Final Rule

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

DEPARTMENT OF EDUCATION

INFORMATION.

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
Office of Postsecondary
Education, Department of Education.
ACTION: Final regulations.
AGENCY:

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

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SUMMARY:

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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 predispute 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 brian.smith@
ed.gov. 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:
FOR FURTHER INFORMATION CONTACT:

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

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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

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

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• 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
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.
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
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-studentdebt-and-homeownership.html.
2 20 U.S.C. 1001, et seq.

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65905

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.
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, predispute 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
3 There have been no new FFEL Program loans
originated since June 30, 2010, and no new Perkins
Loans since September 30, 2017.
4 https://www.regulations.gov/document/ED2021-OPE-0077-1350.

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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.
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
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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

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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 inperson 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.
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
5 86

FR at 43609.

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

hearulemaking/2021/104am.pdf, page 61.

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rulemaking Committee captured the
diverse universe of students.
While the Department did not identify
civil rights organizations as a standalone 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.
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
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 60day 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.
8 83

FR at 37242 (July 31, 2018).
FR at 18638 (April 2, 2020).
10 83 FR at 40167 (August 14, 2018).
9 85

7 May

6, 2021, 86 FR at 28299.

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Borrower Defense to Repayment—
General (§ 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.

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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.
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
11 87

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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 § 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 loanand-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

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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
(§§ 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

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

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

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65909

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 byproduct 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 § 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
§ 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

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individual application in § 685.403(b)
and the requirements for third-party
requestor applications in § 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

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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
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
14 20

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

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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
18 81

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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.
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
To the extent that entertaining statelaw 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-ofpowers 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
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).

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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.
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
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).

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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.
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
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).
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/borrowerdefense-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).

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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.
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
25 For example, the 2019 and 2016 regulations
both include a misrepresentation as a basis for
relief. Compare § 685.206(e)(3) (2019 regulation),
with § 685.222(d) (2016 regulation). The same
concept is commonplace under State law causes of
action that the 1994 regulation incorporates.
§ 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).

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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
§ 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

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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

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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
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
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).
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’’).

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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
§ 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
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
§ 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
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 eligibilityrelated 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.

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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
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 factspecific 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.
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
30 142
31 See

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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
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.
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
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).
35 See West Virginia, 142 S. Ct. at 2608.
36 20 U.S.C. 1087e(h).
37 421 U.S. 35 (1975).

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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
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
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).

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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.’’
§ 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

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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 decisionmaking 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
§ 685.409(b) noting that the Secretary

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will not collect any liability to the
Secretary from the school for any
amounts discharged or reimbursed to
borrowers for an approved claim under
§ 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 § 685.206(c), the 1994
regulation, for loans first disbursed
before July 1, 2017; under § 685.206(d),
the 2016 regulation, for loans first
disbursed on or after July 1, 2017, and
before July 1, 2020; or under
§ 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
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.

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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.
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,
45 Id.
46 Id.

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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

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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.
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, § 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,
§ 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.’’ § 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.
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
47 20

U.S.C. 1087a(b)(2), 1087e(a)(1).
87 FR at 41886.
49 https://fsapartners.ed.gov/knowledge-center/
library/dear-colleague-letters/2009-04-03/fp-09-03subject-completion-loan-verification-certificates.
48 See

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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.
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

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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
§ 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.
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
50 https://www2.ed.gov/documents/pressreleases/report-special-master-borrower-defense1.pdf.

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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.
Changes: We revised the regulatory
text in § 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 § 685.401 with ‘‘Direct Loan or
other Federal student loan that is
consolidated into a Federal Direct
Consolidation Loan,’’ as the Department
states in § 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 § 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 § 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
51 20

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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 lowincome 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

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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

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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 § 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. Nongovernmental 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
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).

