collection on the borrower’s loan. 

(7) Conditions for reinstatement of a 

loan after a total and permanent 

disability discharge. (i) The Secretary 

reinstates a borrower’s obligation to 

repay a loan that was discharged in 

accordance with paragraph (b)(4)(iii) of 

this section if, within 3 years after the 

date the Secretary granted the discharge, 

the borrower receives a new TEACH 

Grant or a new loan under the Direct 

Loan programs, except for a Direct 

Consolidation Loan that includes loans 

that were not discharged. 

(ii) If the borrower’s obligation to 

repay the loan is reinstated, the 

Secretary— 

(A) Notifies the borrower that the 

borrower’s obligation to repay the loan 

has been reinstated; 

(B) Returns the loan to the status that 

would have existed if the total and 

permanent disability discharge 

application had not been received; and 

(C) Does not require the borrower to 

pay interest on the loan for the period 

from the date the loan was discharged 

until the date the borrower’s obligation 

to repay the loan was reinstated. 

(iii) The Secretary’s notification under 

paragraph (b)(7)(ii)(A) of this section 

will include— 

(A) The reason or reasons for the 

reinstatement; 

(B) An explanation that the first 

payment due date on the loan following 

reinstatement will be no earlier than 90 

days after the date of the notification of 

reinstatement; and 

(C) Information on how the borrower 

may contact the Secretary if the 

borrower has questions about the 

reinstatement or believes that the 

obligation to repay the loan was 

reinstated based on incorrect 

information. 

* * * * * 

(d) Discharge without an application. 

(1) The Secretary will discharge a loan 

under this section without an 

application or any additional 

documentation from the borrower if the 

Secretary: 

(i) Obtains data from the Department 

of Veterans Affairs showing that the 

borrower is unemployable due to a 

service-connected disability; or 

(ii) Obtains data from the Social 

Security Administration (SSA) 

described in paragraph (b)(2)(iii) of this 

section. 

(2) [Reserved]. 

(e) Notification to the borrower. (1) 

After determining that a borrower 

qualifies for a total and permanent 

disability discharge under paragraph (d) 

of this section, the Secretary sends a 

notification to the borrower informing 

the borrower that the Secretary will 

discharge the borrower’s title IV loans 

unless the borrower notifies the 

Secretary, by a date specified in the 

Secretary’s notification, that the 

borrower does not wish to receive the 

loan discharge. 

(2) Unless the borrower notifies the 

Secretary that the borrower does not 

wish to receive the discharge the 

Secretary discharges the loan: 

(i) In accordance with paragraph 

(b)(4)(iii) of this section for a discharge 

based on data from the SSA; or 

(ii) In accordance with paragraph 

(c)(2)(i) of this section for a discharge 

based on data from VA. 

(3) If the borrower notifies the 

Secretary that they do not wish to 

receive the discharge, the borrower will 

remain responsible for repayment of the 

borrower’s loans in accordance with the 

terms and conditions of the promissory 

notes that the borrower signed. 

■ 29. Section 685.214 is amended by: 

■ a. Revising paragraph (a)(2); 

■ b. Removing paragraph (g); 

■ c. Redesignating paragraphs (c) 

through (f) as paragraphs (d) through (g), 

respectively; 

■ d. Adding a new paragraph (c); 

■ e. Revising redesignated paragraphs 

(d) through (g); and 

■ f. Adding a new paragraph (h). 

The revisions and additions read as 

follows: 

§ 685.214 Closed school discharge. 

(a) * * * 

(2) For purposes of this section— 

(i) A school’s closure date is the 

earlier of the date that the school ceases 

to provide educational instruction in 

most programs, as determined by the 

Secretary, or a date chosen by the 

Secretary that reflects when the school 

had ceased to provide educational 

instruction for most of its students; 

(ii) ‘‘School’’ means a school’s main 

campus or any location or branch of the 

main campus, regardless of whether the 

school or its location or branch is 

considered title IV eligible; 

(iii) ‘‘Program’’ means the credential 

defined by the level and Classification 

of Instructional Program code in which 

a student is enrolled, except that the 

Secretary may define a borrower’s 

program as multiple levels or 

Classification of Instructional Program 

codes if: 

(A) The enrollment occurred at the 

same institution in closely proximate 

periods; 

(B) The school granted a credential in 

a program while the student was 

enrolled in a different program; or 

(C) The programs must be taken in a 

set order or were presented as necessary 

for borrowers to complete in order to 

succeed in the relevant field of 

employment; 

* * * * * 

(c) Discharge without an application. 

(1) If the Secretary determines based on 

information in the Secretary’s 

possession that the borrower qualifies 

for the discharge of a loan under this 

section, the Secretary discharges the 

loan without an application from the 


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borrower, if the borrower did not 

complete an institutional teach-out plan 

performed by the school or a teach-out 

agreement at another school, approved 

by the school’s accrediting agency and, 

if applicable, the school’s State 

authorizing agency. 

(2) If a borrower accepts but does not 

complete an institutional teach-out plan 

performed by the school or a teach-out 

agreement at another school, approved 

by the school’s accrediting agency and, 

if applicable, the school’s State 

authorizing agency, then the Secretary 

discharges the loan within 1 year of the 

borrower’s last date of attendance in the 

teach-out program. 

(d) Borrower qualification for 

discharge. (1) Except as provided in 

paragraph (h) of this section, to qualify 

for discharge of a loan under this 

section, a borrower must submit to the 

Secretary a completed application and 

the factual assertions in the application 

must be true and must be made by the 

borrower under penalty of perjury. The 

application explains the procedures and 

eligibility criteria for obtaining a 

discharge and requires the borrower 

to— 

(i) State that the borrower (or the 

student on whose behalf a parent 

borrowed)— 

(A) Received the proceeds of a loan, 

in whole or in part, on or after January 

1, 1986, to attend a school; 

(B) Did not complete the program of 

study at that school because the school 

closed while the student was enrolled, 

or the student withdrew from the school 

not more than 180 calendar days before 

the school closed. The Secretary may 

extend the 180-day period if the 

Secretary determines that exceptional 

circumstances, as described in 

paragraph (i) of this section, justify an 

extension; and 

(C) On or after July 1, 2023, state that 

the borrower did not complete an 

institutional teach-out plan performed 

by the school or a teach-out agreement 

at another school, approved by the 

school’s accrediting agency and, if 

applicable, the school’s State 

authorizing agency. 

(ii) State whether the borrower (or 

student) has made a claim with respect 

to the school’s closing with any third 

party, such as the holder of a 

performance bond or a tuition recovery 

program, and, if so, the amount of any 

payment received by the borrower (or 

student) or credited to the borrower’s 

loan obligation; and 

(iii) State that the borrower (or 

student)— 

(A) Agrees to provide to the Secretary 

upon request other documentation 

reasonably available to the borrower 

that demonstrates that the borrower 

meets the qualifications for discharge 

under this section; and 

(B) Agrees to cooperate with the 

Secretary in enforcement actions in 

accordance with paragraph (d) of this 

section and to transfer any right to 

recovery against a third party to the 

Secretary in accordance with paragraph 

(e) of this section. 

(2) [Reserved] 

(e) Cooperation by borrower in 

enforcement actions. (1) To obtain a 

discharge under this section, a borrower 

must cooperate with the Secretary in 

any judicial or administrative 

proceeding brought by the Secretary to 

recover amounts discharged or to take 

other enforcement action with respect to 

the conduct on which the discharge was 

based. At the request of the Secretary 

and upon the Secretary’s tendering to 

the borrower the fees and costs that are 

customarily provided in litigation to 

reimburse witnesses, the borrower 

must— 

(i) Provide testimony regarding any 

representation made by the borrower to 

support a request for discharge; 

(ii) Produce any documents 

reasonably available to the borrower 

with respect to those representations; 

and 

(iii) If required by the Secretary, 

provide a sworn statement regarding 

those documents and representations. 

(2) The Secretary denies the request 

for a discharge or revokes the discharge 

of a borrower who— 

(i) Fails to provide the testimony, 

documents, or a sworn statement 

required under paragraph (d)(1) of this 

section; or 

(ii) Provides testimony, documents, or 

a sworn statement that does not support 

the material representations made by 

the borrower to obtain the discharge. 

(f) Transfer to the Secretary of 

borrower’s right of recovery against third 

parties. (1) Upon discharge under this 

section, the borrower is deemed to have 

assigned to and relinquished in favor of 

the Secretary any right to a loan refund 

(up to the amount discharged) that the 

borrower (or student) may have by 

contract or applicable law with respect 

to the loan or the enrollment agreement 

for the program for which the loan was 

received, against the school, its 

principals, its affiliates and their 

successors, its sureties, and any private 

fund, including the portion of a public 

fund that represents funds received 

from a private party. 

(2) The provisions of this section 

apply notwithstanding any provision of 

State law that would otherwise restrict 

transfer of those rights by the borrower 

(or student), limit or prevent a transferee 

from exercising those rights, or establish 

procedures or a scheme of distribution 

that would prejudice the Secretary’s 

ability to recover on those rights. 

(3) Nothing in this section limits or 

forecloses the borrower’s (or student’s) 

right to pursue legal and equitable relief 

regarding disputes arising from matters 

unrelated to the discharged Direct Loan. 

(g) Discharge procedures. (1) After 

confirming the date of a school’s 

closure, the Secretary identifies any 

Direct Loan borrower (or student on 

whose behalf a parent borrowed) who 

appears to have been enrolled at the 

school on the school closure date or to 

have withdrawn not more than 180 days 

prior to the closure date. 

(2) If the borrower’s current address is 

known, the Secretary mails the borrower 

a discharge application and an 

explanation of the qualifications and 

procedures for obtaining a discharge. 

The Secretary also promptly suspends 

any efforts to collect from the borrower 

on any affected loan. The Secretary may 

continue to receive borrower payments. 

(3) If the borrower’s current address is 

unknown, the Secretary attempts to 

locate the borrower and determines the 

borrower’s potential eligibility for a 

discharge under this section by 

consulting with representatives of the 

closed school, the school’s licensing 

agency, the school’s accrediting agency, 

and other appropriate parties. If the 

Secretary learns the new address of a 

borrower, the Secretary mails to the 

borrower a discharge application and 

explanation and suspends collection, as 

described in paragraph (g)(2) of this 

section. 

(4) If a borrower fails to submit the 

application described in paragraph (d) 

of this section within 90 days of the 

Secretary’s providing the discharge 

application, the Secretary resumes 

collection and grants forbearance of 

principal and interest for the period in 

which collection activity was 

suspended. 

