[Federal Register Volume 87, Number 210 (Tuesday, November 1, 2022)]
[Rules and Regulations]
[Pages 65904-66073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-23447]



[[Page 65903]]

Vol. 87

Tuesday,

No. 210

November 1, 2022

Part III





Department of Education





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34 CFR Parts 600, 668, 674 Et. al.





Institutional Eligibility Under the Higher Education Act of 1965, as 
Amended; Student Assistance General Provisions; Federal Perkins Loan 
Program; Federal Family Education Loan Program; and William D. Ford 
Federal Direct Loan Program; Final Rule

  Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / 
Rules and Regulations  

[[Page 65904]]


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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


Institutional Eligibility Under the Higher Education Act of 1965, 
as Amended; 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: Final regulations.

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SUMMARY: The Secretary establishes new regulations governing the 
William D. Ford Federal Direct Loan (Direct Loan) Program to establish 
a new Federal standard and a process for determining whether a borrower 
has a defense to repayment on a loan based on an act or omission of 
their school. We also are amending the Direct Loan Program regulations 
to prohibit participating schools from using certain contractual 
provisions regarding dispute resolution processes and to require 
certain notifications and disclosures by institutions (institutions or 
schools) regarding their use of mandatory arbitration. Additionally, we 
are amending the Direct Loan regulations to eliminate interest 
capitalization in instances where it is not required by statute. We are 
also amending the regulations governing closed school discharges and 
total and permanent disability (TPD) discharges in the Federal Perkins 
Loan (Perkins), Direct Loan, and Federal Family Education Loan (FFEL) 
programs. We are also amending the regulations governing false 
certification discharges in the Direct Loan and FFEL programs. Finally, 
we are amending the 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 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: These regulations are effective July 1, 2023. For the 
implementation dates of the regulatory provisions, see the 
Implementation Date of These Regulations in SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: For further information related to 
interest capitalization, contact Vanessa Freeman at (202) 987-1336 or 
by email at [email protected]. For further information related to 
borrower defenses to repayment (BD) or pre-dispute arbitration, contact 
Rene Tiongquico at (202) 453-7513 or by email at 
[email protected]. For further information related to TPD, closed 
school, and false certification discharges, contact Brian Smith at 
(202) 987-1327 or by email at [email protected]. For further 
information related to PSLF, contact Tamy Abernathy at (202) 453-5970 
or by email at [email protected].
    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:

Executive Summary

    The Secretary amends the regulations in seven areas affecting the 
Direct Loan Program and several areas that also affect the Perkins Loan 
Program or the FFEL Program. First, we amend the regulations governing 
the Direct Loan Program to establish a new Federal standard and process 
for determining whether a borrower has a defense to repayment of a 
loan. We also limit the use of certain contractual provisions regarding 
dispute resolution processes by participating institutions and require 
certain notifications and disclosures by institutions regarding their 
use of mandatory arbitration. Additionally, we amend the Perkins, 
Direct Loan, and FFEL program regulations to improve the process for 
granting TPD discharges by eliminating the income monitoring period, 
expanding the circumstances in which borrowers can qualify for 
discharges based on a finding of disability by the Social Security 
Administration, expanding allowable documentation, and allowing 
additional health care professionals to provide a certification that a 
borrower is totally and permanently disabled. We further 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. Additionally, we amend the Direct Loan and FFEL 
regulations to streamline the regulations governing false certification 
discharges. We also amend the Direct Loan regulations to eliminate 
interest capitalization in instances where it is not required by 
statute. Finally, we amend regulations governing PSLF in the Direct 
Loan program to improve the application process and to clarify and 
expand the definitions of full-time employment, employee or employed, 
and qualifying monthly payments. The changes will bring greater 
transparency and clarity and improve the administration of Federal 
student financial aid programs to assist and protect students, 
participating institutions, and taxpayers.

Purpose of This Regulatory Action

Summary of the Major Provisions of This Regulatory Action
    The final regulations--
     Amend the Direct Loan regulations to establish a new 
Federal standard for BD claims applicable to applications received on 
or after July 1, 2023. Applications pending on July 1, 2023, will also 
be considered under the new standard. In addition, this final rule 
expands the existing definition of misrepresentation, provides an 
additional basis for a BD claim based on aggressive and deceptive 
recruitment practices, and allows claims based on State law standards 
for loans first disbursed prior to July 1, 2017.
     Provide that the Department will use a preponderance of 
the evidence standard to determine whether the institution committed an 
actionable act or omission and, as a result, the borrower suffered 
detriment, such that the circumstances warrant BD relief and the 
borrower's BD claim should be approved. In determining whether relief 
is warranted the Secretary will consider the totality of the 
circumstances, including the nature and degree of the acts or omissions 
and of the detriment caused to borrowers.
     Provide for a full discharge of all remaining loan 
balances and a refund of all amounts paid to the Secretary for loans 
associated with an approved BD claim.
     Establish processes for group BD claims that may be formed 
in response to evidence provided by third-party requestors or at the 
Secretary's discretion, including based on prior Secretarial Final 
Actions. We define Secretarial Final Actions as fine, limitation, 
suspension, or termination actions taken by the Department against the 
institution, denying the institution's application for recertification, 
or revoking the institution's provisional program participation 
agreement.
     Stop interest accrual on the borrowers' loans beginning 
180 days after the initial grant of forbearance or

[[Page 65905]]

stopped collections in the case of an individual BD claim and 
immediately upon formation for a group BD claim.
     Issue decisions on claims within a certain period or the 
loans will be deemed unenforceable.
     Establish a reconsideration process for review of denied 
BD claims.
     Establish a process for recouping the cost of approved 
discharges.
     Prohibit institutions 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.
     Require institutions to disclose publicly and notify the 
Secretary of judicial and arbitration filings and awards pertaining to 
a BD claim.
     Eliminate interest capitalization on Direct Loans where 
such capitalization is not required by statute.
     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) continuing 
disability review 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 without unnecessary paperwork burden.
     Allow borrowers to receive a TPD discharge if the 
established onset date 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 clarify the circumstances when borrowers who 
reenroll in a comparable program are not eligible for a discharge.
     Streamline the FFEL and Direct Loan false certification 
regulations to provide one set of regulatory standards that will cover 
all false certification discharge claims.
     Clarify that, to determine eligibility for a false 
certification discharge, the Department relies on the borrower's status 
at the time the Direct loan was originated, and at the time the FFEL 
loan was certified.
     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.
     Expand the definition of ``employee'' or ``employed'' to 
include someone who works as a contracted employee for a qualifying 
employer in a position or provides services which, under applicable 
State law, cannot be filled or provided by a direct employee of the 
qualifying employer.

Background

    Affordability of postsecondary education and student loan debt have 
been significant challenges for many Americans. Total outstanding 
student loan debt has 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\
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    \1\ R. Chakrabarti, N. Gorton & 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-and-homeownership.html.
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    This final rule provides several significant improvements to 
existing programs authorized under the Higher Education Act of 1965, as 
amended (HEA) \2\ that grant loan discharges to borrowers who meet 
specific eligibility conditions. Despite the presence of these 
discharge authorities for years, the Department is concerned that too 
many borrowers have been unable to access loan relief authorized by 
statute. In some situations, this has been due to regulatory 
requirements that created unnecessary or unfair burdens for borrowers.
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    \2\ 20 U.S.C. 1001, et seq.
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    The final rule makes changes related to discharges available to 
borrowers in the three major Federal student loan programs: Direct 
Loans, FFEL, and Perkins Loans. The most significant effects are in the 
Direct Loan program, which has been the predominant source of all new 
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 components of 
these regulations, such as interest capitalization, BD, the prohibition 
on the use of mandatory pre-dispute arbitration and class action 
waivers, and the PSLF program only apply to Direct Loans. Other 
provisions addressed in these regulations, such as closed school 
discharge, and TPD discharges, affect Direct Loans as well as loans 
previously made under the FFEL Program and the Perkins Loan Program.\3\ 
False certification discharges only affect Direct Loans and FFEL 
Program loans. In the FFEL program, private lenders made Federally 
insured and subsidized student loans using their own funds. The lender 
was protected from the risk of default or loss by Federal insurance. In 
the Perkins program, institutions issued Federal student loans using a 
combination of Federal and institutional funds.
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    \3\ There have been no new FFEL Program loans originated since 
June 30, 2010, and no new Perkins Loans since September 30, 2017.
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    The negotiated rulemaking committee (Committee) that considered the 
draft regulations on these topics reached consensus on the proposed 
regulations relating to interest capitalization, false certification 
discharges, and TPD; they did not reach consensus on BD, pre-dispute 
arbitration agreements and class action waivers, closed school 
discharge, or PSLF.
    On July 13, 2022, the Secretary published a notice of proposed 
rulemaking (NPRM) for these parts in the Federal Register.\4\ The NPRM 
included proposed regulations on which the Committee reached consensus 
and the Department's proposed rules for those issues where consensus 
was not reached. These final regulations reflect the results of those 
negotiations and respond to the public comments received on the 
regulatory proposals in the NPRM. The final regulations also contain 
changes from the NPRM, which are fully explained in the Analysis of 
Comments and Changes section of this document. These final rules do not 
speak to one issue raised by commenters in response to the NPRM--
whether and in what circumstances private for-profit employers, 
including those that provide early childhood services, should be 
treated as qualifying employers for the purposes of PSLF. That issue, 
and the responses to comments related to it, will be addressed in a 
future final rule. The

[[Page 65906]]

Department is separating this issue for a future final rule because we 
received significant and detailed comments in response to our questions 
around the possible treatment of for-profit companies that provide 
early childhood education as qualifying employers for PSLF. These 
comments included a number of proposals that address operational, 
legal, and policy considerations, which the Department needs additional 
time to consider.
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    \4\ https://www.regulations.gov/document/ED-2021-OPE-0077-1350.
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    Costs and Benefits: As further detailed in the Regulatory Impact 
Analysis, the benefits of the final regulations include: (1) a 
clarified process for BD discharge applications assisted by the 
creation of a primary Federal standard to streamline the Department's 
consideration of applications, while affording institutions an 
opportunity to respond to allegations contained in BD claims; (2) 
increased opportunities for borrowers to seek relief from institutional 
misconduct by prohibiting the use of mandatory pre-dispute arbitration 
and class action waivers; (3) improved school conduct and offsetting 
some of the costs of discharges to the Federal government and taxpayers 
as a result of holding individual institutions financially accountable 
for BD discharges and deterring misconduct; (4) increased automated 
discharges for borrowers, with the option to opt out; and (5) improved 
access to and expanded eligibility for, where appropriate, PSLF, closed 
school, TPD, and false certification discharges.
    The costs to taxpayers in the form of transfers include BD 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 under the 
HEA; and the foregone interest where capitalizing interest is not 
required. The paperwork burden associated with reporting and disclosure 
requirements necessary to ensure compliance with these regulations 
represents an additional cost to institutions.
    Implementation Date of These Regulations: Section 482(c) of the HEA 
requires that regulations affecting programs under title IV of the HEA 
be published in final form by November 1, prior to the start of the 
award year (July 1) to which they apply. That section also permits the 
Secretary to designate any regulation as one that an entity subject to 
the regulations may choose to implement earlier and the conditions for 
early implementation.
    Consistent with the Department's objective to improve the 
implementation of PSLF, the Secretary intends to exercise his authority 
under section 482(c) to designate the simplified definition for full-
time employment in PSLF as a provision that an entity subject to the 
provision may, in the entity's discretion, choose to implement prior to 
the effective date of July 1, 2023. The Secretary may specify in the 
designation when, and under what conditions, an entity may implement 
the provision prior to the effective date. The Secretary will publish 
any designation under this subparagraph in the Federal Register.
    The Secretary does not intend to exercise his authority to 
designate any other regulations in this document for early 
implementation. The final regulations included in this document are 
effective July 1, 2023.
    Public Comment: In response to our invitation in the July 13, 2022, 
NPRM, 4,094 parties submitted comments on the proposed regulations. In 
this preamble, we respond to those comments.

Analysis of Comments and Changes

    We developed these regulations through negotiated rulemaking. 
Section 492 of the HEA requires that, before publishing any proposed 
regulations to implement programs under title IV of the HEA, the 
Secretary must obtain public involvement in the development of the 
proposed regulations. After obtaining advice and recommendations, the 
Secretary must conduct a negotiated rulemaking process to develop the 
proposed regulations. The negotiated rulemaking Committee considered 
each issue separately to determine consensus and reached consensus on 
the proposed regulations addressing interest capitalization, TPD, and 
false certification discharges. The Committee did not reach consensus 
on the remaining proposed regulations that we published on July 13, 
2022.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not address minor, non-substantive changes 
(such as renumbering paragraphs, adding in a word, or typographical 
errors). Additionally, we do not address recommended changes that the 
statute does not authorize the Secretary to make (such as forgiving all 
student loans, setting interest rates to 0 percent, or providing 
forgiveness under PSLF after 60 payments instead of 120) or comments 
pertaining to operational processes. We also do not address comments 
pertaining to issues that were not within the scope of the NPRM. An 
analysis of the public comments received and of the changes in the 
regulations since publication of the NPRM follows.

Negotiated Rulemaking

    Comments: A few commenters suggested the negotiated rulemaking 
table must include representatives from civil rights organizations as 
well as student representation, stating that communities and people of 
color are disproportionately impacted by postsecondary education and 
need to be included in rulemaking discussions. These commenters further 
urged the Department to include more than two student representatives 
in negotiated rulemaking, noting that student representatives were 
outnumbered more than two to one by higher education and lending 
industry representatives. Other commenters suggested that for-profit 
institutions are significantly impacted by these regulations and should 
have had more representation at negotiated rulemaking. Finally, 
numerous commenters said the negotiated rulemaking process felt rushed 
because of the number of issues involved and holding the meetings 
virtually. They suggested the Department return to in-person negotiated 
rulemaking.
    Discussion: On August 10, 2021, the Department published a notice 
in the Federal Register announcing its intention to establish a 
negotiated rulemaking Committee to prepare proposed regulations for 
these issues.\5\ The notice set forth a schedule for the Committee 
meetings and requested nominations for individual negotiators to serve 
on the committee. As we stated in that solicitation and request for 
nominations for negotiators, we select individual negotiators who 
reflect the diversity among program participants, in accordance with 
Sec. 492(b)(1) of the HEA. Our goal was to establish a Committee and a 
Subcommittee that allowed significantly affected parties to be 
represented while keeping the Committee size manageable.
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    \5\ 86 FR at 43609.
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    As the Federal negotiator explained in the first negotiated 
rulemaking session, the Department deliberately placed students front 
and center in the discussion by including constituencies for dependent 
students, independent students, and student loan borrowers.\6\ As with 
all other Committee representatives, each of these constituencies had 
primary representatives and alternates. The Department believes the 
negotiated

[[Page 65907]]

rulemaking Committee captured the diverse universe of students.
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    \6\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/104am.pdf, page 61.
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    While the Department did not identify civil rights organizations as 
a stand-alone constituency for this negotiated rulemaking table, 
representatives from that group had several opportunities to be 
involved with negotiated rulemaking, including during the public 
comment period after each rulemaking session and by submitting written 
comments on the proposed rule. In fact, several civil rights 
organizations submitted comments to the Department. With respect to the 
request for greater representation of proprietary schools, the 
Department believes it correctly identified proprietary institutions as 
a single constituency group. None of the negotiated topics discussed 
during these sessions related solely to the proprietary sector. 
Moreover, these institutions represent a smaller share of students than 
those in the private nonprofit sector, which also had only a single 
representative.
    The full negotiated rulemaking Committee reached agreement on its 
protocols, including the constituencies represented on the committee 
and committee membership.
    Finally, the Department disagrees that the negotiated rulemaking 
process was rushed. We conducted three public hearings to comment on 
the rulemaking agenda.\7\ We also held three negotiated rulemaking 
sessions that ran for five days each from 10 a.m. to 4 p.m. EST, which 
included a half hour of public comment every day except the final day 
of the last session. The Department gave stakeholders and members of 
the public the opportunity to weigh in on the development of the 
language reflected in the regulations through a public comment period.
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    \7\ May 6, 2021, 86 FR at 28299.
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    Changes: None.

Public Comment Period

    Comments: Several commenters requested a 45- or 60-day comment 
period on the proposed rules. Some of these commenters asserted that 
under the principles of Executive Orders 12866 and 13563, the 
Department must adhere to at least a 60-day comment period.
    Discussion: The Department shares commenters' belief in the 
importance of giving the public a robust opportunity to publicly 
comment on the Department's regulations. The Department received 
thousands of written comments and considered every comment it received 
in response to the NPRM. We note that the negotiated rulemaking process 
provides significantly more opportunity for public engagement and 
feedback than notice-and-comment rulemaking without a negotiated 
rulemaking component. The Department began this process of developing 
regulations more than a year ago by inviting public input through a 
series of public hearings in June 2021. We selected negotiators to 
represent a range of constituencies. During the negotiated rulemaking 
sessions, the Department provided opportunities for the public to 
comment throughout the process, including after seeing draft regulatory 
text--some of which was available prior to the first session and all of 
which was available prior to the second and third sessions. Each of 
these opportunities took place before the formal comment period on the 
proposed rules. Considering these efforts, the Department believes that 
the 30-day public comment period was sufficient time for interested 
parties to submit comments. The 30-day comment period on the NPRM is 
not unique, and the Department has fully complied with the appropriate 
Executive Orders regarding public comments. First, the Department notes 
that over the last several years and under multiple Administrations, 
the Department has relied on a 30-day comment period for many 
regulations including: BD; \8\ distance education and innovation; \9\ 
and rescission of the gainful employment regulations.\10\
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    \8\ 83 FR at 37242 (July 31, 2018).
    \9\ 85 FR at 18638 (April 2, 2020).
    \10\ 83 FR at 40167 (August 14, 2018).
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    Second, while the Executive Orders cited by the commenters direct 
each agency to afford the public a meaningful opportunity to comment, 
those Executive Orders do not require a 60-day comment period.
    Unlike simple notice-and-comment rulemaking, the negotiated 
rulemaking process affords ample opportunities for the public to not 
only comment but also to understand the Department's proposed rules and 
policies. We livestreamed the complete negotiated rulemaking sessions 
on our website, posted recordings of the livestreams, as well as the 
transcripts of the rulemaking sessions for later review. In addition, 
we provided an opportunity for public comment at the end of each day 
the committee met, and posted each iteration of draft proposed 
regulatory text that the committee reviewed. Thus, the Department has 
met the requirements provided in those Executive Orders to afford the 
public a meaningful opportunity to comment and participate in the 
Department's rulemaking process.
    Changes: None.

Borrower Defense to Repayment--General (Sec.  685.401)

General Support for Regulations

    Comments: The Department received many comments in support of the 
proposed regulations on BD accompanied by testimonial accounts of 
borrowers' experiences at institutions and the loan debt they incurred. 
One commenter, for example, felt that institutions need to better 
inform students about their academic programs, as well as employment 
prospects after graduation. Many commenters supported the proposed 
regulations because they felt the 2019 BD regulations required 
borrowers to meet an unrealistic standard that made it extremely 
difficult to prove harm. Commenters further cited the anticipated low 
approval rates for BD claims under the 2019 BD regulations compared to 
the 2016 BD regulations as further support for creating a new set of 
regulations that are more balanced toward students. Commenters also 
expressed support for many specific elements of the NPRM, including a 
strong upfront Federal standard, the addition of aggressive and 
deceptive recruitment as a type of act or omission that could give rise 
to an approved claim, the ability to adjudicate group claims, the 
opportunity for State requestors to submit applications for considering 
group claims, the clearer inclusion of FFEL loans, codifying procedures 
such as stopping the accumulation of interest, and establishing 
deadlines for reviewing claims. Other commenters supported the proposed 
regulations citing that they are more streamlined, easier to 
administer, less confusing, and they eliminate unreasonable burdens on 
borrowers.
    Discussion: We appreciate the comments in support of our proposals. 
We believe these final regulations strike the right balance of creating 
a process that will result in BD discharges, where appropriate, while 
denying claims without merit. In doing so, the Department believes 
these regulations will clarify the claims process for borrowers and 
institutions, create transparent and realistic timelines, and make the 
process easier to administer.
    These regulations also provide a path for recouping the cost of 
approved discharges from institutions when warranted and after 
significant due process opportunities. We address commenters' arguments 
with respect to specific provisions of the regulations in the sections 
of this preamble specific to those provisions.
    Changes: None.

[[Page 65908]]

General Opposition to Regulations

    Comments: Many commenters expressed general concerns about the 
regulations. These commenters believe that the regulations would lead 
to frivolous claims and greater costs to institutions, both in terms of 
defending against recoupment efforts associated with what commenters 
described as claims that should not have been approved, but also 
reputational harm for institutions, the potential for actions by other 
regulators, loss of private financing, and the possibility of borrower 
lawsuits. Similarly, some former students expressed concern that their 
degrees would be devalued if the institution they attended had BD 
claims approved against it.
    Commenters also argued that the Department lacks the legal 
authority to issue these regulations, that components of the 
regulations were too vague, that institutions are not afforded 
sufficient due process under the proposed rules, and that the 
regulations represented impermissible Departmental involvement in 
matters of State law. Commenters also expressed displeasure with other 
specific components of the regulations, such as the proposed group 
process.
    Discussion: As we explained in the NPRM, despite the presence of 
the BD discharge authority for decades, the Department is concerned 
that too many borrowers who were subjected to an act or omission by 
their institution that should give rise to a successful defense to 
repayment have not received appropriate relief, at least in part 
because the regulatory requirements have created unnecessary or unfair 
burdens for borrowers.\11\ In these rules, the Department crafted a BD 
framework that strikes a balance between providing transparency, 
clarity, and ease of administration while simultaneously giving 
adequate protections to borrowers, institutions, the Department, and 
the public monies that fund Federal student loans.
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    \11\ 87 FR at 41879.
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    The Department believes that the proposed rule included procedures 
that would allow it to deny claims that lacked sufficient evidence or 
that did not meet the standard for a BD claim. In particular, under the 
proposed rules, the Department would obtain information from 
institutions and, in the case of a claim alleging misrepresentation by 
the institution, require a showing of reasonable reliance by the 
borrower. Nevertheless, in this final rule we have adopted additional 
changes suggested by commenters to clarify the standard that must be 
met for a claim to be approved and to specify how the Department will 
ensure claims include sufficient detail to permit consideration by the 
Department. The final regulations require that, to approve a claim, the 
Department must conclude that the institution's act or omission is an 
actionable ground for BD that caused detriment to the borrower that 
warrants relief (the Federal standard definition for a BD in Sec.  
685.401). This general standard incorporates enumerated categories of 
conduct (``actionable act or omission'') that affect the fairness of 
the transaction underlying the borrower's loan obligation. (Unless 
otherwise indicated hereinafter, ``act or omission'' refers to an 
``actionable act or omission'' within the meaning of the BD standard 
and is shortened to aid with readability.) This standard provides that 
a borrower must suffer detriment as a result of the conduct, which 
incorporates the conventional elements of injury and causation. It also 
requires that the outcome of the borrower's loan-and-enrollment 
transaction was financial harm, lost value, or other cognizable injury 
caused by the actionable conduct. Finally, it requires that the 
circumstances of the borrower's resulting detriment warrant the form of 
relief--discharge of the entire remaining loan balance, refund of all 
payments made to the Secretary, and other remedial measures such as 
removing the borrower from default and updating credit reports. There 
will be a rebuttable presumption that such relief is warranted in cases 
involving closed schools, which reflects past experience. This standard 
thus establishes the concept that the institution's act or omission and 
the detriment they cause must be of such a nature that the remedy 
provided would be appropriate--specifically, a discharge of all 
remaining loan obligations, refund of all past amounts paid to the 
Secretary, and curative steps related to default, credit-reporting, and 
eligibility, if applicable. An act or omission resulting in borrower 
detriment that is marginal or attenuated from the decision to borrow or 
enroll would thus not be grounds for an approval because the relief of 
a full discharge, refund, and associated steps would not be an 
appropriate remedy. In considering whether an institution's acts or 
omissions caused detriment that warrants this form of relief, the 
Department would consider the totality of the circumstances, including 
the nature and degree of the act or omission and of the harm or injury 
along with other relevant factors. The standard also reflects the 
Department's experience that the circumstances warranting such relief 
are likely to exist in cases involving closed schools shown to have 
committed actionable acts or omissions, and the standard thus provides 
a rebuttable presumption that relief is warranted in those cases.
    Under this standard and its accompanying regulations, the 
Department will have flexibility in determining the universe of 
evidence to be considered, while ensuring that relief-worthy claims are 
supported by sufficient evidence of the institution's wrongdoing. The 
Department is also providing greater clarity regarding what constitutes 
a materially complete application that can then be adjudicated 
(Sec. Sec.  685.402(c) and 685.403(b)), which will ensure that 
applications include a sufficient degree of detail and, where 
applicable, evidentiary support.
    These regulations should have a deterrent effect dissuading 
institutions from engaging in conduct that would give rise to a defense 
to repayment. To be clear, however, the Department does not consider 
recoupment for the amounts of BD discharges to be a sanction or 
punishment for the acts or omissions that impugn the underlying 
transaction involving a borrower's enrollment, tuition, and loan. The 
deterrent effect that flows from the risk of punishment is applied by 
operation of the Department's regulations providing for fine, 
suspension, termination, and other sanctions.
    The regulations should, however, have the type of deterrent effect 
that proceeds from predictably ensuring parties fulfill the commitments 
they have made. By setting forth a clearer and more robust Federal 
standard for BD claims and a rigorous group claim process, institutions 
that might otherwise engage in questionable behavior will change their 
practices and act more ethically and truthfully. That is, the 
Department believes the standards and processes in this rule will 
mitigate the risk of moral hazard if unfulfilled commitments are 
ignored. The Department believes there will be a future deterrent 
effect even in the situations where the institution is not held liable 
for the expense of the approved discharge because there would be a 
higher likelihood of successful recoupment on more recently disbursed 
loans.
    In this context, the Department notes that the circumstances in 
which an institution is most likely to face considerable costs related 
to BD claims are likely the strongest indication of actionable 
wrongdoing. BD applications filed by State regulators following

[[Page 65909]]

investigations that find acts or omissions, and cases with a 
significantly large volume of independently filed individual 
applications with common claims, are two such examples. Furthermore, we 
believe that the regulations requiring borrowers to submit materially 
complete individual applications will increase the quality and detail 
of claims without posing unnecessary barriers for borrowers.
    The Department also does not agree that the commenters' concerns 
about reputational harm for institutions, the potential for actions by 
other regulators, and the possibility of borrower lawsuits solely 
stemming from approved claims are reasons to make significant changes 
to the proposed rules. To the extent commenters refer to the risk of 
erroneous BD decisions causing harm to the institution, we will only 
grant a discharge when adequate evidentiary support exists--a finding 
that will occur only after considering evidence and arguments submitted 
by the institution. Additionally, we only assess liabilities against 
the institution if we initiate a recoupment action. That action will 
afford schools the same procedural rights and protections available in 
any other situation in which an institution is assessed a monetary 
liability associated with title IV.\12\
---------------------------------------------------------------------------

    \12\ See, e.g., 34 CFR part 668, subpart G (proceedings for 
limitation, suspension, termination, and fines).
---------------------------------------------------------------------------

    Regarding potential risks for institutions independent of actual 
liability determinations, the Department notes that the HEA clearly 
provides borrowers the right to assert a defense to repayment based on 
an alleged wrongdoing by an institution in the same way any consumer 
may invoke legal remedies against a seller or service provider. The 
Department is obligated to consider those claims. The Department does 
not conclude that concerns about hypothetical institutional harms, 
independent of actual liability determinations, override the concern 
for students harmed by institutional misconduct and the Department's 
obligation to consider claims alleging such harm.
    To the extent commenters are concerned with risks flowing from the 
sole act of the Department granting claims, irrespective of recoupment 
or any determination of actual liability on the school's part, the 
Department does not consider the marginal risk of such harm to warrant 
conditioning borrower relief on a finding of school liability or 
changing the sequence of those determinations. Were the Department to 
make borrower relief and school liability coextensive or to make each 
adjudicatory step an adversarial process between the borrower and the 
school, it would create unrealistic barriers for borrowers and an 
insurmountable administrative burden for the Department.
    Furthermore, although the Department must disclose certain records 
upon request, it does not publicize the outcomes of individual BD 
applications. Commenters did not point to specific or particularized 
harm that any open school has suffered as a result of the Department 
granting any individual applications in the past. At least one comment 
from an institution referenced inquiries it had received from a State 
regulator and a lender because the settlement agreement that, at the 
time of this final rule, has received preliminary approval.\13\ The 
commenter said the part of the settlement agreement to automatically 
discharge all claims associated with that school was an indicator of 
reputational harm. That example simply mentioned inquiries, however, 
and no actual harm suffered. We believe those concerns are unwarranted. 
The relief for class members described in that proposed settlement was 
agreed to in order to resolve that particular litigation and undertaken 
in exercise of the Secretary's settlement and compromise authority. It 
does not reflect ``approved'' BD claims or involve the process 
contemplated by the proposed regulation.
---------------------------------------------------------------------------

    \13\ See Sweet v. Cardona, No. 3:19-cv-03674 (C.D. Cal. filed 
June 25, 2019).
---------------------------------------------------------------------------

    To the extent that harm from solely granting a borrower's claim 
could be shown, either now or in the future, that is simply a by-
product of the statute and structure of title IV. First, by its terms, 
the defense to repayment under the HEA is invoked against the 
Department, not schools. For that reason, regulations giving context to 
the HEA's BD provision must principally address the circumstances in 
which borrowers invoke that defense. Properly separating the BD 
discharge decisions from liability determinations provides a process 
that is administratively feasible for the Department and allows 
borrowers to have claims based on that defense asserted and resolved in 
a realistic way.
    Second, the risk of harm from relief determinations between the 
borrower and the Department, to the extent there is any, is simply a 
by-product of participation in title IV that schools are aware of when 
they seek eligibility. Indeed, the processes set forth in the HEA and 
Department regulations, including Department BD relief determinations, 
are expressly incorporated into schools' program participation 
agreements (PPAs). Title IV funding is structured such that schools 
receive federal funds that can be used to pay tuition and fees up front 
and leave the subsequent details of repayment, including defenses 
thereto, to borrowers and the Department. If the Department's 
resolution of borrower claims implicates some attenuated risks, without 
any determination of actual liability, then that is simply a by-product 
of title IV's inherent structure.
    The Department also notes that institutional participation in the 
Direct Loan program is voluntary, and the BD rules, including possible 
BD liability, have been part of the program almost since its inception. 
The proposed regulation has incorporated safe harbors so as not to 
enlarge schools' liability for past conduct beyond what was included in 
past versions of the regulation and provided robust procedural rights 
in cases where the Department assesses actual liability against the 
school. If, going forward, institutions find the risk of hypothetical 
collateral risks too great, they can easily avoid those risks by 
choosing not to participate in title IV loan programs.
    Finally, regarding the potential for regulatory scrutiny from other 
agencies or borrower lawsuits, the Department does not dictate 
evidentiary standards applicable to other regulators, nor do our 
regulations impact the pleading rules or evidentiary standards for 
borrower lawsuits.
    Changes: We revised the Federal standard for BD applications 
received on or after July 1, 2023, and for applications pending with 
the Secretary on July 1, 2023, in Sec.  685.401(b) to provide that a 
borrower with a balance due on a covered loan will be determined to 
have a defense to repayment if we conclude that the institution's act 
or omission caused detriment to the borrower that warrants relief. We 
also added language in Sec.  685.401(e) noting that in determining 
whether a detriment caused by an institution's act or omission warrants 
relief under this section, the Secretary will consider the totality of 
the circumstances, including the nature and degree of the acts or 
omissions and of the detriment caused to borrowers. For borrowers who 
attended a closed school shown to have committed actionable acts or 
omissions that caused the borrower detriment, there will be a 
rebuttable presumption that the detriment suffered warrants relief 
under this section. We also revised the definition of a materially 
complete

[[Page 65910]]

individual application in Sec.  685.403(b) and the requirements for 
third-party requestor applications in Sec.  685.402(c) to ensure the 
Department obtains the information it needs to make appropriate 
determinations under the Federal standard.
    Comments: In the NPRM, the Department noted that one of its 
concerns about the 2019 regulation was how it addressed the issue of 
common evidence--the Department's term for evidence that could be 
applied to similarly situated borrowers. In the NPRM, we also stated 
that the 2019 regulations limited the Department's ability to consider 
common evidence held in its possession. A few commenters asserted that 
we mischaracterized the 2019 regulation, pointing to a section of that 
final rule that states the Department was allowed to consider common 
evidence during adjudication so long as it was shared with both the 
borrower and the institution and that they are given the opportunity to 
respond to it. Other commenters argued that it would be difficult for a 
borrower to show individualized harm under the 2019 regulation.
    Discussion: We appreciate the commenters' perspective and reiterate 
that the Department remains concerned about burdens placed on 
applicants under the 2019 regulations. The commenters are correct that, 
under the 2019 regulations, the Department may employ common evidence 
for consideration of individual claims. But the Department's greater 
concern is that the 2019 regulations do not allow for the consideration 
of group claims, for which employing common evidence across the group 
is important. Our statement about limits on use of common evidence was 
primarily made in that context.
    The 2019 regulations also required the borrower to prove 
individualized harm. Our experience in processing claims has shown that 
certain calculations used to determine the amount of relief in the 2019 
regulations would be an inappropriate barrier to relief for the 
borrower, not because harm did not occur, but because the process to 
show individualized harm required the borrower to have knowledge about 
regional and national employment opportunities. We believe that a 
borrower is unlikely to know how to locate regional or national 
unemployment rates and connect those data to their own experience.
    Changes: None.

Legal Authority

    Comments: Several commenters asserted that the Department lacks 
statutory authority to regulate on BD. Specifically, several commenters 
stated the Department does not have the statutory authority to design a 
process that facilitates the discharge of loans. Commenters further 
argued that the proposed regulations and BD framework will result in 
the unallowable discharge of loans that in turn will cause increased 
inflation. Commenters argued that the Department is limited to 
specifying which institutional acts or omissions may form the basis of 
a BD claim. The commenters further stated the proposed rule will result 
in an unprecedented and unlawful mass discharge of student loans.
    Discussion: We disagree with these commenters who state that the 
Department lacks the statutory authority to regulate on BD. Throughout 
the NPRM, we explain that Sec. 455(h) of the HEA requires the Secretary 
to specify in regulations 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).\14\ In addition to Sec. 
455(h), Sec. 410 of the General Education Provisions Act (GEPA) gives 
the Secretary authority to make, promulgate, issue, rescind, and amend 
rules and regulations governing the applicable programs administered by 
the Department and the manner in which they are operated.\15\ Under 
Sec. 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.\16\ These general 
provisions, together with the HEA provision noted above, authorize the 
Department to promulgate regulations that govern defense to repayment 
standards, process, adjudication, and institutional liability. We note 
that the Department has had regulations on this issue since the 
inception of the Direct Loan Program in 1994 and the Department's 
authority to issue those regulations has not been questioned by 
Congress or the courts.\17\
---------------------------------------------------------------------------

    \14\ 20 U.S.C. 1087e(h).
    \15\ 20 U.S.C. 1221e-3.
    \16\ 20 U.S.C. 3474.
    \17\ 81 FR 75926, 75932.
---------------------------------------------------------------------------

    Collectively, the authorities granted to the Secretary in the HEA 
and other general provisions provide the statutory basis to develop a 
BD framework. In response to the comment that this regulatory scheme is 
unprecedented and unlawful, the Department reminds commenters that the 
collapse of the Corinthian Colleges (Corinthian) and the flood of 
claims submitted by Corinthian students stemming from the institution's 
misconduct necessitated the need for a more robust BD regulatory 
framework. Prior to Corinthian's precipitous closure, BD was a rarely 
used discharge despite the fact that those regulations existed since 
1995. And the number of BD applications has not meaningfully abated in 
the years since Corinthian's closure, further supporting the continued 
need for clear regulations to address claims from hundreds of thousands 
of borrowers. Here, based on the Department's broad statutory 
authority, we are building upon the lessons learned from past BD 
frameworks to ensure borrowers have full access to the discharge 
provided by law.
    Changes: None.
    Comments: A few commenters suggested the proposed rule is 
unconstitutional because the separation of powers doctrine precludes 
the Department from adjudicating liability between students and 
institutions. The commenters further stated the Department proposes to 
delegate to itself the authority to adjudicate traditional common law 
actions and defenses. The commenters noted that there is a ``public 
rights'' exception to the separation of powers doctrine that applies 
when the sole source of recovery is a Federal statute, but that such 
exception does not apply here where some of the underlying bases 
supporting a BD claim are more typically the province of the courts. 
Along similar grounds, some commenters argued that the inclusion of 
breaches of contract based upon State law also violated the separation 
of powers.
    Discussion: We disagree with the commenters. As an initial matter, 
BD adjudications do not involve determinations of private rights as 
between schools and borrowers. As we explain in several sections of 
this document and as we explained in the 2016 final rule, borrowers 
have certain rights regarding the obligation to repay a loan made by 
the Federal Government, including the right to raise defenses to 
collection of the loan. Additionally, the Federal Government has the 
right to recover liabilities from the school for losses incurred as a 
result of the act or omission of the school participating in the 
Federal loan program.\18\ That is, a defense to repayment against the 
Department does not involve schools, and should the Department seek 
recoupment, any issues of school liability are separately determined in 
independent proceedings--a distinction

[[Page 65911]]

that is even clearer under these regulations' approach. In that 
context, the Department's BD adjudication process is not resolving 
disputes that would otherwise be litigated between schools and 
borrowers in an Article III court or state court of general 
jurisdiction.
---------------------------------------------------------------------------

    \18\ 81 FR at 75929.
---------------------------------------------------------------------------

    Additionally, with very limited exceptions, BD adjudications do not 
involve the enforcement of common law causes of action at all. That is, 
they apply a federal standard that differs from that of actions for 
common law fraud or contract. Although a BD claim may incorporate 
common law principles, it differs with respect to the claim's scope, 
application, and available remedies. The limited exception is for 
claims based on loans disbursed before July 1, 2017, which if denied 
may invoke state-law causes of action in a request for reconsideration. 
But even in such cases, the dispute does not involve claims between two 
private parties in the same way as cases that implicate separation-of-
powers concerns.\19\
---------------------------------------------------------------------------

    \19\ See Stern v. Marshall, 564 U.S. 462, 473 (2011) (widow's 
claim for tortious interference); Commodity Futures Trading Comm'n 
v. Schor, 478 U.S. 833, 836 (1986) (contract claims between broker 
and investor).
---------------------------------------------------------------------------

    To the extent that entertaining state-law claims on reconsideration 
implicates ``private rights'' limitations, those rights are asserted 
against or by a Federal agency and have the character of public rights, 
even if the resolution of those rights invokes some common law 
principles because it turns on application of State law.
    Finally, there is no separation-of-powers issue here because BD 
claims and potential subsequent recoupment actions are adjudicated 
through processes to which both the borrower and participant school 
have consented.
    Changes: None.
    Comments: Several commenters contend that the proposed BD 
regulation violates the Administrative Procedure Act (APA) and that the 
proposed regulations are arbitrary and capricious. These commenters 
claimed the Department does not ``examine the relevant data,'' nor does 
it rest its conclusions on ``factual findings,'' or a ``reasoned 
explanation'' for these BD regulations as required by the APA. 
Commenters argued that the Department did not sufficiently explain the 
basis for its changes from the 2019 regulation. Commenters argued that 
because the Department has not enforced the 2019 regulation, it could 
not have conducted an analysis of the 2019 regulation's impact. 
Commenters also argued that citing estimates from regulatory impact 
analyses issued with prior regulations was not sufficient justification 
for making a change.
    Discussion: We disagree with these commenters. In taking this 
regulatory action, we have considered relevant data and factors, 
considered and responded to comments, and articulated a reasoned basis 
for our actions. The Department gathered substantial evidence to 
support the positions taken in these regulations, as described in 
painstaking detail in the NPRM and in this document.
    As a threshold matter, the absence of adjudications under the 2019 
rule is not a ``refusal to administer it,'' as one comment claims, and 
instead simply reflects practical circumstances. That is, the 2019 
regulation went into effect on July 1, 2020. This fell between two 
important events. The first occurred roughly three months earlier when 
the pause on student loan repayment, interest, and collections stemming 
from the COVID-19 national emergency began. Because this pause affected 
all new loans, loan issued on or after July 1, 2020, have not entered 
repayment. Without an ongoing loan payment, a borrower may not yet 
fully appreciate the effects of enrolling in a program or institution 
and incurring student loans due to one of the bases for borrower 
defense.
    The second event occurred about three months after the regulation's 
effective date, when in October 2020, the Department entered a 
stipulation in the then-titled case Sweet v. DeVos agreeing not deny 
any claims of class members--which, until the settlement agreement, was 
defined as any borrower with a pending borrower defense claim--until 
the court reached a final judgment on the merits.\20\ It would have 
been effectively impossible for a new borrower to have a claim reviewed 
under the 2019 regulation prior to that October stipulation, since they 
would have had to take the loan out roughly three months prior, file a 
claim almost immediately, and get a decision.
---------------------------------------------------------------------------

    \20\ Sweet v. Cardona, No. 3:19-cv-03674 (N.D. Cal.), ECF Nos. 
163 at 1, 150-1 ] 5; see also ECF No. 46 at 14 (defining class).
---------------------------------------------------------------------------

    Nonetheless, the Department did perform initial reviews of some 
claims that would have been covered by the 2019 regulation in 
connection with borrowers consolidating older loans but found that all 
of them would have been barred by the regulation's statute of 
limitations. However, because it had stipulated that it would not issue 
denials, it could not adjudicate those claims and issue a final agency 
decision.
    It would also make little practical sense to address the relatively 
sparse volume of pending claims subject to the 2019 regulation 
(approximately 3 percent of claims filed since July 1, 2020) in light 
of the large volume of pending claims it does not cover. The Department 
has a significant number of pending claims stemming from the lack of 
decisions being rendered on claims for multiple years. The number of 
claims filed has only increased since then. To address that backlog 
without violating the commitment on denials, the Department has 
prioritized claims that fall into large groups with compelling evidence 
supporting approval. Based on time alone, those claims are much more 
likely to fall under the 1994 and 2016 regulations. They are unlikely 
to fall under the 2019 regulation, which only took effect several 
months before the Department agreed to halt denials. To say that 
adjudications have not proceeded under the 2019 regulation reflects 
that reality rather than a refusal to apply it.
    We disagree with the comments arguing that the Department's 
experience adjudicating claims under the 1995 and 2016 regulation 
cannot inform its conclusions of the need for changes from the 2019 
regulation. Courts have long acknowledged that changed circumstances 
and experience provide a permissible basis for improving existing 
regulations, noting ``it is not arbitrary and capricious for an agency 
to change its mind in light of experience''.\21\ Likewise, ``the mere 
fact that an agency interpretation contradicts a prior agency position 
is not fatal.'' \22\ An agency need only give ``good reasons'' for a 
new policy,\23\ which the Department has done at length during the 
rulemaking.
---------------------------------------------------------------------------

    \21\ New Eng. Power Generators Ass'n, Inc. v. FERC, 879 F.3d 
1192, 1201 (D.C. Cir. 2018).
    \22\ Smiley v. Citibank (S. Dakota), N.A., 517 U.S. 735, 742 
(1996).
    \23\ F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 
(2009).
---------------------------------------------------------------------------

    Here, the Department's experience evaluating claims under the 1995 
and 2016 regulations provides a valuable reference for how that process 
would unfold for the 2019 regulation.\24\ After all, the 2019 
regulation involves applying many of the same fundamental principles 
that animate its earlier iterations: all three versions of the

[[Page 65912]]

regulation involve similar determinations about schools' acts or 
omissions, their impact on borrowers' enrollment and borrowing 
decisions, and the detriment borrowers may suffer as a result. Thus, 
the 2019 regulation shares many of the earlier regulations' core 
features and differs by further requiring a multitude of additional 
findings and procedural steps that would require considerably more time 
and resources from the borrowers, institutions, and the Department.\25\ 
It is reasonable for the Department to draw on its expertise in 
administering title IV and on its experience applying similar concepts 
under the other existing standards and processes. Indeed, considerable 
deference is given to an agency's administrability-related conclusions 
and predictive judgments about matters on which the agency is uniquely 
knowledgeable, such as a rule's practical impact.\26\ The Department's 
knowledge and experience inform its judgments here on an approach that 
will facilitate addressing BD claims in the most effective way.
---------------------------------------------------------------------------

    \24\ For details on the numerous cases that the Department has 
recently addressed, see FSA, Borrower Defense Updates, 
StudentAid.gov, https://studentaid.gov/announcements-events/borrower-defense-update. Summaries of some examples include Westwood 
Coll. Exec. Summary (Aug. 30, 2022); ITT Tech. Inst. Exec. Summary 
(Aug. 16, 2022); Kaplan Career Inst. Exec. Summary (Aug. 16, 2022); 
Corinthian Colls. Inc. Exec. Summary (June 2, 2022); Marinello Sch. 
of Beauty Exec. Summary (Apr. 28, 2022); DeVry Univ. Exec. Summary 
(Feb. 16, 2022).
    \25\ For example, the 2019 and 2016 regulations both include a 
misrepresentation as a basis for relief. Compare Sec.  685.206(e)(3) 
(2019 regulation), with Sec.  685.222(d) (2016 regulation). The same 
concept is commonplace under State law causes of action that the 
1994 regulation incorporates. Sec.  206(c)(1).
    \26\ Nat'l Tel. Co-op. Ass'n v. F.C.C., 563 F.3d 536, 541 (D.C. 
Cir. 2009); BNSF Ry. Co. v. Surface Transp. Bd., 526 F.3d 770, 781 
(D.C. Cir. 2008).
---------------------------------------------------------------------------

    Finally, in the time since the 2019 rule's promulgation, the 
Department has learned that there are implementation challenges with 
administering the 2019 regulation and with reviewing claims under the 
standard and processes it would require. The issue relates to the 
requirement that the Department share not just the borrower's 
application for relief but also a copy of all other evidence related to 
the claim in the Department's possession. The Department is currently 
unable to comply with those record-sharing requirements, nor have we 
identified a workable platform to do so. In some cases, the evidence 
relevant to one applicant's claim may flow from information that 
includes other borrowers' personally identifiable information, which 
cannot be shared with the applicant without violating those other 
borrowers' privacy rights. In other situations, the Department has 
received large amounts of evidence related to the claim (some of which 
might not be relevant to the final determination). The Department does 
not have a mechanism for transmitting such large amounts of information 
and it would likely overwhelm the borrower as well as many 
institutions. The Department has also found that it does not have the 
capacity to provide the necessary evidentiary redactions on a borrower-
by-borrower basis as anticipated by the 2019 regulation. These 
experiences thus inform our decision to improve upon the 2019 
regulation's approach in this rule.
    The Department thus fully considered the likely effect of the 2019 
regulations on the adjudication of claims and is making appropriate 
changes to counter those effects.
    Changes: None.
    Comments: Several commenters argued that the proposed BD 
regulations lack equitable standards and due process protections and 
will facilitate erroneous discharges that harm students, taxpayers, 
institutions, and borrowers. These commenters warned of tuition 
increases and increased costs to the taxpayers as a result of the 
implementation of this BD framework.
    Discussion: We disagree with these commenters. The Department 
carefully crafted a BD framework that will ensure that borrowers have 
the opportunity to provide the details sufficient to justify the BD 
application without establishing barriers too complicated for borrowers 
to meet and that will ensure institutions have ample opportunity to 
respond to a BD claim as described in detail in Sec.  685.405. 
Collectively, these regulations provide an equitable standard for all 
parties. The Department reminds the commenters that institutions will 
have an opportunity to submit a response to claims before they are 
adjudicated or before the final Secretarial action occurs, and will not 
be held liable for approved borrower defense claims until after a 
separate process that gives institutions the opportunity to present 
their evidence and arguments before an independent hearing official in 
an administrative proceeding. As the Department explained in the NPRM, 
we will initiate such liability proceedings through the appeal 
procedures for audit and program review determinations in 34 CFR part 
668, subpart H. This provides robust due process protections to 
institutions during the recoupment proceedings. The institutions will 
be presented with the findings and evidence against them. They will 
have an opportunity to challenge that evidence by filing an appeal with 
the Office of Hearings and Appeals where they can challenge the 
evidence and findings and present relevant evidence to bear that they 
identify. The hearing officer's decision can be appealed to the 
Secretary, who would not have been involved in the decision to pursue 
the liability or the decision by the hearing officer. These are the 
same protections institutions receive in other similar proceedings. 
Thus, while we pursue liabilities from the responsible institutions to 
avoid burdening taxpayers with the cost of these discharges, we will 
also provide a full opportunity to institutions to respond.
    We acknowledge that regulations have added costs, and we explain 
how those costs may be offset in the Regulatory Impact Analysis section 
of this document.
    Changes: None.
    Comments: A few commenters asserted that schools may have liberty 
and property interests in continued eligibility for benefits (program 
participation) under the HEA that are subject to due process 
protections. The commenters asserted that institutions have a right to 
retain the title IV benefits they previously received, and that the 
proposed regulations allegedly deprive them of these interests without 
adequate due process. Specifically, the commenters assert that the 
group approval loan discharges and the process of evaluating and 
approving group discharges does not provide institutions with 
sufficient notice and opportunity to respond.
    Discussion: We disagree with the commenters' assessment of both the 
interests at stake and the process provided under the regulations. As 
an initial matter, the commenters appear to suggest that the BD 
regulations implicate a property or liberty interest in continued 
participation in the title IV programs. They do not. Rights acquired by 
the institution under agreements already executed with students remain 
fully enforceable on their own terms. The BD regulations only address 
loan discharge for borrowers and potential recoupment of discharged 
amounts from the institutions that engaged in the acts or omissions 
that prompted the discharge. These borrower defense regulations do not 
directly impact an institution's continued eligibility, but findings of 
substantial misrepresentation or other serious violations that resulted 
in approved BD claims could impact an institution's title IV 
eligibility. In other words, the Department's approval of BD claims for 
borrowers has no direct impact on the institution's title IV 
eligibility. However, the improper actions by the institution that 
provide the basis for approving a BD claim also will likely violate the 
statutory and regulatory requirements of the title IV programs. The 
Department could determine that the institution's violation of those 
rules could affect title IV eligibility if the claims were

[[Page 65913]]

approved due to a finding of a violation of the HEA that merits 
additional adverse actions. Even if the regulations did implicate 
continued eligibility, however, the institution has no property right 
to continue to participate in the title IV programs on the terms under 
which the institution previously participated. Section 452(b) of the 
HEA states, ``No institution of higher education shall have a right to 
participate in the [Direct Loan] programs authorized under this part 
[part D of title IV of the HEA].'' \27\
---------------------------------------------------------------------------

    \27\ 20 U.S.C. 1087b(b); see Ass'n of Priv. Sector Colls. & 
Univs. v. Duncan, 110 F. Supp. 3d 176, 198 (D.D.C. 2015).
---------------------------------------------------------------------------

    Because the commenters misconstrue the scope and impact of the 
regulations, they also misapply the due process analysis. The 
regulations provide ample due process at all stages and with respect to 
all interested parties. Fundamentally, the commenters failed to 
distinguish between the BD loan discharge process and the BD recoupment 
process. As clearly stated in the regulations and discussed throughout 
this document, the loan discharge process is between the borrower and 
the Secretary. The regulations include extensive processes tailored to 
that relationship, which includes the opportunity for institutional 
response. In response to public comment, the Department enhanced the 
proposed procedures to provide more notice to affected parties, to 
require BD discharge applications to be submitted under penalty of 
perjury, and to add an additional opportunity for institutional 
response prior to the decision on whether to form a group for 
adjudication.
    The loan discharge process is separate from any recoupment 
proceeding that the Secretary elects to pursue against an institution. 
The recoupment efforts contemplated are recoveries of financial 
liabilities, not sanctions. The recoupment process involves a number of 
procedural steps, including many of the protections the commenters 
claimed were missing from the regulations, such as motions practice, 
interlocutory challenges, and multiple levels of appeals. See 34 CFR 
part 668, subpart H. The Department's hearing procedures provide ample 
due process, which is confirmed by the conclusions in caselaw cited by 
commenters.\28\ As clearly stated in the regulations, moreover, any 
recoupment proceeding under these regulations will only be undertaken 
prospectively, with respect to loans disbursed after July 1, 2023. The 
Department's final regulations in Sec.  685.409 were revised to make 
that even clearer than before. If recoupment is occurring on claims 
associated with loans disbursed prior to July 1, 2023, that is because 
the actions or omissions that led to that approval would also have 
violated the borrower defense regulations in effect when those loans 
were first disbursed.\29\
---------------------------------------------------------------------------

    \28\ See Cont'l Training Servs., Inc. v. Cavazos, 893 F.2d 877, 
893-94 (7th Cir. 1990) (school's ability to submit written and oral 
statements was ``quite a lot of predeprivation process'' and ``all 
the process constitutionally required''); see also id. at 892 (that 
schools may have certain liberty or property interests entitles them 
to ``some predeprivation process,'' but ``does not determine how 
much predeprivation process should be required'').
    \29\ At least one comment invokes schools' liberty and property 
interests with reference to Continental Training Services. The 
Department notes that the interests acknowledged in Continental 
Training were tied to the school's eligibility for title IV funding, 
id. at 892, which is not at stake as part of the BD process--either 
for claim adjudication or recoupment. Nonetheless, schools are 
afforded meaningful opportunities to be heard during both phases 
under the updated rule and, to the extent the same facts cause 
schools to face other eligibility-related determinations, they have 
robust procedural protections as part of that process too. To that 
point, we also note that the Continental Training court concluded 
the process afforded the school in that case was adequate to survive 
constitutional scrutiny. See id. at 894.
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters suggested that erroneous BD discharges 
could prompt mandatory financial responsibility triggers, which we 
discussed during a spring 2022 negotiated rulemaking session involving 
separate student loan issues, that could cause the Department to 
determine inappropriately that an institution is not financially 
responsible.
    Discussion: We disagree with these commenters. Erroneous discharges 
are unlikely to occur given the adjudicative framework we crafted, 
which gives the institution and the requestor an opportunity to present 
evidence and provides that, to approve a discharge, the Department must 
conclude that the institution's act or omission caused detriment to the 
borrower that warrants relief. The bifurcated process, separating claim 
adjudication from recovery of the amounts discharged, further minimizes 
the risk of any hypothetical collateral effect on institutions.
    As of the publication of these final regulations, the financial 
responsibility regulations referred to by the commenters are proposals, 
not binding regulations. Current regulations at Sec.  
668.171(c)(1)(i)(A) require the Department to establish liability 
against an institution under an administrative proceeding in which the 
institution has an opportunity to present its position before a hearing 
official. That structure addresses the concerns raised by the 
commenters. The public will have an opportunity to provide comments on 
any future regulations related to financial responsibility triggers 
when they are published in an NPRM.
    Changes: None.
    Comments: Commenters stated that HEA Sec. 455(h) does not grant 
power of adjudication to circumscribe presumptions or assign liability 
to institutions. Several commenters argue that the proposed BD 
improvements exceed the Department's authority based on principles 
articulated in the Supreme Court's recent decision in West Virginia v. 
EPA.\30\
---------------------------------------------------------------------------

    \30\ 142 S. Ct. 2587 (2022).
---------------------------------------------------------------------------

    Discussion: The rule falls comfortably within Congress's statutory 
directive that the Secretary specify in regulations the acts or 
omissions by schools that provide borrowers a defense to repayment.\31\ 
One commenter argued the rule falls outside the statute's grant of 
authority because it will account for ``highly-complex'' and ``fact-
specific borrower claims.'' But those complexities and the need for 
fact-specific review stem from the increased number of claims that rest 
on acts or omissions found by court judgments or regulatory 
investigations, which invoke the defense to repayment specifically 
referenced in the HEA. Indeed, another commenter argues that such 
increased volume suggests the Department lacks authority to improve the 
existing rule, but the volume of applications and the acts or omissions 
that motivated them are precisely why the rule needs improvement. That 
is, foregoing the improvements included in these rules would do nothing 
to change the number of borrowers invoking the statutory remedy.
---------------------------------------------------------------------------

    \31\ See 20 U.S.C. 1087e(h).
---------------------------------------------------------------------------

    With respect to the comment that the HEA does not grant power of 
adjudication to circumscribe presumptions, we again refer commenters to 
the general provisions granting authority to the Secretary in GEPA, 
authority extended in the Department's organization act, and numerous 
provisions in the HEA. Along with a statutory directive to define which 
acts and omissions provide a defense to repayment, those statutory 
provisions grant the Department authority to promulgate regulations 
giving content to the statutory BD provision, including an adjudication 
framework like the one this rule prescribes. We discuss the issues 
pertaining to liabilities more fully and elsewhere in this document.
    The Department disagrees that the Supreme Court's West Virginia 
decision undermines the Department's authority

[[Page 65914]]

to promulgate the proposed rule's BD improvements.\32\ That decision 
described ``extraordinary cases'' in which an agency asserts authority 
of an ``unprecedented nature'' to take ``remarkable measures'' for 
which it ``had never relied on its authority to take,'' with only a 
``vague'' statutory basis that goes ``beyond what Congress could 
reasonably be understood to have granted.'' \33\ The rule here does not 
resemble the rare circumstances in West Virginia. First, there is 
nothing unprecedented or novel about the Department relying on the 
``Borrower defenses'' subsection of 20 U.S.C. 1087e to authorize a BD 
regulation with standards and procedures to effectuate that subsection. 
That section, in fact, requires the Secretary to issue regulations 
specifying the actions or omissions a borrower may assert as a defense 
to repayment. Indeed, the Code of Federal Regulations has included 
multiple versions of regulations governing BD claims since 1995.\34\
---------------------------------------------------------------------------

    \32\ One commenter suggested that the NPRM's omission of a case-
specific discussion of West Virginia requires that the Department 
abandon and reconsider this proposed rule because, according to the 
commenter, that decision signals a ``restive'' judicial attitude 
toward major regulatory actions that the NPRM was required to 
address. The comment cites no authority, nor is the Department aware 
of any, requiring agencies to foresee hypothetical changes in law 
based on signals of restiveness. In any event and for the reason 
explained herein, the Department does not read the Court's decision 
in West Virginia as reason to reconsider the rule.
    \33\ West Virginia, 142 S. Ct. at 2608-09.
    \34\ 59 FR at 61664 (Dec. 1, 1994); 81 FR at 75926 (Nov. 1, 
2016); 84 FR at 49788 (Sept. 23, 2019).
---------------------------------------------------------------------------

    Thus, contrary to the commenters' arguments, the rule does not 
reflect ``unheralded'' action only loosely tethered to a congressional 
grant of authority.\35\ To the contrary, the rule gives context to the 
defenses that Congress instructed the Department to define,\36\ and 
does so in a way that accounts for all involved parties' rights.
---------------------------------------------------------------------------

    \35\ See West Virginia, 142 S. Ct. at 2608.
    \36\ 20 U.S.C. 1087e(h).
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters stated that the BD regulations violate 
the separation of powers doctrine. These commenters state that the rule 
impermissibly assigns the Department an adjudicatory role for claims 
and defenses that are constitutionally required to be decided by 
courts.
    Discussion: We disagree that these regulations violate the 
separation of powers doctrine. Administrative agencies commonly combine 
both investigatory and adjudicative functions, see Winthrow v. 
Larkin,\37\ and due process does not require a strict separation of 
those functions as long as adequate process is provided.\38\ The 
Department is no different and performs both investigative and 
adjudicative functions in other contexts, including those that involve 
borrower debts \39\ and institutional liabilities.\40\
---------------------------------------------------------------------------

    \37\ 421 U.S. 35 (1975).
    \38\ See Hortonville Joint Sch. Dist. No. 1 v. Hortonville Educ. 
Ass'n, 426 U.S. 482, 493 (1976).
    \39\ For example, the Department provides both schools and 
borrowers the opportunity to request and obtain an oral evidentiary 
hearing in both offset and garnishment actions against a borrower 
and in an offset action against a school. See 34 CFR 30.25 
(administrative offset generally); 34 CFR 30.33 (Federal payment 
offset); 34 CFR 34.9 (administrative wage garnishment).
    \40\ See 34 CFR 668.24 and part 668, subparts G and H 
(proceedings for limitation, suspension, termination and fines, and 
appeal procedures for audit determinations and program review 
determinations).
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters argued that there is no legal ground in 
the HEA for affirmative BD claims, which in the 2019 regulation was 
defined as claims from borrowers who were in repayment as opposed to 
defensive claims, which are for borrowers in default.
    Discussion: We disagree with the commenters. Section 455(h) of the 
HEA requires the Secretary to ``specify in regulations which acts or 
omissions of an institution of higher education a borrower may assert 
as a defense to repayment of a loan made under this part.'' This 
language in no way limits the remedy to a defense asserted in 
collection proceedings. Rather, the concept of ``repayment'' is widely 
understood to encompass not just borrowers in default but also those 
actively repaying their loans. As we note elsewhere, BD relief, though 
unique, bears features of remedies like rescission, avoidance, 
restitution, and certain forms of out-of-pocket or reliance costs. 
Those remedies are appropriate as a defense to the obligation to repay, 
not simply as backstops for contingencies like default. In that 
context, we do not see these comments' distinction between 
``affirmative'' and ``defensive'' claims to be a meaningful one 
considering a defense to repayment is only relevant in the context of 
an existing obligation to repay.
    Moreover, limiting BD only to loans in default would be illogical. 
Only allowing claims from loans in default would place borrowers in an 
unfair situation of either intentionally defaulting in the hopes that a 
BD claim is successful or repaying a loan that potentially should be 
discharged due to the acts or omissions of an institution. Given that 
institutions must keep their default rates below certain thresholds 
established in statute and regulations, creating an incentive for 
default could end up inadvertently hurting an institution that has 
large numbers of BD claims.
    Changes: None.
    Comments: Some commenters raised concerns about how the inclusion 
of new items in part 668, subpart F as well as the new part 668, 
subpart R would be used for other Department oversight or enforcement 
activity. They raised concerns about institutions potentially facing 
adverse actions for past conduct now covered by these additions.
    Discussion: The Department notes that some of the changes to Part 
668, subpart F represent items that are not new but have simply been 
moved to other locations or slightly restated. Other elements in that 
subpart, as well as part 668, subpart R are new. For the items that are 
new, the Department could bring adverse actions in relation to conduct 
that occurs on or after July 1, 2023.
    Changes: None.

Effective Date of Regulations, Claims Covered Under Regulations

    Comments: The Department received several comments related to the 
treatment of borrowers who have already paid off their loans. A few 
commenters requested clarification as to whether these individuals are 
eligible for BD. Others argued that a borrower who has paid off their 
loan should be prohibited from filing a BD claim because there would be 
no repayment to defend.
    Discussion: A borrower who submits a BD claim is asserting that 
they should no longer be required to repay the loan they owe to the 
Department. BD claims are thus limited to loans that are still 
outstanding and are associated with the institution whose alleged act 
or omission could give rise to the defense to repayment. This concept 
is embedded in the definition of ``borrower defense to repayment,'' 
which makes the defense available for ``all amounts owed to the 
Secretary on a Direct Loan.'' Sec.  685.401(a). The next paragraph of 
the definition provides for reimbursement of all payments ``previously 
made to the Secretary on the Direct Loan,'' which is a direct reference 
back to the loan identified in the first paragraph (on which amounts 
must still be outstanding). Thus, if a borrower no longer has a loan 
outstanding, they do not have a defense to repayment as there would no 
longer be any loans to repay.
    Changes: None.
    Comments: Commenters recommended that the regulatory text expressly 
state that new BD standards

[[Page 65915]]

will not retroactively apply to institutions for alleged misconduct 
that occurred prior to the effective date of these regulations. They 
also noted that, while the preamble to the NPRM stated that retroactive 
application would not occur, such statements were not reflected in the 
accompanying regulatory text.
    Discussion: BD is fundamentally a process between the borrower and 
the Department. It is a claim brought by the borrower that they should 
no longer have to repay an outstanding debt owed to the Secretary. The 
reason for such a claim is due to an alleged act or omission by the 
institution. The Department must review that allegation to determine 
whether the borrower should be relieved of their obligation to repay. 
Whether the Department chooses to seek recoupment from the institution 
for the cost of approved discharges is a separate question and subject 
to a separate set of procedures. This is in keeping with how the 
Department handles discharges for closed school and false certification 
discharges as well.
    In this regulation, the Department simplifies the standard that 
governs whether the borrower should be relieved of their loan repayment 
obligation. The Department's approach ensures that a single standard is 
used to evaluate BD claims arising from the same acts or omissions, 
regardless of whether the borrower has multiple loans that were 
obligated in multiple years or whether a borrower's loans were 
consolidated. This approach ensures more consistent decision-making and 
treatment of borrowers.
    The Department is not applying this approach to recoupment. 
Institutions will only be subject to recoupment actions for claims that 
would be approved under the standard in place at the time the act or 
omission occurred. In other words, a claim that is approved due to a 
misrepresentation, omission, breach of contract, aggressive and 
deceptive recruitment, judgment, or final Secretarial action that 
occurred prior to July 1, 2023, would only result in recoupment if the 
claim would have been approved under the 1994, 2016, or 2019 
regulations, whichever is applicable. We appreciate the feedback from 
commenters who noted that this concept was not sufficiently expressed 
in the NPRM and have updated the final amendatory text to make this 
point clearer.
    Changes: While claims that are pending on or received on or after 
July 1, 2023 will be adjudicated under this standard, we have added 
language in Sec.  685.409(b) noting that the Secretary will not collect 
any liability to the Secretary from the school for any amounts 
discharged or reimbursed to borrowers for an approved claim under Sec.  
685.406 for loans first disbursed prior to July 1, 2023, unless the 
claim would have been approved under the standards for what constitutes 
an approved claim under the three different borrower defense 
regulations. The standards are contained within Sec.  685.206(c), the 
1994 regulation, for loans first disbursed before July 1, 2017; under 
Sec.  685.206(d), the 2016 regulation, for loans first disbursed on or 
after July 1, 2017, and before July 1, 2020; or under Sec.  685.206(e), 
the 2019 regulation, for loans first disbursed on or after July 1, 
2020, and before July 1, 2023.
    Comments: Many commenters wrote in saying that the proposed 
regulations are impermissibly retroactive. They cited a body of case 
law supporting a presumption against retroactive regulations.
    Discussion: Courts have regularly rejected retroactivity challenges 
to regulations that operate like these. As with statutes,\41\ newly 
promulgated regulatory measures are not improperly retroactive, ``so 
long as the Department's regulations do not alter the past legal 
consequences of past actions.'' \42\ That is, a regulation raises 
concerns of unconstitutional retroactivity if it would impair rights a 
party possessed when he acted, increase a party's liability for past 
conduct, or impose new duties with respect to transactions already 
completed.'' \43\ Thus, whether a regulation ``operates retroactively'' 
turns on ``whether the new provision attaches new legal consequences to 
events completed before its enactment.'' \44\ It is, however, well 
settled that ``[a] statute is not rendered retroactive merely because 
the facts or requisites upon which its subsequent action depends, or 
some of them, are drawn from a time antecedent to the enactment.'' \45\ 
Nor is a statute impermissibly retroactive simply because it ``upsets 
expectations based in prior law.'' \46\ Under these regulations, while 
all claims pending on or received on or after July 1, 2023 will be 
reviewed under the standards in this final rule, an institution will 
not be liable for the amount of the BD claim paid by the Department 
unless the claim would have been approved under the standards in the 
regulations in place at the time the claim arose. Thus, these 
regulations are not retroactive for institutions.
---------------------------------------------------------------------------

    \41\ Courts routinely apply the same principles to statutes and 
regulations to evaluate concerns about impermissibly retroactive 
applications. See St. Louis Effort for AIDS v. Huff, 782 F.3d 1016, 
1023 (8th Cir. 2015) (``Although we examine regulations, not 
statutes, the[ ] same principles apply.''); Little Co. of Mary Hosp. 
& Health Care Ctrs. v. Shalala, 994 F. Supp. 950, 960 (N.D. Ill. 
1998) (stating that the same principles ``suppl[y] the test to 
decide when a statute (or by natural extension a regulation) 
operates retroactively'').
    \42\ Ass'n of Priv. Sector Colls. & Univs., 110 F. Supp. 3d at 
196 (internal marks and emphasis omitted).
    \43\ Ass'n of Proprietary Colls. v. Duncan, 107 F. Supp. 3d 332, 
356 (S.D.N.Y. 2015). See also Ass'n of Accredited Cosmetology Schs. 
v. Alexander, 774 F. Supp. 655, 659 (D.D.C. 1991), aff'd, 979 F.2d 
859 (D.C. Cir. 1992), and order vacated in part on other grounds sub 
nom. Delta Jr. Coll., Inc. v. Riley, 1 F.3d 45 (D.C. Cir. 1993); 
Ass'n of Accredited Cosmetology Schs. v. Alexander, 979 F.2d 859, 
864 (D.C. Cir. 1992) (no retroactivity-based infirmities with 
determining eligibility based on pre-rule data of cohort default 
rates).
    \44\ Ass'n of Priv. Sector Colls. & Univs., 110 F. Supp. 3d at 
196.
    \45\ Id.
    \46\ Id.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters recommended the Department continue to 
process pending BD claims, regardless of any new regulation, and urged 
the Department to process claims under the 2019 regulations. The 
commenters further suggested the Department should revisit claims 
approved for partial discharges to reconsider the amount of discharge 
that is appropriate; assess whether all available evidence was 
considered with respect to claims that have been denied; investigate 
and process claims from institutions for which no student has yet 
received relief; and establish processes to more quickly adjudicate new 
claims as they come in while regulations are ongoing.
    Discussion: The Department continues to process BD claims as well 
as abiding by commitments the agency has made in ongoing litigation. As 
we specified in the NPRM, we proposed new regulations to establish a 
new Federal standard for BD claims applicable to applications received 
on or after July 1, 2023, and to those pending before the Secretary on 
July 1, 2023. To date, all approved claims have been for full 
discharges, so the need to contemplate past instances of partial 
discharge is not needed. As noted, this new standard will apply to all 
claims that are pending on or received on or after July 1, 2023.
    Changes: None.

Eligible Loan Types

    Comments: A few commenters commended the Department for providing 
FFEL borrowers with access to the BD claim process through loan 
consolidation, including by giving borrowers the option on their 
application to request consolidation of their loans into a Direct Loan 
if their claim is approved. A few commenters,

[[Page 65916]]

however, were concerned that by limiting the definition of BD to the 
making of a Direct Loan, the provision could be read to exclude claims 
that pertain to the making of a FFEL loan, even if such FFEL loan is 
later consolidated into a Direct Loan. These commenters suggested some 
regulatory changes to ensure FFEL borrowers have access to relief.
    Commenters also raised concerns that some FFEL borrowers are 
ineligible to consolidate into Direct Loans, thus making it impossible 
for them to receive a BD discharge if their claim was approved. As 
examples of FFEL borrowers who cannot consolidate into Direct Loans, 
these commenters pointed to borrowers who are current on a FFEL 
Consolidation Loan and do not have any additional loans to consolidate, 
as well as FFEL borrowers who are subject to enforced collection 
orders, such as wage garnishment, or who have a judgment on their FFEL 
loans. These commenters suggested that the Department promulgate final 
regulations that make borrower defense discharges available to 
borrowers with FFEL Loans, including FFEL Consolidation loans, even if 
they cannot or do not consolidate.
    Commenters also expressed concerns that a FFEL borrower whose 
defense to repayment claim is only partially approved may be left worse 
off if the resulting Direct Consolidation Loan is not fully discharged 
and urged the Department to ensure that a Direct Consolidation loan 
would not be automatically effectuated if doing so would adversely 
affect the borrower. These commenters noted that consolidation is one 
of the few avenues that borrowers can use to get their loans out of 
default but borrowers whose loans are already consolidated generally 
lose the option to consolidate. Commenters stressed that these 
borrowers should not lose the option to get out of default, arguing 
that many borrowers with approved borrower defense claims are also 
likely to be at high risk of delinquency or default.
    Commenters requested that the Department clarify whether it will 
refund amounts paid on FFEL loans before they were consolidated.
    Other commenters did not support the inclusion of FFEL borrowers. 
They argued that a BD claim is based on the acts or omissions of an 
institution at the time the loan was issued, which for any FFEL loan 
would precede the issuance of any Direct Loan through consolidation. 
That is, because Sec. 455 of the HEA only applies to Direct Loans, the 
commenters argued that conduct that occurred while the loan was in the 
FFEL Program should not qualify for a BD discharge. These commenters 
argued that FFEL loans should be ineligible for a BD discharge.
    Discussion: The Department affirms its position that FFEL borrowers 
should retain a pathway to BD discharges. The HEA directs that, 
generally, Direct Loans are made under the same ``terms, conditions, 
and benefits'' as FFEL Loans.\47\ In 1994 and 1995, the Department 
interpreted that Direct Loan authority as giving the Department 
authority to hold schools liable for BD claims under both the FFEL and 
Direct Loan programs, and stated that, for this reason, it was not 
pursuing more explicit regulatory authority to govern the BD process.
---------------------------------------------------------------------------

    \47\ 20 U.S.C. 1087a(b)(2), 1087e(a)(1).
---------------------------------------------------------------------------

    We also want to assure commenters who were concerned that the 
regulatory language might not provide adequate protection for FFEL 
borrowers who consolidated into a Direct Loan. Through a Direct 
Consolidation Loan, FFEL borrowers will have a pathway to BD.\48\ 
Specifically, Sec.  685.401(a) states that relief for actionable 
conduct includes a ``defense to repayment of all amounts owed to the 
Secretary on a Direct Loan including a Direct Consolidation Loan that 
was used to repay a Direct Loan, [and] a FFEL Program Loan[.]'' 
Additionally, Sec.  685.401(b) makes clear that a BD claim is available 
to a ``borrower with a balance due on a covered loan[,]'' which 
includes ``a Direct Loan or other Federal student loan that is or could 
be consolidated into a Federal Direct Consolidation Loan.'' Sec.  
685.401(a). With these references, we believe that viewing the BD 
framework in the totality should allay any concerns about a FFEL 
borrower receiving a pathway to BD.
---------------------------------------------------------------------------

    \48\ See 87 FR at 41886.
---------------------------------------------------------------------------

    Operationally, the Department will streamline the claims process 
for FFEL borrowers by having the BD claim application also function as 
a Direct Consolidation Loan application, which would only be executed 
if the claim is approved. In 2009, the Department issued Dear Colleague 
letter FP-09-03 in which we told FFEL lenders that they cannot decline 
to complete a Loan Verification Certificate solely because the borrower 
is attempting to consolidate only a FFEL Consolidation Loan without any 
additional loans.\49\ The question of whether to complete the 
consolidation thus rests with the Department. Improvements to the loan 
consolidation process will be reflected when the Department redesigns 
the BD form, which will separately go through public comment. The 
Department will also provide other sub-regulatory guidance on how it 
will treat borrowers with covered loans that are not Direct Loans. 
Moreover, the Department notes that since approved claims will receive 
a full discharge the question of whether a consolidation is in the 
borrower's best interest will be simpler to assess.
---------------------------------------------------------------------------

    \49\ https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2009-04-03/fp-09-03-subject-completion-loan-verification-certificates.
---------------------------------------------------------------------------

    The Department appreciates the commenters' concern for borrowers 
with an involuntary collection order such as wage garnishment or a 
judgment through a court order but notes the statutory constraints and 
the Department's limitations. As provided in Sec. 428C(a)(3)(A)(i) of 
the HEA, borrowers will need to take preliminary steps, such as having 
those wage garnishment orders lifted or those judgements vacated, in 
order to facilitate consolidation. Finally, with respect to refunds, 
the Department will refund amounts previously paid to the Department. 
We cannot refund amounts the Department did not receive.
    Changes: None.