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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.
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 § 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 § 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
§ 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
§ 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

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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
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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 § 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
§ 685.401.
Comments: A few commenters
believed the definition of ‘‘school’’ and
‘‘institution’’ in § 685.401(a) was
duplicative and too broad. Commenters
stated that inclusion of the crossreference to § 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
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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 § 668.174(b). This was
done for purposes of recovery from the
institution in § 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
§ 668.174(b) in the definition of school
or institution is unnecessary.
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 § 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
53 See

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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
§ 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.’’
§ 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 § 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

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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 conductrelated 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.
For causation, the Department chose a
straightforward general element of
causation instead of specific
articulations such as reliance and
materiality. First, a general causation
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 § 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.

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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
55 See Dan Dobbs & Caprice Roberts, Law of
Remedies § 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).

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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.
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
56 See, e.g., Restatement (Third) of Restitution &
Unjust Enrichment § 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 § 344 cmt. a (1981)(relief
flexibly tailored ‘‘as justice requires’’ to protect
reliance and restitutionary interests).

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that BD resembles, where factual
circumstances call for it, and will make
explanations of important remedyrelated 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.
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

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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 § 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 § 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

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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 § 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.

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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
§ 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
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 wellestablished principle that administrative
agencies may establish adjudication
procedures that include evidentiary
presumptions based on logical
inferences drawn from certain facts.58
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 consumeroriented 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,

57 See Cole v. U.S. Dep’t of Agric., 33 F.3d 1263,
1267 (11th Cir. 1994).
58 Chem. Mfrs. Ass’n v. Dep’t of Transp., 105 F.3d
702, 705 (D.C. Cir. 1997).

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.

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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
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
§ 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 wellarticulated 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
62 See

Chem. Mfrs. Ass’n, 105 F.3d at 705.

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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.
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
§§ 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
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.

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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 § 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 nonrespondents after a good faith attempt to
contact them and alongside a disclosure.
The commenter also provided
regulatory text to execute their
suggested changes.
Discussion: § 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
§ 668.74(g)(1)(ii) we believe the phrasing
there was not sufficiently clear.
Accordingly, we have revised
§ 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

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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
§ 668.74(g)(1)(ii)(A) through (C). We
have, however, deleted
§ 668.74(g)(1)(ii)(D). The commenter
noted that the treatment of nonrespondents could potentially also
deflate placement rates if someone who
is placed does not respond. Given the
potential for the treatment of nonrespondents 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
§ 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
§ 668.74(g)(1)(ii) to clarify it applies to
rates disclosed to students. We have
clarified § 668.74(g)(1)(ii)(C) to note this
also includes assessments of
employability. We have also deleted
§ 668.74(g)(1)(ii)(D).

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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 § 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 § 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 openaccess 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

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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 § 668.72(m).
Changes: We revised § 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

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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
§ 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

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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
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The reporting of third-party servicers
to the Department is insufficient to
address this concern. The regulations at
§ 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 § 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 § 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

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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 § 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 § 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.

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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.
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
65 87

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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
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
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-bycase basis. We also acknowledge that
66 87

FR at 41893.
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’’).
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).
67 See,

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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
Changes: None.
Comments: One commenter stated it
was unclear if an act or omission in
§ 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 § 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.
69 81

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Changes: We revised § 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
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is important. Others also raised
concerns about how § 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
§ 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 § 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 § 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
70 See, e.g., Kan. Stat. § 50–627; Ohio Rev. Code
§ 1345.03; Mich. Comp. Laws § 445.903; N.J. Stat.
§ 56:8–2.

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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.
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.
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
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.
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

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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
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
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).
75 87 FR at 41894.

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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.
Overall, laying out the categories of
behavior that constitute aggressive and
deceptive recruitment in a nonexhaustive 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
§ 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

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recruitment where we agree with
commenters that items could be deleted
or altered to improve clarity. We edited
§§ 668.501 and 685.401(b) to clarify our
intention. We also revised
§ 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
§ 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
§ 668.501(a)(3) (now § 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
76 Public

Law 111–203.
§ 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.