(5) Upon resuming collection on any 

affected loan, the Secretary provides the 

borrower another discharge application 

and an explanation of the requirements 

and procedures for obtaining a 

discharge. 

(6) If the Secretary determines that a 

borrower who requests a discharge 

meets the qualifications for a discharge, 

the Secretary notifies the borrower in 

writing of that determination. 

(7) If the Secretary determines that a 

borrower who requests a discharge does 

not meet the qualifications for a 

discharge, the Secretary notifies that 

borrower in writing of that 

determination and the reasons for the 

determination. 


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(h) Exceptional circumstances. For 

purposes of this section, exceptional 

circumstances include, but are not 

limited to— 

(1) The revocation or withdrawal by 

an accrediting agency of the school’s 

institutional accreditation; 

(2) The school is or was placed on 

probation or issued a show-cause order, 

or was placed on an equivalent 

accreditation status, by its accrediting 

agency for failing to meet one or more 

of the agency’s standards; 

(3) The revocation or withdrawal by 

the State authorization or licensing 

authority to operate or to award 

academic credentials in the State; 

(4) The termination by the 

Department of the school’s participation 

in a title IV, HEA program; 

(5) A finding by a State or Federal 

government agency that the school 

violated State or Federal law related to 

education or services to students; 

(6) A State or Federal court judgment 

that a School violated State or Federal 

law related to education or services to 

students; 

(7) The teach-out of the student’s 

educational program exceeds the 180- 

day look-back period for a closed school 

discharge; 

(8) The school responsible for the 

teach-out of the student’s educational 

program fails to perform the material 

terms of the teach-out plan or 

agreement, such that the student does 

not have a reasonable opportunity to 

complete his or her program of study; 

(9) The school discontinued a 

significant share of its academic 

programs; 

(10) The school permanently closed 

all or most of its in-person locations 

while maintaining online programs; and 

(11) The school was placed on the 

heightened cash monitoring payment 

method as defined in § 668.162(d)(2) of 

this chapter. 

■ 30. Section 685.215 is amended by: 

■ a. Revising paragraph (a)(1); 

■ b. Adding paragraph (a)(3); 

■ c. Revising paragraphs (c) 

introductory text and (c)(1) through (5); 

■ d. Redesignating paragraphs (c)(6) 

through (8) as paragraphs (c)(7) through 

(9), respectively; 

■ e. Adding a new paragraph (c)(6); 

■ f. Adding paragraph (c)(10); 

■ g. Revising paragraph (d); and 

■ h. Removing paragraphs (e) and (f). 

The revisions and additions read as 

follows: 

§ 685.215 Discharge for false certification 

of student eligibility or unauthorized 

payment. 

(a) Basis for discharge—(1) False 

certification. The Secretary discharges a 

borrower’s (and any endorser’s) 

obligation to repay a Direct Loan in 

accordance with the provisions of this 

section if a school falsely certifies the 

eligibility of the borrower (or the 

student on whose behalf a parent 

borrowed) to receive the proceeds of a 

Direct Loan. The Secretary considers a 

student’s eligibility to borrow to have 

been falsely certified by the school if the 

school— 

(i) Certified the eligibility of a student 

who— 

(A) Reported not having a high school 

diploma or its equivalent; and 

(B) Did not satisfy the alternative to 

graduation from high school 

requirements under section 484(d) of 

the Act and 34 CFR 668.32(e) of this 

chapter that were in effect when the 

loan was originated; 

(ii) Certified the eligibility of a 

student who is not a high school 

graduate based on— 

(A) A high school graduation status 

falsified by the school; or 

(B) A high school diploma falsified by 

the school or a third party to which the 

school referred the borrower; 

(iii) Signed the borrower’s name on 

the loan application or promissory note 

without the borrower’s authorization; 

(iv) Certified the eligibility of the 

student who, because of a physical or 

mental condition, age, criminal record, 

or other reason accepted by the 

Secretary, would not meet State 

requirements for employment (in the 

student’s State of residence when the 

loan was originated) in the occupation 

for which the training program 

supported by the loan was intended; or 

(v) Certified the eligibility of a student 

for a Direct Loan as a result of the crime 

of identity theft committed against the 

individual, as that crime is defined in 

paragraph (c)(6) of this section. 

* * * * * 

(3) Loan origination. For purposes of 

this section, a loan is originated when 

the school submits the loan record to 

the Department’s Common Origination 

and Disbursement (COD) System. Before 

originating a Direct Loan, a school must 

determine the student’s or parent’s 

eligibility for the loan. For each Direct 

Loan that a school disburses to a student 

or parent, the school must first submit 

a loan award record to the COD system 

and receive an accepted response. 

* * * * * 

(c) Borrower qualification for 

discharge. To qualify for discharge 

under this paragraph, the borrower must 

submit to the Secretary an application 

for discharge on a form approved by the 

Secretary. The application need not be 

notarized but must be made by the 

borrower under penalty of perjury; and 

in the application, the borrower’s 

responses must demonstrate to the 

satisfaction of the Secretary that the 

requirements in paragraphs (c)(1) 

through (7) of this section have been 

met. If the Secretary determines the 

application does not meet the 

requirements, the Secretary notifies the 

applicant and explains why the 

application does not meet the 

requirements. 

(1) High school diploma or equivalent. 

In the case of a borrower requesting a 

discharge based on not having a high 

school diploma and not having met the 

alternative to graduation from high 

school eligibility requirements under 

section 484(d) of the Act and 34 CFR 

668.32(e) of this chapter applicable 

when the loan was originated, and the 

school or a third party to which the 

school referred the borrower falsified 

the student’s high school diploma, the 

borrower must state in the application 

that the borrower (or the student on 

whose behalf a parent received a PLUS 

loan)— 

(i) Reported not having a valid high 

school diploma or its equivalent when 

the loan was originated; and 

(ii) Did not satisfy the alternative to 

graduation from high school statutory or 

regulatory eligibility requirements 

identified on the application form and 

applicable when the loan was 

originated. 

(2) Disqualifying condition. In the 

case of a borrower requesting a 

discharge based on a condition that 

would disqualify the borrower from 

employment in the occupation that the 

training program for which the borrower 

received the loan was intended, the 

borrower must state in the application 

that the borrower (or student for whom 

a parent received a PLUS loan) did not 

meet State requirements for 

employment in the student’s State of 

residence in the occupation that the 

training program for which the borrower 

received the loan was intended because 

of a physical or mental condition, age, 

criminal record, or other reason 

accepted by the Secretary. 

(3) Unauthorized loan. In the case of 

a borrower requesting a discharge 

because the school signed the 

borrower’s name on the loan application 

or promissory note without the 

borrower’s authorization, the borrower 

must state that he or she did not sign the 

document in question or authorize the 

school to do so. 

(4) Unauthorized payment. In the case 

of a borrower requesting a discharge 

because the school, without the 

borrower’s authorization, endorsed the 

borrower’s loan check or signed the 


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borrower’s authorization for electronic 

funds transfer, the borrower must— 

(i) State that he or she did not endorse 

the loan check or sign the authorization 

for electronic funds transfer or authorize 

the school to do so; and 

(ii) State that the proceeds of the 

contested disbursement were not 

delivered to the student or applied to 

charges owed by the student to the 

school. 

(5) Identity theft. In the case of an 

individual whose eligibility to borrow 

was falsely certified because he or she 

was a victim of the crime of identity 

theft and is requesting a discharge, the 

individual must— 

(i) Certify that the individual did not 

sign the promissory note, or that any 

other means of identification used to 

obtain the loan was used without the 

authorization of the individual claiming 

relief; 

(ii) Certify that the individual did not 

receive or benefit from the proceeds of 

the loan with knowledge that the loan 

had been made without the 

authorization of the individual; and 

(iii) Provide a statement of facts and 

supporting evidence that demonstrate, 

to the satisfaction of the Secretary, that 

eligibility for the loan in question was 

falsely certified as a result of identity 

theft committed against that individual. 

Supporting evidence may include— 

(A) A judicial determination of 

identity theft relating to the individual; 

(B) A Federal Trade Commission 

identity theft affidavit; 

(C) A police report alleging identity 

theft relating to the individual; 

(D) Documentation of a dispute of the 

validity of the loan due to identity theft 

filed with at least three major consumer 

reporting agencies; and 

(E) Other evidence acceptable to the 

Secretary. 

(6) Definition of identity theft. (i) For 

purposes of this section, identity theft is 

defined as the unauthorized use of the 

identifying information of another 

individual that is punishable under 18 

U.S.C. 1028, 1028A, 1029, or 1030, or 

substantially comparable State or local 

law. 

(ii) Identifying information includes, 

but is not limited to— 

(A) Name, Social Security number, 

date of birth, official State or 

government issued driver’s license or 

identification number, alien registration 

number, government passport number, 

and employer or taxpayer identification 

number; 

(B) Unique biometric data, such as 

fingerprints, voiceprint, retina or iris 

image, or unique physical 

representation; 

(C) Unique electronic identification 

number, address, or routing code; or 

(D) Telecommunication identifying 

information or access device (as defined 

in 18 U.S.C. 1029(e)). 

* * * * * 

(10) Application for group discharge. 

A State Attorney General or nonprofit 

legal services representative may submit 

to the Secretary an application for a 

group discharge under this section. 

(d) Discharge procedures. (1) If the 

Secretary determines that a borrower’s 

Direct Loan may be eligible for a 

discharge under this section, the 

Secretary provides the borrower an 

application and an explanation of the 

qualifications and procedures for 

obtaining a discharge. The Secretary 

also promptly suspends any efforts to 

collect from the borrower on any 

affected loan. The Secretary may 

continue to receive borrower payments. 

(2) If the borrower fails to submit the 

application for discharge and 

supporting information described in 

paragraph (c) of this section within 60 

days of the Secretary’s providing the 

application, the Secretary resumes 

collection and grants forbearance of 

principal and interest for the period in 

which collection activity was 

suspended. 

(3) If the borrower submits an 

application for discharge that the 

Secretary determines is incomplete, the 

Secretary notifies the borrower of that 

determination and allows the borrower 

an additional 30-days to amend their 

application and provide supplemental 

information. If the borrower does not 

amend their application within 30 days 

of receiving the notification from the 

Secretary the borrower’s application is 

closed as incomplete and the Secretary 

resumes collection of the loan and 

grants forbearance of principal and 

interest for the period in which 

collection activity was suspended. 