Definitions

    Changes: None.
    Comments: Commenters provided several different suggestions on the 
proposed ``Department official'' definition. A few commenters suggested 
that the Department should preclude staff from Federal Student Aid 
(FSA) from serving as a Department official. These commenters stated 
that FSA is responsible for oversight and monitoring and that if the 
Department had exercised appropriate oversight, we would not have 
issued the loans related to a BD claim in the first place. The 
commenters argued that allowing FSA to determine the outcome of BD 
claims raises the appearance of a conflict of interest. Other 
commenters argued for a similar change, asserting that the Department 
official lacks neutrality, because they review and make a 
recommendation on the merits of a claim. These commenters stated that a 
borrower defense claim should be adjudicated by an administrative law 
judge (ALJ), arbitrator, or some other neutral party. On the other 
hand, a few commenters argued that even an ALJ could not be a neutral 
party, because they are still a Department employee.
    Other commenters argued that the Department official should be an 
``officer'' rather than a career employee, suggesting further that 
ideally this individual would be a principal officer who is named by 
the President and confirmed by the U.S. Senate. Commenters argued for 
this change

[[Page 65917]]

because the decision of whether to approve or deny a BD claim is a 
final agency decision made on behalf of the Federal government and such 
decisions cannot be made by career staff.
    Discussion: We disagree with the commenters and see no need for 
such limitations on which employees could serve as a Department 
official. We have, however, clarified the roles fulfilled by the 
Department official versus those of the Secretary to make clear that 
the Secretary is the final decision maker.
    The role of the Department official is to review the BD claim, 
consider the evidence, and recommend approval or denial of the claim. 
The Department official also recommends whether a group should be 
formed where applicable. The Secretary or the Secretary's delegate may 
accept or reject the recommendations and is the final decision maker. 
The Department has clarified this through changes to Sec.  685.406.
    We do not agree with the commenters who believe that the Department 
official cannot be part of FSA, or must be a third-party, such as an 
ALJ. These FSA staff members handle BD processes, which is separate 
from the institutional compliance work performed by FSA program 
reviewers and enforcement staff.
    After the collapse of Corinthian in 2016, the then-Under Secretary 
of Education appointed a BD Special Master to advise the Department on 
BD issues.\50\ The Special Master agreed with Department leadership 
that the best way to create a fair, transparent, and efficient process 
for handling BD claims was to establish an infrastructure that was 
flexible and scalable. By dedicating a team with the human capital and 
resources to handle BD claims, as we have in FSA's BD Group, led by a 
director, the Department believes that it has created a nimble 
framework that accommodates an efficient and fair resolution of BD 
matters. We plan to continue with this framework.
---------------------------------------------------------------------------

    \50\ https://www2.ed.gov/documents/press-releases/report-special-master-borrower-defense-1.pdf.
---------------------------------------------------------------------------

    The Department further believes that requiring the Department 
official to be a certain type of individual--such as a special master 
or ALJ--would impermissibly tie the agency's hands with respect to 
future Congressional appropriations. Requiring that claims only be 
considered by a certain type of employee would constrain the Department 
in how to best use Congressional appropriations for salaries and 
expenses and would limit the Secretary's flexibility to address 
changing circumstances and appropriations. The definition of Department 
official in these regulations provides necessary flexibility to 
allocate staff to review and make recommendations on BD claims.
    Furthermore, under Sec. 412 of the Department of Education 
Organization Act,\51\ the Secretary may delegate the authority to 
perform the functions and duties of the position. A BD claim represents 
a defense to repaying all amounts owed to the Secretary, and the 
initial adjudication and resolution of those claims is a function that 
the Secretary may delegate to an inferior officer or other Department 
official.
---------------------------------------------------------------------------

    \51\ 20 U.S.C. 3472.
---------------------------------------------------------------------------

    Changes: We revised the regulatory text in Sec.  685.406 to clarify 
the role of the Department official, who makes a recommendation to the 
Secretary and that the Secretary, or his delegate will make final 
decisions.
    Comments: Commenters suggested that the Department replace ``Direct 
Loan'' in Sec.  685.401 with ``Direct Loan or other Federal student 
loan that is consolidated into a Federal Direct Consolidation Loan,'' 
as the Department states in Sec.  685.401(b)(2) through (5), to ensure 
FFEL borrowers have access to relief. These commenters feared that 
without an explicit reference to ``other Federal student loan that is 
consolidated into a Federal Direct Consolidation Loan,'' FFEL borrowers 
would be unable to access the BD discharge.
    Discussion: We assure these commenters that the regulations will 
give FFEL borrowers access to a BD discharge. Although we did not adopt 
the specific language the commenters suggested, we created a new 
definition of a ``covered loan'' in Sec.  685.401(a). This change does 
not substantively change the types of loans eligible for relief, 
because we cannot change the statutory definition of ``Direct Loan'' 
(see Part D of title IV of the HEA). These regulations make clear, 
however, that FFEL borrowers may access the BD process through a Direct 
Consolidation Loan. A covered loan remains a Direct Loan or other 
Federal student loan that is or could be consolidated into a Federal 
Direct Consolidation Loan.
    Changes: We added a new definition of ``covered loan'' in Sec.  
685.401(a), which includes a Direct Loan or other Federal student loan 
that is or could be consolidated into a Federal Direct Consolidation 
loan.
    Comments: Many commenters expressed disappointment that the 
Department excluded legal assistance organizations from the parties 
eligible to request consideration of group claims, as we allow for 
State requestors in these BD regulations. These commenters stated that 
excluding legal assistance organizations will disadvantage borrowers 
who attend smaller institutions that are less likely to attract the 
attention of State officials. Similarly, these commenters were 
concerned about borrowers in States that do not have the capacity to 
investigate predatory institutions and pursue group discharges or have 
decided not to do so for lack of resources or policy reasons. The 
commenters stated that legal assistance organizations are well-versed 
in the application of States' laws and the nuances of States' higher 
education regulatory systems, which would make them well-positioned to 
request consideration of group discharges under State law. 
Additionally, the commenters asserted that these organizations may 
possess greater awareness of institutions using predatory conduct 
against low-income students than government agencies. Other commenters 
agreed with the NPRM's limitation of the entities eligible to bring 
forth group claims.
    A few commenters suggested the Department permit representatives of 
certified classes of borrowers to submit group BD applications. These 
commenters further stated the Department repeatedly acknowledges the 
value of lawsuits, particularly class action lawsuits, to promote the 
purposes of the Direct Loan program. They noted that permitting only 
State requestors to submit group applications will likely result in 
differential treatment of student borrowers based solely on where they 
live. In addition, the commenters stated that counsel representing 
classes of harmed borrowers can assemble a wealth of relevant evidence.
    Discussion: During negotiated rulemaking session 3, the Department 
initially considered allowing legal assistance organizations to submit 
group requests. Upon further consideration, however, the Department 
concluded that limiting the group formation request to State requestors 
would facilitate a more efficient process. The Department has 
consistently and repeatedly received valuable information from States 
that played a key role in the adjudication of BD applications. For 
example, we received evidence from State attorneys general that we used 
to approve claims related to several institutions across the country. 
The Department received evidence from the California Attorney General 
that helped document that Corinthian Colleges misrepresented its job 
placement rates. Evidence from the

[[Page 65918]]

New Mexico Attorney General helped establish that ITT Technical 
Institute misled students about obtaining accreditation for its 
associate degree in nursing programs. More than two dozen State 
attorneys general submitted evidence related to ITT giving students 
false, erroneous, or misleading statements about the value of its 
education. The Department received evidence from the Illinois and 
Colorado attorneys general that demonstrated Westwood College lied to 
students about the ability for criminal justice students to get a job 
as a police or corrections officer in Illinois and that it made false 
promises at all of its campuses about guaranteed prospects for students 
who could not find a job. The Department likely would have been unable 
to approve many of the claims associated with those schools without 
that evidence.
    After careful reconsideration, we are persuaded by the commenters' 
arguments that allowing legal assistance organizations to request a 
group formation could give borrowers who would otherwise not have a 
pathway to relief the ability to file a BD claim. Allowing these 
additional organizations to request the consideration of group claims 
affords another channel for the Department to receive valuable 
information that we can use to assess BD claims. The commenters' point 
that legal assistance organizations may have potentially greater 
awareness regarding some institutional conduct than States is 
important, given that we have received claims pertaining to thousands 
of institutions.
    The Department also initially cited concerns about the potential 
added burden of allowing legal assistance organizations to make group 
requests. The overall requirements for a group request will mitigate 
this concern, particularly the requirement that a group request must 
include evidence beyond sworn borrower statements to be considered for 
a decision. Though not an exhaustive list, in the past the Department 
has found that additional evidence such as an institution's internal 
training materials and communications, the documentation used to 
calculate job placement rates, and copies of misleading advertisements 
have all been helpful in adjudicating BD claims. Group requests without 
additional evidence and information will be deemed incomplete. That 
means a group request will require additional evidence from the third-
party requestor.
    To make this change operationally manageable, the Department is 
adding a new definition of a ``third-party requestor,'' which will 
encompass State requestors and ``legal assistance organizations'' (also 
newly defined in the regulations) and will allow such third-party 
requestor the ability to request group formation, subject to certain 
conditions. The definition of ``legal assistance organization'' in the 
regulations is drawn, in part, from Sec. 428L(b)(1) of the HEA which 
defines a civil legal assistance attorney with the exception of where 
their employer receives their funding as outlined in Sec. 
428L(b)(1)(A)(ii) of the HEA. Beyond being a nonprofit organization, we 
do not believe a legal assistance organization's funding source should 
have any bearing on their request to form a group under Sec.  685.402. 
We believe relying on a modified definition created by Congress is 
better than trying to craft a new one.
    The regulations also add a requirement that third-party requestors 
that are legal assistance organizations may only request to form a 
group in which all borrowers have entered into a representation 
agreement with the legal assistance organization. In this respect, 
legal assistance organizations significantly differ from State 
requestors. This legal distinction is required for several reasons. 
First, confidential borrower-related information must be exchanged as 
part of BD determinations. The Department is permitted to exchange that 
information with the offices of State attorneys general but must obtain 
borrower-specific privacy waivers to share such information with 
private counsel. It is far more likely that the Department will be able 
to exchange such borrower-related information for borrowers that legal 
assistance organizations represent. Second, State attorneys general may 
act as their constituents' public legal representative based on the 
nature of their role. Non-governmental groups, on the other hand, 
generally have no comparable right to assert claims on behalf of non-
clients. Class counsel who represent plaintiffs in a civil class action 
lawsuit are one exception to this general bar, but only following 
specific determinations about class counsel and the class 
representatives, their clients.\52\ The Department lacks the resources 
or procedures to recreate a similar process for group BD requests from 
legal assistance organizations that the Department is able to do so for 
State attorneys general. For these and other practical reasons, 
requests submitted by a legal assistance organization to form a group 
must contain a certification that the requestor has legal 
representation authority for each borrower identified as a member of 
the group, which must be based on individual representation agreements 
or on a court appointing the legal assistance organization to represent 
a certified class that includes all members of a requested group in 
connection with claims substantially similar to BD. As we explain later 
in the Group Process and Group Timelines section, the Department will 
retain the flexibility to approve a group that is broader or narrower 
than the one requested by a third party based upon a review of the 
evidence.
---------------------------------------------------------------------------

    \52\ See, e.g., Fed. R. Civ. P. 23(a) (requiring representative 
plaintiffs to have claims typical of the class and to be adequate 
class representatives); Fed. R. Civ. P. 23(g) (setting forth various 
requirements, duties, and obligations of class counsel).
---------------------------------------------------------------------------

    The Department declines to allow representatives of certified 
classes of borrowers to submit requests to form a group seeking BD if 
they do not fall under the definition of a legal assistance 
organization. While we appreciate these external entities' interest, 
the Department believes that expanding the scope of third-party 
requestors presents administrative issues that are not feasible for the 
Department to address at this time. We also note that the ability to 
use judgments to support BD claims means that representatives of 
certified classes can obtain relief for their clients if they secure a 
judgment that meets the requirements under Sec.  685.401(b)(5). And, of 
course, nothing prevents these entities from independently sharing 
general information with the Department.
    Changes: We added definitions of ``legal assistance organization'' 
and ``third-party requestor'' in Sec.  685.401(a). Throughout the 
document, we also revised any reference to ``State requestor'' to be 
``third-party requestor'' to reflect inclusion of legal assistance 
organizations. We also amended Sec.  685.402(c) to state that third-
party requestors that are legal assistance organizations may not 
request to form a group that includes any borrower who has not entered 
into a representation agreement with the legal assistance organization. 
We also added a corresponding new paragraph Sec.  685.402(c) that 
requires a legal assistance organization submitting a group claim to 
certify that it has entered into a legal representation authority with 
each borrower identified as a member of the group.
    Comments: Many commenters supported allowing States to request a 
consideration of a group claim. Those commenters noted the importance 
of State attorneys general in identifying important evidence and the 
overall importance of having group claims. We

[[Page 65919]]

also received many comments that opposed this provision. Commenters 
argued that the Department did not sufficiently justify why it was 
including State requestors and that it lacked the legal authority to 
include them. Commenters also argued that the Department was adopting 
this position to circumvent limitations on its own investigatory power 
and that it can already share information and does not need this 
provision. Commenters also alleged that this provision would involve 
the Department in internal matters between attorneys general and State 
authorizing agencies that may not want to take action. Commenters also 
raised concerns that State requests could be used to try and influence 
ongoing settlement negotiations. Commenters also asked if State 
requestors would have to limit their requests to only cover borrowers 
in their states. Finally, a few commenters argued that the Department 
would struggle to sift through the material from states.
    Discussion: We appreciate the support from commenters who are in 
favor of including State requestors.
    We disagree with commenters opposed to the inclusion of State 
requestors. As discussed in the NPRM as well as in this final rule, the 
Department has benefited repeatedly from information provided by State 
attorneys general in its adjudication of claims. The Department has 
also received many requests for consideration of group claims from 
attorneys general. Creating a formal process for the handling of these 
group requests is better for States, the Department, affected 
borrowers, and institutions. For States, the regulations provide more 
clarity around what is needed in an application and lays out timelines 
for when to expect decisions. Borrowers who may not understand how to 
file a BD claim or who may not have the information necessary to 
support all elements of a claim on their own will benefit from the 
expertise and support of state officials who regularly act on behalf of 
consumers in their states in many contexts. For institutions, they will 
also have a clearer role in responding to both the request to form the 
group, as well as whether the group should be approved. These 
regulations also give the Department a clear process to follow for the 
handling of group claims and will ensure consistent treatment and 
consideration of claims. We also note that third-party requestors are 
only involved in the submission of claims by borrowers; they are not 
involved in any proceeding brought by the Department against the 
institution.
    We disagree with the concerns raised that allowing any third-party 
requestor--whether from a State or legal assistance organization--would 
result in attempts to influence the Department or influence litigation 
or oversight matters within a state. The Department's concern is 
ensuring it receives evidence that can help it make fair decisions 
about the merits of BD claims. The Department does not have a role in 
the resolution of matters at the State level between an attorney 
general and an institution or other State entities.
    With regard to which borrowers a State may request a group around, 
the Department does not believe it needs to add any language specifying 
the extent of a group. We note that to date all requests for group 
consideration from State attorneys general have only covered borrowers 
within their states.
    Finally, the Department believes it will have the capacity to 
review material from States. It has already done so for several group 
requests and the requirements for what is needed in a group application 
will help ensure the Department will receive additional useful evidence 
when reviewing requests for group claims.
    Changes: None.
    Comments: One commenter requested that the Department add State 
authorizing agencies to the list of State requestors under Sec.  
685.401, noting that in at least one State the authorizing agency has 
responsibility for reviewing title IV aid issues and eligibility 
requirements that incorporate title IV aid elements.
    Discussion: The Department agrees with the commenter. In adopting a 
definition of State requestor, the Department sought to include 
entities that have authority from the State to oversee institutions of 
higher education, including reviewing and approving institutional 
conduct. We modified the language of State requestor to include State 
entities that are responsible for approving educational institutions in 
the State.
    Changes: We have added a State entity responsible for approving 
educational institutions in the State to the definition of a ``State 
requestor'' in Sec.  685.401.
    Comments: A few commenters believed the definition of ``school'' 
and ``institution'' in Sec.  685.401(a) was duplicative and too broad. 
Commenters stated that inclusion of the cross-reference to Sec.  
668.174(b) in this definition can be read to mean that, for the 
purposes of adjudicating a BD claim, the conduct of an institution 
could be imputed to any other institutions that are under common 
ownership.
    Discussion: We concur with the commenters. The Department 
contemplated covering in the definition of ``school'' or 
``institution'' a person affiliated with the institution as described 
in Sec.  668.174(b). This was done for purposes of recovery from the 
institution in Sec.  685.409.\53\ The Department already retains the 
authority to assess a past performance liability for individuals 
associated with the institution under the financial responsibility 
regulations, however. Therefore, a cross-reference to Sec.  668.174(b) 
in the definition of school or institution is unnecessary.
---------------------------------------------------------------------------

    \53\ See 87 FR at 42009-42010.
---------------------------------------------------------------------------

    Changes: We revised the definition of ``school'' or ``institution'' 
(which are used interchangeably) by removing the sentence ``School or 
institution also includes persons affiliated with the institution as 
described in Sec.  668.174(b) of this section.''

Federal Standard

    Comments: Many commenters supported the establishment of a strong 
Federal BD standard that better captures the full scope of 
institutional misconduct relevant for a BD claim. These commenters 
noted that, to date, the BD claims review process has been burdensome, 
with different regulatory standards depending on loan disbursement 
date. Commenters said the different Federal standards and processes 
contributed to inequities among similarly situated borrowers, resulted 
in a backlog, and delayed adjudication while borrowers were left in the 
dark. The commenters praised the new Federal standard, noting it 
established clearer and expanded grounds for BD claims and was a 
tremendous step in protecting consumers and ensuring the integrity of 
the Federal financial aid programs.
    Discussion: We thank the commenters for their support.
    Changes: None.
    Comments: Many commenters indicated that the Department should be 
required to find some or all of the following elements to approve a 
claim: reliance by the borrower, detriment to the borrower, 
materiality, adverse effect, financial damages or harm to the borrower, 
and intentionality by the institution. They raised these comments with 
respect to each component of the BD standards: substantial 
misrepresentation, substantial omission of fact, breach of contract, 
aggressive and deceptive recruitment, judgments, and final Secretarial 
actions.
    Commenters argued that the absence of some or all of these elements 
would

[[Page 65920]]

result in the approval of claims that they described as having minimal 
allegations or documentary evidence or that did not result in any harm 
and thus should be denied. Commenters also said the proposed Federal 
standard would encourage the filing of what commenters described as 
frivolous claims. These commenters indicated that under the proposed 
rules the Department could approve claims as a result of errors by the 
institution in good faith, as a result of acts or omission in which the 
borrower did not in fact suffer any injury, or with virtually no 
factual allegations or documentary support. Commenters said the NPRM's 
approach is impermissibly broad and noted that the absence of some 
elements such as reliance appears to be inconsistent with the 
definition of a substantial misrepresentation in Sec.  668.71. 
Commenters also noted that without the inclusion of some or all of 
these elements, it is unclear how institutions could successfully 
challenge liability during the institutional response stage, 
contributing to concerns about the due process rights of institutions. 
Similarly, many commenters raised concerns that an institution could be 
held accountable for inadvertent mistakes unless intent is required for 
a BD claim.
    Discussion: We agree with the commenters in part. Upon 
consideration of each of the items suggested by commenters, we modified 
the proposed Federal standard to provide that, to approve a claim, the 
Department must find that the institution committed ``an actionable act 
or omission and, as a result, the borrower suffered detriment of a 
nature and degree warranting the relief provided by a borrower defense 
to repayment as defined in this section.'' Sec.  685.401(b). The final 
clause (``warranting the relief provided by a borrower defense to 
repayment as defined in this section'') refers to the steps set forth 
in Sec.  685.401(a)'s definition that comprise the remedy that BD 
provides, which are (i) relief from future repayment obligations of 
covered loans, (ii) reimbursement of all amounts paid to the Secretary, 
and, where applicable, curing consequences related to (iii) default or 
eligibility and (iv) adverse credit reporting. This general standard 
supplies a claim's primary elements of actionable conduct, injury, 
causation, and conditions justifying the remedy.
    The Federal standard goes on to enumerate the different categories 
of conduct that, if shown, may serve as a sufficient basis for 
satisfying the general definition's first prong (``actionable act or 
omission''). That is, the following subsections enumerate the ``acts or 
omissions'' that fall within the scope of what is ''actionable'' for 
purposes of BD, which are: substantial misrepresentation, substantial 
omission of fact, breach of contract, aggressive and deceptive 
recruitment, judgments, and final Secretarial actions. By structuring 
the standard with general elements proceeding from the BD definition, 
claims must satisfy each of those general elements to be approved under 
any of the different conduct-related grounds for BD.
    This simplified approach sets forth the shared elements of a claim: 
actionable acts or omissions by the institution; detriment to the 
borrower from having taken out a loan and enrolled; a causal link 
between the school's conduct and the borrower's injury; and that the 
appropriate remedy for such conduct and resulting injury is to 
discharge the borrower's remaining repayment obligations, refund 
payments already made to the Secretary, and take curative steps for any 
prior consequences related to credit reporting or default. The first 
three elements involve a factual determination about school's conduct 
and its impact on the borrower. The final prong ties those elements to 
the unique remedy that a defense to repayment provides. The section 
below on ``Amounts to be Discharged/Determination of Discharge'' 
provides a more comprehensive discussion of the remedy that BD 
provides.
    The changes to the definition of a BD make several improvements 
that clarify the standard and address various commenters' concerns. 
Principally, a general definition accompanied by enumerated actionable 
acts or omissions clarifies the shared elements without shoehorning 
them into each specific way of establishing a defense to repayment.\54\ 
A definition of general elements also considers commenters' requests to 
require that the act or omission be accompanied by one or more 
variations of the elements of causation and detriment to the borrower.
---------------------------------------------------------------------------

    \54\ In addition to bringing the shared claim elements one step 
higher on the definitional tree, the modifier ``actionable'' also 
defines the phrase ``actionable act or omission'' as a BD-specific 
term that means one of the categories of conduct enumerated in Sec.  
685.401(b)(1)-(5). That is intended to clarify that other instances 
of the term ``act or omission'' in CFR, Title 34 may overlap with 
the enumerated BD categories but are not necessarily coextensive.
---------------------------------------------------------------------------

    For causation, the Department chose a straightforward general 
element of causation instead of specific articulations such as reliance 
and materiality. First, a general causation element fulfills the 
function that reliance and materiality play in many actions for common 
law fraud, but in a way that more appropriately reflects the unique 
context of BD and student loans generally. Indeed, the decision to take 
out Federal loans to pay tuition in exchange for education, training, 
and credentials differs from the conventional context of common law 
fraud. The core concern for BD is ensuring it is a remedy for injuries 
caused by the identified acts and omissions, which is a concern that a 
general causation standard more appropriately addresses.
    General causation can also be expressed in terms that will make 
more sense to a borrower. As numerous commenters observed, requiring 
applicants to use specific phrases risks filtering out applicants who 
do not understand terms with specific legal meanings instead of 
focusing on the borrower's actual entitlement to relief. The Department 
was also persuaded by concerns from commenters that reliance is a 
complicated element to rebut because only the borrower will truly know 
if they relied upon an act or omission. Causation, meanwhile, requires 
describing factual circumstances that show a connection between the act 
and the detriment to the borrower.
    Detriment to the borrower is also a general element of a defense to 
repayment. The Department opted for this element rather than the 
suggestion of a few commenters to require borrowers to establish harm 
in specific forms or financial quantities. As noted in the NPRM, the 
Department is concerned that past requirements to establish harm have 
set unrealistic bars for borrowers, such as ruling out factors like 
regional or national recessions and a poor job-search process as causes 
for a borrower's inability to find employment or denying relief to 
borrowers who succeed despite their program. Requiring specific forms 
or values of harm would present an unrealistic barrier for many 
borrowers likely entitled to relief.
    Furthermore, some comments on this topic appear to conflate the 
fact of detriment with the measure of resulting harm for remedial 
purposes.\55\ The ``detriment'' element ensures that an applicant or 
group of applicants did, in fact, suffer harm caused by the relevant 
act or omission. In the BD context, that will frequently take the form 
of lost

[[Page 65921]]

value or economic loss as a result of the transaction to take out a 
loan and enroll. Limits on the form or degree of that injury are more 
appropriately treated as remedy-related issues, as explained in the 
paragraphs that follow and in the ``Amounts to be Discharged/
Determination of Discharge'' section.
---------------------------------------------------------------------------

    \55\ See Dan Dobbs & Caprice Roberts, Law of Remedies Sec.  3.1 
(3d ed. 2018) (explaining the distinction between the fact of legal 
injury and measures of harm caused for purposes of calculating 
damages remedy).
---------------------------------------------------------------------------

    A claim's final general element proceeds from the remedy for BD, 
and involves a determination that the nature of the relevant acts or 
omissions and resulting detriment warrant the remedy available in BD. 
This feature of the updated definition and Federal standard, among 
others, addresses many of the concerns raised by commenters 
representing institutions or the interests of institutions. Regarding 
the concerns these comments raise, an approved claim requires the 
Department to conclude that the act or omission caused detriment to the 
borrower such that the circumstances warrant the relief of removing the 
borrower's obligation to repay the loan's remaining balance, refunding 
amounts paid to the Secretary, and other benefits like changes to 
credit reporting and determining that the borrower is not in default. 
In making that determination, the Secretary will weigh the totality of 
the circumstances, including the nature and degree of the acts or 
omissions and of the detriment caused to borrowers, along with any 
other relevant facts. As explained below, when making that 
determination for cases involving closed schools, there will be a 
rebuttable presumption that relief is warranted, which reflects the 
Department's experience that the circumstances warranting such relief 
are likely to exist in cases involving closed schools shown to have 
committed actionable acts or omissions.
    As we explain elsewhere, BD relief, though unique, bears features 
of remedies like rescission, restitution, avoidance, reliance costs, 
and an obligor's claims and defenses against the enforcement of an 
unsecured loan. As rules and principles for those remedies reflect, 
whether rescissionary relief is appropriate often depends on the facts 
and circumstances of a particular case.\56\ Although we did not adopt 
precise standards from these related areas of law, the Department 
expects to draw on principles and reasoning underlying the application 
of rescissionary remedies that BD resembles, where factual 
circumstances call for it, and will make explanations of important 
remedy-related determinations public. The relief available under BD and 
determinations on whether certain circumstances warrant relief are 
explained in greater detail in the ``Amounts to be Discharged/
Determination of Discharge'' section.
---------------------------------------------------------------------------

    \56\ See, e.g., Restatement (Third) of Restitution & Unjust 
Enrichment Sec.  54 (2011) (``Rescission is appropriate when the 
interests of justice are served by allowing the claimant to reverse 
the challenged transaction instead of enforcing it.''); Restatement 
(Second) of Contracts Sec.  344 cmt. a (1981)(relief flexibly 
tailored ``as justice requires'' to protect reliance and 
restitutionary interests).
---------------------------------------------------------------------------

    The Department considers this flexible inquiry superior to specific 
benchmarks of cognizable harm requested by numerous commenters. 
Principally, it corresponds more closely to the remedy of a discharge 
and refund. As noted, the remedies that BD resembles generally call for 
a weighing of equities and case-specific circumstances. Because of the 
variety of interests involved in BD and the nature of the remedy it 
provides, a similar approach is appropriate to incorporate into the 
Federal standard. It also provides a limiting principle that addresses 
the comments concerned that full discharges and refunds would be 
warranted for trivial misstatements or borrowers with negligible harm.
    As part of this determination, the standard provides for a 
rebuttable presumption that applicants who attended closed schools and 
otherwise establish a claim to relief are presumed to have suffered 
detriment that warrants BD relief. This presumption is based on the 
Department's experience that the circumstances in which BD has been the 
appropriate remedy to date are in cases involving closed schools. This 
does not mean that every alleged act or omission by a closed school 
will warrant relief, nor does it mean that borrowers who attended a 
closed school should expect the Department to automatically grant 
applications for BD. In cases where a school closes but there is no 
evidence of an act or omission that could give rise to a BD claim, the 
HEA still provides a path for borrowers who are otherwise harmed by the 
closure itself to get relief through the closed school discharge 
process. Applicants for BD who attended closed schools will still have 
to show, by a preponderance of the evidence, that the school committed 
actionable acts or omissions that caused them detriment. Although there 
is a presumption that such circumstances warrant BD remedies, it may be 
rebutted by evidence or reasons suggesting that the circumstances do 
not warrant the remedy of discharge and refund. The Department opted 
for this presumption because it acknowledges the context and challenges 
with obtaining additional evidence that often accompanies closed 
schools, while also allowing the Department to exercise its discretion 
based on the specific circumstances of each case.
    Finally, the Department disagrees with the suggestion that the 
regulations require a finding of intent or knowledge by the institution 
for a BD claim to be approved. Requiring intent would place too great a 
burden on an individual borrower, who would need to have some way to 
know why the institution, or its representative committed the improper 
act or omission. Moreover, if the action resulted in detriment to the 
borrower that warrants relief, the Department does not believe whether 
it was taken with knowledge or intent should be relevant. The borrower 
still suffered detriment that warrants relief and so, if proven, should 
be relieved of their repayment obligation. The inclusion of a 
requirement that the action caused detriment to the borrower that 
warrants the relief of a full discharge and refunds means that harmless 
and inadvertent errors are unlikely to be approved. It is unlikely that 
a trivial action caused detriment and the Department will most likely 
not reach that conclusion. An error of consequence that causes 
detriment to a borrower that warrants relief should result in relief, 
however, regardless of whether it was made with knowledge.
    Changes: We revised Sec.  685.401(b), the Federal standard for a 
BD, to require the Department to conclude that the institution 
committed ``an actionable act or omission and, as a result, the 
borrower suffered detriment of a nature and degree warranting the 
relief provided by a borrower defense to repayment as defined in this 
section.''
    We also added, in Sec.  685.401(e), the general parameters that the 
Department will consider when determining whether detriment caused by a 
school's act or omission warrants relief. This involves the Secretary 
considering the totality of the circumstances, including the nature and 
degree of the acts or omissions and of the detriment caused to 
borrowers. The standard also provides that for borrowers who attended a 
closed school shown to have committed actionable acts or omissions that 
caused the borrower detriment, there will be a rebuttable presumption 
that the detriment suffered warrants relief under this section.
    Comments: The Department received many comments with differing 
opinions on whether to presume reasonable reliance for an individual 
claim, as well as a group one. A few commenters requested a more 
explicit statement from the Department that we would presume reasonable 
reliance for an individual claim. Others, however, argued that the 
Department did not have

[[Page 65922]]

the statutory authority to use a presumption of reliance and did not 
provide sufficient evidence for this proposal. These commenters also 
argued that a presumption of reliance, coupled with the absence of 
requirements such as showing harm, and the broad definitions of terms 
like aggressive recruitment, would lead to the approval of frivolous 
claims. Commenters also argued that concerns that borrowers fail to 
state reliance do not provide legal grounds for adopting a presumption 
in regulation. They argued that when agencies establish a presumption, 
they typically do so using a rational nexus between the proven and 
presumed facts and that the Department has not showed that would be the 
case.
    Commenters also disagreed with the Department's citation to 
authority held by the Federal Trade Commission (FTC). The commenters 
argued that the FTC can only employ its presumption when there is 
proven widespread violations, which include material and widely 
disseminated misrepresentations. The commenters argued that the 
Department's proposed standard represented a lower bar than what the 
FTC uses. The commenters also said the presumption does not comport 
with Supreme Court rulings related to the application of presumptions 
and stated that some misrepresentations as outlined in Sec.  668.72 
must require a showing of individual reliance. Finally, a few 
commenters stated that borrowers should bear the burden of proving 
reliance. They noted that only the borrower knows if they relied upon a 
particular act or omission, and it would be difficult for an 
institution to rebut a presumption of reliance.
    Discussion: We take seriously the concerns the comments express, 
and have revised the amendatory text, where appropriate, but we 
disagree with much of the commenters' reasoning.
    Regarding concerns about applying a presumption of individual 
reliance, the final regulation includes a general causation element in 
the definition of BD that addresses this concern in some ways. In this 
respect, approved claims must be based on a showing that a school's 
actionable act or omission caused the borrower detriment. That showing 
may be based on an inference of causation that does not meet the 
strictures of a conventional common law fraud claim, but the Department 
will not presume causation based on a borrower establishing an 
actionable act or omission, standing alone. The general causation 
requirement and the reasons for adopting it are explained in response 
to other comments in this section.
    The updated regulation does, however, retain the feature that 
adopts a rebuttable presumption that identified acts or omissions 
impacted each borrower in a group recommended for consideration under 
the proposed Sec.  685.402. This is a logical feature of a process that 
considers claims collectively.
    Contrary to a few commenters' suggestions, this feature does not 
permit a presumption where there is no rational nexus between the 
established and presumed facts. Rather, the regulation contemplates 
that a recommendation to consider certain borrowers' claims as a group 
will stem from facts supporting a logical inference that certain acts 
or omissions impacted members of the group in similar ways. For that 
reason, the rebuttable presumption accompanying a formed group will 
reflect a rational nexus between the proven facts and the presumed 
facts.\57\
---------------------------------------------------------------------------

    \57\ See Cole v. U.S. Dep't of Agric., 33 F.3d 1263, 1267 (11th 
Cir. 1994).
---------------------------------------------------------------------------

    Likewise, a rebuttable presumption does not change the burden of 
persuasion, which will still require that the evidence show an 
entitlement to relief by a preponderance of the evidence. For purposes 
of schools' liabilities, the presumption will simply operate to shift 
the evidentiary burden to the school, while still allowing the school 
to rebut the presumption as to individuals in the identified group, or 
as to the group as a whole. In any recoupment action related to such a 
case, the members of the group will be identified. Although the group 
may include borrowers who did not file an individual application, the 
members of the group will be known as part of the fact-finding process. 
Because the Federal standard now focuses on causation rather than 
reliance, there is no need for the changes regarding presumptions for 
individual claims that commenters requested.
    We disagree that the Secretary lacks the authority to provide for 
presumptions in the procedures for resolving BD claims. It is a well-
established principle that administrative agencies may establish 
adjudication procedures that include evidentiary presumptions based on 
logical inferences drawn from certain facts.\58\
---------------------------------------------------------------------------

    \58\ Chem. Mfrs. Ass'n v. Dep't of Transp., 105 F.3d 702, 705 
(D.C. Cir. 1997).
---------------------------------------------------------------------------

    We also disagree with commenters' attempts to distinguish the 
principles underlying presumptions drawn from FTC jurisprudence. The 
presumptions that the FTC uses are not limited to contempt proceedings 
and also apply in actions for restitution under Sec. 19 of the FTC 
Act.\59\ What is more, commenters ignore key differences between FTC 
enforcement and BD that underscore the Department's authority here. 
First, the FTC actions that commenters reference involve civil 
enforcement proceedings meant to encourage compliance with general 
commercial standards and deter practices that financially harm 
consumers in general. In contrast, the Department's BD-related 
recoupment actions against schools involve the collection of discharged 
loan amounts so that the party that caused the loss reimburses the 
Government and taxpayers. That is, unlike the civil remedies that the 
FTC deploys, the Department's BD-related proceedings with schools 
simply involve the Department seeking reimbursement for liabilities 
owed to the Department as a result of the schools' voluntary 
participation in the title IV programs. Second and relatedly, the FTC's 
enforcement authority stems from more than 70 different laws and covers 
an extensive range of consumer interactions that make commercial actors 
subject to the FTC's consumer-oriented jurisdiction simply by virtue of 
engaging in economic activity with consumers. The scope of BD, on the 
other hand, only encompasses Federal loans paid to schools through the 
Department-administered title IV programs in which schools 
affirmatively and voluntarily sought eligibility to participate. To be 
eligible to participate in these programs, a school must also expressly 
agree to be subject to the Department's regulations, which includes 
assuming responsibility and liability for losses the Department incurs 
from relevant discharges. See 34 CFR 685.300. Not only do the 
regulations explicitly provide for such reimbursements, but they also 
have included features like the presumption commenters reference long 
before this rule. The 2016 regulation specifically provides for such 
presumptions.\60\ Similarly, the 1994 regulation empowered the 
Department to apply State law, which would include presumptions applied 
in many jurisdictions. As we explained when the final 2016 regulations 
were published, the presumption that those regulations codified did not 
``establish[ ] a different standard than what [wa]s required under the 
. . . [1995] regulations'' in place at that time.\61\ Indeed, as noted,

[[Page 65923]]

agencies retain the discretion to apply presumptions in the 
adjudication process that are not codified in regulations at all so 
long as a rational nexus exists between the relevant evidence and 
presumptive inferences to be drawn from it.\62\
---------------------------------------------------------------------------

    \59\ See, e.g., F.T.C. v. Figgie Int'l, Inc., 994 F.2d 595, 605 
(9th Cir. 1993).
    \60\ 34 CFR 222(f)(3).
    \61\ 81 FR at 75971.
    \62\ See Chem. Mfrs. Ass'n, 105 F.3d at 705.
---------------------------------------------------------------------------

    The upshot of these differences is that the procedural steps 
required for FTC presumptions are based on many reasons that do not 
apply to the BD context. That obviates the need to recreate similar 
procedures as a prerequisite to applying presumptions in BD-related 
proceedings. That is particularly the case because recreating such 
procedures would meaningfully hinder the efficient administration of BD 
proceedings, which are an integral part of the Department's role as the 
administrator of title IV Federal loan programs. The Department has 
authority to administer those programs in a way that honors borrowers' 
right under the HEA to raise a defense to collection of their loan and 
that ensures schools satisfy the financial commitments and obligations 
they undertake as a condition of title IV participation. Thus, the 
interagency differences that the comments mention support the 
Department's authority to craft a context-specific process for 
resolving claims for BD.
    Changes: The Department revised Sec.  685.401(b) to provide that, 
to approve a claim, the Department must conclude the institution made 
an actionable act or omission that caused detriment to the borrower 
that warrants the relief provided under BD.
    Comments: A few commenters argued that the Department should adopt 
a plausible basis requirement for BD claims similar to the Federal 
pleading standard. In this situation, the Department would assume that 
well-articulated factual allegations are true and then determine 
whether they give rise to relief. The commenters also argued that the 
claimant should be required to state the claim with particularity as 
required under certain elements of the Federal Rules of Civil 
Procedure.
    Discussion: We agree in part with the comments but disagree that it 
would be appropriate to adopt specific pleading standards--whether 
heightened or relaxed--drawn from civil litigation. Without adopting 
specific standards, the Department has made revisions that address many 
of the concerns expressed in these comments.
    With regard to pleading standards, revisions to the regulations set 
forth basic requirements for a materially complete individual claim 
application. These requirements are discussed in greater detail in the 
section in Process to Adjudicate Borrower Defense Claims, but their 
core purpose is to increase the quality of and content in individual 
applications by requiring an adequate description of the alleged acts 
or omissions, along with their relevant circumstances, impact, and 
resulting detriment. This differs from a particularity requirement such 
as Federal Rule of Civil Procedure 9(b) but addresses some commenter 
concerns.
    The Department declines to adopt a plausibility requirement. 
Principally, the BD adjudication process does not implicate the 
plausibility standard's goal of resolving claims early to avoid 
expensive and burdensome discovery costs.\63\ Nor does the BD process 
implicate other pleading-related concerns of providing a defendant 
adequate notice,\64\ because the Department is the party against which 
borrowers assert a defense to repayment. Otherwise, we think the 
updated guidelines for a materially complete application will 
adequately address concerns about applications lacking sufficient 
information.
---------------------------------------------------------------------------

    \63\ See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007); 
Pension Benefit Guar. Corp. ex rel. St. Vincent Catholic Med. Ctrs. 
Ret. Plan v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 719 (2d 
Cir. 2013).
    \64\ See Fed. R. Civ. P. 8.
---------------------------------------------------------------------------

    Accordingly, we clarify the definition of a materially complete 
application to require that borrowers provide certain details that form 
the basis of a claim, but we are not asking borrowers to provide 
factual support for claim elements that they are unlikely to know or 
have the ability to obtain, such as centralized corporate practices, 
advertising plans, or the calculation formulas behind institutional job 
placement rates.
    Changes: We clarified the definition of a materially complete 
application in Sec. Sec.  685.402(c) and 685.403(b) to require that 
borrowers provide certain details that form the basis of a claim.
    Comments: Some commenters raised concerns about whether the 
Department would terminate or otherwise sanction institutions for past 
behavior based upon new items in part 668, subpart F or the new part 
668, subpart R. They raised concerns about institutions potentially 
facing adverse actions for past conduct now covered by these additions.
    Discussion: The Department notes that some of the changes to Part 
668, subpart F represent items that are not new but have simply been 
moved to other locations or slightly restated. Other elements in that 
subpart, as well as part 668, subpart R are new. For the items that are 
new, the Department could bring adverse actions in relation to conduct 
that occurs on or after July 1, 2023 that violates those new 
provisions.
    Changes: None.
    Comments: Some commenters argued that the Federal standard and its 
relation to other prior standards would confuse borrowers and adds 
unnecessary complexity.
    Discussion: We disagree. As noted in the NPRM, the Department is 
concerned that the fact that the current framework of associating a 
regulation with a disbursement date can be very confusing for 
borrowers, especially if their borrowing spans multiple regulations or 
they consolidate. The single upfront Federal standard will reduce that 
confusion. This approach avoids the possibility that different loans 
held by the same borrower and related to the same allegations could 
otherwise result in different adjudication outcomes, which would be 
confusing.
    Changes: None.

Substantial Misrepresentation

    Comments: A commenter made several suggestions regarding the 
definition of misrepresentations related to job placement rates in 
Sec.  668.74. These included clarifying that these are 
misrepresentations related to the use of placement rates in marketing 
materials, not what is reported to accreditors or State agencies; 
allowing paid internships of a certain minimal length to be considered 
a placement; saying that placement rates can align with the methodology 
historically accepted by an accreditor or State agency; counting 
borrowers who were placed prior to graduation as part of a clear 
disclosure; and, allowing for the exclusion of non-respondents after a 
good faith attempt to contact them and alongside a disclosure. The 
commenter also provided regulatory text to execute their suggested 
changes.
    Discussion: Sec.  668.74 (g)(1) already states that a 
misrepresentation exists if the actual employment rates are materially 
lower than the rates included in the institution's marketing materials, 
website, or other communications, so we do not believe further 
clarification is needed there. However, after reviewing Sec.  
668.74(g)(1)(ii) we believe the phrasing there was not sufficiently 
clear. Accordingly, we have revised Sec.  668.74(g)(1)(ii) to clarify 
that the rates in question are the ones disclosed to students. In 
reviewing the request for greater clarity we also concluded that the 
language in 668.74(g)(1)(ii)(C) did

[[Page 65924]]

not fully capture the issues that the Department has seen in that 
space. Accordingly, we clarified that language to say ``assessments of 
employability'' in addition to difficulty with placement. This 
addresses two issues the Department has seen. One is institutions 
excluding borrowers from a placement rate solely because they did not 
follow a strictly defined job search process as laid out by the 
institution. The other is excluding students because the institution 
thinks the person would have a hard time finding a job, which can 
include someone who is pregnant. Regarding the other suggestions, we 
believe it is important for the placement rates provided to borrowers 
to be as straightforward as possible, and the comment did not provide 
reasons for further limiting the grounds for misrepresentation set 
forth in Sec.  668.74(g)(1)(ii)(A) through (C). We have, however, 
deleted Sec.  668.74(g)(1)(ii)(D). The commenter noted that the 
treatment of non-respondents could potentially also deflate placement 
rates if someone who is placed does not respond. Given the potential 
for the treatment of non-respondents to increase or decrease the 
placement rate, we believe this provision is not as consistent in 
resulting to rates that are overstated as paragraphs (A) through (C).
    The Department also notes that the Federal standard for BD 
incorporates misrepresentations as defined in Sec.  668.71(c), which 
include representations to accrediting agencies, State agencies, and 
others. Whether any such statement amounts to a substantial 
misrepresentation will depend on whether it is false or misleading. For 
purposes of BD, the Department would have to further conclude that the 
misrepresentation misled a particular borrower and caused the borrower 
detriment such that it warrants a full discharge and refund. Thus, not 
every substantial misrepresentation under part 668, subpart F will 
support a defense to repayment and the remedies it entails. In addition 
to this flexibility, the regulations permit the Department to seek 
additional evidence from requestors, when appropriate, and permit 
schools with various opportunities to be heard. Given these features, 
the Department disagrees that the definition of substantial 
misrepresentation should be changed.
    Changes: We have revised Sec.  668.74(g)(1)(ii) to clarify it 
applies to rates disclosed to students. We have clarified Sec.  
668.74(g)(1)(ii)(C) to note this also includes assessments of 
employability. We have also deleted Sec.  668.74(g)(1)(ii)(D).
    Comments: One commenter stated that the Department's proposal to 
add false, erroneous, or misleading statements concerning institutional 
selectivity rates or rankings as a form of misrepresentation was 
confusing and pointed out possible inconsistencies in that approach. 
Another commenter requested clarification on the Department's approach 
to ``highly ranked and highly selective programs.''
    Discussion: We appreciate the questions raised by the commenters. 
The goal behind Sec.  668.72(m) is to capture misrepresentations in 
which the institution misleads students into thinking the school itself 
or a program it offers has selective entrance requirements when that is 
not the case. The Department had attempted to capture this concept by 
pointing to two different types of misrepresentations. The first type 
would have been when the school's actual selectivity or admissions 
profiles or requirements are materially different than how they were 
presented by the school, such as representations making it seem to 
students that a school is highly selective when it is in fact open 
access. The other type would have been when an institution's actual 
rankings are materially different from those advertised.
    After reviewing the proposed language following questions from the 
commenters, the Department has simplified the phrasing in Sec.  
668.72(m) concerning selectivity rates to state: ``Institutional or 
program admissions selectivity if the institution or program actually 
employs an open enrollment policy.'' This language better captures the 
concept in the first type of misrepresentation, which involves the 
false presentation of an institution as selective when it is in fact 
open access. We added ``program'' to this definition as well, to 
acknowledge that some open-access institutions have individual programs 
that are selective and thus would not trigger a misrepresentation under 
this section.
    In making this change, the Department deleted the components 
related to admissions profiles and requirements, which are vague and 
difficult to follow. We have also deleted the references to presenting 
rankings that are materially different from those presented to others. 
The Department is not aware of instances where an institution has 
presented a ranking different than what a rankings organization 
published. Instead, the Department has seen instances in which 
institutions have presented incorrect data that resulted in the ranking 
assigned being higher than it would otherwise have been and that 
ranking is then advertised accurately. Accordingly, we have simplified 
this type of misrepresentation to reflect past misbehavior observed at 
institutions.
    In response to the commenter who requested clarification on the 
Department's approach to ``highly ranked and highly selective 
programs,'' we decline to further elaborate as we have revised the 
definition of this type of misrepresentation under Sec.  668.72(m).
    Changes: We revised Sec.  668.72(m) to provide that 
misrepresentation concerning the nature of an eligible institution's 
educational program includes, but is not limited to, false, erroneous 
or misleading statements concerning institutional or programmatic 
admissions selectivity if the institution or program employs an open 
enrollment policy.

Omission of Fact

    Comments: The Department received numerous comments alleging 
instances where institutions omitted facts about their academic 
program. For example, a commenter stated that they discovered that they 
needed additional certifications and training to be employed in the 
field but only learned about this well after enrollment. This commenter 
claimed that their institution did not inform them of the additional 
requirements needed beyond the degree program, including subsequent 
training or education, and had they known, they would not have pursued 
the degree.
    Discussion: The Department appreciates hearing about the 
commenters' experiences. These reports, along with the Department's 
oversight and compliance work, validate the Department's determination 
to include an omission of fact as one of the bases for a defense to 
repayment claim. Had institutions not omitted material information 
about the nature of their educational programs, but instead disclosed 
such information upfront, this could have resulted in a different 
outcome for the student and negated the need for a defense to repayment 
claim.
    Changes: None.
    Comments: Commenters requested that omission of fact be revised so 
that an omission be considered a defense to contract performance only 
when there is knowledge that omission makes it fraudulent, or contrary 
to good faith and fair dealing, or trust and confidence.
    Discussion: We disagree with comments requesting that actionable 
omissions be required to meet conventional elements of common law fraud 
or defenses to contract performance. Many of those elements

[[Page 65925]]

are intended to ensure proof that the omission caused the harm asserted 
or formation of the relevant contract, respectively. We consider the 
general causation element added to the definition of BD and the Federal 
standard to adequately ensure a causal link between a potential 
omission and the detriment to a borrower. We also note that the breach-
of-contract basis for showing an actionable act or omission does not 
require fraud, but rather failure to perform an obligation promised in 
exchange for the borrower's decision to enroll or take out a loan or to 
accept a disbursement of the loan.
    As for the omission-related element commenters sought, we note that 
actionable omissions incorporate the definition of misleading conduct 
from part 668, subpart F, which requires that the omission make the 
school's interaction with a borrower misleading under the 
circumstances. Otherwise, we disagree that an omission must be 
accompanied by a specific duty to disclose or scienter requirement to 
be actionable. Not only would those requirements be unrealistic for 
borrowers to prove without the tools of civil discovery, but it would 
overlook the realities of transactions at the core of student loans and 
BD. In circumstances where the school's failure to disclose certain 
facts causes the borrower to be misled, such circumstances should be 
actionable. The updated regulations reflect that reality, but by adding 
a general causation element, it also ensures that defense to repayment 
is only available when such omissions are shown to have caused the 
borrower detriment.
    Changes: None.
    Comments: Commenters representing the legal aid community expressed 
support for the proposed condition in Sec.  668.75(a) about omissions 
related to ``[t]he entity that is actually providing the educational 
instruction, or implementing the institution's recruitment, admissions, 
or enrollment process.'' These commenters noted that in their work they 
have frequently found that borrowers report being dismayed when they 
find out that someone, they thought was a school employee was in fact a 
contractor. The commenters noted that these borrowers indicated that 
they would have approached the conversation with a higher degree of 
skepticism had they understood that they were speaking with a 
contractor. Similarly, the commenters stated they heard concerns from 
students who enrolled in online programs where the organization that 
designed the curriculum and provided the instruction was not the same 
as the institution under whose branding the program appeared. Other 
commenters raised concerns that this condition would confuse borrowers 
who may not understand the relationship between service providers and 
the institution, and that organizations with trusted contractors do not 
commonly require employment disclosures before discussions with 
students or prospective students. A commenter also noted that 
institutions sometimes use contractors to assist them during the 
busiest parts of the financial aid year and asked if such a situation 
would require disclosure that such a person is a contractor. That 
commenter also asked why the requirement that contractors be identified 
as third-party servicers with the Department is not sufficient to 
address this concern.
    Discussion: The Department appreciates the comments noting support 
for its proposed rule on this issue. As commenters noted through 
testimony from borrowers, had the student known they were talking to an 
employee of the institution versus someone employed to recruit on 
behalf of the school, that student would have changed their perception 
of the transaction. While that does not necessarily mean they would not 
still have enrolled, the borrowers did report that they would have 
exercised a greater degree of skepticism than they otherwise employed. 
Similarly, borrowers should be clear about who will be providing the 
education in which they are investing. When a borrower enters into a 
financial transaction as significant as attending college, they should 
have sufficient clarity into the source of the education they are 
purchasing. That means understanding if they will be receiving 
instruction provided by employees of the institution or something that 
is fully or partially outsourced. Knowing this information allows them 
to more properly evaluate what they should be receiving at the outset 
and should reduce concerns later that the education was not what was 
promised.
    With regard to the commenters who are concerned that requiring 
employment disclosures would confuse borrowers, adding the requirement 
in the Federal standard that the Department must conclude the act or 
omission caused detriment to the borrower that warrants relief gives an 
institution a framework to consider whether failing to disclose the 
role of a contractor could meet such a standard. If failure to provide 
such a disclosure does not meet this standard, then it would not result 
in an approved borrower defense claim.
    The reporting of third-party servicers to the Department is 
insufficient to address this concern. The regulations at Sec.  668.25 
provide the general framework governing the situations in which schools 
may contract with entities to help with administering the title IV 
programs but this relationship is largely unknown to students or 
borrowers; these students and borrowers view the third-party servicer 
and the institution as one and the same. Moreover, the regulations are 
intended to address the responsibilities of the institution and third-
party servicer to the Department within the context of the title IV 
programs. While both the school and the third-party servicer are liable 
for any related actions by the third-party servicer, the school is 
ultimately held accountable if a third-party servicer mismanages the 
title IV programs. As noted by the commenters, a borrower's 
understanding of whether they are talking to an employee or contractor 
when making judgments about whether to enroll is important for making a 
decision. Such information thus needs to be provided to the borrower if 
failing to tell them could cause detriment to the borrower that 
warrants borrower defense relief.
    Changes: We revised Sec.  685.401(b), the standard for a borrower 
defense to repayment, to provide that, to approve a BD claim, the 
Department must conclude that the institution committed ``an actionable 
act or omission and, as a result, the borrower suffered detriment of a 
nature and degree warranting the relief provided by a borrower defense 
to repayment as defined in this section.''
    Comments: A few commenters requested that the Department make the 
list of omissions exhaustive while deleting Sec.  668.75(e) (which 
makes actionable any omission of fact regarding the nature of the 
institution's educational programs, the institution's financial 
charges, or the employability of the institution's graduates), saying 
that category would lead to an overwhelming number of disclosures for 
borrowers. Commenters noted that an exhaustive list of omissions would 
give institutions more clarity. Similarly, a few commenters made 
general requests for greater clarity and specificity. Some also 
proposed a safe harbor for institutions if they provide documentation 
that shows students received all disclosures already required under 
other Department regulations. Other commenters asked the Department to 
either include a list of required disclosures or incorporate by 
reference the disclosures imposed by State and accrediting agencies so 
that borrowers will know what they need to

[[Page 65926]]

receive, and institutions will know how to meet agency expectations. 
Other commenters cited the types of statements they have in their 
enrollment agreements that require students to acknowledge the 
information received and that they understood it as a way of showing 
the kind of evidence they would want to submit to disprove a borrower's 
allegations.
    Discussion: The concerns of the commenters are best addressed by 
the Department's changes to the overall Federal standard that require 
the act or omission to cause detriment to the borrower that warrants 
relief. Adopting those elements will protect against the concerns 
raised by commenters, such as that the omission of an unimportant piece 
of information could lead to an approved claim. We believe our changes 
give institutions clarity in thinking about whether an act or omission 
may give rise to an approved borrower defense claim and eliminates the 
need for additional specificity within the elements in Sec.  668.75. 
The Department declines to make the list exhaustive, as the list of 
misrepresentations is similarly non-exhaustive as a way of giving the 
Department flexibility to identify other concerning acts or omissions 
that may arise over time. The proposed safe harbor or list of 
disclosures would be inappropriate because institutions are already 
required to abide by the disclosure requirements in 34 CFR part 668, 
subpart D (institutional and financial assistance information for 
students), and such a safe harbor or list would mean just following the 
Department's regulations even if the institution does so while still 
failing to inform borrowers of other critical information that is not 
explicitly provided. The Department appreciates the examples raised by 
commenters of how some institutions ask borrowers to acknowledge the 
receipt of certain information provided to them. That type of 
information would be considered during the fact-specific review of a BD 
claim.
    Changes: We revised Sec.  685.401(b), the standard for a borrower 
defense to repayment, to provide that, to approve a claim, the 
Department must conclude that the institution committed ``an actionable 
act or omission and, as a result, the borrower suffered detriment of a 
nature and degree warranting relief provided by a borrower defense to 
repayment as defined in this section.''

Breach of Contract

    Comments: Many commenters wrote in expressing support for the 
inclusion of a breach of contract standard.
    Discussion: The Department thanks the commenters for their support 
and agrees with the importance of including this as an element of an 
approved borrower defense claim.
    Changes: None.
    Comments: Many commenters opposed the inclusion of breach of 
contract and asked for its removal. They said that the Department 
lacked the statutory authority to include it. Some argued that a breach 
of contract would either be a misrepresentation or an instance where a 
college closed and that anything in between was too vague to include. A 
few commenters also argued that the Department lacked the ability to 
properly interpret State contract law and did not specify how it would 
reconcile State contract law with Federal law. Commenters also argued 
that the Department should not preempt State remedies for breaches of 
contract and noted that the lack of a limitations period for filing a 
borrower defense claim was contrary to limitations that may apply to 
contracts.
    Discussion: We disagree with the commenters who said that we lacked 
the statutory authority to include breach of contract as an act or 
omission. As we've explained throughout the NPRM and this final rule, 
Sec. 455(h) of the HEA requires the Secretary to specify in regulations 
which acts or omissions of an institution of higher education a 
borrower may assert as a defense to the repayment of a Direct Loan and 
the Department is asserting, and explains in detail,\65\ that a breach 
of contract is an appropriate act or omission to include in the 
borrower defense Federal standard.
---------------------------------------------------------------------------

    \65\ 87 FR at 41893.
---------------------------------------------------------------------------

    The commenters mischaracterize the Department's regulations. Under 
these regulations the Department will only determine whether the 
borrower has stated a basis for a BD claim on their Direct Loan based 
on the alleged breach of contract by the school. This determination 
resolves the borrower's qualification for a Federal benefit and does 
not make any determination of the rights of the parties under the 
contract itself or under the State laws which apply to those contracts.
    While we acknowledge that a breach of contract could be a 
misrepresentation, in some instances a breach of contract claim may 
very well not fit into the Department's substantial misrepresentation 
standard. Where a breach of contract does not meet the elements of 
substantial misrepresentation, borrowers would have a basis for a BD 
claim based on the institution's failure to deliver educational 
services per the contract. We also explain in the NPRM why we were 
convinced to include breach of contract in the Federal standard and 
concluded that borrowers may be able to allege breach of contract more 
readily.\66\
---------------------------------------------------------------------------

    \66\ 87 FR at 41893.
---------------------------------------------------------------------------

    We further dismiss any notion that the Department's inclusion of 
breach of contract would be too vague to include in the Federal 
standard. A breach needn't be an extreme case such as, for example, a 
closed school. Because a breach of contract is a cause of action that 
is well established with the same basic elements in the laws of all 
States, territories, and the District of Columbia, codifying breach of 
contract in the Federal standard in the area of contracts between the 
student-institution would ensure consistency and predictability in this 
area. Furthermore, it is a common practice for the standards in Federal 
regulations draw on common law concepts and principles.\67\
---------------------------------------------------------------------------

    \67\ See, e.g., 12 CFR 51.7(c) (authority of receiver of 
uninsured bank; includes powers under ``the common law of 
receiverships''); 12 CFR 109.24(c) (privileges in agency proceeding; 
includes those that ``principles of common law provide''); 20 CFR 
404.1007(a) (existence of employer-employee relationship; based on 
``common-law rules''); 26 CFR 1.385-1 (tax treatment of interests in 
a corporation as stock or indebtedness; ``determined based on common 
law''); 38 CFR 13.20 (veterans benefits; spousal relationships 
include ``common law marriage''); 45 CFR 160.402(c) (organizational 
liability for civil penalties; ``Federal common law of agency'').
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters requested that the Department clarify 
what constitutes a contract for purposes of a borrower asserting a 
defense to repayment under a breach of contract. They said otherwise 
the proposed standard is too vague and overbroad.
    Discussion: For purposes of BD, the terms of a contract between the 
school and a borrower will largely depend on the circumstances of each 
claim. As we stated in the NPRM for the 2016 regulations, a contract 
between the school and a borrower may include an enrollment agreement 
and any school catalogs, bulletins, circulars, student handbooks, or 
school regulations.\68\ 81 FR at 39341. We decline to clarify the 
elements of what constitutes a contract because that is a fact-
intensive determination best made on a case-by-case basis. We also 
acknowledge that

[[Page 65927]]

State law generally guides what constitutes a contract and that such 
laws vary among States. Similar to our position in 2016, the Department 
intends to make these determinations of what constitutes a breach of 
contract consistent with generally recognized principles applied by 
courts in adjudicating breach of contract claims. To the extent that 
Federal and State case law has resolved these issues, we will be guided 
by that precedent. Application of the standard will thus be guided but 
not controlled by State law. Moreover, the Department will continue to 
evaluate claims as they are received and may issue further guidance on 
this topic as necessary.\69\
---------------------------------------------------------------------------

    \68\ See Ross v. Creighton Univ., 957 F.2d 410, 416 (7th Cir. 
1992). In describing the limits of a contract action brought by a 
student against a school, the Ross court stated that there is `` `no 
dissent' '' from the proposition that `` `catalogues, bulletins, 
circulars, and regulations of the institution made available to the 
matriculant' '' become part of the contract. See 957 F.2d at 416 
(citations omitted). See also Vurimindi v. Fuqua Sch. of Bus., 435 
F. App'x 129, 133 (3d Cir. July 1, 2011) (quoting Ross).
    \69\ 81 FR at 75944.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter stated it was unclear if an act or omission 
in Sec.  685.401(a) must directly relate to or give rise to the breach 
of contract or must itself constitute the breach of contract.
    Discussion: Consistent with the Department's interpretation of its 
authorizing statute, the act or omission by the school must be the 
breach of contract itself. We are clarifying, however, that the breach 
of contract must be related to the BD claim.
    Changes: We revised Sec.  685.401(b)(3) to state that a borrower 
has a defense to repayment if the institution failed to perform its 
obligation under the terms of a contract with the student and such 
obligation was undertaken as consideration for the borrower's decision 
to attend, or to continue attending, or for the borrower's decision to 
take out a covered loan.
    Comments: One commenter expressed concern that the breach of 
contract standard fails to protect institutions for situations out of 
their control. They pointed to the COVID-19 pandemic, the need to move 
classes online, and the resulting lawsuits.
    Discussion: We believe that the changes we have made to the 
proposed regulations address the commenter's concern. A breach of 
contract is a defense to repayment only if the institution failed to 
perform its obligations under the contract and the obligation was 
consideration for the borrower's decision to attend or continue 
attending the institution or for the borrower's decision to take out a 
covered loan. We believe that this additional language will largely 
limit the approval of BD claims based on a breach of contract to those 
within the institution's control or those that the institution could 
have avoided.
    Changes: We revised Sec.  685.401(b)(3) to state that a borrower 
has a defense to repayment if the institution failed to perform its 
obligation under the terms of a contract with the student and such 
obligation was undertaken as consideration for the borrower's decision 
to attend, or to continue attending, or for the borrower's decision to 
take out a covered loan.