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issues similar to what the Department is
facing with BD claims.
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 defaultand credit-related relief that
accompanies those two remedies. We
also further revised § 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
§ 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

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requirement eliminates the need for the
safe harbor requested by a commenter.
The Department also agrees with the
commenters that the language in
§ 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 § 685.405.
Changes: We revised § 668.500(a) to
delete the phrase ‘‘the effects of those
tactics or conduct reflected.’’ We revised
§ 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 § 668.501(a)(2),
which is now removed. We revised
what is now § 668.501(a)(2) to describe
that taking advantage of a borrower’s
lack of knowledge must be
‘‘unreasonable.’’ Additionally, we have
removed § 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 § 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

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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.
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.
79 87

FR at 41983.

80 Ibid.

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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

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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.
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.
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
81 81

FR at 75940.

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

library/dear-colleague-letters/2011-06-07/gen-1112-subject-trial-periods-enrollment.

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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
§ 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
§ 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

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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 § 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 wellmeaning 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 § 668.71.
Changes: We are adding a new
paragraph in § 668.500(c) that defines
prospective student for purposes of
subpart R. The Department will
incorporate the definition in § 668.71.
Comments: A few commenters wrote
in noting that the provision in
§ 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

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65931

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 decisionmaking—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

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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
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.
83 81

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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
§ 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

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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 § 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
§ 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.

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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
§ 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
§ 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
§ 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 § 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

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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, § 685.401(c)
provided that a violation of State law

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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, § 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.
In applying these regulations, the
Department will first adjudicate the
claim under the Federal standard in
§ 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 thirdparty 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
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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

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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

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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 § 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 § 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
85 Throughout this document, we use the term
‘‘statute of limitations’’ interchangeably with
‘‘limitations periods.’’

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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.
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
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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.
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

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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
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 § 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
§ 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
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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
§ 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 § 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 (§§ Part 685, Subpart D)

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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

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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.
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
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
S. Ct. at 2608.
1 U.S.C. 1.
90 FCC v. Pottsville Broad. Co., 309 U.S. 134, 138
(1940); see 81 FR at 75965.

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.
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
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.

88 142
89 See

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Broad. Co., 309 U.S. at 138; see 81 FR

92 Pottsville

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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
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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
§ 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 groupwide 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
§ 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

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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-bycase 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 § 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
§ 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 thirdparty 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 § 685.405.
Institutions will also be given a copy of
the decision on whether to form a group
under § 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

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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 § 685.402(c) to within 2 years of
receipt of a materially complete group
request. This is an increase from the 1year 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.
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
§ 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.
93 87

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Changes: We have added language in
§ 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 § 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 thirdparty requestor. We are also revising
§ 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 § 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
§ 685.406(g) to within 1 year of the date
the Department official notified the
third-party requestor under
§ 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

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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

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opt out of the forbearance as well as a
discharge if a group is approved.
Borrowers may opt out of forbearance as
provided in § 685.403(d)(1) or
§ 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 § 685.408(b)
to state that members of a group that
received a written notice of an approved
borrower defense claim in accordance
with § 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

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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 thirdparty 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
§§ 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 § 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 § 685.401(b),
approving a BD claim requires meeting

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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 § 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 casespecific 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.

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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 § 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.
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
Changes: We revised § 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
94 87
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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
§ 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
§ 685.401.
The Department appreciates the
questions from commenters about
exactly what types of final actions fall
under this process. We updated the
Federal standard in § 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 § 668.13,
if the institution’s acts or omissions tied
to those final actions could give rise to
a BD claim under § 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
96 87

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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 § 685.401(b)(5)(ii),
we have removed the additional
clarifications that were in paragraphs
(a)(1) through (5) of § 685.404.
Changes: We have updated the
definition of a final Secretarial action in
§ 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
§ 668.13, based on the institution’s acts
or omissions that could give rise to a BD
claim under paragraphs § 685.401(b)(1)
through (4). We removed paragraphs
(a)(1) through (5) of § 685.404 and the
actions that fall under this category are
now listed in § 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
§ 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

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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
§ 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 § 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
§ 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
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disagreed with the Department’s
statement in the NPRM that the
financial aid records subject to the 3year 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
§ 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 3year 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.
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 § 685.403, we
reduce that time frame to 180 days.99
97 87

FR at 41902.
FR at 60495.
99 87 FR at 41903.
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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.
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

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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.
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
100 87

FR at 41946.