(4) If the borrower submits a 

completed application described in 

paragraph (c) of this section, the 

Secretary determines whether the 

available evidence supports the claim 

for discharge. Available evidence 

includes evidence provided by the 

borrower and any other relevant 

information from the Secretary’s records 

and gathered by the Secretary from 

other sources, including guaranty 

agencies, other Federal agencies, State 

authorities, test publishers, independent 

test administrators, school records, and 

cognizant accrediting associations. The 

Secretary issues a decision that explains 

the reasons for any adverse 

determination on the application, 

describes the evidence on which the 

decision was made, and provides the 

borrower, upon request, copies of the 

evidence. The Secretary considers any 

response from the borrower and any 

additional information from the 

borrower and notifies the borrower 

whether the determination is changed. 

(5) If the Secretary determines that the 

borrower meets the applicable 

requirements for a discharge under 

paragraph (c) of this section, the 

Secretary notifies the borrower in 

writing of that determination. 

(6) If the Secretary determines that the 

borrower does not qualify for a 

discharge, the Secretary notifies the 

borrower in writing of that 

determination and the reasons for the 

determination. 

(7) A borrower is not precluded from 

re-applying for a discharge under 

paragraph (c) of this section if the 

discharge request is closed as 

incomplete, or if the Secretary 

determines that the borrower does not 

qualify for a discharge if the borrower 

provides additional supporting 

evidence. 

■ 31. Section 685.219 is revised to read 

as follows: 

§ 685.219 Public Service Loan Forgiveness 

Program (PSLF). 

(a) Purpose. The Public Service Loan 

Forgiveness Program is intended to 

encourage individuals to enter and 

continue in full-time public service 

employment by forgiving the remaining 

balance of their Direct loans after they 

satisfy the public service and loan 

payment requirements of this section. 

(b) Definitions. The following 

definitions apply to this section: 

AmeriCorps service means service in 

a position approved by the Corporation 

for National and Community Service 

under section 123 of the National and 

Community Service Act of 1990 (42 

U.S.C. 12573). 

Civilian service to the military means 

providing services to or on behalf of 

members, veterans, or the families or 

survivors of deceased members of the 

U.S. Armed Forces or the National 

Guard that is provided to a person 

because of the person’s status in one of 

those groups. 

Early childhood education program 

means an early childhood education 

program as defined in section 103(8) of 

the Act (20 U.S.C. 1003). 

Eligible Direct Loan means a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, a Direct PLUS Loan, or a Direct 

Consolidation Loan. 

Emergency management services 

mean services that help remediate, 

lessen, or eliminate the effects or 

potential effects of emergencies that 

threaten human life or health, or real 

property. 


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Employee or employed means an 

individual— 

(i) To whom an organization issues an 

IRS Form W–2; 

(ii) Who receives an IRS Form W–2 

from an organization that has contracted 

with a qualifying employer to provide 

payroll or similar services for the 

qualifying employer, and which 

provides the Form W–2 under that 

contract; 

Full-time means: 

(i) Working in qualifying employment 

in one or more jobs— 

(A) A minimum average of 30 hours 

per week during the period being 

certified, 

(B) A minimum of 30 hours per week 

throughout a contractual or employment 

period of at least 8 months in a 12- 

month period, such as elementary and 

secondary school teachers, in which 

case the borrower is deemed to have 

worked full time; or 

(C) The equivalent of 30 hours per 

week as determined by multiplying each 

credit or contact hour taught per week 

by at least 3.35 in non-tenure track 

employment at an institution of higher 

education. 

(ii) Routine paid vacation or paid 

leave time provided by the employer, 

and leave taken under the Family and 

Medical Leave Act of 1993 (29 U.S.C. 

2612(a)(1)) will be considered when 

determining if the borrower is working 

full-time. 

Law enforcement means service that 

is publicly funded and whose principal 

activities pertain to crime prevention, 

control or reduction of crime, or the 

enforcement of criminal law. 

Military service means ‘‘active duty’’ 

service or ‘‘full-time National Guard 

duty’’ as defined in section 101(d)(1) 

and (d)(5) of title 10 in the United States 

Code, does not include active duty for 

training or attendance at a service 

school. 

Non-governmental public service 

means services provided directly by 

employees of a non-governmental 

qualified employer where the employer 

has devoted a majority of its full-time 

equivalent employees to working in at 

least one of the following areas (as 

defined above): emergency management, 

civilian service to military personnel 

military service, public safety, law 

enforcement, public interest law 

services, early childhood education, 

public service for individuals with 

disabilities and/or the elderly, public 

health, public education, public library 

services, school library, or other schoolbased services. Service as a member of 

the U.S. Congress is not qualifying 

public service employment for purposes 

of this section. 

Non-tenure track employment means 

work performed by adjunct, contingent 

or part time faculty, teachers, or 

lecturers who are paid solely for the 

credit hours they teach at institutions of 

higher education. 

Other school-based service means the 

provision of services to schools or 

students in a school or a school-like 

setting that are not public education 

services, such as school health services 

and school nurse services, social work 

services in schools, and parent 

counseling and training. 

Peace Corps position means a fulltime assignment under the Peace Corps 

Act as provided for under 22 U.S.C. 

2504. 

Public education service means the 

provision of educational enrichment 

and/or support to students in a public 

school or a school-like setting, including 

teaching. 

Public health means physicians, nurse 

practitioners, and nurses in a clinical 

setting; and those engaged in health care 

practitioner occupations, health care 

support occupations, and counselors, 

social workers, and other community 

and social service specialist 

occupations, as those terms are defined 

by the Bureau of Labor Statistics. 

Public interest law is legal services 

that are funded in whole or in part by 

a local, State, Federal, or Tribal 

government. 

Public library service means the 

operation of public libraries or services 

that support their operation. 

Public safety service means services 

that seek to prevent the need for 

emergency management services. 

Public service for individuals with 

disabilities means services performed 

for or to assist individuals with 

disabilities (as defined in the Americans 

with Disabilities Act (42 U.S.C. 12102)) 

that is provided to a person because of 

the person’s status as an individual with 

a disability. 

Public service for the elderly means 

services that are provided to individuals 

who are aged 62 years or older and that 

are provided to a person because of the 

person’s status as an individual of that 

age. 

Qualifying employer means: 

(i) A United States-based Federal, 

State, local, or Tribal government 

organization, agency, or entity, 

including the U.S. Armed Forces or the 

National Guard; 

(ii) A public child or family service 

agency; 

(iii) An organization under section 

501(c)(3) of the Internal Revenue Code 

of 1986 that is exempt from taxation 

under section 501(a) of the Internal 

Revenue Code; 

(iv) A Tribal college or university; or 

(v) A nonprofit organization that— 

(A) Provides a non-governmental 

public service as defined in this section, 

attested to by the employer on a form 

approved by the Secretary; and 

(B) Is not a business organized for 

profit, a labor union, or a partisan 

political organization. 

Qualifying repayment plan means: 

(i) An income-contingent repayment 

plan under § 685.209 or an incomebased repayment plan under § 685.221; 

(ii) The 10-year standard repayment 

plan under § 685.208(b) or the 

consolidation loan standard repayment 

plan with a 10-year repayment term 

under § 685.208(b); or 

(iii) Except for the alternative 

repayment plan, any other repayment 

plan if the monthly payment amount is 

not less than what would have been 

paid under the 10-year standard 

repayment plan under § 685.208(b). 

School library services means the 

operations of school libraries or services 

that support their operation. 

(c) Borrower eligibility. (1) A borrower 

may obtain loan forgiveness under this 

program if the borrower— 

(i) Is not in default on the loan at the 

time forgiveness is requested; 

(ii) Is employed full-time by a 

qualifying employer or serving in a fulltime AmeriCorps or Peace Corps 

position— 

(A) When the borrower satisfied the 

120 monthly payments described under 

paragraph (c)(1)(iii) of this section; and 

(B) At the time the borrower applies 

for forgiveness under paragraph (e) of 

this section; and 

(iii) Satisfies the equivalent of 120 

monthly payments after October 1, 

2007, as described in paragraph (c)(2) of 

this section, on eligible Direct loans. 

(2) A borrower will be considered to 

have made monthly payments under 

paragraph (c)(1)(iii) of this section by— 

(i) Paying at least the full scheduled 

amount due for a monthly payment 

under the qualifying repayment plan; 

(ii) Paying in multiple installments 

that equal the full scheduled amount 

due for a monthly payment under the 

qualifying repayment plan; 

(iii) For a borrower on an incomecontingent repayment plan under 

§ 685.209 or an income-based 

repayment plan under § 685.221, paying 

a lump sum or monthly payment 

amount that is equal to or greater than 

the full scheduled amount in advance of 

the borrower’s scheduled payment due 

date for a period of months not to 

exceed the period from the Secretary’s 

receipt of the payment until the 

borrower’s next annual repayment plan 

recertification date under the qualifying 


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repayment plan in which the borrower 

is enrolled; 

(iv) For a borrower on the 10-year 

standard repayment plan under 

§ 685.208(b) or the consolidation loan 

standard repayment plan with a 10-year 

repayment term under § 685.208(b), 

paying a lump sum or monthly payment 

amount that is equal to or greater than 

the full scheduled amount in advance of 

the borrower’s scheduled payment due 

date for a period of months not to 

exceed the period from the Secretary’s 

receipt of the payment until the lesser 

of 12 months from that date or the date 

upon which the Secretary receives the 

borrower’s next submission under 

subsection (e). 

(v) Receiving one of the following 

deferments or forbearances for the 

month: 

(A) Cancer treatment deferment under 

section 455(f)(3) of the Act; 

(B) Economic hardship deferment 

under § 685.204(g); 

(C) Military service deferment under 

§ 685.204(h); 

(D) Post-active-duty student 

deferment under § 685.204(i); 

(E) AmeriCorps forbearance under 

§ 685.205(a)(4); 

(F) National Guard Duty forbearance 

under § 685.205(a)(7); 

(G) U.S. Department of Defense 

Student Loan Repayment Program 

forbearance under § 685.205(a)(9); 

(H) Administrative forbearance or 

mandatory administrative forbearance 

under § 685.205(b)(8) or (9); and 

(vi) Being employed full-time with a 

qualifying employer, as defined in this 

section, at any point during the month 

for which the payment is credited. 

(3) If a borrower consolidates one or 

more Direct Loans into a Direct 

Consolidation Loan, including a Direct 

PLUS Loan made to a parent borrower, 

the payments the borrower made on the 

Direct Loans prior to consolidating and 

that met the criteria in paragraphs 

(c)(2)(i) through (vi) of this section will 

count as qualifying payments on the 

Direct Consolidation Loan. 