Aggressive and Deceptive Recruitment

    Comments: Many commenters approved of the Department's definition 
of aggressive and deceptive recruitment tactics or conduct (hereafter 
``aggressive recruitment'') and supported the inclusion of this 
category. They shared examples from borrowers of aggressive 
recruitment. Other commenters expressed concern that the proposed 
definition and its terminology were vague. Commenters said this could 
result in the Department approving claims even if the information the 
institution presented to the borrower was accurate and without 
omission; such commenters suggested that the Department be required to 
make a determination of reasonable, actual reliance and material harm 
to the borrower's detriment with respect to aggressive recruitment. 
These commenters alleged that the terms ``take advantage,'' 
``pressure,'' ``immediately,'' ``repeatedly,'' and ``unsolicited 
contact'' are ambiguous and further definitions are necessary to 
educate institutions and clarify what evidence would be required to 
allege or defend such a claim. Commenters raised similar concerns about 
the reference to ``threatening or abusive language or behavior.'' 
Commenters asked for more guidance on what it would take to disprove 
allegations under each prong. Commenters also raised concerns about 
what it would mean to ``take advantage'' of a student's lack of 
knowledge or experiences in postsecondary education if they were 
unaware of a given student's background or circumstances. Other 
commenters claimed the definition of aggressive recruitment is not 
supported by statute and does not provide reasonable clarity to 
students, institutions, or the public. Many commenters called for 
removing aggressive and deceptive recruitment from the Federal 
standard. Others did not call for the removal of the standard but did 
express concerns about how to distinguish aggressive recruitment from 
typical institutional contact, such as notifying students about 
impending deadlines. Along similar lines, a commenter identified 
situations where there are in fact hard deadlines for students where 
communicating urgency is important. Others also raised concerns about 
how Sec.  668.501(a)(1) would affect situations where the program does 
in fact have limited spots. Similarly, other commenters argued that the 
acts or omissions covered under subpart R would not be prohibited by 
any existing State laws. Other commenters argued that any elements that 
led to an approved borrower defense claim under subpart R would already 
be captured under misrepresentations or omissions.
    Several commenters expressed confusion about the phrasing in Sec.  
668.500(a) that says aggressive and deceptive recruitment is prohibited 
in all forms, including ``the effects of those tactics or conduct'' 
that are reflected in the institution's marketing or promotional 
materials, among other things. They said it is unclear how the effect 
of a tactic can be expressed in marketing materials. Other commenters 
suggested that Sec.  685.501(a)(3) be rewritten to require the 
institution took ``unreasonable'' advantage instead of just advantage 
of the student. Many commenters also expressed concerns about Sec.  
685.501(a)(5) saying it was unclear how failing to respond to 
information could be considered aggressive recruitment and expressing 
concerns about how to handle excessive requests for information from 
borrowers. One commenter asked for a safe harbor tied to this provision 
if they could show that an institution provided necessary information 
at some point during the enrollment process. Several commenters in the 
cosmetology sector also provided examples of mandated disclosures 
required by their accreditor in which students sign agreements noting 
that they understood provisions about an institution's programs and 
courses, among other things. They asked how that would interact with 
aggressive recruitment.
    Discussion: Section 455(h) of the HEA requires the Secretary to 
specify the acts or omissions that would give rise to a successful BD 
claim. As with misrepresentations and omissions of fact, the concepts 
underpinning aggressive and deceptive recruitment resemble many causes 
of action under State law,\70\ with the common attribute of being 
practices that prevent the consumer from making an informed decision 
free of manipulation and misinformation. The items laid out in the 
definition of aggressive recruitment provide more detailed examples of 
conduct that would fall under this

[[Page 65928]]

category, however, because States typically do not have consumer 
protection laws that are specific to postsecondary education. As the 
NPRM explained, this reflects the Department's experience that certain 
practices are particularly likely to mislead prospective borrowers, 
especially borrowers that are targeted for recruitment because of 
specific vulnerabilities.
---------------------------------------------------------------------------

    \70\ See, e.g., Kan. Stat. Sec.  50-627; Ohio Rev. Code Sec.  
1345.03; Mich. Comp. Laws Sec.  445.903; N.J. Stat. Sec.  56:8-2.
---------------------------------------------------------------------------

    We disagree with commenters who state that our definition of 
aggressive recruitment is not supported by statute and does not provide 
reasonable clarity to students, institutions, or the public.\71\ 
Section 432 of the HEA states that the Secretary has the authority to 
issue regulations deemed necessary to carry out the purposes of the 
program and to establish minimum standards for sound management and 
accountability of the programs. Furthermore, Sec. 498 of the HEA (20 
U.S.C. 1099c) provides that the Secretary determines and institution's 
administrative capability. These authorities give the Secretary 
adequate basis for defining aggressive recruitment for oversight 
purposes and as an act that would give rise to a defense to repayment 
claim.
---------------------------------------------------------------------------

    \71\ At least one comment suggested that the Department was 
somehow relying on state deceptive-practices or consumer-protection 
causes of action to incorporate this basis for relief. Although 
those types of claims may overlap with this prong of a BD claim, 
there are also many practices that could amount to cognizable state 
claims but would nonetheless fall short of a claim warranting 
discharge, refund, and the other relief provided by BD. In this 
respect, BD is not coextensive with all deceptive, unfair, or 
otherwise actionable practices that might serve the basis for a 
claim under state law. The same observations apply to comments 
asking that we adopt the CFPB's definition and application of the 
term ``abusive.'' See 12 U.S.C. 5531(b). The Department may look to 
the application of that term by the CFPB and other agencies as a 
reference.
---------------------------------------------------------------------------

    In keeping with the other grounds for BD that emphasize the 
importance of borrowers making enrollment and borrowing decisions 
uncorrupted by misinformation and manipulation, the specific conduct in 
the definition of aggressive recruitment is derived from what the 
Department has seen in its own oversight work as well as in State and 
other Federal investigations into conduct by postsecondary 
institutions.\72\ Indeed, regulators at the State and Federal level 
have long recognized that consumers may be misled not just by a 
seller's communications, but by the pressure a recruiter or salesperson 
can create.\73\ As we explain in the NPRM, we incorporated some of the 
negotiators' proposals on aggressive recruitment, consulted with the 
FTC, and analyzed other Federal laws on unfair, deceptive, and abusive 
acts or practices (UDAP).\74\
---------------------------------------------------------------------------

    \72\ See, e.g., Complaint ]] 14, 25, 65, California v. PEAKS 
Trust 2009-1, No. 20STCV35275 (L.A. Cty., Cal. Super. Ct. filed 
Sept. 15, 2020) (documenting aggressive tactics to leverage student 
borrowing decisions); S. Comm. on Health, Educ., Labor & Pensions, 
Rep. on For Profit Higher Education, S. Doc. No. 112-37, at 67-73 
(2d Sess. 2012) (similar). The Department's own findings have also 
observed the harmful effects of aggressive and deceptive recruitment 
tactics. E.g., Westwood Exec. Summary, supra note 24, at 1-2 
(``aggressive sales tactics'' paired with ``a high-pressure sales 
environment where recruiters made false or misleading statements to 
prospective students to persuade them to enroll''); ITT Tech. Exec. 
Summary, supra note 24, at 1-2 (same).
    \73\ See, e.g., 37 FR 22933, 22937 (Oct. 26, 1972) (``FTC 
Cooling-Off Rule'') (explaining the prevalence of high-pressure 
sales tactics ``designed to create . . . desire for something [a 
consumer] may not need, or cannot afford'').
    \74\ 87 FR at 41894; see, e.g., 12 U.S.C. 5531(d)(2) 
(unreasonable advantages); 15 U.S.C. 1692 (FDCPA prohibitions on 
unsolicited contacts); 940 Mass. Code Regs. 31.06(9) (declaring 
high-pressure sales tactics on the part of for-profit colleges 
unfair).
---------------------------------------------------------------------------

    We disagree with commenters who state that a BD claim that is 
approved under subpart R would be captured as a substantial 
misrepresentation or substantial omission of fact. In the NPRM, we cite 
our reason for including this new designation of acts or omissions as 
its own category. To those same points, aggressive and deceptive 
tactics capture a category that is in keeping with the other types of 
acts or omissions that are actionable, because based on the 
Department's experience, the combination of deceptive statements and 
aggressive tactics may coerce borrowers in such a way that in their 
enrollment or borrowing decisions they are similarly deprived of the 
right to make such consequential choices free of misinformation and 
manipulation. While these misrepresentations or omissions might not, on 
their own, amount to an act or omission that causes detriment 
warranting relief, when combined with aggressive sales tactics, it may 
deprive borrowers of the right to make a full and informed choice.\75\ 
Borrowers who are misled by this combination of aggressive and 
misleading conduct may otherwise be unable to successfully make out a 
BD claim under the specific grounds of a substantial misrepresentation 
or omission. Retaining aggressive and deceptive recruitment as its own 
category ensures these borrowers have a pathway to relief. There are 
also instances where aggressive recruiting on its own could lead to an 
approved BD claim even if it does not involve additional 
misrepresentations. The Department has seen instances where 
institutions use aggressive recruitment tactics such as: actively 
discouraging borrowers from seeking information from other sources; 
presenting information so quickly that borrowers cannot fully ascertain 
the true price of the program; and, failing to give the borrower the 
information and time to assess how much financial aid they would 
receive, how long the program will take, or what type of job 
opportunities they would be qualified for after completing the program. 
Such recruitment tactics could lead to a borrower enrolling without 
fully understanding the program they are purchasing and may thus end up 
spending significantly more money for the program than they expected, 
or not be qualified for the types of jobs they sought to obtain by 
enrolling in the program. As with all other possible paths to an 
approved BD claim, simply alleging acts of aggressive recruitment will 
not automatically result in an approved BD claim. Nor would all 
substantiated instances of aggressive recruitment behavior result in an 
approval. Rather, the Department would have to conclude that the 
allegation is substantiated and that the school's actions caused 
detriment to the borrower that warrants relief.
---------------------------------------------------------------------------

    \75\ 87 FR at 41894.
---------------------------------------------------------------------------

    Overall, laying out the categories of behavior that constitute 
aggressive and deceptive recruitment in a non-exhaustive list balances 
clarity for the field with enough flexibility such that other similar 
conduct identified later could also fall under this category. The 
commenters' concerns about vagueness are better addressed by the 
changes made to the overall Federal standard. The Department is 
changing Sec.  685.401(b) to require that an approved borrower defense 
claim result from a finding that the act or omission by the institution 
caused detriment to the borrower that warrants relief. This requirement 
ensures that an inadvertent or immaterial instance of what otherwise 
might seem to be aggressive and deceptive recruitment, standing alone, 
will not necessarily warrant relief, nor would the type of reasonable 
contact that the commenters described--such as a reminder of upcoming 
financial aid deadlines. Rather, relief will be available in cases 
where the practices cause detriment to borrowers for which the 
appropriate remedy is discharge, refund, and other remedies that 
accompany a successful defense to repayment. This requirement also 
provides a framework for an institution to disprove an allegation of 
aggressive recruitment since they could show how the conduct did cause 
any detriment.
    The Department did, however, identify some components of aggressive

[[Page 65929]]

recruitment where we agree with commenters that items could be deleted 
or altered to improve clarity. We edited Sec. Sec.  668.501 and 
685.401(b) to clarify our intention. We also revised Sec.  
668.501(a)(4) to remove the term ``appear to'' when referring to 
instances of aggressive recruitment when an institution or its 
affiliates obtains the student or prospective student's contact 
information through websites or other means that falsely offers 
assistance to individuals seeking government benefits. The Department 
is concerned with instances when these sites do falsely offer 
assistance, which is a clearer standard than whether they just appear 
to. We have combined Sec.  668.501(a)(1) and (2) into a single item 
related to pressuring a student to enroll, including falsely claiming 
that a student would lose the opportunity to attend the institution. 
This change addresses concerns raised by a few commenters about 
legitimate instances when there may in fact be a hard deadline for a 
student to enroll or where spaces may in fact be limited. Similarly, 
the Department has adjusted what was Sec.  668.501(a)(3) (now Sec.  
668.501(a)(2)) to indicate that we consider aggressive recruitment to 
occur when the institution takes unreasonable advantage of a student's 
lack of knowledge or experience with postsecondary education, as 
suggested by commenters--a higher requirement than just taking 
advantage of lack of knowledge. Setting a standard of ``took 
unreasonable advantage'' instead of ``took advantage'' better aligns 
these requirements with those used for similar practices laid out in 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act).\76\ That legislation defines an abusive act as one that in 
part involves taking unreasonable advantage of a consumer.\77\ The 
Consumer Financial Protection Bureau (CFPB) uses this definition in its 
work. Similarly, the FTC, CFPB, and State regulators and attorneys 
general consider whether a consumer could have reasonably avoided an 
injury in analyzing unfairness claims.\78\ These are suitable 
comparisons because they reflect how other State and Federal agencies 
address issues similar to what the Department is facing with BD claims.
---------------------------------------------------------------------------

    \76\ Public Law 111-203.
    \77\ Id. Sec.  203; 12 U.S.C. 5531(c)(1)(A).
    \78\ See, e.g., 15 U.S.C. 45(n); 12 U.S.C. 5531(c)(1)(A); Int'l 
Harvester Co., 104 F.T.C. 949, 1066 (1984); id. at 1070 (appending 
FTC Policy Statement on Unfairness); Bank of America, N.a., CFPB No. 
2022-CFPB-0004 ] 41 (July 14, 2022); State v. Weinschenk, 868 A.2d 
200, 206 (Me. 2005); Ga. Dep't of Banking & Fin., Guidance Re: 
Predatory Lending, DBF SUP 20-002, at 3 (June 4, 2020), https://dbf.georgia.gov/banks-holding-companies/publications-and-guidance.
---------------------------------------------------------------------------

    Substantively, unreasonable advantage is a different concept than a 
requirement to show that an institution took advantage of someone. It 
acknowledges that the institution or its representatives had 
information not available to the borrower that indicated the product 
being marketed--in this case a postsecondary education--was not worth 
what the borrower was going to pay for it. This has shown up in the 
past when institutions made loans to students where they had estimates 
that showed 60 percent of more of the borrowers would likely default. 
Or, when an institution marketed programs that required externships 
that it knew it did not have sufficient spots for everyone it was 
admitting. As noted above, unreasonable advantage is also a concept 
that exists at the CFPB, which provides the Department additional 
precedent to consider. By contrast, simply requiring a finding that an 
institution took advantage of someone would be harder to ascertain 
because it would create a new legal standard that may be more 
challenging to define and apply consistently. Accordingly, a standard 
of unreasonable advantage will result in more consistent 
determinations.
    Again, coupled with the requirement to show an act caused detriment 
to a student that warrants relief, this phrasing clarifies that the 
Department seeks to address conduct that falls outside normal and 
reasonable interactions and causes detriment that is appropriately 
addressed by discharging a borrower's outstanding loan balance, 
refunding amounts previously paid to the Secretary, and receiving the 
default- and credit-related relief that accompanies those two remedies. 
We also further revised Sec.  668.501(a)(4) concerning an institution 
that obtains a student's or prospective student's contact information 
through websites to include other means of communication to curb 
aggressive communications regardless of the source. We have also 
accepted the recommendation of commenters to delete proposed Sec.  
668.501(a)(5) concerning failure to respond to a student or prospective 
student's requests for more information. While institutions should 
ensure students get the information they request, we are persuaded by 
the concern that this provision lacked clarity about what information 
the institution would need to provide in response or how to address 
repeated requests for significant amounts of unnecessary information. 
Removing this requirement eliminates the need for the safe harbor 
requested by a commenter.
    The Department also agrees with the commenters that the language in 
Sec.  668.500(a) about the effect of tactics and conduct is confusing 
and will delete it.
    Finally, with respect to the disclosures raised by commenters we 
note that such information would be useful to provide during the 
institutional response process in accordance with Sec.  685.405.
    Changes: We revised Sec.  668.500(a) to delete the phrase ``the 
effects of those tactics or conduct reflected.'' We revised Sec.  
668.501(a)(1) to provide that demanding or pressuring students or 
prospective students to make enrollment or loan-related decisions 
immediately includes the conduct previously included in Sec.  
668.501(a)(2), which is now removed. We revised what is now Sec.  
668.501(a)(2) to describe that taking advantage of a borrower's lack of 
knowledge must be ``unreasonable.'' Additionally, we have removed Sec.  
668.501(a)(5) regarding failure to respond to students' requests for 
information. We made corresponding technical changes, such as 
renumbering, to reflect these edits. Finally, we revised Sec.  
685.401(b) to provide that, to approve a claim, the Department must 
find that any act or omission, including aggressive recruitment, caused 
detriment to the borrower that merits relief to assert a borrower 
defense to repayment.
    Comments: A few commenters suggested the Department expressly 
provide that unfair or abusive conduct can give rise to a valid BD 
claim and suggested that the Department adopt an ``unfair or abusive 
conduct'' standard as grounds for relief in lieu of the aggressive 
recruitment standard. The commenters further stated the addition of 
unfairness or abusive conduct is particularly important if the 
Department excludes a State law standard in the initial review of an 
application, as many State laws include a broad definition of deceptive 
trade practices that incorporates unfair or abusive conduct. The 
commenters suggested the Department could adopt a similar approach and 
import established FTC case law regarding this standard, as well as the 
abusive practices standard within the Dodd-Frank Act and the CFPB's 
application of that law to protect student loan borrowers. Other 
commenters argued that the Department has not indicated it has the 
capacity to properly evaluate claims under the aggressive and deceptive 
recruitment standard after noting in the 2016

[[Page 65930]]

regulation that it did not believe it could.
    Discussion: In 2016, the Department decided to consider aggressive 
recruitment as a factor in determining whether a misrepresentation 
under part 668, subpart F, was substantial enough to merit 
approval.\79\ Although the Department did not consider aggressive 
recruitment, standing alone, to warrant a distinct basis for a defense 
to repayment at that time, the Department's experience in the years 
since then along with developments in the law have led us to believe 
that an appropriate standard can now be articulated and enforced for BD 
and that including one as a distinct basis is a necessary addition to 
address gaps in the Federal standard.\80\ When the Department drafted 
the 2016 BD regulation it had received a significant influx of 
applications disproportionately associated with Corinthian Colleges. 
These were claims seeking discharges under an authority that had been 
used sparingly since the 1990s and the Department did not have any 
dedicated staff for reviewing those applications. For most of the 
period during the negotiated rulemaking sessions and drafting of the 
NPRM that resulted in the 2016 regulations, the Department's framework 
for reviewing borrower defense claims relied on the help of a special 
master. As such, the 2016 regulation reflected the Department's best 
assessments at the time of what would make a sensible rule based upon 
the work it had done.
---------------------------------------------------------------------------

    \79\ 87 FR at 41983.
    \80\ Ibid.
---------------------------------------------------------------------------

    The situation is very different in 2022. The Department for several 
years has had a dedicated unit that has built up expertise in reviewing 
BD claims. We have approved findings at several different institutions 
and for misrepresentations related to employment prospects, the ability 
to transfer credits, whether the program had necessary accreditation, 
and other acts or omissions. The borrower defense group staff have 
reviewed hundreds of thousands of applications. This includes 
adjudicating well over 250,000 applications, though we note that 
roughly half of those were denials that have since been challenged in 
court. As a result, we have a much stronger sense of what types of 
allegations we receive, what evidence we have obtained from borrowers 
or other third parties that have been useful in adjudicating claims, 
and what type of conduct appears to be associated with practices that 
can result in borrowers being harmed.
    Our years of experience since last considering this issue have 
shown that the recruitment process is consistently one of the most 
common concerns raised by borrowers and when many of the 
misrepresentations that lead to borrower defense approvals occurred. 
The recruitment process is thus a period that raises concerns for the 
Department that millions if not billions of dollars are being loaned to 
students as a result of a process that has not allowed borrowers to 
fully understand the educational product underlying those loans.
    The types of aggressive and deceptive recruitment covered by this 
rule represent both specific practices the Department has grave 
reservations about in addition to recruitment processes that are 
designed to exploit borrowers, incentivize manipulatively aggressive 
tactics, and are implemented at a structural and organizational level. 
The specific practices that give the Department reservations include 
gaining borrowers' contact information under false pretenses by 
pretending to be a website for receiving other Federal benefits. The 
organizational approaches that exploit borrowers are recruiting 
structures that either implement or unavoidably incentivize practices 
like using abusive or threatening language, misrepresenting decision 
deadlines to manufacture time pressure, discouraging them from 
consulting other individuals, and rushing them through the enrollment 
process.
    Today, the Department's accumulated capabilities combine additional 
experience evaluating practices generally and accumulated examples of 
aggressive and deceptive recruitment we have observed. Together, these 
give the Department confidence it can make consistent and reasoned 
decisions on whether to approve claims alleging aggressive and 
deceptive recruitment. We further explain the inclusion of aggressive 
recruitment as a basis for a defense to repayment in the NPRM, 87 FR 
41878, 41893-95 (July 13, 2022). The Department also consulted with the 
FTC and other Federal agencies to thoroughly analyze Federal laws on 
UDAP, and we believe UDAP violations could act as a relevant factor 
that would favor a finding of one of the enumerated bases for a defense 
to repayment.
    As we stated in 2016, we believe that a comprehensive Federal 
standard appropriately addresses the Department's interests in 
accurately identifying and providing relief to borrowers for misconduct 
by institutions in appropriate cases; providing clear standards for the 
resolution of claims; and, avoiding for all parties the burden of 
interpreting the authority of other Federal agencies and States in the 
BD context.\81\ We believe that our comprehensive Federal standard, 
including the inclusion of aggressive recruitment as a new basis, would 
obviate the need for Department officials to become experts on State 
UDAP laws or to stand in the shoes of State courts. Furthermore, 
consumer protection laws sweep more broadly than the circumstances 
warranting BD relief. That is, UDAP and consumer fraud laws enforce 
certain warranty and transaction-related rights intended to remedy 
injuries that are different from the injuries that warrant a discharge, 
refund, and accompanying default- and credit-related remedies provided 
by a defense to repayment. For example, a seller charging small and 
incremental hidden fees or automatically renewing memberships at 
increased rates might create a cause of action under State UDAP laws. 
But such practices would be more appropriately addressed through 
damages awards or civil penalties. Adopting State UDAP laws as a 
standard would expand BD beyond its intended purpose. As a result, we 
decline to include UDAP violations as a basis for a defense to 
repayment.
---------------------------------------------------------------------------

    \81\ 81 FR at 75940.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter requested that aggressive recruitment not 
be triggered if the student is entering a program that has a trial or 
conditional enrollment period. The commenter stated that trial periods 
of enrollment have been permissible under Department guidance (see Dear 
Colleague Letter, GEN-11-12) \82\ and serve to prevent the very kind of 
pressured decision-making that raises concerns. The commenter also 
included suggestions on altering the language about pressuring the 
student to enroll immediately, including on the same day of first 
contact to reflect the treatment of trial periods.
---------------------------------------------------------------------------

    \82\ https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2011-06-07/gen-11-12-subject-trial-periods-enrollment.
---------------------------------------------------------------------------

    Discussion: The commenter misconstrues the intention of GEN-11-12, 
which was to ensure equitable and consistent treatment of students when 
institutions offer trial periods of enrollment in academic programs, 
after which time the student would be responsible for program charges 
and would, if otherwise eligible, become eligible for title IV 
assistance.
    In general, a ``trial period'' is the beginning of the student's 
attendance in an eligible program where the institution has not 
admitted the student

[[Page 65931]]

as a regular student. While the details of each program may vary, the 
trial period of attendance is part of the eligible program, and 
academic credit earned by the student will count toward the student's 
completion of that program if the student becomes a regular student 
after the trial period. Because this trial period is part of the 
eligible program if the institution admits the student as a regular 
student after the trial period, total charges for the eligible program 
would include the trial period, and, if otherwise eligible, the student 
could receive title IV funds for the trial period. At the end of the 
trial period, the student has the option to leave, incurring nominal 
fees (such as an application fee) or no charges. If the student elects 
to continue beyond the trial period, the student is eligible for title 
IV funds back to the beginning of the program.
    The Department declines to incorporate the safe harbor provision 
that the commenter suggests. A safe harbor would allow institutions 
that have trial periods the ability to engage in aggressive recruitment 
as an act that could rise to a defense to repayment and borrowers would 
be unable to assert that conduct as an act that could give rise to a 
defense to repayment. The Department does not share the commenter's 
view that trial periods prevent the pressured decision-making 
envisioned in these regulations, because an institution could still 
engage in aggressive recruitment even if it offers a trial period. 
Regardless of whether a student decides to continue enrollment beyond 
the trial period, that student must be able to make an informed 
decision about continuing enrollment without unnecessary duress.
    While the Department disagrees with the commenter's suggestion to 
eliminate the application of aggressive recruitment altogether during a 
trial period, we have combined proposed Sec.  668.501(a)(1) and (2) 
into a single item related to pressuring a student to enroll, including 
falsely claiming that a student would lose the opportunity to attend. 
This removes the mention of enrollment on the first day, which the 
commenter had suggested removing. It also addresses other comments 
concerned about the vagueness of specific terms in Sec.  668.501(a)(1).
    Changes: None.
    Comments: A few commenters suggested revising the definition of 
``representatives'' for the purposes of aggressive recruitment.
    Discussion: We disagree with the suggestion made by these 
commenters. This language is modeled on Part 668, subpart F, which also 
mentions a representative without a definition and has been in place 
for years. The Department believes the plain meaning of this term in 
the context of the HEA and our regulations is clear and that an 
institution should know the individuals or entities acting as 
representatives on its behalf.
    Changes: None.
    Comments: A few commenters suggested better defining ``prospective 
student'' in the context of aggressive recruitment. These commenters 
state that while the intent appears to be limiting the use of deceptive 
advertising, drawing the definition of a prospective student so broadly 
as to include anyone who has viewed or received an institution's 
advertising is impractical.
    Discussion: The Department appreciates the concerns of the 
commenters, but we believe the revised definition of a BD claim 
addresses this concern. The definition of a prospective student for the 
purposes of aggressive and deceptive recruitment is the same as the one 
in Sec.  668.71. There, prospective student is defined as 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. However, there would 
still need to be an overall finding that the aggressive and deceptive 
recruitment occurred and that it caused detriment to the borrower that 
warrants relief. Those added requirements will protect against 
immaterial instances of otherwise well-meaning recruitment.
    To ensure the community has an adequate definition of prospective 
student for purposes of subpart R, the Department will incorporate the 
definition of prospective student as defined in Sec.  668.71.
    Changes: We are adding a new paragraph in Sec.  668.500(c) that 
defines prospective student for purposes of subpart R. The Department 
will incorporate the definition in Sec.  668.71.
    Comments: A few commenters wrote in noting that the provision in 
Sec.  668.501(a) related to the use of abusive or threatening language 
was reasonable. They did, however, raise concerns about the 
subjectivity of what might fall under this standard and asked for 
requirements that any approval under this prong require objective 
documentation.
    Discussion: Evaluating a BD claim is not a formulaic process. Each 
individual or group claim will raise its own allegations and evidence 
that requires a fact-specific and tailored review. Those reviews 
inevitably require judgment by the individuals reviewing the claims, 
but the process for adjudicating a borrower defense claim and the 
standards a claim must meet are designed to ensure consistent decision-
making--a process that addresses the commenters' concerns. First, the 
Department will review the application to ensure that it is materially 
complete. This will ensure there is enough detail for an institution to 
respond to the allegations. Second, the institution would have an 
opportunity to respond to those allegations. It would have an 
opportunity to both refute whether it thinks the abusive or threatening 
language occurred as well as whether if such action occurred, whether 
that action met the overall standard of causing detriment to the 
borrower that warrants relief. This produces evidence from both parties 
for consideration. Third, the Department would have to review that 
evidence. Fourth, the Department would have to conclude both that 
abusive or threatening language occurred and that the abusive or 
threatening language caused detriment to the borrower that is of a 
nature and degree that warrants relief. We believe this approach 
captures a process where the Department can make an objective 
determination as to whether a school's use of threatening or abusive 
language or behavior merits an approved BD claim under these 
regulations.
    Changes: None.

Judgments Against Institutions and Final Secretarial Actions

    Comments: Several commenters expressed support for the inclusion of 
judgments and final Secretarial actions as part of a strong Federal 
standard.
    Discussion: The Department agrees with the commenters about the 
importance of these items and appreciates their support.
    Changes: None.
    Comments: Several commenters requested that the Department remove 
judgments from the Federal standard. They argued that a judgment is not 
an act or omission. They also argued that the judgment should preclude 
additional claims to avoid violating principles of collateral estoppel, 
including granting a discharge under borrower defense.
    Discussion: The Department disagrees with the commenters. As we 
explained in the NPRM, including judgment against an institution as 
part of the Federal standard would allow for recognition of State law 
and other Federal law causes of action, but would

[[Page 65932]]

also reduce the burden on the Department and borrowers of having to 
make determinations on the applicability and interpretation of those 
laws. In addition, although a judgment is not itself an act or 
omission, it is necessarily based on acts or omissions. Relief is thus 
appropriate if those and the other factual findings essential to a 
judgment also support a BD claim.
    We also decline to incorporate a bar on borrower defense claims if 
the borrower has sought or obtained independent relief from the school 
itself. Because different underlying legal or factual bases may have 
been involved in the judgment, the borrower could still raise a defense 
to repayment and have a valid claim that the institution otherwise 
engaged in an act or omission. Likewise, there are many potential 
actions that borrowers could have against schools that provide remedies 
that complement a defense to repayment rather than supplant it. The 
Department will, however, follow established principles of collateral 
estoppel in its determination of borrower defense claims, which 
reflects past Department practice.\83\
---------------------------------------------------------------------------

    \83\ 81 FR at 75942-43.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Commenters suggested that judgments against institutions 
should be revised to clarify that the judgment must include a specific 
determination as to the act or omission of the institution that relates 
to the borrower defense claim and that the portion of the judgment 
relating specifically to the act or omission must have been favorable 
to the student borrower. Commenters also argued that solely saying a 
judgment had to be in connection with borrowing a loan was too broad 
and vague or that judgments themselves should not be sufficient bases 
for BD relief. A few commenters urged the Department to clarify that 
judgments obtained by State attorneys general are also included, even 
though such actions are not class actions, and the borrower would not 
be considered a party to the case. These commenters suggested that the 
rationale for approving a BD claim due to a contested judgment in a 
class action applies just as forcefully to a judgment obtained by a 
State attorney general. Other commenters suggested that allowing all 
favorable judgments to establish a BD claim ensures that borrowers will 
be able to obtain relief as a consequence of litigation, even if the 
judgment ultimately is uncollectible. Commenters also asked how a 
settlement that did not include an admission of wrongdoing would be 
considered.
    Discussion: The final regulations provide that judgments obtained 
against an institution based on any State or Federal law may be a basis 
for a BD claim, whether obtained in a court or an administrative 
tribunal of competent jurisdiction. Under these regulations, a borrower 
may use such a judgment as the basis for a BD claim if the borrower was 
personally affected by the judgment, that is, the borrower was a party 
to the case in which the judgment was entered, either individually or 
as a member of a class. To support a BD claim, the judgment must 
pertain to the making of a Direct Loan or the provision of educational 
services to the borrower. We do not believe that further clarification 
is necessary because the judgment, itself, would have to be connected 
to the provision of educational services for which the loan was 
provided, or the institution's act or omission relating to the 
borrower's decision to attend or continue attending the institution or 
the borrower's decision to take out a Direct Loan. Absent that 
qualifier, the borrower would not have a defense to repayment claim on 
this basis. As we explained in the NPRM, the favorable judgment against 
the institution would still be required to relate to the making of the 
Federal student loan to ensure that the scope of the judgment justifies 
approval of a BD claim. 87 FR at 41896. That is, the judgment must 
necessarily include factual findings that may stand in the place of the 
factual findings required for an approved BD claim.
    The Department does not believe that further elaboration is 
necessary regarding the inclusion of a judgment obtained by a 
governmental agency, such as a State attorney general, in the universe 
of acceptable judgments that could form the basis for a defense to 
repayment. Existing regulations at Sec.  685.222(b) provide that the 
governmental agency (in the case of a State attorney general) that 
obtains a favorable judgment against the institution based on State or 
Federal law in a court or administrative tribunal, in connection with 
the provision of educational services for which the loan was provided 
or the institution's act or omission relating to the borrower's 
attendance, could assert this basis as a defense to repayment. 
Therefore, no further clarification is needed.
    Finally, a settlement is not a judgment and thus would not be 
captured under this provision. The Department could, however, consider 
underlying evidence that may have been used, produced, or considered as 
part of a settled lawsuit's filings or proceedings as part of the 
process for adjudicating a borrower defense claim under other elements 
of the Federal standard.
    Changes: None.
    Comments: A few commenters requested that the Department clarify 
that the judgment against the school needs to relate to the BD claim. 
Another commenter requested that a judgment against an institution 
should only be considered if the basis of the judgment was due to 
conduct by the school that would give rise to a BD claim under the 
Federal standard and that the favorable judgment alone should not be 
the basis of the BD claim.
    Discussion: We concur. Consistent with our position that a breach 
of contract must relate to the BD claim, the act or omission by the 
school is the class action or judgment itself. We are clarifying, 
however, that the judgment against the school must be related to the BD 
claim. A favorable judgment against an institution, alone, from a court 
or tribunal of competent jurisdiction that was unrelated to a BD claim 
would not be sufficient.
    Changes: We revised Sec.  685.401(b)(5)(i) to state that a borrower 
has a defense to repayment if 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 based on the 
institution's act or omission relating to the making of a covered loan, 
or the provision of educational services for which the loan was 
provided.
    Comments: A few commenters suggested that the Department clarify 
what constitutes final Secretarial sanctions or other adverse actions 
against the institution in Sec.  685.401(b)(5)(ii). Other commenters 
raised questions about how the failure to meet cohort default rate 
requirements could lead to an approved BD claim. Commenters also asked 
for clarity about how an administrative capability finding could 
connect to a BD claim and said they were concerned about the breadth of 
that part of the regulations when coupled with what they described as a 
vague description of educational services. Finally, a few commenters 
raised concerns that this provision may encourage institutions to 
challenge Department findings they previously would have agreed to, 
increasing the cost to institutions and the Department around other 
oversight work. Alternatively, other commenters argued that the 
possibility of approved BD claims could force institutions to settle 
some of these actions to avoid the consequences of losing a challenge.

[[Page 65933]]

    Discussion: The goal behind the process based on final Secretarial 
actions is to clarify the connections between oversight actions taken 
by the Department and the approval of BD claims if the conduct that led 
to those sanctions would also give rise to a BD claim. To accomplish 
that goal, we have clarified the description of a final Secretarial 
action under Sec.  685.401(b)(5)(ii) to state that this will only 
encompass actions under part 668, subpart G, the denial of an 
institution's application for recertification or revoking the 
institution's provisional program participation agreement under Sec.  
668.13. We further note that those actions must be based upon acts or 
omissions by an institution that could rise to a BD under the standards 
for substantial misrepresentation, substantial omission of fact, breach 
of contract, or aggressive and deceptive recruitment.
    This exhaustive list and the explicit mention of a connection to a 
BD claim will provide the clarity requested by commenters. It also 
results in the removal of the provisions where commenters raised 
concerns about a lack of clarity.
    This list represents the most serious and significant actions that 
the Department takes against a participating institution. Institutions 
already would have significant interests in challenging these actions, 
especially those that could result in loss of participation in the 
Federal student financial aid programs. Accordingly, this provision 
does not present the risk raised by commenters that institutions might 
challenge actions they would not otherwise contest. Similarly, given 
the seriousness of these actions, it is unlikely that the possibility 
of a related BD claim will encourage institutions to attempt settlement 
just to avoid the findings.
    Changes: We revised Sec.  685.401(b)(5)(ii) to state that a 
borrower has a defense to repayment if the Secretary took adverse 
actions against the institution under a subpart G proceeding, denied an 
institution's application for recertification or revoked the 
institution's provisional program participation agreement under Sec.  
668.13 for reasons that could give rise to a BD claim under substantial 
misrepresentation, substantial omission of fact, breach of contract, or 
aggressive and deceptive recruitment.
    Comments: Commenters argued that the inclusion of final Secretarial 
actions as the basis for a BD claim did not specify any acts or 
omissions that could appropriately give rise to an approved borrower 
defense claim. They also argued that including this solely as a way of 
reducing burden was an insufficient rationale. They also expressed 
concerns about a lack of due process for final Secretarial actions.
    Discussion: The Department disagrees with the commenters. The acts 
or omissions in question would still be subject to the elements of the 
Federal standard related to misrepresentation, omission, breach of 
contract, aggressive and deceptive recruitment, or judgment. The 
inclusion of final Secretarial actions relates to drawing a clearer 
connection to when the Department already takes a final action that 
relates to those items. Doing so provides greater clarity about how, 
for example, a denial of an institution's application for 
recertification because of a misrepresentation then connects to 
borrower defense relief. As for issues related to due process, all of 
the actions contemplated in the definition of a final Secretarial 
action already provide for extensive due process for institutions. This 
includes opportunities for challenging the grounds for the action that 
would in turn also lead to the approved borrower defense claims.
    Changes: None.

State Law Standard

    Comments: A few commenters urged the Department to allow borrowers 
to assert claims under the State law standard at the same time they 
assert claims under the Federal standard. They argued that it was too 
long for borrowers to wait up to 3 years for a review under the Federal 
standard, plus an indeterminate period for reconsideration under the 
State standard. They suggested that the Department could still choose 
to adjudicate claims under the Federal standard first.
    Other commenters argued that the Department should limit 
application of the State law standard to borrowers with loans that 
would otherwise be covered under the 1994 regulations. They argued that 
the Department's rationale for including a State law standard, at most, 
justified its inclusion only for loans covered by the 1994 regulation. 
A few commenters argued for the complete elimination of the State law 
standard. Some commenters also argued against the use of a State law 
standard saying that it runs counter to the Department's arguments 
about streamlining the borrower defense process, that the Department 
lacks the ability to review State laws, and that inclusion of a State 
law standard violates principles of federalism.
    Discussion: In the NPRM, Sec.  685.401(c) provided that a violation 
of State law could form the basis for a BD claim but only upon 
reconsideration. That meant State law could only be used after a claim 
was denied in whole or in part and if the Department received a request 
for a claim to be reconsidered. Similarly, Sec.  685.407, provided that 
only an individual borrower, or a State requestor in the case of a 
group claim brought by a State requestor, could request reconsideration 
of the Secretary's full or partial denial of a claim.
    As we explained in the NPRM, during negotiated rulemaking non-
Federal negotiators proposed that violations of State law be included 
in the initial adjudication as one element of the Federal standard. The 
Department believed such an upfront analysis would be unduly burdensome 
and would delay relief to borrowers whose claims merited approval.\84\ 
The Department reasoned that a strong Federal standard in the initial 
adjudication would also minimize confusion for borrowers.
---------------------------------------------------------------------------

    \84\ 87 FR at 41907.
---------------------------------------------------------------------------

    In applying these regulations, the Department will first adjudicate 
the claim under the Federal standard in Sec.  685.401(b) which we 
believe will resolve most claims that would be approved under either 
the Federal or State standard. Where adjudication under the Federal 
standard does not result in an approval, the State law standard is 
available to certain borrowers as part of the reconsideration process. 
Where applicable, both third-party requestors and individual claimants 
will be able to request application of a State law standard upon 
reconsideration.
    The Department, however, is persuaded by both public comments and 
consideration of operational needs that determinations under State law 
should be limited to reconsideration for loans disbursed prior to July 
1, 2017. On the first point, the Department has articulated that one of 
its goals in issuing this regulation is constructing a single Federal 
standard that can ensure consistency in decision-making across all 
claims pending on July 1, 2023 or received on or after that date. 
Adopting a single Federal standard provides clarity to borrowers who 
file an application so they know what standards will apply to their 
claim. The current lack of a uniform Federal standard for all claims 
risks substantial borrower confusion regarding the necessary elements 
for a successful claim. Those elements could vary widely depending on 
the applicable state law, which might also be unclear due to ambiguity 
from choice-of-law

[[Page 65934]]

issues. Adopting a single Federal standard also provides predictability 
to institutions and ensures more consistent decision-making by the 
Department, which will be using the same policies and procedures to 
review all claims. The use of a State law standard is necessary, for at 
least some period of time, because claims filed by all borrowers with 
loans disbursed prior to July 1, 2017 would currently be subject to 
that standard. However, the number of claims in that category will fall 
over time as those loans are paid off, while the number of claims from 
more recent years will grow as time passes. The relative share of 
claims that are potentially reviewable under two sets of standards 
should thus decline over time with the structure of this final rule. 
The indefinite inclusion of a State law standard works against that 
goal. It would mean that all loans in perpetuity are eligible for 
reviews under both a Federal and a State standard. This would undermine 
the goals of simplification and consistency because the latter option 
would vary based upon their state of residence, the school's location, 
and the manner in which they communicated and engaged with the school.
    The ongoing usage of a State law standard also represents very 
significant operational challenges for the Department. For one, State 
laws frequently change. That would require the Department to regularly 
confirm laws haven't changed, and if they have, determine the dates 
that such alterations occurred and how they might affect borrowers, 
including those with pending claims. That would add a very significant 
amount of work and require the continual monitoring and analysis of all 
50 State laws, plus the District of Columbia, Puerto Rico, and the 
territories. For each claim the Department would also have to conduct a 
choice-of-law analysis and confirm that we have the evidence needed to 
apply the relevant law selected. This all adds significant time and 
complexity to the claims resolution process. The Department is 
particularly concerned about the potential added time because this rule 
limits how much time the Department may take to decide applications or 
else declare the loans unenforceable. While the timelines established 
in these regulations do not include time for reconsideration, both 
initial decisions and reconsiderations will draw from the same pool of 
resources and personnel. (The actual staff that conduct the 
reconsideration of a given borrower's claim would be different than the 
one that did the initial review). A potentially extensive number of 
reconsideration requests, all of which necessitate a more detailed 
legal review could jeopardize the Department's ability to meet the 
timelines for initial decisions or result in borrowers waiting 
inordinate periods for reconsideration decisions.
    The indefinite inclusion of a State law standard also runs the risk 
of inaccurate decision-making. Adopting a Federal standard allows the 
Department to conduct training and ensure that its reviewers are 
applying consistent approaches and protocols to claims. It is 
unrealistic to be able to train all reviewers on 50-plus State 
standards. The result is there is greater risk that the decision made 
by one reviewer may be different when considering State laws.
    For all the reasons identified above, we will keep the ability to 
bring a reconsideration request under the State law standard for loans 
disbursed prior to July 1, 2017. As noted, these borrowers already have 
access to State law review under the 1994 regulation and this leaves 
their treatment unchanged. This limitation will also result in a single 
Federal standard for all new loans issued over the last 5 years and 
into the future. Because borrowers with loans disbursed prior to July 
1, 2017, always had access to a State law standard, it is not possible 
to fully eliminate this element, as requested by a few commenters.
    Substantively, this limitation on the application of State law in 
the consideration of BD claims will not result in a material change to 
the likelihood that a borrower's claim will be approved. That is 
because the rule's unified Federal standard reflects elements of a 
variety of State laws, but its core elements--actionable conduct, 
causation, and detriment--are basic elements of fraud- or deception-
based causes of action. The Department does not believe that an 
equivalent remedy would be available to a borrower under any individual 
State standard that is not available under the Federal standard.
    Indeed, many State laws are narrower than the Federal standard. For 
instance, claims for common law fraud or violations of applicable UDAP 
statutes in many states require proof of intent, knowledge, or 
recklessness--requirements that are not present in the Federal 
standard. Many State-law causes of action also require particularized 
proof of causation-related elements such as reliance. The Federal 
standard employs a general causation element that does not force 
claimants to satisfy individual steps in the causal chain with a 
particular form of proof. Some State laws also demand a more detailed 
showing of loss or harm to the borrower than the approach adopted by 
the Department. The Department also notes that, in conventional civil 
litigation, a plaintiff may principally benefit from invoking a certain 
State law due to the additional remedies available, which is not 
relevant here, because the available remedies are the same for all 
successful BD claims.
    Therefore, the Department will limit the availability of the State 
law standard to reconsideration requests relating to loans that were 
first disbursed before July 1, 2017.
    Changes: We revised Sec.  685.401(c) to state that a borrower has a 
defense to repayment under the applicable State law standard, but only 
for loans disbursed before July 1, 2017, and only upon reconsideration 
as described under Sec.  685.407.

Limitations Period for Filing a Claim

    Comments: The Department received comments with differing opinions 
on whether borrowers should only be able to file a defense to repayment 
claim within a set period. Several commenters supported the 
Department's proposal to allow borrowers to submit a claim at any 
point. Other commenters asserted that there should be clearer statutes 
of limitations \85\ for pursuing claims. These commenters expressed 
concerns that the absence of any meaningful limitations period 
contradicts existing public and judicial policy, which strongly favors 
statutes of limitation, and they asserted that a reasonable limitations 
period would guard against the litigation of stale claims, reduce the 
risk of an erroneous discharge and spare institutions the unfair task 
of defending an old claim. Commenters also argued that it was 
unreasonable to have a statute of limitations beyond the 3-year record 
retention requirement for student financial aid records. They said the 
longer period for filing a claim means that institutions must maintain 
records for longer than would be appropriate. They also disagreed with 
the Department's position in the NPRM that the most relevant records 
for adjudicating a BD claim would not be subject to a 3-year retention 
requirement. Commenters also argued that the requirement in the 2019 
regulations that borrowers file a claim within 3 years of leaving an 
institution gave borrowers sufficient time to decide whether to raise a 
claim, especially if the act or omission in question occurred during 
the admission process and the

[[Page 65935]]

borrower attended the school for multiple years. These commenters also 
argued that, while the Department cited concerns about administering a 
statute of limitations, it did not sufficiently explain why a bright-
line standard of 3 years after leaving school was not administrable. 
Finally, commenters argued that the lack of a statute of limitations, 
coupled with the reconsideration process, meant that institutions would 
lack any finality on claims.
---------------------------------------------------------------------------

    \85\ Throughout this document, we use the term ``statute of 
limitations'' interchangeably with ``limitations periods.''
---------------------------------------------------------------------------

    Conversely, other commenters stated that many borrowers do not find 
out about their right to a discharge, or how to apply, until much 
later, which is often when the student is no longer enrolled at the 
institution, and these commenters supported the Department's proposal 
that borrowers with an outstanding loan balance would not be subject to 
a limitations period.
    Discussion: The Department has concluded that there should be no 
statute of limitations for filing a BD claim, so long as the borrower 
still has outstanding loans related to attendance at the institution 
whose conduct the borrower is asserting could give rise to a discharge. 
As long as a borrower has an outstanding loan, they still face the 
possibility of delinquency, default, and the negative outcomes 
associated with those statuses, as well as the cost of making their 
monthly loan payments.
    This position makes BD discharges consistent with all the other 
discharge opportunities available in the Direct Loan Program, such as 
closed school discharges, total and permanent disability discharges, 
and false certification discharges.
    The Department reiterates the points raised in the NPRM regarding 
the operational challenges of administering a limitations period that 
varies by State or that requires a determination of when the borrower 
knew or could credibly have known about the act or omission.\86\ With 
regard to the proposed bright-line standard of 3 years, this would 
still create operational difficulties because the starting point for a 
limitations period would still vary based on when the borrower left the 
school. The Department is also concerned that many of the schools 
against which it has approved BD claims to date have kept poor records. 
Poor record-keeping raises the risk that the limitations period--and 
ultimately the correct refund amount--would be improperly calculated 
due to mistakes by the school that cannot be corrected. This is not a 
speculative concern but is grounded in the Department's experience 
processing BD discharges. For example, the Department discovered while 
processing eligibility for discharges for former students at Marinello 
Schools of Beauty that the enrollment periods reported by the school 
and the periods covered by loans did not always line up. The Department 
also has found that some schools do not accurately report the correct 
Office of Postsecondary Education Identifier (OPEID) for locations that 
their students attended, which raises the risk of applying the 
limitations period incorrectly. For example, Corinthian Colleges often 
reported students going to campuses other than those they actually 
attended, which makes it difficult to accurately apply a limitations 
period. This is an important consideration because the Department's 
initial findings around falsified job placement rates at Corinthian 
covered different periods by the campus. Inaccurate reporting by campus 
then risks that a borrower's BD claim is subject to one limitations 
period when in fact they should be subject to a different one. 
Similarly, inaccurate recordkeeping of when a borrower enrolled would 
also risk marking someone as enrolled earlier than they actually were, 
potentially making a claim seem like it was filed outside the 
limitations period when it in fact was not. The risk then is that even 
a standard that appears to be a bright line on paper may in fact be 
inconsistently applied. This could result in the Department failing to 
refund payments to borrowers that it should have, or if it were to 
adopt a limitations period, refunding payments that in fact occurred 
outside the limitations period. The Department is also concerned that 
requiring student loan servicers, which do not have systematic access 
to BD applications or know when a BD application was actually 
submitted, to apply differing limitations periods at the borrower level 
will introduce a high risk of error, especially if loans have 
transferred among companies leaving records of when exactly payments 
were received hard to access. For instance, if a servicer has to 
discharge the loans of 1,000 different borrowers and each borrower has 
a slightly different limitations period, then they would have to engage 
in a highly manual process with significant possibility of applying the 
wrong limitations period.
---------------------------------------------------------------------------

    \86\ 87 FR at 41913.
---------------------------------------------------------------------------

    The concerns raised by institutions about the staleness of 
evidence, record retention requirements, lack of finality, and related 
issues are addressed in several ways. First, the burden is to show, by 
a preponderance of the evidence, that the act or omission meets the 
standard to approve a BD claim. The commenters do not consider how the 
passage of time would also affect the evidence that could be available 
in favor of the claim. Second, the Department has included a separate 
limitations period for the recoupment of costs associated with approved 
discharges from institutions. As noted already, claims pending on or 
received on or after July 1, 2023, will be adjudicated under this rule, 
the Department will not seek to recoup the cost of discharges on 
approved claims that are outside that limitations period. Nor, as noted 
elsewhere in this final rule, would institutions be subject to 
recoupment for conduct that occurred prior to July 1, 2023, unless such 
conduct was separately covered under the regulations for recoupment in 
effect at that time.
    The Department does not want to create a situation in which 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.\87\
---------------------------------------------------------------------------

    \87\ 87 FR at 41897.
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters said that State law claims should be 
subject to relevant State statutes of limitations.
    Discussion: We disagree. As we explain elsewhere in this document, 
we believe that that there should be no statutes of limitation for 
filing a BD claim so long as the borrower still has outstanding loans 
related to attendance at the institution whose conduct the borrower is 
asserting should give rise to a discharge. This includes acts or 
omissions that would give rise to a cause of action against the school 
under applicable State law. We find it necessary to codify this 
position in the regulatory language in Sec.  685.401(c) to make clear 
that there is no limitations period for a claim under the Federal 
standard or State law standard. The operational considerations outlined 
in the response about the lack of a limitations period for a Federal 
standard also apply with regard to State law adjudication. Furthermore, 
the operational issues would be magnified because the limitations would 
also vary by the State whose law the Department used for adjudication 
under a State law standard.
    Changes: We have revised Sec.  685.401(c) to state that borrowers 
who assert a defense to repayment under a State law standard do not 
have a limitations period for filing a claim. A borrower with a loan 
disbursed prior to

[[Page 65936]]

July 1, 2017, may assert, at any time through the reconsideration 
process, a defense to repayment under a State law standard of all 
amounts owed to the Secretary.

Exclusions

    Comments: Commenters expressed differing views on the conduct that 
should be excluded from consideration as grounds for a BD claim as 
outlined in Sec.  685.401(d). A few commenters expressed support for 
the Department's position that an institution's violation of an 
eligibility or compliance requirement in the HEA or its implementing 
regulations would not alone give rise to a BD claim. They, however, 
asked the Department to delete the phrase ``unless the violation would 
otherwise constitute a basis for a borrower defense under this 
subpart,'' deeming it unnecessary.
    Other commenters argued that the Department should explicitly state 
it is not excluding violations of civil rights laws that relate to the 
making of a Federal student loan for enrollment at the school or the 
provision of educational services. They pointed to ongoing litigation 
in cases that involve the Civil Rights Act and the Equal Credit 
Opportunity Act and noted that judgments on those grounds would give 
borrowers a defense under the Master Promissory Note.
    Discussion: The Department appreciates the commenters' ideas but 
believes that additional changes are not necessary. With respect to 
deleting the clause in Sec.  685.401(d), the Department believes this 
language is a helpful reminder that were these violations to be part of 
another ground for a BD claim, such as a misrepresentation, they could 
be included.
    We disagree with the request to include civil rights laws more 
explicitly as grounds for a BD claim. Both cases cited by the 
commenters involve allegations of misrepresentations, which are already 
a component of the proposed Federal standard. Moreover, the 
Department's Office for Civil Rights has existing statutory authority 
to address civil rights violations.
    Changes: None.

Borrower Defense to Repayment--Adjudication (Sec. Sec.  Part 685, 
Subpart D)

Group Process and Group Timelines

    Comments: A few commenters stated that the HEA does not permit the 
Department to proactively certify a group of borrowers and initiate a 
proceeding without any BD claim filed or any showing that a borrower 
relied upon or was harmed by some act or omission of the institution. 
These commenters cited the recent Supreme Court ruling in West Virginia 
v. EPA, which stated that ``[a]gencies have only those powers given to 
them by Congress, and `enabling legislation' is generally not an `open 
book to which the agency [may] add pages and change the plot line.''' 
\88\ The commenters rationalized that since Congress did not explicitly 
include a group process in the borrower defense provision in the HEA, 
then the Department should not be making radical and fundamental 
changes to the BD scheme, including initiating a group process. These 
commenters argued that the Department should remove the language 
permitting group claims.
---------------------------------------------------------------------------

    \88\ 142 S. Ct. at 2608.
---------------------------------------------------------------------------

    Discussion: The Department disagrees with the commenters' assertion 
that the proposed group process violates the HEA. The Department 
similarly rejected this argument in 2016. The Department's statutory 
authority to enact BD regulations is derived from Sec. 455(h) of the 
HEA, 20 U.S.C. 1087e(h), which states that ``the Secretary shall 
specify in regulations which acts or omissions of an institution of 
higher education a borrower may assert as a defense to repayment of a 
loan. . .'' While the language of the statute refers to a borrower in 
the singular, it is a common default rule of statutory interpretation 
that a term includes both the singular and the plural, absent a 
contrary indication in the statute.\89\ We believe that, in giving the 
Secretary the discretion to ``specify which acts or omissions'' may be 
asserted as a defense to repayment of loan, Congress also gave the 
Department the authority to determine subordinate questions of 
procedure, such as what acts or omissions alleged by borrowers meet the 
Department's requirements, how such claims by borrowers should be 
determined, and whether such claims should be heard contemporaneously 
as a group or successively, as well as other procedural issues.\90\
---------------------------------------------------------------------------

    \89\ See 1 U.S.C. 1.
    \90\ FCC v. Pottsville Broad. Co., 309 U.S. 134, 138 (1940); see 
81 FR at 75965.
---------------------------------------------------------------------------

    Congress clearly contemplated group discharges for BD claims. 
Section 703 of the Consolidated Appropriations Act of 2021 (Pub. Law 
116-260) amended the HEA to restore Federal Pell Grant eligibility 
during a period for which a student received a loan, and that loan is 
discharged ``due to the student's successful assertion of a defense to 
repayment of the loan, including defenses provided to any applicable 
groups of students.'' Clearly, Congress envisioned a group BD process, 
including a group discharge process.
    The Supreme Court's holding in West Virginia does not implicate the 
Department's inclusion of the group process to adjudicate BD claims. In 
West Virginia, the Supreme Court invalidated one aspect of the EPA's 
Clean Power Plan because the Court concluded the rule reflected a new 
and unprecedented change in how emissions would be measured, which 
would amount to a ``wholesale restructuring'' of the energy sector with 
little statutory language justifying the authority to do so.\91\ There 
is no such issue here. BD claims invoke a defense to repayment that 
Congress created and that the Department clearly has the discretion to 
define and operationalize. That legislatively created defense will 
exist irrespective of Department regulations, as will the hundreds of 
thousands of BD applications that we have received in recent years. 
That is categorically different than the EPA rule that the Supreme 
Court considered in West Virginia. Finally, a process to consider 
certain claims in groups has existed since 2016 and was confirmed by 
Congress in the 2021 amendments mentioned above.
---------------------------------------------------------------------------

    \91\ 142 S. Ct. at 2608.
---------------------------------------------------------------------------

    As noted earlier in this document, the general provisions granted 
to the Secretary in GEPA and the Department's organic act, along with 
the provisions in the HEA, authorize the Department to promulgate 
regulations that govern defense to repayment standards, including the 
initiation of a group process. And as we stated in 2016, and we 
reiterate again, in addition to giving the Secretary the discretion to 
``specify which acts or omissions'' may be asserted as a defense to 
repayment of loan, Congress also gave the Department the authority to 
determine such subordinate questions of procedure, such as the scope of 
what acts or omissions alleged by borrowers meet the Department's 
requirements, how such claims by borrowers should be determined, and 
whether such claims should be heard contemporaneously as a group or 
successively, as well as other procedural issues.\92\
---------------------------------------------------------------------------

    \92\ Pottsville Broad. Co., 309 U.S. at 138; see 81 FR 75965.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Many commenters supported the Department reinstituting 
the group process for BD claims. A few commenters stated that requiring 
States to submit an additional request for consideration of group 
discharge applications under a State law standard is unnecessary and 
duplicative.

[[Page 65937]]

    Discussion: The Department thanks the commenters for their support 
for the group process. The Department discusses the State law standard 
elsewhere in this document.
    Changes: None.
    Comments: Several commenters argued that the Department could not 
form a group claim because claims must have individual showings of harm 
or reliance in order to be approved. Some argued that the Department 
could only form a group claim in limited circumstances in which the 
acts or omissions in question did not require individualized proof.
    Discussion: As discussed in the NPRM as well as in this final rule, 
the Department disagrees that borrowers have to show individualized 
harm or reliance. There is nothing in the law that requires the 
Department to only process discharge claims on an individual borrower 
basis. The Department has in the past adjudicated group discharge 
claims where large numbers of borrowers were in the same situation. A 
group approach is more efficient for the Department and saves 
resources. Borrower defense claims are particularly appropriate for a 
group claim process since, in many cases, the error or omission of the 
institution is likely to have affected more than a single borrower and 
it would be inefficient for the Department to adjudicate large numbers 
of individual claims relying on the same facts and circumstances on a 
one-by-one basis.
    Changes: None.
    Commenters: A few commenters wrote in opposing the group claim on 
the grounds that the process lacked impartiality. They said the group 
process should require an ALJ or some other kind of neutral party. They 
argued that having the Department decide on whether to form the group 
and whether to approve it put in the role of both plaintiff's counsel 
and judge.
    Discussion: The Department disagrees with the commenters. Just like 
individual adjudications, the group process is a method for the 
Department to decide whether to discharge outstanding loan obligations 
owed by borrowers. The institution is not a direct party in that 
consideration. If the Department attempts to recoup the amount of 
approved discharges resolved through a group process, the institution 
would have a full and fair opportunity to challenge the liability 
before an independent hearing official. This is different approach from 
that adopted in the 2016 regulation in which the group claim was 
resolved in the same procedure as the determination of the 
institution's liability. In that process, the involvement of the 
hearing official made sense because the school's liability was directly 
implicated. The separation of approval from recoupment thus addresses 
the concerns about impartiality raised by institutions.
    Changes: None.
    Comments: Some commenters stated that the Department's group 
process proposal fails to specify adequate criteria for when a group 
process is appropriate. One of these commenters argued that criteria 
like commons facts and evidence was merely a threshold consideration 
and concerns like promoting compliance was vague and not a sufficient 
rationale for forming the group.
    Discussion: We disagree with the commenters. The factors laid out 
in Sec.  685.402(a) represent a sensible list of considerations that 
establish the use groups in situations in which acts or omissions were 
sufficiently widespread to affect a definable group of borrowers. While 
the commenter dismisses the concept of common facts or evidence, this 
is an important starting point. When facts, evidence, and legal issues 
are unlikely to apply group-wide, then the claims should be adjudicated 
individually. Similarly, the consideration of acts or omissions that 
are pervasive or widely disseminated adds further supports making 
group-wide determinations. Such cases are well suited for group 
treatment, which makes more sense than repeating substantially similar 
determinations in a series of individual adjudications. The list of 
factors thus represent items that speak to the core purpose of a group 
adjudication.
    We similarly disagree about the lack of clarity for group claims 
based upon third-party requests. We specify in Sec.  685.402(c) the 
criteria for when a third-party requestor may request the Secretary to 
form a group, and the documentation that must be submitted with such a 
request, including information about the group; evidence beyond sworn 
borrower statements that supports each element of the claim; and 
identifying information about the affected borrowers to the extent that 
information is available. While we customarily do not prescribe such 
granular details in regulations, we listed the application criteria in 
this instance, so requestors know exactly what to submit and the 
Department official knows what to consider in evaluating the 
appropriateness of forming a group.
    In response to the commenters' concerns, and to provide interested 
parties with even more detail, the Department has revised the 
requirement that a third-party requestor must provide evidence beyond 
sworn borrower statements that supports each element of the claim, to 
specify that such evidence must include, but is not limited to, 
evidence demonstrating that the conduct is pervasive or widely 
disseminated. While we do not prescribe what would constitute evidence 
beyond sworn borrower statements for the purposes of forming a group 
under this paragraph, we believe that this further clarification will 
provide requestors guidance while allowing the Department official to 
assess each group request on a case-by-case basis. The Secretary 
retains the authority and reserves the right to request other 
information or supporting documentation from the third-party requestor.
    Changes: We revised Sec.  685.402(c)(1) to reflect that a third-
party requestor must provide evidence beyond sworn borrower statements 
that supports each element of the claim made in the application, 
including but not limited to, evidence demonstrating that the conduct 
is pervasive or widely disseminated.
    Comments: A few commenters requested that institutions be allowed 
to review a State requestor's request to the Secretary to form a group 
under Sec.  685.402(c). Other commenters raised concerns that 
institutions would not receive copies of decisions related to group 
claim requests from State requestors.
    Discussion: As we note above, we are including a new definition of 
third-party requestors to include State requestors and legal assistance 
organizations. We agree that providing the institution an opportunity 
to review a third-party requestor's request to the Secretary would be 
valuable before determining whether to form a group. This will provide 
the Secretary adequate information to better determine whether a group 
should be formed, and if so, the proper definition of the group. After 
the institution is apprised of the third-party requestor's request to 
form a group, the institution will have 90 days to respond. 
Institutions will still be afforded the opportunity to respond to the 
Department official on any group after it is formed in accordance with 
Sec.  685.405. Institutions will also be given a copy of the decision 
on whether to form a group under Sec.  685.402(c).
    Affording this additional opportunity for institutional response to 
a group formation, as well as the changes discussed earlier to allow 
legal assistance organizations to request consideration of a group 
claim means the initial review of group requests will take longer prior 
to issuing a decision

[[Page 65938]]

on whether to form the group. The Department anticipates that the 
number of group requests will increase. Because of this new 
opportunity, the Department will adjust the deadline by which the 
Department will respond to both the third-party requestor and the 
institution under Sec.  685.402(c) to within 2 years of receipt of a 
materially complete group request. This is an increase from the 1-year 
timeline in the NPRM.\93\ The Department extended this timeline because 
the inclusion of third-party requestors from the legal assistance 
community means the possible number of requests for considering a group 
claim could be substantially higher than anticipated in the NPRM. The 
inclusion of an additional institutional response period in the group 
also increases the amount of time needed to decide whether to form a 
group. Thus, it would not be realistic to conduct a longer review on 
what could be more group claim requests within the time period 
specified in the NPRM. However, by getting additional information 
earlier in the group process, the Department will shorten the time to 
render a final decision on the group claim to 1 year following the 
formation of a group instead of the 2 years in the NPRM. 87 FR at 
42008. The result is the same overall timeline of 3 years, with the 
breakdown adjusted to better reflect the different evidence-gathering 
stages.
---------------------------------------------------------------------------

    \93\ 87 FR at 41898.
---------------------------------------------------------------------------

    Second, we will remove the set time limit for the Department to 
respond to requests for reconsideration around the formation of a group 
by a third-party requestor from the 90 days proposed in the NPRM. In 
looking further at the extent of information provided under previous 
requests for group claims and the number of potential additional group 
claim consideration requests it might receive, the Department is 
concerned that it will not be feasible to fully consider all the 
evidence that may be received in a reconsideration request within 90 
days, especially while still balancing other pending requests. 
Accordingly, we have adjusted Sec.  685.402(c)(6) to remove the 90-day 
response deadline. Instead, the Department will provide responses to 
the third-party requestor and institution after making a decision on 
the reconsideration request. This approach also mirrors the treatment 
of reconsideration decisions elsewhere in the regulation, which do not 
contain timelines for rendering a decision.
    The Department has also revised the regulations to provide that 
institutions will receive copies of all decisions that are given to 
third-party requestors.
    Changes: We have added language in Sec.  685.402(c) to provide that 
the Secretary will notify the institution of the third-party 
requestor's application that the Secretary form a group for BD 
discharge consideration. The institution will have 90 days to respond 
to the Secretary regarding the third-party requestor's application. We 
are also revising Sec.  685.402(c) to clarify that the Secretary will 
respond to the third-party requestor and the institution within 2 years 
of the receipt of a materially complete group request from the third-
party requestor. We are also revising Sec.  685.402(c) to clarify that 
the Secretary will also provide a response to both the third-party 
requestor and the institution of a reconsideration request from the 
third-party requestor to form a group. We are revising Sec.  
685.402(c)(6) to note that the Secretary will provide a response on the 
reconsideration request when a decision is reached by the Secretary. 
Finally, we revised the time frame for adjudicating a group claim in 
Sec.  685.406(g) to within 1 year of the date the Department official 
notified the third-party requestor under Sec.  685.402(c)(4).
    Comments: A few commenters asked the Department to remove the 
requirement that the third-party requestor must submit evidence beyond 
sworn borrower statements for group claim requests.
    Discussion: The Department declines to make the requested change. 
The third-party requestor process is valuable because it creates a 
formal mechanism for the Department to receive evidence that will help 
it decide whether to form a group claim. Sworn borrower statements are 
important, but to date the Department has found that the most useful 
third-party evidence also include evidence of an institution's internal 
policies, procedures, or training materials, data used to calculate job 
placement rates, marketing materials, and other similar types of 
evidence. This does not preclude a third-party requestor from also 
attaching borrower statements but setting a higher evidentiary bar for 
considering a group claim request ensures the Department receives 
strong applications.
    Changes: None.
    Comments: A few commenters argued that the Department should not be 
able to form a group that encompasses borrowers from a given State if 
that State did not request it. They stated that allowing States to 
request consideration of group claims implies that if they do not ask 
for a group claim the Department should not consider one.
    Discussion: We disagree with the commenter. The ability of States 
to request group claim consideration provides a mechanism for sharing 
evidence and information that may assist the Department. There may be 
many reasons why the Department chooses to form a group when a State 
does not request it. The Department may have evidence in its possession 
the State does not possess, or the Department could find a violation 
under the Federal standard that would not be a violation under a given 
State's law. The State request process thus complements, rather than 
precludes the Department's work.
    Changes: None.
    Comments: A few commenters claimed the Department is using the 
group process to simply get around limitations on its own oversight and 
investigatory authorities.
    Discussion: The Department disagrees. The Department already has a 
robust ability to request information from the institutions it 
oversees. The rule also provides processes for the Secretary to 
initiate group claims at his own discretion. The third-party requestor 
process simply creates a formal way for the Department to receive 
additional evidence that will ensure it is making thorough, reasoned, 
and evidence-based decisions on the claims it receives. Obtaining 
evidence in this manner will make the adjudication process more 
efficient. This group process will not replace other oversight work. 
There is no requirement that the Department attempt or conduct an 
investigation of an institution before considering a group claim 
request and so it is possible the Department will receive evidence 
related to institutions it was not previously reviewing or concerned 
about.
    Changes: None.
    Comments: A few commenters argued that borrowers should have the 
ability to opt out of a group. They likened this to provisions that 
allow individuals to opt out of class action lawsuit, saying the 
Department cannot bind absent class members. Other commenters argued 
that any group should require borrowers to opt in.
    Discussion: Being considered part of a group claim is not the same 
as class action litigation. For one, if the group claim is denied, the 
borrower would maintain the ability to file an individual claim. 
However, the Department recognizes that there could be situations in 
which a borrower may not want to want to accept the forbearance that 
comes with the formation of a group or may want to decline a discharge 
associated with an approved group claim for some reason. Accordingly, 
borrowers will have an opportunity to

[[Page 65939]]

opt out of the forbearance as well as a discharge if a group is 
approved. Borrowers may opt out of forbearance as provided in Sec.  
685.403(d)(1) or Sec.  685.403(e)(4) in the case of enforced 
collections. The Department also disagrees with the proposal to make 
borrowers opt into any group. One of the Department's concerns in 
providing a group process is ensuring that borrowers who experienced 
detriment that warrants relief as a result of the institution's act or 
omission should receive a loan discharge regardless of whether they 
file an application. This is consistent with other changes being made 
to the regulations to remove barriers for borrowers in areas such as 
providing for automatic closed school discharges. Adding an opt in 
requirement would add administrative burden and increase the likelihood 
that borrowers who are eligible for relief miss out on it. Moreover, an 
opt in process would further burden the Department without any 
corresponding benefit to the process.
    Changes: We are adding Sec.  685.408(b) to state that members of a 
group that received a written notice of an approved borrower defense 
claim in accordance with Sec.  685.406(f)(1) may request to opt out of 
the discharge for the group.
    Comments: A few commenters objected to language about forming 
groups that covered multiple schools at once, challenging how the 
Department could find commonality in such a situation.
    Discussion: The Department does not contemplate the formation of 
group claims that could cover institutions that share no common 
ownership. Rather, it is possible that the Department may end up 
forming a group claim that could cover some or all of the institutions 
within the same ownership group. The Department has seen instances 
where the company that owns multiple institutional brands exerts 
significant centralized control such that all institutions it owns use 
the same recruitment tactics or methods for calculating job placement 
rates. Whether a group claim covers some or all of the institutions 
under common ownership would depend on the underlying evidence.
    Changes: None.

Forms of Evidence

    Comments: Several commenters argued that the applications submitted 
by borrowers should be made under penalty of perjury, given that the 
Department is proposing to use that requirement for the response from 
institutions. Commenters also noted that such a requirement is 
important to ensure that institutions are not being held to a higher 
standard than students. Similarly, commenters also asked that the 
application made by State requestors be signed under penalty of 
perjury. A few commenters also proposed that State requestors be 
required to indemnify institutions for damages, including the costs of 
defending and investigating the claim, and that State requestors waive 
sovereign immunity to deter any errors in a group request. The 
commenter suggested these changes to deter the use of group processes 
to influence potential settlement negotiations between a State and an 
institution.
    Discussion: As we note above, we are including a new definition of 
third-party requestors to include State requestors and legal assistance 
organizations. The Department agrees with commenters that the 
application from the borrower and the response from the institution be 
made under penalty of perjury. In fact, the existing BD application 
already contains this requirement. Accordingly, we are updating the 
regulatory text to reflect this current practice. Similarly, we will 
adopt a requirement that group requests submitted by third parties be 
signed under penalty of perjury. This will also apply to 
reconsideration requests.
    We do not believe it would be appropriate to add the other 
requirements for third-party requestors as requested by commenters. The 
group request is a mechanism for a third-party requestor to share 
information with the Department, which evaluates what it receives and 
makes its own decision about whether to form a group. Adding the 
requirement that parties make submissions under the penalty of perjury 
sufficiently ensures the information shared under that practice is 
truthful and accurate and ensures that every external party providing 
information to the Department is held to the same standard.
    Changes: We have updated Sec. Sec.  685.403(b)(1)(i) and 
685.402(c)(1) to indicate that applications from individuals and 
requests to consider a group from a third-party requestor be made under 
penalty of perjury. We have revised Sec.  685.407(a)(4) to require 
individual claimants and third-party requestors who request 
reconsideration submit their request under penalty of perjury.
    Comments: A few commenters requested the Department clarify that a 
sworn borrower statement alone would be sufficient evidence to approve 
a BD claim.
    Discussion: As noted in Sec.  685.401(b), approving a BD claim 
requires meeting a preponderance of the evidence standard. Whether a 
given claim meets that standard will require an assessment of all 
evidence in the Department's possession. This includes evidence from 
the sworn borrower statement, the institutional response, and anything 
else in the Department's possession. Because sworn borrower statements 
are themselves evidence, there are situations where the evidence 
supporting the approval of a borrower's claim could come solely from 
the application submitted by the borrower. But identifying the 
circumstances in which that occurs can only be determined on a case-by-
case basis based upon a review of the specific evidence at hand. Given 
that the Department already spells out the process for considering 
evidence and the standards involved, there is no need for additional 
changes.
    Changes: None.
    Comments: A few commenters requested the Department confirm that, 
when the only evidence we possess is sworn statements from the borrower 
and the institution, we clarify that both those statements be given 
equal weight. The commenters also asked the Department to clarify how 
it verifies that the information provided by borrowers under a sworn 
statement is in fact accurate. They pointed to purported instances 
where institutions notified the Department of inaccuracies in a 
borrower statement and stated they were unclear if the borrower had 
addressed those concerns in the Department's adjudication process.
    Discussion: As stated in the Federal standard for BD in Sec.  
685.401(b), approving a claim requires a determination based upon a 
preponderance of the evidence. That means when the Department only has 
sworn statements from both sides, it must determine whether the 
statement from the borrower, weighed and considered against the 
opposing statement, makes it more likely than not that facts exist 
sufficient to establish all essential elements. This requires a case-
specific assessment of the evidence received. The Department also has 
the ability to request additional information from either the borrower 
or institution as needed. Accordingly, it would be inappropriate to 
conclude that the sheer presence of only having a sworn statement by 
each party inherently means that both are equal. Such a determination 
cannot occur without an actual review of the statements.
    Changes: None.

[[Page 65940]]

Institutional Response Process

    Comments: A few commenters stated that 90 days is insufficient for 
an institution to respond to a borrower's BD application or a group BD 
claim. A few commenters requested at least 180 days to respond to a 
group claim.
    Discussion: We disagree. As we explained in the NPRM, we used the 
program review process to inform our proposal in Sec.  685.405 to give 
institutions adequate time to respond.\94\ The program review process 
mirrors some of the same BD processes, and where appropriate, we 
maintained similar procedures. In this case, we believe 90 days is a 
sufficient time for an institution to respond, and it is already twice 
as generous as the response time afforded to a school during a program 
review.
---------------------------------------------------------------------------

    \94\ 87 FR at 41901.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter stated that as the regulations are written, 
there is nothing to guarantee a 90-day period for the institution to 
respond to a BD claim and suggested that the Department could impose a 
more abbreviated time frame at the Department's discretion.
    Discussion: The Department is clarifying that institutions will 
have 90 days to respond to a BD claim. Although we explicitly stated 
that institutions would receive 90 days to respond, including our 
rationale for doing so, we are convinced that we need slight 
modifications in the regulatory text.\95\
---------------------------------------------------------------------------

    \95\ 87 FR at 41901.
---------------------------------------------------------------------------

    Changes: We revised Sec.  685.405(b)(2) to state that the 
Department official requests a response from the institution which will 
have 90 days to respond from the date of the Department official's 
notification.

Process Based on Prior Secretarial Actions

    Comments: A few commenters expressed support for the inclusion of 
approving BD claims tied to final Secretarial actions. Other commenters 
expressed opposition to the proposal to approve BD claims for borrowers 
based upon prior Secretarial actions. They argued that the proposed 
text did not specify the acts or omissions that would give rise to an 
approved BD claim. Other commenters requested greater specificity as to 
the types of prior actions that would be covered by this section and 
were concerned that some topics mentioned, such as administrative 
capability, were quite broad.
    Commenters also argued that tying other Secretarial actions to BD 
claims could result in more lawsuits on those actions rather than 
settlements since it would be more worthwhile for an institution to 
challenge those actions. Conversely, other commenters argued that 
approvals tied to prior Secretarial actions could encourage too many 
settlements so that institutions could avoid the threat of a group 
claim. Commenters also raised concerns about the lack of due process 
procedures for claims under this process.
    Discussion: We appreciate the support from commenters in favor of 
including BD claim approvals tied to final Secretarial actions. We 
believe the commenters opposed to this treatment of final Secretarial 
actions misconstrued our position in suggesting that that we did not 
specify the acts or omissions that could give rise to an approved BD 
claim. As we stated in the NPRM,\96\ Sec.  685.404 establishes a 
process by which we could consider prior Secretarial actions in the 
context of forming and approving group BD claims. We outline the acts 
or omissions that could give rise to a borrower defense to repayment in 
Sec.  685.401.
---------------------------------------------------------------------------

    \96\ 87 FR at 41901.
---------------------------------------------------------------------------

    The Department appreciates the questions from commenters about 
exactly what types of final actions fall under this process. We updated 
the Federal standard in Sec.  685.401(b)(5)(ii) to create an exhaustive 
list of the types of actions that fall under this standard. Those are 
actions taken under part 668, subpart G, action to deny the 
institution's application for recertification, or revoke the 
institution's provisional program participation agreement under Sec.  
668.13, if the institution's acts or omissions tied to those final 
actions could give rise to a BD claim under Sec.  685.401(b)(1) 
(substantial misrepresentation), (b)(2) (substantial omission of fact), 
(b)(3) (breach of contract), or (b)(4) (aggressive recruitment). We 
provided a longer discussion of why we are making this change in the 
Definitions section of responses to comments. However, we note that 
those listed actions are the most serious actions that the Department 
can take against an institution. All also provide ample due process 
before they are final. When the Department initiates an action under 
part 668, subpart G the institution can request a hearing before an 
independent hearing officer, and the proceedings vary depending on if 
the proposed action is a suspension, fine, emergency action, or a 
limitation or termination action. But every action includes the 
opportunity for the institution to present evidence, as well as the 
possibility of in-person or written testimony by fact or expert 
witnesses. The hearing officer's decision may be appealed to the 
Secretary. And, since employing those actions for a BD claim requires 
them to be related to conditions that could give rise to an approved 
claim due to misrepresentation, omission of fact, or aggressive and 
deceptive recruitment, the addition of another institutional response 
process would repeat an opportunity to rebut the Department's 
arguments.
    Because we have moved the definition of what actions would fall 
under this process to Sec.  685.401(b)(5)(ii), we have removed the 
additional clarifications that were in paragraphs (a)(1) through (5) of 
Sec.  685.404.
    Changes: We have updated the definition of a final Secretarial 
action in Sec.  685.401(b)(5)(ii) to limit this provision to actions 
under part 668, subpart G, to action denying the institution's 
application for recertification, or revoking the institution's 
provisional program participation agreement under Sec.  668.13, based 
on the institution's acts or omissions that could give rise to a BD 
claim under paragraphs Sec.  685.401(b)(1) through (4). We removed 
paragraphs (a)(1) through (5) of Sec.  685.404 and the actions that 
fall under this category are now listed in Sec.  685.401(b)(5)(ii).
    Comments: Commenters suggested that only Secretarial final actions 
initiated, finalized, and resolved after the effective date of these 
regulations should be subject to being employed as a basis to initiate 
a group process under Sec.  685.404.
    Discussion: We disagree with these commenters with respect to the 
approval of BD claims filed by borrowers but agree with the commenters 
regarding recoupment actions against institutions. The purpose of 
including a process based on Secretarial actions was to codify a 
process that better integrates the Department's oversight and 
compliance work with the adjudication of a BD claim. Doing so minimizes 
the duplication of work, as institutions would have already had 
multiple opportunities to respond to similar sets of findings in final 
actions that could give rise to a defense to repayment claim. In short, 
it streamlines the process to form groups for the purpose of 
adjudication. As these regulations bifurcate the adjudication and 
recovery processes, the recoupment of amounts discharged is conducted 
in a separate proceeding independent of the Secretarial final action 
described here. Additionally, because there is no time frame for a 
borrower to submit a claim, it would not be prudent to restrict final

[[Page 65941]]

Secretarial actions for purposes of forming groups on or after the 
effective date of these regulations.
    As we explain elsewhere in this document, the Department will not 
attach any new liability for institutions to actions or transactions 
that were permissible when the events occurred. Thus, the formation of 
groups under Sec.  685.404 exists independent of any recovery action 
that the Secretary could take after discharging a loan. To allay 
institutions' concerns, the Department codified in Sec.  685.409 that 
we will only initiate recovery proceedings for loans first disbursed 
after the effective date of regulations if we would not separately 
approve claims and initiate recovery under the relevant regulation in 
effect at the time.
    Changes: None.
    Comments: One commenter stated that the Department does not explain 
why an institution's loss of eligibility due to its cohort default rate 
(CDR) should result in an approved BD claim.
    Discussion: After further review, we concur with the commenter. 
While failing to meet the cohort default rate standards for continued 
participation in the Direct Loan Program is concerning, there is not an 
immediate connection between that occurrence and the types of acts and 
omissions that would give rise to a borrower defense claim. As such, we 
do not think it would be appropriate to draw such a connection. If an 
institution's high default rates were attributable to 
misrepresentations, omissions, or other actions that would be better 
captured by the Department's separate review of relevant evidence, then 
that evidence, not the cohort default rate, would be the grounds for 
considering a BD claim.
    Changes: We removed an institution's loss of eligibility due to its 
CDR as a final action that the Department official may consider when 
forming a group in Sec.  685.404.

Record Retention

    Comments: Many commenters stated that institutions cannot be 
expected to, and do not, maintain the range of records required to 
defend a claim in perpetuity. These commenters also cite guidance from 
the Department and other Federal and State agencies to destroy data 
when they are no longer needed in the interests of data security, 
observing that, the longer data is retained, the more likely it is to 
be breached.
    Thus, a few commenters proposed a 3-year limitations period for a 
borrower to bring a claim which would align to the general record 
retention period that institutions must adhere to regarding title IV 
records. A few commenters also disagreed with the Department's 
statement in the NPRM that the financial aid records subject to the 3-
year records retention requirement were less likely to be relevant in 
adjudicating a claim than other records.
    Discussion: The Department acknowledges the importance of records 
management, including the proper disposition of records when they are 
no longer needed and the appropriate transfer of such records for 
preservation. As we stated in the NPRM, the Department does not 
contemplate new record retention requirements.\97\ It is unlikely that 
the records subject to the general 3-year record retention period in 
Sec.  668.24 would be the most relevant records in question to 
adjudicate the BD claim. To date, most approved borrower defense claims 
have centered on evidence related to recruitment and admission 
practices, advertising campaigns, brochures, and handbooks. Specific 
student financial aid records have not been nearly as critical. 
However, if institutions are concerned about their ability to defend 
themselves from a BD claim, there is no prohibition on retaining 
records longer than the 3-year period. As we stated in 1996, which 
remains true now, records may always be retained longer than required 
by regulation.\98\ Proper management of records to ensure data security 
and protecting institutions against claims and liabilities need not be 
mutually exclusive, and the Department believes institutions can 
accomplish these goals simultaneously.
---------------------------------------------------------------------------

    \97\ 87 FR at 41902.
    \98\ 61 FR at 60495.
---------------------------------------------------------------------------

    We explain our rationale for not imposing a limitations period for 
a borrower to file a BD claim elsewhere in this document under the 
``Limitations Period'' section.
    Changes: None.

Borrower Status During Adjudication/Forbearance/Stopped Enforced 
Collections

    Comments: Several commenters expressed concerns related to pending 
or undecided BD claims and stated borrowers should not have to choose 
between submitting claims and ballooning debt. These commenters 
suggested stopping interest accrual on individually submitted BD claims 
immediately instead of 180 days after the date of submission.
    Discussion: As we explained in the NPRM, under current practice, we 
cease interest accrual once a claim has been pending for 1 year. In 
Sec.  685.403, we reduce that time frame to 180 days.\99\ The 
Department reiterates its view that allowing interest to accumulate for 
some period is an important measure to encourage borrowers to submit 
the strongest application they can since a borrower would risk several 
months of interest accumulation. For a borrower whose claim is 
ultimately approved, the accumulation of interest during this 180-day 
period is moot since it would be discharged anyway. Thus, the effect of 
the interest accumulation, which has been significantly reduced, will 
only be felt by a borrower whose claim is denied. Moreover, the 
Department notes that the elimination of interest capitalization when 
not required by statute will also mean that the borrower will not have 
this unpaid interest added to their principal balance. Allowing 
interest to accumulate for 180 days thus strikes a balance between 
giving a borrower a strong financial incentive to file the strongest 
possible claim, without making the financial risk of having a claim 
denied so great that a borrower would be dissuaded from applying if 
they do have a strong claim.
---------------------------------------------------------------------------

    \99\ 87 FR at 41903.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter stated that the Department should not grant 
forbearance (or stop collections) on a borrower's FFEL loans while the 
Department adjudicates a BD claim. They recommended that the applicable 
section and reference on granting forbearance or stopping collections 
refer only to Direct Loans and not title IV loans generally.
    Discussion: The Department disagrees with the commenter and 
declines to incorporate their recommendation. As explained in the NPRM, 
see 87 FR at 41903, the Department is concerned that stopping 
collections on some loans but not others would be confusing for 
borrowers. By placing all of a borrower's loans in forbearance or 
stopped collection status, the Department would be able to automate the 
adjudication process more easily. Section 682.211(i)(7), for example, 
already requires FFEL lenders to put a FFEL borrower in forbearance 
upon notification from the Secretary while the Department official 
adjudicates the BD claim. Placing all of a borrower's loans into a 
forbearance (or stopped collections status in the case of a defaulted 
loan) gives these borrowers parity across all of their title IV loans 
and minimizes confusion. Non-Direct Loans could be consolidated into a 
Direct Loan, which could be discharged after a successful defense to 
repayment claim. Were the Department to limit forbearance or stopped 
enforced collections only to Direct Loans, borrowers could be harmed by

[[Page 65942]]

continuing loan payments, continuing to accrue interest, or facing 
enforced collections while their BD claims are adjudicated.
    Changes: None.