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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
§ 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.
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
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’’).

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needed to make out a materially
complete application. This, however, is
not a novel requirement or a departure
from existing standards. The materialcompleteness 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
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
§ 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
102 See,

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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 § 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
§ 685.406(g) to provide interim updates
to an individual claimant, the thirdparty 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 § 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
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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
§ 685.402(b)(3).
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.
Changes: None.
Comments: Several commenters
requested that the Department adopt a
liberal pleading standard when
103 87
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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
§ 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.
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
105 87

FR at 41900.
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).
106 This

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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.
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
107 87

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institution and the individual claimant
the maximum time frame, 90 days in
this case, to respond to a request for
additional information.
Changes: We revised § 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.
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
108 87

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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 § 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
§ 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 § 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

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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
§ 685.406(f)(3)(iii) to ensure that
institutions will receive a copy of the
written decision.
Borrower Defense to Repayment—Post
Adjudication (§§ Part 685, Subpart D)

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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

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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

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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
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 § 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 § 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
§ 685.407(b), the Secretary designates a
different Department official for the
reconsideration process than the one
who conducted the initial adjudication.
Changes: None.
109 87

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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

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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
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 § 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

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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.
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.
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
for any benefit that he has conferred on the other
party by way of part performance or reliance.’’).
111 See Restatement (Third) of Restitution § 13(1)
(‘‘rescission and restitution’’ when a transaction is
‘‘induced by fraud or material misrepresentation’’);
id. § 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. § 3–305(a), and 16 CFR part 433
(together providing consumer-obligor defenses to
repayment and claims in recoupment arising out of
underlying transaction).
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 §§ 9.1(1), 12.1.

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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 § 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 § 685.401(e)’s totality-ofthe-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
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.

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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.
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.
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
115 See,

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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
§ 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
§ 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

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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 (§ 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
§ 685.409(b) or revising § 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.

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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
§ 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
116 87

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institution as those individuals
described in § 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.
Because the BD framework is a
bifurcated process, the recovery
provisions under § 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
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
§ 668.87. Commenters stated that
striking § 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 § 668.87 to seek recoupment of an
approved borrower defense claim and
thus could not have a reason for moving
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-highlightsspecial-edition_report_2022-09.pdf.

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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 § 668.87, subpart G appeared a
more appropriate fit because those
recovery proceedings also included
combined consideration of certain factfinding 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.
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 Departmentborrower matter. It would not make
sense to treat a BD claim’s merits and
school liability as coextensive or to
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)’’).

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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 § 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

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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
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
§ 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 §§ 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
§ 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
119 87

FR at 41912.
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.
120 These

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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 § 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
§ 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.

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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
§ 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

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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 § 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 § 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 § 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 § 685.409
provide us with adequate authority to
recover from owners in circumstances
permitted by the HEA.

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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 § 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 § 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 § 685.406 unless:
for loans first disbursed before July 1,
2017, the claim would have been
approved under the standard in
§ 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 §§ 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 § 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 § 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

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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 § 685.410 that to obtain
a discharge, a borrower must reasonably
cooperate with the Secretary in any
proceeding under these regulations.

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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,
121 87

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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.
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 § 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.
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,
122 See,

e.g., 34 CFR 685.222(e)(b)(iii)(B)–(C).