(d) Forgiveness amount. The Secretary 

forgives the principal and accrued 

interest that remains on all loans for 

which the borrower meets the 

requirements of paragraph (c) of this 

section as of the date the borrower 

satisfied the last required monthly 

payment obligation. 

(e) Application process. (1) 

Notwithstanding paragraph (f) of this 

section, after making the 120 monthly 

qualifying payments on the eligible 

loans for which loan forgiveness is 

requested, a borrower may request loan 

forgiveness by filing an application 

approved by the Secretary. 

(2) If the Secretary has sufficient 

information to determine the borrower’s 

qualifying employer and length of 

employment, the Secretary informs the 

borrower if the borrower is eligible for 

forgiveness. 

(3) If the Secretary does not have 

sufficient information to make a 

determination of the borrower’s 

eligibility for forgiveness, the borrower 

must provide additional information 

about the borrower’s employment and 

employer on a form approved by the 

Secretary. 

(4) If the borrower is unable to secure 

a certification of employment from a 

qualifying employer, the Secretary may 

determine the borrower’s qualifying 

employment or payments based on 

other documentation provided by the 

borrower at the Secretary’s request. 

(5) The Secretary may request 

reasonable additional documentation 

pertaining to the borrower’s employer or 

employment before providing a 

determination. 

(6) The Secretary may substantiate an 

employer’s attestation of information 

provided on the form in paragraph (e)(3) 

of this section based on a review of 

information about the employer. 

(7) If the Secretary determines that the 

borrower meets the eligibility 

requirements for loan forgiveness under 

this section, the Secretary— 

(i) Notifies the borrower of this 

determination; and 

(ii) Forgives the outstanding balance 

of the eligible loans. 

(8) If the Secretary determines that the 

borrower does not meet the eligibility 

requirements for loan forgiveness under 

this section, grants forbearance of 

payment on both principal and interest 

for the period in which collection 

activity was suspended. The Secretary 

notifies the borrower that the 

application has been denied, provides 

the basis for the denial, and informs the 

borrower that the Secretary will resume 

collection of the loan. The Secretary 

does not capitalize any interest accrued 

and not paid during this period. 

(f) Application not required. The 

Secretary forgives a loan under this 

section without an application from the 

borrower if the Secretary has sufficient 

information in the Secretary’s 

possession to determine the borrower 

has satisfied the requirements for 

forgiveness under this section. 

(g) Reconsideration process. (1) 

Within 90 days of the date the Secretary 

sent the notice of denial of forgiveness 

under paragraph (e)(8) of this section to 

the borrower, the borrower may request 

that the Secretary reconsider whether 

the borrower’s employer or any payment 

meets the requirements for credit 

toward forgiveness by requesting 

reconsideration on a form approved by 

the Secretary. Borrowers who were 

denied loan forgiveness under this 

section after October 1, 2017, and prior 

to [EFFECTIVE DATE OF FINAL RULE], 

have 180 days from that date to request 

reconsideration. 

(2) To evaluate a reconsideration 

request, the Secretary considers— 

(i) Any relevant evidence that is 

obtained by the Secretary; and 

(ii) Additional supporting 

documentation not previously provided 

by the borrower or employer. 

(3) The Secretary notifies the 

borrower of the reconsideration decision 

and the reason for the Secretary’s 

determination. 

(4) If the Secretary determines that the 

borrower qualifies for forgiveness, the 

Secretary adjusts the borrower’s number 

of qualifying payments or forgives the 

loan, as appropriate. 

(5) After the Secretary makes a 

decision on the borrower’s 

reconsideration request, the Secretary’s 

decision is final, and the borrower will 

not receive additional reconsideration 

unless the borrower presents additional 

evidence. 

(6) For any months in which a 

borrower postponed monthly payments 

under a deferment or forbearance and 

was employed full-time at a qualifying 

employer as defined in this section but 

was in a deferment or forbearance status 

besides those listed in paragraph 

(c)(2)(v) of this section, the borrower 

may obtain credit toward forgiveness for 

those months, as defined in paragraph 

(d) of this section, for any months in 

which the borrower— 

(i) Makes an additional payment equal 

to or greater than the amount they 

would have paid at that time on a 

qualifying repayment plan or 

(ii) Otherwise qualified for a $0 

payment on an income-driven 

repayment plan under § 685.209 and 

income-based repayment plan under 

§ 685.221. 

■ 32. Section 685.300 is amended by: 

■ a. Revising paragraphs (b)(7) and (10); 

■ b. Redesignating paragraphs (b)(11) 

and (12) as paragraphs (b)(12) and (13), 

respectively; 

■ c. Adding new paragraph (b)(11); 

■ d. Revising newly redesignated 

paragraph (b)(13); and 

■ e. Adding paragraphs (d) through (i). 

The revisions and additions read as 

follows: 

§ 685.300 Agreements between an eligible 

school and the Secretary for participation in 

the Direct Loan Program. 

* * * * * 

(b) * * * 


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(7) Provide assurances that the school 

will comply with loan information 

requirements established by the 

Secretary with respect to loans made 

under the Direct Loan Program; 

* * * * * 

(10) Provide that the school will not 

charge any fees of any kind, however 

described, to student or parent 

borrowers for origination activities or 

for the provision of information 

necessary for a student or parent to 

receive a loan under part D of the Act 

or for any benefits associated with such 

a loan; 

(11) Comply with the provisions of 

paragraphs (d) through (i) of this section 

regarding student claims and disputes; 

* * * * * 

(13) Accept responsibility and 

financial liability stemming from losses 

incurred by the Secretary for repayment 

of amounts discharged by the Secretary 

pursuant to §§ 685.206, 685.214, 

685.215, 685.216, 685.222, and subpart 

D of this part. 

* * * * * 

(d) Borrower defense claims in an 

internal dispute process. The school 

will not compel any student to pursue 

a complaint based on allegations that 

would provide a basis for a borrower 

defense claim through an internal 

dispute process before the student 

presents the complaint to an accrediting 

agency or government agency 

authorized to hear the complaint. 

(e) Class action bans. (1) The school 

will not seek to rely in any way on a 

pre-dispute arbitration agreement or on 

any other pre-dispute agreement with a 

student who has obtained or benefited 

from a Direct Loan, with respect to any 

aspect of a class action that is related to 

a borrower defense claim, unless and 

until the presiding court has ruled that 

the case may not proceed as a class 

action and, if that ruling may be subject 

to appellate review on an interlocutory 

basis, the time to seek such review has 

elapsed or the review has been resolved. 

(2) Reliance on a pre-dispute 

arbitration agreement, or on any other 

pre-dispute agreement, with a student, 

with respect to any aspect of a class 

action includes, but is not limited to, 

any of the following: 

(i) Seeking dismissal, deferral, or stay 

of any aspect of a class action; 

(ii) Seeking to exclude a person or 

persons from a class in a class action; 

(iii) Objecting to or seeking a 

protective order intended to avoid 

responding to discovery in a class 

action; 

(iv) Filing a claim in arbitration 

against a student who has filed a claim 

on the same issue in a class action; 

(v) Filing a claim in arbitration against 

a student who has filed a claim on the 

same issue in a class action after the 

trial court has denied a motion to certify 

the class but before an appellate court 

has ruled on an interlocutory appeal of 

that motion, if the time to seek such an 

appeal has not elapsed or the appeal has 

not been resolved; and 

(vi) Filing a claim in arbitration 

against a student who has filed a claim 

on the same issue in a class action, after 

the trial court in that class action has 

granted a motion to dismiss the claim 

and noted that the consumer has leave 

to refile the claim on a class basis, if the 

time to refile the claim has not elapsed. 

(3) Required provisions and notices: 

(i) After [EFFECTIVE DATE OF FINAL 

RULE], the school must include the 

following provision in any agreements 

with a student recipient of a Direct Loan 

for attendance at the school, or a student 

for whom the PLUS loan was obtained, 

that include pre-dispute arbitration or 

any other pre-dispute agreement 

addressing class actions: ‘‘We agree that 

this agreement cannot be used to stop 

you from being part of a class action 

lawsuit in court. You may file a class 

action lawsuit in court or you may be 

a member of a class action lawsuit even 

if you do not file it. This provision 

applies only to class action claims 

concerning our acts or omissions 

regarding the making of the Direct Loan 

or our provision of educational services 

for which the Direct Loan was obtained. 

We agree that the court has exclusive 

jurisdiction to decide whether a claim 

asserted in the lawsuit is a claim 

regarding the making of the Federal 

Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(ii) When a pre-dispute arbitration 

agreement or any other pre-dispute 

agreement addressing class actions has 

been entered into before [EFFECTIVE 

DATE OF FINAL RULE], and does not 

contain the provision described in 

paragraph (e)(3)(i) of this section, the 

school must either ensure the agreement 

is amended to contain that provision or 

provide the student to whom the 

agreement applies with written notice of 

that provision. 

(iii) The school must ensure the 

agreement described in paragraph 

(e)(3)(ii) of this section is amended to 

contain the provision set forth in 

paragraph (e)(3)(i) or must provide the 

notice to students specified in that 

paragraph no later than the exit 

counseling required under § 685.304(b), 

or the date on which the school files its 

initial response to a demand for 

arbitration or service of a complaint 

from a student who has not already been 

sent a notice or amendment, whichever 

is earlier. 

(A) Agreement provision. ‘‘We agree 

that neither we, nor anyone else who 

later becomes a party to this agreement, 

will use it to stop you from being part 

of a class action lawsuit in court. You 

may file a class action lawsuit in court 

or you may be a member of a class 

action lawsuit in court even if you do 

not file it. This provision applies only 

to class action claims concerning our 

acts or omissions regarding the making 

of the Federal Direct Loan or the 

provision by us of educational services 

for which the Federal Direct Loan was 

obtained. We agree that the court has 

exclusive jurisdiction to decide whether 

a claim asserted in the lawsuit is a claim 

regarding the making of the Federal 

Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(B) Notice provision. ‘‘We agree not to 

use any pre-dispute agreement to stop 

you from being part of a class action 

lawsuit in court. You may file a class 

action lawsuit in court or you may be 

a member of a class action lawsuit even 

if you do not file it. This provision 

applies only to class action claims 

concerning our acts or omissions 

regarding the making of the Federal 

Direct Loan or the provision by us of 

educational services for which the 

Federal Direct Loan was obtained. We 

agree that the court has exclusive 

jurisdiction to decide whether a claim 

asserted in the lawsuit is a claim 

regarding the making of the Federal 

Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(f) Pre-dispute arbitration agreements. 

