The U.S. Department of Education (ED) announced today the release of proposed regulations that would establish a new system for discharging student loans under the “defense to repayment” provision of the Higher Education Act. 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 proposed regulations are the product of three rounds of negotiations earlier this year between a committee of federal and non-federal negotiators representing various constituencies with a stake in the updated regulatory framework. The negotiations, which concluded in March, ended without a consensus around draft rules, though ED took the committee’s feedback into account when drafting the proposed regulations. According to ED, the package of proposed regulations will “…clarify, simplify, and strengthen existing regulations that grant students loan forgiveness if they were defrauded or deceived by an institution.”
In the proposed rules, there are new restrictions on the use of mandatory pre-dispute arbitration clauses in enrollment agreements at institutions that receive federal student aid, and a streamlined process for individual and class-based student loan discharges when students are defrauded or deceived by an institution. Also, the proposed rules give ED greater authority to compel institutions to post a letter of credit as collateral for continued access to federal student aid when an institution’s financial stability is in doubt or when an institution engages in misconduct. Additionally, the proposed regulations require “…financially risky schools and proprietary schools” with poor student loan repayment outcomes to warn current and prospective students in clear, plain-language about those outcomes.
The proposed rules will publish for public comment in the Federal Register on June 16, and the public comment period ends August 1. The Department will publish a final regulation by November 1, with implementation of the final rules expected to take place by July 1, 2017. For questions or more information, please contact Nancy Conneely, AccessLex Institute Director of Policy, at 202-596-3700 or firstname.lastname@example.org.