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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 § 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
§ 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
§ 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
§ 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

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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.
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.
123 87

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

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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
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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 predispute 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.
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
124 87
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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.
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 predispute 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
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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 predispute arbitration agreements frustrate
the purposes of the Direct Loan
program.127
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
§ 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 § 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
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with § 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
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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

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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.
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 § 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 § 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,’’ (§ 685.300(g)) or filed ‘‘in a
lawsuit’’ (§ 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 predispute 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
128 87

FR at 41916.

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

library/electronic-announcements/2019-03-15/opeannouncements-subject-guidance-concerning-someprovisions-2016-borrower-defense-repaymentregulations.

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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.
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
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
§ 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
130 87

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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 predispute arbitration agreements and class
action waivers was to provide students
‘‘an opportunity to obtain relief in the
quickest, most efficient, most costeffective, 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
§ 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.
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
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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
§ 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,

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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/
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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
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 prearbitration 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
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’’).
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.

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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
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.
Changes: None.
Definitions
Comments: A few commenters
requested that the Department modify
its definition of ‘‘borrower defense
claim’’ in § 685.300(i) to be a claim
137 Northport Health Servs. of Ark. v. U.S. Dep’t
of Health & Human Servs., 14 F.4th 856, 866–69
(8th Cir. 2021).
138 20 U.S.C. 1221e–3.
139 20 U.S.C. 3474.

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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
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.
Changes: We revised § 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
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140 980

F.3d 814, 821 (11th Cir. 2020).
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.
142 87 FR at 41917.
141 In

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program for which the Direct Loan was
intended.
Changes: None.
Interest Capitalization (§§ 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 incomecontingent 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

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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 inschool 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.

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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 § 685.208(l)(5)
when a borrower is repaying under the
alternative repayment plan and at
§ 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
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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 longterm effects of capitalized interest or the
possibility of multiple capitalization
events. Those items are reflected in the
estimated cost of the policy in the

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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 (§§ 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 3year 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 posttraumatic 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

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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

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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

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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 incomemonitoring 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

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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

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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.
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
143 87

FR at 41939.

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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

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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

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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 evidencebased 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 wellqualified to diagnose patients, and to
make TPD determinations.
Changes: None.
Comment: A commenter believed that
§ 674.61(d)(1) (‘‘Discharge without an

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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 serviceconnected 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 § 674.61(d)(1) is identical to
the language in current § 674.61(d)(1).
Current § 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 serviceconnected 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 § 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
§ 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

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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
§ 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 § 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.’’

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Changes: We have replaced
‘‘conclusively prove’’ with ‘‘supports
the conclusion’’ in §§ 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 §§ 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
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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.
Changes: We have adjusted
§ 674.61(b)(2)(iv)(C)(2),
§ 682.402(c)(2)(iv)(C)(2), and
§ 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 (§§ 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.
145 https://www.ssa.gov/legislation/
FY%202016%20CDR%20Report.pdf.

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

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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.
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 teachout 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

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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
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
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
148 https://www.gao.gov/assets/gao-21105373.pdf.
149 https://www.gao.gov/assets/gao-21105373.pdf.

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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 §§ 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 1year 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
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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 § 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

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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.

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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
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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
§ 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 § 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

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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

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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 §§ 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

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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 § 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 §§ 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

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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
§§ 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 § 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.

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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.

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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.

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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
§§ 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 teachout provided by the school.
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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

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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

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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
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
§ 685.214(e), which requires that a
borrower cooperate with the Secretary
150 https://www2.ed.gov/policy/highered/reg/
hearulemaking/2021/schoolclosureof
brancampuses.pdf.

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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

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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

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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
(§§ 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

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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
current§ 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

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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.