(1)(i) The school will not enter into a 

pre-dispute agreement to arbitrate a 

borrower defense claim or rely in any 

way on a pre-dispute arbitration 

agreement with respect to any aspect of 

a borrower defense claim. 

(ii) A student may enter into a 

voluntary post-dispute arbitration 

agreement with a school to arbitrate a 

borrower defense claim. 

(2) Reliance on a pre-dispute 

arbitration agreement with a student 

with respect to any aspect of a borrower 

defense claim includes, but is not 

limited to, any of the following: 

(i) Seeking dismissal, deferral, or stay 

of any aspect of a judicial action filed 

by the student, including joinder with 

others in an action; 

(ii) Objecting to or seeking a 

protective order intended to avoid 

responding to discovery in a judicial 

action filed by the student; and 


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(iii) Filing a claim in arbitration 

against a student who has filed a suit on 

the same claim. 

(3) Required provisions and notices: 

(i) The school must include the 

following provision in any pre-dispute 

arbitration agreements with a student 

recipient of a Direct Loan for attendance 

at the school, or, with respect to a 

Parent PLUS Loan, a student for whom 

the PLUS loan was obtained, that 

include any agreement regarding 

arbitration and that are entered into 

after [EFFECTIVE DATE OF FINAL 

RULE]: ‘‘We agree that neither we nor 

anyone else will use this agreement to 

stop you from bringing a lawsuit 

concerning our acts or omissions 

regarding the making of the Federal 

Direct Loan or the provision by us of 

educational services for which the 

Federal Direct Loan was obtained. You 

may file a lawsuit for such a claim, or 

you may be a member of a class action 

lawsuit for such a claim even if you do 

not file it. This provision does not apply 

to lawsuits concerning other claims. We 

agree that only the court is to decide 

whether a claim asserted in the lawsuit 

is a claim regarding the making of the 

Federal Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(ii) When a pre-dispute arbitration 

agreement has been entered into before 

[EFFECTIVE DATE OF FINAL RULE], 

that did not contain the provision 

specified in paragraph (f)(3)(i) of this 

section, the school must either ensure 

the agreement is amended to contain the 

provision specified in paragraph 

(f)(3)(iii)(A) of this section or provide 

the student to whom the agreement 

applies with the written notice specified 

in paragraph (f)(3)(iii)(B) of this section. 

(iii) The school must ensure the 

agreement described in paragraph 

(f)(3)(ii) of this section is amended to 

contain the provision specified in 

paragraph (f)(3)(iii)(A) of this section or 

must provide the notice specified in 

paragraph (f)(3)(iii)(B) of this section to 

students no later than the exit 

counseling required under § 685.304(b), 

or the date on which the school files its 

initial response to a demand for 

arbitration or service of a complaint 

from a student who has not already been 

sent a notice or amendment, whichever 

is earlier. 

(A) Agreement provision. ‘‘We agree 

that neither we, nor anyone else who 

later becomes a party to this pre-dispute 

arbitration agreement, will use it to stop 

you from bringing a lawsuit concerning 

our acts or omissions regarding the 

making of the Federal Direct Loan or the 

provision by us of educational services 

for which the Federal Direct Loan was 

obtained. You may file a lawsuit for 

such a claim or you may be a member 

of a class action lawsuit for such a claim 

even if you do not file it. This provision 

does not apply to other claims. We agree 

that only the court is to decide whether 

a claim asserted in the lawsuit is a claim 

regarding the making of the Federal 

Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(B) Notice provision. ‘‘We agree not to 

use any pre-dispute arbitration 

agreement to stop you from bringing a 

lawsuit concerning our acts or 

omissions regarding the making of the 

Federal Direct Loan or the provision by 

us of educational services for which the 

Federal Direct Loan was obtained. You 

may file a lawsuit regarding such a 

claim or you may be a member of a class 

action lawsuit regarding such a claim 

even if you do not file it. This provision 

does not apply to any other claims. We 

agree that only the court is to decide 

whether a claim asserted in the lawsuit 

is a claim regarding the making of the 

Direct Loan or the provision of 

educational services for which the loan 

was obtained.’’ 

(g) Submission of arbitral records. (1) 

A school must submit a copy of the 

following records to the Secretary, in 

the form and manner specified by the 

Secretary, in connection with any 

borrower defense claim filed in 

arbitration by or against the school: 

(i) The initial claim and any 

counterclaim; 

(ii) The arbitration agreement filed 

with the arbitrator or arbitration 

administrator; 

(iii) The judgment or award, if any, 

issued by the arbitrator or arbitration 

administrator; 

(iv) If an arbitrator or arbitration 

administrator refuses to administer or 

dismisses a claim due to the school’s 

failure to pay required filing or 

administrative fees, any communication 

the school receives from the arbitrator or 

arbitration administrator related to such 

a refusal; and 

(v) Any communication the school 

receives from an arbitrator or an 

arbitration administrator related to a 

determination that a pre-dispute 

arbitration agreement regarding 

educational services provided by the 

school does not comply with the 

administrator’s fairness principles, 

rules, or similar requirements, if such a 

determination occurs; 

(2) A school must submit any record 

required pursuant to paragraph (g)(1) of 

this section within 60 days of filing by 

the school of any such record with the 

arbitrator or arbitration administrator 

and within 60 days of receipt by the 

school of any such record filed or sent 

by someone other than the school, such 

as the arbitrator, the arbitration 

administrator, or the student. 

(3) The Secretary shall publish the 

records submitted by schools in 

paragraph (g)(1) of this section in a 

centralized database accessible to the 

public. 

(h) Submission of judicial records. (1) 

A school must submit a copy of the 

following records to the Secretary, in 

the form and manner specified by the 

Secretary, in connection with any 

borrower defense claim filed in a 

lawsuit by the school against the 

student or by any party, including a 

government agency, against the school: 

(i) The complaint and any 

counterclaim; 

(ii) Any dispositive motion filed by a 

party to the suit; and 

(iii) The ruling on any dispositive 

motion and the judgment issued by the 

court; 

(2) A school must submit any record 

required pursuant to paragraph (h)(1) of 

this section within 30 days of filing or 

receipt, as applicable, of the complaint, 

answer, or dispositive motion, and 

within 30 days of receipt of any ruling 

on a dispositive motion or a final 

judgment; 

(3) The Secretary shall publish the 

records submitted by schools in 

paragraph (h)(1) in a centralized 

database accessible to the public. 

(i) Definitions. For the purposes of 

paragraphs (d) through (h) of this 

section, the term— 

(1) Borrower defense claim means an 

act or omission that is or could be 

asserted as a borrower defense as 

defined in: 

(i) § 685.206(c)(1); 

(ii) § 685.222(a)(5); 

(iii) § 685.206(e)(1)(iii); or 

(iv) § 685.401(a); 

(2) Class action means a lawsuit in 

which one or more parties seek class 

treatment pursuant to Federal Rule of 

Civil Procedure 23 or any State process 

analogous to Federal Rule of Civil 

Procedure 23; 

(3) Dispositive motion means a motion 

asking for a court order that entirely 

disposes of one or more claims in favor 

of the party who files the motion 

without need for further court 

proceedings; 

(4) Pre-dispute arbitration agreement 

means any agreement, regardless of its 

form or structure, between a school or 

a party acting on behalf of a school and 

a student that provides for arbitration of 

any future dispute between the parties. 

§ 685.304 [Amended] 

■ 33. Section 685.304 is amended: 


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■ a. In paragraph (a)(6)(xi), by adding 

‘‘and’’ after ‘‘records;’’; 

■ b. In paragraph (a)(6)(xii), by 

removing the semicolon after ‘‘loan’’ 

and adding a period in its place; and 

■ c. Removing paragraphs (a)(6)(xiii) 

through (xv). 

■ 34. Section 685.308 is amended by 

revising paragraph (a)(3) to read as 

follows: 

§ 685.308 Remedial actions. 

(a) * * * 

(3) The school’s actions that gave rise 

to a successful claim for which the 

Secretary discharged a loan, in whole or 

in part, pursuant to §§ 685.206, 685.214, 

685.216, 685.222, or subpart D of this 

part. 

* * * * * 

■ 35. Subpart D is added to read as 

follows: 

Subpart D—Borrower Defense to 

Repayment 

Sec. 

685.400 Scope and purpose. 

685.401 Borrower defense-general. 

685.402 Group process for borrower 

defense. 

685.403 Individual process for borrower 

defense. 

685.404 Group process based on prior 

Secretarial final actions. 

685.405 Institutional response. 

685.406 Adjudication of borrower defense 

applications. 

685.407 Reconsideration. 

685.408 Discharge. 

685.409 Recovery from institutions. 

685.410 Cooperation by the borrower. 

685.411 Transfer to the Secretary of the 

borrower’s right of recovery against third 

parties. 

685.499 Severability. 

Subpart D—Borrower Defense to 

Repayment 

§ 685.400 Scope and purpose. 

This subpart sets forth the provisions 

under which a borrower defense to 

repayment may be asserted and applies 

to borrower defense applications 

pending with the Secretary on July 1, 

2023, or received by the Secretary on or 

after July 1, 2023. 

§ 685.401 Borrower defense-general. 

(a) Definitions. For the purposes of 

this subpart, the following definitions 

apply: 

Borrower means 

(i) The borrower; and 

(ii) In the case of a Direct PLUS Loan, 

any endorsers, and for a Direct PLUS 

Loan made to a parent, the student on 

whose behalf the parent borrowed. 

Borrower defense to repayment means 

an act or omission of the school 

attended by the student that relates to 

the making of a Direct Loan for 

enrollment at the school or the 

provision of educational services for 

which the loan was provided, and 

includes the following: 

(i) A defense to repayment of amounts 

owed to the Secretary on a Direct Loan 

including a Direct Consolidation Loan 

that was used to repay a Direct Loan, a 

FFEL Program Loan, Federal Perkins 

Loan, Health Professions Student Loan, 

Loan for Disadvantaged Students under 

subpart II of part A of title VII of the 

Public Health Service Act, Health 

Education Assistance Loan, or Nursing 

Loan made under part E of the Public 

Health Service Act; and 

(ii) Any accompanying request for 

reimbursement of payments previously 

made to the Secretary on the Direct 

Loan or on a loan repaid by the Direct 

Consolidation Loan. 

Department official means the 

employee of the Department who 

administers the group process described 

in § 685.402, the individual process as 

described in § 685.403, and the 

institutional response process in 

§ 685.405. 

Direct Loan means a Direct 

Subsidized Loan, a Direct Unsubsidized 

Loan, a Direct PLUS Loan, or a Direct 

Consolidation Loan. 

