Today the U.S. Department of Education (ED) released its final regulations pertaining to the “defense to repayment” provision of the Higher Education Act. These regulations will establish a new standard and processes under which borrowers can have federal student loans discharged in cases of fraud or deception by an institution. Key provisions of the final regulations include:
- Creating a new federal standard for discharging federal student loans and new processes to file claims;
- Allowing for group-wide discharges in cases of widespread misrepresentations;
- Requiring institutions to provide the government with financial protection against the risks they create and losses that arise from the discharge of federal student loans;
- Requiring for-profit schools with poor loan repayment outcomes to include a plain-language warning in advertising and promotional materials;
- Providing borrowers with information about and access to an automated closed school discharge process; and
- Banning pre-dispute arbitration agreements.
The new rules are a result of the fallout from the closure of 28 Corinthian Colleges, Inc. campuses in April of 2015; the closures were a result of $30 million in fines levied upon Corinthian by ED for misrepresenting job placement rates to current and prospective students.
The final rules will be published in the Federal Register by November 1, 2016. Implementation of most provisions of the final rules will take place beginning on July 1, 2017; ED intends to allow for early implementation of the automatic closed school discharge provision.