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Public Service Loan Forgiveness (PSLF)
(§ 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

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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 forprofit 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

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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-forprofit 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

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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 ‘‘nongovernmental 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

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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 ‘‘nongovernmental 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 schoolbased 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 § 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 forprofit 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

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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 § 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) taxexempt 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) taxexempt 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)

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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 ‘‘nongovernmental 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

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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
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 fulltime 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 nongovernmental 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
151 370

F. Supp. 3d 1 (D.D.C. 2019).

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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 parttime 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

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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 ‘‘nontenure 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
§ 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

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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 fulltime. Under the regulations, an
employee must work the equivalent of
30 hours per week to be considered fulltime. 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 fulltime 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.

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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

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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
§ 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

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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’
152 https://studentaid.gov/announcements-events/
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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.
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
§ 685.205(b)(9), which is already in the
regulations as a type of forbearance that
would count toward PSLF. The
153 https://studentaid.gov/announcements-events/
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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

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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

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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 fulltime 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

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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

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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

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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 § 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
§ 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

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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

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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

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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

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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 forprofit 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 forprofit companies that provide early
childhood education as qualifying
employers for PSLF. These comments
included a number of proposals that

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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

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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.

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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

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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

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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 preexisting 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
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/howcollegeenrollment-contracts-limit-students-rights/.

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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
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 inschool 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
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.

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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 postdischarge 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

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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

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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

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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 fulltime 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

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Table 1—Summary of Key Changes in
the Final Regulations
Provision

Regulation Section

Description of change
from NPRM

Borrower defense to
repayment

§ 685.401

Definitions

Adjusting the definition
of borrower defense to
repayment to note that
the act or omission
caused detriment to the
borrower that warrants
relief in the form of a
full discharge of
amounts remaining on the
loan associated with the
claim, a refund of all
payments made to the
Secretary, restoring
eligibility to federal
financial aid for a
borrower in default, and
updating or deleting
credit reports. In
determining whether a
detriment caused by an
institution's act or
omission warrants relief
under this section, the

the totality of the
circumstances, including
the nature and degree of

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the acts or omissions
and of the detriment
caused to borrowers.
Redefining the State law
standard to only apply
to reconsideration
requests on loans issued
prior to July 1, 2017.
Creating a definition of
third-party requestor
and legal assistance
organization and
clarifying the
definition of final
Secretarial action.

§ 685.402

Group process

Granting a legal
assistance organization
the ability to also
request consideration of
a group claim, with
accompanying definitions
in§ 685.401.

Granting

institutions an
opportunity to respond
to group claim requests
prior to the Secretary
issuing a decision on
whether to form the
group.

Lengthening the

forming a group to 2

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Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / Rules and Regulations
years instead of 1 but
shortening the time to
decide a claim after
forming a group to 1
year.

§ 685.403

Individual process

Clarifying the
definition of a
materially complete
application to ask
borrowers to provide
more detail on the
nature of the school's
act or omission and how
it affected them and
adding requirement that
mirrors current practice
of requiring
applications to be
submitted under penalty
of perjury.

Group process based on

§ 685.404

Removing possible types

prior Secretarial final

of actions to reflect

actions

the updated definition
in§ 685.401 that
defines final
Secretarial actions as
an exhaustive list of
actions under part 668,
subpart G, denying the

application for

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

65985

recertification or
revoking the
institution's
provisional program
participation agreement.
Adjudication of borrower

§ 685.406

Clarifying that the

defense applications

Secretary is the one
making the final
decision on an
adjudication outcome
following recommendation
from the Department
official. Add that the
timeline for deciding an
individual claim is the
later of July 1, 2026 or
3 years after an
application is
materially complete.
Allowing third-party

§ 685.407

Reconsideration

requestors to seek
reconsideration of
denied claims and
updating the limitations
on State law
reconsideration requests
to loans issued prior to
July 1, 2017.

§ 685.408

Discharge

Removing discussion of

match the updated

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definition in§ 685.401
that provides a full
discharge for all
approved claims.

§ 685.409

Recovery

Clarifying that the
Department will not seek
to recoup on approved
discharges for claims
associated with loans
issued prior to July 1,
2023, unless they would
have been approved under
the standards of the
regulation in effect at
the time of the loan's
disbursement.