Timelines To Adjudicate

    Comments: Many commenters supported our proposal to include 
definitive timelines to adjudicate a BD claim. However, some of these 
commenters suggested that 3 years is too long for a borrower to wait 
for a decision and suggested 1 year as a more appropriate time frame. 
Yet another set of commenters suggested that the adjudication clock 
should begin from the time the Department receives an application.
    Other commenters believed that the timeline to adjudicate is 
concerning as institutions do not have control over the timeline the 
Department may choose to process a claim. These commenters stated that 
deeming loans unenforceable after a certain time frame is a misuse of 
tax dollars and wasteful. One commenter argued that the timelines to 
decide on a claim would encourage all borrowers to file a claim in the 
hopes of overwhelming the Department. Similarly, another commenter 
pointed to program reviews that have taken as long as 5 years as 
evidence that the Department would not be able to decide claims within 
3 years.
    Discussion: We thank the commenters for their support and reiterate 
our goal of giving borrowers decisions in a timely fashion. As the 
Department has observed in its analysis of BD applications, many 
borrowers waited many years to have decisions rendered on their BD 
claims.\100\ With the timelines in these regulations, the Department 
commits to continue its work to process and approve or deny claims.
---------------------------------------------------------------------------

    \100\ 87 FR at 41946.
---------------------------------------------------------------------------

    While a few commenters believe 3 years is too long for a borrower 
to wait for a claim to be decided (in the case of an individual 
claimant), we reiterate that a thorough review of a claim cannot be 
achieved in a few weeks; we also reject the proposal to reduce the time 
to adjudicate claims to 1 year. The BD process requires many 
administrative steps, including identifying borrowers in the case of a 
group; collecting information pertinent to the claim; providing the 
institution an opportunity to respond; placing the borrower's loans in 
the appropriate status; reviewing what can be an extensive evidentiary 
record; making a recommendation to the Secretary; and issuing a 
decision. To mitigate risk of financial harm to borrowers who filed a 
claim, the Department will place all of a borrower's loans in 
forbearance or cease mandatory enforcement collections, with interest 
accrual ceasing either immediately (in the case of a group claim) or 
after 180 days from the date the borrower was placed in forbearance or 
stopped enforced collections. The Department also added a provision in 
Sec.  685.406(g)(5) that after the timelines expire, the loans covered 
by the claims that do not yet have a decision would be unenforceable. 
Collectively, these guardrails provide adequate protection to the 
borrower while giving the Department time to thoroughly adjudicate the 
claim.
    With regard to the commenters who expressed concerns about the 
Department not being able to handle the number of possible claims, we 
believe the changes made to a materially complete application will 
address this concern. While not erecting major barriers, this 
requirement will ensure that borrowers provide sufficient details about 
the institution's acts or omissions such that there will be a baseline 
level of quality in applications that go through the full adjudication 
process and that those applications contain the details needed to 
fairly adjudicate them. The goal of ensuring applications contain 
sufficient information for adjudication is reflected in existing 
regulations permitting the Department to seek further details from the 
borrower; \101\ the provisions on materially complete applications give 
more affirmative guidance to applicants on the level of detail that an 
application should include.
---------------------------------------------------------------------------

    \101\ See, e.g., 34 CFR 685.222(e)(1)(ii) (``an individual 
borrower must . . . [p]rovide any other information or supporting 
documentation reasonably requested by the Secretary'').
---------------------------------------------------------------------------

    In this context, the Department recognizes that the interaction of 
the materially complete application provision and regulation's July 1, 
2023 effective date for then-pending applications could cause confusion 
surrounding the timeline for a borrower to receive a decision. To 
address this concern, we have clarified that the timeline for a 
decision on an individual application will be the later of July 1, 2026 
or 3 years from the date the Department determines the borrower 
submitted a materially complete application. For applications that are 
pending on July 1, 2023, and that are not materially complete--that is, 
applications that lack sufficient information to adjudicate the claim--
the Department will contact the applicant with an explanation of the 
details needed to make out a materially complete application. This, 
however, is not a novel requirement or a departure from existing 
standards. The material-completeness threshold merely sets forth 
clearer guidance on the details needed to facilitate continued 
adjudication. Indeed, under existing regulations, applications that 
lack such details would prompt a request for further information or 
have a higher likelihood of a denial.\102\
---------------------------------------------------------------------------

    \102\ See, e.g., 34 CFR 685.206(e)(8), 222(e)(1)(ii).
---------------------------------------------------------------------------

    With respect to the commenter who suggested that the timeline 
should begin upon receipt of an application, we decline to adopt this 
proposal. Determining that an application is materially complete 
ensures the Department has the information it needs to fully review a 
claim under the Federal standard. An incomplete application may be 
missing key details that must be received to continue the process. 
Having the Department bind itself with deadlines for review of claims 
thus makes the most sense to start from when the borrower has given us 
enough information to start other parts of the adjudication process, 
such as the institutional response.
    We understand that commenters are concerned about timelines over 
which institutions may feel they have no control. When crafting these 
timelines, however, we considered the institution's stake in the 
lifecycle of a BD claim and have made adjustments described elsewhere 
in this document to accommodate institutional concerns. We believe that 
the timelines in these regulations provide all parties concerned an 
opportunity to be heard in the BD adjudication process.
    Finally, while we acknowledge concerns from commenters that deeming 
loans unenforceable if the Department is unable to meet prescribed 
timelines may result in a cost to the taxpayer that cannot be recouped, 
the Department's goal is to ensure claims are adjudicated within the 
prescribed timelines and thus no costs are ultimately incurred from 
these deadlines.
    Changes: We have adjusted Sec.  685.406(g)(1)(ii) to note that the 
timeline for a decision on an individual application is the later of 
July 1, 2026 or 3 years after the Department determines that the 
borrower submitted a materially complete application.
    Comments: Commenters noted that the regulations lacked clarity on 
what it means for a loan to be unenforceable. Other commenters 
expressed concern that institutions could be subject to a recoupment 
action on loans deemed

[[Page 65943]]

unenforceable without any due process protections. Some other 
commenters expressed concerns that an unenforceable loan would not 
receive all the benefits of a discharge, such as updating credit bureau 
reporting and restoring federal student aid eligibility for borrowers 
in default. They also recommend clarifying the treatment of loans not 
covered by the BD claim.
    Discussion: The Department is clarifying the steps it will take 
after a loan is determined to be unenforceable. If the Department fails 
to meet the adjudication timelines in Sec.  685.406, any loans covered 
by the BD claim will be considered unenforceable. For consolidation 
loans, this would mean the portion of the underlying loans in the 
consolidation loan attributed to the BD claim. The Secretary will not 
require the borrower to repay the loans covered under the BD 
application, but it will not be considered an approved BD discharge. 
Consequently, the Department will not initiate or attempt recovery 
proceedings against the institution for loans deemed unenforceable 
under that section.
    The commenters are correct that there are some differences between 
an approved claim and a loan deemed unenforceable, which is another 
reason why the Department is committed to making decisions on claims 
before the time limits are reached.
    Moreover, as we discuss elsewhere in this document, we would 
provide copies of the written decision to the institution so the 
institution will be aware of the status of the claim. We will also 
commit to giving the institution an interim update as we do for 
borrowers.
    Changes: We have revised Sec.  685.406(g) to provide interim 
updates to an individual claimant, the third-party requestor under a 
third-party requested group formation, and the institution contacted 
for the institutional response, that will report the Secretary's 
progress in adjudicating the claim and the expected timeline for 
rendering a decision on the claim. We have added language to Sec.  
685.406(g)(5) to clarify that an institution will not be liable for a 
loan deemed unenforceable against the borrower.

Process To Adjudicate Borrower Defense Claims

    Comments: A few commenters acknowledged that the proposed rules 
made significant improvements to the BD process by including a group 
process but expressed concern for applications adjudicated in the 
process for individual claims. These commenters suggested the 
Department consider other applications raising similar claims when 
adjudicating individual applications, so that the individual review 
process would mirror the group claim process; explicitly state that 
borrower attestations alone may be sufficient to substantiate a claim 
for relief; and explicitly state that the Department will apply a 
presumption of reliance when assessing individual applications.
    Discussion: Individual borrowers have a full opportunity to file 
individual BD claims under these regulations. However, as we explained 
in the NPRM, the Department's recent experience with a significant 
influx of individual BD applications has convinced the Department that 
State partners can provide critical information in assessing BD 
claims.\103\ Given this history, the Department believes that the group 
process, where warranted, provides the most efficient way to resolve 
claims for all parties--the borrowers, the institutions and the 
Department. The Department reserves the Secretary's right to form a 
group, including the ability to consolidate multiple individual 
applications as provided in Sec.  685.402(b)(3).
---------------------------------------------------------------------------

    \103\ 87 FR at 41899.
---------------------------------------------------------------------------

    The Department already explicitly states in the NPRM that the 
application itself, including the borrower's sworn statement, is a form 
of evidence. The Department has not deviated from this position and 
will consider the application as one of several components in the 
adjudication of a BD claim. Similarly, although the Department has 
updated the presumption applied to groups, it has not deviated from its 
position that, based on supporting factual evidence, it will apply a 
presumption that actionable acts or omissions affected each member of a 
group considered collectively.\104\ With respect to applying the 
presumption to individual claims, the updated BD definition and its 
straightforward causation element address the concerns of comments 
seeking an individual presumption of reliance to avoid a barrier to 
relief reflecting mere formalism. That is less of a concern because 
individual claims will be assessed for whether the facts indicate the 
alleged acts or omissions caused the borrower detriment, rather than 
insisting on borrowers pleading specific technical terms. We discuss 
this topic further in the ``Federal Standard'' section.
---------------------------------------------------------------------------

    \104\ 87 FR at 41892.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Several commenters requested that the Department adopt a 
liberal pleading standard when adjudicating an individual BD claim. In 
those requests, the commenters refer to pleading standards for pro se 
litigants in civil courts. The commenters believe that individual BD 
claimants warrant a similarly liberal standard for their BD 
applications because their experience and risk of confusion resembles 
that of pro se litigants in civil court.
    Discussion: The Department believes that the improved processes 
included in these regulations and additional guidance provided to 
facilitate applications together will provide sufficient direction for 
borrowers to submit materially complete applications for BD. The 
Department believes that individual claimants will not need specialized 
legal expertise or training to file an individual BD claim under these 
rules. As we state in the NPRM, the BD application and accompanying 
sworn statements are forms of evidence.\105\ Likewise, the details 
required for an individual application to be materially complete are 
all comprised of information that is readily available for an 
individual borrower without the assistance of a legal advocate. The 
Department official will adjudicate the claim upon receipt of a 
materially complete application from an individual claimant, along with 
information from the institution from the institutional response 
process and records within the Secretary's custody. Under Sec.  
685.403(b)(2), the Department can request more information from an 
individual borrower to materially complete the application, including a 
request to provide more information on some of the acts or omission 
that the borrower has alleged when a more robust narrative would give 
the Department a better understanding of what took place.
---------------------------------------------------------------------------

    \105\ 87 FR at 41900.
---------------------------------------------------------------------------

    While the Department requires a materially complete application 
from an individual claimant to continue with adjudication, an otherwise 
complete application does not require legal analysis from the borrower. 
Although an individual's claim must still meet the same evidentiary 
standard whether or not represented by counsel,\106\ individual 
adjudications will take into account the institution's response and 
potentially other information about the institution in the Department's 
possession, and even if the individual claimant does not capture the 
act or

[[Page 65944]]

omission in precise terminology, the Department will make appropriate 
inferences based on the information available to it. Furthermore, the 
information available to the Department may include evidence from other 
sources, such as third-party requestors, investigations or reviews by 
the Department or other authorities, or other sworn applications. In 
effect, the Department's process for evaluating and adjudicating an 
individual claim already provides flexibility that incorporates the 
same principles motivating pro se pleading standards but is tailored to 
the BD process. Finally, it would not be appropriate to expressly adopt 
a standard applied in civil courts, because the requirements for 
submitting a BD application and the consequences of potential 
deficiencies differ from those applied under the Federal Civil Rules, 
State analogues, and various jurisdictions' local rules.
---------------------------------------------------------------------------

    \106\ This reflects the approach to pro se litigants under the 
Federal Rules of Civil Procedure, which provide for the liberal 
construction of a pro se litigant's filings, but do not apply a more 
lenient evidentiary standard. See Fed. R. Civ. P. 59; see also, 
e.g., Dunbar v. Foxx, 246 F. Supp. 3d 401, 414 (D.D.C. 2017).
---------------------------------------------------------------------------

    Therefore, we decline to alter the regulations or to expressly 
adopt a pro se pleading standard applied in civil courts, because the 
regulations afford sufficient flexibility to address these concerns.
    Changes: None.
    Comments: A few commenters observed that if the Department official 
requires additional information to adjudicate a claim, institutions 
must respond to a request within 90 days, whereas individual claimants 
must respond within a reasonable time frame. These commenters stated 
that the Department should not treat institutions and individual 
claimants differently.
    Discussion: After further review, the Department concurs and 
believes 90 days is a reasonable time frame for an individual claimant 
to respond to a Department official's request for additional 
information. The Department believes 90 days is an adequate time for 
both the institution and the individual claimant to respond to a 
Department official's request for additional information that maintains 
parity for all parties.
    In its proposal to give institutions 90 days to respond, the 
Department aligned the maximum time afforded to schools in the program 
review process.\107\ When a borrower files a complaint with the 
Ombudsman in the FSA Feedback System, the borrower generally must 
respond within 60 days to the Ombudsman's request for additional 
information. Responding to such a request is similar to the Department 
seeking feedback from an individual to resolve a BD claim. Therefore, 
the Department will give both the institution and the individual 
claimant the maximum time frame, 90 days in this case, to respond to a 
request for additional information.
---------------------------------------------------------------------------

    \107\ 87 FR at 41901.
---------------------------------------------------------------------------

    Changes: We revised Sec.  685.406(d) to provide that if the 
Department official requires additional information from an individual 
claimant, that individual must respond within 90 days.
    Comments: A few commenters requested that the Department require 
the submission of factual information to refute vague or emotional 
claims. A few commenters stressed that a borrower's application must 
contain sufficient explanation so the institution can understand 
exactly what is being alleged, by whom, and the basis of the claim. 
Another commenter urged the Department to adopt a plausible basis 
requirement for claims and specify that pleadings offering formulaic 
recitation of the elements of a cause of action would be insufficient. 
Other commenters noted that the definition of what constitutes a 
materially complete application was not sufficiently clear. A few 
commenters also recommended deleting the mention of a materially 
complete application.
    Discussion: The Department shares commenters' desire to provide a 
process that generates useful information for the Department official 
to fairly adjudicate a claim. As we state elsewhere in this document 
and in the NPRM, we recognize that the application itself is a form of 
evidence.\108\ However, the entire record needs to sufficiently and 
adequately describe the underlying conduct serving as the potential 
basis for relief to allow the Department official to fully consider the 
claim.
---------------------------------------------------------------------------

    \108\ 87 FR at 41900.
---------------------------------------------------------------------------

    After further consideration, we believe that BD claims from 
individual claimants need clearer standards so that such individuals 
have a clear understanding of what information is needed by the 
Department prior to adjudication. To that end, the Department will 
determine an individual's application to be materially complete when 
the application contains: a description of one or more acts or 
omissions by the institution; the school or school representative to 
whom the act or omission is attributed; approximately when the act or 
omission occurred; how the act or omission impacted the borrower's 
decision to attend, to continue attending, or to take out the loan for 
which they are asserting a defense to repayment; and a description of 
the detriment they suffered as a result of the institution's act or 
omission. Laying out these concepts will also guide borrowers in 
creating the strongest claims possible and avoid denial of a valid 
claim because the borrower did not provide greater detail upfront. We 
reiterate, as we state elsewhere in this preamble, that an otherwise 
complete application lacking a legal analysis will not preclude 
adjudication. However, we believe it is reasonable to require an 
individual claimant to tell their story so the Department official can 
adjudicate the claim. By requiring all the aforementioned information, 
the Department believes it has created a framework that minimizes the 
likelihood of vague or emotional claims as suggested by the commenters. 
We also believe that the inclusion of the aforementioned information 
will be sufficient to allow the institution to understand and respond 
appropriately to the BD claim. Finally, by identifying the elements of 
a materially complete application package for an individual claim, we 
believe we have crafted a process that will result in a sufficient 
record to adjudicate, and we decline adopting any further requirements 
that would add unnecessary hurdles for a borrower to assert a defense 
to repayment.
    Changes: We revised Sec.  685.403(b) as described above to provide 
that the Secretary shall consider an individual BD claim to be 
materially complete when the borrower submits an application under 
penalty of perjury with the information enumerated in Sec.  685.403(b).

Decision Letters

    Comments: Commenters suggested that the Department should include 
language specifying that if the Department grants a partial discharge, 
the Department official must explain in writing the basis for its 
determination and how it calculated the proposed amount of a discharge. 
The commenters further suggested borrowers should be given the 
opportunity to respond and to submit evidence in support of further 
discharge amounts.
    Discussion: Under Sec.  685.406(f), the Department official issues 
a written decision of the adjudication of the BD claim. The Department 
believes this commenter's suggestion is no longer relevant because, as 
discussed below, approved claims will receive a full discharge and not 
a partial discharge. Nevertheless, the decision letter will contain 
information about whether the claim was approved, the evidence upon 
which the decision was based, and the loans that are due and payable to 
the Secretary in the case of a denial.
    We already outline the conditions under which the Department would

[[Page 65945]]

entertain a reconsideration request by a borrower, which include: 
administrative or technical errors; consideration under a State law 
standard for loans first disbursed prior to July 1, 2017; and new 
evidence that came to light after the initial adjudication. We would 
expect borrowers to submit the best information they have at the time 
of application. To the extent that a borrower who receives a denial 
meets the criteria for reconsideration, that borrower may submit the 
request and the new evidence.
    Changes: None.
    Comments: Other commenters suggested the proposed BD regulations do 
not go far enough regarding decision letters. These commenters 
suggested the Department strengthen the regulations to make written 
decisions clear and actionable to borrowers when granting full 
approvals, partial denials, and full denials.
    Discussion: The Department declines to make the changes suggested 
by the commenters. These regulations will result in decision letters 
with elements that will help a borrower determine their next steps 
after adjudication of the claim.
    Changes: None.
    Comment: Some commenters requested that the Department give copies 
of the written decision regarding a BD claim to the institution.
    Discussion: The Department concurs that institutions should also be 
apprised of the outcome of the BD claim. Although we initially proposed 
that copies of the written decision would be made available to the 
institution to the extent practicable, we are removing the phrase ``to 
the extent practicable'' to ensure that the claimant, the institution, 
and, if applicable, the third-party requestor who requested the group 
claims process, will receive copies of the written decision.
    Changes: We revised Sec.  685.406(f)(3)(iii) to ensure that 
institutions will receive a copy of the written decision.

Borrower Defense to Repayment--Post Adjudication (Sec. Sec.  Part 685, 
Subpart D)

Reconsideration Process

    Comments: Commenters expressed support for a reconsideration 
process. Many commenters suggested that institutions should have the 
opportunity to request reconsideration on the same terms as borrowers. 
Other commenters opposed a reconsideration process, adding that claims 
would lack finality and could be continuously granted reconsideration; 
institutions would, thus, have no way of knowing how often and for how 
long they may be required to defend against the same BD claim. 
Similarly, some commenters argued that a reconsideration process 
violated res judicata and borrowers should not be given another 
opportunity to have their claim reviewed. A few commenters argued that 
it would not be appropriate to conduct a reconsideration under a 
different standard, which is what is contemplated by allowing for 
considerations under a State law standard. A commenter also expressed 
concern that asserting a claim under State law would be confusing for 
borrowers. Other commenters requested that borrowers have an 
unqualified right to reconsideration.
    Discussion: We thank the commenters who expressed support for the 
reconsideration process.
    After careful consideration of the commenters' suggestion that 
institutions be allowed to request reconsideration, we decline to make 
this change. We remind institutions of the bifurcated process of the BD 
framework--adjudicating the claim is a separate and distinct process 
from the process for recoupment from the institution for the amounts 
that the Secretary discharges. In crafting the reconsideration process, 
we distinguished the issue of whether the borrower has a defense to 
repayment from whether and how much the Secretary should recoup from 
the institution. Consideration of the borrower's BD claim is between 
the borrower and the Secretary, since it is the borrower raising a 
defense to repaying the Secretary on a loan that is payable to the 
Secretary. Allowing institutions to request reconsideration is 
inconsistent with the purpose of this process.
    We disagree with the concerns that allowing reconsideration would 
result in a lack of finality of a claim and that a claim could be 
continuously granted reconsideration. We also disagree with the 
proposal to give borrowers an unqualified right to reconsideration. We 
outline the limited circumstances under which we would consider a 
reconsideration request: administrative or technical errors; 
consideration under an otherwise applicable State law standard for 
loans disbursed prior to July 1, 2017; and new evidence. Limiting the 
State law reconsideration only to borrowers who would have previously 
had access to it also should help reduce borrower confusion and address 
the concerns raised by commenters about the use of a different standard 
during reconsideration. As we expressed in the NPRM, the specific 
instances for reconsideration provide appropriate limits on the 
borrower's ability to seek reconsideration or to ask for the same 
allegations to be reviewed repeatedly without a rationale for why the 
outcome may change.\109\
---------------------------------------------------------------------------

    \109\ 87 FR at 41906.
---------------------------------------------------------------------------

    We also disagree with the commenters that the reconsideration 
process violates principles of res judicata. The bases for 
reconsideration involve certain legal and technical errors with the 
Department's decision or new evidence that was not previously 
considered. It is not simply the Department re-reviewing a decision for 
any reason. Moreover, the reconsideration process provides a step that 
is simpler for both the borrower and the Department by having a claim 
reconsidered instead of going to Federal district court for review.
    Changes: None.
    Comments: A few commenters suggested that the Department allow 
individual members of a group to request reconsideration on behalf of 
the entire group, on their own behalf, and for any individual borrower.
    Discussion: As we discuss in the NPRM, we considered and rejected a 
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, and we discussed our rationale for doing so. 87 FR 
at 41907. Similarly, as we discussed in the NPRM the regulations 
specify in Sec.  685.407(a)(2)(ii) that an individual borrower from a 
group may not file a reconsideration request.
    Nothing prevents an individual who is part of a group from 
submitting a new individual BD claim under Sec.  685.403.
    Changes: None.
    Comments: Commenters recommended that if a borrower is denied 
relief, then the borrower should be entitled to request reconsideration 
from a different Department official to evaluate whether the first 
adjudicator made errors when assessing the facts or applying the law. 
These commenters suggested that under the proposed language, if a 
borrower believes the Department official adjudicating their claim made 
an error interpreting the facts or law, the borrower will be forced to 
challenge the Department's decision in court, which will be more 
burdensome for the Department and the borrower.
    Discussion: As provided in Sec.  685.407(b), the Secretary 
designates a different Department official for the reconsideration 
process than the one who conducted the initial adjudication.
    Changes: None.

[[Page 65946]]

Amounts To Be Discharged/Determination of Discharge

    Comments: The Department received a range of comments regarding 
calculating discharge amounts for a borrower or borrowers with approved 
claims. Many commenters wrote in support of the proposal to adopt a 
presumption of full discharge. Many of these commenters, however, said 
that the Department should either eliminate the possibility of partial 
discharge or provide a much clearer and narrower set of instances when 
partial discharge could occur. These commenters pointed to the harms 
that borrowers suffer that go beyond the amount of the loan, aligning 
BD with the discharge amounts provided under closed school and other 
discharge programs operated by the Department, and the Department's 
history in struggling to define a proper formula for partial discharge. 
The commenters raised concerns that the examples of partial discharge 
are too vague, and that the overall Federal standard already would weed 
out trivial claims. Commenters asked that if partial discharge is 
maintained, it should be limited to clearly quantifiable sums, or the 
Department should provide greater clarity for what constitutes 
educational services or the outcome of a borrower's education. 
Commenters also suggested an opportunity for borrowers to provide 
additional evidence before finalizing a partial discharge decision.
    Other commenters raised different objections to the proposed 
partial discharge approach. They said that the Department should not 
adopt a presumption of full discharge, should conduct its own fact 
finding for each individual borrower to determine discharge amounts, 
and give institutions an opportunity to provide additional evidence 
during the process of determining the discharge amount. Commenters 
argued that the Department should be capable of assessing the value of 
an education and did not explain why it no longer thought it could do 
so. Commenters also argued that the Department should be able to 
calculate the value of the education and that the proposal to provide a 
50 percent discharge if the Department could not easily quantify the 
amount of harm was not sufficiently reasoned. Commenters also raised 
many concerns with the examples provided, arguing that some were 
unrealistic, some did not clarify how they would interact with the 
presumption of a full discharge, did not address fact-specific elements 
like a borrower not getting an internship because they lacked the 
academic qualifications to be eligible for one, and displayed 
favoritism toward more selective institutions that were more likely to 
have claims against them result in partial discharge. Commenters argued 
for rebutting the presumption of a full discharge for claims approved 
under State law. Commenters argued that the risk of giving borrowers an 
insufficient amount of discharge needs to be better balanced against 
the risk of trying to recoup excessive sums from institutions. 
Commenters also connected the concerns about discharge amounts to other 
comments around the lack of harm in the overall standard. Commenters 
also disagreed with the Department's argument that all approved claims 
to date have been for full discharges since, in all but one instance, 
those were all against schools that were no longer in business.
    Discussion: The Department has tried for many years to construct an 
approach for calculating partial discharges that is consistent and 
fair. This includes definitions that rest on principles and examples as 
well as formulas. The significant number of comments opposed to the 
concepts of partial discharge, both for those in favor of granting 
larger discharges and those in favor of granting smaller ones, 
demonstrate how complex it is to define a clear set of rationales for 
properly ascertaining the amount of a partial discharge to grant a 
borrower.
    Based upon all of this feedback, the Department is convinced that 
articulating a clear and consistent standard for applying a partial 
discharge is not feasible. Instead, the Department will award a full 
discharge for approved claims, while adding language that an approved 
claim must be tied to an act or omission that caused detriment to the 
borrower that warrants relief in the form that BD provides. Such an 
approach also means that a separate calculation of the educational 
value of a program is not necessary.
    The Department finds support for this conclusion in the nature of 
the remedy provided by a defense to repayment, including the legal 
principles it implicates and the practical realities of administering 
the remedial scheme. Although the student loan context is unique, a 
defense to repayment resembles rescissionary remedies available in 
contract law (avoidance and restitution or reliance costs),\110\ 
restitution and unjust enrichment (rescission and restitution),\111\ 
and rules governing unsecured consumer lending (obligor's defense to 
enforcement and recoupment).\112\ Although we do not think it is 
appropriate or necessary to adopt specific rules from these areas of 
law, they provide helpful points of reference for considering the 
nature of the remedy that BD provides.
---------------------------------------------------------------------------

    \110\ The contract remedies of avoidance and restitution or 
reliance costs permit a party to avoid contractual obligations and 
recover amounts paid as part of performing or expended in reliance. 
See Restatement (Second) of Contracts Sec.  376 (1981) (``A party 
who has avoided a contract on the ground of . . . misrepresentation, 
duress, undue influence or abuse of a fiduciary relation is entitled 
to restitution for any benefit that he has conferred on the other 
party by way of part performance or reliance.'').
    \111\ See Restatement (Third) of Restitution Sec.  13(1) 
(``rescission and restitution'' when a transaction is ``induced by 
fraud or material misrepresentation''); id. Sec.  54 (permitting a 
party to ``reverse the challenged transaction instead of enforcing 
it,'' and to recover any benefits the party relinquished).
    \112\ See U.C.C. Sec.  3-305(a), and 16 CFR part 433 (together 
providing consumer-obligor defenses to repayment and claims in 
recoupment arising out of underlying transaction).
---------------------------------------------------------------------------

    This type of remedy differs from damages. Generally speaking, a 
damages remedy seeks to measure and compensate an injured party for the 
harm they suffered; rescissionary remedies, on the other hand, emerge 
from principles of restitution and restore a party to the status quo 
ante. In the context of a fraudulent transaction, a damages remedy 
would seek to measure loss based on either the injured party's out-of-
pocket costs or on the benefit of the bargain that the injured party 
lost as a result of the wrongdoer's fraud.\113\ In contrast, relief 
like the rescissionary remedies mentioned above would seek to unwind 
the transaction altogether and restore the injured party to a pre-
transaction status. The latter category of remedies may be appropriate 
where damages are unavailable or difficult to reliably estimate or 
where wrongful or intentional conduct undermines a key reason for 
entering the transaction in the first place.
---------------------------------------------------------------------------

    \113\ This might be calculated by the difference in value 
between the product received and the price paid. Another possible 
measure is the difference between the value actually received and 
the value the bargain would have produced if the false 
representations had been true. See Dobbs & Roberts, Law of Remedies 
Sec. Sec.  9.1(1), 12.1.
---------------------------------------------------------------------------

    Although BD combines interests that do not neatly fit distinctions 
in conventional legal doctrine, we think it more closely resembles the 
latter category of remedies described above, which informs our 
determination to omit the option of partial discharge. Partial 
discharge more closely resembles conventional damages remedies, which 
honor compensatory interests that exist in the BD context but present 
far more practical difficulties. A damages-like remedy in the BD 
context would suggest that recovery should reflect the difference 
between the actual value of the educational program and the price a 
borrower paid. It might also suggest

[[Page 65947]]

calculating the difference between the education's actual value and the 
expected marginal increase in a borrower's future earnings. We do not 
think there is a feasible way of reliably estimating the lost value 
that would factor into determinations of partial discharge.
    This approach will address the concerns of both commenters that 
pushed for limiting partial discharge and those that were concerned 
about approved claims being tied to minor matters. For the former 
group, the elimination of a partial discharge ensures that any 
borrowers whose claim is approved will receive a full discharge. But 
for the latter group, the language ensuring that an approved claim must 
warrant this relief adds a requirement that the circumstances justify 
the remedy BD provides. This concept is captured in new Sec.  
685.401(e), which states that in determining whether an act or omission 
merits relief, ``the Secretary will consider the totality of the 
circumstances, including the nature and degree of the acts or omissions 
and of the detriment caused to borrowers.'' Removing the concept of 
partial discharge also eliminates the need for changes to the 
rebuttable presumption of a full discharge requested by commenters.
    In applying Sec.  685.401(e)'s totality-of-the-circumstances 
approach, the Department expects to draw on principles and reasoning 
underlying the application of rescissionary remedies that BD resembles, 
where factual circumstances call for it. We chose not to expressly 
adopt the precise standards from any of those areas, because none 
account for the unique combination of interests at work in the Federal 
student loan program or for the wide range of varying circumstances 
that arise in the context of adjudicating BD claims.\114\ Because of 
the student loan context's unique characteristics, the Department 
anticipates circumstances that may warrant BD relief even if an 
equivalent remedy would not be available under conventional tests from 
contract law, restitution and unjust enrichment, or defenses to the 
enforcement of obligations of an unsecured loan.
---------------------------------------------------------------------------

    \114\ Among many other differences, a student loan differs from 
a mortgage, car loan, or other secured transaction, because there is 
no property to repossess or partially satisfy the debt. Likewise, in 
contrast to other types of loans, in the student loan context a 
misrepresentation that induces student debt is often inextricably 
intertwined with (and can often be one cause of) the borrower's 
inability to repay the loan; for some students, boosting earning 
capacity is the very reason they took out the loan in the first 
place, and it may be dispositive for whether they can ultimately pay 
the loan off. Furthermore, a student loan cannot be discharged in 
bankruptcy in the same way as other loans. These and other 
differences between student loans and other transactions inform our 
conclusion that drawing on principles surrounding rescissionary 
remedies in other areas of law is best suited for the context of 
specific cases.
---------------------------------------------------------------------------

    The Department considered whether the regulations themselves should 
include a more specific enumeration of circumstances that will warrant 
relief, but ultimately determined that the most appropriate approach 
was to further develop the standard through adjudication of particular 
cases. To that end, in appropriate cases dealing with circumstances not 
specifically addressed in the regulations, the Department will make its 
explanations of remedy-related determinations public to guide affected 
parties and provide an opportunity for public scrutiny. As a general 
matter, however, the determination described in subsection (e) is 
informed by documented cases of fraud and misrepresentation that the 
Department has addressed in the past.\115\ In those cases, the schools' 
acts and omissions related to borrowers' careers and employability, 
which are among the core reasons for seeking higher education. In 
addition, the detriment that borrowers suffered often reflected 
receiving far less value than the tuition and fees their loans paid 
for. In those cases, the schools' conduct and resulting harm also often 
left borrowers unable to meet their loan obligations within a 
reasonable time. These, however, are only certain attributes of past 
cases; that is, we consider the circumstances related to those schools 
to fall within the heartland of what warrants discharges, and we 
anticipate the range of circumstances warranting discharges will extend 
beyond these past examples.
---------------------------------------------------------------------------

    \115\ See, e.g., examples cited in supra note 24.
---------------------------------------------------------------------------

    The Department also adopts a rebuttable presumption that, for 
claims that otherwise satisfy the standard, the detriment caused in the 
case of closed schools will be sufficient to warrant relief. This is 
based on the Department's experience that when a school closes and is 
shown to have been responsible for the misconduct encompassed by 
``actionable acts or omissions,'' the borrowers shown to have been 
injured by that conduct are very likely to fall within the 
circumstances that warrant relief. This also acknowledges that when 
schools close, it is often challenging for borrowers or for the 
Department to obtain additional evidence that may be necessary to fully 
establish the nature and degree of detriment. In such situations, the 
Department does not want to make borrowers worse off because their 
institution has closed. This does not mean that every otherwise proven 
claim from a borrower who attended a closed school will necessarily be 
determined to warrant BD relief. Rather, in such cases are determined 
not to warrant relief, the Department will cite to the specific reasons 
and evidence for that conclusion.
    The Department disagrees with the allegations by the commenters 
that its prior consideration of partial discharges had been shielding a 
specific type of institution. The Department has crafted a set of rules 
based upon what we have seen as misrepresentations, omissions, and 
other acts over time and there are no sector-specific limitations to 
those standards.
    Changes: We revised the definition of borrower defense to repayment 
under Sec.  685.401(a) to indicate that the Department must find that 
the act or omission caused detriment to the borrower warranting relief 
in the form of a full discharge of the outstanding balance, 
reimbursement of all amounts paid to the Secretary, deletion of the 
relevant credit history, and, in the case of a borrower in default, 
restoration of the ability to access title IV financial assistance. We 
have also added Sec.  685.401(e), which states that in determining 
whether a detriment caused by an institution's act or omission warrants 
relief under this section, the Secretary will consider the totality of 
the circumstances, including the nature and degree of the acts or 
omissions and of the detriment caused to borrowers. For borrowers who 
attended a closed school shown to have committed actionable acts or 
omissions that caused the borrower detriment, there will be a 
rebuttable presumption that the circumstances warrant relief.
    Comments: Commenters argued for a greater institutional role in 
calculating the amount of the discharge. They argued for a separate 
opportunity to provide a response on the discharge amount. Commenters 
also argued for the Department to conduct individual fact finding on 
harm.
    Discussion: The Department disagrees with commenters. As noted 
elsewhere in this rule, the adjudication of borrower defense claims is 
a matter between the borrower and the Department. Institutions are 
given a considerable opportunity to submit evidence during that stage 
and will have a more extensive role during any efforts at recoupment. 
However, given that the Department is awarding a full discharge for any 
approved claim, that means an institution's response to the claim 
itself will also present it with an opportunity to submit evidence 
regarding the degree

[[Page 65948]]

of harm caused by the alleged acts or omissions and detriment. As for 
the discussion about individualized fact finding related to harm, the 
Department directs commenters to this discussion in the Federal 
Standard section, which explains, among other things, assessing 
individualized harm for each claim on a case-by-case basis is not an 
approach that is realistic or administratively feasible.
    Changes: None.

Borrower Defense to Repayment--Recovery From Institutions (Sec.  
685.409)

    Comments: Many commenters urged the Department to hold institutions 
accountable for acts or omissions that give rise to a successful 
defense to repayment. Other commenters encouraged the Department to 
limit the exceptions to recoupment, and even if the cost of collection 
exceeds the amounts received or if the claims were approved outside the 
limitations period, the Department ought to recover as much funds as 
possible in the interest of making the taxpayer whole.
    Other commenters expressed reservations about the Department's 
ability to recoup from the institution. These commenters stated that 
the Department did not have a legal obligation to detail the instances 
in which it would not seek to recoup because doing so would undermine 
its overall prosecutorial discretion. The commenters suggested 
eliminating Sec.  685.409(b) or revising Sec.  685.409(b)(1) to note 
the Department's discretion will be consistent with typical practice. 
Other commenters stated that the Department lacked the statutory 
authority to impose borrower defense liabilities against affiliated 
persons of closed schools.
    Other commenters suggested that by requiring the Department seek 
recoupment from schools and school owners in all but a few narrow 
circumstances, the regulations will inadvertently constrain how much 
relief the Department is willing to provide borrowers. These commenters 
suggested that the Department would be reluctant to grant relief when 
doing so might result in an institutional liability that would push a 
school to close. Additionally, commenters theorized that if the 
Department is required to pursue recoupment, and believes schools will 
contest recoupment, then granting BD claims will create substantial 
additional administrative, legal, and resource demands on the 
Department. Commenters believed that this would decrease the likelihood 
that the Department would grant meritorious claims or pursue group 
processes.
    Discussion: We take our responsibility to oversee and protect the 
taxpayer investment seriously and believe institutions should be held 
to their financial obligations when their actions result in discharge-
related liabilities. Recoupment is a critical tool for ensuring that 
the institution that committed acts or omissions that lead to approved 
claims help offset that cost. And it is one of several ways to deter 
future unwanted behavior. In support of the commenters' request to hold 
institutions accountable, we proposed Sec.  685.409, which is the 
framework under which we would seek recovery from institutions of the 
amounts that the Secretary discharges from BD claims and proposed to 
use existing procedures for pursuing liabilities under part 668, 
subpart H proceedings. We discuss recovery proceedings and the subpart 
H context elsewhere in this document. We proposed limited circumstances 
under which the Department would not recoup from institutions, namely: 
the costs of collecting would exceed the amounts received; the claims 
were approved outside the limitations period; a preexisting settlement 
agreement precludes additional financial recovery; and the Secretary 
already collected on the claim in a separate proceeding. In response to 
commenters who suggested limiting when the Secretary may choose not to 
collect, we decline. Settlement agreements or recoveries in other 
Secretarial collection actions may preclude the Secretary's ability to 
collect and we are merely codifying those limited circumstances on 
recovery here.
    We disagree with commenters who stated that we lack the statutory 
authority to institute action to collect the amount of approved BD 
claims from persons affiliated with closed schools. As we discussed in 
the NPRM, Sec. 454(a)(3) of the HEA provides that an institution must 
accept responsibility and financial liability stemming from its failure 
to perform the functions set forth in its PPA--the signed document 
required for participating in the Federal financial aid programs 
through which the institution and other relevant parties agree to abide 
by the rules and requirements governing the programs.\116\ This 
commitment includes persons affiliated with the institution who do not 
just inherit and profit from the assets of the institution but also 
assume its liabilities--which, in this case, would be the liabilities 
associated with the approved BD claims. In the case of a closed school, 
we described the persons affiliated with the institution as those 
individuals described in Sec.  668.174(b). The Department proposed this 
recoupment framework to protect taxpayers as much as possible from 
losses caused by the actions of schools and affiliated persons.
---------------------------------------------------------------------------

    \116\ 87 FR at 41911.
---------------------------------------------------------------------------

    Because the BD framework is a bifurcated process, the recovery 
provisions under Sec.  685.409 would have no bearing on the separate 
process of adjudicating the claim. We dismiss any unfounded conjecture 
that the recoupment process itself would decrease the likelihood of 
granting meritorious claims.
    Changes: None.
    Comments: Some commenters argued the Department failed to consider 
that institutions may force borrowers to repay them for the cost of 
loan discharges. Others argued that the Department did not consider 
that an institution may withhold the transcripts of borrowers whose BD 
claims are approved, making it harder for the borrower to obtain work.
    Discussion: We see no basis for an institution requiring a borrower 
to repay the cost of a loan discharged due to an approved BD claim. As 
noted in this final rule, the decision whether to discharge a loan is 
between the borrower and the Department. The act of recouping on that 
discharge is between the Department and the institution. We see no 
reason why an institution would have an enforceable right to shift 
liability to the borrower.
    With regard to transcript withholding, we note that such policies 
may have separate implications under State and Federal consumer 
protection laws. Likewise, transcript-withholding practices have also 
drawn increased scrutiny from the Department independent of this rule 
and from the CFPB.\117\
---------------------------------------------------------------------------

    \117\ See, e.g., CFPB, Student Loan Serv. Special Ed., 27 
Supervisory Highlights, Fall 2020, at 8-9, https://files.consumerfinance.gov/f/documents/cfpb_student-loan-servicing-supervisory-highlights-special-edition_report_2022-09.pdf.
---------------------------------------------------------------------------

    Changes: None.

Recoupment Procedures

    Comments: Some institutions argued that the recoupment process 
should occur under subpart G and objected to the Department's proposal 
to remove Sec.  668.87. Commenters stated that striking Sec.  668.87 
represents an extraordinary oversight and the Department should provide 
institutions a meaningful opportunity to comment on any recovery 
process. Commenters also argued that the Department had not used Sec.  
668.87 to seek recoupment of an approved borrower defense claim and 
thus could not have a reason for moving

[[Page 65949]]

away from it. Commenters also argued that reaching faster decisions on 
claims was not a sufficient reason for shifting to a new recoupment 
process.
    A few commenters stated the Department does not include any 
regulatory text in the proposed rule that guarantees, specifies, or 
even suggests that recovery proceedings will occur under subpart H. A 
few commenters asked if the shift to part 668, subpart H would mean 
that the same time limits that apply to program reviews would be 
applied, such as 30 to 90 days to respond a review and 45 days to 
appeal any final decision.
    Discussion: We disagree that recoupment proceedings should be 
processed under subpart G, and we reiterate that the recoupment process 
under subpart H is the proper venue. The recovery of amounts discharged 
concerns monetary liabilities due to the Department, which is chiefly 
administered through subpart H; subpart G pertains to fine, limitation, 
suspension, or termination proceedings.
    When the Department initially issued final rules on recovery 
proceedings under Sec.  668.87, subpart G appeared a more appropriate 
fit because those recovery proceedings also included combined 
consideration of certain fact-finding steps like the actual claims' 
merits and relief for members of the group. In doing so, however, it 
made BD recovery an outlier among the other procedures in subpart G--
that is, a fine, limitation, suspension, or termination proceeding 
involves punitive measures, whereas subpart H appeals are more 
appropriate in cases involving the recovery or reimbursement of federal 
funds owed.\118\ In light of the other updates to the BD process, we 
consider subpart H the appropriate venue for recovery.
---------------------------------------------------------------------------

    \118\ See, e.g., In re The Hair Cal. Beauty Acad., Dep't of 
Educ. OHA Docket No. 2018-13-SP (July 2, 2019), at 13 (explaining 
the ``distinctions between appeals within the Department under 
Subpart H (which address recovery of federal funds) and under 
Subpart G (which address fines, penalties, terminations and other 
civil punishments)'').
---------------------------------------------------------------------------

    First, the updated structure and sequence of the process for 
adjudicating BD claims includes new features to make it a more robust 
fact-finding process, which also provides for considerable input from 
schools. But as we explain more in the ``General Opposition to 
Regulations'' section, BD claims reflect a defense that borrowers 
assert against repaying the Department and that is principally a 
Department-borrower matter. It would not make sense to treat a BD 
claim's merits and school liability as coextensive or to make BD 
claims' adjudications a series of adversarial steps between the 
borrower and school--nor would such a sequence be administratively 
feasible for the volume of BD claims that the Department now faces. As 
part of the updated structure's acknowledgement of those realities, the 
decision of whether to approve the claim is handled through the process 
outlined in Sec.  685.406, which avoids the previous structure's 
combined merits-relief-recovery step that was a reason for including 
recovery proceedings in subpart G.
    Second and relatedly, in light of that updated structure, there is 
little reason for recovery to remain an outlier among the punitive 
steps provided for in subpart G. As noted, BD recovery more closely 
matches the other means of recovering federal funds provided for in 
subpart H. As we explain in the ``Federal Standard'' section of this 
document, relief in the form of a defense to repayment, though unique, 
resembles features of remedies like rescission, avoidance, restitution, 
and certain forms of out-of-pocket or reliance costs, not punitive 
remedies like special, consequential, or exemplary damages--which 
underscores that recovery proceedings were an outlier in subpart G. In 
light of the buttressed fact-finding procedures now included in BD-
claim adjudication under the updated structure, it makes more sense to 
avoid leaving recoupment as an outlier in subpart G and focus it on 
what it is, which is recovering liabilities from the institution rather 
than a punitive step like the other subpart G proceedings.
    Contrary to at least one comment's suggestion, the 2016 BD 
regulations do not acknowledge that the Department should bear the 
burden of proof in any recovery action against an institution. Rather, 
the 2016 BD regulations acknowledged that the proponent of a BD claim 
bears the burdens of production and persuasion in relation to the 
claim's merits. The 2016 regulations combined determinations of claims' 
merits into a single step along with determinations of relief and 
recovery, and it only envisioned the Department as the proponent of 
granting group claims. In that context, it made more sense for the 
Department to bear all relevant evidentiary and persuasive burdens as 
part of that step. The updated regulations still assign the burden of 
persuasion on a claim's merits to its chief proponent, but the new 
regulation's update acknowledges that proponent will often be third-
party requestors or simply individual borrowers. Having avoided 
combining merits, relief, and recovery determinations into a single 
step, the 2016 regulations' description of the relevant burdens is not 
applicable.
    We believe that, in addition to schools' opportunities to submit 
evidence and arguments during the adjudication stage, using the 
familiar process in subpart H will provide institutions with a 
meaningful opportunity to contest any liabilities sought in 
recoupment.\119\ While it is true that the subpart G process has also 
been in use for some time, it is used far less frequently than subpart 
H. For instance, since October 1, 2017, the Department received about 
175 subpart H appeals compared to just under 75 actions initiated under 
subpart G.\120\
---------------------------------------------------------------------------

    \119\ 87 FR at 41912.
    \120\ These figures are based on a Department of Education 
analysis of subpart G actions initiated or subpart H appeals 
submitted to the Administrative Actions and Appeals Service Group 
within Federal Student Aid since October 1, 2017.
---------------------------------------------------------------------------

    In response to the commenters who stated the Department does not 
include any regulatory text in the proposed rule that guarantees, 
specifies, or even suggests that BD recovery proceedings would occur 
under subpart H, we agree that the regulations should better reflect 
the recovery proceedings. Therefore, we are adding regulatory text that 
makes clear the Secretary will recoup these amounts discharged under a 
subpart H proceeding. We are including a new Sec.  668.125 to part 668, 
subpart H to add specific provisions related to the proceedings for 
recouping the costs of approved borrower defense claims from 
institutions. Under these provisions, institutions will have 45 days to 
request a review of the determination that they are liable for the 
amounts discharged, with that period running from the day the 
institution receives a written notice from the Department. This 
timeline mirrors the process for other part 668, subpart H proceedings 
and addresses the questions from commenters about how timelines for 
borrower defense would compare to program reviews.
    The added language also specifies that the written notice's request 
will fulfill the role of a final program review or final audit 
determination as described in Sec. Sec.  668.115 to 668.124. This 
ensures that the correct document will be used for all the proceedings 
under this part. The Department also adds language in Sec.  668.125(e) 
to specify that the Department has the burden to prove that the loans 
it is seeking to recoup on were discharged for the purposes of borrower 
defense and that the institution has the burden to prove that the 
decision to discharge the loans was incorrect or inconsistent with law 
and thus that the institution should not be liable. Also within 
paragraph (e), the Department

[[Page 65950]]

specifies the types of evidence that may be submitted in the hearing, 
which is limited to (1) materials submitted to the Department during 
the process of adjudicating the claims, which includes information from 
borrowers, the institution, or other third parties; (2) any materials 
the Department relied on to adjudicate claims and that the Department 
provided to the institution; and (3) any other relevant documentary 
evidence submitted by the institution related to the bases cited by the 
Department's decision to approve the borrower defense claims and pursue 
recoupment.
    Changes: We have added Sec.  685.409(d) to provide that in 
requiring an institution to repay funds to the Secretary in connection 
with the program review issued concerning the institution's act or 
omission that gave rise to a successful claim under this subpart, the 
Secretary follows the procedures described in part 668, subpart H. We 
have also added new Sec.  668.125 within part 668, subpart H that 
specifies certain procedural elements specific to a borrower defense 
recoupment proceeding as described above.
    Comments: Commenters suggested the Department provide greater 
detail on the proposed change to the recoupment process, including 
specifically placing the burden on educational institutions, 
demonstrating that the proposed framework is permissible under the HEA, 
and explaining why the Department believes it is better to allocate the 
burden in recoupment proceedings to the educational institution rather 
than to the Department. These commenters suggest that, although the 
proposed rule provided some of the Department's reasoning, the final 
rule could be more comprehensive and more explicit. Commenters stated 
that since the HEA supports the proposed recoupment process and burden 
allocation, the final rule should cite the relevant regulatory 
authority and case law that supports the Department's interpretation of 
the HEA, in addition to elaborating on the reasons behind the change.
    Discussion: We appreciate the feedback from the commenters. In this 
rule, we are separating the process for adjudicating a BD claim from 
the process for recouping the government's loss from the responsible 
institution. Under this rule, if the Department initiates an action to 
recoup from the institution, it will follow the procedures provided in 
34 CFR part 668, subpart H, which apply to other actions in which the 
Department attempts to recoup funds from a participating institution. 
Under those rules, following an audit or compliance determination by 
the Department, the institution has the burden of demonstrating that 
its receipt or expenditure of funds was appropriate and in compliance 
with applicable conditions. That approach is appropriate here since the 
institution is the party which is most likely to have relevant records 
relating to the basis of the BD claim and because the institution had 
an opportunity to present relevant evidence and arguments at the time 
the Department was adjudicating the claim. To switch the burden of 
production would create a disincentive to institutions to submit their 
evidence during the earlier process thus limiting the record before the 
Department when it is adjudicating claims.
    Changes: We have added new Sec.  668.125 within part 668, subpart H 
that specifies certain procedural elements specific to a borrower 
defense recoupment proceeding as described in the response to the prior 
comments.
    Comments: A few commenters objected to using part 668, subpart H, 
saying that it provided more limited rights than what is available 
under part 668, subpart G. Commenters pointed to the ability to have 
live witness testimony and, discovery in particular, as elements not 
available under part 668, subpart H. Commenters also noted that only 
certain types of evidence can be brought under part 668, subpart H, 
which would not be the most relevant for defending allegations. They 
also argued that without showing student harm the Department could not 
recoup the compensatory damages contemplated under part 668, subpart H. 
Commenters also asked whether the timeline for this proceeding would 
match the same timeline used for other part 668, subpart H proceedings.
    Discussion: The processes of part 668, subpart G are designed to 
address the issues presented in those cases--the possible termination, 
limitation or suspension of the institution's title IV program 
participation or the imposition of a penalty on the institution. In 
contrast, the processes provided under part 668, subpart H are designed 
to resolve issues relating to whether the institution owes a financial 
liability to the Department. In the BD context, the issue is the latter 
(financial liability) not the former. The Department has successfully 
used the processes in subpart H to resolve financial liability issues 
for more than 30 years, including in cases where the Department is 
pursuing liabilities from an institution based on approved closed 
school and other discharges. The commenters did not provide any 
examples of situations in which the processes provided in subpart H 
would not be sufficient to address the issues presented. We also note 
that many commenters' have a misunderstanding of the subpart G process. 
There is no right to discovery in subpart G and there is no automatic 
right for the parties to present oral testimony or oral argument. 
Instead, the hearing officer sets the procedures to be used based on 
the issues presented as outlined in Sec.  668.89(a) and (b). In BD 
cases, the institution will have had the opportunity to rebut the 
evidence and arguments supporting the claims during the adjudication 
process and will have seen how the Department addressed its arguments 
during that process. If the Department decides to pursue collection of 
the liability from the institution, the subpart H process provides an 
opportunity for the institution to present its arguments that it should 
not be held liable for the value of the claims granted. This process 
also affords institutions the ability to appeal the decision of the 
hearing official to the Secretary.
    As noted above, the Department has added language in the new Sec.  
668.125 to address certain issues raised by commenters. This specifies 
the types of evidence considered during the proceedings and confirms 
the time provided for an institution to request a hearing after 
receiving written notice.
    Changes: We added new Sec.  668.125 that lays out the procedures 
for a proceeding under part 668, subpart H related to recoupment 
efforts on approved borrower defense claims. Those additions are 
described above.
    Comments: A few commenters suggested that holding executives and 
owners personally liable, as authorized under the HEA, would produce 
two intended results: reducing the burden on students and taxpayers for 
decisions made by these individuals that resulted in harm to students 
and creating a deterrent effect on the owners, executives, and board 
members of these institutions. These commenters urged the Department to 
adopt specific processes to facilitate the recoupment of funds from the 
owners and executives of institutions subject to borrower's defense 
claims, regardless of whether the school has closed.
    Discussion: We decline to incorporate specific additional processes 
to seek recoupment of funds from owners of institutions subject to BD 
claims. We believe that the financial responsibility regulations in 
part 668, subpart L, along with the regulations in Sec.  685.409 
provide us with adequate authority to recover from owners in 
circumstances permitted by the HEA.

[[Page 65951]]

    Changes: None.
    Comments: Many commenters noted that there was no regulatory text 
to accompany the NPRM preamble's mention that we would not seek to 
recoup on approved claims stemming from an act or omission that would 
not have been approved under the standard in effect at the time the 
loan was first disbursed.
    Discussion: The Department is adding regulatory text to clarify the 
policy laid out in the NPRM. Though the standard in this regulation 
will apply to all claims pending on or received on or after July 1, 
2023, in Sec.  685.409(b) the Department has added language noting that 
it will not seek to recoup on an approved claim under this regulation 
unless it would have been approved under the 1994 regulation standard 
for loans first disbursed prior to July 1, 2017; the 2016 regulation 
standard for loans first disbursed on or after July 1, 2017, and before 
July 1, 2020; and the 2019 regulation standard for loans first 
disbursed on or after July 1, 2020, and before July 1, 2023.
    Changes: Because the standards in this rule will apply to claims 
pending on or received on or after July 1, 2023, we revised Sec.  
685.409(b) to clarify that the Secretary shall not collect from the 
school any liability to the Secretary for any amounts discharged or 
reimbursed to borrowers under the discharge process described in Sec.  
685.406 unless: for loans first disbursed before July 1, 2017, the 
claim would have been approved under the standard in Sec.  
685.206(c)(1); for loans first disbursed between on or after July 1, 
2017, and before July 1, 2020, the claim would have been approved under 
the standard in Sec. Sec.  685.222(b) through (d); and, for loans first 
disbursed between on or after July 1, 2020, and before July 1, 2023, 
the claim would have been approved under the standard in Sec.  
685.206(e)(2).
    Comments: A few commenters suggested that the Department conduct a 
second adjudication under the 1994, 2016, or 2019 regulation, as 
applicable, before attempting to recoup any approved claims that would 
have originally been covered by one of those regulations. The 
commenters noted that the borrower would not have to participate under 
that process.
    Discussion: The Department disagrees with these commenters. 
Approving a BD claim will not automatically trigger a recoupment 
process. Instead, as specified in Sec.  685.409, the Department will 
need to initiate a part 668, subpart H proceeding. As part of that 
process, the Department would need to demonstrate how the approved 
claim it seeks to recoup would have met the standards for approval 
under the relevant regulation. This will provide the institution the 
information it needs to contest whether that claim would in fact have 
been approved under the relevant regulation. We will also provide the 
institution with an opportunity to respond in the relevant proceeding 
before making a final determination.
    Changes: None.
    Comments: Some commenters suggested that the Department not 
bifurcate the processes of approval of BD claims and recoupment. They 
argued for keeping the two processes together--in particular due to, 
what they described as, the significant harm to an institution just 
from approving a claim. They also noted that any approval puts an 
institution one step closer to recoupment. Another commenter pointed 
out that the Department did not give examples of how a borrower must 
cooperate in any recoupment proceeding.
    Discussion: The Department declines the commenter's suggestion to 
combine the approval of BD claims and recoupment. As we discuss 
elsewhere in this preamble, the adjudication of borrower defense claims 
is a matter between the borrower and the Department, and recoupment is 
a matter between the institution and the Department. These are two 
separate proceedings with different parties and, as such, require 
different processes. Similarly, the Department disagrees with the 
commenter's claim that the mere act of approving a BD claim imposes 
exposure on the institution so extensive that approval and recoupment 
cannot be disconnected. These concerns are addressed in more detail by 
the Department's responses in the ``General Opposition to Regulations'' 
section related to comments on institutional reputational and other 
forms of harm. We also note that the argument about all approvals 
putting an institution one step closer to recoupment overlooks the 
actual provisions and structure of this rule. In this rule, the 
Department outlines several situations in which an institution will not 
face a recoupment proceeding, including claims outside the limitations 
period for recoupment or those that would not have been approved under 
the BD standard in place at the time of the loan's disbursement. The 
Department also retains the discretion whether to pursue recoupment 
from the institution in other circumstances.
    We specify in Sec.  685.410 that to obtain a discharge, a borrower 
must reasonably cooperate with the Secretary in any proceeding under 
these regulations. Because recoupment is a matter between the 
institution and the Department, the borrower would be a non-party at 
the recoupment stage because, by then, the borrower's BD claim would 
have been adjudicated. The sworn statement under penalty of perjury and 
any other materials submitted by the borrower when they applied are 
likely to be the most important items from the borrower in a recoupment 
proceeding. The cases where additional cooperation might be necessary 
would vary depending on the specifics of the recoupment effort and the 
facts involved. Accordingly, the Department expects that borrowers will 
provide any necessary additional assistance as relevant and requested 
when conducting a recoupment proceeding.
    Changes: None.

Time Limit for Recovery From the Institution

    Comments: Many commenters recommended that either a 5- or 6-year 
time limit for recovery from the institution would be optimal to both 
benefit borrowers and maintain fairness for institutions. A few 
proposed a 3-year limitation period to align with the record retention 
requirement for student aid records.
    A few commenters suggested limiting the tolling period and 
suggested revised language. The commenters stated tolling should come 
to an end and allow the institution to maintain its business without 
the fear of receiving BD claims at some indeterminate date in the 
future. Similarly, some commenters expressed concerns about the lack of 
any limit on the recoupment period for claims approved due to a 
judgment. Other commenters proposed that the limitations period should 
be temporarily suspended upon notification by the Department and that 
any pause should cease upon the issuing of a final decision on the 
claim or the issuing of a judgment. One commenter requested that the 
Department make the regulatory text more definitive as to when events 
suspend the limitations period. Finally, commenters also suggested that 
the Department issue a decision within 1 year of the final decision 
notice about whether it would seek to recoup.
    Discussion: The Department sought feedback in the NPRM on whether 
to use a 5-year or 6-year limitations period for BD recoupment 
proceedings.\121\ After careful consideration, the Department is 
convinced that a 6-year limitations period for recoupment is 
appropriate. In part, we believe that,

[[Page 65952]]

because some States have 6-year limitations periods for consumer 
protection claims and that a borrower could assert a State law standard 
during reconsideration as a defense to repayment, a 6-year time frame 
would give the Secretary the ability to recoup the costs of approved BD 
claims. The limitations period would be tolled if the Department 
notifies the institution of the BD claim.
---------------------------------------------------------------------------

    \121\ 87 FR at 41913.
---------------------------------------------------------------------------

    We disagree with commenters who suggest a 3-year limitations 
period. The Department believes this time frame is too short, as it 
minimizes the financial remedies for the Department.
    We also disagree with the proposal to limit the recoupment period 
for judgments. Obtaining a judgment often takes years after a complaint 
is filed. The Department is concerned that the limitations period for 
recoupment could expire while a case is working its way through the 
litigation process. Using a clock on judgments could also encourage 
institution to intentionally extend case schedules rather than 
expeditiously moving a case closer toward resolution. Given that the 
litigation process produces and preserves evidence, and that a judgment 
follows a robust factfinding process, the lack of a limitations period 
for judgments is appropriate.
    In response to the commenter who requested that the Department 
alter the regulatory text on tolling the limitations period, we 
disagree that the text is vague as the commenter described. The 
relevant text in those provisions reflects existing regulatory 
language,\122\ and the word ``may'' is used to avoid presupposing that 
the school's acts or omissions impacted the borrower or that the 
borrower's claim should be granted. We enumerated the instances when 
certain notifications toll the limitations period: when the Department 
official notifies the school; receipt of a class action complaint; and 
upon a civil investigative demand or other demand for information from 
a competent authority. We believe the regulatory text in Sec.  
685.409(c) is clear. We are, however, making slight modifications to 
the regulatory text on the school's receipt of a class action complaint 
to state the limitations period is tolled when a class is certified in 
a case against the institution asserting relief that may form the basis 
of a BD claim.
---------------------------------------------------------------------------

    \122\ See, e.g., 34 CFR 685.222(e)(b)(iii)(B)-(C).
---------------------------------------------------------------------------

    We are partially accepting the proposal by commenters to not keep 
the limitations period permanently suspended even after a final 
decision is issued. In particular, if there is a final agency decision 
to deny an application, it would be reasonable to cease the tolling of 
any limitations period, since that would keep a denied claim 
potentially available for recoupment until the loan is paid off. 
Therefore, we are updating Sec.  685.409 to cease the suspension of any 
limitations period upon issuing a final agency decision to deny a 
claim. We, however, decline the other suggestions from the commenter to 
cease the suspension of the limitations period upon any approval, or to 
announce the Department's intentions regarding recoupment within 1 year 
of a final decision. Based on past experience, the Department is highly 
likely to receive additional individual applications after the approval 
of claims. As such, the universe of approved claims under which the 
Department may seek to recoup could grow over time. It would be more 
efficient for both the Department and the institution to conduct a 
single recoupment effort for similarly situated claims. As such, 
preserving flexibility for a delay between approval and any initiated 
recoupment is appropriate.
    Changes: We revised Sec.  685.409(c)(2)(ii) to state that the 
limitations period does not apply if a class that may include the 
borrower is certified in a case against the institution asserting 
relief that may form the basis of a BD claim. We also added new Sec.  
685.409(c)(4) to note that the suspension of the limitations period in 
this section will cease upon the issuing of a final decision to deny a 
claim under Sec.  685.406(f)(2).
    Comments: A few commenters argued that tolling the limitations 
period for a class action complaint is too broad. These commenters also 
stated that written notice of a State investigation is too low a bar to 
toll. These commenters suggested that tolling of the limitations period 
be limited to final, non-default adverse judgments regarding a class 
action complaint asserting relief for a class, or written notice of a 
final adverse action, or non-appealable finding of a civil 
investigative demand from a Federal or State agency.
    Discussion: We agree with the commenters in part. Simply filing a 
class action complaint is too low a bar for tolling the limitations 
period, as a judge may then decline to certify a class. Instead, 
requiring a class to be certified in a case against the institution 
establishes a more meaningful bar for tolling the limitations period. 
This balances the need for the Department to pause the limitations 
period so that cases can run their course and potentially lead to an 
approvable BD claim without holding an open-ended limitations period 
over an institution for every complaint filed.
    We disagree, however, with the suggestion to unlink the limitations 
tolling from the filing of a written State investigation request. As we 
state in the NPRM, 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 require the institution to maintain relevant 
records and thus addresses any concerns about institutions no longer 
retaining any relevant records.\123\ Moreover, we are concerned that if 
we did not toll the limitations period upon receipt of the 
investigation request, the institution may have an incentive to 
intentionally delay providing responsive documents to avoid the 
prospect of recoupment.
---------------------------------------------------------------------------

    \123\ 87 FR at 41913.
---------------------------------------------------------------------------

    We also disagree that tolling should only be keyed to final adverse 
outcomes or findings. As a general matter, a limitations period serves 
interests in finality, providing notice to defendants, and avoiding 
adjudications based on stale or disappeared evidence. We do not believe 
that waiting until final adverse outcomes or findings is needed to 
account for those interests. Instead, we believe that the events the 
regulations identify for tolling purposes reflect reasonable points in 
time that acknowledge the sequence in which Department is likely to 
learn of relevant bases for relief but that still address interests in 
finality and avoiding unlimited periods of liability.
    Changes: None.
    Comment: One commenter argued that since a portion of many 
borrowers' loans are for costs not attributed to the institution, such 
as room and board, the Department should not try to recoup on the full 
amount of all discharges.
    Discussion: The Department disagrees. When a student borrows, they 
are taking out money for the cost of attending that institution and the 
cost of attendance (COA) is calculated by the institution. It is 
important to note that institutions have the discretion to determine a 
reasonable COA based on information they have about their students' 
circumstances. It would not be appropriate to limit recoupment to some 
lesser amount. Moreover, given that money is fungible, there is no 
feasible way to distinguish what funds went to living expenses versus 
other purposes.
    Changes: None.

[[Page 65953]]

Pre-Dispute Arbitration and Class Action Waivers (Sec. Sec.  668.41, 
685.300, 685.304)

General Support for Pre-Dispute Arbitration and Class Action Waiver 
Regulations

    Comments: Many commenters supported the Department's proposed rules 
to prohibit mandatory pre-dispute arbitration and class action waivers 
and agreements. These commenters acknowledged that the regulation is 
within the Department's authority under Sec. 454(a)(6) of the HEA, 
which authorizes the Department to include in the PPA such ``provisions 
as the Secretary determines are necessary to protect the interests of 
the United States and to promote the purposes of'' the Direct Loan 
program. One commenter specifically noted that students should not have 
to forfeit their rights in pursuit of higher education and that had 
these students been aware of potential wrongdoing earlier, fraudulent 
activity could have been curtailed.
    Discussion: We appreciate the many commenters who wrote in support 
of these regulations prohibiting institutions from requiring pre-
dispute arbitration agreements or class action waivers from borrowers 
who obtained or benefitted from a Direct Loan. The Department's 
experience in reviewing and resolving BD claims demonstrates that many 
borrowers have been misled into attending predatory institutions, all 
the while incurring student loan debt. We believe it is in the public 
interest to ensure that these borrowers' rights under the Direct Loan 
Program, such as their ability to file a BD claim or pursue other 
appropriate legal relief, are not abrogated by an institution that has 
chosen to participate in the Direct Loan Program.
    Changes: None.
    Comments: Several commenters urged the Department to take 
appropriate enforcement action against any institution that intends to 
circumvent the notice provisions in these regulations.
    Discussion: We agree with the importance of these requirements. The 
Department intends to vigorously assess institutions' compliance with 
these regulations and enforce them to protect borrowers' rights.
    Changes: None.

General Opposition for Pre-Dispute Arbitration and Class Action Waiver 
Regulations

    Comments: A few commenters representing institutions opposed the 
Department's prohibition of mandatory pre-dispute arbitration 
agreements, arguing that such prohibition adds complexity, cost, and 
uncertainty to the resolution of student complaints. These commenters 
further asserted that arbitration allows for faster and more cost-
effective resolution of disputes when compared to litigation via the 
judicial system. They further argued that defendants and claimants have 
the same legal rights in arbitration as in court.
    Another commenter stated that the Department did not sufficiently 
explain its analysis for the proposed regulatory changes pertaining to 
arbitration agreements. This commenter further asserted that we failed 
to engage with the justifications for the current regulation in a 
meaningful manner and, therefore, the Department did not provide the 
public a sufficient basis to justify the rule change.
    Discussion: We disagree with commenters who characterize pre-
dispute arbitration agreements as more beneficial to students and 
borrowers. As discussed in the NPRM, the Department believes that the 
history of the Federal student loan programs demonstrates that 
mandatory pre-dispute arbitration agreements and class action waivers 
impede borrowers' ability to file BD claims and receive appropriate 
relief and discharges.\124\ As noted in the NPRM, Corinthian Colleges 
included mandatory arbitration and class action waivers in students' 
enrollment agreements; these students effectively could not receive BD 
relief due to the restrictive covenants in their enrollment agreements. 
Including such provisions in the students' enrollment agreements 
further insulates institutions from financial liability and severely 
limits the opportunities for borrowers to pursue recovery while 
bringing their claims about the institutions' misdeeds to the attention 
of appropriate regulators and the public.
---------------------------------------------------------------------------

    \124\ 87 FR at 41914.
---------------------------------------------------------------------------

    In response to the commenter who stated that we did not 
sufficiently explain our analysis for the changes pertaining to pre-
dispute arbitration agreements, we note that we explained in the NPRM 
our reasons for prohibiting pre-dispute arbitration agreements in 
students' enrollment agreements and the basis for the policy changes 
from the 2019 rule.\125\ We reviewed both the 2016 NPRM and the 2019 
final rule and remain concerned about current and prospective students' 
ability to assess the potential burdens and risks they assume when they 
choose to attend an institution that includes mandatory arbitration and 
class action waivers in its enrollment agreement. The NPRM also 
highlighted those areas where the 2019 regulations failed to protect 
borrowers and taxpayers.\126\ We also note that the 2019 regulations 
relied on evidence of the efficacy of arbitration that is inconsistent 
with the actual experience in the student loan programs administered by 
the Department.
---------------------------------------------------------------------------

    \125\ 87 FR at 41914-41918.
    \126\ 87 FR at 41915.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Multiple commenters requested that the Department 
maintain the current regulations with regard to pre-dispute arbitration 
agreements and class action waivers. One commenter posited that the 
Department's rationale for regulating pre-dispute arbitration 
agreements was vague enough to allow for arbitration bans tied to any 
source of Federal funding. One commenter also alleged that the 
Department did not consider the benefits of arbitration when developing 
these regulations. Another commenter claimed that the Department has 
not explained how these regulations better balance the costs and 
benefits of arbitration.
    Discussion: The Department has the authority to regulate the use of 
pre-dispute arbitration agreements under Sec. 454(a)(6) of the HEA, 
which authorizes the Department to include in the PPA such ``provisions 
as the Secretary determines are necessary to protect the interests of 
the United States and to promote the purposes of'' the Direct Loan 
program. Such purposes include providing financing for students to 
pursue postsecondary education and obtaining repayment for the 
taxpayers. To obtain repayment, the loans must be enforceable 
obligations. To ensure that loans are enforceable, borrowers must have 
a full opportunity to raise legal issues regarding the institution's 
conduct and services and access to timely and pertinent information 
that may inform their enrollment decisions.
    The Department's actions are tied specifically to promoting the 
interests of the Direct Loan program. Institutions choose to 
participate in the Direct Loan program and are subject to many 
restrictions and requirements relating to that participation. If an 
institution voluntarily signs a PPA to participate in the Direct Loan 
program and benefit from public funds, then it must agree to abide by 
the conditions the Department determines are necessary to safeguard 
borrowers, taxpayers, and the integrity of the program.
    In response to the commenters who stated that the Department failed 
to consider the benefits of arbitration and the costs and benefits 
associated with arbitration, we considered the effect of

[[Page 65954]]

pre-dispute arbitration agreements on the achievement of the goals of 
the Direct Loan program. For a borrower to fully obtain the benefits of 
the Direct Loan program, a Federal public benefit, all of the benefits 
must be available to the borrower without obstruction or delay 
including a borrower defense discharge. As we explained in the NPRM, we 
concluded that these pre-dispute arbitration agreements frustrate the 
purposes of the Direct Loan program.\127\
---------------------------------------------------------------------------

    \127\ 87 FR at 41914.
---------------------------------------------------------------------------

    We recognize that arbitration may provide some potential 
efficiencies for institutions and consumers and the regulations do not 
discourage institutions from offering or promoting arbitration to 
complainants once a grievance is reported. The regulations instead only 
forbid institutions from imposing arbitration upon Direct Loan 
borrowers as a mandatory barrier to seeking relief through other means. 
The regulations also do not bar institutions from immediately 
addressing a grievance as fully as it can, whether or not the student 
chooses to raise the complaint to outside authorities.
    Changes: None.

Pre-Dispute Arbitration and Class Action Waiver Notices

    Comments: A few commenters suggested that we clarify that 
institutions must use the notice language included in the final 
regulations verbatim and without conditions. These commenters cited a 
recent court decision in compelling students to pursue arbitration 
Britt v. Florida Career College as the basis for the commenters' 
suggestion.
    Several other commenters asked the Department to clarify the timing 
of notices sent to borrowers to ensure that they be made aware as 
quickly as practicable that their rights to pursue claims in court have 
been restored, both individually and as part of a class.
    Discussion: The regulations at Sec.  685.300(e)(3) clearly state 
the specific language that institutions must use in notices (and 
amendments to notices) provided to borrowers whose class action rights 
are restored under these regulations, as well as when institutions must 
deliver such notices or amendments. Similar provisions apply for the 
regulations at Sec.  685.300(f)(3) for pre-dispute arbitration 
agreements.
    Changes: None.
    Comment: One commenter requested clarification regarding an 
instance where an institution that otherwise satisfied the requirements 
to notify students that the institution complies with Sec.  
685.300(e)(3), moves to dismiss, defer, or stay a class action lawsuit, 
without reference to the agreement.
    Discussion: The Department believes that the regulation clearly 
refers to the institution's use of pre-dispute arbitration agreements 
in certain types of cases. We do not believe that further clarification 
is needed.
    Changes: None.