School and institution may be used 

interchangeably and include an eligible 

institution as defined in 34 CFR 600.2, 

one of its representatives, or any 

ineligible institution, organization, or 

person with whom the eligible 

institution has an agreement to provide 

educational programs or to provide 

marketing, advertising, recruiting, or 

admissions services. School or 

institution also includes persons 

affiliated with the institution as 

described in § 668.174(b) of this chapter. 

State requestor means a State as 

defined in 34 CFR 600.2, a State 

attorney general, a State oversight or 

regulatory agency with the authority 

from that State. 

(b) Federal standard for borrower 

defense applications received on or after 

July 1, 2023, and for applications 

pending with the Secretary on July 1, 

2023. A borrower with a balance due on 

a Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan will be 

determined to have a defense to 

repayment of a Direct Loan under this 

subpart, if at any time the borrower 

establishes by a preponderance of the 

evidence that— 

(1) The institution made a substantial 

misrepresentation as defined in 34 CFR 

part 668, subpart F, in connection with 

the borrower’s decision to attend, or to 

continue attending, the institution or 

the borrower’s decision to take out a 

Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan; 

(2) The institution made a substantial 

omission of fact, as defined in 34 CFR 

part 668, subpart F, in connection with 

the borrower’s decision to attend, or to 

continue attending, the institution or 

the borrower’s decision to take out a 

Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan; 

(3) The institution failed to perform 

its obligations under the terms of a 

contract with the student and such 

failure was in connection with the 

borrower’s decision to attend, or to 

continue attending, the institution or 

the borrower’s decision to take out a 

Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan; 

(4) The institution engaged in 

aggressive and deceptive recruitment 

conduct or tactics as defined in 34 CFR 

part 668, subpart R, in connection with 

the borrower’s decision to attend, or to 

continue attending, the institution or 

the borrower’s decision to take out a 

Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan; or, 

(5)(i) The borrower, whether as an 

individual or as a member of a class, or 

a governmental agency has obtained 

against the institution a favorable 

judgment based on State or Federal law 

in a court or administrative tribunal of 

competent jurisdiction in connection 

with the borrower’s decision to attend, 

or to continue attending, the institution 

or the borrower’s decision to take out a 

Direct Loan or other Federal student 

loan that is consolidated into a Federal 

Direct Consolidation Loan; or, 

(ii) The Secretary sanctioned or 

otherwise took adverse action against 

the institution at which the borrower 

enrolled under 34 CFR part 668, subpart 

G, for reasons that could give rise to a 

borrower defense claim under 

paragraphs (b)(1) through (4) of this 

section. 

(c) Violation of State law. A borrower 

has a borrower defense to repayment 

under this subpart if the Secretary 

identifies an act or omission of the 

school attended by the student that 

relates to the making of the loan for 

enrollment at the school or the 

provision of educational services for 

which the loan was provided that would 

give rise to a cause of action against the 

school under applicable State law. 

(d) Exclusions. An institution’s 

violation of an eligibility or compliance 

requirement in the Act or its 

implementing regulations is not a basis 

for a borrower defense under this 


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subpart unless the violation would 

otherwise constitute a basis for a 

borrower defense under this subpart. 

§ 685.402 Group process for borrower 

defense. 

(a) Group process, generally. Upon 

consideration of factors including, but 

not limited to, common facts and claims 

by borrowers, and the promotion of 

compliance by an institution or other 

title IV, HEA program participant, the 

Secretary may initiate a process to 

determine whether a group of borrowers 

from one institution or commonly 

owned institutions identified by the 

Secretary has a borrower defense under 

this subpart. 

(b) Secretary initiated group process. 

The Secretary may create a group based 

upon information from sources that 

include but are not limited to— 

(1) Actions by the Federal 

Government, State attorneys general, 

other State agencies or officials, or other 

law enforcement activity; 

(2) Lawsuits related to educational 

programs filed against the institutions 

which are the subject of the claims or 

judgments rendered against the 

institutions; or, 

(3) Individual borrower defense 

claims pursuant to § 685.403. 

(c) State requestor-initiated group 

process. The Secretary shall consider a 

request to form a group from a State 

requestor in which the requestor— 

(1) Submits an application to the 

Secretary, on a form approved by the 

Secretary that— 

(i) Identifies the requested group, 

including at minimum: 

(A) The name of the institution or 

commonly owned institutions; 

(B) The campuses or programs which 

are the subject of the claim, if 

applicable; 

(C) A description of the conduct that 

forms the basis for the borrower defense 

claim under the Federal standard in 

§ 685.401(b); 

(D) An analysis of why the requestor 

believes the conduct should result in an 

approved borrower defense claim under 

the Federal standard in § 685.401(b); 

and, 

(E) The period during which the 

activity in (c)(1)(i)(C) of this section 

occurred; 

(ii) Provides evidence beyond sworn 

borrower statements that supports each 

element of the claim made in this 

paragraph (c)(1); and 

(iii) Provides the names and other 

identifying information of borrowers in 

the group to the extent available; and, 

(2) Provides any other information or 

supporting documentation reasonably 

requested by the Secretary within 90 

days of the Secretary’s request. 

(3) The Secretary may consolidate 

multiple group applications related to 

the same institution or institutions. 

(4) The Secretary shall provide a 

response to any materially complete 

State requestor group request under this 

paragraph (c) within 365 days of receipt. 

That response shall include: 

(i) Whether the Secretary will choose 

to form a group and a definition of the 

group formed; 

(ii) If the Secretary chooses not to 

form a group, the reasons for not doing 

so; and 

(iii) Any additional information 

needed from the Sate requestor to 

continue the State requested group 

process. 

(5)(i) If the Secretary denies in whole 

or in part a State request to form a group 

under the process described in this 

paragraph (c), for reasons other than that 

the Secretary already has formed a 

group that includes the members of the 

proposed group or has findings that 

cover the members of the proposed 

group, the State requestor submitting 

the group claim may request that the 

Secretary reconsider the decision upon 

the identification of new evidence that 

was not previously available to the 

Secretary in forming the group. 

(ii) The State requestor submitting the 

group claim under this paragraph (c) 

must request reconsideration of the 

group formation no later than 90 days 

from the date of the Secretary’s initial 

decision regarding formation of the 

group. 

(iii) The Secretary shall provide a 

response to the State requestor that 

requested reconsideration of the group’s 

formation within 90 days of receipt of 

the reconsideration request. 

(d) Process after group formation. 

Upon formation of a group of borrowers 

under this section, the Secretary— 

(1) Designates a Department official to 

present the group’s claim in the 

institutional response process described 

in § 685.405; 

(2) For borrowers who have an 

application pending with the Secretary 

prior to the formation of the group, 

notifies those borrowers that they are an 

identified member of the group formed 

under this section and follows 

§ 685.403(d) or (e) as appropriate; 

(3) For borrowers whose names were 

submitted by the State requestor and 

that can be identified by the Secretary, 

or that can otherwise be identified by 

the Secretary, if the borrower is not in 

default and does not have a separate 

application pending with the Secretary, 

follows the procedures under 

§ 685.403(d) except that interest on the 

loan shall stop accumulating 

immediately; 

(4) For borrowers whose names were 

submitted by the State requestor and 

that can be identified by the Secretary, 

or that can otherwise be identified by 

the Secretary, if the borrower is in 

default and does not have a separate 

application pending with the Secretary, 

follows the procedures under 

§ 685.403(e) except that the interest on 

the loan shall stop accumulating 

immediately; 

(5) For possible group members that 

the Secretary cannot identify, the 

Secretary will take reasonable steps to 

identify and notify potential members of 

the group, and if the Secretary 

ultimately is able to identify any 

additional members, then it shall follow 

the process under paragraphs (d)(3) and 

(4) of this section to allow those 

additional members to opt-in the group 

formed; and, 

(6) If the Secretary later identifies a 

borrower that should have received the 

benefits as described under paragraph 

(d)(3) or (4) of this section, either prior 

to the adjudication of the group or after 

an adjudication that results in the 

approval of a group borrower defense, 

the Secretary shall retrospectively apply 

the benefits available to the borrower 

under those subparagraphs and no other 

consequences shall apply. 

§ 685.403 Individual process for borrower 

defense. 

(a) Individual process, generally. (1) If 

§ 685.402 does not apply to an 

individual borrower who has submitted 

a borrower defense application, the 

Secretary shall initiate a process to 

determine whether the individual 

borrower has a borrower defense under 

this subpart. 

(2) If § 685.402 applies to an 

individual borrower who is covered 

under a group borrower defense 

application being considered by the 

Secretary, that group borrower defense 

application shall toll the timelines 

under § 685.406 on adjudicating the 

individual borrower application. 

(3) Paragraph (a)(1) of this section 

shall not apply to claims covered by a 

group claim under § 685.402, including 

claims submitted prior to the formation 

of such a group, until after the Secretary 

makes a decision on that group claim. 

(b) Individual process. (1) The 

Secretary shall consider a borrower 

defense claim from an individual 

borrower in which the borrower— 

(i) Submits an application to the 

Secretary, on a form approved by the 

Secretary; and, 

(ii) Provides additional supporting 

evidence for the claims made under 

subparagraph (b)(1)(i) of this section, if 

any; 


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(2) The individual must provide any 

other information or supporting 

documentation reasonably requested by 

the Secretary. 

(c) Individual borrower status. Upon 

receipt of a materially complete 

application under this section, the 

Secretary— 

(1) Designates a Department official to 

present the individual’s claim in the 

institutional response process described 

in § 685.405; 

(2) Notifies the borrower that it will 

adjudicate the claim under § 685.406(c); 

and 

(3) Places all the borrower’s loans in 

forbearance in accordance with 

paragraph (d) of this section or stopped 

enforcement collections in accordance 

with paragraph (e) of this section, as 

applicable. 

(d) Forbearance. The Secretary grants 

forbearance on all of the borrower’s title 

IV loans that are not in default in 

accordance with § 685.205 and— 

(1) Notifies the borrower of the option 

to decline forbearance and to continue 

making payments on the borrower’s 

loans, and the availability of incomecontingent repayment plans under 

§ 685.209 and the income-based 

repayment plan under § 685.221; and, 

(2) Does not charge interest on the 

borrower’s loans beginning 180 days 

from the date the borrower was initially 

granted forbearance under this 

paragraph (d) if the Department official 

has failed to make a determination on 

the borrower’s claim by that date and 

continuing until the Department notifies 

the borrower of the decision. 

(e) Loan collection activities during 

adjudication of borrower defense claim. 