Interest capitalization
Partial Financial

§

Removing the section

Hardship

685.209 (a) (2) (iv) (A) (1)

that provides that
accrued interest is
capitalized when a
borrower no longer has a
partial financial
hardship under the PAYE
repayment plan.

Alternative Payment Plan

§ 685.208 (1) (5)

Removing the section
that provides that any
unpaid accrued interest
is capitalized when a

under the alternative

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65987

repayment plan.
Total and permanent
disability discharge
Types of SSA disability

§

Removing the requirement

determinations that can

674. 61 (b) (2) (iv) (C) (2),

that

result in a discharge

§

qualifies

682.402 (c) (2) (iv) (C) (2),

benefits or SSI based on

and§

disability and the

685.213 (b) (2) (iii) (B)

borrower's next

a borrower who
for SSDI

continuing disability
review has been
scheduled at 3 years
must have that
disability status
renewed at least once to
qualify for a TPD
discharge
Clarification of

§ 674.61, § 682.402, and

Adjusting wording to

eligibility under SSA

§ 685.213

better reflect SSA

determinations

terminology about its
disability
determinations.

These

changes do not change
the underlying policies.
Closed school discharge
School Closure Date

§§

674.33 (g) (1) (ii) (A),

Clarifying that the

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

Secretary's ability to

and 6 8 5. 214 (a) ( 2) ( i)

determine an earlier
closure date is based on

ceased to provide

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the date that the school

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educational instruction
in programs in which
most students at the
school were enrolled or
the date when the school
ceased to provide
educational instruction
for all of its students.
674.33(g),

Eligibility for a

§§

Clarifying that a

discharge

682.402(d), and

borrower who continues

685.214(c)

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.

Removing the

references to a teachout provided by the
school.
Public Service Loan
Forgiveness
Definition of employee

§

685.219(b)

Will add a new

or employed

definition to employee
or employed to include a
borrower who works as a
contractor for a

position or providing

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65989

services which, under
applicable state law,
cannot be filled or
provided by a direct
employee of the

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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
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.

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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.
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.

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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.

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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

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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,

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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

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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

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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

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65991

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 predispute 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
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
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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.

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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

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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
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
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-isworse-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.

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borrowed at 4-year public colleges, and
that family income is a strong predictor
of default risk.160
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
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
160 Hillman, N.W. (2014). College on credit: A
multilevel analysis of student loan default. The
Review of Higher Education, 37(2), 169–195.
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-topay-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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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 § 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

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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.
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 forprofit 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
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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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

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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

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$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

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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.
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:
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.

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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
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.
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.
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
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.
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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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

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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

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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
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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the possibility of recoupment actions
tied to future loans.
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.

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65997

Table 2—False Certification Discharges,
by Calendar Year

Calendar
Year
2019
2020
2021
Total

Borrowers

Amount ($ M)

300
400
100
800

3.8
4.8
0.8
9.4

The effects for borrowers could be
significant. In 2020, prior to the new
regulations, the discharge approval rate

Application
Status

Applications
Approved

Applications
Denied

Loans
Discharged

Amount
Discharged

Average per
borrower ($ K)
12.7
12.0
8. 0
11. 8

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

7/1/19 to
6/30/20

7/1/20 to
6/30/21

FC - ATB

520

145

2020 calendar
year
estimated
330

FC - DQS

30

10

30

FC - UNS

200

30

120

FC - ATB

3500

1510

2510

FC - DQS

1500

770

1130

FC - UNS

3530

1190

2360

FC - ATB

1170

250

710

FC - DQS

50

40

50

Discharge
Type

2020
subtotal

470

6000

980

FC - UNS

400

40

220

FC - ATB

$5,764,280

$1,274,520

$3,519,400

FC - DQS

$219,130

$305,600

$262,370

FC - UNS

$1,161,290

$83,610

$622,450

$4,404,220

Average amount discharged per application

$9,310

Average amount discharged per loan

$4,510

Average approval rate

Data source:

7.3%

Federal Student Aid (FSA)

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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

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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

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ER01NO22.013

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

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

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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 factfinding 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

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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

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strengthening and streamlining these
regulations is expected to offer some
benefit to taxpayers. Therefore, the longterm 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

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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

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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

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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

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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

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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
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
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.