Internal Dispute Process

    Comments: Several commenters expressed concerns with provisions 
that would restrict institutions from requiring students to pursue 
complaints related to a BD claim through an internal dispute process 
before presenting it to an accrediting agency or government agency. 
These commenters assert that requiring students to attempt to resolve 
disputes internally before filing a claim would lower the number of 
pending BD claims and provide borrowers with a faster resolution when 
disputes arise. In addition, commenters claim that reliance upon an 
internal dispute process would be consistent with the processes 
established under the Federal Arbitration Act (FAA) for resolving 
disputes without protracted legal challenges.
    Discussion: We recognize that some internal dispute resolution 
processes provide some potential merits and efficiencies, and the 
regulations do not discourage the use or promotion of internal 
grievance procedures. Instead, the regulations only forbid institutions 
from imposing a mandatory barrier upon borrowers before seeking relief 
through other means. The regulations also do not bar institutions from 
immediately addressing a grievance as fully as they may wish, 
regardless of whether the student chooses to raise the complaint with 
outside authorities.
    However, if a borrower believes that a grievance is significant 
enough to warrant the attention of a government agency or accrediting 
agency, we believe that the benefit of bringing that complaint to their 
attention outweighs the benefits of compelling the student to delay. 
The regulations do not impose any duty on such an authority or 
accrediting agency to take any particular action, and they may choose 
to defer or delay consideration of the complaint until completion of 
the institutional process. However, at a minimum, the regulations would 
help those authorities better monitor institutional performance by 
making timely notice of substantial complaints more likely.
    We disagree with the commenters who invoke the FAA to support 
mandatory reliance upon an internal dispute process. The FAA 
specifically refers to the practice of arbitration and does not extend 
to an entity's internal dispute process. Moreover, for reasons detailed 
elsewhere in this Notice in response to other comments concerning 
mandatory arbitration, the Department considers the regulation of class 
action waivers and pre-dispute arbitration agreements to be justified 
because they affect the interests of the Direct Loan program.
    Changes: None.
    Comments: A few commenters noted that requiring students to exhaust 
internal dispute processes before presenting BD claims to an 
accrediting agency or relevant government agency diminishes the 
opportunity to ensure students are afforded full relief and to identify 
and address systemic issues. Commenters suggested that if institutions 
maintain that students benefit from internal dispute processes then 
institutions can offer this as an option.
    Discussion: We appreciate the comments in support of prohibiting 
institutions from requiring Direct Loan borrowers to navigate an 
internal dispute process prior to presenting a complaint to an 
accrediting agency or government agency. We agree that allowing 
institutions to mandate the use of an internal dispute process 
diminishes the opportunity to ensure students are afforded full relief 
and to identify and address systemic violations. We agree with the 
commenters who correctly noted that the regulations do not discourage 
the use or promotion of internal grievance procedures, and instead only 
prohibit participating institutions from imposing such a process upon 
borrowers as a mandatory barrier before borrowers can seek relief 
through other means.
    Changes: None.

Submission of Arbitral and Judicial Records; Centralized Database

    Comments: A few commenters suggested the Department eliminate the 
requirements that institutions submit arbitral and judicial records in 
connection with BD claims. These commenters stated the requirements to 
submit these records are extremely broad and likely would place a 
significant burden on institutions without regard to the materiality of 
the claims or the likelihood of success.
    Discussion: We decline to eliminate the submission requirements. As 
we stated in the NPRM, use of these mandatory arbitration agreements is 
often shielded from public view and the lack of transparency is an 
issue that impedes our ability to oversee institutions and to ``protect 
the interests

[[Page 65955]]

of the United States'' by hampering our ability to identify patterns of 
abuse and wrongdoings to take appropriate corrective action.\128\ In 
other words, the Department requires these records to conduct oversight 
over institutions.
---------------------------------------------------------------------------

    \128\ 87 FR at 41916.
---------------------------------------------------------------------------

    We also disagree that these requirements to submit records are 
overly broad. Section 685.300(g)(1) states that a school must submit 
arbitral records in connection with any BD claim filed in arbitration 
by or against the school, and Sec.  685.300(h)(1) states that a school 
must submit judicial records in connection with any BD claim filed in a 
lawsuit by the school against the student or by any party, including a 
government agency, against the school. The required submission of 
records is thus appropriately connected with any BD claims.
    Changes: None.
    Comments: One commenter requested further information regarding 
requirements for the submission of arbitral and judicial records in 
accordance with Sec.  685.300(g) and (h). This commenter requested 
additional details on the publicly accessible centralized database 
where the Secretary would publish arbitral and judicial records. The 
commenter further requested clarification on the policy basis for the 
Department's regulations, who the Department believes will access these 
records and why publicly available documents (such as judicial records) 
will need to be submitted when they are freely available elsewhere. 
Finally, the commenter asked whether the Department has considered the 
potential for individuals to ``troll'' the database for clients.
    A separate group of commenters suggested that the Department 
clarify what it means by ``in connection with any borrower defense 
claim filed in arbitration,'' (Sec.  685.300(g)) or filed ``in a 
lawsuit'' (Sec.  685.300(h)). They asked whether the Department is 
asserting that covered records must be submitted after a BD claim is 
filed or whether we would require an institution to submit records that 
could give rise to a BD claim.
    Discussion: To implement the 2016 regulations on the prohibition of 
pre-dispute arbitration agreements and class action waivers, the 
Department published an electronic announcement \129\ about the changes 
made under those regulations. We envision a similar approach to 
implementation of these regulations and will provide guidance to 
institutions on how to submit arbitral or judicial records in 
accordance with the regulations. Because the requirements of these 
regulations will include an information collection in accordance with 
the Paperwork Reduction Act, the Department will seek public comment 
about the data we will collect, as well as information about the 
centralized database. This includes where the Secretary will publish 
the centralized database containing the appropriate arbitral and 
judicial records.
---------------------------------------------------------------------------

    \129\ https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2019-03-15/ope-announcements-subject-guidance-concerning-some-provisions-2016-borrower-defense-repayment-regulations.
---------------------------------------------------------------------------

    With respect to the commenter's requests for clarification on the 
policy basis for the Department's regulations, the Department 
reiterates its policy position and the Department's rationale in the 
NPRM, specifically the discussion set forth at 87 FR 41913 through 
41918. Notably, and we emphasize again, the institutions' use of 
mandatory arbitration agreements impedes the Department's oversight 
authority as arbitral records are often shielded from public view. We 
disagree with the commenters' assertion that publicly available 
documents are freely available elsewhere. In the case of judicial 
records that may be public, some records may be difficult for the 
general public to access because of user registration, fees, and other 
hindrances. The Department's publication of these arbitral and judicial 
records in a centralized database supports open government initiatives 
to help ensure consistency, increase transparency, and establish self-
service opportunities for stakeholders, especially for borrowers or 
prospective students.
    In response to the commenter's request to clarify whether the 
Department has considered the potential for individuals to ``troll'' 
the database for clients, we considered the matter and addressed 
confidentiality concerns in the NPRM.\130\
---------------------------------------------------------------------------

    \130\ 87 FR at 41917.
---------------------------------------------------------------------------

    Finally, with respect to the commenters who suggested that the 
Department clarify what it means by ``in connection with any borrower 
defense claim,'' we believe the regulatory text at Sec.  685.300(i)(1) 
provides the parameters of a BD claim, which is a claim based on an act 
or omission that is or could be asserted as a borrower defense as 
defined in the regulations. Thus, we would require institutions to 
submit records in connection with an act or omission that is or could 
give rise to a BD claim.
    Changes: None.
    Comments: Multiple commenters requested that the Department rescind 
the proposal and maintain the current regulations, with regard to pre-
dispute arbitration agreements and class action waivers. Commenters 
asserted that the 2019 Rule cited that the ``primary motivation'' for 
allowing the use pre-dispute arbitration agreements and class action 
waivers was to provide students ``an opportunity to obtain relief in 
the quickest, most efficient, most cost-effective, and most accessible 
manner possible.'' Commenters further stated that when weighed against 
the costs of a trial, the Department chose when issuing the existing 
regulations ``to emphasize speedy relief and accessibility'' in 
resolving grievances. A commenter alleged that the Department did not 
explain why the additional time and cost of a class action lawsuit is 
preferable to the speed of arbitration. Commenters also argued that the 
disclosures currently required under Sec.  668.41(h) protect student 
borrowers by requiring detailed consumer disclosures about the use of 
pre-dispute arbitration agreements and class action waivers, consistent 
with Congress' intent with respect to the utilization of arbitration 
for dispute resolution.
    Discussion: In the NPRM we described the actual effect that class 
action waivers have had in the postsecondary education field on 
students and Federal taxpayers.\131\ Nothing in the comments opposing 
the regulation provides evidence that these effects are exaggerated or 
mischaracterized, that the substantial problems enabled by the use of 
class action waivers has been reduced or eliminated by more modest 
measures, that the disadvantages and burdens the regulation would place 
on schools outweigh the real costs and harm that use of class action 
waivers has already caused, or that there is any reason to expect that 
this pattern will change so that such waivers will not enable these 
same problems in the future.
---------------------------------------------------------------------------

    \131\ 87 FR at 41916.
---------------------------------------------------------------------------

    Reliance upon internal dispute resolution processes and arbitration 
impedes effective program oversight by the Department as well as 
accrediting agencies and other oversight bodies, because institutional 
and arbitral records are often shielded from public view. Prospective 
students may not be able to make informed enrollment and borrowing 
decisions without knowledge of or access to arbitral records that may 
otherwise reveal systemic problems at an institution, whereas public 
knowledge of a class action suit allows prospective students to make 
more informed decisions.
    It is possible that restricting the use of class action waivers may 
in some cases

[[Page 65956]]

increase legal expenses and could divert funds from educational 
services or lead to tuition increases. We also concur that arbitration 
or an internal resolution process may in some cases be faster or less 
costly. However, the 2019 regulations failed to adequately balance the 
costs and benefits of arbitration, focusing too heavily upon the 
premise that arbitration provides speedier results, while failing to 
consider the protection of the interests of the United States, whose 
funds are at stake for BD claims asserted on Direct Loans. Moreover, 
the benefits associated with the availability of a class action suit as 
a borrower remedy are not limited merely to the amount of monetary 
relief or the speed with which a grievance is resolved. The potential 
for a class action lawsuit also offers value as a preventative measure, 
and we expect that the potential for exposure to class actions will 
motivate institutions to provide competitive value and treat their 
student borrowers fairly in order to reduce the likelihood of such 
suits occurring.
    In response to comments that the disclosures currently required 
under Sec.  668.41(h) protect students, the Department does not believe 
that there is evidence that such protections are adequate to safeguard 
borrowers against harm. Since the issuance of the 2019 regulations, the 
Department has heard from borrowers, student advocacy groups, State 
attorneys general, and the public about problems arising from mandatory 
class action waivers and the opaqueness of institutional and arbitral 
records. In a review of court filings, the Department observed that 
institutions frequently relied on pre-dispute arbitration clauses to 
discourage students from filing appropriate claims in court and to 
force them into arbitration. The records of these arbitration 
proceedings are not publicly accessible.\132\ State attorneys general 
\133\ have also written the Secretary to request a BD discharge on 
behalf of the borrowers in their states and the Department found that 
the students' enrollment agreements purported to bar such borrowers 
from bringing a BD claim to the Department, even though they had a 
legal right to do so. Finally, the Department was also apprised of 
reports and studies that suggest that, in other consumer-related 
fields, forcing individual borrowers into arbitration with businesses 
that have experience with arbitration and which were involved in 
structuring the arbitration process tilted in the favor of the industry 
irrespective of the amount of disclosures that were made.\134\
---------------------------------------------------------------------------

    \132\ Britt v. IEC Corp., No. 20-CV-60814, 2021 WL 4147714 (S.D. 
Fla. Sept. 13, 2021); Hadden v. Univ. Acct. Servs., No. 18-CV-81385, 
2020 WL 7864091 (S.D. Fla. Dec. 31, 2020); Cheatham v. Virginia 
Coll., LLC, No. 19-CV-04481, 2020 WL 5535684 (N.D. Ga. Sept. 15, 
2020); Mosley v. Educ. Corp. of Am., No. 20-CV-105, 2020 WL 3470174 
(N.D. Ala. June 25, 2020); Caplin v. Everglades Coll. Inc., No. 20-
CV-21886, 2020 WL 10224161 (S.D. Fla. Nov. 2, 2020).
    \133\ See https://coag.gov/app/uploads/2022/06/CEHE-BD-application-6.30.22.pdf.
    \134\ Mark Egan, Gregor Matvos, & Amit Seru, Arbitration with 
Uninformed Consumers, Harvard Business School Finance Working Paper 
No. 19-046, at 1 (May 11, 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3260442 (in study of consumer arbitration in 
the securities industry, explaining that the ``the pool of 
arbitrators skews pro-industry due to competition'').
---------------------------------------------------------------------------

    In sum, the Department's position is that class action waivers 
contribute to an environment in which bad actors can mask abuses, delay 
or evade accountability, and harm borrowers by restricting access to 
the full array of relief available to them under the law.
    Changes: None.

Legal Authority

    Comments: A few commenters opposed the Department's pre-arbitration 
and class action waiver regulations and argued that the restriction on 
mandatory pre-dispute arbitration agreements and class action waivers 
violates decades of public policy favoring arbitration and that courts 
have ruled that prohibitions against arbitration violate the FAA.
    Discussion: As we explained in the 2016 NPRM, the Department lacks 
authority, to displace or diminish the effect of the FAA and does not 
invalidate any arbitration agreement, whether already in existence or 
obtained in the future. This is true for these regulations as well; we 
are not displacing or diminishing the effect of the FAA, and these 
regulations do not affect any arbitration agreement in existence or 
obtained in the future.
    As we explained in the NPRM, this position has prevailed in Federal 
district court.\135\ Specifically, the court in California Association 
of Private Postsecondary Schools v. Devos noted that ``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.'' \136\ 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. 
We further noted that regulations issued by the U.S. Department of 
Health and Human Services (HHS) in 2019, which barred health care 
facilities participating in the Federal 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 Federal programs.\137\
---------------------------------------------------------------------------

    \135\ 87 FR at 41915 (citing Cal. Ass'n of Priv. 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)).
    \136\ Id.
    \137\ Northport Health Servs. of Ark. v. U.S. Dep't of Health & 
Human Servs., 14 F.4th 856, 866-69 (8th Cir. 2021).
---------------------------------------------------------------------------

    Changes: None.
    Comments: A few commenters contended that the Department lacks the 
authority to regulate on arbitration agreements or class action 
waivers. In these commenters' view, absent an explicit statutory 
authority to regulate on arbitration agreements and class action 
waivers, the Department cannot prohibit an institution from including 
in the institution's enrollment agreements an arbitration agreement or 
class action waiver in the filing of a BD claim.
    Discussion: The Department respectfully disagrees with these 
commenters. Under Sec. 454(a)(6) of the HEA, the Secretary shall 
include in the institution's 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. Moreover, 
Sec. 410 of the 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.\138\ Under Sec. 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.\139\ Collectively, the above statutory authorities 
granted to the Secretary gives the Department broad discretion to 
regulate on arbitration agreements and class action waivers as they 
relate to a BD claim.
---------------------------------------------------------------------------

    \138\ 20 U.S.C. 1221e-3.
    \139\ 20 U.S.C. 3474.
---------------------------------------------------------------------------

    Changes: None.

Definitions

    Comments: A few commenters requested that the Department modify its 
definition of ``borrower defense claim'' in Sec.  685.300(i) to be a 
claim

[[Page 65957]]

based on an act or omission that is or could be asserted as a borrower 
defense. These commenters note that for purposes of the pre-dispute 
arbitration and class action waiver provisions, clarity around a 
borrower defense claim is needed given the Eleventh Circuit ruling in 
Young v. Grand Canyon University, Inc.\140\
---------------------------------------------------------------------------

    \140\ 980 F.3d 814, 821 (11th Cir. 2020).
---------------------------------------------------------------------------

    Discussion: The proposed rule's definition of a BD claim included 
as an element an actionable act or omission, which refers to the 
enumerated categories or conduct that may serve as a basis for a 
borrower defense. Because the definition is inclusive of such an act or 
omission, we were concerned that adding a reference to a claim based on 
that act or omission would risk being superfluous. Nevertheless, 
considering the Eleventh Circuit ruling in Young,\141\ which focused on 
a BD claim and the regulatory language we constructed, the Department 
will incorporate the language proposed by the commenters.
---------------------------------------------------------------------------

    \141\ In Young, the Eleventh Circuit stated that our regulation 
was ``poorly written'' but ultimately confirmed that the regulatory 
language prohibited GCU from compelling the plaintiff from 
arbitrating the borrower defense claim. Id. at 815, 821. To minimize 
confusion, we will incorporate the commenters' proposed by 
commenters.
---------------------------------------------------------------------------

    Changes: We revised Sec.  685.300(i) to define a borrower defense 
claim as a claim based on an act or omission that is or could be 
asserted as a borrower defense as defined in the BD regulations.
    Comments: One commenter expressed concern about institutions that 
contract with online program managers (OPMs). The commenter indicated 
that OPMs develop, deliver, and recruit for online degree programs that 
are marketed and promoted using the brand name of their institutional 
clients. OPMs are compensated by a percentage of revenue raised from 
the academic programs they manage, which set up incentives like those 
found among predatory institutions. The commenter urged the Department 
to consider OPMs covered under the pre-dispute arbitration and class 
action waiver regulations.
    Discussion: As we stated in the NPRM, 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.\142\ 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.
---------------------------------------------------------------------------

    \142\ 87 FR at 41917.
---------------------------------------------------------------------------

    Changes: None.

Interest Capitalization (Sec. Sec.  685.202, 685.208, 685.209)

General Support for Interest Capitalization Regulations

    Comments: Many commenters expressed their support for our proposal 
to end interest capitalization on Direct Loans where it is not required 
by the HEA.
    One commenter noted that the proposed rule will have the effect of 
slowing growth on the balance of loans and create a fairer repayment 
system. This commenter also stated that interest capitalization imposes 
financial burdens on borrowers who are already experiencing financial 
instability.
    Commenters pointed out that ending interest capitalization would 
assist many borrowers who have struggled with high loan balances and 
repayment of their loans since their overall amount of interest paid 
would be significantly lower.
    Discussion: The proposed regulations eliminated most of the current 
regulatory provisions that require capitalization for Direct Loans 
under circumstances when it is not required by statute. 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 income-contingent repayment (ICR) plan; when a borrower 
defaults on a loan; when a borrower who is repaying under the Pay As 
You Earn (PAYE) income-driven repayment plan fails to recertify their 
income or chooses to leave the plan; and when a borrower who is 
repaying under the Revised Pay As You Earn (REPAYE) plan, fails to 
recertify their income or leaves the plan. As noted later in this 
preamble, the Department missed two instances of interest 
capitalization that are not statutorily required in the NPRM but will 
be included in this final rule, which is why we describe the proposal 
as covering ``most'' instances of capitalization. We believe the final 
rule will now cover all instances where capitalization is not required 
by statute.
    Although the Department will not capitalize interest, it will still 
accrue while a borrower is in these situations. The borrower will have 
to pay that interest before a payment is applied to the principal 
balance.
    The Department cannot change interest capitalization requirements 
in the HEA. This includes when a borrower exits a period of deferment 
on an unsubsidized loan and when a borrower who is repaying loans under 
the income-based repayment (IBR) plan is determined to no longer have a 
partial financial hardship, including if they fail to annually 
recertify income.
    Changes: None.
    Comments: Many commenters asked the Department to make the 
elimination of interest capitalization retroactive.
    Discussion: The Department thanks these commenters for their 
support for the amendments to these regulations. The Department does 
not have the authority to make these changes retroactive.
    Changes: None.
    Comments: One commenter requested the Department eliminate interest 
capitalization for all Federal student loans and require student loan 
servicers to reduce the principal balances by the amount of capitalized 
interest charged over the original amount borrowed.
    Discussion: In this regulation, the Department eliminates all 
instances of interest capitalization on Direct Loans that we can 
address through regulation.
    Changes: None.
    Comments: A few commenters recommended the Department end the 
practice of capitalizing interest for borrowers while they are still in 
school.
    Discussion: The Department does not capitalize interest while the 
borrower is in school. Instead, capitalization occurs when a borrower 
who is in school moves into repayment. In this regulation, the 
Department ended capitalization when a borrower first enters repayment 
on a loan. Borrowers who enter repayment and then return to school on 
at least a half-time basis are placed on an in-school deferment. 
Capitalization does occur when the in-school deferment ends, but that 
is a statutory requirement that we cannot change.
    Changes: None.
    Comments: A few commenters suggested that we remove all instances 
of capitalization where we have the legal authority to do so. They 
noted two instances where we could do so yet were not reflected in the 
NPRM--when a borrower is repaying loans under the alternative repayment 
plan and when a borrower no longer has a partial financial hardship 
under the PAYE repayment plan.
    Discussion: We agree with the commenters who suggested these two 
additional areas where we have the authority to eliminate interest 
capitalization. The Department intended to remove all instances of 
interest capitalization that were not required by statute in our 
proposed regulations.

[[Page 65958]]

During the development of the regulations through the negotiated 
rulemaking process, however, these two instances were missed. We 
believe these changes are consistent with the Department's overall 
goals and in the best interest of borrowers. We thank the commenters 
for their suggestions, which we accepted.
    Changes: The Department is amending the regulations to remove 
interest capitalization at Sec.  685.208(l)(5) when a borrower is 
repaying under the alternative repayment plan and at Sec.  
685.209(a)(2)(iv)(A)(1) when a borrower no longer has a partial 
financial hardship under the PAYE repayment plan.
    Comments: One commenter expressed concerns for borrowers who were 
not aware of how interest capitalization would apply to their loans and 
were not always given proper information or counseling on it. They 
urged the Department to eliminate all instances of interest 
capitalization on Federal student loans. Another commenter requested 
that the Department eliminate interest capitalization in all instances.
    Discussion: Every borrower is required to complete entrance 
counseling to ensure they understand the terms and conditions of their 
loan. Borrowers learn through entrance counseling how interest works, 
their repayment options, and how to avoid delinquency and default. 
Information regarding interest and repayment is also included in the 
master promissory note which the borrower signs. However, the 
Department agrees that the counseling may not prevent all borrower 
confusion around interest capitalization. Removing instances of 
interest capitalization where not required by statute will thus be one 
less thing for borrowers to have to understand when going through 
counseling.
    As discussed earlier, the Department cannot eliminate interest 
capitalization where it is required by the HEA.
    The Department is eliminating interest capitalization in all 
circumstances where we have the discretion to do so. These changes only 
apply to Direct Loans. We do not have a legal basis to make the 
suggested changes in the FFEL program regulations. The terms of FFEL 
program loans are set by the promissory note signed by the borrower and 
the lender, and the lender has a right to receive the return on the 
loan that was set under the law at the time the loan was made. In this 
case, the regulations and the promissory note give the lender the right 
to capitalize interest in most cases. The assumption is that the lender 
took that into account when deciding that it was financially worthwhile 
to make the loan.
    The interest rates on all Federal student loans, including those in 
the FFEL Program, are set by Congress and cannot be changed by the 
Department.
    Changes: None.
    Comments: A few commenters stated that borrowing Federal student 
loans with interest capitalization makes education costlier for 
graduate students who face capitalizing events because they are 
enrolled in income-driven repayment (IDR) plans that require annual 
recertification of income.
    Discussion: We have addressed this concern by eliminating interest 
capitalization on Direct Loans when a borrower who is repaying under 
the PAYE plan fails to recertify income and when a borrower who is 
repaying under the REPAYE plan leaves the plan.
    Changes: None.
    Comments: Some commenters requested that the Department no longer 
capitalize interest when borrowers consolidate their Federal student 
loans into a Federal Direct Consolidation Loan.
    Discussion: The Department does not believe such a change would be 
appropriate. Taking out 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. That is different from the capitalization events 
covered in this final rule, in which outstanding interest is added to 
the principal balance of the existing loan.
    Changes: None.

General Opposition to Changes in Interest Capitalization

    Comments: One commenter writing in opposition to the changes to 
interest capitalization produced a hypothetical example that showed the 
dollar savings to the borrower from eliminating capitalization would be 
small per $100 borrowed. The commenter also argued that the size of the 
savings versus the cost of the proposal both financially, for servicers 
to implement it, and borrowers to understand it, may not pass a cost 
and benefit analysis. They suggested the changes to interest 
capitalization be limited only to new borrowers going forward.
    Discussion: We disagree with the commenter. The example used is for 
a one-time, short-term capitalization event and does not account for 
the long-term effects of capitalized interest or the possibility of 
multiple capitalization events. Those items are reflected in the 
estimated cost of the policy in the Regulatory Impact Analysis. 
Moreover, there would not be any costs to the borrower from 
understanding this policy because it would be implemented automatically 
to provide them a benefit. If anything, it would reduce costs for 
borrowers related to comprehending student loan repayment since the 
Department has found that borrowers are often confused as to why their 
balances have grown. Additionally, we compensate servicers for their 
time spent updating policies and procedures. We also anticipate 
reducing this burden will reduce the number of phone calls servicers 
must field from borrowers who are unhappy with their loan balance 
growing. Finally, this benefit should be available to all borrowers in 
repayment going forward. There is nothing in the record that would 
justify only providing this type of benefit to new borrowers.
    Changes: None.

Total and Permanent Disability Discharges (Sec. Sec.  674.61, 682.402, 
and 685.213)

    Comments: Many commenters overwhelmingly supported the proposed 
revisions to the TPD discharge regulations. In particular, the 
commenters supported expanding the list of healthcare professionals who 
may certify that a borrower is totally and permanently disabled; 
removing the 3-year income monitoring period; and expanding the 
circumstances that may support a TPD discharge based on SSA disability 
determinations.
    A few commenters suggested that TPD discharges should be extended 
to other groups of disabled borrowers, such as cancer patients; 
partially disabled veterans; primary caretakers and spouses of 
permanently disabled persons; borrowers with permanent disabilities who 
still work; people who have been disabled for over 10 years; and people 
suffering from post-traumatic stress disorder. Commenters argued that 
if there is factual evidence that a student loan borrower is unable to 
engage in any substantial gainful activity by means of the Social 
Security earnings record data demonstrating a period of substantial 
earnings impairment for a continuous period of not less than 60 months, 
then the borrower should qualify for a TPD discharge either 
automatically or upon their own certification of their disability 
status in accordance with the TPD discharge application process.
    Discussion: The Department does not believe that we should specify 
medical conditions that may qualify a borrower for a TPD discharge, but 
instead should describe general criteria for meeting the TPD discharge 
requirements. Many

[[Page 65959]]

borrowers with the conditions cited above may already qualify for a TPD 
discharge under the current regulations either through a physician's 
certification, an SSA disability determination, or a Department of 
Veterans Affairs (VA) disability determination. However, we note that 
TPD discharges as outlined in the HEA are intended for borrowers who 
are totally and permanently disabled, not for the spouse or caretaker 
of a disabled individual. Regarding Social Security earnings, a 
continuous period of low earnings does not necessarily indicate that a 
borrower is disabled and would not in itself be sufficient grounds for 
granting a TPD discharge. We believe that a TPD discharge in such a 
situation would be inappropriate, unless the borrower qualified through 
one of the three means available for receiving a TPD discharge: an SSA 
disability determination, a VA disability determination, or a 
certification from an authorized healthcare professional.
    Changes: None.
    Comments: One commenter raised concerns about the potential 
ramifications stemming from large numbers of borrowers experiencing 
``Long COVID'' (Post-COVID-19 conditions and Post-Acute Sequelae of 
SARS-CoV-2). The commenter expressed the view that many borrowers with 
Long COVID will likely have difficulty obtaining TPD discharges because 
Long COVID is quite new and is little understood by the medical 
community. Testing capacities or treatment avenues for Long COVID 
remain limited, and some medical professionals may not believe that the 
condition exists at all. In addition, in the view of the commenter, 
patients experiencing Long COVID may find it difficult to receive SSDI 
benefits or SSI based on disability at all, much less be classified in 
either the SSA's Medical Improvement Not Expected (MINE) or Medical 
Improvement Possible (MIP) categories. The commenter believes that it 
is more likely that patients with Long COVID would be placed in SSA's 
Medical Improvement Expected (MIE) category, which requires a medical 
review by the SSA after 1 year. The commenter urged the Department to 
revise the regulations in the Final Rule to consider Long COVID and 
other disabling chronic illnesses. The commenter recommended, as an 
intermediate approach, establishing a Long COVID forbearance that would 
both pause loan payments and set the interest rate at 0 percent during 
the forbearance period. The forbearance would apply to borrowers with 
Long COVID, but for whom a TPD discharge determination cannot currently 
be made. The commenter expressed the view that this would provide time 
to add to our body of knowledge about Long COVID while offering some 
relief to borrowers. At a minimum, the commenter requested that the 
Department actively monitor developments with respect to our 
understanding of Long COVID's impact on individuals and assess whether 
TPD discharges are adequately serving borrowers afflicted with Long 
COVID.
    Discussion: While much is not known about Long COVID at this point, 
a borrower suffering from disabilities severe enough to prevent the 
borrower from working would exhibit symptoms that a qualified physician 
or other healthcare professional would be able to diagnose. The 
definition of a total and permanent disability includes a medical 
condition that ``can be expected to last'' or ``has lasted'' for a 
continuous period of not less than 60 months. While physicians and 
other healthcare professionals may be reluctant to certify that a Long 
COVID medical condition can be expected to last for up to 60 months, in 
the near future, they will be able to certify whether the condition has 
lasted for up to 60 months.
    The commenter recommended establishing a new forbearance type 
specifically geared toward borrowers suffering from Long COVID. Even if 
this were feasible, we believe that the existing forbearance and 
deferment provisions render such a regulatory action superfluous. 
Currently, a borrower who is experiencing severe medical problems and 
who does not qualify for any of the existing deferments--such as an 
unemployment deferment or an economic hardship deferment--may apply for 
a forbearance. The Department grants forbearances for borrowers with 
medical conditions that do not rise to the level of a total and 
permanent disability. Interest accrues during forbearance periods. 
While the Department may pause interest accrual during a national 
emergency, the Department does not have the authority to set interest 
rates on title IV loans. Interest rates on title IV loans are 
established by Congress.
    Changes: None.
    Comments: Loans discharged due to TPD are not currently reported as 
a zero balance on the borrower's credit report for up to 3 years after 
the discharge due to the post-discharge monitoring period. A few 
commenters suggested that the change in the monitoring period after a 
TPD discharge also necessitates a change in credit bureau reporting 
practices for title IV loan holders. Commenters also suggested that 
title IV loan holders report these loans as having a zero balance 
immediately after a TPD discharge is granted.
    Discussion: While the final regulations eliminate post-discharge 
income-monitoring, they do not remove the requirement that a loan 
discharged due to TPD may be reinstated if the borrower takes out 
another title IV loan or TEACH Grant during the 3-year post discharge 
monitoring period. Therefore, the consumer credit reporting practices 
of title IV loan holders for loans that have qualified for a TPD 
discharge need to stay unchanged.
    Changes: None.
    Comments: Several commenters stated that under the current proposed 
regulatory language, the Secretary would be required to provide 
automatic relief only if they obtained data from SSA or the VA, but 
there is no obligation to obtain such data. The commenters believe the 
rule should be strengthened to place an affirmative obligation on the 
Secretary to obtain data from the VA and SSA. In addition, the 
Department should work with SSA and the VA (through joint rulemaking or 
other means) to ensure that each agency is bound by the process set 
forth in this regulation. Several commenters encouraged the Department 
to automate the TPD discharge process as much as possible wherever the 
Department can do so for qualifying borrowers to access a TPD discharge 
without an application.
    Discussion: The Secretary obtains TPD discharge data from the VA 
and the SSA through formal agreements with those agencies. The 
Department cannot, through its regulations, bind another agency to 
share with the Department the information necessary to grant a TPD 
discharge. We agree with commenters that automating the TPD process, as 
we have done with our agreements with SSA and VA, is desirable. 
However, we also believe that it is important to maintain a borrower 
application process for borrowers who may not qualify for a TPD 
discharge based on any current or future automated TPD discharge 
process.
    Changes: None.
    Comments: The Department received a few comments objecting to the 
proposal to remove the 3-year income-monitoring period. One commenter 
argued that it would lead to inappropriate TPD discharges that are 
costly to the taxpayer. The commenter referenced Sec. 437(a)(1) of the 
HEA, which directs the Department to develop safeguards that prevent 
fraud and abuse in the discharge of liabilities due to total and 
permanent disability to ensure that TPD discharges are granted only to 
individuals who truly meet the

[[Page 65960]]

statutory definition of total and permanently disabled.
    A few other commenters pointed to the same section of the HEA to 
argue that Congress intended for the Department to have a monitoring 
period. One of these commenters pointed out that Sec. 437(a)(1)(A) and 
(B) of the HEA describe the circumstances under which reinstatement of 
a discharged loan is appropriate. They also noted that Sec. 437(a)(3) 
requires the Secretary to ``establish and implement'' procedures for an 
income monitoring process, apply it ``to each borrower of a loan that 
is discharged due to total and permanent disability'', and use return 
information ``to determine the borrower's continued eligibility for the 
loan discharge.'' Finally, that same commenter also pointed to the 
Fostering Undergraduate Talent by Unlocking Resources for Education 
(FUTURE) Act, which amends the Internal Revenue Code of 1986 to provide 
for the release of IRS tax return data for the purpose of monitoring 
and reinstating title IV loans that were discharged due to a total and 
permanent disability.
    One commenter also pointed to the extensive inaccuracies (and 
potentially fraudulent occurrences of TPD discharges) as described in 
OIG Final Audit Report 06-80001 (June 1999) that were identified prior 
to implementation of the monitoring period. The commenter recommended 
that, rather than returning to what the commenter characterized as the 
1990's discharge process that allowed potential fraud and abuses, the 
Department should instead use the tools Congress has provided to 
minimize paperwork burden on individuals with a disability while also 
minimizing taxpayer burden from the cost of TPD discharges.
    Discussion: Section 437 of the HEA states that the Secretary ``may 
promulgate regulations to reinstate the obligation and resume 
collection on, loans discharged'' due to TPD. That section does not 
require nor make mention of a post-discharge monitoring period, much 
less a 3-year monitoring period. The statutory language in no way 
obligates the Secretary to promulgate such regulations. The HEA does 
state that ``the Secretary may promulgate regulations to reinstate the 
obligation of, and resume collection on, loans discharged under this 
subsection.'' Under these final regulations, loans discharged due to 
TPD will be reinstated under certain conditions. The Secretary will 
require the reinstatement of a borrower's discharged loans if the 
borrower obtains a new title IV loan or TEACH Grant within 1 year of 
receiving the TPD discharge. The commenter inaccurately states that 
limiting the post-discharge monitoring period in this way is a return 
to the TPD discharge process that was in place prior to 1999.
    Moreover, as noted in the NPRM, the Department has found that the 
income monitoring requirement is significantly more likely to result in 
the reinstatement of a loan for a low-income borrower than it is to 
identify someone whose income suggests they are able to engage in 
gainful employment. As noted in the NPRM, 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. However, an analysis conducted by the Department with 
Internal Revenue Service (IRS) data suggests that 92 percent of 
borrowers who received a TPD discharge did not exceed the earnings 
threshold, and that these results are similar for borrowers whose 
discharge is based on an SSA disability determination or physician's 
certification process. Similarly, an older review by GAO \143\ found 
that the overwhelming majority of reinstatements were occurring because 
borrowers were not responding to requests for furnishing income 
information and that very few borrowers were earning above the income 
threshold.\144\ Moreover, while Congress did give the Department 
authority for automatically receiving income data for borrowers who 
received a TPD discharge, that change unfortunately only will provide 
the data at a household level. This is a challenge because the TPD 
requirements are based upon an individual's earnings. That means the 
Department would be unable to ascertain the proper earnings level for 
married individuals through any automatic data match. Therefore, the 
Department is concerned that the income-monitoring requirement is 
something not required by Congress that generates far more false 
positives than real ones and cannot be addressed through automatic 
sharing of income information. Accordingly, the Department maintains 
its position of eliminating the income-monitoring period.
---------------------------------------------------------------------------

    \143\ 87 FR at 41939.
    \144\ https://www.gao.gov/assets/gao-17-45.pdf.
---------------------------------------------------------------------------

    As to the OIG audit, since 1999 the Department has made many 
reforms to the TPD discharge process, including centralizing the TPD 
discharge application review process within the Department, rather than 
relying on guaranty agencies in the FFEL program and school lenders in 
the Perkins Loan program to make TPD discharge decisions. The 
Department has implemented reforms allowing TPD discharges to be 
granted based on SSA or VA disability determinations, rather than 
relying solely on certifications by physicians. Finally, the Department 
has entered into agreements with SSA and VA to allow for automatic 
discharges to be granted based on information provided to us directly 
from these agencies. All of these reforms provide for more consistent 
TPD discharge review and significantly reduce the likelihood of TPD 
discharges being granted in error.
    Changes: None.
    Comments: One commenter expressed dismay over disability fraud, 
calling it widespread. The commenter referenced a particular case 
involving TPD discharges, and cited a June 15, 2022, press release from 
the Department of Justice, stating that the U.S. Attorney's Office of 
the Southern District of New York had charged a nurse practitioner with 
allegedly orchestrating TPD discharges in excess of $10 million on 
behalf of more than 100 borrowers that the nurse practitioner led to 
believe were eligible for various forms of student-loan relief.
    The commenter expressed the view that the while this alleged 
fraudster was caught, the revised rule would enable many more 
fraudsters to operate by enabling lower-level professionals to certify 
a total and permanent disability.
    Discussion: While the Department cannot comment on an ongoing 
investigation, we note that the press release from the DOJ states that 
the charges were brought due to ``the outstanding investigative work of 
the Federal Bureau of Investigation and the U.S. Department of 
Education, Office of Inspector General.'' The commenter has highlighted 
the work that the Department of Education does, through its Office of 
Inspector General, of investigating cases of apparent fraud with regard 
to the student financial aid programs. We expect OIG to continue its 
outstanding work in this regard. We do not see the final regulations as 
impeding that work in any way. In fact, by enhancing BD discharges, 
false certification discharges, and closed school discharges, the 
overall impact of these final regulations will be to reduce fraud in 
the student loan programs.
    Changes: None.
    Comment: One commenter asserted that using an income-monitoring 
period does not have to be a cumbersome process for the disabled 
borrower. The commenter notes that the Department has asserted that 
requiring reinstatement

[[Page 65961]]

of loans for borrowers who have received TPD discharges if the borrower 
does not submit annual income information results in significant 
numbers of reinstatements simply because the borrower did not respond 
to a paperwork request and not because the borrower had earnings above 
the threshold for reinstatement.
    The commenter asserted that the Department's position is untenable 
because borrowers are only required to submit annual income information 
because the Department has failed to carry out the authorization that 
was extended by Congress through the FUTURE Act. The Department could 
easily remedy borrower burden by implementing the automated data match 
as authorized. In doing so, we could alleviate borrower burden while 
protecting taxpayer dollars.
    Discussion: The Department notes that under the COVID-19 HEROES 
waivers, borrowers who have received TPD discharges have not been 
required to provide annual income information. The Department believes 
that a more permanent solution is needed to relieve borrowers of this 
administrative burden by eliminating the regulatory requirement for 
annual income information. Moreover, we note that the authorization 
allowed by the FUTURE Act would still not fully absolve borrowers of 
the burden associated with income monitoring. That is because the 
current TPD income monitoring process looks at the income of the 
individual borrower, but IRS data are not able to provide individual 
income information from a married filing jointly tax return. We would 
thus not have enough information to determine if a married borrower 
filing jointly who received a TPD discharge had earnings that exceeded 
the threshold.
    Changes: None.
    Comments: A few commenters objected to allowing non-physician 
practitioners to make TPD determinations. They believed that current 
law prohibits non-physician healthcare professionals from making such 
determinations and point to State scope of practice laws which may have 
certain limitations on nurse practitioners (NPs), physician assistants 
(PAs), and psychologists diagnosing, prescribing, treating, and 
certifying an injury and determining the extent of a disability.
    Another commenter believed that a licensed psychologist may be 
unable to reasonably certify the inability of a person to function 
productively in society. In the view of the commenter, entrusting TPD 
determinations to an individual psychologist invites fraud and 
incorrect TPD determinations. The commenter felt that the risks of 
error and fraud were not sufficiently weighed against the minor 
additional accessibility that would be available under the proposed 
rule, which, in the view of the commenter, rendered the proposed rule 
arbitrary and capricious.
    Discussion: We believe that expanding the list of healthcare 
providers who may certify a TPD discharge application is imperative in 
enabling eligible borrowers to more easily obtain TPD discharges for 
which they qualify. Many states allow NPs to practice independently, 
meaning that they can run their own healthcare practice without the 
need for a collaborating physician in those states. PAs also have an 
extensive level of knowledge and training in general medicine and, 
while they often practice alongside physicians, PAs can also practice 
independently. When treating a patient, there are no requirements that 
a physician must be on the premises or that each patient must be seen 
by a physician in addition to the PA. The PA can take complete charge 
of patient appointments. A shortage of physicians, especially in poor 
and rural areas, results in NPs and PAs serving as primary healthcare 
providers for many individuals. Allowing NPs and PAs to certify TPD 
applications will be an enormous benefit for borrowers who seek care 
from these types of providers--particularly for those without access to 
doctors. Regarding NPs and PAs being unable to certify TPD discharge 
applications due to State scope of practice laws, the TPD regulations 
do not require NPs or PAs to certify TPD discharge applications; they 
simply allow it. Such individuals should know of the limitations of 
their own state licensure. However, we see no reason to limit the 
authority of all NPs and PAs merely because some States have such 
limitations.
    Psychologists licensed at the independent practice level by a State 
are generally required to have Ph.D.s. They identify psychological, 
emotional, and behavioral issues and diagnose disorders. They provided 
evidence-based clinical services, including psychotherapy, evaluation 
and assessment, consultation, and training. Psychologists who provide 
health care services are primarily independent practitioners. The 
Department believes psychologists licensed at the independent practice 
level are well-qualified to diagnose patients, and to make TPD 
determinations.
    Changes: None.
    Comment: A commenter believed that Sec.  674.61(d)(1) (``Discharge 
without an application'') does not appear to require sufficient 
evidence of a total and permanent disability. The provision states 
merely that it is enough to receive VA data showing that the borrower 
is ``unemployable due to a service-connected disability.'' The 
commenter believed that being ``unemployable'' is a temporary and non-
severe designation rather than a determination of total and permanent 
unemployability or disability. The VA also uses a specific definition 
of ``individual unemployability'' (IU) that distinguishes 
``substantially gainful employment'' from ``marginal employment.'' The 
commenter recommended that the Department should establish its own 
definition of a qualifying disability and make its own determinations, 
on an individual basis, on the basis of that definition.
    Discussion: The commenter's proposal would defeat the purpose of 
using VA disability determinations to grant TPD discharges. The 
language in proposed Sec.  674.61(d)(1) is identical to the language in 
current Sec.  674.61(d)(1). Current Sec.  674.61(d)(1) states that 
``The Secretary may discharge a loan under this section without an 
application or any additional documentation from the borrower if the 
Secretary obtains data from the Department of Veterans Affairs (VA) 
showing that the borrower is unemployable due to a service-connected 
disability.'' The language in these final regulations is consistent 
with the language in the NPRM, and with the language in the current 
regulations.
    The reference to a veteran being unemployable due to service-
connected disability derives from the current definition in Sec.  
674.51(a)(2) which defines ``total and permanent disability as the 
condition of an individual who has been ``determined by the Secretary 
of Veterans Affairs to be unemployable due to a service-connected 
disability.'' This definition, in turn, derives from the statutory 
language which states that a borrower is considered totally and 
permanently disabled if the borrower ``has been determined by the 
Secretary of Veterans Affairs to be unemployable due to a service-
connected condition'' (HEA, Sec. 437(a)(2)).
    Changes: None.
    Comments: One commenter noted that the proposed rule would remove 
Sec.  682.402(c)(7). That paragraph outlines a borrower's 
responsibilities after receiving a total and permanent disability 
discharge. These responsibilities include notification of income and 
notification of the Secretary if the borrower is no longer disabled. 
The commenter believed that this paragraph should be retained and

[[Page 65962]]

similar language provided regarding all of the loan programs that 
permit TPD discharges. The commenter noted that the VA stipulates that 
``veterans may have to complete an employment questionnaire once a year 
for VA to continue to pay [disability] benefits. In the commenter's 
view, this creates an inconsistency between agencies regarding a 
verification of a veteran's level of disability and continuing 
eligibility for disability benefits.
    Discussion: We have removed paragraph 682.402(c)(7) because most of 
the requirements in paragraph (c)(7) relate to income verification, 
which are no longer a requirement under the final regulations. In 
addition, because these final regulations expand the circumstances in 
which a borrower can qualify for a TPD discharge based on an SSA 
disability determination, a change in SSA disability status is less 
concerning, because we are allowing more SSA disability statuses to 
qualify a borrower for a TPD discharge based on an SSA disability 
determination.
    With regard to the VA requiring veterans who are receiving 
disability benefits to submit an employment questionnaire annually, we 
note that VA disability benefits are structured differently than TPD 
discharges. VA disability benefits are ongoing. When the Department 
grants a TPD discharge, it is one-time event. We do not see a need to 
replicate VA's process for determining if a borrower continues to 
qualify for VA disability benefits.
    Changes: None.
    Comment: A commenter noted an apparent inconsistency between Sec.  
674.61(b)(3)(ii) and (b)(3)(vi). The former states that the Secretary 
determines whether the application ``conclusively prove[s]'' the 
disability, but the latter states only that the Secretary determines 
whether the application ``support[s] the conclusion'' that the 
disability qualifies. The commenter believed that ``Conclusively 
proves'' is the right standard because a conclusion should be 
necessary. Mere support toward a conclusion does not determine the 
result. Also, the same inconsistent language of ``support[s] the 
conclusion'' exists at Sec.  682.402(c)(3)(v) and should be changed to 
``conclusively prove.''
    Discussion: We thank the commenter for pointing out the 
inconsistency in language in sections 674.61(b)(3) and 682.402(c)(3). 
However, we note that the ``conclusively prove'' language is the 
inconsistent language. The other two references to the TPD application 
in these sections use the phrase ``supports the conclusion.''
    Changes: We have replaced ``conclusively prove'' with ``supports 
the conclusion'' in Sec. Sec.  674.61(b)(3)(ii) and 682.402(c)(3)(v) so 
the language is consistent throughout these sections. We have also 
replaced the erroneous ``conclusively proves'' language in 
685.213(b)(4)(ii) of the Direct Loan regulations with ``supports the 
conclusion.''
    Comments: None.
    Discussion: In consultation with SSA, the Department adjusted some 
language to better conform with how SSA describes those same items. 
This includes clarifying that the borrower must qualify for SSDI 
benefits or SSI based on disability. It also means referring to 
disability reviews as being continued rather than renewed and 
clarifying that they are scheduled for a certain period instead of 
being definitively within a certain period. The Department also adopted 
the formal term of ``established onset date'' instead of ``disability 
onset date'' to better match the appropriate terminology used by SSA. 
We also noted that the borrower has to qualify for SSDI or SSI benefits 
based on a compassionate allowance because the NPRM language 
incorrectly referred to it as a program and did not have the clear link 
to the SSDI or SSI benefits. None of these changes alter the underlying 
policies as proposed in the NPRM.
    Changes: We have adjusted the language in Sec. Sec.  674.61, 
682.402, and 685.213 to reflect the edits described above as well as 
other technical changes.
    Comments: None.
    Discussion: In the NPRM, the Department proposed that a borrower 
would be eligible for a TPD discharge if they qualify for SSDI benefits 
or for SSI based on disability, the borrower's next continuing 
disability review has been scheduled at 3 years, and the individual's 
entitlement to SSDI benefits or eligibility for SSI based on disability 
has been continued at least once. This meant that a borrower who has a 
determination of Medical Improvement Possible (MIP) that is continued 
as an MIP would be eligible for a discharge. However, upon additional 
review, the Department has determined that the requirement that the 
borrower be continued as an MIP is not necessary. Instead, in this 
final rule the Department has adjusted the requirements to allow a 
borrower who qualifies for SSDI or SSI benefits based on disability to 
be eligible for a discharge if the borrower's continuing disability 
review is scheduled at 3 years. The Department reached this conclusion 
after reviewing research reports from SSA that we had not seen when 
drafting the NPRM. In a September 2020 report filed to Congress about 
its fiscal year 2016 continuing disability reviews, SSA noted that more 
than 97 percent of adult beneficiaries who were initially assigned the 
MIP determination are found to still be disabled even after second and 
later reviews.\145\ This includes mailer deferrals, which are medical 
continuing disability reviews. The fact that all but a very small 
number of individuals initially assigned the MIP determination have 
their disability continued upon review suggests that requiring a 
borrower who receives such a designation to wait for a discharge under 
the proposal in the NPRM is not outweighed by the possibility of 
identifying the potentially small number of borrowers who may not have 
their disability status continued. Accordingly, this change to grant a 
discharge upon the initial MIP determination best meets the 
Department's goals of making the TPD process simpler for borrowers to 
navigate and capture additional circumstances that meet the 
requirements of the HEA.
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    \145\ https://www.ssa.gov/legislation/FY%202016%20CDR%20Report.pdf.
---------------------------------------------------------------------------

    Changes: We have adjusted Sec.  674.61(b)(2)(iv)(C)(2), Sec.  
682.402(c)(2)(iv)(C)(2), and Sec.  685.213(b)(2)(iii)(B) to note that a 
borrower is eligible for a discharge upon a determination that they 
qualify for SSDI benefits or for SSI based on disability and the 
borrower's next continuing disability review has been scheduled at 3 
years.

Closed School Discharge (Sec. Sec.  674.33(g), 682.402(d), and 685.214)

General Support for Closed School Discharge Regulations

    Comments: Many commenters expressed general support for the 
proposed closed school discharge regulations, including providing 
automatic discharges after 1 year of closure, noting that these changes 
will broaden eligibility which will increase the number of borrowers 
who receive forgiveness, remove administrative burden and complexity 
for borrowers who have been harmed by a school closure, and simplify 
the eligibility process while reducing the number of students who are 
eligible for a discharge yet do not receive one.
    Discussion: The Department thanks commenters for their support and 
agrees with them on the benefits of these changes to closed school 
discharges.
    Changes: None.

[[Page 65963]]

General Opposition to Closed School Regulations

    Comments: Several commenters expressed a variety of concerns with 
the proposed closed school discharge regulations. In the view of these 
commenters, the proposed regulations:
     Do not consider or acknowledge past orderly closures that 
have been implemented in consultation with and approval from 
accreditors and state educational agencies.
     Risk being overinclusive due to inaccurate student status 
data.
     Create incentives for students to reject teach-out options 
and delay their education.
     May result in unnecessary discharges for borrowers who 
have every intention of returning to their program of study through an 
approved teach-out after 1 year.
     May encourage borrowers to take a discharge and then 
transfer credits.
    These commenters recommended:
     Returning to a 3-year period before granting an automatic 
closed school discharge because many students choose to voluntarily 
take a break between attending the closed school and the teach-out 
institution.
     Only allowing those students who were unable to complete 
their programs because their schools closed to seek closed school 
discharges.
     Disqualifying a borrower for a discharge if they accept 
teach-out at another institution or transfers credits.
    Discussion: The Department respectfully disagrees with the 
proposals from these commenters. We believe that the final rules, with 
the modifications from the NPRM identified later in this section, 
provide reasonable protections for students who attend closing schools 
without adding unnecessary burdens to schools. Below we each address 
each of the components of the comment summary.
    With regard to past orderly closures, we disagree that the final 
rule does not consider this issue. In fact, the conditions that lead to 
a discharge in this rule better align with what occurs during orderly 
closures. An orderly closure generally involves an institution doing a 
combination of teaching out its own students and establishing a teach-
out agreement that gives borrowers a clear path to finishing their 
studies. A borrower who follows either of those paths and finishes 
would not receive a closed school discharge. Unfortunately, the far 
more common occurrence is that borrowers face abrupt closures. Under 
this rule, a poorly managed closure that lacks a teach-out agreement 
will be more likely to result in discharges for borrowers.
    The Department disagrees with the commenters who argued that 
concerns about the Department's student completion information undercut 
the rationale for these regulatory changes. The Department is 
responsible for ensuring that it correctly awards discharges to 
borrowers who are eligible under the regulations. That is an 
operational matter and not regulatory. The Department also reminds 
commenters that it is the institution's responsibility to ensure it is 
entering accurate data about borrower completion status. The Department 
issues reminders to schools about this responsibility. In 2012, the 
Department clarified a series of institutional reporting requirements, 
including requirements to report student enrollment data even when the 
student has received Pell Grants but never a FFEL or DL program loan, 
and even when the student has received Perkins Loans but never a FFEL 
or DL program loan. While enrollment reporting issues were identified 
many years ago, those do not affect the regulatory changes, which focus 
on more recent information.
    We also disagree with the argument that this final rule will create 
incentives for borrowers to take a discharge then simply transfer their 
credits. First, the requirement in the HEA is that the borrower is 
eligible for a discharge if they are unable to complete the program 
because the college closed. The intent is for the student to complete 
their program at the college they were enrolled in. In this final rule, 
the Department is also treating programs completed as part of a teach-
out or as a continuation at another location of the institution as 
equivalent to the completion of the program because both approaches are 
the situations where the program is most likely to be similar to the 
one the borrower was enrolled in. By contrast, it is incredibly common 
for borrowers who transfer credits through other means to lose 
significant numbers of credits. An earlier study of credit transfer by 
GAO found that very few students transferred credits from private, for-
profit colleges and that even when a student moved from one private 
for-profit college to another, they still lost 83 percent of their 
credits on average.\146\ For students transferring from a private 
nonprofit college, the average student lost half or more of their 
credits.\147\ The share of credits lost was a little bit better when 
transferring from public colleges, but those institutions also do not 
commonly close. Borrowers are thus highly likely to lose at least some 
credits when transferring colleges. The Department does not see how a 
borrower who is not able to transfer all their credits to another 
program and is thus forced to potentially pay to retake a course or pay 
for additional credits can be viewed as completing the same program.
---------------------------------------------------------------------------

    \146\ https://www.gao.gov/assets/gao-17-574.pdf.
    \147\ https://www.gao.gov/assets/gao-17-574.pdf.
---------------------------------------------------------------------------

    The Department similarly rejects the suggestions for disqualifying 
borrowers for discharges if they simply accept a teach-out or transfer. 
Those borrowers are eligible for discharges under current rules because 
they did not complete the program. Having the act of transferring or 
taking a teach-out disqualify a borrower for a closed school discharge 
would thus be contrary to the statute.
    Changes: None.

Discharge Without Application

    Comments: Many commenters were generally supportive of the proposed 
automatic closed school discharge provision after 1 year. Other 
commenters opposed automatic discharge after 1 year and proposed the 
Department maintain automatic discharge after 3 years or eliminate the 
automatic discharge provision entirely. Some of those commenters also 
argued that the Department did not correctly present statistics in a 
report from GAO about the extent to which borrowers who received an 
automatic discharge had defaulted or faced struggles on their loans. 
Several commenters believed that the proposed regulations were not 
sufficient to immediately support student loan borrowers that are 
harmed by the closure of their institutions. These commenters noted 
that the HEA requires the Secretary of Education to discharge the loans 
of students who are unable to complete their program due to school 
closure and proposed granting automatic closed school discharge relief 
to all students immediately upon a school's closure, regardless of 
whether the student transfers to another program. One commenter 
proposed that, as an alternative, the Department should grant automatic 
closed school discharges to all affected borrowers within 90 days after 
a school closure. Multiple commenters noted that, while they support 
automatic discharge provision after 1 year for students that do not 
complete a teach-out agreement, the Department should further clarify 
that students who do not accept a teach-out agreement are eligible 1 
year post closure.
    Discussion: We appreciate the support from commenters for the 
automatic discharge provision and disagree with those who propose 
lengthening it to 3 years or eliminating it entirely. As noted

[[Page 65964]]

by GAO, significant numbers of borrowers do not re-enroll when their 
college closes. In a September 2021 report, GAO found that 43 percent 
of borrowers whose colleges closed from 2010 through 2020 did not 
enroll in another institution or complete their program. As GAO noted, 
this showed that ``closures are often the end of the road for a 
student's education.'' \148\
---------------------------------------------------------------------------

    \148\ https://www.gao.gov/assets/gao-21-105373.pdf.
---------------------------------------------------------------------------

    The data obtained from GAO persuaded the Department that waiting 3 
years from closure for issuing automatic discharges is too long. GAO's 
data found that 52 percent of the borrowers who received an automatic 
discharge had defaulted, while another 21 percent had been more than 90 
days late at some point. Moreover, the majority of those who did 
default, did so within 18 months of closure. GAO also found that among 
the borrowers who did transfer, almost half had not finished their 
program within six years of switching schools. GAO also found that the 
borrowers who transferred but did not finish had a particularly low 
closed school discharge application rate.\149\
---------------------------------------------------------------------------

    \149\ https://www.gao.gov/assets/gao-21-105373.pdf.
---------------------------------------------------------------------------

    The high default rates of borrowers who do not re-enroll, 
especially the significant share defaulting within 18 months of 
closure, and the low application rates of borrowers who did not 
complete after enrolling elsewhere convince the Department that there 
are far too many borrowers missing out of closed school discharges that 
should be captured by an automatic process. As articulated in the NPRM, 
setting automatic discharges 1 year after the closure date for 
borrowers who do not re-enroll affords an opportunity to catch 
borrowers before they could default.
    We agree that the final regulations should provide a more precise 
timeline for granting automatic closed school discharges. However, we 
feel that granting such discharges immediately, or 90 days after 
closure, is too soon. Borrowers need more time to decide on their 
options, and a borrower who intends to enroll in a teach-out or 
continue their program at another branch or location of the school may 
not do so within such a short time frame. As discussed above, we think 
the 1-year period properly balances giving students time to figure out 
whether to continue their program at another branch or location of 
their school or through a teach-out while still helping borrowers 
before they could default. We have clarified that the closed school 
discharge will be provided 1 year after closure for a borrower who does 
not continue the program at another branch or location of their school 
or through a teach-out. Prior language had said ``within 1 year,'' 
which was too vague.
    We also agree that the proposed regulations could better clarify 
that the automatic closed school discharge applies to borrowers who 
accept a continuation of their program at another branch or location of 
their institution or a teach-out if they do not ultimately finish that 
continuation or teach-out. Therefore, in the final regulations, we 
specify that the automatic closed school discharge will be approved 1 
year after the date of last attendance in the continuation of the 
program or the teach-out for a borrower who accepts either of those 
paths but does not complete the program.
    Changes: We have revised the regulations in Sec. Sec.  674.33(g), 
682.402(d), and 685.214 to specify that an automatic closed school 
discharge occurs 1 year after the school closure date for borrowers who 
do not take a teach-out or a continuation of the program. For borrowers 
who accept a teach-out or a continuation of the program at another 
branch or location of the school but do not complete the program, their 
discharge would be done 1 year after their final date of enrollment in 
the teach-out or at the other branch or location of the school.
    Comments: Multiple commenters proposed that the Department 
implement an automatic 1-year grace period between the school closure 
date and the date borrowers are entitled to the automatic discharge. 
These commenters noted that allowing for a 1-year grace period is a 
less burdensome and more just approach as opposed to requiring 
borrowers enter repayment for six months and then having the Department 
refund the borrowers six months later.
    Discussion: The Department does not have the legal authority to 
extend the grace period on repayment. Grace periods are established by 
statute.
    Changes: None.

Teach-Out Plans and Agreements

    Comments: Several commenters stated that if the Department does not 
accept proposed suggestions to provide students with an immediate and 
automatic discharge after a closure, the Department should consider 
ways to better address teach-outs. These commenters noted that while 
teach-out agreements are subject to more stringent requirements than 
teach-out plans, they still only provide a reasonable opportunity for 
program completion and do not guarantee that students will be able to 
transfer all or even a majority of their credits, or access comparably 
priced programs. These commenters recommended that the Department 
strike the provisions denying a discharge to students who complete a 
teach-out plan or agreement. As an alternative, the commenters 
recommend that the Department strike the provision referring to teach-
out plans and limit the exclusion of students who complete teach-out 
agreements to students who actually complete a comparable program in a 
reasonable amount of time. Additionally, the commenters noted that the 
Department could limit the exclusion to students who are able to 
transfer most or all their previously earned credits.
    A few commenters recommended that the Department reconsider 
provisions allowing borrowers to receive a discharge where they did not 
complete a teach-out because this would sanction institutions that made 
a good faith effort to provide an alternative for students in the event 
of a closure. Other commenters argued that still providing discharges 
for borrowers who moved to another school through a transfer agreement 
could discourage the creation of such options.
    Several other commenters stated the Department must create a strong 
incentive for schools to provide students with an opportunity to 
complete their program through an approved teach-out.
    Some commenters recommended that the Department clarify the 
treatment of what happens if a borrower accepts a teach-out agreement 
but is unable to complete it due to circumstances in which a borrower 
was subject to an academic, disciplinary, or other ``fault'' dismissal.
    Discussion: Under Sec.  600.2 a teach-out agreement is defined as 
``A written agreement between institutions that provides for the 
equitable treatment of students and a reasonable opportunity for 
students to complete their program of study'' in the case of closure. 
Approved teach-out agreements that provide equitable treatment should 
not include cases where all or the majority of credits are not 
accepted, where charges are significantly higher, or the institution 
conducting the teach-out does not meet necessary licensure and 
accreditation requirements. The Department believes that the proposal 
provides necessary protections for students harmed by a closure, and 
more closely aligns with statutory language. The statute states that a 
borrower is eligible for a discharge if the student ``is unable to 
complete the program in

[[Page 65965]]

which such student is enrolled due to the closure of the institution.'' 
The Department believes that if a student continues the program at 
another branch or location of the school or through an approved teach-
out agreement then it is reasonable to treat these as students 
finishing the program they were enrolled in at the school that closed. 
These pathways incentivize students to complete their program while 
providing protections in case they ultimately do not finish. The 
Department believes the inclusion of teach-out agreements or continuing 
the program at another branch or location in consideration of a closed 
school discharge incentivizes institutions to engage in an orderly 
closure, which would reduce an institution's potential liability. In 
the event a student accepts a teach-out agreement or a continuation of 
the program at another branch or location and finds that the 
institution is not the right fit or the student is unable to complete 
the program, the student remains eligible for an automatic discharge 1 
year after their last date of attendance because the student was unable 
to complete their program due to the closure. Additionally, the 
Department believes that a student being unable to complete a teach-out 
because of academic, disciplinary, or other fault dismissal, will be an 
exception and maintains its current proposal.
    The Department reminds commenters that the providing of discharges 
for a borrower who accepts but does not finish a teach-out agreement is 
not a change from current practice. Under current regulations, a 
borrower who transfers but then does not finish the program is still 
eligible for a discharge. However, previously, they were not eligible 
for an automatic discharge. But as the GAO report mentioned earlier 
notes, very few of the borrowers who do engage in such a transfer still 
apply for a discharge. Accordingly, the Department believes keeping the 
automatic discharge option for those borrowers is appropriate.
    The Department disagrees with suggestions to make students 
ineligible for a discharge if they accept a transfer agreement. The 
language in the HEA is tied to the borrower's completion of the 
program. A teach-out or a continuation of the program at another branch 
or location of the school is designed to be analogous to the program 
the borrower was in. A transfer agreement does not provide the same 
protections that a teach-out does, such as requirements around the 
equitable treatment of students.
    Changes: None.

180-Day Lookback Window

    Comments: Multiple commenters expressed support for changes that 
extend the period that a borrower who withdraws from a closed school is 
eligible to receive a discharge from 120 days to 180 days. One 
commenter noted that the extension provides needed additional time and 
builds in consistency across loan types. Several commenters opposed 
extending the lookback window to 180 days. The reasons for opposing the 
extension include that doing so provides too much uncertainty, a 180-
day window should only occur when a borrower can demonstrate harm, and 
that 180 days is too long and allows discharges with no causal 
connection to why they did not finish. Some of these commenters 
suggested a 120-day lookback window would be more appropriate. While 
several commenters supported the change, these commenters suggested 
that the Department should lengthen the lookback window to 1 year and 
to make extending it further mandatory where extenuating circumstances 
are present. The commenters noted that a 1-year lookback window helps 
better protect students and is less burdensome to administer because 
the reality of school closures is that they typically occur after a 
sustained period of systemic failures in the administration of the 
institution.
    Discussion: The Department appreciates the support for the 180-day 
lookback window and believes that it strikes the proper balance between 
capturing students who may have seen that a school was heading toward 
closure, without providing so long a period that a departure may be 
entirely unconnected to a closure. The Department notes that all loans 
disbursed on or after July 1, 2020, already have access to a 180-day 
lookback window so this is not a change for new loans going forward. 
While many institutions announce their ultimate closure with no 
warning, there are almost always warning signs along the way that an 
institution may be struggling or facing potential adverse actions that 
could either put its title IV aid at risk or result in it losing 
accreditation--two conditions that may affect an institution's decision 
to close. A 120-day lookback window would not provide enough protection 
for borrowers in case there is a decline in quality over the final 
academic year of an institution's operation. A 180-day lookback window 
is half a calendar year and will encompass a final term for an 
institution that operates on a semester basis. This allows that if a 
borrower was concerned about a school's situation in the final term in 
which it is in operation and decided to leave, their departure could be 
captured for a closed school discharge. The Department also reminds 
commenters that the Secretary retains the flexibility to extend the 
lookback window under exceptional circumstances in the more limited 
cases where going back further than 180 days may be warranted because 
of other significant events indicating a trajectory toward closure and 
in consideration of a precipitating events impact on student 
enrollment.
    Changes: None.

Exceptional Circumstances

    Comments: Several commenters expressed support for the exceptional 
circumstances provisions in the NPRM. One commenter recommended the 
inclusion of additional exceptional circumstances in the final 
regulations. The commenter recommended adding to the list of 
exceptional circumstances evidence of material reductions in 
instructional expenses or student services by the institution which the 
commenter believed could be indicative of an institution's 
disinvestment in its students and programs and be predictive of a 
future closure. The commenter also recommended adding an institution's 
placement on heightened cash monitoring under Sec.  668.162(d)(1) 
(known as HCM1) if that status was not resolved prior to closure. The 
commenter noted that while an institution could be placed on HCM1 for a 
variety of reasons, some of those reasons are extremely serious, such 
as ``severe'' findings in a program review or by the institution's 
auditor. The commenter believed that including HCM1 on the list of 
``exceptional circumstances,'' would provide the Department with an 
impetus to consider the reasons why an institution was placed on HCM1 
and would still provide the Department flexibility to choose not to 
extend the look-back window if the reasons for HCM1 do not rise to a 
sufficient level of concern. In addition, the commenter recommended 
that the Department also consider including placement on the 
reimbursement payment methodology, as defined in Sec.  668.162(c), as 
one of the factors on the list of ``exceptional circumstances'' since 
that is a significantly more serious financial responsibility status 
than HCM2. The commenter also believed that the Department should 
consider cases in which a majority of the students attending an 
institution might be affected by a program discontinuation. The 
commenter noted that there may be circumstances in which a significant

[[Page 65966]]

share of programs might not have closed at an institution, but that a 
small number of programs which include the majority of students at that 
institution might be discontinued, which should rise to the level of an 
``exceptional circumstance.'' Therefore, the commenter encouraged the 
Department to add the situation of when a majority of the students 
attending the institution might be affected by a program 
discontinuation as an exceptional circumstance. Finally, the commenter 
recommended that the Department consider instances where an institution 
makes misrepresentations regarding its financial health to students, 
shareholders, or any government agency.
    A few commenters recommended that the Department ensure the 
lookback window includes whenever a closing school announced its 
intentions to go out of business because schools can avoid liability by 
announcing that they will close more than 180 days in advance. One 
commenter pointed out that schools may publicly announce that they are 
going out of business up to a year before school closure and that such 
an announcement should be included as an exceptional circumstance.
    Multiple commenters proposed making the extension of the lookback 
window automatic at the sign of the first occurrence of any exceptional 
circumstance. These commenters cited evidence that the Department has 
not always extended the window even though it has had the ability to do 
so.
    Finally, several commenters opposed the additional list of 
exceptional circumstances and proposed the Department omit the proposal 
while others proposed that the Secretary should be required to include 
a rationale to demonstrate how a triggering event harmed the withdrawn 
student before approving a discharge based on exceptional circumstance. 
One commenter suggested that the Department should not include or 
expand the Secretary's exceptional circumstance authority, specifically 
identifying instances where schools are placed on probation by their 
accreditor because schools are often placed on probation and these 
statuses do not show sufficient legitimate risk of closure.
    Discussion: The ``exceptional circumstances'' provisions are 
intended to allow the Secretary the flexibility to extend the lookback 
window as the Secretary deems necessary. The Department does not 
believe that every example of an exceptional circumstance included on 
the list would apply to every school closure or be related to the 
eventual closure in every instance. Therefore, we do not believe that 
exceptional circumstances should be automatic or that the regulations 
need to include more specificity as to the conditions under which the 
Secretary may extend the lookback window. Similarly, the examples 
provided under exceptional circumstances are just that--illustrative 
examples. The list is not intended to be an exhaustive list of 
circumstances or a list that will apply in every instance of a closed 
school discharge, and the Department sees no value in adding additional 
items to the list or providing additional clarity on when the Secretary 
will rely on an exception to extend the window. We note that the 
Secretary may take the recommended additional ``exceptional 
circumstances,'' as well as other circumstances not enumerated here, 
into consideration in determining that it is necessary to extend the 
180-day lookback window. In addition, in cases that involve 
misrepresentation to students, it may be more appropriate for the 
borrower to pursue relief under the BD regulations. Finally, we note 
that in deciding to extend the 180-day lookback window, the Secretary 
will consider an event's impact on students in deciding to execute an 
extension.
    We disagree with the commenters that proposed further limitations 
on the exceptional circumstances authority. The circumstances behind 
institutional closures will vary, and it is important to preserve 
flexibility for the Secretary to acknowledge situations that are 
exceptional.
    Changes: None.

Closure Date

    Comments: A few commenters expressed concern with the proposed 
regulations under Sec. Sec.  674.33(g)(1)(ii)(A), 682.402(d)(1)(ii)(A), 
and 685.214(a)(2)(i) that 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. These commenters 
believed that under the proposed regulations a school that was still 
providing educational instruction and still had enrolled students could 
be considered a closed school for discharge purposes, without 
consideration of whether students could complete. A few commenters 
proposed that the Department withdraw the proposed definition of 
closure date or offer additional clarity. Other commenters recommended 
that the Department provide a clear and singular definition of 
``closure date.''
    Other commenters recommended that the Department clarify the 
meaning of ``most programs'' and ``most of its students'' in Sec.  
685.214(a)(2)(i) and clarify whether the Department will employ any 
thresholds for these determinations. Still other commenters recommended 
that the Department clarify the preamble language in the NPRM stating 
that the provisions will not apply to small institutions that remain 
open but that close ``a program or two.'' These commenters stated that 
the preamble language is too imprecise. A few commenters recommended 
that the Secretary consult with accreditors and the State to make 
determinations of closure on a case-by-case basis. Others requested 
that the Department clarify the language and include it as regulatory 
text in the final regulation. Some commenters also asked that the 
Department not treat an institution that is conducting an internal 
teach-out as an instance of trying to adjust the closure date to avoid 
the lookback period.
    Discussion: We agree that the proposed language could lead to 
confusion. The language was only intended to establish a closure date 
for a school that has ceased overall operations. A school that has 
remained open would not be considered a closed school. The Department 
has clarified the language to state that, if a school has closed, its 
closure date for purposes of determining the beginning date of the 180-
day lookback window, would be the earlier of: the date, determined by 
the Secretary, that the school ceased to provide educational 
instruction in programs in which most students at the school were 
enrolled, or a date determined by the Secretary that reflects when the 
school ceased to provide educational instruction for all of its 
students. This language is important to protect against a situation 
where an institution could intentionally keep a single, small program 
open long enough to avoid the 180-day lookback window, otherwise 
denying closed school discharges to borrowers.
    Regarding the terms ``most programs'' and ``most of its students,'' 
these terms are referring to dates ``determined by the Secretary'' or 
``chosen by the Secretary.'' Since these dates are established by the 
Secretary at the Secretary's discretion, there is no need to provide a 
specific definition of the word ``most'' for the purpose of these 
regulations. However, the revisions to Sec. Sec.  674.33(g)(1)(ii)(A), 
682.402(d)(1)(ii)(A), and 685.214(a)(2)(i) further clarify that changes 
to the closure date need to be tied to an

[[Page 65967]]

institution that did cease operations should address many of the 
commenters' concerns.
    Regarding the internal teach-out, these often are only offered to a 
small subset of students and finish after the closure date. The 
borrowers who finish through an internal teach-out would not be 
eligible for a closed school discharge since they completed their 
program at the institution.
    Changes: We revised Sec. Sec.  674.33(g)(1)(ii)(A), 
682.402(d)(1)(ii)(A), and 685.214(a)(2)(i) as described above.

Terms in Need of Further Clarification

    Comments: A few commenters believed that the proposed regulations 
contained several undefined or weakly defined terms for key aspects of 
the closed school discharge regulations. Commenters recommended that 
the Department more effectively address and define ``closed school'' as 
it applies to approved additional locations of an institution that has 
not closed.
    Commenters recommended that the Department clarify what the 
Department considers a ``significant share of its academic programs'' 
in Sec.  685.214(h)(9). Commenters requested that the Department 
specify whether a significant share means 50 percent or more of an 
institution's programs were discontinued, or whether a higher threshold 
must be met before the Department would consider it an exceptional 
circumstance for purposes of extending the 180-day lookback period.
    Discussion: Regarding the treatment of additional locations, the 
regulations define ``school'' as 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. The only difference 
between this definition and the definition in the current closed school 
discharge regulations is the addition of the term ``title IV'' before 
the term ``eligible'' which adds clarity to the definition. The 
Department has intentionally defined school in this manner in the 
closed school discharge regulations because the Department's 
longstanding policy is that when an additional location closes, that 
additional location is treated as a closed school for the purposes of a 
closed school discharge, regardless of whether the main campus stays 
open. The eligibility for the closed school discharge only applies to 
that location, though. In other words, a closure of an additional 
location does not make students who attended other locations eligible 
for a closed school discharge. The one exception to this is when the 
main campus closes, in which case the closure is treated as the closure 
of the entire institution.
    The term a ``significant share of its academic programs'' is used 
in connection with exceptional circumstances that may justify an 
extension of the 180-day lookback window, as determined by the 
Secretary. Since the determination to extend the lookback window is at 
the Secretary's discretion, the Secretary would determine whether a 
school has discontinued a significant share of its academic programs.
    Changes: None.
    Comments: A few commenters opposed the Department's proposal to 
define a borrower's program as multiple levels or classification of 
instructional program (CIP) codes if the school granted a credential in 
one program while the student was enrolled in a different program. 
Other commenters supported the proposal, emphasizing concerns that some 
bad actors have historically awarded retroactive degrees to prevent the 
amount of closed school discharge a borrower might be entitled to, and 
further limiting potential liabilities to the institution.
    Discussion: Under the definition in the final rule, 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.
    Just because a school offers stackable credentials does not mean 
the Department would automatically apply this provision. Rather, it 
gives the Secretary flexibility to guard against closing schools that 
may award credentials inappropriately, to prevent students from 
qualifying for closed school discharges.
    Changes: None.