The Secretary— 

(1) Suspends collection activity on all 

defaulted title IV loans until the 

Secretary issues a decision on the 

borrower defense claim; 

(2) Does not charge interest on the 

borrower’s loans beginning 180 days 

from the date the Secretary initially 

suspended collection activity under 

subparagraph (e)(1) of this section if the 

Secretary has not made a determination 

on the borrower’s claim by that date and 

continuing until the Department notifies 

the borrower of the decision; 

(3) Notifies the borrower of the 

suspension of collection activity and 

explains that collection activity will 

resume no earlier than 90 days 

following final adjudication of the 

borrower defense claim if the Secretary 

determines that the borrower does not 

qualify for a full discharge; and 

(4) Notifies the borrower of the option 

to begin or continue making payments 

under a rehabilitation agreement or 

other repayment agreement on the 

defaulted loan. 

§ 685.404 Group process based on prior 

Secretarial final actions. 

(a) For purposes of forming a 

Secretary-initiated group process in 

accordance with § 685.402(b), the 

Department official may consider final 

actions as described in 

§ 685.401(b)(5)(ii). Such final actions 

include but are not limited to: 

(1) Actions arising from a final audit 

determination or final program review 

determination regarding the relevant 

institution; 

(2) An institution’s failure to meet the 

administrative capability requirements 

that relate to the provision of 

educational services provided by the 

institution, in accordance with § 668.16 

of this chapter; 

(3) An institution’s loss of eligibility 

due to its cohort default rates, in 

accordance with part 668, subpart N; 

(4) Fines, limitations, suspension, 

termination, or emergency actions 

against the institution taken by the 

Secretary in accordance with 34 CFR 

part 668, subpart G; and, 

(5) Other final actions as determined 

by the Secretary. 

(b) For groups based on prior 

Secretarial final actions in accordance 

with this section, § 685.405 shall not 

apply to the affected institutions. 

§ 685.405 Institutional response. 

(a) For purposes of adjudicating a 

borrower defense claim, the Department 

official notifies the institution of the 

group claim under § 685.402 or 

individual claim under § 685.403, and 

requests a response from the school. 

Such notification also may include, but 

is not limited to, requests for 

documentation to substantiate the 

school’s response. 

(b)(1) The notification in paragraph (a) 

of this section tolls any limitation 

period by which the Secretary may 

recover from the institution under 

§ 685.409. 

(2) The Department official requests a 

response from the institution within 90 

days of the Department official’s 

notification. 

(c) With its response, the institution 

must submit an affidavit, on a form 

approved by the Secretary, certifying 

under penalty of perjury that the 

information submitted to the 

Department official is true and correct. 

(d) If the institution does not respond 

to the Department official’s information 

request within 90 days, the Department 

official shall presume that the 

institution does not contest the 

borrower defense to repayment claim. 

§ 685.406 Adjudication of borrower 

defense applications. 

(a) Adjudication. The Department 

official adjudicates a borrower defense 

claim in accordance with this section. 

(b) Group process, adjudication. (1) 

For a group formed under § 685.402, the 

Department official considers any 

evidence related to the claim, including 

materials submitted as part of the group 

application, individual claims that are 

part of the group, evidence in the 

Secretary’s possession, evidence 

provided by the institution during the 

institutional response process described 

in § 685.405, and any other relevant 

information. 

(2) For a group of borrowers under 

§ 685.402 for which the Department 

official determines there may be a 

borrower defense under § 685.401(b), 

there is a rebuttable presumption that 

each member of the group relied on the 

act or omission giving rise to the 

borrower defense in deciding to attend, 

or continue attending, the institution, 

and that such reliance was reasonable. 

(c) Individual process, adjudication. 

For an individual process under 

§ 685.403, the Department official 

adjudicates the borrower defense using 

the information available to it. The 

Department official considers any 

evidence related to the claim, including 

materials submitted as part of the 

individual application, evidence in the 

Secretary’s possession, evidence 

provided by the institution during the 

institutional response process described 

in § 685.405, and any other relevant 

information. 

(d) Additional information needed 

from the school. If the Department 

official requires additional information 

from the school, the school must 

respond to the Department official’s 

information request within 90 days. If 

the Department official requires 

additional information from the 

individual, the individual must respond 

within a reasonable timeframe. 

(e) Written decision. The Department 

official issues a written decision as 

follows: 

(1) Full or partial approval. If the 

Department official approves the 

borrower defense claim in full or in 

part— 

(i) The written decision states that 

Secretary’s determination and any 

discharge provided under § 685.408 on 

the basis of that claim. 

(ii) The Secretary places a borrower’s 

Direct Loans associated with a group 

borrower defense claim into forbearance 

until the Secretary discharges the loan 

obligations under § 685.212(k). If any 

balance remains on the Direct Loans not 

associated with the borrower defense 


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claim or for loans that were not fully 

discharged, those loans will return to 

their status prior to the claim process. 

The Secretary resumes collection 

activities on those Direct Loans not 

associated with the borrower defense 

claim or for loans that were not fully 

discharged no earlier than 90 days from 

the date the Department official issues 

a written decision. No interest will be 

charged on the loans during the 

forbearance period. 

(2) Full denial—(i) Full denial, group. 

If the Department official denies the 

borrower defense in full, the written 

decision states the reasons for the 

denial, the evidence upon which the 

decision was based, and the portion of 

the loans that is due and payable to the 

Secretary. The Department official 

informs the borrowers that for the Direct 

Loans associated with the group 

borrower defense claim, those loans will 

return to their status prior to the group 

claim process. The Secretary resumes 

collection activities on the Direct Loans 

associated with the group borrower 

defense claim no earlier than 90 days 

from the date the Department official 

issues a written decision. The 

Department official also informs 

individual borrower from the group 

claim initially adjudicated under 

§ 685.406(b)(1) the option to file a new 

borrower defense application under an 

individual process in accordance with 

§ 685.403. 

(ii) Full denial, individual. If the 

Department official denies the borrower 

defense in full, the written decision 

states the reasons for the denial, the 

evidence upon which the decision was 

based, and the portion of the loans that 

is due and payable to the Secretary. The 

Department official informs the 

borrowers that if any balance remains 

on the Direct Loans associated with the 

borrower defense claim, those loans will 

return to their status prior to the claim 

process. The Secretary resumes 

collection activities on the loans under 

which a forbearance or stopped 

collection was granted during 

adjudication of the claim in accordance 

with §§ 685.403(d) and (e) and 

685.402(d)(2) through (4), no earlier 

than 90 days from the date the 

Department official issues a written 

decision. The Department official also 

informs the borrower of the opportunity 

to request reconsideration of the claim 

pursuant to § 685.407. 

(3) Copies of written decisions. The 

Secretary provides copies of the written 

decision in this subsection to: 

(i) An individual whose claim was 

adjudicated under § 685.406(c), as 

applicable; 

(ii) The members of the group whose 

claims were adjudicated under 

§ 685.406(b)(1), as applicable; 

(iii) The school, to the extent 

practicable; and, 

(iv) The State requestor who 

requested the group claims process, as 

applicable. 

(f) Adjudication, timelines. (1) The 

Secretary shall adjudicate a group or 

individual borrower defense claim 

under the following timelines: 

(2) For a group claim under 

§ 685.402(c), within 2 years of the date 

the Department official notified the 

State requestor under § 685.402(c)(4). 

(3) For an individual claim under 

§ 685.403, within 3 years of the date the 

Department determines the borrower 

submitted a materially complete 

application. 

(4) The timelines in paragraph (f)(2) or 

(3) of this section shall not apply for 

additional adjudications carried out as 

part of the reconsideration process in 

§ 685.407. 

(5) An individual claim under 

§ 685.403 that is included in a group 

claim under § 685.402 shall be subject to 

the adjudication timeline for that group 

under paragraph (f)(2) of this section, 

and any timelines associated with 

individual adjudication in paragraph 

(f)(3) of this section shall be tolled until 

the Department official renders a 

decision on the claim under § 685.402. 

(6) The Secretary shall provide an 

interim update to the individual 

borrower submitting a claim under 

§ 685.403 or to the State requestor 

requesting a group process under 

§ 685.402 no later than 1 year after the 

dates in paragraphs (f)(2) and (3) of this 

section. Such notification shall— 

(i) Indicate the Secretary’s progress in 

adjudicating the claim or claims; and, 

(ii) Provide an expected timeline for 

rendering a decision on the claim. 

(7) Only those loans covered by 

claims on which the Secretary has not 

yet issued the written decision under 

paragraph (e) of this section by the dates 

identified in paragraph (f)(2) or (3) of 

this section shall be deemed 

unenforceable. 

§ 685.407 Reconsideration. 

(a) The decision of the Department 

official is final as to the merits of the 

borrower defense and any discharge that 

may be granted on the claim. 

Notwithstanding the foregoing— 

(1) If the borrower defense is denied 

in full or in part, an individual may 

request that the Secretary reconsider 

their individual borrower defense claim 

on the following grounds for: 

(i) Administrative or technical errors; 

(ii) Consideration under an otherwise 

applicable State law standard under 

§ 685.401(c) in lieu of the Federal 

standard; or, 

(iii) Identification of evidence that 

was not previously provided by the 

borrower and that was not identified in 

the final decision as a basis for the 

Department official’s determination; 

(2)(i) If the borrower defense is denied 

in full or in part for a group claim 

adjudicated under § 685.406(b)(1), any 

of the State requestors that requested to 

form a group under § 685.402(c) may 

request that the Secretary reconsider the 

borrower defense for the reasons 

provided under (a)(1)(i) through (iii) of 

this section. A State entity’s 

reconsideration request made in 

accordance with subparagraph (a)(1)(ii) 

of this section must provide: 

(A) The applicable State law standard; 

(B) Why the State requestor requests 

use of such State law standard; 

(C) Why application of the State law 

standard would result in a different 

outcome for the group than adjudication 

under the Federal standard; and 

(D) Why the applicable State law 

standard would lead to a borrower 

defense. 

(ii) An individual borrower from a 

group claim initially adjudicated under 

§ 685.406(b)(1) may not file a 

reconsideration request under this 

section. 

(3) The borrower or State requestor 

that requested to form a group under 

§ 685.402(c) must request 

reconsideration under this section no 

later than 90 days from the date of the 

Department official’s written decision, 

for any decisions issued on or after the 

effective date of these regulations. 