Comparable Programs

    Comments: Many commenters supported removing the ``comparable 
program'' exclusion because it provides needed additional time for 
students that may withdraw prior to closure and provides greater 
consistency across loan types. Some of these commenters noted that the 
comparable program exclusion has prevented borrowers who were harmed by 
their school from obtaining needed relief.
    Other commenters opposed the elimination of comparable program from 
consideration. Some of these commenters stated that eliminating 
consideration of transfer would incentivize borrowers to take a closed 
school discharge and then transfer the credits they have earned, 
resulting in a windfall for the borrower. These commenters stated that 
the Department should incentivize students to transfer and complete 
regardless of whether there is a formal teach-out agreement, and that 
the Department should encourage teach-outs rather than discharges.
    One commenter noted that, under the Department's determination of 
closure, a student who lives in close proximity to a campus that takes 
courses online and is able to successfully complete the program in 
which they are enrolled would still be eligible for a discharge and 
states that this is irreconcilable with the HEA since the student would 
be able to complete their program.
    Discussion: The Department is concerned that the current treatment 
of borrowers who transfer or accept a teach-out is overly confusing and 
that borrowers do not understand that if they do not complete a 
comparable program, they are still eligible for a discharge. As a 
result, borrowers who should be eligible because they transfer and do 
not complete often never apply for a closed school discharge.
    The final rule places a greater emphasis on completion in 
determining who is ineligible for a closed school discharge. Students 
that continue, but do not complete, their program maintain eligibility 
for automatic discharge. This addresses the aforementioned concerns 
about low application rates for students that transfer and do not 
finish.
    In reviewing the amendatory text for closed school discharges, and 
in light of the concerns raised about how borrowers who enroll in an 
online program at the same institution could be affected, the 
Department is further clarifying the way discharge eligibility would 
work. In continuing with the policy in the NPRM, a borrower who accepts 
and completes a teach-out approved by the accrediting agency and, if 
applicable, the school's State authorizing agency, would not be 
eligible for a discharge because such an arrangement is designed to 
give the borrower an opportunity to finish their program. In keeping 
with existing practice, a borrower who accepts the teach-out but does 
not finish would maintain access to the discharge, but this rule would 
give them an automatic discharge 1 year after their last date of 
enrollment in the teach-out.

[[Page 65968]]

    In the final rule, the Department has amended the language that 
previously related to a teach-out performed by the closing institution 
to instead say a continuation of the program at another branch or 
location of the school. This means that if a borrower transfers to 
another branch or location of the same school and finishes the program, 
they too would lose access to the discharge on the grounds that they 
did finish their program. Similar to the teach-out, a borrower would 
receive an automatic discharge 1 year after their last date of 
attendance if they accept but do not finish the program continuation at 
another branch or location of the school. This acknowledges that even 
though the borrower continued their program, they may have decided the 
continuation did not work for them, such as they did not like moving 
from a ground-based to online option or the other location was too far 
away.
    The Department declines to put other transfer arrangements, or a 
transfer done by the student on their own, that leads to them 
completing on the same footing as a teach-out or continuation of the 
program at another branch or location of the school. Such options do 
not have the same protections for the borrower in terms of program 
similarity. They also open up issues, such as determining what share of 
credits have to transfer to have that completion elsewhere count as the 
same program. The Department is concerned about denying the possibility 
of an automatic discharge to a borrower who transfers with minimal to 
no help from their original school and essentially starts over. The 
teach-out and continuation paths identified by the Department best 
align with the concept in the HEA about giving closed school discharges 
to borrowers who are unable to complete their programs by defining the 
instances in which what the borrowers finish are most likely to be the 
same program.
    Changes: We have revised Sec. Sec.  674.33(g), 682.402(d), and 
685.214(c) to clarify that a borrower who continues the program at 
another branch or location of the school would receive a discharge 1 
year after their last date of attendance at the branch or location if 
they do not complete the program. We have removed the references to a 
teach-out provided by the school.

Operational Considerations

    Comments: Commenters recommended that the Department clarify how 
the Department proposes to operationalize automatic closed school 
discharges, especially given the proposed language regarding the 
assessment of closed school discharge liabilities against open 
institutions.
    Commenters also recommended that the Department clarify how it 
would control for third-party reimbursement in the context of automatic 
closed school discharges.
    Commenters suggested that the Department administer the closed 
school survey the Department used in the past to determine whether a 
closed facility truly is a closed school for purposes of the final 
regulations.
    Commenters requested that the Department outline the number of 
automatic closed school discharges we have issued and the process to 
notify the Department of the expiration of a borrower's 1 year period 
prior to eligibility.
    One commenter noted the Department will have to improve its data 
collection process from institutions and accreditors to implement the 
closed school discharge process.
    Discussion: We thank the commenters for their recommendations. 
However, we do not believe that it is necessary to modify the 
regulations as requested. The operational process for automatic closed 
school discharge is under development and will be in place by the 
effective date of these regulations. At present, the Department does 
not plan to administer the closed school survey.
    With respect to the potential assessment of liabilities for closed 
school discharges against open schools, there is no change to existing 
Department policy. The Department has clarified the definition of 
closure date to capture that this would only apply when a school has in 
fact closed. Longstanding Department policy is that if a school closes 
a branch campus or additional location, the borrowers at that campus or 
location do become eligible for closed school discharges, and if the 
school maintains other locations the ones that are still operating can 
face the liabilities associated with those discharges.
    Changes: None.
    Comments: Commenters asked about an internal document that the 
Department uses to determine whether we consider a school to be closed. 
The Department stated in the NPRM that the document would appear in 
Volume 2 of the Federal Student Aid (FSA) Handbook. Commenters 
requested that it be released before the release of that volume of the 
Handbook, since Volume 2 has historically not been released until the 
February after the start of the award year. In the commenters view, 
this means that institutions will not be aware of the Department's 
closed school criteria until six months after the regulations are 
effective.
    Discussion: The Department believes it is important to first 
publish the document in the FSA Handbook so that all the relevant 
resources are available. We note that, under our traditional schedule, 
Volume 2 of the Handbook will be published before the effective date of 
the closed school discharge regulations. We also note that an older 
version of the chart was published during the negotiated rulemaking 
sessions.\150\
---------------------------------------------------------------------------

    \150\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/schoolclosureofbrancampuses.pdf.
---------------------------------------------------------------------------

    Changes: None.

Institutional Liabilities

    Comments: A few commenters expressed the concern that the proposed 
changes fail to provide any procedural protections for institutions or 
their affiliates or principals to allow them to present evidence to 
defend against an application or recoupment. Commenters argued that the 
proposed changes to pursue liabilities against affiliated persons 
violate PPA rules.
    Discussion: The Department has been evaluating closed school 
discharge applications for many years and does not believe that an 
adversarial process is needed for borrowers to qualify for closed 
school discharges. However, for the Department to hold a school liable 
for a closed school discharge, the Department would have to initiate an 
administrative process against the institution under 34 CFR part 668 to 
establish the liability. Additionally, the Department disagrees that 
pursuing liabilities against affiliated persons where applicable is in 
violation of existing rules. It is a statutory requirement in the HEA, 
which in Sec. 438 states the Secretary ``shall subsequently pursue any 
claim available to such borrower [who received a closed school 
discharge] against the institution and its affiliates and principals or 
settle the loan obligation pursuant to the financial responsibility 
authority under subpart 3 of part H.''
    Changes: None.

Efforts To Assist Borrowers

    Comments: Commenters recommended that the Department remove the 
revocation and denial provisions relating to reinstatement of a 
borrower's discharged loans for failure to cooperate in subsequent 
actions against their schools. The NPRM included proposed technical 
changes to Sec.  685.214(e), which requires that a borrower cooperate 
with the Secretary

[[Page 65969]]

in any judicial or administrative proceeding against the borrower's 
school. If the borrower fails to provide requested testimony, 
documents, or a sworn statement, the Secretary revokes the discharge or 
denies the borrower's application for relief. Commenters believed that 
borrowers who have suffered from a school closure, and in many cases 
suffer economic instability and other hardships, may have justifiable 
reasons for not responding to a mail or email communication from the 
Department that may follow weeks, months or even years after the 
borrower receives a discharge.
    Discussion: The requirements that a borrower who has received a 
closed school discharge must cooperate with enforcement actions taken 
by the Department are a longstanding feature of the existing closed 
school discharge regulations. As the commenter notes, we are only 
making minor technical changes to these provisions. The Department 
believes that these provisions are an important tool for recouping 
closed school discharge liabilities from schools.
    Changes: None.
    Comments: Multiple commenters suggested additional measures to 
assist borrowers affected by closing schools, through the disclosure of 
information such as:
     Mandating that the institution provide borrowers with 
notices informing them of their rights shortly after announcing that 
the institution will close.
     Requiring institutions to explicitly share their 
accreditation probation status.
     Displaying warnings relating to possible school closures 
prominently on a school's website.
     Delivering warnings of possible school closures 
electronically to admitted and enrolled students.
     Setting up lines of communication with borrowers to inform 
them about the status of their application and other options for 
continuing their education.
     Requiring that an institution inform the Department it 
will close concurrently with its public announcement of closure.
    Discussion: We appreciate the recommendations for additional steps 
the Department may take to assist borrowers in closed school situations 
by providing additional information. Many of these recommendations 
relate to activities that we believe are better addressed through 
guidance to closing schools and direct communication with borrowers, 
rather than as regulatory requirements. Similarly, we believe that 
recommendations regarding the operational activities of the Department 
are better addressed through the Department's procedural rules, rather 
than through regulations. The Department notes that institutions are 
already required to share a probation status issued by their 
accrediting agency.
    Changes: None.
    Comments: Commenters recommended that the Department extend the 
November 1, 2013, automatic discharge date backwards to open the door 
to automatic relief for more borrowers and include information about 
what the process for discharge may look like for individuals who are 
entitled to a discharge prior to 2013.
    Discussion: In the NPRM, as in these final regulations, there is no 
cut-off date for eligibility for an automatic closed school discharge. 
The process for closed school discharges before November 1, 2013, and 
on or after November 1, 2013, will not be substantially different.
    Changes: None.
    Comments: One commenter recommended reimbursing a borrower who has 
received a closed school discharge for loan payments that the borrower 
has already made, not just discharging the remaining balance on the 
loan.
    Discussion: The closed school discharge regulations already provide 
for refunds or payments made by the borrower on the loan which is 
subject to a closed school discharge. Section 685.214(b) of the Direct 
Loan regulations specifies that a closed school discharge relieves a 
borrower of any past or present obligation to repay a loan and 
qualifies a borrower for reimbursement of payments made voluntarily or 
through enforced collections.
    Changes: None.
    Comments: Commenters stated that they believe that the Department 
does not possess the authority to promulgate a regulatory discharge 
structure based upon the statutory language. In the view of the 
commenters, the statute provides clear direction: borrowers are 
entitled to a closed school loan discharge when they are unable to 
complete their program due to the closure of the school. Automatic 
discharges, look-back periods, and other features of the closed school 
discharge regulations are not provided for in the statute. Commenters 
also expressed the concern that the Department's stated intent to 
increase the number of closed school discharges does not find support 
in the statute.
    Discussion: As noted above, Sec. 410 of 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. Further, under 
Sec. 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 Department. These general provisions, together with 
the provisions in the HEA, authorize the Department to promulgate 
regulations that govern closed school discharge standards, process, and 
institutional liability. To streamline and strengthen the closed school 
discharge process, we believe it is critical that the Department 
proceed now in accordance with its statutory authority, as delegated by 
Congress, to finalize these regulations that protect student loan 
borrowers while also protecting the Federal and taxpayer interests.
    Changes: None.

False Certification Discharges (Sec. Sec.  682.402(e), 685.215(c) and 
685.215(d))

    Comments: Many commenters supported the proposed regulations that 
would streamline the false certification discharge process. In 
particular, commenters supported establishing standards that apply to 
all claims regardless of when the loan was first disbursed; removing 
the provision that any borrower who attests to a high school diploma or 
equivalent does not qualify for a false certification discharge; 
expanding the types of documentation the Department considers when a 
borrower applies for a false certification discharge; and enabling 
groups of borrowers who experienced the same behavior from their 
institutions to apply together.
    Discussion: We thank the commenters for their support.
    Changes: None.
    Comments: Several commenters asked the Department to provide that 
institutions are not liable for discharged amounts if the borrower 
submits to the school a written attestation that the borrower has a 
high school diploma or equivalent. Commenters also expressed concerns 
that granting false certification discharges due to a disqualifying 
condition may preclude students from receiving student loans since the 
need to scrutinize and evaluate disqualifying conditions would place a 
burden on institutions to rely on background checks to avoid liability. 
Additionally, several commenters suggested that a student must be 
required to attest they do not have a disqualifying condition or 
institutions can only be liable if a

[[Page 65970]]

student reported the condition but the institution still certified the 
loan. A few commenters recommended specifying the implementation time 
frame for these regulations and whether the Department would place 
retroactive requirements on the institution for prior periods. Numerous 
commenters requested clarification on the change from disbursement date 
to origination date.
    Discussion: These final regulations are intended to ensure that a 
borrower can receive a false certification discharge if the borrower 
was coerced or deceived by their school and had reported not having a 
valid high school diploma or equivalent. A written attestation 
indicating that the borrower had a high school diploma or its 
equivalent would not necessarily relieve a school of liability for a 
false certification discharge. However, for the Department to hold a 
school liable for the discharge, the Department would have to go 
through an administrative process under part 668, subpart H to 
establish the liability.
    The Department notes that the disqualifying condition criteria for 
a false certification discharge are well established in the existing 
regulations. These eligibility criteria are under currentSec.  
685.215(a)(1)(ii). The Department is making no changes to the 
regulatory text in this section. Schools should already comply with 
this regulation.
    The requirements specified in these final regulations will apply to 
false certification discharge applications received on or after the 
effective date of these regulations. The effective date for these 
regulations is discussed under DATES above.
    Relying on the disbursement date instead of the origination date 
allows institutions time to remedy an already completed false 
certification that a student was eligible for a loan. Utilizing the 
origination date will ensure that institutions may be held accountable 
for their misconduct even if it is subsequently corrected prior to 
disbursement.
    Changes: None.
    Comments: A few commenters recommended that only State attorneys 
general be allowed to submit applications for group false certification 
discharges, consistent with the accompanying BD regulations. These 
commenters further stated that since the Department has decided not to 
allow legal services representatives to submit group BD applications, 
the same should apply for false certification discharge. Other 
commenters suggested the Department should require some procedure to 
ensure accountability from State attorneys general and legal aid 
organizations. Alternatively, one commenter recommended that state 
authorizing agencies be added to the list of entities eligible to 
request group claims. Several commenters asked the Department to 
clarify how the Department will process group claims, including 
appropriate due process protections for institutions subject to such 
claims.
    Discussion: The Department has existing authority to grant group 
false certification discharges and has done so in the past. Group 
discharges are 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 a discharge for a group of borrowers. 
Unlike BD discharges, which have been well-publicized in the media in 
recent years, many borrowers do not know of their right to apply for a 
false certification discharge. An opportunity for a group discharge is 
particularly important for these borrowers. In addition, the regulatory 
language providing for a group discharge will make it less difficult 
for a borrower advocate to compel action on the part of the Department, 
because it will specifically require the Department to act on a group 
discharge application from a State attorney general or a nonprofit 
legal services representative. The Department also notes it updated the 
BD regulations to allow nonprofit legal assistance organizations to 
also submit requests for group consideration. Regarding accountability 
for State attorneys general or nonprofit legal services, the Department 
notes that we have no regulatory authority over such entities. However, 
group claims submitted to the Department will be reviewed and either 
approved or denied based on the merits of the claim, as with claims 
submitted by individual borrowers. The due process rights of all 
parties will be respected. As noted earlier, any attempt to assess 
liabilities against an entity through a group claim will be subject to 
the process in part 668, subpart H. Finally, the Department recognizes 
the specialized expertise of State attorneys general and nonprofit 
legal services representatives in help borrowers understand their 
rights to apply for false certification discharges. The Department 
encourages other entities with knowledge of facts that would support 
potential group claims to work directly with State attorneys general or 
nonprofit legal services representatives.
    Changes: None.

Public Service Loan Forgiveness (PSLF) (Sec.  685.219)

    Comments: Many commenters expressed support for the proposed PSLF 
regulations, including the revised definitions, expansion of 
eligibility, payment counting flexibility, automation, and 
reconsideration. Commenters recommended the Department continue to 
streamline PSLF requirements where possible. A few commenters submitted 
technical corrections and recommendations. Several commenters further 
stated that the Department should prioritize the swift implementation 
of the regulations. Other commenters stated that eligibility for PSLF 
should not be expanded because of the cost to taxpayers.
    Discussion: We thank the many commenters who wrote in to support 
our efforts to improve the PSLF program. Generally, we do not address 
technical or other minor changes or recommendations that are out of the 
scope of this regulatory action or that would require statutory 
changes. Cost impacts will be discussed in the Regulatory Impact 
Analysis section.
    Section 482(c) of the HEA states that any regulatory changes 
initiated by the Secretary that have not been published in final form 
by November 1 prior to the start of the award year shall not become 
effective until the beginning of the second award year after such 
November 1 date. Consistent with the Department's objective to improve 
the implementation of PSLF, the Secretary intends to exercise his 
authority under section 482(c) to designate the simplified definition 
for full-time employment in PSLF as a provision that an entity subject 
to the provision may, in the entity's discretion, choose to implement 
prior to the effective date of July 1, 2023. The Secretary may specify 
in the designation when, and under what conditions, an entity may 
implement the provision prior to the effective date. The Secretary will 
publish any designation under this subparagraph in the Federal 
Register.
    The Secretary does not intend to exercise his authority to 
designate any other regulations in this document for early 
implementation. The final regulations included in this document are 
effective July 1, 2023.
    Changes: None.

Qualifying Employer and Definitions

    Comments: Several commenters suggested that we expand eligibility 
for PSLF to include labor union employees; veteran service 
organizations; medical interns, residents, and fellows; marriage and 
family therapists, clinical social

[[Page 65971]]

workers, and professional counselors; attorneys providing public 
services and critical public defense services; Peace Corps and 
AmeriCorps volunteers; Fulbright English Teaching Assistants; 
translators and interpreters; and those working in national 
laboratories and nonprofit organizations, whether religious or not, if 
they file an annual tax-exempt IRS Form 990. One commenter recommended 
that the Department deem periods of service as a caregiver under the 
VA's Program of Comprehensive Assistance for Caregivers to be eligible 
service for PSLF purposes.
    One commenter requested that PSLF eligibility expand to include an 
option for servicemembers to transfer PSLF eligibility to their married 
spouse.
    Another commenter encouraged the Department to include the Federal 
Job Corps program as a qualifying employer because its mission and 
services meet the definition of public service. Job Corps members are 
engaged by the U.S. Department of Labor to manage the operation of Job 
Corps campuses and deliver services.
    Additional commenters suggested that the Department add Certified B 
Corporations and Public Benefit Corporations to the list of qualifying 
employers.
    Another commenter encouraged the Department to include specific 
guidance that Federal Reserve Banks are qualifying employers.
    Discussion: The Department is responding to the comments about 
eligibility for certain occupations solely in the context of 
eligibility if a borrower provides these services at a private 
nonprofit organization. Many commenters asked the Department to 
consider these occupations for borrowers who work at private for-profit 
organizations as well. The Department will publish a separate final 
rule addressing the questions of eligibility for borrowers employed by 
private for-profit entities. This includes the discussion of early 
childhood education and all other occupations, including the ones 
mentioned in this comment summary. This final rule does not speak to 
the issue of any changes to the eligibility of private for-profit 
employers to serve as qualifying employers for the purposes of PSLF. It 
does address a related yet different question, which is whether a 
private nonprofit or government employer should be able to treat a 
contractor as if they are an employee or employed by that qualifying 
employer. That is a different issue, as it is only focused on who is 
considered an employee of a nonprofit or government employer, rather 
than the overall question of which employers qualify.
    From the initial years of the PSLF program, the Department's 
regulations have established eligibility for PSLF based on whether the 
borrower works for a qualifying employer, not their specific job. As a 
result, anyone doing the jobs mentioned by the commenters while 
employed at a qualifying employer was eligible for PSLF. Borrowers are 
not permitted to transfer their PSLF eligibility to their spouse for 
any reason, which includes active-duty military employment. Under the 
Sec. 455(m) of the HEA, a borrower must work for a qualifying employer 
to be considered for PSLF. Eligible not-for-profit organizations 
include an organization that is tax-exempt under section 501(c)(3) of 
the Internal Revenue Code, and a not-for-profit organization that is 
not tax-exempt under section 501(c)(3) of the Internal Revenue Code, 
but that provides a qualifying service. However, the Department's 
regulations have consistently provided that a labor union is not a 
qualified employer for PSLF purposes. Labor unions are not 501(c)(3) 
organizations, nor do most of their full-time equivalent employees 
provide a qualifying service.
    Job Corps is a program offered to young adults that is intended to 
improve the quality of their lives through vocational and academic 
training aimed at gainful employment and career pathways. Individuals 
participating in Job Corps programs are not employees of the program. 
To the extent any Job Corps participants work for a private for-profit 
employer, that issue will be addressed in the future final rule.
    We have modified some definitions and added other definitions to 
provide additional clarity to the types of services that employers must 
provide to be considered a qualifying employer.
    We will address Certified B corporations and public benefit 
corporations that are private for-profit employers in the future final 
rule.
    We appreciate the comment requesting clarification on the inclusion 
of Federal Reserve Banks as qualifying employers for the purposes of 
PSLF. Employees who work at the Board of Governors of the Federal 
Reserve Board are considered government employees and qualify for PSLF. 
We will address employees of the Federal Reserve Banks in the future 
final rule regarding the eligibility of for-profit employers.
    The proposed definition of ``public health'' includes those engaged 
in the following occupations (as those terms are defined by the Bureau 
of Labor Statistics): physicians, nurse practitioners, nurses in a 
clinical setting, health care practitioners, health care support, 
counselors, social workers, and other community and social service 
specialists. Therefore, borrowers working in these areas are eligible 
for PSLF if they work for an eligible employer. Borrowers working for a 
private for-profit employer will be addressed in the future final rule.
    Attorneys providing public interest legal services and critical 
public defense services are eligible for PSLF if they are employed by 
an organization that is funded in whole or in part by a Federal, State, 
local, or Tribal government. As noted above, any further discussion of 
eligibility for private for-profit employers will be discussed in a 
future final rule.
    Peace Corps and AmeriCorps volunteers have always been and continue 
to be qualified for the purposes of PSLF.
    Changes: None.
    Comments: One commenter suggested that the Department is required 
to determine PSLF eligibility based on either a qualifying employer or 
a qualifying job, as those employers and jobs are defined in the 
statute.
    Discussion: After the addition of PSLF to the HEA in 2007, the 
Department engaged in negotiated rulemaking to develop proposed 
regulations to implement the program. During that process, the 
Department reviewed the text and legislative history of the PSLF 
provision and determined that it was consistent with Congressional 
intent to focus on the services provided by the qualifying employer 
rather than on the services provided by the individual employee. To do 
otherwise would be to have two different standards for different 
borrowers depending on their type of employer. The negotiating 
committee agreed with this approach and reached consensus on the 
proposed rules. The Department has consistently retained that approach 
since that time. Despite making other changes to PSLF, Congress has not 
made any statutory changes to require the Department to determine a 
borrower's eligibility based on the individual employee's activities 
rather than on the services offered by the employer. Accordingly, the 
Department does not agree with the comment.
    Changes: None.
    Comments: Several commenters expressed concern that the proposed 
definition of the term ``non-governmental public service'' requires 
services to be provided directly by the employees. Commenters believe 
that the inclusion of a ``direct service'' component is not only 
undefined in the

[[Page 65972]]

regulations but is counter to Congressional intent. A few commenters 
expressed concern that the definition of public service could exclude 
veteran service organizations and suggested revising the definition to 
ensure that any definition of ``non-governmental public service'' 
include providing services to veterans or their families.
    A few commenters suggested that the proposed definitions of ``non-
governmental public service'' and ``school library services'' should be 
updated to clarify that employment by a school library or in other 
school-based services includes employment at public charter schools. 
Several commenters further argued that the proposed definition of 
``public service for the elderly'' may not encompass all public 
services that could be provided to elderly individuals and urged the 
Department to either lower the age for assistance to the elderly or 
remove a precise age.
    Discussion: We believe it is important to define non-governmental 
public service as services provided by employees of a nonprofit 
organization where the organization devotes a majority of its full-time 
equivalent employees to work in at least one of the areas designated in 
the HEA: 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 school-based 
services. We agree with commenters that the word ``directly'' does not 
provide any additional clarity to the definition and will remove it.
    Charter schools that are either government entities or tax-exempt 
under Sec.  501(c)(3) of the IRC are considered qualifying employers 
for the purposes of PSLF. A nonprofit charter school that does not fit 
into either of those classifications would be evaluated based on the 
services it provides. We will address comments related to the 
eligibility of a private for-profit charter school in a future final 
rule considering any changes to whether a private for-profit employer 
can serve as a qualifying employer for PSLF purposes.
    In addition, we have clarified the definition of ``civilian service 
to the military'' to mean providing services to or on behalf of 
members, veterans, or the families or survivors of members or veterans 
of the U.S. Armed Forces.
    We believe that age 62, which is the youngest age for individuals 
to obtain Social Security retirement benefits, is an appropriate age to 
use for the purposes of identifying public services to the elderly.
    Changes: The Department has removed the word ``directly'' from the 
definition of ``non-governmental public service.'' We reworded the 
definition of public health in Sec.  685.219 (b).
    Comments: A few commenters suggested replacing the term ``teacher'' 
in the definitions section of the regulations with the term 
``educator'' to include school psychologists, school counselors, and 
specialized instructional support personnel who are employed full time 
by a local education agency under a contract that mirrors a teacher's 
contract.
    Discussion: We believe that the proposed definition of ``public 
education service,'' which includes the provision of educational 
enrichment and support to students in a public school or a school-like 
setting, including teaching, adequately addresses commenters concerns.
    Changes: None.
    Comments: A few commenters stated that the definition of 
``Government employee'' should specify that service as a member of the 
U.S. Congress is not qualifying public service employment for the 
purposes of this section. Other commenters requested we remove, ``as a 
member of the U.S. Congress is a governmental employee'' because this 
provision does not fit the new definition of ``non-governmental public 
service.''
    Discussion: We thank the commenters for this suggestion. The 
Department does not plan to remove these words or define the term 
``Government employee'' in these regulations. Under Sec. 455(m)(3)(B) 
of the HEA, service in Congress does not qualify for PSLF.
    Changes: None.

Tax Exempt Organizations

    Comments: Several commenters stated that 501(c)(1) and 501(c)(6) 
tax-exempt organizations whose purposes and governing documents are 
consistent with 501(c)(3) tax-exempt organizations should be included 
as qualifying employers. Other commenters suggested adding a facility 
defined by sections 1819(a) or 1919(a) of the Social Security Act to 
the definition of a qualifying employer.
    Discussion: We thank these commenters for the suggestions to 
include 501(c)(1) and 501(c)(6) tax-exempt organizations, whose 
purposes and governing documents are consistent with 501(c)(3) tax-
exempt organizations to the Department's definition of qualifying 
employer. We do not, however, believe there is sufficient basis to 
automatically qualify any type of 501(c) organization beyond the 
501(c)(3) category that Congress specifically included in the statute. 
We also do not agree that any facility listed under the Social Security 
Act, such as a skilled nursing facility, should automatically be 
included as a qualifying employer for the purposes of PSLF.
    Changes: None.
    Comments: A few commenters stated that religious conduct would 
receive an unconstitutional financial benefit if religious 
organizations are considered qualifying employers. These commenters 
further stated that religious services were rightly previously excluded 
from PSLF and should continue to be excluded.
    Discussion: The Department believes that the current rules do not 
provide improper aid to religious organizations and are consistent with 
the Constitution. The current regulations place religious individuals 
and entities on equal footing with their secular counterparts by 
allowing such individuals and entities to qualify for the same benefits 
available to others.
    Changes: None.
    Comments: A few commenters expressed concerns regarding the revised 
PSLF definitions and argued that the proposed definition of ``non-
governmental public service'' is contrary to the text and purposes of 
the HEA. They contended that the requirement that a majority of the 
employer's full-time equivalent employees be engaged in providing one 
of the specified services would unlawfully eliminate eligibility for 
individuals who currently qualify for PSLF.
    A few commenters further stated that the proposed definition of 
``public education service,'' which would require public education 
services to be provided to students in a public school or a school-like 
setting, deviates from established Department practice in administering 
and determining PSLF eligibility. These commenters suggested that the 
Department implement a holistic evaluation of employers to determine 
PSLF eligibility based on whether the organization and its employees 
provide a meaningful public service.
    One commenter proposed to expand PLSF eligibility to include all 
those who work to advance the public interest.
    Several commenters suggested that the proposed definitions fail to 
consider the substantial reliance interests of individuals such as the 
interests of employees who have reasonably relied upon the Department's 
past and current certification of eligible employment to select jobs 
that qualify for PSLF; the interests of public service organizations

[[Page 65973]]

that have relied upon the Department's current interpretation to 
recruit and retain employees by presenting the organization as a 
qualifying PSLF employer; and the interests of organizations that 
currently qualify for PSLF and may continue to do so if the proposed 
rule goes into effect, but which could subsequently fail to meet the 
requirements for PSLF due to employee hiring, departures, layoffs, or 
changes to the organization's structure.
    In addition, several commenters stated the Department needs to take 
further action to clarify employment requirements for nonprofit 
organizations by explicitly removing any mention of the primary purpose 
condition, as required by American Bar Association v. U.S. Department 
of Education.\151\
---------------------------------------------------------------------------

    \151\ 370 F. Supp. 3d 1 (D.D.C. 2019).
---------------------------------------------------------------------------

    Discussion: We thank these commenters for expressing concerns about 
the Department's definition of non-governmental public service. 
However, we believe requiring an employer to have a majority of their 
full-time equivalent employees be engaged in providing one of the 
specified services is consistent with the HEA and will not eliminate 
eligibility for individuals who currently qualify for PSLF. We also do 
not believe there is sufficient basis to automatically qualify any type 
of non-governmental organization beyond the 501(c)(3) category that 
Congress specifically included in the statute.
    The Department reviews other nonprofit employers as it receives 
employment certifications from their employees. The new regulations 
will help the Department determine whether the employer provides one of 
the services specified in the HEA. This will improve the Department's 
ability to provide guidance to employers and employees alike. We note 
that there is no requirement that the borrower work for the same 
qualifying organization for the full 10-year period.
    The primary purpose test was at one time used by the Department to 
determine whether a nonprofit organization which was not a 501(c)(3) 
organization provided a specific public service so that its employees 
could qualify for PSLF. The Department has not used this test for 
several years, nor did we include such a test in the current or 
proposed regulations; therefore, we cannot remove it.
    The Department defines a non-governmental qualified employer as an 
employer that has devoted a majority of its full-time equivalent 
employees to working in at least one of the following areas: 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 school-based services. We believe 
that the definition of public education service, which requires public 
education services to be provided to students in a public school or in 
a school-like setting, is consistent with the Department's current 
practice in administering and determining PSLF eligibility.
    Changes: None.

Full-Time Employment

    Comments: Many commenters supported the proposed definition of 
``full-time'' employment that required borrowers to demonstrate they 
worked at least 30 hours a week across one or more jobs, but also 
requested we apply a retroactive determination for full-time employment 
based on the definitions and consideration for part-time employment.
    Discussion: We thank the many commenters who supported our proposed 
change to the definition of ``full-time.'' We believe the revisions 
will provide clarity to borrowers seeking PSLF. Applications submitted 
after the implementation date that include periods of employment that 
predate the effective date of these regulations will be reviewed under 
this new definition. Section 455(m) of the HEA requires that borrowers 
be employed full-time to qualify for PSLF. The Department cannot 
include part-time employment for the purposes of PSLF unless part-time 
employment at multiple qualifying jobs adds up to 30 hours per week.
    Changes: None.
    Comments: Many commenters supported the proposed credit hour 
conversion to determine full-time employment for adjunct faculty.
    Discussion: We appreciate the support of these commenters.
    Changes: None.
    Comments: A few commenters suggested that to make the calculation 
of eligibility more equitable for adjunct faculty working at more than 
one institution with different term lengths, the regulations should be 
revised to base the determination of the minimum number of hours that 
need to be attained for PSLF credit using the 3.35 multiplier for each 
credit or contact hour taught by the faculty member. A few commenters 
thought the Department should increase the conversion rate.
    Discussion: During the negotiated rulemaking process, the 
Department adopted the 3.35 conversion factor suggested by negotiators. 
Additionally, we explained that this could apply to contact hours as 
well. For example, if a borrower was teaching six hours a week and had 
two office hours a week, this borrower would multiply eight by 3.35 
which equals 21 total hours worked per week. This conversion factor is 
the minimum rate employers should use based upon a semester-hour 
schedule. Employers would continue to have flexibility to adjust this 
conversion factor upward or to account for trimesters, quarters, or 
other types of academic calendars if they think a different figure 
better captures the number of hours an adjunct professor is working. We 
also clearly defined ``non-tenure track faculty'' to eliminate 
ambiguity. We also defined ``full-time'' to include working in 
qualifying employment in one or more jobs for the equivalent of 30 
hours per week as determined by the Secretary which qualifies the 
borrower for PSLF if the borrower is working:
    (1) through a contractual employment period of at least eight 
months over a 12-month period, as in the case of primary and secondary 
school teachers and professors and instructors in higher education; or,
    (2) in the case of non-tenure track faculty employment, by either--
    (a) teaching at least nine credit hours per semester, six credit 
hours per trimester, or 18 credit hours per calendar year; or,
    (b) multiplying each credit hour taught per week by 3.35 hours; or
    (c) counting student-contact hours as attested by the borrower and 
substantiated by the employer on a form approved by the Secretary.
    (3) When determining whether a borrower works full-time, the 
Secretary includes vacation or leave time provided by the employer or 
leave taken for a condition that is a qualifying reason under the 
Family and Medical Leave Act of 1993 (29 U.S.C. 2612(a)(1))). We also 
adjusted the definition of full-time to note that the treatment of 
teachers on an employment contract being considered to work for 12 
months would also apply to instructors in postsecondary education. The 
original language was a nonexhaustive list, and this change adds 
clarity.
    Changes: We modified Sec.  685.219(b)(i)(B) to include professors 
and instructors in higher education.
    Comments: One commenter suggested the Department allow employers 
who pay their employees based on caseload (rather than an hourly rate) 
to certify the employee is working full-time by

[[Page 65974]]

reporting an average of 30 or more hours on the employer certification 
form.
    Discussion: We thank the commenter for this suggestion. We believe 
the definitions of ``full-time'' and ``qualifying employer'' provide 
adequate information for the employers to certify whether their 
employee is working full-time. Under the regulations, an employee must 
work the equivalent of 30 hours per week to be considered full-time. 
The employer is able to determine when an employee has met that 
threshold.
    Changes: None.
    Comments: One commenter suggested the Department require self-
attestation for the purposes of determining full-time employment. 
Another commenter expressed concern that some employees who work in 
public service may not receive a W-2 form and may not be able to prove 
work in qualifying employment.
    Discussion: The Department appreciates the points raised by these 
commenters. A borrower who does not receive a W-2 would not be eligible 
for PSLF except, as provided in these final regulations, for a borrower 
who works as a contracted worker for a qualifying employer in a 
position or providing services which, under applicable state law, 
cannot be filled or provided by a direct employee of the qualifying 
employer. We believe that the employer certification, along with other 
information on the PSLF application, will provide sufficient 
information to allow the Department to determine a borrower's 
employment full-time status for the purposes of PSLF.
    Changes: None.

Consolidation

    Comments: Many commenters supported the Department's proposal to 
allow borrowers to keep credit toward PSLF when they consolidate their 
loans. However, several commenters noted that the NPRM was unclear on 
the process of determining the treatment of consolidation loans for 
PSLF purposes. Some commenters argued that the Department should allow 
all loans in a consolidation to receive credit toward PSLF equal to the 
maximum amount of qualifying payments the borrowers have already made. 
Other commenters objected to such an approach, noting that it would 
allow a borrower to consolidate a loan and potentially receive credit 
for years' worth of payments toward PSLF when in actuality there were 
few, if any, payments toward PSLF on one or more of the underlying 
loans. Other commenters suggested the Department allow prior payments 
made on FFEL Program loans to count toward PSLF.
    Discussion: The Department agrees with commenters that the 
treatment of qualifying payments for PSLF after loan consolidation was 
unclear. The Department's goal in allowing borrowers to keep any credit 
they had made toward PSLF is to ensure they keep the progress they 
made, not to award additional credit toward forgiveness they have not 
earned. To that end, the Department will award borrowers qualifying 
payments equal to a weighted average of the loan balances being 
consolidated. In other words, if a borrower has 60 qualifying payments 
on a $20,000 loan and consolidates that loan with another $40,000 in 
loans with no qualifying payments, then the consolidation loan would be 
assigned 20 qualifying payments ($20,000 divided by $60,000 times 60). 
The Department believes this approach is better for the borrower than 
keeping the qualifying payment clock unchanged but only applying it to 
part of the consolidation loan. To benefit from PSLF a borrower has to 
spend some time on an IDR plan, since if they stayed on the standard 
10-year plan, they would pay the loan off at the same time as receiving 
forgiveness. Since IDR payments are based on the borrower's income and 
are only affected by the balance amount on certain IDR plans, if a 
borrower's payment amount exceeded what they would owe on the standard 
10-year plan, partial cancellation may not significantly change their 
monthly payment amount and the borrower would still have to make as 
many as 120 additional payments to get the remaining balance forgiven. 
The Department is unable to accept the changes recommended by the 
commenters with respect to payments on FFEL loans, because those are 
prohibited by statute.
    Changes: We have amended Sec.  685.219(c)(3) to note that a 
borrower will receive a weighted average of the payments the borrower 
made on the Direct Loan prior to consolidating.

Deferment, Forbearance, and Default

    Comments: Many commenters supported counting certain periods of 
deferment and forbearance toward PSLF. These commenters further urged 
the Department to count all such periods toward PSLF to reduce 
unnecessary complexity, address administrative failures by student loan 
servicers, and fulfill the program's goal of alleviating the burden of 
Federal student loans for borrowers in public service. These commenters 
also suggested that borrowers should not lose progress toward 
forgiveness when a servicer pauses a borrower's payments to process 
paperwork. Additionally, the commenters opined that these borrowers 
should not be penalized for following bad advice from a servicer or 
when servicer misconduct occurred. They noted that recent Federal 
investigations concluded that student loan servicers have steered 
borrowers into forbearance, made errors during loan transfers, and 
failed to advise borrowers on IDR plans.
    A few commenters further urged the Department to expand the hold 
harmless provision to count payments for periods of default from 
previously defaulted borrowers. One commenter suggested we count 
periods of time spent rehabilitating defaulted loans as time toward 
forgiveness. Other commenters suggested these individuals should be 
allowed to make a payment that is equal to or lesser than the amount of 
the lowest IDR plan at the time, rather than an amount equal to or 
greater than the amount they would have paid at the time on a 
qualifying repayment plan. Other commenters advised that the Department 
strengthen oversight of loan servicers to avoid future forgiveness 
denials and ballooning debt.
    Several commenters shared their experiences with servicers 
incorrectly putting the borrower into forbearance and detailed other 
improper servicer actions. Several commenters recommended counting $0 
IDR payments during bankruptcy toward PSLF qualifying payments.
    One commenter argued that the Department does not have the 
authority to allow periods of time spent in forbearance or deferment to 
count as qualifying payments for PSLF.
    Discussion: The Department recognizes that there have been past 
issues with servicing Federal student loans. We have taken steps to 
address the impact of these servicing errors through the limited PSLF 
waiver that allows borrowers to receive credit for past periods of 
repayment that would otherwise not qualify for PSLF.\152\ We will also 
award credit toward PSLF for borrowers who spent 12 or more consecutive 
months or a cumulative total of 36 or more months of forbearance for 
those periods of time if borrowers certify qualifying employment, this 
includes time in the past that servicers have paused payments while 
processing borrowers'

[[Page 65975]]

paperwork for extended periods.\153\ The Department has created the 
Fresh Start initiative which provides defaulted borrowers who do not 
qualify for PSLF a path to get out of default and regain potential 
eligibility for PSLF.
---------------------------------------------------------------------------

    \152\ https://studentaid.gov/announcements-events/pslf-limited-waiver.
    \153\ https://studentaid.gov/announcements-events/idr-account-adjustment.
---------------------------------------------------------------------------

    In the proposed regulations, the Department also expanded the types 
of forbearances and deferments that qualify for PSLF through these new 
regulations. Qualifying borrowers are statutorily entitled to 
deferments and certain forbearances. We have to determine whether the 
statute requires borrowers to give up these rights to apply for PSLF. 
After further review of the legislative history and language of the 
PSLF provisions, we do not see anything which suggests Congress 
intended to require borrowers to give up their rights to these benefits 
to qualify for PSLF. As discussed in the NPRM, the Department carefully 
reviewed the different types of deferments and forbearances and 
proposed awarding credit for ones where a borrower would likely be 
either engaged in qualifying employment and thus face a confusing 
tradeoff of pausing payments or receiving credit toward forgiveness or 
have a high likelihood of a $0 payment on an IDR plan and thus there 
would not be a meaningful difference were they to have been enrolled on 
an eligible IDR plan. Awarding credit for deferments and forbearances 
beyond the ones identified by the Department would not be appropriate 
because they could be in situations where the borrower would be 
required to make a payment greater than $0 on IDR or there's no 
indication that the individual would otherwise be engaging in 
qualifying employment. In some cases, such as the unemployment 
deferment, it would not be possible for a borrower to engage in 
qualifying employment for PSLF since a borrower cannot receive that 
deferment if they have full-time job.
    The regulations also provide a reconsideration process, which will 
enable borrowers to request a review of the PSLF status of their 
employer or the number of qualifying payments.
    With respect to time while payments are administratively paused as 
servicers recalculate payments on an IDR plan or transfer them to the 
PSLF servicer, the Department agrees with commenters to allow those 
periods to count toward PSLF, provided the borrower still engages in 
qualifying service. These forbearances will be captured under Sec.  
685.205(b)(9), which is already in the regulations as a type of 
forbearance that would count toward PSLF. The Department had been 
concerned about this being a path for borrowers to gain significant 
credit simply by applying repeatedly. However, the Department is 
working on changes related to the Fostering Undergraduate Talent by 
Unlocking Resources for Education (FUTURE) Act, which will allow 
borrowers who provide the necessary approval to the Department to 
automatically recalculate payments every year using data filed to the 
IRS. Those borrowers are unlikely to see a delay in having their 
payment account updated. Similarly, under planned improvements to the 
student loan servicing the Department is planning to eliminate 
transfers to specialty servicers for programs like PSLF, further 
reducing the incidence of months paused for administrative reasons.
    For all other deferments and forbearances, we have created a hold 
harmless provision that will allow borrowers who have been encouraged 
and placed in forbearances for long periods of time to make payments 
equal to or greater than what they would have paid in order to count 
that time spent in forbearances as time toward forgiveness. This 
process is less burdensome than trying to substantiate which periods of 
deferment or forbearance may be a result of steering or bad advice 
versus which ones are not. The hold harmless option would allow 
borrowers to pay what they otherwise would have paid during the time 
they spent in a forbearance or a deferment and have that time count 
toward PSLF rather than an amount equal to or greater than the amount 
they would have paid at the time on a qualifying plan. The Department 
announced a payment account adjustment in April 2022 that included 
adjustments to borrowers' accounts for certain deferments prior to 2013 
and extended periods of any type of forbearance. Those adjustments will 
pick up significant periods that might otherwise have been subject to 
the hold harmless provision. The Department's regulations cannot waive 
statutory requirements, and the statute is clear that we cannot count 
time in default toward PSLF and that includes time spent in loan 
rehabilitation. Borrowers must make 120 qualifying payments to receive 
credit toward PSLF. Borrowers on IDR plans with a $0 payment remain 
eligible for PSLF.
    Changes: None.
    Comments: A few commenters suggested adding a separate Peace Corps 
deferment instead of having this deferment be included in the 
AmeriCorps forbearance. Commenters also proposed retroactively counting 
all service of Peace Corps and returned Peace Corps volunteers 
regardless of loan status or payments.
    Discussion: A borrower may apply for an Economic Hardship deferment 
based on Peace Corps service which is separate from the AmeriCorps 
forbearance. Borrowers who are Peace Corps volunteers would likely have 
a $0 payment under an IDR plan which is a qualifying repayment plan for 
PSLF; however, they may choose to apply for an Economic Hardship 
deferment instead and receive credit toward PSLF forgiveness. 
Typically, AmeriCorps volunteers are working and receiving payment 
during their service time. Therefore, these borrowers are eligible for 
a forbearance which counts toward time to forgiveness under these 
regulations. The Department evaluates each PSLF application to 
determine if a borrower should receive credit for the months for which 
they provided information on the form. While we do not retroactively 
count payments by Peace Corps or returned Peace Corps, PSLF applicants 
will have a full review and assessment of any period of employment 
covered by any future application.
    Changes: None.

Single Standard, Waiver Expansion, COVID, IDR, and FFEL

    Comments: Several commenters expressed concerns regarding the 
expiration of temporary waivers and the need for a single Federal 
standard regarding PSLF. These commenters further stated that borrowers 
will have difficulty navigating multiple standards and the confusion 
will cause borrowers who are entitled to PSLF benefits not to receive 
them. Commenters encouraged the Department to retroactively ensure 
prior qualifying employment and subsequent payments would count toward 
PSLF qualifying payments.
    Several commenters urged the Department to include in the PSLF 
regulations provisions in the Limited PSLF Waiver that allow borrowers 
with FFEL loans to have payments on those loans count toward PSLF. 
These commenters stated FFEL loan borrowers only have a year to take 
the steps to consolidate into the Direct Loan program and get credit 
for past payments under the Limited PSLF Waiver and asked the 
Department to extend the deadline on the limited PSLF waiver. Other 
commenters noted that to qualify for PSLF, the borrower must make 
required payments on a Direct Loan; payments on FFEL or Perkins loans 
do not count toward forgiveness. Several commenters asked that we lower 
the number of required payments

[[Page 65976]]

from 120 months to 60 months and one commenter requested we forgive 
loans based on a percentage rate of 20 percent each year.
    A few commenters stated that while borrowers were automatically 
placed into forbearance with 0 percent interest rates through August 
31, 2022, and the time in forbearance is considered counting as 
payments toward the minimum requirements for forgiveness, the borrower 
must have maintained full-time employment at a qualifying employer. 
These commenters contended that this was an unrealistic obligation 
during the worst public health crisis in 100 years and that many 
nonprofits had to lay off workers due to the pandemic at no fault of 
the worker.
    Other commenters suggested that any payment under IDR should count 
toward PSLF if the borrower qualifies for PSLF. These commenters 
recommended the Department clearly state in regulations that any month 
that would count toward IDR forgiveness would be counted as qualifying 
time toward forgiveness for PSLF. Several commenters urged the 
Department to ensure PSLF regulations align with future proposed IDR 
regulations.
    Discussion: The Department understands the importance of aligning 
PSLF and IDR regulations and will strive to do so where appropriate. We 
have adopted some of the benefits provided under the temporary waiver 
into these regulations, such as allowing payments made on a Direct Loan 
prior to consolidation to still be counted toward forgiveness after 
consolidation. There are other places where we have taken a different 
approach. For instance, the limited PSLF waiver treats any month in 
repayment as a qualifying payment. The Department cannot change in 
regulation the statutory requirements that dictate which repayment 
plans are eligible for PSLF, but we have made changes that will help 
borrowers count payments they make toward PSLF by allowing partial, 
late, and lump sum payments to count. Other elements, such as the hold 
harmless provision, which provides borrowers a recourse of action when 
servicers either provided misinformation or steered borrowers into 
extended forbearance, go further than what the limited PSLF waiver 
provides. Section 455(m) of the HEA requires that borrowers be employed 
full-time at qualifying employers and make 120 payments to qualify for 
PSLF. These rules cannot waive statutory provisions or retroactively 
grant qualifying payments to borrowers prior to the inception of the 
program. Instead, the purpose of these regulations is to define and 
clarify the requirements for PSLF. The benefits provided under the 
waivers and the expiration date for the waivers are separate and apart 
from these rules. Under the Higher Education Relief Opportunities for 
Students Act of 2003 (HEROES Act) (Pub. L. 108-76, 20 U.S.C. 1098bb(b)) 
authority, the Secretary announced waivers and modifications of 
statutory and regulatory provisions designed to assist ``affected 
individuals.'' Under 20 U.S.C. 1098ee(2), the term ``affected 
individual'' means an individual who--
     Is serving on active duty during a war or other military 
operation or national emergency;
     Is performing qualifying National Guard duty during a war 
or other military operation or national emergency;
     Resides or is employed in an area that is declared a 
disaster area by any Federal, State, or local official in connection 
with a national emergency; or
     Suffered direct economic hardship as a direct result of a 
war or other military operation or national emergency, as determined by 
the Secretary.
    Based on this authority and due to the national pandemic, the 
Secretary has provided a number of waivers to the requirements for the 
PSLF program and also paused payments, with those months counting 
toward forgiveness if the borrower has qualifying employment.
    Establishing a single standard that includes all benefits of the 
waivers and merges the new regulations is not feasible because elements 
of the waiver, such as counting any month in repayment as a qualifying 
payment regardless of whether a borrower made a payment or their 
repayment plan or granting credit for payments made on a commercial 
FFEL loan, can only be provided on a time-limited basis. The Department 
believes that these rules streamline processes, clearly define new 
terms, and revise existing terms.
    Changes: None.

PSLF Reconsideration and Application Changes

    Comments: Several commenters approved of the proposed 
reconsideration process and recommended that the Department lengthen 
the time period in which a borrower can request reconsideration beyond 
the proposed 90 days. These commenters stated that to file a robust 
reconsideration request, many borrowers will need to access loan and 
PSLF records from servicers, as well as information from employers of 
years past. These commenters further claimed that the proposed 
reconsideration window would be costly and inefficient for the 
Department, as pushing borrowers to file hasty requests would be likely 
to lead to unwarranted denials and repeat reconsideration requests.
    Other commenters suggested the Department not allow the same 
servicers to be tasked with reconsideration of any determinations or 
denials made by that servicer.
    Discussion: We appreciate the commenters' support of the 
opportunity for reconsideration. We believe, however, that many 
borrowers possess the needed records for reconsideration at the time 
they submit their initial application or would be able to obtain them 
and request reconsideration within 90 days. The reconsideration request 
allows for a review of accuracy because the borrower believes the 
Department made a mistake or did not have all information necessary to 
make the correct determination at the time of the initial review. We 
believe that through the reconsideration process, one of the benefits 
could be global fixes if the Department identified mass errors in 
applications that were previously denied.
    The regulations do not address how the Department uses its 
contractors to perform certain roles in the program.
    We appreciate the commenters' concern about the costs associated 
with the regulatory action. We provide detailed information about the 
costs in the Regulatory Impact Analysis section.
    Changes: None.

PSLF Qualifying Payments

    Comments: Many commenters suggested that the number of qualifying 
payments for PSLF should be reduced. Other commenters suggested that 
the number of qualifying payments should be dependent on the type of 
institution the borrower attended. A few commenters suggested borrowers 
should be eligible for PSLF after a specific number of years, rather 
than after making a specific number of qualifying payments. A few 
commenters stated the amount or percent of relief should be tied to the 
number of qualifying payment years. Other commenters stated that all 
student loans should be forgiven when the borrower meets a specific age 
threshold. These commenters expressed concerns regarding the duration 
of student loans and that low-paying public service occupations make it 
difficult to make other needed payments toward necessities.
    One commenter noted that the proposed regulations allow a borrower

[[Page 65977]]

to request loan forgiveness after making the 120 monthly qualifying 
payments but expressed concern about the Department allowing for lump-
sum monthly payments. The commenter suggested that Sec.  685.219(e)(1) 
should be revised to clarify that the borrower may request loan 
forgiveness only after making the 120 monthly qualifying payments and 
while performing 120 months of qualifying service.
    Discussion: The HEA requires that a borrower make 120 months of 
qualifying payments to receive forgiveness under PSLF. The changes to 
the number of qualifying payments and time to forgiveness suggested by 
the commenters would require a statutory change and cannot be 
accomplished through regulation.
    The Department appreciates the comment about the updating the 
regulations to include the borrower may request loan forgiveness after 
making both the 120 months of qualifying payments and qualifying 
service. The Department will amend the regulatory text.
    Changes: The Department will amend Sec.  685.219(e)(1) to specify 
that a borrower may request loan forgiveness after making the 120 
months of both qualifying payments and qualifying service.

Eligibility for Physicians Working in Texas and California Hospitals

    Comments: Several groups of commenters responded to the 
Department's directed question related to PSLF eligibility for 
physicians in States where they are ineligible to work for qualified 
employers due to State laws, such as those in California and Texas. 
These commenters stated that qualified California and Texas physicians 
who work at nonprofit hospitals but are not directly employed by them 
should have equal access to PSLF like their colleagues in areas that 
are not impacted by State law.
    Other commenters questioned how the Department would be able to 
establish that physicians in those States were not employees of 
hospitals exclusively due to State law as opposed to other 
circumstances when physicians are employed at nonprofit hospitals but 
are paid by physician groups or work as independent contractors. Other 
commenters noted that if State law prohibits a public service 
organization from directly employing a licensed physician, eligibility 
for loan forgiveness can be demonstrated by a written certification 
signed by an authorized official of the public service organization. 
Other commenters noted similar issues such as hospitals not hiring 
psychiatric pharmacists in States such as Hawaii. One commenter also 
argued for the inclusion of certified midwives that work for a 
physician group that provides services to nonprofit hospitals in 
California.
    A few commenters also noted that since physicians are not eligible 
for PSLF under these arrangements in other states, physicians in Texas 
and California should not be eligible. Other commenters disagreed with 
the Department's proposed expansion of the definition altogether.
    Discussion: These final rules do not speak to one issue raised by 
commenters in response to the NPRM--whether and in what circumstances 
private for-profit employers, including early childhood organizations, 
should be treated as qualifying employers for the purposes of PSLF. 
That issue and the responses to comments related to it, will be 
addressed in a future final rule.
    We thank the commenters for their suggestions to expand eligibility 
for PSLF to certain and distinct contract employees who provide an 
eligible service for PSLF but are prohibited from being a full-time 
employee of an otherwise qualifying employer due to State law. The 
Department is aware of this situation existing for physicians at some 
nonprofit hospitals in Texas and California, where rules that have been 
in place for decades prevent their direct employment by the hospital. 
Other borrowers may be in a similar situation.
    Based on the information provided by the commenters, the Department 
has determined that this situation is distinct from other types of 
contractual employment. A hospital must have doctors to provide the 
needed care to carry out its mission, but in this situation the only 
option is to bring on contractors to fill gaps or expand capacity 
because the hospital is legally prohibited from pursuing any other 
staffing model. In these cases, the employer is limited to hiring 
someone only as a contractor. Congress intended to support certain 
organizations and their employees by providing PSLF but limited the 
benefit to employees. These State laws mean that certain borrowers in 
these States are barred from PSLF solely because of the State law. For 
the reasons expressed by the commenters, the Department has decided to 
address this unequal treatment by allowing borrowers in the narrow and 
specific situation of a borrower who works as a contractor for a 
qualifying employer in a position or providing services which, under 
applicable state law, cannot be filled or provided by an employee of 
the qualifying employer to qualify for PSLF. We believe that this 
relates to a relatively limited universe of borrowers. This change does 
not expand the range of qualifying employers, but rather who can be 
captured under a qualifying employer. Accordingly, in situations such 
as the one raised by a commenter who works as a certified midwife, 
eligibility would be based on whether the specific adjustment allowed 
in this rule also applies to them.
    As discussed above, the Department will publish a separate final 
rule addressing the comments raised concerning allowing private for-
profit employers to serve as qualifying employers for PSLF. This rule 
does not speak to that issue.
    Changes: The Department has amended the definition of the term 
``employee or employed'' to include an individual who works as a 
contracted employee for a qualifying employer in a position or 
providing services which, under applicable State law, cannot be filled 
or provided by a direct employee of the qualifying employer.

Eligibility for Other Contractors

    Comments: A few commenters suggested expanding the definition of 
employee or employed to mean any individual who is hired and paid by a 
public service organization, including contractors.
    The Department received a range of comments arguing for expanding 
PSLF to other types of contractual employment relationships beyond the 
specific case of physicians at certain nonprofit hospitals in Texas or 
California. These ranged from suggestions for expansions to specific 
occupations to calls for the inclusion of all borrowers who work as 
contracted workers at any qualifying organization. Other commenters 
added that the Department should focus on the service provided and not 
the employers' status and further stated that private-practice medical 
practitioners that get reimbursed from Tricare or TriWest (or other 
qualifying providers) for providing public healthcare for Active-Duty 
Military and Veterans should get credit. Several commenters urged the 
Department to include contracted nurses and nurse practitioners as 
eligible employees for PSLF. Another commenter suggested that we 
provide clarification that qualifying employers may certify the public 
service work of contracted employees retroactively.
    Many commenters supported extending PSLF eligibility to certain 
self-employed independent contractors who are working on a full-time 
basis with a qualifying employer, who are not employed directly by the 
qualifying employer, and who may receive tax

[[Page 65978]]

forms with stated profession other than W-2s, including 1099 forms.
    Discussion: As discussed above, the Department will publish a 
future final rule addressing comments related to expanding eligibility 
of private for-profit organizations to serve as qualifying employers 
for PSLF. This rule does not speak to that issue. Instead, this 
response addresses the question of whether there should be other 
situations when a government or private nonprofit organization can 
certify the employment of a contractor.
    The Department has decided to allow borrowers in the narrow and 
specific situation of working as contracted workers for a qualifying 
employer in a position or providing services which, under applicable 
State law, cannot be filled or provided by a direct employee of the 
qualifying employer to qualify for PSLF. An employee who works under 
this condition may receive a Form 1099 which would be acceptable 
instead of a W-2. As the Department explained in its rationale for this 
limited exception earlier in this document, the reasons that justify 
allowing this targeted exception do not apply to the use of contractors 
more generally.
    Changes: None.
    Comments: Other commenters noted that while there might be some 
pushback to include contractors and that contractors tend to earn 
higher salaries, the borrower must be enrolled in the PAYE or IBR plan, 
which requires financial hardship to be eligible.
    Discussion: The Department thanks the commenters for their 
feedback. Unless a borrower works as a contractor for a qualifying 
employer in a position or providing services which, under applicable 
State law, cannot be filled or provided by a direct employee of the 
qualifying employer, employer, the borrower would not be considered 
working for a qualifying employer for the purposes of PSLF.
    Changes: None

Certification and Other Forms

    Comments: Several commenters mentioned that qualifying 
organizations are likely willing to sign PSLF forms on behalf of 
contractors since they are likely already completing PSLF forms as 
qualifying employers and often track the number of hours worked for the 
independent contractors they hire. One commenter argued that they do 
not believe that a company's willingness to sign a verification form 
for an employee has practical utility and recommends that the 
Department use the same approach here as for all other employers. 
Another commenter requested the Department include contracted public 
defenders, certified by their local governments, as a qualifying 
employer and permit employer certification for contracted public 
defenders. This approach would allow an employee to substantiate their 
periods of qualifying employment using other avenues of documentation, 
such as W-2s, if the employer is unwilling to certify employment (or if 
the employer has closed). The commenter reminded the Department that 
the Privacy Act of 1974 provides that the Department shall ``collect 
information to the greatest extent practicable directly from the 
subject individual when the information may result in adverse 
determinations about an individual's rights, benefits, and privileges 
under Federal programs.''
    Discussion: The Department appreciates the suggestions from the 
commenters. We are cognizant of the rights of individuals under the 
Privacy Act of 1974 and take every precaution to protect those rights. 
We further believe that the PSLF and Temporarily Expanded PSLF 
certification and application is an appropriate means of collecting 
information and certifying that a borrower is working full-time at a 
qualifying employer. Additionally, we determine PSLF eligibility based 
on the services provided by the employer and not by the individual's 
specific job or job description. As stated earlier, the Department has 
permitted the use of Form 1099s in the limited condition described 
above. The Department will also review borrower's alternate 
documentation if an employer refuses to certify the certification and 
application form.
    Changes: None.

Early Childhood Educators Who Work for For-Profit Entities

    The Department thanks commenters for responding to the questions we 
asked in the NPRM and for providing comments related to Early Childhood 
Educators who work for for-profit entities. We received many comments 
related to the eligibility of Early Childhood Educators who work for 
for-profit entities as well as suggestions to include employees of for-
profit entities in many other occupations as well as removing any 
limitation on the eligibility of for-profit employers so long as they 
provide a qualifying service.
    The Department is separating this issue for a future final rule 
because we received significant and detailed comments in response to 
our questions around the possible treatment of for-profit companies 
that provide early childhood education as qualifying employers for 
PSLF. These comments included a number of proposals that address 
operational, legal, and policy considerations, which the Department 
needs additional time to consider. That rule will be published after 
November 1, 2022. These Final Rules do not address this issue.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Office of Information and 
Regulatory Affairs (OIRA) in the Office of Management and Budget (OMB) 
must determine whether a 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 $71.8 billion in increased transfers among 
borrowers, institutions, and the Federal Government, including 
annualized transfers of $7.4 billion at 3 percent discounting and $7.8 
billion at 7 percent discounting, and annual quantified costs of $6.3 
million related to paperwork burden. Therefore, based on our estimates, 
OIRA has determined that this final action is ``economically 
significant'' and subject to OMB review under section 6(a)(3) of 
Executive Order 12866. Notwithstanding this determination, based on our 
assessment of the potential costs and benefits (quantitative and 
qualitative), we have determined that the benefits of this final 
regulatory action 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

[[Page 65979]]

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
    (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 final regulations as these policies are better 
than the alternatives considering the facts. The focus of this 
regulatory package is to improve title IV HEA program administration. 
In choosing among 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 will 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. Major Rule Designation

    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996, also known as 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).

2. 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 HEA. 
Accordingly, these final regulations will 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.
    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 based upon discharge 
programs authorized by the HEA. The American Rescue Plan Act of 2021 
modified the Federal tax treatment of student loan discharges through 
December 31, 2025, by excluding such discharges from gross income for 
Federal income tax purposes.
    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 final regulations. This includes 
streamlining the BD regulations and establishing a process for group 
consideration of claims from borrowers with common claims or affected 
by the same institutional act or omission; restricting the use of 
mandatory arbitration and class action waiver requirements imposed by 
imposed by institutions participating in the Direct Loan 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; allowing borrowers to automatically 
access a closed school loan discharge; easing the process of accessing 
false certification discharges; and clarifying the rules borrowers must 
comply with in the PSLF program. Throughout these final 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.
    These efforts to reduce burden for students and institutions will 
also indirectly reduce the burden on the Department by, for example, 
limiting the need for adjudication of individual claims for BD 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 final regulations will 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 
today, as well as loans from the FFEL Program, which stopped issuing 
new loans in 2010 and the Perkins Loan Program, which stopped issuing 
new loans in 2017. Changes to TPD and closed school discharges will 
affect all three programs. Changes to false certification will affect 
FFEL and Direct Loans. Changes to interest capitalization, BD, 
arbitration, and PSLF will only affect Direct Loans.
    Borrower Defense: 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 BD 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. These final BD

[[Page 65980]]

regulations make these policies more consistent, regardless of when the 
borrower took out the loan, and create a more timely and effective 
process for reviewing borrowers' claims. The Department also seeks to 
implement measures that will reduce the burden on institutions of 
participating in BD proceedings with the changes to group claims and 
recoupment. Allowing group claims ensures that institutions with large 
numbers of outstanding claims will likely only have to respond once to 
a request for information regarding the allegations that could lead to 
an approved BD claim. While the standards in this rule will apply to 
borrower defense claims pending on or received on or after July 1, 
2023, the Department will only seek recoupment for discharges tied to 
conduct that would be approved under the applicable regulation based on 
the loan disbursement date. Additionally, separating the approval of BD 
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 pre-existing 
processes for recoupment proceedings also means institutions will not 
need to learn and participate in an entirely new liability and appeals 
process.
    Pre-Dispute Arbitration: Often, schools that have taken advantage 
of borrowers have required borrowers to participate in private 
arbitration proceedings. These pre-dispute arbitration agreements 
require borrowers to agree to the terms before a conflict ever arises 
and often dictate whether the borrower can appeal the decision. Though 
pre-dispute 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 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.\154\ 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.\155\
---------------------------------------------------------------------------

    \154\ Habash, T. and Shireman, R., (April 28, 2016). How College 
Enrollment Contracts Limit Students' Rights, The Century Foundation. 
Retrieved from https://tcf.org/content/report/howcollege-enrollment-contracts-limit-students-rights/.
    \155\ Consumer Financial Protection Bureau. (2015.) 
``Arbitration Study: Report to Congress.'' https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
---------------------------------------------------------------------------

    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 borrowers 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 BD 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.
    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, because the interest on an unsubsidized loan 
accrues while the borrower is enrolled in school, a capitalization 
event following the in-school grace period affects any borrower who has 
one of these types of loans. Eliminating interest capitalization stops 
compounding the costs and makes loans more affordable for borrowers. 
While eliminating interest capitalization does not remove borrowers' 
debt burden, it will help to increase affordability for students whose 
balances might continue to grow. That is 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.
    Total and Permanent Disability Discharge: Another area in which the 
current regulations create gaps for borrowers is related to total and 
permanent disability discharges. For borrowers who are unable to engage 
in gainful employment due to a disability, their student loan debt 
become 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 will be improved through regulation. First, the Department 
currently administers 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 an SSA disability determination 
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 circumstances that may support a 
discharge based on an SSA disability determination under the terms of 
the HEA. 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 final 
regulation aims to mitigate and to streamline total and permanent 
disability discharge process.
    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 
finding an easily accessible new institution and potentially losing 
many credits that are nontransferable. Historically, borrowers who do 
not

[[Page 65981]]

finish their programs are far more likely to risk default than those 
who graduate, so closures can negatively affect 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 3 years of the institution's 
closure. Final regulations published on September 23, 2019, eliminated 
this provision. These final regulations will 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, the Secretary 
may extend the closed school discharge window under ``exceptional 
circumstances.'' The nonexhaustive 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 final regulation 
aims to remedy these issues.
    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 there are different standards and processes for 
false certification discharges depending on when the loan was 
disbursed, which can create confusion for borrowers. These final 
regulations streamline the false certification discharge process for 
student loan borrowers, establish standards that apply to all claims 
regardless of when the loan was first disbursed, and provide for a 
group discharge process. These final rules will also reduce 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 make 120 qualifying payments on 
their loan while working in qualifying employment in public service. 
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 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. This creates inconsistency, such as 
when 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 will improve the PSLF application process and 
automate the discharge process in instances where the Secretary has 
enough information to determine eligibility for forgiveness. This will 
significantly reduce burden on the borrower and 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.

3. Summary of Comments and Changes From the NPRM

    The Department made several significant changes to borrower defense 
from the NPRM as well as some changes to interest capitalization, 
closed school discharges, and total and permanent disability 
discharges. The Department did not make any non-technical changes to 
arbitration and class action waivers or false certification discharges. 
Table 1 below provides a summary of the key changes from the NPRM to 
the final rule.
BILLING CODE 4000-01-P

[[Page 65982]]

Table 1--Summary of Key Changes in the Final Regulations
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BILLING CODE 4000-01-C
    Comments: Commenters argued that the model created by the 
Department to estimate the net budget impact of the changes to borrower 
defense understated the costs because it did not properly account for 
the growth in loan volume associated with borrower defense claims 
received by the Department. The commenter argued that the new standards 
would generate an increase in the number of claims filed compared to 
the past and that was not captured in the regulatory impact analysis.
    Discussion: We disagree with the commenters. The estimates in the 
NPRM and this final rule reflect the anticipated changes in costs from 
this regulation, not the overall cost of borrower defense discharges. 
Claims that would have been approved under prior regulations thus do 
not and should not show up in the cost estimates in this rule because 
the regulatory changes here are not changing the outcome on those 
claims. As such, any increases in borrower defense applications that 
would have been approved regardless of this regulation do not show up 
in the cost estimates in this regulatory impact analysis.
    The budgetary effects in the regulatory impact analysis reflect 
reasonable assumptions made by the Department. In general, the 
Department has seen a significant decline in the filing of borrower 
defense claims associated with more recent enrollment. Of the 
approximately 376,000 cases opened since July 1, 2020, only 11,300 are 
from borrowers whose self-reported first enrollment date was on or 
after July 1, 2020.\156\ Similarly, of the more than 150,000 individual 
claims the Department has approved so far, 80 percent are covered by 
the 1994 regulations. While the Department will continue to review 
claims and may approve additional ones associated with more recent 
conduct, this bears out the assumptions that the loan volume associated 
with borrower defense will be significantly higher for past cohorts 
than in more recent years. The Department also notes that there is a 
difference between the total volume associated with a submitted 
borrower defense claim and the estimate about the amount of volume that 
results in approved claims. The Department's estimates are focused on 
the share of volume associated with conduct associated with approved 
claims. We believe that the estimate that shows the share of volume 
associated with conduct that could lead to an approved borrower defense 
claim declining over time is correct. Many of the institutions that 
produced the largest amount of borrower defense claims closed years 
ago. Many others with a significant number of claims have seen 
enrollment declines. Additionally, the number of lawsuits and 
investigations related to institutions from actors such as State 
attorneys general has also declined over time. As such, we do not see 
indications of a likely increase in conduct that leads to an approved 
borrower defense claim.
---------------------------------------------------------------------------

    \156\ Department of Education analysis of borrower defense 
claims based upon the date the claim was filed and the first 
enrollment date reported by the borrower.
---------------------------------------------------------------------------

    Changes: None.
    Comments: Commenters argued that the Department should withdraw the 
regulation because of the significant cost of the regulations.
    Discussion: We disagree with the commenters. We have concluded that 
the benefits from this rule exceed its costs. The specific types of 
benefits are discussed in greater detail in the costs and benefits 
section of this regulatory impact analysis.
    Changes: None.
    Comments: Commenters argued that instead of citing approval 
estimates from the regulatory impact analysis for the 2016 and 2019 
regulations the Department should have conducted its own analysis of 
the approval rate under the 2016 regulation to justify its conclusions 
as to the Department's preferences for recreating elements of the 2016 
regulation.
    Discussion: There is not a straightforward way to calculate an 
approval rate for claims associated with the 2016 regulation. To date, 
the Department has approved nearly 123,000 individual claims covered by 
the 1994 regulation, just over 17,000 claims associated with the 2016 
regulation, and just over 13,000 claims associated with both. However, 
there is not an appropriate denominator to use to calculate an approval 
rate. In 2020, the Department issued denial notices to tens of 
thousands of borrowers, including many covered by the 2016 regulation. 
However, those denial notices were challenged in court and the 
Department stipulated in October 2020 that we would not issue any 
further denials until the Sweet v. DeVos lawsuit was resolved on the 
merits. A settlement agreement on that case that received preliminary 
approval in July 2022 would rescind those denial notices. Other claims 
may not have received an individual approval notice but have since been 
included in a group discharge of claims. Still other claims have not 
received a decision of either approval or denial. The result is that 
any reported approval rate would risk excluding elements that could 
meaningfully affect the number.
    Changes: None.
    Comments: Commenters argued that the Department's budget estimates 
underestimated the harm to institutions by underestimating the amount 
of funds it expects to recoup. Commenters pointed to higher recoupment 
estimates in the 2016 and 2019 regulations and procedural changes in 
the NPRM for institutions to challenge liabilities as arguments that 
the recovery rate should be higher.
    Discussion: The Department disagrees with the commenters. The 
estimates in this rule reflect what the Department expects to recoup 
from institutions resulting from the changes in this regulation. The 
estimates are not reflective of borrower defense discharges overall.

[[Page 65990]]

    To date, the Department has yet to complete a recoupment effort for 
approved borrower defense claims. The Department has received some 
funds from institutions as part of bankruptcy negotiations that offset 
the expense of some of the transfers from the Federal Government to 
students when it discharges a loan due to an approved borrower defense 
claim. But the overwhelming majority of approved borrower defense 
claims have come against institutions that are no longer in business 
and have no further resources to potentially reimburse the Department 
for costs. The Department initiated a recovery proceeding in August 
2022 for the only set of claims approved to date against an institution 
that is still operating. However, that process is not complete. The 
large share of approved claims associated with closed schools argues in 
favor of a gap between volume associated with approved claims and 
amounts recouped.
    The structure of the Federal standard will also affect recoupment. 
As noted in the preamble, the Department will not seek to recoup on the 
cost of discharges associated with loans disbursed prior to July 1, 
2023, unless those claims would have been approved under the standard 
in the regulation in effect at the time those loans were disbursed. 
This concept is also now reflected in regulatory text. By applying a 
single standard to all claims, some claims may be approved that would 
not have been approved under the standard in effect at that time. 
Finally, we remind commenters that the budgetary effects from 
discharges and savings from recoupment in the regulatory impact 
analysis reflect the effect of this rule, not borrower defense 
discharges overall.
    Changes: None.
    Comments: Commenters argued that the Department's analysis of the 
budgetary impact of the borrower defense rules was inaccurate because 
it did not incorporate the effects of the proposed settlement in the 
Sweet v. Cardona litigation.
    Discussion: In July 2022, the proposed settlement in Sweet v. 
Cardona received preliminary approval. However, the settlement is not 
final. It would thus be inappropriate to factor this settlement into 
the baseline for estimating the cost of borrower defense discharges. We 
discuss the effect of the potential settlement on the net budget impact 
of the BD provisions in the Net Budget Impact section. Overall, if the 
settlement is approved, the effect would be to reduce some of the 
transfers to borrowers in the form of approved BD claims due to this 
regulation because those borrowers would instead receive settlement 
relief that discharges their loan. Those discharges from settlement 
relief are not BD discharges. Claims that are granted settlement relief 
but would not have been approved under this regulation do not affect 
the net budget impact of this regulation, since they would not have 
resulted in a transfer to the borrower in the form of a loan discharge 
nor the possibility of a transfer from the institution to the 
Department through a recoupment effort.
    Changes: None.
    Comments: Commenters argued that the Department did not 
sufficiently explain why it anticipates that 75 percent of group claims 
would be approved versus 12 percent of individual claims.
    Discussion: The underlying budget estimates for this rule are 
derived using the same model and data that the Department uses for its 
annual estimates of the student loan programs, with specific 
assumptions related to BD added in. That model uses a statistically 
significant sample of administrative data from the National Student 
Loan Data System to estimate costs both based upon the cohort of when 
loans are disbursed as well as by different risk groups, such as 
whether a borrower is a first- or second-year student, the sector of 
school they attend, and other factors. The model is subject to an 
annual external audit and changes to overall assumptions must be 
approved by the OMB. This ensures that we are using the same data and 
the same consistent procedures we employ to produce other cost 
estimates, such as those in the President's annual budget request to 
Congress.
    In establishing the parameters to estimate the effects of the 
borrower defense rule the Department drew on its experience with 
administering the different borrower defense regulations to estimate 
approval rates. We also considered these rates in comparison to the 
regulatory impact analysis in the 2016 regulation, since that 
regulation bears more similarities to this final rule than the 2019 
regulation does. To date, all approved individual BD claims have been 
approved by reaching conclusions about an institution's conduct from 
common evidence the Department has across a range of borrowers and 
applying those findings to approve individual claims. Many of those 
findings that were initially used to grant individual approvals were 
also later used to grant a group discharge of claims. For instance, the 
Department approved individual claims at Corinthian Colleges, ITT 
Technical Institute, Marinello Schools of Beauty, and Westwood College 
before later discharging loans for groups of borrowers who attended 
those institutions. In constructing its estimates for the NPRM, the 
Department anticipated that in the future it is more likely to approve 
those claims first as a group rather than doing individual approvals 
followed by a discharge of a group of claims.
    The higher estimated approval rate for the group claims also 
reflects the requirements for submitting an application to consider a 
group. A materially complete application requires evidence beyond sworn 
borrower statements, which means that if the Department forms a group, 
it will be beginning that consideration process with a greater evidence 
basis than it is likely to possess for most individual claims. By 
contrast, an individual claim only requires a sworn borrower statement 
for submission. Commenters should also recall that the Department can 
decide whether to form a group. It is unlikely the Department would 
form a group where the evidence indicating a likelihood of approval is 
low. The process for individual claims is different since borrowers 
decide to initiate those and it is thus reasonable to expect a wider 
range of quality.
    Establishing an approval rate for claims based upon past experience 
is further complicated by ongoing litigation. The Department issued 
denials of tens of thousands of claims, but those were then challenged 
in court. The Department has since committed to not issue further 
denials until there is a decision on the merits in the litigation. We, 
therefore, did not factor those claims into estimates of how many 
claims would be approved or denied. Similarly, for the group claims the 
Department has only issued approvals so does not have a corresponding 
number of denied group applications. Instead, as noted above, we 
estimated that group claims would have a very high likelihood of 
approval, since a group would be unlikely to be formed if the chance of 
success was low. Were the Department to base its estimates solely upon 
the past approvals it has done, then the relevant approval rates would 
have been 100 percent for group claims. The historical group claim 
figure does not include any claims that might be denied and, thus, 
likely overstates the approval rate going forward. For individual 
claims, the historical approval rate is 47 percent. That figure is also 
overstated. The denominator is the total number of claims filed by 
borrowers at two institutions, DeVry University and the Court Reporting 
Institute, whose enrollment overlapped

[[Page 65991]]

with the period in which we approved findings that made allegations 
that match our approved findings. The Department is only including 
those two institutions because all other approvals to date either 
started as or eventually became group discharges, and we are only 
including the more limited time period because that is what we have 
adjudicated to date. The numerator is the number of those borrowers 
whose applications include allegations that are supported by the 
Department's findings. A more comprehensive individual approval rate 
would use a denominator that includes all claims filed, not just those 
from borrowers who enrolled in the same period as the approved 
findings. It would also include claims from institutions where we do 
not have findings. Any approval rate that accounted for all those 
factors would be a small fraction of that 47 percent approval rate.
    In determining how to adjust the group and individual figures 
downward, we also looked at past estimates from the 2016 regulation. 
That regulation did not split apart estimates for individual versus 
group claims. Accordingly, we think the overall estimate, which ranged 
from 50 to 65 percent of volume associated with group claims seemed 
overall lower than what we might anticipate when making calculations 
solely for group claims. Accordingly, we took an estimate that adjusts 
downward from what the Department has approved to date and upward from 
the 2016 regulation to a range of 60 to 75 percent, depending on risk 
group. As for individual claims, the Department considered that the 
total number of institutions covered by individual claims would be 
greater than those for group claims, since the Department has at least 
one individual claim against almost every institution of higher 
education. However, that significant breadth of claims is less likely 
to produce approvals since to date no individual claim has been 
approved without the presence of common findings. The Department also 
looked at the estimates for claim approvals in the 2019 final rule, 
which are more analogous to individual claims because that regulation 
did not allow for group claims. That rule estimated that between 5.25 
percent and 7.5 percent of volume associated with applications would be 
approved. The Department adjusted those estimates upward since this 
final rule does not include several elements of the 2019 rule that 
would have led to denials, such as a statute of limitations or the need 
to show that an act or omission by the school was made with knowledge 
that it was false, misleading, or deceptive, or that it was made with a 
reckless disregard for the truth. Accordingly, we think a range of 
between 8 and 12 percent of volume associated with individual claims 
reflects the lower likelihood of approval, while also noting that 
changes in this rule will produce higher approval estimates than the 
2019 regulation. As with other prior regulations, the Department 
estimates the likelihood of a claim being successful at a higher rate 
at proprietary institutions based upon the fact that to date all 
approved claims have been associated with that sector. Finally, we note 
that the Department has yet to approve any borrower defense claims 
associated with a public or private nonprofit institution. Basing those 
estimates on adjustments to estimates from previous regulations ensures 
a greater consistency in estimation given that there is no other data 
from which to draw upon.
    Changes: None.
    Comments: One commenter argued that the Department should have 
conducted an analysis of the impact of the rule on third-party 
marketers.
    Discussion: The Department disagrees. We have provided an analysis 
showing the anticipated effects of the rule on institutions. 
Considering cost impact on third-party marketers would result in 
double-counting because the actions of third-party servicers are 
attributed to the institution. We have accounted for the effects on 
third-party servicers as a cost for institutions; counting again would 
be duplicative.
    Changes: None.
    Comments: A few commenters argued that the Department failed to 
abide by the Data Quality Act. They argued that the regulatory impact 
analysis lacked supporting documentation or analysis for its proposals 
to use presumptions and several other elements of the regulation 
related to borrower defense and arbitration. Similarly, a commenter 
argued that the Department did not undertake impact studies and 
financial analyses of the rules to understand the effect on 
institutions and the students they enroll.
    Discussion: The Department disagrees with the commenters. All of 
the budget estimates produced in the regulatory impact analysis are 
done using the Department's model for estimating the budgetary effects 
of the student loan programs, which is audited annually and draws data 
directly from administrative systems maintained by Federal Student Aid. 
The Department looked at data on actual borrower defense claims 
received to model the anticipated effects of that rule, including 
looking at the type of college associated with claims, when borrowers 
enrolled, and the levels of debt. The Department does not think there 
is a better available data source for looking at this issue than our 
own administrative data and the official model used to estimate costs. 
Commenters did not identify any instances where they thought a data 
source used lacked objectivity. The Department believes drawing on the 
administrative data it has that presents a comprehensive view of 
borrower defense claims filed to date. Moreover, the Department 
believes that the model it uses to produce formal cost estimates of the 
Federal student loan programs ensures consistency between regulatory 
and other cost estimation work. As noted above, the model is annually 
audited and subject to approval from the OMB. It is also used across 
both regulations and estimations for the Department's financial 
statements, and the annual President's budget request.
    The Department also disagrees with the commenter who raised 
concerns about the lack of impact studies. The regulatory impact 
analysis provides estimates of the financial effect of the rule in 
terms of the cost of approved claims to the Department, the deterrent 
effect of the policy, and the amount of funds we anticipate recouping.
    Changes: None.
    Comments: Commenters also stated that the Department did not 
conduct an impact analysis related to the prohibition on pre-dispute 
arbitration agreements and class action waivers.
    Discussion: With respect to the commenters who stated that we did 
not sufficiently explain our analysis supporting the prohibition on 
pre-dispute arbitration agreements and class action waivers, we 
disagree and point to the Regulatory Impact Analysis from the NPRM. We 
also disagree with the assertion that we failed to engage the current 
regulation's justifications in a meaningful manner and provide the 
basis for our proposals, both of which we specifically addressed.\157\
---------------------------------------------------------------------------

    \157\ 87 FR at 41913-41918.
---------------------------------------------------------------------------

    Changes: None.
    Comments: One commenter argued that the Department did not properly 
balance the benefits of removing paperwork burdens associated with the 
TPD income-monitoring period with the potential cost to taxpayers.
    Discussion: We agree that protecting federal funds from fraud and 
error is a necessary and important function of the Department. We note 
that, under the Paperwork Reduction Act, the

[[Page 65992]]

Department is obligated to reduce paperwork burden where possible. As 
we noted in the preamble to the NPRM, we have not found the income 
monitoring requirement to be a useful measure of a borrower's 
continuing eligibility for a TPD discharge. The commenter alleges that 
the Department does not address the paperwork burden benefits of this 
change. In fact, we stated in the preamble to the NPRM:

    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 [NPRM, p. 41970]

    The NPRM went on to state that ``burden will be cleared at a later 
date through a separate information collection for the form'' [NPRM, p. 
41973]. Far from being arbitrary and capricious, this is our standard 
practice for evaluating paperwork burden that is primarily a result of 
requiring individuals to complete a Federal form.
    Changes: None.
    Comment: One commenter asked that the Department expand on the 
effects of removing the limitation on providing automatic discharges 
for schools that closed prior to November 1, 2013, and show the costs 
of that change in the regulatory impact analysis.
    Discussion: The commenter's request reflects an assumption that the 
Department is able to retroactively award discharges for schools that 
closed prior to the effective date of the regulations. The Department, 
however, is unable to retroactively implement the regulation. It would 
thus be inappropriate to show additional effects associated with those 
older closures.
    Changes: None.

4. Discussion of Costs and Benefits

    The final regulations are broadly intended to provide benefits to 
borrowers by improving the administration of specific aspects of 
Federal student loan programs, including through clearer guidelines and 
processes for obtaining the benefits and protections that the HEA 
provides them. These changes are particularly important for borrowers 
who have difficulty keeping up with their payments, who often end up in 
forbearance, delinquency, or default, and as a result, see their 
balances grow through interest accrual and capitalization. Some 
borrowers may struggle to manage their student loan debt because they 
were misled due to acts or omissions by the school they attended. This 
caused them detriment rather than delivering the education promised, 
which could justify relief in the form of a discharge of the remaining 
balance of the loan, a refund of payments made to the Secretary, and 
other changes as applicable to credit reporting and removing a borrower 
from default. Or they may have a loan that was certified under false 
pretenses and never should have been made. Others may have debts from 
an education that they could not complete because a school closed, 
putting them at significant risk of default. In other cases, a borrower 
may face major repayment challenges because they have a total and 
permanent disability that prohibits them from engaging in gainful 
employment for prolonged periods of time. There are also borrowers who 
may not be struggling, but who are engaging in service to the United 
States and need promised relief so they can continue in their public 
service positions. The rule will help borrowers to thrive economically 
by avoiding repayment difficulties and default, as well as other 
contributors to financial instability.
    The Department also believes that these final regulations will 
provide critical support to underserved borrowers, thereby enhancing 
equity. 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.\158\ 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.\159\
---------------------------------------------------------------------------

    \158\ Scott-Clayton, J. (2018). 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-student-loan-default-crisis-is-worse-than-we-thought/.
    \159\ Scott-Clayton, J. (2016). Black-white 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.
---------------------------------------------------------------------------

    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 2-year for-profit colleges were 26 percent more likely to 
default than those who borrowed at 4-year public colleges, and that 
family income is a strong predictor of default risk.\160\
---------------------------------------------------------------------------

    \160\ Hillman, N.W. (2014). College on credit: A multilevel 
analysis of student loan default. The Review of Higher Education, 
37(2), 169-195.
---------------------------------------------------------------------------

    Using data from the College Scorecard, a different analysis finds 
that across all institution types, undergraduate non-completers have 
substantially higher default rates compared to those who completed a 
degree or credential.\161\ 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.\162\
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    \161\ 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-to-pay-down-their-loans-help-them-graduate.pdf.
    \162\ Department analysis of the 2004/2009 Beginning 
Postsecondary Students Study, estimated via PowerStats (table 
references: ivbztb and qobjsb).
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    The remainder of this subsection of the RIA summarizes the 
conclusions and information on which the Department relied, such as 
technical studies, assumptions, data, and methodologies, to develop 
this regulation.
4.1 Borrower Defense
    These final regulations improve the process for adjudicating BD 
claims and for recouping from institutions the cost of discharges 
associated with approved claims where possible. The Department 
anticipates that these final regulations will 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 BD discharges and the expected increase in recoupment, as 
compared with the 2019 regulations, would deter behavior that could 
form the basis for a BD claim and ensure more borrowers are able to 
access a loan discharge, as provided for in the HEA.
    The final regulation will establish a uniform Federal standard for 
initial adjudication of BD claims, regardless of when a loan was 
disbursed, which will streamline administration of the BD regulations 
and increase protections for students. However, institutions will not 
be subject to recoupment actions for applications that are granted 
based upon this regulation that would not have been approved under the 
applicable standard that would have been in effect at the time the loan 
was disbursed. A uniform standard also will significantly reduce the 
time necessary to determine eligibility and relief for BD claims, 
ensuring that borrowers would receive faster determinations. The use of 
a uniform Federal standard for initial

[[Page 65993]]

adjudication will also ensure all borrowers receive a consistent 
review, unlike current rules that outline different requirements 
depending on when a loan was disbursed.
    The Federal standard will provide a clearer path for approval of BD 
claims where the Department's review of the evidence shows that the 
institution's act or omission caused detriment to the borrower that 
warrants relief in the form of a full discharge of remaining loan 
balances, a refund of all payments made to the Secretary, and other 
benefits. This balances assistance for harmed borrowers while limiting 
the approval of immaterial claims. We also add aggressive and deceptive 
recruitment as grounds for a BD approval. The Department is adding this 
category based upon its experience in administering the BD regulation 
and because the Department is concerned about instances in which 
aggressive and deceptive recruitment tactics have caused detriment to 
borrowers by preventing them from making an informed choice. We also 
will restore the categories of breach of contract and judgment as 
grounds for a BD 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 BD claim. This is limited to actions under 
part 668, subpart G, denying the institution's application for 
recertification, or revoking the institution's provisional program 
participation agreement under Sec.  668.13, based on the institution's 
acts or omissions that could give rise to a borrower defense claim 
related to a substantial misrepresentation, substantial omission of 
fact, or aggressive and deceptive recruitment. To clearly delineate 
that omission of fact is a form of misrepresentation, we have listed it 
separately.
    These final regulations also provide 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 while the case is being adjudicated. Interest 
accumulation will cease immediately in the case of a group claim or 
after 180 days for an individual claim. Individual claims will be 
adjudicated within 3 years from the receipt of a materially complete 
application, with adjustments to address claims pending on the 
effective date of this regulation. Group claims will be adjudicated 
within 1 year from the formation of a group, which will occur within 2 
years of receipt of a complete application. Previously, there was no 
timeline for adjudicating BD claims. As a result, many borrowers who 
filed claims have been waiting for years to have their claims 
adjudicated. Of nearly 81,000 claims submitted in 2017, for instance, 
more than 14,000 (nearly one in five) remain pending. Nearly one in 
five claims submitted in 2018 and over one in four claims submitted in 
2019 also remain pending.\163\ Certainty about how long it will take to 
decide a claim will help borrowers better judge whether they think they 
have a claim they want to submit since they will have an understanding 
that it could take several years to receive a decision. It will also 
let them plan for whether they want to turn down a forbearance and 
continue to pay their loans or not.
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    \163\ Department analysis of data retrieved from the CEMS 
Borrower Defense System in June 2022. Values were rounded to the 
nearest 10.
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    The Department's failure to render a decision by the end of the 
timeline will render the loans unenforceable. Loans in such a 
circumstance will not be considered subject to a BD claim so an 
institution will not face a recoupment action for the cost of those 
loans. This will also provide a benefit to borrowers, who would see 
their loan discharged if we are unable to render a decision on their 
claim within the deadlines.
    The Department has included a group process for BD claims. This 
process was eliminated in the 2019 regulations. Through a group claim 
the Department may consider evidence in its own possession as well as 
requests from third parties to render a single decision on similarly 
situated borrowers who all attended the same institution, regardless of 
whether they all applied for BD relief. This will ensure a more 
efficient process. The inclusion of third-party requestors to initiate 
a group claim will provide a formal path for the Department to receive 
additional evidence that will help it make sound decisions on claims. 
The Department estimates that as much as 75 percent of BD 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 will result in an overall reduction in staff time. 
Approving group claims will also result in the filing of fewer 
individual claims, as the approved group claims will result in 
discharges for borrowers who have not yet applied, eliminating the need 
for such borrowers to submit applications. On net, these actions will 
save time for both borrowers and the Department, thereby generating 
real social benefits.
    All approved claims will receive a full discharge of remaining loan 
balances associated with the claim, as well as a refund of amounts 
previously paid to the Secretary. This eliminates a previously proposed 
complex process for the potential calculation of partial discharges. It 
also simplifies the adjudication standards by noting that an approved 
claim must involve circumstances that warrant this form of relief. All 
borrowers with approved claims to date have been approved for a full 
discharge.
    If a claim is not approved, a reconsideration process will allow a 
borrower to submit new evidence that was not available in the initial 
application. This process will 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 and the loans were first 
disbursed prior to July 1, 2017.
    By increasing relief to borrowers with claims that merit approval, 
improving the BD standard, restoring a group process, and providing a 
reconsideration process, these final regulations will result in 
additional transfers from the Department to borrowers, or from 
institutions to borrowers when the Department successfully recovers 
from the institutions. All borrowers will fall under a single, more 
expansive rule and those whose claims are approved will be able to 
receive relief more quickly and efficiently, which generates real 
benefits to society.
    This process will also afford institutions an appropriate 
opportunity to respond. The Department's allowance for group processes 
in the final regulations means that institutions will have an 
opportunity to respond before a group is formed as well as during the 
adjudication process if the Department does decide to form a group. 
That means an institution needs to respond only twice regarding a group 
claim, instead of sending responses to hundreds if not thousands of 
individual claims. While institutions will be expected to provide a 
response within 90 days when contacted, the separation of approval and 
recovery processes means that institutions will not be expected to 
engage in extended challenges to claims for which the Department 
decides not to pursue recoupment.
    In the past, the Department has seen institutions attempt to 
increase

[[Page 65994]]

enrollment by resorting to conduct that later leads to BD approvals. 
For instance, the Department has found that some institutions guarantee 
borrowers that they would get a well-paying job. They also 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 BD claims, will benefit 
institutions that do not engage in these tactics. This is because 
approved BD 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 final rules provide for a process to recover the discharged 
amount from institutions after the adjudication of BD cases. Recovery 
from institutions is important to offset costs to the Federal 
government and taxpayers from approved BD claims. It also holds 
institutions accountable for past behavior and will help to deter 
future practices that could form the basis for additional BD claims.
    As noted earlier, the Department will apply the BD standards in 
this rule to all claims pending on or received on or after July 1, 
2023, but recoupment would only occur if the claims would have been 
approved under the standards for the relevant BD regulation in effect 
at the time the loans were disbursed. The Department believes there 
will still be a deterrent effect even in situations where a claim is 
approved but recoupment doesn't occur. If an institution is still 
engaging in similar behavior that led to the approved BD claim on a 
loan disbursed earlier, they will have a strong incentive to cease that 
behavior to reduce the risk of future recoupment efforts. Similarly, 
institutions that are not currently engaging in a behavior that could 
lead to an approved BD claim would be dissuaded from adopting practices 
that have been shown to lead to approved claims.
    Costs of the Regulatory Changes:
    As detailed in the Net Budget Impact section, the changes to BD 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 $903 
million and $819 million at 7 percent and 3 percent discount rates, 
respectively. This will be partially reimbursed by affected 
institutions with the annualized recoveries estimated at $36.9 and 
$37.1 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 the forgiven 
dollars from institutions, they are transfers from institutions to 
borrowers. Otherwise, they are transfers from the Federal budget to 
borrowers. Details about these estimates are in the Net Budget Impacts 
section of this document.
    In the Federal standard for defense to repayment claims, a claim 
could be brought on any of the following grounds: substantial 
misrepresentation, substantial omission of fact, breach of contract, 
aggressive and deceptive recruitment, and a State or Federal judgment 
or final Department action against an institution that could give rise 
to a BD claim. The first two grounds incorporate and expand 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 BD application 
and is outlined in part 668, subpart R. The Federal standard will be 
applied to all borrowers regardless of when their loans were disbursed. 
BD applications that are currently awaiting adjudication upon the 
effective date of the regulations will be adjudicated based on the 
final regulations. Since these regulations expanded on the categories 
in which borrowers may be eligible for a BD 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 BD applications when the regulations go into effect due to 
the expanded categories of institutional misconduct. However, as 
explained in the discussion of benefits of the BD rule, the Department 
also expects a deterrent effect from the regulations as institutions 
adjust their behavior, even in circumstances where an institution is 
not subject to recoupment.
    The regulations expand group BD claims by including a process 
initiated by third-party requestors and a process based on prior 
Secretarial final actions, as well as the general authority for the 
Secretary to form a group. With these changes, the Department expects 
that individuals who have a valid BD 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 will 
award a full discharge to all borrowers with approved claims by 
adjusting the Federal standard to note that an approved claim requires 
the Department to conclude that the institution's act or omission 
caused detriment to the borrower or borrowers that warrants this form 
of relief.
    The reconsideration process could increase costs in the form of 
burden for the Department, although these costs are likely to be small. 
There are two possible outcomes for a BD application: denial or 
approval. The Department expects some borrowers whose BD applications 
are denied to seek reconsideration, which will increase administrative 
costs and time compared to previous regulations that do not have 
reconsideration processes. Historically, just under 7 percent of the 
borrowers who received a denial notice had filed a request for 
reconsideration.\164\ In addition, third-party requestors may also seek 
reconsideration. The change made by the Department from the NPRM to the 
final rule to limit reconsideration under State law to loans issued 
prior to July 1, 2017, will also reduce the costs of reconsideration, 
as there are more limited instances where the Department would have 
conducted another review under a different standard.
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    \164\ Department analysis of data retrieved from the CEMS 
Borrower Defense System in October 2022 combined with historical 
information on cases previously determined ineligible for relief.
---------------------------------------------------------------------------

    While these final regulations will 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 will be recovered 
from institutions over time. While the Department will likely be unable 
to recover from institutions that are no longer operating when BD 
claims are adjudicated, the final regulations will increase the 
likelihood that the Department could recover from relevant institutions 
before they are closed because (1) group claims against an institution 
will increase the expected benefit of recovering from the institution 
since they will result in large discharge amounts if approved; (2) the 
Department is expected to respond to group claims within 1 year of 
deciding to form the group, which will increase the possibility that 
the institution is still in operation; and (3) the streamlined claims 
process will allow the Department to act more quickly on BD 
applications. As a result, the costs in the form of transfers to 
borrowers that will result from the final BD regulations could be 
smaller for the Federal government in the long term as it receives 
transfers from institutions.
    Benefits of the Regulatory Changes:

[[Page 65995]]

    The final regulations will result in administrative cost savings 
for the Department, efficiencies for institutions in responding to 
claims, and benefits to borrowers. In addition, borrowers may benefit 
from a deterrent effect of these final regulations.
    The Department anticipates that establishing a process for 
recoupment from institutions and providing for a faster adjudication 
process will assist it in recovering more funds from institutions on 
claims associated with future loan disbursements because those schools 
will 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 BD 
process will result in changes in institutional behavior that benefit 
borrowers. For instance, past title IV policy changes to increase 
accountability, such as the cohort default rate measure and the 90/10 
rule, encouraged institutions to change their practices to respond and 
conform to new regulations. Accordingly, we expect that, over time, 
institutions will engage less frequently in acts or omissions that 
could give rise to a BD claim, which, in turn, will generate benefits 
to borrowers. Discouraging the type of acts or omissions that would 
lead to approved borrower defense claims will increase the likelihood 
that borrowers are presented with more accurate and transparent 
information about the cost of their programs, ability to transfer 
credits, employment outcomes, and other key things that are necessary 
for making an informed decision. Institutions will also want to avoid 
being overly aggressive in pursuing students, furthering the ability of 
prospective borrowers to understand the decision they are making. A 
greater focus on transparency and lessening aggressive sales tactics 
will in turn put greater pressure on institutions to make sure they are 
delivering better value for students, since making false promises could 
lead to the possibility of discharges and then recoupment. Overall, 
when students are able to make better decisions, they will be more 
likely to consider and enroll in programs and institutions that 
generate either lower debt or a greater earnings gain.\165\
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    \165\ Michael Hurwitz & Jonathan Smith, 2018. ``Student 
Responsiveness To Earnings Data In The College Scorecard,'' Economic 
Inquiry, Western Economic Association International, vol. 56(2), 
pages 1220-1243, April. Dynarski, Susan, CJ Libassi, Katherine 
Michelmore, and Stephanie Owen. 2021. ``Closing the Gap: The Effect 
of Reducing Complexity and Uncertainty in College Pricing on the 
Choices of Low-Income Students.'' American Economic Review, 111 (6): 
1721-56.
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    Borrowers who will be most affected by the final regulations tend 
to be relatively disadvantaged, which influences the nature and scale 
of benefits we describe below. To date, BD applicants have 
disproportionately attended schools in the proprietary sector, and 
proprietary schools disproportionately serve students of color, women, 
low-income students, veterans, and single parents.\166\ Of more than 
554,000 BD claims received from 2015 through June 2022, more than 
420,000--about three out of four BD applicants--attended proprietary 
institutions. Meanwhile, just 5 percent of applicants attended public 
institutions.\167\ These numbers understate the share of borrowers who 
attended private for-profit institutions because the data reflect the 
institution's sector 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 is 
considered an applicant from a nonprofit institution.
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    \166\ Cellini, S.R. (2022). For-Profit Colleges in the United 
States: Insights from two decades of research. The Routledge 
Handbook of the Economics of Education, 512-523.
    \167\ 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.
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    Borrowers who received Pell Grants while enrolled and borrowers who 
struggle to repay their loans and default will benefit from these final 
regulations. Among the more than 144,000 approved individual claims, 88 
percent were from borrowers who had also received a Pell Grant at some 
point.\168\ This is slightly higher than overall share of BD applicants 
who received a Pell Grant, which was 82 percent. At least 22 percent of 
applicants are currently in default on their loans, consisting of 
approximately 95,000 borrowers.\169\ 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 degree to which BD applicants have been in 
default.
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    \168\ Analysis of data from the National Student Loan Data 
System, early October 2022.
    \169\ Analysis of administrative data of BD applications 
received, early October 2022.
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    The single Federal standard for initial adjudication, uniform BD 
regulations, and a more streamlined process (such as awarding a full 
discharge for approved claims) will reduce the staff time per borrower 
needed to adjudicate BD applications. These savings will 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 group process will significantly reduce the staff time required 
to investigate and adjudicate BD cases on a per-borrower basis. The 
final regulations include several 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 or legal 
assistance organization may request that a group process be initiated.
    When the Department initiates a group process, it will be 
considering the possibility of approval for tens of borrowers all at 
once, if not hundreds or thousands. While the scope of this work will 
require significantly more time than reviewing any one individual 
claim, it is far more efficient than review 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 will be particularly efficient because the Department will 
draw upon prior work done by the agency, minimizing the amount of 
duplication in investigation that needs to occur. This will 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 process is more efficient than how the 
Department has addressed BD 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 
will not be necessary in the group process, though the Department will 
continue to review borrower eligibility to ensure findings are applied 
appropriately only to affected borrowers. The time saved

[[Page 65996]]

using a group process benefits borrowers, as well as the Department.
    The use of group processes can also provide some efficiencies for 
institutions in the process of responding to claims. Institutions 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 will require 
institutions to offer only a single response prior to the formation of 
the group and a second during adjudication if the Department decides to 
form a group.
    The regulations will also result in significant benefits to 
borrowers who qualify for a BD approval. Those who have their claims 
approved will receive a significant benefit as they will no longer have 
to repay the loans associated with their claim. This results in a 
transfer from the Department to the borrower. It is the Department's 
experience that many borrowers who have borrower defense claims 
approved are those who have had difficulty repaying their loans since 
the institution did not fulfill its obligations to its students. We 
anticipate that result will remain true under these regulations. 
Moreover, the borrower will receive refunds of amounts previously paid 
to the Secretary, an additional benefit. For all applicants, the 
regulations will help to reduce the burden of applying where the 
Department is able to identify eligible borrowers for loan relief but 
where the borrowers might not know they are eligible or how to access 
relief. These borrowers who are eligible for BD 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, and 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 
regulations will allow more eligible borrowers to access relief through 
group claims, which will bring benefit to both borrowers and the 
Department. Although the borrowers could have received relief by 
applying individually, we see substantial benefit to them receiving 
this relief sooner through the group process.
    The Department believes that the expansion of eligibility for BD 
claims and the reintroduction of a rigorous group process will result 
in positive change in institutional behaviors due to the deterrent 
effect. Past Federal sanctions of institutions resulted in a 
considerable enrollment shift away from sanctioned institutions and 
similar types of institutions that did not face sanctions. Though these 
sanctions were not sector specific, they had greater effects on 
proprietary institutions and resulted in a shift of enrollment toward 
public institutions. This shift resulted in reductions in both student 
borrowing and on defaults on federal student loans.\170\ Research also 
finds that public sector enrollment generates higher earnings relative 
to proprietary school enrollment. Attending a public certificate 
program is associated with $2,144 higher annual earnings or $28,600 to 
$49,600 in lifetime earnings per diverted student in present value 
terms at 7 percent and 3 percent discount rates, respectively, relative 
to attending a proprietary certificate program.\171\ When institutions 
were sanctioned in the past under other accountability rules, students 
who would have attended a sanctioned institution instead switched 
sectors and experienced improved outcomes. Thus, we can expect gains to 
students in the form of reduced debt, lower chances of default, and 
increased earnings. Moreover, as noted earlier, the Department believes 
that the deterrence effect will occur even if the institution does not 
face a recoupment action related to approved claims. Improved behavior 
on the part of institutions should benefit students even if they remain 
enrolled at the same institution. Even if they do not face financial 
consequences for an approved claim, an institution would want to stop 
engaging in such behavior in the future to avoid the possibility of 
recoupment actions tied to future loans.
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    \170\ Cellini, S.R., Darolia, R. and Turner, L.J. (2020). 
``Where Do Students Go When For-Profit Colleges Lose Federal Aid?'' 
American Economic Journal: Economic Policy, 12 (2): 46-83.
    \171\ Department analysis based on results in Cellini, Stephanie 
Riegg and Nicholas Turner, 2019. ``Gainfully Employed? Assessing the 
Employment and Earnings of For-Profit College Students Using 
Administrative Data.'' Journal of Human Resources. 54(2): 342-370. 
Calculation assumes earnings impact is a constant $2,144 each year, 
which is conservative since the estimated earnings impact appears to 
grow with time since program exit, and that students spend 40 years 
in the labor market after starting at age 25.
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    A deterrence effect will also benefit institutions that do not 
engage in conduct that leads to approved BD 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 BD 
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 BD 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 BD claims that they cannot 
afford. As with deterring institutions from engaging in misleading or 
other questionable practices, having the institutions with the worst 
behaviors exit the Federal aid programs will provide benefits to all 
other institutions that are operating in a more truthful and ethical 
manner.
4.2 False Certification Discharge
    False certification discharges provide relief to borrowers whose 
institutions falsely certified their eligibility for a Federal student 
loan. The Department's 2019 regulations stated that borrowers who took 
out loans after July 1, 2020, are ineligible for a false certification 
discharge if they attested to having a high school diploma or 
equivalent. For loans disbursed after July 1, 2020, the regulations are 
unclear regarding the ability of a borrower to seek a false 
certification discharge for a disqualifying status. 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.

[[Page 65997]]

Table 2--False Certification Discharges, by Calendar Year
[GRAPHIC] [TIFF OMITTED] TR01NO22.012

    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 3--Number of False Certification Approvals and Discharge Amounts, 
by Reason
[GRAPHIC] [TIFF OMITTED] TR01NO22.013

    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 will apply one set of regulatory standards to cover all 
false certification discharge claims.
    The uniform standard will improve borrower access to false 
certification discharges by clarifying that eligibility for the 
discharge begins at the time the loan was originated, not at the time 
the loan was disbursed. Current regulations for Direct Loan and 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 will ensure that more borrowers have access to the expanded 
eligibility and that they are not forced to navigate a complex and 
overlapping set of regulatory frameworks. As with the BD standard, we 
believe that this uniform standard will streamline the administration 
of the regulations and better protect students while reducing confusion 
among borrowers, institutions, servicers, and the Department.
    The Department will 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 will 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

[[Page 65998]]

they in fact did not, further expanding access to false certification 
discharges.
    These final regulations specify that the Secretary may grant a 
false certification discharge, including without an application, if the 
institution falsified Satisfactory Academic Progress (SAP) for the 
loans. We will grant group discharges based on the falsification of SAP 
and the Department would establish the dates and borrowers affected. 
The discharge will 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 addition will 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.
    These final regulations will 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 will expand 
access to false certification discharges by reducing the burden of 
document preparation on borrowers and simplifying the application 
process.
    These final regulations will 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, borrowers will receive more equitable and 
consistent treatment because they will 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 will be able to submit an 
application for a group false certification discharge to the 
Department. This will ensure a more efficient process than is typically 
available, whereby third-party requestors and other stakeholders will 
be able to contribute directly to the fact-finding process required 
before adjudicating the application. The group process, and associated 
improvements, will 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 
changes will be transfer costs. The short-term increase in expenditures 
will come from the following regulations.
    The Department will 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.
    These final regulations will 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 will 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 process, which will be more streamlined, will 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 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 will 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 long-term transfer costs may be reduced.
    Taken together, the final regulations will 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 final rules 
will ensure more borrowers have access to relief. While this will 
increase costs to taxpayers through additional false certification 
discharges, the Department also anticipates that some of these costs 
will be recouped from the institutions responsible, and that these 
final rules will be more efficient.
4.3 Public Service Loan Forgiveness
    These final regulations clarify the regulations to help borrowers 
better understand and access the program, particularly by simplifying 
the rules regarding what constitutes a qualifying payment, and to 
streamline the Department's processing of the applications it receives 
for forgiveness. Overall, we anticipate that these final regulations 
will increase the amount of loan forgiveness through PSLF.
    These final regulations further 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 non-tenure track faculty are treated. Most of 
these changes are modest but will 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. These final regulations 
revise the definition of what it means for a borrower to be an employee 
or employed to include the narrow circumstance of someone who works as 
a contractor for a qualifying employer in a position or providing 
service which, under applicable State law, cannot be filled or provided 
by a direct employee of the qualifying employer. This revised 
definition will ensure physicians in California and Texas, and anyone 
else affected by a similar set of restrictions, will be eligible for 
PSLF benefits as this group were not intended to be excluded by the 
PSLF regulations.
    Where possible, the Department will seek to automate the process of 
identifying public servants and accounting for their time worked to 
ensure they automatically receive

[[Page 65999]]

progress toward PSLF. The changes in the regulatory text that allow for 
a discharge when the Secretary has sufficient information will allow 
for this circumstance without needing to specify a specific match or 
source of data. This also recognizes that the Department cannot bind 
another agency with a matching agreement in its regulations. However, 
as noted in previous public announcements the Department is working to 
implement data matches with other Federal agencies that will enable it 
to account for Federal employees and service members and is exploring 
the feasibility of matches at the State level that may also provide the 
information needed to determinate PSLF eligibility. The benefit of 
these data matches for borrowers is increased access for those who 
would otherwise not have applied, but who may be eligible for relief on 
their loans. We anticipate an increase in the total amount of loans 
forgiven due to greater use of automation made possible by changes in 
these regulations. For instance, we are already aware of approximately 
110,000 Federal employees who have completed some employer 
certifications and will thus benefit from the automatic match and 
another 17,000 service members in a similar situation. We anticipate 
there could be at least tens of thousands of more borrowers we might 
identify as eligible for credit toward PSLF from these matches. 
Additional matches in the future could help hundreds of thousands of 
borrowers. We also expect that borrowers identified for forgiveness 
through these data matches will have information that is validated by 
government agencies, ensuring greater program integrity among a larger 
share of applicants who receive forgiveness. However, because we have 
not yet conducted these matches, we cannot currently determine how many 
of the borrowers identified by these matches will have already applied 
for PSLF, and thus have an easier path to receiving forgiveness, or if 
these will be borrowers who had not previously applied for the program.
    Automation will 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. 
As noted above, 127,000 borrowers who were civilian Federal employees 
or service members had employer certifications completed for some 
employment prior to any data match, and many others could opt to 
certify employment in the future. Automating the consideration of those 
borrowers' employment and/or PSLF applications will save time for 
borrowers and reduce the investment of staff resources required to 
analyze PSLF applications.
    These final regulations create more flexible 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 will not 
qualify for PSLF. Simpler payment rules and counting some deferments 
and forbearances will significantly reduce confusion and improve take 
up of the program. In addition, borrowers will benefit by being able to 
make qualifying payments, through the final rule's hold harmless 
provision, for prior deferment or forbearance periods where there was 
previously no qualifying payment possible. 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 will 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.
    These final regulations formalize a reconsideration process and 
establish a clear timeline by which borrowers must submit a 
reconsideration request. These refinements will streamline the 
application process and provide a clearer timeline to apply for PSLF or 
request a reconsideration. The Department anticipates that this 
reconsideration process will increase administrative burden for the 
agency and for borrowers, but that it will 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 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 $2.1 billion and $2.0 billion 
at 7 percent and 3 percent discount rate, respectively. The Department 
anticipates most of the budgetary impact will be transfers as borrowers 
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 will 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. This budget estimate is 
explained in greater detail in the net budget impact section of this 
regulatory impact analysis.
    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 
nonprofit 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. 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. However, after the announcement of the Limited 
PSLF Waiver in October 2021

[[Page 66000]]

that temporarily waived some program requirements through the end of 
October 2022, the Department has seen significant growth in 
applications compared to earlier periods. Due to the implementation of 
an automated process for some eligible borrowers as we described in the 
NPRM, we are anticipating decreases in the number of applications 
received because an application will 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 
process, a borrower will be notified if the borrower meets the 
requirements for loan forgiveness. After the borrower is notified, the 
Department will suspend collection and the remaining balance of 
principal and accrued interest will be forgiven.
    By streamlining the PSLF process, the Department anticipates a 
reduction in the administrative burden and time savings for application 
processing. There will also be a burden reduction on qualifying 
employers as the employers will have a simpler time verifying what they 
are attesting to, such as the hours worked by the borrower.
    We anticipate these regulations will impact tens of thousands of 
borrowers who will now qualify for PSLF under the clarified definitions 
of qualifying employment but previously did not qualify for PSLF. This 
is particularly due to the changes to the definition of employee or 
employed to capture a narrow and specific type of contractual 
relationship. The updated list of deferments and forbearances are 
anticipated to benefit a significant number of borrowers engaged in 
public service work who would otherwise not be able to consider those 
months toward forgiveness. Over the long run the Department hopes that 
hundreds of thousands of borrowers who would ordinarily have to apply 
for PSLF will receive student loan forgiveness without submitting an 
application. This includes military service members and Federal 
employee borrowers who will automatically receive credit toward PSLF 
using Federal data matches and the Department hopes that over time it 
will include some State-level matches as well.
4.4 Interest Capitalization
    Interest capitalization occurs when any unpaid interest is added to 
a borrower's principal balance, further increasing the amount on which 
interest is charged. This raises the overall cost of repaying the loan. 
Prior to this rule, capitalization occurred when a borrower first 
entered repayment, after periods of forbearance, after periods of 
deferment for non-subsidized loans, and when borrowers switched out of 
various income-driven repayment plans. In this regulation, the 
Department ends capitalization in all circumstances that are not 
required by statute. This will result in ending capitalization that 
occurs when a borrower first enters repayment, after periods of 
forbearance, and upon leaving all IDR plans except for IBR.
    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. 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, the Department believes 
that it is important to eliminate capitalization events where it has 
the authority to do so. Despite counseling, some 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.\172\ 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.\173\ A recent study suggests that among 
borrowers entering an IDR plan after becoming delinquent on their 
payments, most fail to recertify and, as a result, have their interest 
capitalize.\174\
---------------------------------------------------------------------------

    \172\ Report by the FSA Ombudsman, in Federal Student Aid. 
(2019). Annual Report FY 2019. https://www2.ed.gov/about/reports/annual/2019report/fsa-report.pdf.
    \173\ 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.
    \174\ Herbst, 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.
---------------------------------------------------------------------------

    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 4. Borrowers who are Black or African American, received a Pell 
Grant, and borrowers from low-income families are overrepresented in 
this group. Specifically, 52 percent of Black or African American 
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.\175\
---------------------------------------------------------------------------

    \175\ Department analysis of the 2004/2009 Beginning 
Postsecondary Students Study, estimated via PowerStats (table 
reference: qobjsb).
---------------------------------------------------------------------------

    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 4 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.\176\
---------------------------------------------------------------------------

    \176\ Ibid.
---------------------------------------------------------------------------

    The results are similar by Pell Grant receipt and family income at 
college entry. Nearly two-thirds of Pell Grant

[[Page 66001]]

recipients who also borrowed had a 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 
4. 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.\177\ This means borrowers in these groups were 
subject to more capitalizing events than their peers.
---------------------------------------------------------------------------

    \177\ Ibid.
---------------------------------------------------------------------------

BILLING CODE 4000-01-P

[[Page 66002]]

Table 4--Principal Balance Growth and Forbearance Usage Among 2003-04 
College Entrants Who Borrowed
[GRAPHIC] [TIFF OMITTED] TR01NO22.014


[[Page 66003]]


    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 final regulations eliminate interest 
capitalization.
[GRAPHIC] [TIFF OMITTED] TR01NO22.015

BILLING CODE 4000-01-C
    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 effects associated with the regulations 
represent a transfer 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. These final regulations will also create some 
administrative costs for the Department, which will have to compensate 
servicers for the cost of changes to their systems to remove 
capitalizing events. More details on budgetary effects 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 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 monthly payments).
    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 low-income families, Black 
borrowers, and borrowers who do not complete a college credential.\178\
---------------------------------------------------------------------------

    \178\ Department analysis of the 2004/2009 Beginning 
Postsecondary Students Study, estimated via PowerStats (table 
reference: ivbztb and qobjsb).
---------------------------------------------------------------------------

4.5 Total and Permanent Disability Discharges
    The Department is committed to simplifying the Total and Permanent 
Disability (TPD) discharge 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 finalizing 
these regulations for TPD to ensure it provides relief to eligible 
borrowers uniformly across its loan programs, including Perkins, FFEL, 
and Direct Loans.
    These final regulations expand the circumstances in which borrowers 
can qualify for TPD discharges based on a finding of disability by SSA. 
Currently regulations only allow borrowers to qualify for a discharge 
if SSA has designated the borrower's case as Medical Improvement Not 
Expected (MINE). In this status, an individual's disability status is 
reviewed at 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. These 
final regulations add the following additional circumstances, when 
supported by appropriate data or documentation from SSA: (1) the 
borrower qualifies for Social Security Disability Insurance (SSDI) 
benefits or Supplemental Security Income (SSI) based on a Compassionate 
Allowance (applied where the applicant has an impairment that 
significantly affects their ability to function and meets SSA's 
definition of disability based on minimal, but sufficient, objective 
evidence; (2) SSA has designated the borrower's case as Medical 
Improvement Possible (MIP), (3) the borrower had a qualifying 
circumstance and has since begun to receive SSA retirement benefits; 
and (4) the borrower has an established onset date for SSDI or SSI that 
is at least 5 years prior to the TPD application or has been receiving 
SSDI benefits or SSI based on disability for at least 5 years prior to 
the TPD application. More borrowers will be eligible for TPD discharges 
based on a finding of disability by SSA with the addition of these 
categories.
    These final regulations also eliminate the post-discharge income 
monitoring period. Currently, borrowers must supply their income 
information annually through a 3-year post-discharge monitoring period 
to ensure that they continue to meet the criteria for the program. If 
borrowers do not respond to these requests, their loans

[[Page 66004]]

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.\179\ 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.
---------------------------------------------------------------------------

    \179\ 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.
---------------------------------------------------------------------------

    These final regulations streamline the process for applying for a 
TPD discharge where automation is not feasible. These final regulations 
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. We 
note that while this change will clarify an option that already exists 
for borrowers, the Department's hope is that the added categories of 
disability determinations will reduce the need for borrowers to rely 
upon a Benefit Planning Query Handbook in particular, which comes with 
a fee and may not always have all the necessary information within it. 
The final rule also expands the list of medical professionals eligible 
to certify an individual's total and permanent disability to include 
nurse practitioners, physician assistants, and certified psychologists 
licensed at independent practice level by a State.
    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 $1.5 billion and $1.4 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 will be eligible 
for, and receive, TPD discharges.
    Because more borrowers will be able to retain their discharges and 
not see their loans reinstated, the Department also anticipates that 
this change will increase costs to taxpayers in the form of transfers 
in direct benefits to those borrowers.
    These final regulations 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 will be eligible 
for TPD discharges with the addition of SSA categories. The Department 
intends to update the data match with SSA, which if successful, could 
mean that borrowers who previously had to apply for a discharge through 
the physician's certification process would be identified through the 
match with SSA. Borrowers who fall into the MIP category currently may 
be applying under the physician's certification process, but the 
Department intends to try and capture some of these borrowers if we can 
successfully update the data match with SSA.
    Eliminating the post-discharge income monitoring period will also 
ensure consistency between borrowers with an SSA determination of 
disability status and those with a determination by the Department of 
Veterans Affairs (VA). Total and permanent disability discharges based 
on determinations by the VA are not subject to a post-discharge 
monitoring period (though some veterans may apply for or receive a TPD 
discharge based on an SSA determination instead). The Department 
believes this change will 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 will be eliminated.
    The Department also believes that expanding allowable documentation 
and the list of certifying medical professionals will 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.
4.6 Closed School Discharges
    These final regulations 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 mid-
program and unable to complete their program at the college where they 
started.
    Through these final 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.\180\ A 2021 GAO report on college closures found 
that 43 percent of those eligible for a CSD had not re-enrolled 3 years 
later. GAO's data also found that 52 percent of the borrowers who 
received an automatic discharge had defaulted, while another 21 percent 
had been more than 90 days late at some point. Given this, these final 
regulations implement the automatic process for borrowers. These final 
regulations provide such automatic discharges 1 year after closure, 
which will significantly benefit affected borrowers.
---------------------------------------------------------------------------

    \180\ 81 FR at 75926.
---------------------------------------------------------------------------

    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. These final regulations standardize the window, making it 180 
days for all borrowers.
    The Secretary can also extend this 180-day window under exceptional 
circumstances. However, the current non-exhaustive list does not 
include many events that may reasonably be associated with a closure, 
such as the accreditor issuing a show cause order. 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.'' \181\ These regulations expand 
this

[[Page 66005]]

list to include this and several other items.
---------------------------------------------------------------------------

    \181\ 84 FR at 49788.
---------------------------------------------------------------------------

    Finally, these final regulations provide clearer rules for when a 
borrower who transfers to another program could still receive an 
automatic closed school discharge. The past version of automatic closed 
school discharges required borrowers to apply for the discharge if they 
enrolled in another institution within 3 years of their original 
school's closure date. This is regardless of whether the new school 
they enrolled in accepted any credits or if the borrower finished. 
While a borrower who transferred but did not finish the program could 
apply for a closed school discharge, data from GAO show that very few 
of these borrowers did so. Excluding these individuals from the 
automatic closed school discharge in effect made the borrower's choice 
to continue their education needlessly high stakes. These final 
regulations address these concerns by stating that a borrower maintains 
access to an automatic discharge as long as they do not complete the 
program through a continuation of the program at another branch or 
location of their school or through an approved teach-out. Borrowers 
who accept but do not complete a continuation of the program or a 
teach-out agreement would receive a discharge 1 year after their last 
date of attendance at the other branch or location or in the 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 $758 million and $693 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 Sec.  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. Table 6 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 6--Closed School Discharge Amounts by Institution Group
[GRAPHIC] [TIFF OMITTED] TR01NO22.016

    The Department will also incur costs associated with the closed 
school discharges. These costs will represent a transfer of benefits 
between the Federal government and the borrower. The Department will 
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 
will 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 will significantly benefit affected 
borrowers who are eligible for a discharge. In particular, after 
entering repayment, affected borrowers may receive a discharge early 
enough to avoid default on their loans. The Department will 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.
    Lower-income students are also significantly more likely to benefit 
from closed school discharges. Of the more than 294,000 closed school 
discharges provided either through an application or automatically, 77 
percent went to borrowers who also received a Pell Grant.\182\ A closed 
school discharge will be particularly important for a Pell Grant 
recipient because it will also afford an opportunity to reset their 
Pell

[[Page 66006]]

Grant lifetime eligibility. This is critical given that these borrowers 
are likely to lose credits if they attempt to transfer to another 
program.
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    \182\ Analysis of data from the National Student Loan Data 
System, early October 2022. Data reflect all discharges coded as 
closed school discharges in the system.
---------------------------------------------------------------------------

    Regarding standardizing the closed school discharge window, the 
Department believes this will 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 expanding 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 will increase eligibility for closed school discharges, 
potentially by several years. However, this authority will be employed 
on a case-by-case basis and thus the overall impact is expected to be 
modest. In addition, automatic closed school discharge occurs 1 year 
after the school closure date for borrowers who do not take a teach-out 
or a continuation of the program at a branch or location of the school.
    The Department believes that by removing the ``comparable program'' 
requirement and instead providing discharges for all borrowers unless 
they accept and complete an approved teach-out or finish a continuation 
of the program at another branch or location of the school will 
encourage borrowers to continue their education because they will still 
be able to keep their discharge if the teach-out or continuation 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 
will not have to worry about whether they will receive relief because 
they will receive an automatic discharge.
    This approach will also encourage institutions to manage closures 
more carefully. In particular, institutions will have a stronger 
incentive to make sure borrowers have access to high-quality and 
affordable teach-out or continuation options; otherwise, the 
institution that is closing will face larger liabilities associated 
with closed school discharges. With higher-quality and affordable 
teach-outs or continuation options students will benefit from 
additional education. A large number of studies estimating the causal 
effect of college education on earnings suggest that each additional 
year of college generates annual earnings gains in the range of 7-15 
percent.\183\ Moreover, education generates social benefits in the form 
of productivity spillovers, reduced crime, and increased civic 
participation.\184\
---------------------------------------------------------------------------

    \183\ Oreopoulos, Philip and Uros Petronijevic (2013). ``Who 
Benefits from College? A Review of Research on the Returns to Higher 
Education,'' The Future of Children, Vol. 23, No. 1, pp. 41-65.
    \184\ Oreopoulos, P., & Salvanes, K.G. (2011). Priceless: The 
nonpecuniary benefits of schooling. Journal of Economic 
perspectives, 25(1), 159-84. Moretti, E. (2004). Human capital 
externalities in cities. In Handbook of regional and urban economics 
(Vol. 4, pp. 2243-2291). Elsevier. Moretti, E. (2004). Estimating 
the social return to higher education: evidence from longitudinal 
and repeated cross-sectional data. Journal of econometrics, 121(1-
2), 175-212.
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4.7 Pre-Dispute Arbitration
    These final regulations limit 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 BD 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 BD discharges. While the Department 
included a similar provision in its 2016 BD 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.\185\
---------------------------------------------------------------------------

    \185\ Sovern, J., Greenberg, E.E., Kirgis, P.F. and Liu, Y., 
`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.
---------------------------------------------------------------------------

    By prohibiting Direct Loan-participating institutions from using 
certain restrictive contractual provisions regarding dispute resolution 
and requiring notification and disclosure regarding their use of 
arbitration, schools will be prevented from keeping complaint 
information hidden from borrowers facing potential BD 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 will make it difficult for schools to hide 
potentially deceptive practices from current or prospective students 
and will 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 fairer 
outcomes for students. Taxpayer dollars will 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 changes will be 
largely limited to the private 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 significant 
differences depending on whether the institution participated in the 
Federal student financial 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.\186\
---------------------------------------------------------------------------

    \186\ Habash, T., and Shireman, R., ``How College Enrollment 
Contracts Limit Students' Rights.'' The Century Foundation (Apr. 28, 
2018), https://tcf.org/content/report/how-college-enrollment-contracts-limit-students-rights/.
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    Costs of the Regulatory Changes:
    The costs associated with these final regulations would be affected 
by whether institutions are less likely to engage in behavior that 
could lead to an approved BD claim as a result of not using mandatory 
pre-dispute arbitration clauses or class action waivers. If 
institutions that engage in conduct that could lead to an approved BD 
claim do not change their behavior, then there could be a number of 
costs related to more grievances ending up in court. This will 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 will not only face higher 
administrative costs, but institutions are also likely to face higher 
number of settlements and the costs associated

[[Page 66007]]

with them, as it is expected that the students will be able to reach 
more favorable decisions in court than during arbitration. These costs 
will, however, decrease if institutions currently engaging in conduct 
that could lead to an approved BD 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 the limitation 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.\187\ 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.\188\
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    \187\ Shierholz, H.. ``Correcting the Record: Consumers Fare 
Better under Class Actions than Arbitration.'' Economic Policy 
Institute, 1 Aug. 2017, https://www.epi.org/publication/correcting-the-record-consumers-fare-better-under-class-actions-than-arbitration/.
    \188\ Arbitration Study: Report to Congress, pursuant to Dodd-
Frank Wall Street Reform and Consumer Protection Act Sec.  1028(a). 
Consumer Financial Protection Bureau. (2015, March). Retrieved from 
https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.
---------------------------------------------------------------------------

    Given that pre-arbitration agreements are prevalent in for-profit 
institutions' enrollment agreements, these benefits will have a greater 
impact on Black students, who are more likely to attend for-profit 
institutions compared to other educational institutions.\189\ The 
prohibition will also support these students in filing BD claims where 
warranted.
---------------------------------------------------------------------------

    \189\ Urban Institute. (2020, June). Racial and Ethnic 
Representation in Postsecondary Education. Tom[aacute]s Monarrez, 
Kelia Washington. https://www.urban.org/research/publication/racial-and-ethnic-representation-postsecondary-education.
---------------------------------------------------------------------------

5. Net Budget Impacts
    These final regulations are estimated to have a net Federal budget 
impact in costs over the affected loan cohorts of $71.8 billion, 
consisting of a modification of $19.4 billion for loan cohorts through 
2022 and estimated costs of $52.4 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. Changes to the cost estimates 
for the final regulations involve an updated baseline that includes 
modifications for the limited PSLF waiver, the IDR account adjustment, 
the payment pause extension to December 2022, and the August 2022 
announcement that the Department will discharge up to $20,000 in 
Federal student loans for borrowers who make under $125,000 as an 
individual or $250,000 as a family. Any additional changes are 
described in the relevant section for the various provisions.
    The provisions most responsible for the costs of the final 
regulations are interest capitalization, PSLF, and TPD discharges. The 
specific costs for each provision are described in the following 
subsections covering the relevant topics.
5.1 Borrower Defense
    As noted in this preamble, the regulatory provisions related to BD 
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 BD 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 BD claims have been closed for many years. 
Therefore, we are using a revised version of the approach used to 
estimate the costs of BD for the 2016 and subsequent regulations to 
generate estimates for the BD provisions.
    The Department's estimates were informed by looking at data from 
the borrower defense group within FSA about the number of claims 
received, the loan volumes associated with pending and approved claims, 
the type of school attended by the borrowers with submitted claims, and 
the years borrowers reported that they attended. We used this to 
establish assumptions about the source of BD claims and general cohorts 
associated with them. We then used data pulled from the National 
Student Loan Data System (NSLDS) that are used in the scoring baseline 
and applied the assumptions described in this net budget impact 
analysis to generate the budget impact estimate.
    As a reminder, these estimated costs reflect costs resulting from 
this regulation relative to baseline, not the overall cost of BD 
discharges. The estimated cost of the BD changes is a modification to 
cohorts through 2022 of $4.2 billion and a cost of $3.0 billion for 
cohorts 2023-2032. Where possible, we adjusted the assumptions made 
about school conduct, borrowers' chances of making a successful claim, 
and recovery rates to reflect information from pending claims.
    More than three-quarters of BD claims are from borrowers who 
attended proprietary institutions, which does not include some 
borrowers who attended proprietary institutions that are now 
categorized as private nonprofit institutions. Just 5 percent of BD 
claims are from borrowers who attended public institutions. These 
amounts include 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 7.
    While there are many factors and details that would determine the 
cost of the final regulations, ultimately a BD claim entered into the 
student loan model (SLM) by risk group, loan type, and cohort will 
result in a reduced

[[Page 66008]]

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 final 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 BD 
claims for each cohort, loan type, and sector. For the final 
regulations, we updated this baseline to include modifications for the 
limited PSLF waiver announced in October 2021, adjustments to fix the 
count of qualifying payments on IDR announced in April 2022, the 
extension of the payment pause to December 2022, and the announcement 
of a one-time action to forgive up to $20,000 for Federal student loan 
borrowers. Including these additional items, particularly the debt 
cancellation costs, significantly reduces the net budget impact by 
lowering the scheduled principal and interest payments expected in the 
baseline. Other changes are described in the description of the budget 
estimates for each area. The Department expects that many borrowers who 
already have loans but have not yet filed a BD claim would have all or 
a significant portion of their loan balances eliminated by the broad-
based forgiveness. For instance, the Department has noted that tens of 
millions of borrowers will be eligible for loan forgiveness, with 
significant numbers of those borrowers having all or at least half 
their balances eliminated. However, the broad-based forgiveness will 
not affect future loan volume because it is only eligible for currently 
outstanding debts. Other factors that would affect costs 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 BD, 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 
BD claims based more on the 2016 assumptions \190\ than the 2019 
regulation assumptions.\191\ The Department assumed a higher level of 
BD claims because claims processing and other announcements suggested 
that the number of successful claims would be increasing. Some of the 
costs that could have been attributed to the final regulations are 
already in the baseline as a result of this modeling change. To provide 
some information about this factor, the Department ran the President's 
Budget Fiscal Year 2023 (PB23) baseline with no allowance for approved 
BD claims and also with the 2019 regulatory assumptions applied. 
Running a scenario in the NPRM with no allowance for approved BD claims 
and no inclusion of later policy announcements like broad-based debt 
relief had a net budget impact of -$8.6 billion. Using the reduced 
adjustment associated with the 2019 regulations resulted in a net 
budget impact of -$8.0 billion in savings compared to the baseline that 
incorporates the additional policy announcements described above. The 
loan volumes and assumptions relied on to generate net borrower defense 
claims are described below and presented in Table 7. The Department 
only applied assumptions to non-consolidated Direct Loan volume to 
avoid applying a discharge to both a borrower's non-consolidated and 
consolidated loan volume. The effect of the regulations on consolidated 
loans thus reflects assumptions about FFEL volumes that are 
consolidated in Direct Loans. The FFEL claims generated were applied to 
the Death, Disability, and Bankruptcy (DDB) rates for Direct Loan 
consolidations. The PB23 volumes are summarized in Table 7 by loan type 
and institutional control. A more detailed version of the loan volumes 
will be available on the Department's Negotiated Rulemaking 
website.\192\
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    \190\ 81 FR at 76057.
    \191\ 84 FR at 49894.
    \192\ https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.
---------------------------------------------------------------------------

    The model to estimate BD claims under the final 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. This percentage varies both by risk 
group (e.g., 2-year proprietary, graduate borrowers, and 4-year 
nonprofit or public institutions). It also varies by cohort year, which 
reflects that the Department has observed decreases in enrollment, 
including from closures, at institutions with significant numbers of BD 
applications as well as estimated deterrent effects of the rule. The 
conduct percent thus ranges from a high of 18 percent of loan volume at 
proprietary colleges in the 2011 to 2016 cohorts to a low of 1 percent 
at public and private nonprofit institutions in the pre-2000 cohorts. 
These figures reflect the trends we have seen in the source of filed 
claims, whereby more than three-quarters of claims are associated with 
proprietary institutions and only 5 percent are from public 
institutions. The graduate risk group is the most complicated because 
it includes graduate borrowers from all sectors and because of how it 
is constructed it cannot be decomposed into individual types of 
institutions. The spike in conduct percentages in the 2011-2016 period 
also reflects that the Department has received significantly more 
claims from borrowers who attended during this period, which is also 
when many of the proprietary institutions that generated the largest 
number of claims were at their enrollment peaks. Several of those 
institutions, such as ITT Technical Institute and Corinthian Colleges, 
closed by the end of that period. Many others saw significant 
enrollment decreases or closed other chains or brands. As a result, we 
have significantly fewer claims associated with loans issued after 
2017.
    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). To put this another way, we first 
calculated separate estimates of gross claims volume for group and 
individual claims. We calculated the estimate for each of those amounts 
by taking the amount of loan volume in each risk group and

[[Page 66009]]

multiplying it by the share of loan volume in that group expected to be 
associated with a BD claim (the conduct percent), adjustments for how 
balances might have changed from origination to discharge (the claim 
balance factor), and the estimate approval rate for claims. As a 
hypothetical example, if a risk group had $1 million in loan volume, no 
increase in balances between origination and discharge (a claim balance 
factor of 100%), 10 percent of balances associated with a BD claim and 
50 percent of that amount was expected to be approved, the gross claims 
amount would be $50,000 ($1 million * 100% * 10% * 50%). We then 
multiplied the gross claims amount by estimates of the share that we 
would recover (the net recovery rate) to estimate the net claims cost.
    Additional discussion of these factors follows their presentation 
in Table 7, with the comparable values for the 2016 and 2019 BD 
regulations presented in Table 8. To allow for the 2016 and 2019 
assumptions to be compared, we collapsed the 2-year and 4-year 
distinction because the rates applied by institutional control were the 
same. The assumed levels of school conduct that would result in a 
potential BD claim remain fairly consistent across the regulations and 
anticipate some deterrent effect of the regulations. The assumed 
approval rate is a key driver in changing the net budget impact of the 
different borrower defense proposals.
BILLING CODE 4000-01-P

Table 7--Assumptions for Primary BD Scenario 193
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    \193\ The table above is a summary. The complete table is 
available at www.regulations.gov using the Docket ID number ED-2021-
OPE-0077 and at www2.ed.gov/policy/highered/reg/hearulemaking/2021/index.html.

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[[Page 66010]]

[GRAPHIC] [TIFF OMITTED] TR01NO22.017


[[Page 66011]]


[GRAPHIC] [TIFF OMITTED] TR01NO22.018


[[Page 66012]]


[GRAPHIC] [TIFF OMITTED] TR01NO22.019


[[Page 66013]]



Table 8--Assumptions for Primary BD Scenarios in 2016 and 2019 
Regulations
[GRAPHIC] [TIFF OMITTED] TR01NO22.020


[[Page 66014]]


BILLING CODE 4000-01-C
    Conduct Percent:
    As with previous estimates, the conduct percent reflects the fact 
that more than 75 percent of borrower defense claims have come from 
borrowers who attended proprietary institutions. This factor also 
captures the potential deterrent effect of the final regulations. As 
claims are processed and examples of conduct that results in claims 
become better known, we believe institutions will strive to avoid 
similar behavior. We also expect that the improvement or closing of 
some institutions that have significant findings against them, which 
should reduce the level of potential claims in future loan cohorts. The 
Department is already observing this phenomenon with existing BD 
claims. After peaking in 2010 at 2 million, enrollment in proprietary 
institutions has declined by nearly 50 percent, in part due to new 
regulation of the sector.\194\ The Department has also received 
significantly fewer BD claims associated with enrollment during this 
period of decline. Similarly, we received significant numbers of BD 
claims associated with enrollment that occurred just after the Great 
Recession in the 2011 to 2016 cohorts. This also reflects the high 
point of postsecondary undergraduate enrollment nationally, 
particularly among proprietary institutions. The conduct percent table 
thus reflects the correlation between enrollment levels and volume 
associated with BD claims. The volumes start out very low in the pre-
2000s period when the number of borrowers was significantly lower, and 
most borrowers will have already paid off those loans and thus cannot 
file a BD claim. We then adjust the conduct percent upward with 
enrollment growth such that there are increases in each five-year 
period up to 2011-2016, with that period serving as the high point. The 
Department projected that the increases would be greatest in the 2005-
2010 and 2011-2016 periods, which also corresponds with the biggest 
gains in enrollment, aided in part by fully online programs being 
eligible for title IV, as well as the peak of various lawsuits and 
investigations that allege conduct that if verified to be true would 
have a reasonable likelihood of leading to an approved borrower defense 
claim. The conduct percent then follows a slightly more gradual slope 
downward over time before reaching a final level that is elevated above 
our estimates for pre-2000 but lower than the other periods. We think 
that ultimate level reflects that the number of borrowers is still 
expected to remain well above the pre-2000s level for the extended 
future, and that as the Department continues to review claims there 
will be a continued deterrence effect to avoid conduct that could lead 
to an approved claim.
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    \194\ US Department of Education, 2021. Digest of Education 
Statistics, 2021. Table 303.10.
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    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 will 
generate a group claim to decrease following the 2016 regulation and 
subsequent attention to BD, with more of an effect in future years when 
more claims have been processed through the system.
    Claim Balance Factor:
    The assumptions generating our BD claims are applied to volume 
estimates at origination, but BD 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 BD 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 BD claim established in these regulations. Other 
changes, such as the revisions to IDR 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 BD claims--that is, an estimate that 
offers a larger net budget impact than if all those other items were 
included. The interaction with other regulatory or legislative actions 
could affect future re-estimates of the net budget impact of the BD 
provisions. For instance, changes to IDR that increase borrower 
benefits would result in a decrease in the cost of the BD provisions 
because a loan discharge would result in less foregone revenue than 
previously anticipated. Similarly, there could be interactions between 
institutions that may have BD claims sustained against them and those 
that fail the 90/10 rule, which requires institutions to derive a 
certain share of their revenue from non-Federal sources.\195\ If those 
institutions fail the 90/10 requirement and lose access to title IV 
funding, then the cost of the BD provisions could fall since those 
institutions would not be able to make additional loans that could 
result in an approved BD claim.
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    \195\ https://www.federalregister.gov/documents/2022/07/28/2022-15890/institutional-eligibility-student-assistance-general-provisions-and-federal-pell-grant-program.
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    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. For instance, the Department 
adjusted the borrower percent upward for individual claims compared to 
the 2019 regulation because this rule removes the requirement that we 
conclude that the act or omission was made with knowledge of its false, 
misleading, or deceptive nature, or with reckless disregard for the 
truth. Removing this requirement will result in more claims being 
approved. Similarly, the Department increased the borrower percent for 
group claims relative to the overall figure in the 2016 regulation to 
reflect both the inclusion of third-party requestors and the addition 
of more categories that could result in an approved BD claim. Overall, 
the borrower percent for group claims is significantly higher than the 
one for individual claims. This reflects that, to date, all but two of 
the institutions for which the Department has approved BD findings have 
eventually been converted into group discharges. The individual 
approval rate also includes the significant number of claims that are 
associated with an institution for which the Department has only 
received a couple of claims, suggesting that any approval is more 
likely to be a result of individual circumstances than a more

[[Page 66015]]

common set of actions. For that reason, overall chance of approval is 
thus expected to be lower.
    Recovery Percent--Group and Individual:
    The recovery percent would vary by cohort and institutional 
control. To date the Department has only begun one recovery action 
related to approved BD claims, and it has yet to conclude. 
Historically, the Department has not had a high success rate in 
recovering other discharge liabilities, such as closed school 
discharges. The recovery rates for closed school discharges are 
particularly low because once an institution has closed, it is 
difficult to collect funds from it. Some BD claims will result in a 
similar situation if the institution has closed. In other cases, the 
likelihood of recovery may be higher because the institution is still 
in business, but the Department will have to successfully sustain the 
liability through any applicable appeal proceedings. 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 recovery. Moreover, recovery efforts could only occur on claims that 
would have been approved under the standard in effect at the time the 
loan was disbursed and thus would not be attributed to this regulation.
    The process to generate an estimated level of borrower defense 
claims under these final regulations remains the same as described in 
the NPRM, but the surrounding environment against which the potential 
claims are compared has evolved with recent policy announcements. Since 
the publication of the NPRM on July 13, 2022, several developments have 
been announced that further underscore the uncertainty associated with 
the cost estimate of the borrower defense provisions. Assuming 
borrowers with potential borrower defense claims qualify for loan 
forgiveness and the timing works so the forgiveness precedes processing 
of any borrower defense claim, the balances involved in the borrower 
defense claim will decrease. The extent to which they decline would 
vary based upon whether the borrower also has loans that are not 
associated with the borrower defense claim. However, the Department's 
estimates of future borrower defense claims and forgiveness are not 
linked to specific borrowers such that we could predict the extent of 
this potential reduction in future borrower defense claims at the 
borrower level. We considered information from evaluating the effect of 
loan forgiveness that found that approximately 46 percent of borrowers 
would receive full forgiveness, and, for those who receive partial 
forgiveness, the median reduction in their balance would be 43 percent. 
Applying overall income eligibility of 95 percent and a take-up rate of 
82 percent, we reduced the borrower defense claims by 80 percent for 
undergraduate risk groups and 35 percent for the graduate risk group. 
Within claims processed to date, the average claim size varies by 
institution. For instance, in July 2021 the Department announced BD 
approvals of $500 million for approximately 18,000 borrowers who 
attended ITT Technical Institute, for an average of approximately 
$28,000 a borrower.\196\ Also in 2021, we announced the approval of $53 
million in discharges for 1,600 borrowers who attended Westwood 
College, with an average amount of $33,000.\197\ When the Department 
approved a group discharge for 28,000 borrowers who attended Marinello 
Schools of Beauty, that resulted in discharging $238 million, or 
approximately $8,500 per borrower.\198\
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    \196\ https://www.ed.gov/news/press-releases/department-education-announces-approval-new-categories-borrower-defense-claims-totaling-500-million-loan-relief-18000-borrowers.
    \197\ https://www.ed.gov/news/press-releases/department-education-approves-borrower-defense-claims-related-three-additional-institutions.
    \198\ https://www.ed.gov/news/press-releases/education-department-approves-238-million-group-discharge-28000-marinello-schools-beauty-borrowers-based-borrower-defense-findings.
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    If approved, the settlement proposed in the Sweet v. Cardona case 
would also have a significant effect on the net budget impact of this 
rule attributed to past cohorts. The settlement agreement that received 
preliminary approval in July 2022 would result in the upfront discharge 
for an estimated 200,000 borrowers who attended certain institutions 
and a streamlined review of applications for tens of thousands of other 
applicants. All discharges from those two processes would be considered 
settlement relief, not an approved BD claim. They would, however, 
reduce the number of claims to be approved after the effective date of 
this regulation, which would in turn reduce the cost of this 
regulation. The settlement would not result in changes in the approval 
rate for claims associated with borrowers who applied after the 
settlement agreement was reached on June 22, 2022.
    To model this scenario, the Department halved the conduct 
percentage for cohorts prior to 2022. This represents the rough split 
of the number of claims covered by the settlement and the number 
outside the class. This reduction in the conduct percentage results in 
reduced loan volume associated with BD claims, without changing the 
approval rate for future claims.
    To address uncertainty in our assumptions more generally, we also 
developed some alternate scenarios to capture a range of net budget 
impacts from the BD regulations. The low budget impact scenario reduces 
the group percentage and increases recoveries to the 37 percent maximum 
assumed in the 2016 regulations. We chose this level for approvals 
because the 2016 regulation also formally included a group process. We 
predict fewer discharges due to the inclusion of other categories under 
which a claim could be approved, the addition of third-party 
requestors, and procedures that more clearly separate approving group 
claims from recoupment efforts. We also thought using the higher 
recovery estimate for that regulation would be appropriate because the 
2016 regulation is more similar to this rule than the 2019 rule, which 
does not allow for group claims.
    The high budget impact scenario assumes a smaller deterrent effect 
and keeps the highest conduct percent for an additional cohort range 
and shifts the 2017-2022 and 2023-28 percentages to the next cohort 
range. It also 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 9 with 
the results presented in Table 10.