(4)(i) The Secretary shall consider a 

reconsideration request under paragraph 

(a)(1) or (a)(2)(i) of this section in which 

the individual or State requestor— 

(A) Submits an application to the 

Secretary, on a form approved by the 

Secretary; and, 

(B) Provides additional supporting 

evidence for the reconsideration claims 

made in this paragraph (a)(4)(i), if any; 

(ii) The borrower or State requestor 

entity submitting the reconsideration 

request must provide any other 

information or supporting 

documentation reasonably requested by 

the Secretary regarding the 

reconsideration request. 

(b) The Secretary designates a 

different Department official for the 

reconsideration process than the one 

who conducted the initial adjudication. 

(c) If accepted for reconsideration by 

the Secretary, the Department official 

follows the procedures in § 685.405 to 

notify the institution of the claim and 

the basis for the group’s borrower 

defense under § 685.402 or individual’s 


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borrower defense under § 685.403 for 

purposes of adjudicating 

reconsideration of the borrower defense 

claim and to request a response from the 

school to the reconsideration request. 

(d) If accepted for reconsideration by 

the Secretary, the Department official 

follows the procedures in § 685.403(d) 

for granting forbearance and 

§ 685.403(e) for defaulted loans, as 

applicable. 

(e) The Department official 

adjudicates the borrower’s 

reconsideration request under § 685.406 

and provides notice of the final decision 

upon reconsideration in accordance 

with § 685.406(e). 

(f)(1) The Secretary may reopen at any 

time a borrower defense application that 

was partially or fully denied. If a 

borrower defense application is 

reopened by the Secretary, the Secretary 

follows the procedures in § 685.403(d) 

for granting forbearance and for 

§ 685.403(e) for defaulted loans, as 

applicable. 

(2) Upon reopening a borrower 

defense application under (f) of this 

section, the Department official 

adjudicates the claim under § 685.406 

and provides notice of the final decision 

on the reopened case in accordance 

with § 685.406(e). 

§ 685.408 Discharge. 

(a)(1) There is a presumption that a 

borrower with an approved borrower 

discharge claim adjudicated under 

§ 685.406(b) or (c) is eligible for full 

discharge of the Federal student loans 

associated with the approved claim 

unless the Department official is 

presented with a preponderance of 

evidence to the contrary. 

(2) The Secretary does not limit the 

period on a borrower’s ability to receive 

a reimbursement of payments 

previously made that are associated 

with a fully or partially approved claim. 

(b) The Department official may rebut 

the presumption that the borrower or 

borrowers are eligible for full discharge 

if— 

(1) The conduct that resulted in the 

approved borrower defense claim relates 

to an easily quantifiable sum that is 

related to books, supplies and materials, 

or other charges that are not direct 

academic expenses, in which case the 

discharge amount is equal to that sum; 

(2) The conduct that resulted in the 

approved borrower defense claim relates 

to a substantial misrepresentation, 

substantial omissions of fact, breaches 

of contract, or aggressive or deceptive 

recruitment tactics or conduct, that did 

not involve the educational services 

provided. In that case, the amount of the 

discharge is tied to the full amount of 

harm experienced by the borrower as a 

result of the act or omission, but in no 

case shall be greater than the full 

amount of the loan; or, 

(3) The conduct that resulted in the 

approved borrower defense claim relates 

to a substantial misrepresentation, 

substantial omissions of fact, breaches 

of contract, or aggressive or deceptive 

recruitment tactics or conduct, that did 

not involve the outcomes of the 

borrower’s education. In that case, the 

amount of the discharge is tied to the 

full amount of harm experienced by the 

borrower as a result of the act or 

omission, but in no case shall be greater 

than the full amount of the loan. 

(c)(1) If the Department official 

determines that the presumption of full 

discharge has been rebutted, the official 

recommends an appropriate discharge 

amount to the Secretary. The discharge 

amount shall be an easily quantifiable 

amount that is less than the full amount 

of the loan or loans related to the claim, 

or 50 percent of the disbursed balance 

of the loan if the amount is not easily 

quantifiable. 

(2) For a group process under 

§ 685.406(b), the Department official 

shall recommend the same discharge 

amount to the Secretary for all members 

of the group, either in dollars or as a 

percentage of the loan amount. 

(d) In determining whether an amount 

is easily quantifiable, the Department 

official— 

(1) May consider factors such as the 

amount of debt taken on by borrowers 

at that program compared to the median 

debt level at all programs of the same 

level and classification of instructional 

program (CIP) code offered by all other 

institutions of higher education; 

(2) May consider publicly available 

information on the price of books, 

supplies, or other materials; and 

(3) May not base the determination 

upon individual or group measurements 

of the borrower’s earnings or 

employment. 

(e) The Department official 

recommends an appropriate amount of 

discharge to the Secretary, which may 

include a discharge of all amounts owed 

to the Secretary on the loan at issue and 

the reimbursement of amounts 

previously collected by the Secretary on 

the loan, an easily quantifiable amount 

that is less than the full amount of the 

loan or loans related to the claim, or 50 

percent of the disbursed balance of the 

loan if the amount is not easily 

quantifiable. 

(f) The Secretary makes a final 

decision after taking into account the 

Department official’s recommendation 

and the record compiled under 

§§ 685.402, 685.403, 685.404, 685.405, 

and 685.407, as applicable. 

(g) The Secretary issues a written 

decision setting forth the amount of the 

discharge granted, after which the 

designated Department official deciding 

the claim notifies the borrower of the 

discharge provided and— 

(1) Specifies the amount of the 

discharge; 

(2) Advises that there may be State tax 

implications; and 

(3) If the borrower does not receive a 

full discharge of all loans covered by the 

claim, advises the borrower of the 

option to file a request for 

reconsideration in accordance with 

§ 685.407. 

(h) Consistent with the discharge 

amount determined under this section, 

the Secretary discharges the borrower’s 

obligation to repay all or part of the loan 

and associated costs and fees that the 

borrower would otherwise be obligated 

to pay and, if applicable, reimburses the 

borrower for amounts paid toward the 

loan voluntarily or through enforced 

collection. 

(i) The Secretary affords the borrower 

such further relief as appropriate under 

the circumstances. Such further relief 

includes, but is not limited to, one or 

both of the following: 

(1) Determining that the borrower is 

not in default on the loan and is eligible 

to receive assistance under title IV of the 

Act. 

(2) Updating or deleting adverse 

reports the Secretary previously made to 

consumer reporting agencies regarding 

the borrower’s Direct Loan. 

(j) The total amount of discharge 

granted with respect to a borrower 

defense cannot exceed the amount of 

the loan and any associated costs and 

fees and will be reduced by the amount 

of any refund, reimbursement, 

indemnification, restitution, 

compensatory damages, settlement, debt 

forgiveness, discharge, cancellation, 

compromise, or any other financial 

benefit received by, or on behalf of, the 

borrower that was related to the 

borrower defense. The relief to the 

borrower may not include nonpecuniary damages such as 

inconvenience, aggravation, emotional 

distress, or punitive damages. 

§ 685.409 Recovery from institutions. 

(a) For loans first disbursed on or after 

July 1, 2023, the Secretary shall collect 

from the school, or in the case of a 

closed school, a person affiliated with 

the school as described in § 668.174(b) 

of this chapter, any liability to the 

Secretary for any amounts discharged or 

reimbursed to borrowers under the 


jspears on DSK121TN23PROD with PROPOSALS2
42010 Federal Register / Vol. 87, No. 133 / Wednesday, July 13, 2022 / Proposed Rules 

discharge process described in 

§ 685.408. 

(b) Notwithstanding the paragraph (a) 

of this section, the Secretary may choose 

not to collect from the school, or in the 

case of a closed school, a person 

affiliated with the school as described in 

§ 668.174(b) of this chapter, any liability 

to the Secretary for any amounts 

discharged or reimbursed to borrowers 

under the discharge process described 

in § 685.408, under the following 

conditions, such as: 

(1) The cost of collecting would 

exceed the amounts received; or 

(2) The claims were approved outside 

of the limitations period in paragraph 

(c) of this section; 

(c)(1) The Secretary shall initiate a 

proceeding to collect from the school 

the amount of discharge or 

reimbursement resulting from a 

borrower defense under § 685.408 no 

later than 6 years after the borrower’s 

last date of attendance at the institution; 

(2) The limitations period described 

in paragraph (c)(1) of this section shall 

not apply if at any time prior to the end 

of the limitations period— 

(i) The Department official notifies the 

school of the borrower’s claim in 

accordance with § 685.405(b); 

(ii) The institution receives a class 

action complaint asserting relief for a 

class that may include the borrower for 

underlying facts that may form the basis 

of a claim in accordance with this 

subpart; or 

(iii) The institution receives written 

notice, including a civil investigative 

demand or other written demand for 

information, from a Federal or State 

agency that has power to initiate an 

investigation into conduct of the school 

relating to specific programs, periods, or 

practices that may have affected the 

borrower, for underlying facts that may 

form the basis of a claim under this 

subpart. 

(3) For a borrower defense under 

§ 685.401(b)(5), the Secretary may 

initiate a proceeding to collect at any 

time. 

§ 685.410 Cooperation by the borrower. 

To obtain a discharge under this 

subpart, a borrower must reasonably 

cooperate with the Secretary in any 

proceeding under this subpart. 

§ 685.411 Transfer to the Secretary of the 

borrower’s right of recovery against third 

parties. 

(a) Upon the granting of any discharge 

under this subpart, the borrower is 

deemed to have assigned to, and 

relinquished in favor of, the Secretary 

any right to a loan refund (up to the 

amount discharged) that the borrower 

may have by contract or applicable law 

with respect to the loan or the contract 

for educational services for which the 

loan was received, against the school, its 

principals, its affiliates, and their 

successors, its sureties, and any private 

fund. 

(b) The provisions of this section 

apply notwithstanding any provision of 

State law that would otherwise restrict 

transfer of those rights by the borrower, 

limit or prevent a transferee from 

exercising those rights, or establish 

procedures or a scheme of distribution 

that would prejudice the Secretary’s 

ability to recover on those rights. 

(c) Nothing in this section limits or 

forecloses the borrower’s right to pursue 

legal and equitable relief against a party 

described in this section for recovery of 

any portion of a claim exceeding that 

assigned to the Secretary or any other 

claims arising from matters unrelated to 

the claim on which the loan is 

discharged. 

§ 685.499 Severability. 

If any provision of this subpart or its 

application to any person, act, or 

practice is held invalid, the remainder 

of the subpart or the application of its 

provisions to any person, act, or practice 

shall not be affected thereby. 

[FR Doc. 2022–14631 Filed 7–12–22; 8:45 am] 

BILLING CODE 4000–01–P 


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