[[Page 66016]]

Table 9--Revised Assumptions for Alternate Scenarios
[GRAPHIC] [TIFF OMITTED] TR01NO22.021


[[Page 66017]]



Table 10--Budget Estimates for BD Scenarios Runs
[GRAPHIC] [TIFF OMITTED] TR01NO22.022

5.2 Closed School Discharge
    These final 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, limiting the circumstances where a borrower cannot receive 
an automatic discharge, 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. To capture the effect of loan 
forgiveness on closed school discharges for past cohorts that have not 
been processed yet, we applied a reduction in the increase associated 
with the regulations of 70 percent for undergraduate risk groups, 45 
percent for the graduate risk group, and 60 percent for the 
consolidation risk group. This is based on information that 
approximately 77 percent of borrowers with a closed school discharge 
were Pell Grant recipients with potential eligibility for up to $20,000 
in forgiveness. We also assume that around 95 percent of closed school 
borrowers would meet the income eligibility requirements, which is 
slightly higher than what is assumed for the overall forgiveness 
eligibility. We also applied an 82 percent overall take-up rate for 
forgiveness to generate an estimated average forgiveness eligibility of 
approximately $13,710 ((.77*20,000) + (.22*10,000) *.95 * .82)). We 
also looked at the distribution of closed school discharges in Budget 
Service's November 2021 sample of NSLDS data by risk group. This amount 
is above the overall mean closed school discharge of $11,409 and close 
to the mean for all sectors except graduate students, whose mean 
discharge is $35,738. We did not eliminate all the effect of future 
closed school discharges for past cohorts. Borrowers who would be 
eligible for a closed school discharge but do not apply may be less 
likely to apply for loan forgiveness. Alternatively, depending on the 
timing of any application needed, they may be processed for a closed 
school discharge in advance of any forgiveness being applied. 
Therefore, we used the factors described above to reduce the estimated 
increase in transfers associated with the closed school discharge, but 
we expect the attribution of discharges and forgiveness to become 
clearer as more data become available in the next year or two, which 
future re-estimates of the loan program will take into account.
    Together, the changes related to the closed school provisions cost 
$3.42 billion for past cohorts and $3.04 billion for cohorts 2023-2032.
5.3 Total and Permanent Disability
    The main driver of the Department's estimated costs for the total 
and permanent disability provisions of the final regulation is the 
inclusion of additional circumstances in which borrowers can qualify 
for discharge based on a finding of disability by SSA. These changes 
are expected to result in additional transfers to borrowers. We did not 
adjust the net budget impact for the change in the final rule to grant 
a discharge after the initial determination that the borrower qualifies 
for SSDI benefits or SSI based on disability and the borrower's next 
continuing disability review has been scheduled at 3 years. We do not 
expect this to adjust the net budget impact, because almost all of 
those borrowers are expected to have that disability determination 
continue and thus they would have been eligible even without this 
provision. The Department's existing data match with SSA does not 
provide the data needed to estimate the increased discharge from this 
change. We estimate 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.\199\ However, this is not necessarily through the 
physician's certification process, rather than receiving the discharge 
automatically through a data match. The Department intends to update 
the data match with SSA and hopes that if successful more borrowers 
will be captured under that match in the future. Thus, some of these 
borrowers will 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 $4.3 
billion modification to past cohorts and $9.3 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. As is the case with the other discharge 
provision in this regulation, future TPD claims of past borrowers will 
be affected by the loan forgiveness announced in August. An analysis of 
discharges in Budget Service's November 2021 sample of NSLDS data 
indicates that TPD has a

[[Page 66018]]

higher average discharge than closed school ($26,161, compared to 
$11,409) so the potential forgiveness is a lower percentage of 
disability claim. We estimated an average eligibility for forgiveness 
of $11,055 based on the following assumptions: (1) 62 percent Pell 
recipients; (2) 75 percent take-up; and (3) 91 percent income 
eligibility [((.62*20,000) + (.38*10,000) * .75 *.91) = $11,057]. This 
is a little over 40 percent of the average TPD discharge in our sample 
data, so we reduced the increase applied to our TPD adjustment by 40 
percent. While there is still an increase in transfers to borrowers for 
the TPD provisions, the effect on older cohorts is reduced because of 
the forgiveness. 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, provided that it can successfully update the data match with 
SSA, 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 will increase costs by $3.8 
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 for the NPRM published July 13, 2022, 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.
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    \199\ 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/press-releases/over-323000-federal-student-loan-borrowers-receive-58-billion-automatic-total-and-permanent-disability-discharges.
---------------------------------------------------------------------------

5.4 Public Service Loan Forgiveness
    These final PSLF regulations have an estimated cost of $4.0 billion 
as a modification to cohorts through 2022 and $15.6 billion for cohorts 
2023-2032. These figures include an update from the NPRM to include the 
cost of the limited PSLF waiver announced in October 2021, adjustments 
to the counting of progress toward income-driven repayment announced in 
April 2022, and the announcement of a one-time action to discharge up 
to $20,000 of student loan debt in August 2022. Incorporating those 
items has reduced the cost of the regulation compared to the NPRM. PSLF 
is estimated as part of our IDR modeling, which is done on at the 
borrower- and loan-type level so the effects of loan forgiveness can be 
taken more directly into account. There is no special adjustment for 
forgiveness in PSLF as there was for borrower defense, closed school, 
or total and permanent disability. Instead, the reduction in the 
borrower's balance affects the scheduled payments of principal and 
interest against which the effect of PSLF is evaluated.
    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 final change, time associated with qualifying 
deferments and forbearances were included toward the 10 years of 
monthly payments required for forgiveness.
    One change in these final PSLF regulations concerns the treatment 
of individuals who work as a contractor for a qualifying employer in a 
position or providing services that, under applicable State law, cannot 
be filled or provided by a direct employee of the qualifying employer. 
The most cited example of borrowers in this situation are doctors at 
non-profit hospitals in California and Texas. The Department's PSLF 
estimates have never been State or occupation specific. Therefore, the 
Department estimated the effect of this provision by instead increasing 
the percentage of borrowers with graduate loans who would receive PSLF 
by 3 percentage points. The Association of American Medical Colleges 
has reported that 73 percent of medical school graduates had 
educational debt and the median educational debt of indebted graduates 
was $200,000.\200\ Together, these changes with respect to 
consolidations led to the $19.7 billion estimated increase in transfers 
for the PSLF changes.
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    \200\ Youngclaus J, Fresne JA. Physician Education Debt and the 
Cost to Attend Medical School: 2020 Update. Washington, DC: AAMC; 
2020. Available at https://store.aamc.org/downloadable/download/sample/sample_id/368/.
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    Allowing 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 situation prior to the limited PSLF waiver where the 
large numbers of payments not being counted meant that borrowers often 
needed far more than 120 months of qualifying employment to reach the 
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, as the Department does not 
have data at this time regarding these factors. Moreover, the 
Department believes that the limited PSLF waiver has addressed many of 
the situations where a borrower would have sought reconsideration 
related to whether past payments qualify. These factors are not 
explicitly accounted for in the Department's baseline, which assumes 
those who we project have qualifying employment would make payments in 
such a way that they qualify. The effects of the limited PSLF waiver, 
which fixed many of these issues for borrowers who had previously 
applied for PSLF, are included. The 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 initial years of borrowers potentially being eligible. This ramp 
up can be seen in Table 11 and varies by cohort range and education 
level. To better reflect the trends in the program of increasing 
qualifying payments as borrowers learn about the forms, etc., the model 
specifies the percent achieving 120 months of qualifying for four time 
groups: group 0 is prior to 2010; group 1 is from 2010 to 2014; group 2 
is from 2015 to 2020; and group 3 is after 2020. The percentages are 
assumptions based upon the trends in approved applications given 
forgiveness and trends in reasons for denial that pre-dated the PSLF 
waiver. As always, we will reflect updated information in future budget 
re-estimates.
    To provide a sense of the effect of these changes, the Department 
considered an alternate scenario that increased the PSLF percent to the

[[Page 66019]]

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.\201\ As seen in Table 11, 
this varies by education level with graduate students at 38 percent in 
the alternate scenario compared to 33 percent in the primary scenario 
and approximately 32 percent and 20 percent for 4-year and 2-year 
college groups, respectively. In the alternate scenario, we increased 
the maximum PSLF percent and shifted the ramp-up so each cohort range 
took the percentages from the cohort range to the level of the 
following cohort in the baseline, resulting in the PSLF percentages 
shown in Table 11 under Alternate Scenario. For example, the percentage 
for graduate borrowers went from 3.4 percent to 16.2 percent for 
cohorts before 2011. 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 will lead to reduced PSLF forgiveness compared to our 
baseline level. The alternate scenario is on top of the other changes 
in the regulation to award credit toward PSLF for certain deferments 
and forbearances and allow borrowers to keep progress toward PSLF from 
payments made on a Federally managed loan prior to consolidation.
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    \201\ Data from the American Community Survey from the U.S. 
Census Bureau on employment by sector (employer ownership) and 
educational attainment among workers aged 25 to 64.
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Table 11--Alternate Assumptions for Percentage of Borrowers Receiving 
PSLF by Cohort Range Under Different Scenarios
[GRAPHIC] [TIFF OMITTED] TR01NO22.023

    A few commenters requested additional information about the basis 
for the PSLF estimate. The percentages in Table 11 are the key factors 
in generating PSLF estimates. PSLF is estimated as part of the 
Department's IDR modeling that generates annual payments, deferment, 
and forbearance status, and expected annual principal and interest 
payments for borrowers assumed to be in IDR plans. Events that are 
expected to change the expected stream of payments such as defaults, 
discharges, PSLF, or prepayments are probabilistically assigned 
according to percentages based on historical trends or, in the case of 
PSLF, expected qualification by educational level. The rates vary by 
cohort range and student loan model risk group. In IDR, risk group is 
based on the borrower's highest academic level and events, such as 
default or discharge, are assigned probabilistically by borrower. As 
more borrowers submit employment certifications and start to receive 
PSLF, the Department will continue to revise and update its PSLF 
estimates.
    The net budget impact of the reduced transfers from borrowers to 
the government from increased forgiveness in this alternate scenario is 
shown in Table 12.

[[Page 66020]]

Table 12--Net Budget Impacts of PSLF in Primary and Alternate 
Assumptions
[GRAPHIC] [TIFF OMITTED] TR01NO22.024

    The modification cost for early cohorts is significantly affected 
by the increase in the alternate scenario because the baseline PSLF 
levels for the 2010 cohort and earlier are lower than the outyear 
cohorts as seen in Table 12. Recall that the primary estimate reflects 
the level of forgiveness seen in the program to date. The changes in 
the baseline to incorporate the PSLF waiver and the broad-based debt 
relief reduced the net budget impact of the PSLF provisions in these 
final regulations relative to the NPRM. Table 12 shows the net budget 
impact of this rule as well as in an alternate scenario.
5.5 Interest Capitalization
    These final regulations remove all interest capitalization on 
Direct Loans that is not required by the HEA and is estimated to have a 
net budget impact of $24.8 billion from reduced transfers from 
borrowers, consisting of a modification to cohorts through 2022 of $3.4 
billion and increased outlays of $21.4 billion for cohorts 2023-2032. 
The estimated impact of $24.8 billion is for loans in all types of 
repayment plans, but the estimation process differs for non-IDR and IDR 
loans as noted below. The revised score for these final regulations is 
for the calculation as done in the revised SLM. The baseline for the 
final estimate also incorporates the scores for the PSLF Waiver, IDR 
account adjustment, and extension of the COVID-19 payment pause until 
December 2022, and broad-based debt relief.
    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 the removal of 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. We do 
not anticipate that removing capitalization on the alternative plan 
will have noticeable budgetary effect because, so few borrowers use 
that plan. For the 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 varied significantly with later cohorts having 
increased adjustment since more of the cohort will enter repayment 
following the effective date of the final regulations. After the 
publication of the NPRM, we continued to revise the SLM to eliminate 
capitalization upon entering repayment. The model code was revised to 
accrue interest but not add it to the principal balance.
    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 will 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 final regulations will result in 
reduced repayments from borrowers by removing capitalization for 
leaving PAYE or REPAYE. When this provision was analyzed for the NPRM 
we estimated 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 was revised to account for 
the elimination of capitalization upon entering repayment. However, not 
all of the potential effects for the full level or timing of 
capitalization events that are being eliminated are included for non-
IDR borrowers. Additionally, while entering repayment and the timing 
patterns for that are supported by significant history, other 
capitalization events affected by the final 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.
5.6 Pre-Dispute Arbitration Clauses
    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 BD 
claims, but we expect those costs have been captured in the BD 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 will receive similar amounts of 
aid overall, so we do not estimate a significant impact on the title IV 
portfolio from these changes.
5.7 False Certification
    The final regulations 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 will 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 revisions 
to the identity theft provisions will 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

[[Page 66021]]

regulations, false certification discharges represent a very low share 
of discharges granted to borrowers. Over the past 5 years, 
approximately 6,000 borrowers have received a total of $58 million in 
false certification discharges, compared to approximately 788,000 
borrowers and $29.9 billion in disability discharges, 461,000 borrowers 
and $11.4 billion in death discharges, and 180,000 borrowers and $2.5 
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 will continue to evaluate the changes to 
the false certification discharge.

6. 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 final regulations. Expenditures are classified as transfers from 
the Federal Government to affected student loan borrowers.

Table 13--Accounting Statement: Classification of Estimated 
Expenditures (in millions)
[GRAPHIC] [TIFF OMITTED] TR01NO22.025


[[Page 66022]]


[GRAPHIC] [TIFF OMITTED] TR01NO22.026


[[Page 66023]]


[GRAPHIC] [TIFF OMITTED] TR01NO22.027

7. Alternatives Considered

    In response to comments received and the Department's further 
internal consideration of these final regulations, the Department 
reviewed and considered various changes to the proposed regulations 
detailed in the NPRM. The changes made in response to comments are 
described in the Analysis of Comments and Changes section of this 
preamble. We summarize below the major proposals that we considered but 
which we ultimately declined to implement in these regulations. The 
rationales for why these proposals were not accepted are explained in 
the places in the preamble where they are summarized and discussed. The 
Department did not receive significant alternative proposals related to 
interest capitalization, so it is not discussed here.
7.1 Borrower Defense
    We considered some proposals to remove elements of the Federal 
standard related to breach of contract, aggressive and deceptive 
recruitment, or judgments, which would have resulted in fewer claims 
being approved by narrowing the acts or omissions that could give rise 
to an approved claim. We also considered adding requirements that the 
Department conclude that an institution acted with intent or that the 
claim had a material effect. These changes would also result in 
approving fewer claims by creating requirements that would be harder 
for an individual borrower to meet. We also considered the removal of 
group claims or requirements for individual showing of harm, which 
would have further limited the number of approved claims, in particular 
by not providing a path to discharges for borrowers who did not submit 
applications. We declined to accept any of these proposals and instead 
made other changes to the Federal standard to require that the 
Department conclude an institution's act or omission caused detriment 
that warrants the relief granted by a borrower defense discharge. This 
includes specifying that in making such a determination the Secretary 
will consider the totality of the circumstances, including the nature 
and degree of the acts or omissions and of the detriment caused to 
borrowers. We also considered but rejected proposals to add additional 
steps for institutions to ask for reconsideration of approved claims or 
conduct recoupment actions under part 668, subpart G but felt that the 
final rules provide sufficient opportunities for institutional due 
process and that part 668, subpart H is the more appropriate mechanism 
for recoupment. It is unclear if these changes would have resulted in 
different ultimate decisions, but they would have significantly 
extended the process of reviewing claims. We considered additional 
examples or processes for calculating the amount of a partial discharge 
but ultimately concluded only allowing for a full discharge would 
create a simpler and more effective standard. The range of suggestions 
for partial discharge could have either resulted in fewer claims being 
approved for a full discharge or more claims that would have received a 
partial discharge getting a full approval. We considered requests to 
allow for the simultaneous assertion of claims under State law, but 
kept it limited to reconsideration. Commenters asserted that this 
change would result in faster second reviews of claims that are not 
approved under the Federal standard. Finally, we considered but did not 
accept proposals to stop interest accumulation on individual claims 
immediately because we want to encourage borrowers to submit strong 
claims. This would have increased the size of transfers to borrowers 
and represented a greater cost to the Department.
7.2 False Certification
    The Department created 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. Doing so would allow an 
institution to originate loans for students who have not yet met Title 
IV eligibility requirements and not disburse the funds until the 
student has met the requirements. This would potentially have decreased 
the number

[[Page 66024]]

of false certification discharges, which would then decrease the size 
of transfers to borrowers and the cost to the Department. However, 
under the HEA, if a school is not granted a certain period of time to 
remedy a false certification and, the loan is certified before, not 
after, the loan is originated. An institution should not originate a 
loan for a borrower who is not eligible for the loan. Relying on the 
origination date will also help ensure that no inadvertent 
disbursements are made to ineligible students.
    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 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. This alternative could have increased the 
transfers to borrowers by approving more false certification 
discharges, but as noted it would have been challenging for this to 
occur in practice given the complexity of determining what constitutes 
a barrier to employment.
7.3 Public Service Loan Forgiveness
    The Department considered but ultimately declined to allow any 
additional deferments and forbearances to receive credit toward PSLF. 
Such a change would have increased transfers to borrowers by making 
them eligible for loan forgiveness sooner. We also considered allowing 
all contractors for a qualifying employer to qualify for PSLF but chose 
not to do so. This would have resulted in significantly larger 
transfers to borrowers by dramatically increasing the number of 
borrowers who would be eligible for PSLF.
7.4 Total and Permanent Disability Discharges
    The Department did not accept proposals to keep the 3-year income 
monitoring period or to not expand the categories of medical 
professionals that could sign forms during the physician's 
certification process. Both changes would have decreased transfers to 
borrowers by either reinstating more loans that had been discharged or 
resulting in potentially fewer applications through the physician's 
certification process.\202\
---------------------------------------------------------------------------

    \202\ https://www.ssa.gov/legislation/FY%202016%20CDR%20Report.pdf.
---------------------------------------------------------------------------

7.5 Closed School Discharges
    The Department considered but ultimately did not adopt requests to 
limit discharges to borrowers who left a school within 120 days of a 
closure instead of 180 days, granting a 12-month deferment for a 
borrower after their school closes, restricting eligibility for 
borrowers who enrolled in a comparable program or attempted to enroll 
in a teach-out but did not complete the program. These changes would 
have had differing effects. A shorter lookback window or greater 
restrictions on eligibility would result in decreased transfers to 
borrowers because fewer discharges would be granted. A longer 
deferment, meanwhile, would increase transfers by providing 
approximately six months of no-interest accumulation for a borrower 
beyond the grace period after leaving school.
7.6 Pre-Dispute Arbitration
    The Department considered but did not accept proposals to delete 
this provision or not mandate the associated transparency. The 
Department did not assign a significant estimated budget impact from 
the changes to pre-dispute arbitration so its elimination would not 
have a budgetary effect either.

8. Regulatory Flexibility Act

    Section 605 of the Regulatory Flexibility Act allows an agency to 
certify a rule if the rulemaking does not have a significant economic 
impact on a substantial number of small entities.\203\
---------------------------------------------------------------------------

    \203\ 5 U.S.C. 603.
---------------------------------------------------------------------------

    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 Department. As a result, for this final rule, the Department 
will continue defining ``small entities'' by reference to 
enrollment,\204\ to allow meaningful comparison of regulatory impact 
across all types of higher education institutions.\205\
---------------------------------------------------------------------------

    \204\ Two-year postsecondary educational institutions with 
enrollment of less than 500 FTE and four-year postsecondary 
educational institutions with enrollment of less than 1,000 FTE.
    \205\ 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.

---------------------------------------------------------------------------

[[Page 66025]]

Table 14--Small Institutions Under Enrollment-Based Definition
[GRAPHIC] [TIFF OMITTED] TR01NO22.028

    Table 15 summarizes the number of institutions affected by these 
final regulations.

Table 15--Estimated Count of Small Institutions Affected by the Final 
Regulations
[GRAPHIC] [TIFF OMITTED] TR01NO22.029

    The Department certifies that Final Rule will not have a 
significant economic impact on a substantial number of small entities. 
The final regulations for False Certification, PSLF, TPD Discharge, and 
Closed School Discharge will 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 final regulations 
where there is a large group BD claim. Based on recent experience of 
the Department adjudicating BD cases, small institutions are not 
expected to be impacted by the final regulations in BD because the 
Department is unlikely to attempt to recoup from isolated BD cases from 
small institutions. The 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 final 
regulations. We derived the percentage that will be impacted from a 
report by the Century

[[Page 66026]]

Foundation that sampled schools using arbitration clauses in their 
enrollment contracts.\206\ 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 do not 
anticipate there is a significant cost impact to amend future 
contracts.
---------------------------------------------------------------------------

    \206\ How College Enrollment Contracts Limit Students' Rights. 
(2016, April 28). The Century Foundation. https://tcf.org/content/report/how-college-enrollment-contracts-limit-students-rights/.
---------------------------------------------------------------------------

Table 16--Estimated Annual Cost Range for Small Institutions and 
Entities Affected by the Final Regulations
[GRAPHIC] [TIFF OMITTED] TR01NO22.030

    While these final regulations will have an impact on some small 
institutions and entities, there will not be a significant cost and 
compliance impact. For example, we examined potential costs to lenders 
who are generally identified in the North American Industry 
Classification System (NAICS) under code 52 (finance and insurance) and 
specifically Credit Unions (522130) and Savings Institutions and Other 
Depository Credit Intermediation (522180).\207\ We are unable to 
specifically identify the number of lenders that constitute small 
entities. However, of the universe of over 12,000 lenders with 
remaining volume in the FFEL portfolio, more than two-thirds have 10 or 
fewer borrowers with outstanding balances. As no new FFEL Program loans 
have been made since 2010, this is not the primary business line for 
these entities. Therefore, we believe that changes to the loan 
portfolio would have minimal impact on most lenders, including small 
entities.
---------------------------------------------------------------------------

    \207\ North American Industry Classification System (NAICS) is 
the standard used by Federal statistical agencies in classifying 
businesses to collect, analyze, and publish statistical data related 
to the U.S. business economy.
---------------------------------------------------------------------------

9. 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 final 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.
    Section 668.41--Reporting and disclosure of information.
    Requirements: These final regulations remove the requirements in 
current Section 668.41(h). Burden Calculation: With the removal of the 
regulatory language in Section 668.41(h), the Department will remove 
the associated burden of 4,720 hours under OMB Control Number 1845-
0004.

[[Page 66027]]

Student Assistance General Provisions--Student Right to Know (SRK)--OMB 
CONTROL NUMBER: 1845-0004
[GRAPHIC] [TIFF OMITTED] TR01NO22.031

    Section 668.74--Employability of graduates.
    Requirements: In the course of adjudicating BD claims, the 
Department has persistently seen misrepresentations about the 
employability of graduates. In these regulations, the Department is 
explicitly including, as a form of job placement rate 
misrepresentation, placement rates that are inflated through 
manipulation of data inputs. 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 will be made by 2 Private Not-for-profit, 2 For-Profit and 2 
Public institutions annually. We anticipate 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
[GRAPHIC] [TIFF OMITTED] TR01NO22.032

    Sections 674.33(g), 682.402(d), and 685.214--Closed School 
Discharge.
    Requirements: These final regulations amend the Perkins, FFEL, and 
Direct Loan regulations to simplify the closed school discharge 
process. Sections 674.33(g)(4), 682.402(d)(3) and 685.214(d)(1) 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 will be 
extended from 120 days to 180 days.
    Burden Calculation: These changes will 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 will 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 will 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.

[[Page 66028]]

    Requirements: Under these final rule changes to Sections 
674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2), a TPD discharge 
application will be allowed to be certified by a nurse practitioner, a 
physician's assistant licensed by a State, or a certified psychologist, 
licensed at the independent practice level by a State in addition to a 
physician who is a Doctor of Medicine or Osteopathy legally authorized 
to practice in a State. The type of SSA documentation that may qualify 
a borrower for a TPD discharge will be expanded to include an SSA 
Benefit Planning Query or other SSA documentation deemed acceptable by 
the Secretary. The regulations also amend the Perkins, Direct Loan, and 
FFEL Program regulations to improve the process for granting TPD 
discharges by eliminating the income monitoring period. Sections 
674.61(b)(6)(i), 682.402(c)(6), and 685.213(b)(7)(i) will 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 Direct Loan within 3 years of the date the 
TPD discharge was granted.
    Burden Calculation: These final regulatory changes will require an 
update to the current total and permanent 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 final rules will 
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 will 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 will 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 final regulations streamline the FFEL and 
Direct Loan false certification regulations to provide one set of 
regulatory standards that will 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, Section 685.215(c)(10) will 
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 will 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 will 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 will be assessed to OMB Control Number 
1845-0058, Loan Discharge Applications (DL/FFEL/Perkins).
    Requirements: Under Section 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 Section 
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 will 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 
x 20 minutes per application (.33 hours) = 33 burden hours).
    It is anticipated that 15 lenders will make a determination of 25 
borrower's incomplete applications and that it will take 15 minutes to 
send borrowers the notice to amend their application, for a total of 6 
burden hours (25 borrowers receiving lender notices x 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 will take 30 minutes to make 
such amendments, for a total of 10 burden hours (20 borrowers amending 
initial filings x 30 minutes (.50 hours) = 10 hours under OMB Control 
Number 1845-0020.
    Requirements: Section 682.402(e)(6)(vii) will 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 will 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. It is 
anticipated that each of the 18 guaranty agencies will make such 
adverse determinations on 75 borrower discharge applications 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 x 30 minutes (.50 hours) = 38 burden hours) under OMB 
Control Number 1845-0020.
    Requirements: Section 682.402(e)(6)(ix) will 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 x 
30 minutes (.50 hours) = 15 burden hours) under OMB Control Number 
1845-0020.

[[Page 66029]]

Federal Family Education Loan Program Regulations--OMB Control Number 
1845-0020
[GRAPHIC] [TIFF OMITTED] TR01NO22.033

    Section 682.414 --Reports.
    Requirements: In Section 682.414(b)(4), these final regulations 
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 x 50 hours = 15,500 burden hours) under OMB Control Number 
1845-0020.

Federal Family Education Loan Program Regulations--OMB Control Number 
1845-0020
[GRAPHIC] [TIFF OMITTED] TR01NO22.034

    Section 685.219--Public Service Loan Forgiveness.
    Requirements: These final regulations provide new, modified, and 
restructured definitions in Section 685.219(b) that will expand the use 
of the form.
    Burden Calculation: These changes will require an update to the 
current PSLF 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 will 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 will 
be assessed to OMB Control Number 1845-0110, Application and Employment 
Certification for PSLF.
    Requirements: These final regulations create a reconsideration 
process under Section 685.219(g) for borrowers whose applications for 
PSLF 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: These final regulations 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 BD 
claims. Specifically, in Section 685.300(e), institutions will 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 BD 
claim, until the presiding court rules that the case cannot proceed as 
a class action. In Section 685.300(f), the final regulations 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 Sections 685.300(e) or 
(f). We anticipate that it will take 1,587 for-profit institutions .17 
hours (10 minutes) per

[[Page 66030]]

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 x .17 hours) under OMB Control 
Number 1845-0021.
    Requirements: Under the final rules at Sections 685.300(g) and (h), 
institutions will be required to submit certain arbitral records and 
judicial records connected with any BD 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 will be required to submit documentation to the Secretary 
to comply with the final 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 x 4 filings x 4 
submissions/filing x 5 hours) under OMB Control Number 1845-0021.

William D. Ford Federal Direct Loan Program (DL) Regulations--OMB 
Control Number 1845-0021
[GRAPHIC] [TIFF OMITTED] TR01NO22.035

    Section 685.304--Counseling borrowers.
    Requirements: These final regulations remove Sections 
685.304(a)(6)(xiii) through (xv). The final regulations at Section 
685.300 will state the conditions under which disclosures will be 
required and provide deadlines for such disclosures.
    Burden Calculation: With the removal of the regulatory language in 
Sections 685.304(a)(6)(xiii) through (xv), the Department will 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
[GRAPHIC] [TIFF OMITTED] TR01NO22.036

    Section 685.402--Group process for borrower defense.
    Requirements: In Sec.  685.402(c), the Department may initiate a 
group process upon request from a third-party requestor, on the 
condition that the third-party requestor submit an application and 
provide other required information to the Department to adjudicate the 
claim.
    In Section 685.402(c)(4) the Secretary will notify an institution 
of the third-party requestor's application requesting to form a BD 
group. The institution will have 90 days to respond to the Secretary 
regarding the third-party requestor's application. The Department 
believes that such a request will require burden on any school that 
wishes to respond to the Secretary.
    If, under Section 865.402(c)(6), a third-party requestors' group 
request is denied, the third-party requestor will have 90 days from the 
initial decision to request the Secretary reconsider the formation of a 
group. The Department believes that such a request will require burden 
on any third-party requestor that wishes to respond to the Secretary.
    Burden Calculation: A new form to capture the requirements for the 
third-party requestors for Sec.  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.
    Further, the Department believes that with these new regulations 
there will be new burden on the institutions who are included in a 
proposed group claim. From 2015-2021 the Department received 11 group 
claims against institutions from 29 States Attorneys General regarding 
borrower defense claims. With the new regulations, the Department 
anticipates an increase group claim filings by third-party requestors. 
We estimate that 25 such third-party requestor group claims annually. 
Of that figure, we anticipate that 5 of the group claims will not meet 
the materially complete requirements.
    For the 20 group claims that initially meet the materially complete 
requirement for which Secretary provides notice to the institutions, we 
believe that the 20 notified institutions will utilize the 90-day 
timeframe to respond to the group claim.
    We estimate that the 20 institutions will require an average of 378 
hours per notice to review and respond to the proposed group claim for 
a total of 7,560 burden hours (20 institutions x 378 hours/notice = 
7,560) under OMB Control Number 1845-0021.
    We anticipate that 5 of the estimated 25 third-party requestors 
filings for consideration of group claims will not

[[Page 66031]]

be approved by the Secretary. Of the 5 denials, we anticipate that 4 of 
the third-party requestors will request reconsideration from the 
Secretary within the 90-day timeframe of the regulations. We estimate 
that the 4 third-party requestors will require an average of 378 hours 
per request for reconsideration for a total of 1,512 burden hours (4 
third-party requestor x 378 hours/reconsideration request = 1,512) 
under OMB Control Number 1845-0021.

William D. Ford Federal Direct Loan Program (DL) Regulations-- OMB 
Control Number 1845-0021
[GRAPHIC] [TIFF OMITTED] TR01NO22.037

    Section 685.405 -Institutional response.
    Requirements: In Sec.  685.405, the Department will continue to 
provide for an institutional response process to BD claims. Under the 
final regulations in Sec.  685.405(a), the Department official will 
notify the institution of the BD claim and its basis for any group or 
individual BD claim. Under the final regulations in Sec.  685.405(b), 
the institution will have 90 days to respond. Under the final 
regulations in Sec.  685.405(c), with its response, the institution 
will 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 Sec.  
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.
    Section 685.407--Reconsideration.
    Requirements: Sec.  685.407 sets forth the circumstances under 
which a borrower or a third-party requestor may seek reconsideration of 
a Department official's denial of their BD claim. Sec.  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 Sec.  
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 final 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.
BILLING CODE 4000-01-P

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[GRAPHIC] [TIFF OMITTED] TR01NO22.044

    The total burden hours and change in burden hours associated with 
each OMB Control number affected by the final regulations follows:
[GRAPHIC] [TIFF OMITTED] TR01NO22.045

BILLING CODE 4000-01-C
    If you want to comment on the final information collection 
requirements, please send your comments to the Office of Information 
and Regulatory Affairs in OMB, Attention: Desk Officer for the U.S. 
Department of Education. Send these comments by email to 
[email protected] or by fax to (202)395-6974. You may also send a 
copy of these comments to the Department contact named in the ADDRESSES 
section of the preamble.
    We have prepared the Information Collection Request (ICR) for these 
collections. You may review the ICR which is available at 
www.reginfo.gov. Click on Information Collection Review. These 
collections are identified as collections 1845-0004, 1845-0020, 1845-
0021, 1845-0022.

Regulatory Flexibility Act Certification

    Pursuant to 5 U.S.C. 601(2), the Regulatory Flexibility Act applies 
only to rules for which an agency publishes a general notice of 
proposed rulemaking.

Federalism

    Executive Order 13132 requires us to ensure meaningful and timely 
input by State and local elected officials in the development of 
regulatory policies that have federalism implications. ``Federalism 
implications'' means substantial direct effects on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government. The proposed regulations do not have federalism 
implications.
    Accessible Format: On request to the program contact person listed 
under FOR FURTHER INFORMATION CONTACT, individuals with disabilities 
can obtain 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.

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, Aliens, 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,

[[Page 66039]]

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 amends 
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

0
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.


0
2. Section 600.41 is amended by revising paragraphs (a) introductory 
text, (a)(1) introductory text, and (a)(1)(i) to read as follows:


Sec.  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

0
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 Pub. L. 94-452, 92 Stat. 1101-1109.
    Section 668.172 also issued under 20 U.S.C. 1094 and 1099c and 
section 4 of Pub. L. 94-452, 92 Stat. 1101-1109.
    Section 668.175 also issued under 20 U.S.C. 1094 and 1099c.


0
4. Section 668.41 is amended by revising paragraph (c)(2) introductory 
text and removing paragraph (h).
    The revision reads as follows:


Sec.  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--
* * * * *

0
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


Sec.  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 Sec.  
668.13(c);
    (2) Impose limitations on the institution's participation in the 
title IV, HEA programs, if the institution is provisionally certified 
under Sec.  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 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 
Sec.  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 Sec.  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.


Sec.  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--

[[Page 66040]]

    (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, software technology, 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) Institutional or program admissions selectivity if the 
institution or program actually employs an open enrollment policy;
    (n) The classification of the institution (nonprofit, public or 
proprietary) for purposes of its participation in the 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 Sec. Sec.  668.42, 668.43, and 668.45.


Sec.  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;
    (d) The availability, amount, or nature of any financial assistance 
available to students from the institution or any other entity, 
including any government agency, 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.


Sec.  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

[[Page 66041]]

standards or methodology set forth by the institution's accreditor or a 
State agency that regulates the institution, or in its institutional 
policy.
    (ii) Rates that the institution discloses to students are inflated 
by means such as:
    (A) Counting individuals as employed 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) Counting individuals as employed who were employed in the field 
prior to graduation; or
    (C) Excluding students from an employment rate calculation due to 
assessments of employability or difficulty with placement.
    (2) Upon request, the institution must furnish to the Secretary 
documentation and other information used to calculate the institution's 
employment rate calculations.


Sec.  668.75   Omission of fact.

    An omission of fact is a misrepresentation under Sec.  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 in the student's 
desired program;
    (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 as defined in Sec.  668.72-74.


Sec.  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 will not 
be affected thereby.

0
6. Section 668.81 is amended by revising paragraph (a)(5)(i) to read as 
follows:


Sec.  668.81   Scope and special definitions.

    (a) * * *
    (5) * * *
    (i) Borrower defense to repayment claims that are brought by the 
Department against an institution under Sec.  685.206, Sec.  685.222 or 
part 685, subpart D, of this chapter; and
* * * * *


Sec.  668.87   [Removed and Reserved]

0
7. Section 668.87 is removed and reserved.

0
8. Section 668.89 is amended by revising paragraph (b)(3)(iii) to read 
as follows:


Sec.  668.89   Hearing.

* * * * *
    (b) * * *
    (3) * * *
    (iii) For borrower defenses under Sec. Sec.  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 Sec.  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 Sec.  685.222(i)(2)(i).
* * * * *


Sec.  668.91   [Amended]

0
9. Section 668.91 is amended by:
0
a. Removing paragraph (a)(2)(ii);
0
b. Redesignating paragraph (a)(2)(i) as (a)(2); and
0
c. Removing paragraph (c)(2)(x).

0
10. Section 668.100 is added to subpart G to read as follows:


Sec.  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 will not 
be affected thereby.

0
11. Section 668.125 is added to read as follows:


Sec.  668.125   Proceedings to recover liabilities owed relating to 
approved borrower defense claims.

    (a) If the Department determines that the institution is liable for 
any amounts discharged or reimbursed to borrowers under the discharge 
process described in Sec.  685.408, it will provide the institution 
with written notice of the determination and the amount and basis of 
the liability.
    (b) An institution may request review of the determination that it 
is liable for the amounts discharged or reimbursed by filing a written 
request for review with the designated department official no later 
than 45 days from the date that the institution receives the written 
notice.
    (c) Upon receipt of an institution's request for review, the 
designated official arranges for a hearing before a hearing official.
    (d) Except as provided in this section, the proceedings will be 
conducted in accordance with Sec. Sec.  668.115 to 668.124 of this 
subpart. For purposes of this section references in Sec. Sec.  668.115 
to 668.124 to a final audit determination or a final program review 
determination will be read to refer to the written notice provided 
under paragraph (a) of this section.
    (e) In place of the provisions in Sec.  668.116(d), the following 
requirements shall apply:
    (1) The Department has the burden of production to demonstrate that 
loans made to students to attend the institution were discharged on the 
basis of a borrower defense to repayment claim.
    (2) The institution has the burden of proof to demonstrate that the 
decision to discharge the loans was incorrect or inconsistent with law 
and that the institution is not liable for the loan amounts discharged 
or reimbursed.
    (3) A party may submit as evidence to the hearing official only 
materials within one or more of the following categories:
    (i) Materials submitted to the Department during the process of 
adjudicating claims by borrowers relating to alleged acts or omissions 
of the institution, including materials submitted by the borrowers, the 
institution or any third parties;
    (ii) Any material on which the Department relied in adjudicating 
claims by borrowers relating to alleged acts or omissions of the 
institution and provided by the Department to the institution; and
    (iii) The institution may submit any other relevant documentary 
evidence that relates to the bases cited by the Department in approving 
the borrower

[[Page 66042]]

defense claims and pursuing recoupment from the institution.

0
12. 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


Sec.  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 Sec.  668.501. Aggressive and deceptive 
recruitment tactics or conduct are prohibited in all forms, including 
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 Sec.  
668.13(c);
    (2) Impose limitations on the institution's participation in the 
title IV, HEA programs, if the institution is provisionally certified 
under Sec.  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.
    (c) The following definitions apply to this subpart:
    Prospective student: Has the same meaning in 34 CFR 668.71.


Sec.  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 falsely 
claiming that the student or prospective student would lose their 
opportunity to attend;
    (2) Take unreasonable 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;
    (3) 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;
    (4) Obtain the student's or prospective student's contact 
information through websites or other means that:
    (i) Falsely 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;
    (5) Use threatening or abusive language or behavior toward the 
student or prospective student; or,
    (6) 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]


Sec.  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 will not 
be affected thereby.

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
13. 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.


0
14. Section 674.30 is added to read as follows:


Sec.  674.30   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 will not 
be affected thereby.

0
15. Section 674.33 is amended by:
0
a. Revising paragraph (g)(1);
0
b. In paragraph (g)(2)(iv) removing the words ``credit bureaus'' and 
adding in their place the words ``consumer reporting agencies'';
0
c. Revising paragraphs (g)(3) and (4);
0
d. In paragraph (g)(6)(i) introductory text, removing the words ``In 
order to'' and adding in their place the word ``To'';
0
e. In paragraph (g)(8)(i), removing the number ``120'' and adding in 
its place the number ``180'';
0
f. Revising paragraphs (g)(8)(v) and (vii); and
0
g. Adding paragraph (g)(9).
    The revisions and addition read as follows:


Sec.  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) If a school has closed, the school's closure date is the 
earlier of: the date, determined by the Secretary, that the school 
ceased to provide educational instruction in programs in which most 
students at the school were enrolled, or a determined by the Secretary 
that reflects when the school ceased to provide educational instruction 
for all 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.
* * * * *
    (3) Discharge without an application. (i) The Secretary will 
discharge the

[[Page 66043]]

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 Sec.  682.402(d) (Federal Family Education Loan Program) or 
Sec.  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 
1 year after the institution's closure date if the borrower did not 
complete the program at another branch or location of 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.
    (ii) If the borrower accepts but does not complete a continuation 
of their program at a branch or another location of the institution 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 1 year after the 
borrower's last date of attendance at the institution or 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 the program at 
another branch or location of the institution or through 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 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 Sec.  668.162(d)(2).

0
16. Section 674.61 is amended by:
0
a. Revising paragraphs (b)(2) through (6);
0
b. Removing paragraph (b)(7);
0
c. Redesignating paragraph (b)(8) as paragraph (b)(7);
0
d. Revising newly redesignated paragraph (b)(7); and
0
e. Revising paragraphs (d) and (e).
    The revisions read as follows:


Sec.  674.61   Discharge for death or disability.

* * * * *
    (b) * * *
    (2) Discharge application process for borrowers who have a total 
and permanent disability as defined in Sec.  674.51(aa)(1). (i) If the 
borrower notifies the institution that the borrower claims to be 
totally and permanently disabled as defined in Sec.  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;

[[Page 66044]]

    (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 Sec.  674.51(aa)(1);
    (B) A certification by a nurse practitioner or physician assistant 
licensed by a State or a certified psychologist licensed at the 
independent practice level by a State, that the borrower is totally and 
permanently disabled as defined in Sec.  674.51(aa)(1); or
    (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) benefits or Supplemental Security Income (SSI) based on 
disability and the borrower's next continuing disability review has 
been scheduled between 5 and 7 years;
    (2) The borrower qualifies for SSDI benefits or SSI based on 
disability and the borrower's next continuing disability review has 
been scheduled at 3 years;
    (3) The borrower has an established onset date for SSDI or SSI of 
at least 5 years prior to the application for a disability discharge or 
has been receiving SSDI benefits or SSI based on disability for at 
least 5 years prior to the application for a disability discharge;
    (4) The borrower qualifies for SSDI benefits or SSI based on a 
compassionate allowance; 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 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 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 Sec.  
674.51(aa)(1), the borrower is considered totally and permanently 
disabled as of the date--
    (A) The physician, nurse practitioner, physician 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 support the conclusion that the borrower is totally and 
permanently disabled as defined in Sec.  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 Sec.  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 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 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 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 Sec.  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;

[[Page 66045]]

    (B) A statement that the loan is due and payable to the institution 
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 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 
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 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 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 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 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 Sec.  
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.

[[Page 66046]]

    (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.
* * * * *

0
17. Section 674.65 is added to read as follows:


Sec.  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 will not 
be affected thereby.

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

0
18. The authority citation for part 682 continues to read as follows:

    Authority:  20 U.S.C. 1071-1087-4, unless otherwise noted.


0
19. Section 682.402 is amended by:
0
a. Revising paragraphs (c)(2)(iv) through (vii) and (c)(3) through (6);
0
b. Removing paragraph (c)(7);
0
c. Redesignating paragraphs (c)(8) through (11) as paragraphs (c)(7) 
through (10), respectively;
0
d. Revising newly redesignated paragraphs (c)(7), (9), and (10);
0
e. Revising paragraphs (d)(1) through (3);
0
f. In paragraph (d)(6)(ii)(B) introductory text, removing the number 
``120'' and adding in its place the number ``180'';
0
g. In paragraph (d)(6)(ii)(B)(2), removing the number ``120'' and 
adding in its place the number ``180'';
0
h. In paragraph (d)(6)(ii)(H), removing the number ``60'' and adding in 
its place the number ``90'';
0
i. In paragraph (d)(7)(ii), removing the number ``60'' and adding in 
its place the number ``90'';
0
j. Revising paragraph (d)(8);
0
k. Adding paragraph (d)(9);
0
l. Revising paragraph (e)(1);
0
m. In paragraph (e)(2)(v) removing the citation ``(e)(1)(ii)'' and 
adding in its place the citation ``(e)(1)(iii)'';
0
n. Revising paragraph (e)(3);
0
o. Removing paragraph (e)(13);
0
p. Redesignating paragraphs (e)(6) through (12) as (e)(7) through (13), 
respectively;
0
q. Adding a new paragraph (e)(6);
0
r. Revising redesignated paragraphs (e)(7) through (13) and paragraphs 
(e)(14) and (15); and
0
s. Adding paragraph (e)(16).
    The revisions and additions read as follows:


Sec.  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 Sec.  682.200(b);
    (B) A certification by a nurse practitioner or physician 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 Sec.  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) benefits or Supplemental Security Income (SSI) based on 
disability and the borrower's next continuing disability has been 
scheduled between 5 and 7 years;
    (2) The borrower qualifies for SSDI benefits or SSI based on 
disability and the borrower's next continuing disability review has 
been scheduled at 3 years;
    (3) The borrower has an established onset date for SSDI or SSI of 
at least 5 years prior or has been receiving SSDI benefits or SSI based 
on disability for at least 5 years prior to the application for a 
disability discharge;
    (4) The borrower qualifies for SSDI benefits or SSI based on a 
compassionate allowance; 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 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 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 Sec.  682.200(b), the borrower is 
considered totally and permanently disabled--
    (A) As of the date the physician, nurse practitioner, physician 
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 support the conclusion that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  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

[[Page 66047]]

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 Sec.  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 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 
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 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 Sec.  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 re-evaluation 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 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 
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 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 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 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 Direct Loan Program, 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;

[[Page 66048]]

    (B) If the claim satisfies the requirements of paragraph (g)(1) of 
this section and Sec.  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 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 
Sec.  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 Sec.  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 service-connected 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) If a school has closed, the school's closure date is the 
earlier of: the date, determined by the Secretary, that the school 
ceased to provide educational instruction in programs in which most 
students at the school were enrolled, or a date determined by the 
Secretary that reflects when the school ceased to provide educational 
instruction for all 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.

[[Page 66049]]

    (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 the program at another branch or location of the school or 
through 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 will be discharged without an application 
from the borrower if the--
    (A) Borrower received a discharge on a loan pursuant to Sec.  
674.33(g) of this chapter under the Federal Perkins Loan Program, or 
Sec.  685.214 of this chapter under the William D. Ford Federal Direct 
Loan Program; or
    (B) The Secretary or the guaranty agency, with the Secretary's 
permission, determines that the borrower qualifies for a discharge 
under sections (d)(3)(i), (ii) and (iii) based on information in the 
Secretary or guaranty agency's possession. The Secretary or guaranty 
agency discharges the loan without an application or any statement from 
the borrower 1 year after the institution's closure date if the 
borrower did not complete the program at another branch or location of 
the school or through 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 a continuation 
of the program at another branch of location of 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 or guaranty agency discharges the loan 1 year after 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 Sec.  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

[[Page 66050]]

which the training program supported by the loan was intended;
    (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

[[Page 66051]]

Program loan may be eligible for a 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 will 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 will 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 
will 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 will resume 
collection and will 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 will have up to 90 days to 
determine whether the discharge should be granted. The agency will 
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 will 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)(8).
    (ii) If the agency determines that the borrower satisfies the 
requirements for discharge under this paragraph (e), it will, 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 costs incurred by the lender related to

[[Page 66052]]

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 will, 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 will 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 will 
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 will 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 will 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 will 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 
will 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 will, 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; and
    (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 will, 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 will, 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 will 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 will 
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 
will 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 will forward the claim file to the 
Secretary for his review and take the actions required under paragraph 
(e)(12) of this section.

[[Page 66053]]

    (vii) The agency will 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 will 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 
will 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 will, 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 will 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 will 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 will 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)(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 will 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 will 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 will 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 will forward the borrower's discharge application and all 
relevant

[[Page 66054]]

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), within 30 
days after being so informed, the agency will 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 will, 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 will 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 
will resume collection and will 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 Sec.  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 will 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 will forward 
the payment to the guaranty agency within 30 days of its receipt. The 
lender will assist the guaranty agency and the borrower in determining 
whether the borrower is eligible for discharge of the loan.
    (v) The lender will comply with all instructions received from the 
Secretary or a guaranty agency with respect to loan discharges under 
this paragraph (e).
    (vi) The lender will review a claim that the borrower did not 
endorse and did not receive the proceeds of a loan check. The lender 
will 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 will 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 will 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 
will notify the borrower of the reasons for the denial and, if payments 
are due, resume collection against the borrower. The lender will 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 Sec.  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 Sec.  
668.34 of this chapter.
    (16) Application for a group discharge from a State Attorney 
General or nonprofit 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.
* * * * *

0
20. Section 682.414 is amended by revising paragraph (b)(4) to read as 
follows:


Sec.  682.414   Reports.

* * * * *
    (b) * * *
    (4) A report to the Secretary of the borrower's enrollment and loan 
status information, details related to the loans or borrower's 
deferments, forbearances,

[[Page 66055]]

repayment plans, delinquency and contact information, or any title IV 
loan-related data required by the Secretary, by the deadline date 
established by the Secretary.
* * * * *

0
21. Section 682.424 is added to subpart D to read as follows:


Sec.  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 will not 
be affected thereby.

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
22. The authority citation for part 685 is revised to read as follows:

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.


0
23. Section 685.103 is amended by revising paragraph (d) to read as 
follows:


Sec.  685.103   Applicability of subparts.

* * * * *
    (d) Subpart D of this part contains provisions regarding borrower 
defense to repayment in the Direct Loan Program.

0
24. Section 685.109 is added to subpart A to read as follows:


Sec.  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 will not 
be affected thereby.

0
25. Section 685.202 is amended by:
0
a. Removing paragraphs (b)(2), (4), and (5);
0
b. Redesignating paragraph (b)(3) as paragraph (b)(2) and revising it.

    The revision reads as follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

* * * * *
    (b) * * *
    (2) 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.
* * * * *

0
26. Section 685.205 is amended by revising paragraph (b)(6) to read as 
follows:


Sec.  685.205   Forbearance.

    * * *
* * * * *
    (b) * * *
    (6) Periods necessary for the Secretary to determine the borrower's 
eligibility for discharge--
    (i) Under Sec.  685.206(c) through (e);
    (ii) Under Sec.  685.214;
    (iii) Under Sec.  685.215;
    (iv) Under Sec.  685.216;
    (v) Under Sec.  685.217;
    (vi) Under Sec.  685.222;
    (vii) Under subpart D of this part; or
    (viii) Due to the borrower's or endorser's (if applicable) 
bankruptcy;
* * * * *

0
27. Section 685.206 is amended by revising paragraph (e) to read as 
follows:


Sec.  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 Sec.  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 are materially 
different from those included in the institution's marketing materials, 
website, or other communications made to the student or

[[Page 66056]]

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 data, 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 Sec.  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 may only 
assert a defense to repayment under this paragraph (e) within the 
timeframes set forth in this paragraph

[[Page 66057]]

(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 Sec.  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 Sec.  
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 
will 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 will 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 for relief based on 
a borrower defense to repayment under this paragraph (e), the Secretary 
notifies the borrower and the

[[Page 66058]]

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.

0
28. Section 685.208 is amended by removing paragraph (l)(5).

0
29. Section 685.209 is amended by:
0
a. Removing paragraph (a)(2)(iv);
0
b. Redesignating paragraphs (a)(2)(v) and (vi) as paragraphs (a)(2)(iv) 
and (v), respectively.
0
c. In paragraph (b)(1)(vii), removing the parenthetical phrase 
``(including amount capitalized)'';
0
d. Removing and reserving paragraph (b)(3)(iv);
0
e. Removing paragraph (c)(2)(iv);
0
f. Redesignating paragraphs (c)(2)(v) and (vi) as paragraphs (c)(2)(iv) 
and (v), respectively.
0
g. In paragraph (c)(4)(iii)(B), removing the words ``paragraphs 
(c)(2)(iv) and'', and adding in their place ``paragraph''.
* * * * *

0
30. Section 685.212 is amended by adding paragraph (k)(4) to read as 
follows:


Sec.  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 accordance with 
the procedures described in subpart D of this part.

0
31. Section 685.213 is amended by:
0
a. Revising paragraphs (b)(2) through (7);
0
b. Removing paragraph (b)(8); and
0
c. Revising paragraphs (d) and (e).
    The revisions read as follows:

[[Page 66059]]

Sec.  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 Sec.  685.102(b);
    (ii) A certification by a nurse practitioner or physician assistant 
licensed by a State, or a certified psychologist at the independent 
practice level who are licensed to practice in the United States, that 
the borrower is totally and permanently disabled as described in 
paragraph (1) of the definition of that term in Sec.  685.102(b); or
    (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) benefits or Supplemental Security Income (SSI) based on 
disability, and the borrower's next continuing disability review has 
been scheduled between 5 and 7 years;
    (B) The borrower qualifies for SSDI benefits or SSI based on 
disability and the borrower's next continuing disability review has 
been scheduled at 3 years;
    (C) The borrower has an established onset date for SSDI benefits or 
SSI of at least 5 years prior to the application for a disability 
discharge or has been receiving SSDI benefits or SSI based on 
disability for at least 5 years prior to the application for a TPD 
discharge;
    (D) The borrower qualifies for SSDI or SSI based on a compassionate 
allowance; 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 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 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 Sec.  685.102(b), the borrower is considered 
totally and permanently disabled--
    (A) As of the date the physician, nurse practitioner, physician 
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 support the conclusion that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  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 Sec.  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 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 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 Sec.  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.
    (v) If the borrower requests re-evaluation 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

[[Page 66060]]

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 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 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 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 Program, 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.

0
32. Section 685.214 is amended by:
0
a. In paragraph (a)(1), removing the citation ``paragraph (c)'' and 
adding, in its place, the citation ``paragraph (d)''.
0
b. Revising paragraph (a)(2);
0
c. Removing paragraph (g);
0
d. Redesignating paragraphs (c) through (f) as paragraphs (d) through 
(g), respectively;
0
e. Adding a new paragraph (c);
0
f. Revising redesignated paragraphs (d) through (g); and
0
f. Adding a new paragraph (h).
    The revisions and additions read as follows:


Sec.  685.214   Closed school discharge.

    (a) * * *
    (2) For purposes of this section--
    (i) If a school has closed, the school's closure date is the 
earlier of: the date, determined by the Secretary, that the school 
ceased to provide educational instruction in programs in which most 
students at the school were enrolled, or a date determined by the 
Secretary that reflects when the school ceased to provide educational 
instruction for all 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 or any statement 
from the borrower 1 year after the institution's closure date if the 
borrower did not complete the program

[[Page 66061]]

at another branch or location of the school or through 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 a continuation of 
the program at another branch or location of 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 1 year after the borrower's last date 
of attendance at the other branch or location or in the teach-out 
program.
    (d) Borrower qualification for discharge. (1) Except as provided in 
paragraphs (c) and (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 the program at another branch or location of the school or 
through 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

[[Page 66062]]

determination and the reasons for the determination.
    (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 Sec.  668.162(d)(2) of this chapter.

0
33. Section 685.215 is amended by:
0
a. Revising paragraph (a)(1);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraphs (c) introductory text and (c)(1) through (5);
0
d. Redesignating paragraphs (c)(6) through (8) as paragraphs (c)(7) 
through (9), respectively;
0
e. Adding a new paragraph (c)(6);
0
f. Adding paragraph (c)(10);
0
g. Revising paragraph (d); and
0
h. Removing paragraphs (e) and (f).

    The revisions and additions read as follows:


Sec.  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 as 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.

[[Page 66063]]

    (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 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.

0
34. Section 685.219 is revised to read as follows:


Sec.  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.

[[Page 66064]]

    Emergency management services means services that help remediate, 
lessen, or eliminate the effects or potential effects of emergencies 
that threaten human life or health, or real property.
    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;
    (iii) who works as a contracted employee for a qualifying employer 
in a position or providing services which, under applicable state law, 
cannot be filled or provided by a direct employee of the qualifying 
employer.
    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 and professors and 
instructors, in higher education, 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 and does not include active duty for 
training or attendance at a service school.
    Non-governmental public service means services provided 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 in this section): 
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 or the elderly, public health, public education, public 
library services, school library, or other school-based 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 
based on 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 full-time assignment under the Peace 
Corps Act as provided for under 22 U.S.C. 2504.
    Public education service means the provision of educational 
enrichment or support to students in a public school or a public 
school-like setting, including teaching.
    Public health means those engaged in the following occupations (as 
those terms are defined by the Bureau of Labor Statistics): physicians, 
nurse practitioners, nurses in a clinical setting, health care 
practitioners, health care support, counselors, social workers, and 
other community and social service specialists.
    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 Sec.  685.209 or an 
income-based repayment plan under Sec.  685.221;
    (ii) The 10-year standard repayment plan under Sec.  685.208(b) or 
the consolidation loan standard repayment plan with a 10-year repayment 
term under Sec.  685.208(c); 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 
Sec.  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 
full-time 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;

[[Page 66065]]

    (iii) For a borrower on an income-contingent repayment plan under 
Sec.  685.209 or an income-based repayment plan under Sec.  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 repayment plan 
in which the borrower is enrolled;
    (iv) For a borrower on the 10-year standard repayment plan under 
Sec.  685.208(b) or the consolidation loan standard repayment plan with 
a 10-year repayment term under Sec.  685.208(c), 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 Sec.  685.204(g);
    (C) Military service deferment under Sec.  685.204(h);
    (D) Post-active-duty student deferment under Sec.  685.204(i);
    (E) AmeriCorps forbearance under Sec.  685.205(a)(4);
    (F) National Guard Duty forbearance under Sec.  685.205(a)(7);
    (G) U.S. Department of Defense Student Loan Repayment Program 
forbearance under Sec.  685.205(a)(9);
    (H) Administrative forbearance or mandatory administrative 
forbearance under Sec.  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 weighted average of 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 while working 
the 120 months of qualifying service, 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 the 
effective date of this Final Rule 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 Sec.  685.209 and income-based repayment plan 
under Sec.  685.221.

[[Page 66066]]


0
33. Section 685.300 is amended by:
0
a. Revising paragraphs (b)(7) and (10);
0
b. Redesignating paragraphs (b)(11) and (12) as paragraphs (b)(12) and 
(13), respectively;
0
c. Adding new paragraph (b)(11);
0
d. Revising newly redesignated paragraph (b)(13); and
0
e. Adding paragraphs (d) through (i).

    The revisions and additions read as follows:


Sec.  685.300   Agreements between an eligible school and the Secretary 
for participation in the Direct Loan Program.

* * * * *
    (b) * * *
    (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 Sec. Sec.  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 the effective date 
of this regulation, 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 
the effective date of this regulation 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 Sec.  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

[[Page 66067]]

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
    (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 the effective date of this regulation: ``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 the effective date of this regulation, 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 Sec.  
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 will 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 will 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 a claim based on an act or 
omission that is or could be asserted as a borrower defense as defined 
in:
    (i) Sec.  685.206(c)(1);
    (ii) Sec.  685.222(a)(5);
    (iii) Sec.  685.206(e)(1)(iii); or
    (iv) Sec.  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

[[Page 66068]]

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.


Sec.  685.304   [Amended]

0
35. Section 685.304 is amended:
0
a. In paragraph (a)(6)(xi), by adding ``and'' after ``records;'';
0
b. In paragraph (a)(6)(xii), by removing the semicolon after ``loan'' 
and adding a period in its place; and
0
c. Removing paragraphs (a)(6)(xiii) through (xv).

0
36. Section 685.308 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  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 
Sec. Sec.  685.206, 685.214, 685.216, 685.222, or subpart D of this 
part.
* * * * *

0
37. 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


Sec.  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.


Sec.  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 that caused the borrower 
detriment warranting relief in the form of:
    (i) A defense to repayment of all 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;
    (ii) Reimbursement of all payments previously made to the Secretary 
on the Direct Loan or on a loan repaid by the Direct Consolidation 
Loan;
    (iii) For borrowers in default, determining that the borrower is 
not in default on the loan and is eligible to receive assistance under 
title IV of the Act; and
    (iv) Updating or deleting adverse reports the Secretary previously 
made to consumer reporting agencies regarding the borrower's Direct 
Loan.
    Covered loan means a Direct Loan or other Federal student loan that 
is or could be consolidated into a Federal Direct Consolidation Loan.
    Department official means an employee of the Department who 
administers the group process described in Sec.  685.402, the 
individual process as described in Sec.  685.403, and the institutional 
response process in Sec.  685.405.
    Direct Loan means a Direct Subsidized Loan, a Direct Unsubsidized 
Loan, a Direct PLUS Loan, or a Direct Consolidation Loan.
    Legal assistance organization means a legal assistance organization 
that:
    (i) employs attorneys who:
    (A) Are full-time employees;
    (B) Provide civil legal assistance on a full-time basis; and
    (C) Are continually licensed to practice law; and,
    (ii) Is a nonprofit organization that provides legal assistance 
with respect to civil matters to low-income individuals without a fee.
    Legal representation authority means a written agreement entered 
into between a borrower and a legal assistance organization that 
authorizes the legal assistance organization to represent the borrower 
in connection with a claim for borrower defense or a court order 
appointing the legal assistance organization class counsel for a 
certified class that includes the borrower in an action asserting 
claims with elements substantially similar to the elements of a claim 
for borrower defense.
    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.
    State requestor means a State as defined in 34 CFR 600.2, a State 
attorney general, a State oversight entity, a State agency responsible 
for approving educational institutions in the State, or a regulatory 
agency with the authority from that State.
    Third-party requestor means a State requestor or legal assistance 
organization as defined in Sec.  685.401(a).
    (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 covered loan will 
be determined to have a defense to repayment of a Direct Loan under 
this subpart, if at any time the Department concludes by a 
preponderance of the evidence that the institution committed an 
actionable act or omission and, as a result, the borrower suffered 
detriment of a nature and degree warranting the relief provided by a 
borrower defense to repayment as defined in this section. An actionable 
act or omission means--
    (1) The institution made a substantial misrepresentation as defined 
in 34 CFR part 668, subpart F, that misled the borrower in connection 
with the borrower's decision to attend, or to continue attending, the 
institution or the borrower's decision to take out a covered 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

[[Page 66069]]

continue attending, the institution or the borrower's decision to take 
out a covered loan;
    (3) The institution failed to perform its obligations under the 
terms of a contract with the student and such obligation was undertaken 
as consideration or in exchange for the borrower's decision to attend, 
or to continue attending, the institution, for the borrower's decision 
to take out a covered loan, or for funds disbursed in connection with a 
covered 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 
covered 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 based on the 
institution's act or omission relating to the making of covered loan, 
or the provision of educational services for which the loan was 
provided; 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, by denying the institution's application for 
recertification, or revoking the institution's provisional program 
participation agreement under 34 CFR 668.13, based on the institution's 
acts or omissions that could give rise to a borrower defense claim 
under paragraphs (b)(1) through (4) of this section.
    (c) Violation of State law. For loans first disbursed prior to July 
1, 2017, a borrower has a borrower defense to repayment under this 
subpart if the Secretary concludes by a preponderance of the evidence 
that the school attended by the student committed any act or omission 
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 without regard to any State statute of 
limitations, but only upon reconsideration described under Sec.  
685.407(a)(1)(ii) or (a)(2)(i).
    (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 subpart unless the 
violation would otherwise constitute a basis for a borrower defense 
under this subpart.
    (e) Circumstances warranting relief. In determining whether a 
detriment caused by an institution's act or omission warrants relief 
under this section, the Secretary will consider the totality of the 
circumstances, including the nature and degree of the acts or omissions 
and of the detriment caused to borrowers. For borrowers who attended a 
closed school shown to have committed actionable acts or omissions that 
caused the borrower detriment, there will be a rebuttable presumption 
that the detriment suffered warrants relief under this section.


Sec.  685.402   Group process for borrower defense.

    (a) Group process, generally. Upon consideration of factors 
including, but not limited to, the existence of common facts and claims 
by borrowers, the likelihood of actionable acts or omissions that were 
pervasive or widely disseminated, and the promotion of compliance by an 
institution or other title IV, HEA program participant, the Secretary 
may 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) Group process initiated by the Secretary. The Secretary may 
identify and form 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 that are the subject of the claims or judgments rendered 
against the institutions; or,
    (3) Individual borrower defense claims pursuant to Sec.  685.403.
    (c) Group process initiated in response to a third-party requestor 
application. The Secretary will consider a request to form a group from 
a third-party requestor that complies with the requirements of this 
section. To comply with the requirements of this section, the 
requestor--
    (1) Submits an application to the Secretary, under penalty of 
perjury, and 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 group 
borrower defense claim under the Federal standard in Sec.  685.401(b);
    (D) An analysis of why the conduct should result in an approved 
group borrower defense claim under the Federal standard in Sec.  
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), 
including but not limited to evidence demonstrating the actionable acts 
or omissions asserted were pervasive or widely disseminated;
    (iii) Provides the names and other identifying information of 
borrowers in the group to the extent available; and
    (iv) For requests submitted by a legal assistance organization, 
includes a certification that the requestor has entered into a legal 
representation authority with each borrower identified as a member of 
the group; 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 commonly owned institutions.
    (4) Once the Secretary determines that the third-party requestor's 
application is materially complete, the Secretary will provide notice 
to the institution of the third-party requestor's application. The 
institution will have 90 days to respond to the Secretary regarding the 
third-party requestor's application request to form a group under this 
paragraph (c).
    (5) The Secretary will provide a response to any materially 
complete third-party requestor group request under this paragraph (c) 
within two years of receipt. That response will be sent to the third-
party requestor and the institution and includes:
    (i) Whether the Secretary will choose to form a group and a 
definition of the group formed; and
    (ii) Any additional information needed from the third-party 
requestor to continue the third-party requestor requested group 
process.
    (6)(i) If the Secretary denies in whole or in part a third-party 
requestor's 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 third-party 
requestor submitting the group claim may request that the

[[Page 66070]]

Secretary reconsider the decision upon the identification of new 
evidence that was not previously available to the Secretary in forming 
the group.
    (ii) The third-party 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 will provide a response to the third-party 
requestor that requested reconsideration of the group's formation and 
the institution after reaching a decision on 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 Sec.  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 Sec.  685.403(d) or (e) as appropriate;
    (3) For borrowers whose names were submitted by the third-party 
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 Sec.  685.403(d) except that 
interest on the loan will stop accumulating immediately;
    (4) For borrowers whose names were submitted by the third-party 
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 Sec.  685.403(e) except that the interest 
on the loan will stop accumulating immediately;
    (5) For possible group members that the Secretary cannot identify, 
takes reasonable steps to identify and notify potential members of the 
group, and if the Secretary ultimately is able to identify any 
additional members, follows 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, 
retrospectively applies the benefits available to the borrower under 
those subparagraphs and no other consequences will apply.


Sec.  685.403   Individual process for borrower defense.

    (a) Individual process, generally. (1) If Sec.  685.402 does not 
apply to an individual borrower who has submitted a borrower defense 
application, the Secretary will initiate a process to determine whether 
the individual borrower has a borrower defense under this subpart.
    (2) If Sec.  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 will toll the 
timelines under Sec.  685.406 on adjudicating the individual borrower 
application.
    (3) Paragraph (a)(1) of this section will not apply to claims 
covered by a group claim under Sec.  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 will consider a borrower 
defense claim from an individual borrower to be materially complete 
when the borrower--
    (i) Submits an application to the Secretary, under penalty of 
perjury and on a form approved by the Secretary with the following 
information:
    (A) A description of one or more acts or omissions by the 
institution;
    (B) The school or school representative attributed with the act or 
omission;
    (C) Approximately when the act or omission occurred;
    (D) How the act or omission impacted their decision to attend, to 
continue attending, or to take out the loan for which they are 
asserting a defense to repayment; and,
    (E) A description of the detriment they suffered as a result of the 
institution's act or omission;
    (ii) Provides additional supporting evidence for the claims made 
under subparagraph (b)(1)(i) of this section, if any;
    (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 Sec.  685.405;
    (2) Notifies the borrower that the Department will adjudicate the 
claim under Sec.  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 
Sec.  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 income-contingent repayment plans under Sec.  685.209 
and the income-based repayment plan under Sec.  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 Secretary 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.


Sec.  685.404   Group process based on prior Secretarial final actions.

    (a) For purposes of forming a Secretary-initiated group process in 
accordance with Sec.  685.402(b), the Department official may consider 
final actions as described in Sec.  685.401(b)(5)(ii).
    (b) For groups based on prior Secretarial final actions in 
accordance

[[Page 66071]]

with this section, Sec.  685.405 will not apply to the affected 
institutions.


Sec.  685.405   Institutional response.

    (a) For purposes of adjudicating a borrower defense claim other 
than those based on prior Secretarial final actions in accordance with 
Sec.  685.404, the Department official notifies the institution of the 
group claim under Sec.  685.402 or individual claim under Sec.  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 Sec.  685.409.
    (2) The Department official requests a response from the 
institution, which will have 90 days to respond from the date 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 
will presume that the institution does not contest the borrower defense 
to repayment claim.


Sec.  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 Sec.  
685.402, the Department official makes a recommendation to the 
Secretary regarding adjudication after considering 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 Sec.  685.405, and any 
other relevant information.
    (2) For a group of borrowers under Sec.  685.402 for which the 
Department official determines that there may be a borrower defense 
under Sec.  685.401(b), there is a rebuttable presumption that the act 
or omission giving rise to the borrower defense affected each member of 
the group in deciding to attend, or continue attending, the 
institution, and that such reliance was reasonable.
    (c) Individual process, adjudication. For an individual process 
under Sec.  685.403, the Department official adjudicates the borrower 
defense using the information available to the official and makes a 
recommendation to the Secretary regarding adjudication. 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 Sec.  685.405, and any 
other relevant information.
    (d) Additional information needed from the school or individual. If 
the Department official requests additional information from the 
school, the school must respond to the Department official's 
information request within 90 days. If the Department official requests 
additional information from the individual, the individual must respond 
to the Department official's information request within 90 days.
    (e) Secretary decision. The Secretary makes a final decision after 
taking into account the Department official's recommendation and the 
record compiled under Sec. Sec.  685.402, 685.403, 685.404, 685.405, 
and 685.407, as applicable.
    (f) Written decision. The Secretary issues a written decision as 
follows:
    (1) Approval of a Borrower Defense Claim. If the Secretary approves 
the borrower defense claim--
    (i) The written decision states the Secretary's determination and 
the relief provided as defined in Sec.  685.401 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 Sec.  685.212(k). If any balance 
remains on the Direct Loans not associated with the borrower defense 
claim, 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 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) Denial of a Borrower Defense Claim--(i) Denial, group. If the 
Secretary denies the borrower defense claim, the written decision 
states the reasons for the denial, the evidence upon which the decision 
was based, and the loans that are due and payable to the Secretary. The 
Secretary 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 
Secretary issues a written decision. The Secretary also informs 
individual borrowers from the group claim initially adjudicated under 
Sec.  685.406(b)(1) of their option to file a new borrower defense 
application under an individual process in accordance with Sec.  
685.403.
    (ii) Denial, individual. If the Secretary denies the borrower 
defense claim, the written decision states the reasons for the denial 
and the evidence upon which the decision was based. The Secretary 
informs the borrowers that their 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 Sec. Sec.  
685.403(d) and (e), no earlier than 90 days from the date the Secretary 
issues a written decision. The Secretary also informs the borrower of 
the opportunity to request reconsideration of the claim pursuant to 
Sec.  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 Sec.  
685.406(c), as applicable;
    (ii) The members of the group whose claims were adjudicated under 
Sec.  685.406(b)(1), as applicable;
    (iii) The school; and,
    (iv) The third-party requestor who requested the group claims 
process, as applicable.
    (g) Adjudication, timelines. (1) The Secretary will issue a 
decision on a group or individual borrower defense claim under the 
following timelines:
    (i) For a group claim under Sec.  685.402(c), within 1 year of the 
date the Department official notified the third-party requestor under 
Sec.  685.402(c)(5).
    (ii) For an individual claim under Sec.  685.403, within the later 
of July 1, 2026 or 3 years after the date the Department determines the 
borrower submitted a materially complete application.
    (2) The timelines in paragraph (g)(1) of this section will not 
apply for additional adjudications carried out as part of the 
reconsideration process in Sec.  685.407.
    (3) An individual claim under Sec.  685.403 that is included in a 
group claim under Sec.  685.402 will be subject to the adjudication 
timeline for that group under paragraph (g)(1)(i) of this section, and 
any timelines associated with

[[Page 66072]]

individual adjudication in paragraph (g)(1)(ii) of this section will be 
tolled until the Secretary renders a decision on the claim under Sec.  
685.402.
    (4) The Department official will provide an interim update to the 
individual borrower submitting a claim under Sec.  685.403, the third-
party requestor requesting a group process under Sec.  685.402, and the 
institution contacted for the institutional response under Sec.  
685.405 no later than 1 year after the dates in paragraph (g)(1) of 
this section. Such notification will--
    (i) Indicate the Department official's progress in adjudicating the 
claim or claims; and,
    (ii) Provide an expected timeline for rendering a decision on the 
claim.
    (5) If the Secretary does not issue a written decision under 
paragraph (e) of this section on loans covered by certain claims by the 
dates identified in paragraph (g)(1) of this section, the loans, or 
portion of the loans in the case of a Direct Consolidation Loan, will 
not be enforceable by the Department against the borrower and the 
school will not be liable for the loan amount.


Sec.  685.407   Reconsideration.

    (a) The decision of the Secretary 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, an individual may request 
that the Secretary reconsider their individual borrower defense claim 
on the following grounds:
    (i) Administrative or technical errors;
    (ii) Consideration under an otherwise applicable State law standard 
under Sec.  685.401(c) but only for loans first disbursed before July 
1, 2017; 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 for a group claim 
adjudicated under Sec.  685.406(b)(1), any of the third-party 
requestors that requested to form a group under Sec.  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 
third-party requestor'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 third-party 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 Sec.  685.406(b)(1) may not file a reconsideration 
request under this section.
    (3) The borrower or third-party requestor that requested to form a 
group under Sec.  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 will consider a reconsideration request under 
paragraph (a)(1) or (a)(2)(i) of this section in which the individual 
or third-party requestor--
    (A) Submits an application under penalty of perjury 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; and
    (ii) The borrower or third-party requestor 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 Sec.  685.405 to notify 
the institution of the claim and the basis for the group's borrower 
defense under Sec.  685.402 or individual's borrower defense under 
Sec.  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 Secretary 
follows the procedures in Sec.  685.403(d) for granting forbearance and 
Sec.  685.403(e) for defaulted loans, as applicable.
    (e) The Department official adjudicates the borrower's 
reconsideration request under Sec.  685.406, makes a recommendation to 
the Secretary, and the Secretary provides notice of the final decision 
upon reconsideration in accordance with Sec.  685.406(f).
    (f)(1) The Secretary may reopen at any time a borrower defense 
application that was denied. If a borrower defense application is 
reopened by the Secretary, the Secretary follows the procedures in 
Sec.  685.403(d) for granting forbearance and for Sec.  685.403(e) for 
defaulted loans, as applicable.
    (2) Upon reopening a borrower defense application under paragraph 
(f) of this section, the Department official adjudicates the claim 
under Sec.  685.406, makes a recommendation to the Secretary, and the 
Secretary provides notice of the final decision on the reopened case in 
accordance with Sec.  685.406(f).


Sec.  685.408   Discharge.

    (a) The Secretary discharges the obligation of the borrower in 
accordance with the procedures described in subpart D of this part.
    (b) Members of a group that received a written notice of an 
approved borrower defense claim in accordance with Sec.  685.406(f)(1) 
may request to opt out of the discharge for the group.


Sec.  685.409   Recovery from institutions.

    (a)(1) For loans first disbursed on or after July 1, 2023, the 
Secretary may collect from the school, or in the case of a closed 
school, a person affiliated with the school as described in Sec.  
668.174(b) of this chapter, any liability to the Secretary for any 
amounts discharged or reimbursed to borrowers for claims approved under 
Sec.  685.406.
    (2) Notwithstanding 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 Sec.  
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 Sec.  685.408, under conditions such as:
    (i) The cost of collecting would exceed the amounts received; or
    (ii) The claims were approved outside of the limitations period in 
paragraph (c) of this section;
    (b) The Secretary will not collect from the school any liability to 
the Secretary for any amounts discharged or reimbursed to borrowers for 
an approved claim under Sec.  685.406 for loans first disbursed prior 
to July 1, 2023, unless:
    (1) For loans first disbursed before July 1, 2017, the claim would 
have been approved under the standard in Sec.  685.206(c)(1);
    (2) For loans first disbursed on or after July 1, 2017, and before 
July 1, 2020, the claim would have been approved under the standard in 
Sec. Sec.  685.222(b) through (d); or
    (3) For loans first disbursed on or after July 1, 2020, and before 
July 1, 2023, the claim would have been approved under the standard in 
Sec.  685.206(e)(2).
    (c)(1) The Secretary will initiate a proceeding to collect from the 
school

[[Page 66073]]

the amount of discharge or reimbursement for the borrower resulting 
from a borrower defense under Sec.  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 will 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 Sec.  685.405(b);
    (ii) A class that may include the borrower is certified in a case 
against the institution asserting relief 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 Sec.  685.401(b)(5), the Secretary 
may initiate a proceeding to collect at any time.
    (4) The tolling of the limitations period described in paragraph 
(c)(2) of this section will cease upon the issuance of a written 
decision denying an application under Sec.  685.406(f)(2).
    (d) In requiring an institution to repay funds to the Secretary 
based on successful borrower defense claims under this subpart, the 
Secretary follows the procedures described in 34 CFR part 668, subpart 
H.


Sec.  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.


Sec.  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.


Sec.  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 will not 
be affected thereby.

[FR Doc. 2022-23447 Filed 10-31-22; 8:45 am]
BILLING CODE 4000-01-P