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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 lowincome 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
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
The results are similar by Pell Grant
receipt and family income at college
entry. Nearly two-thirds of Pell Grant
175 Department analysis of the 2004/2009
Beginning Postsecondary Students Study, estimated
via PowerStats (table reference: qobjsb).
176 Ibid.

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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

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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

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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.
BILLING CODE 4000–01–P

177 Ibid.

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

Table 4—Principal Balance Growth and
Forbearance Usage Among 2003–04
College Entrants Who Borrowed

Borrower type

All
Black or African
American
White
Hispanic or
Latino
American Indian
or Alaska Native
Asian or Native
Hawaiian/ other
Pacific Islander

Share of
Share of
borrowers whose
borrowers who
principal
had a
balance exceeds
forbearance at
original amount
any time within
borrowed within
12 years of
12 years of
entry
entry (among
those who did
not consolidate)
Race/Ethnicity
27%
56%

Received a Pell
Grant
Never received a
Pell Grant

Average number
of forbearances
among borrowers
who ever had a
forbearance
within 12 years
of entry

4.5

52%

7 9%

5.7

22%

50%

4.0

25%

59%

4.5

***

64%

3.1

13%

39%

3.0

Pell Grant Receipt
64%
33%

4.8

14%

41%

3.4

34%

64%

5.0

31%

63%

4.7

22%

48%

3.9

Family Income

Attainment Status
No degree or
credential as of
31%
62%
4.8
2009
Earned
undergraduate
certificate or
30%
61%
4.6
associate degree
as of 2009
Earned
bachelor's
19%
4 6%
3.8
degree as of
2009
*** Reporting standards not met
Source:
Beginning Postsecondary Students Study, estimated via
PowerStats.

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ER01NO22.014

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Family income at
or below 100%
FPL in 2003-04
Family income
101 - 250% FPL
in 2003-04
Family income
above 250% FPL
in 2003-04

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

66003

circumstances in which the final
regulations eliminate interest
capitalization.

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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).

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The lack of capitalizing events can
also have broader societal benefits by
reducing debt burdens for groups that
may be most affected by interest
capitalization—borrowers from lowincome families, Black borrowers, and
borrowers who do not complete a
college credential.178
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
178 Department analysis of the 2004/2009
Beginning Postsecondary Students Study, estimated
via PowerStats (table reference: ivbztb and qobjsb).

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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 postdischarge monitoring period to ensure
that they continue to meet the criteria
for the program. If borrowers do not
respond to these requests, their loans

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ER01NO22.015

Table 5 Capitalization Events Being Eliminated
Borrower who is repaying under the PAYE plan fails to
recertify income, or chooses to leave the plan
Borrower who is repaying under the REPAYE plan leaves the
plan
Negative amortization under the alternative repayment
plan or the ICR plan
Exiting forbearance
Entering repayment for the first time
Default
Repaying under the alternative repayment plan
No longer has a partial financial hardship under the PAYE
repayment plan

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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.
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.
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.

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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 postdischarge monitoring period (though
some veterans may apply for or receive
a TPD discharge based on an SSA
determination instead). The Department
believes this change 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

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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 midprogram 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.
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 120day 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
180 81
181 84

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FR at 49788.

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

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Table 6—Closed School Discharge
Amounts by Institution Group

% of Total

Average
Discharge
Amount

Sum of Closed
School
Discharges

Private 2 to 3 Years

$2,876

$5,771,862

0.41

Private 4 Years or More

$5,030

$106,347,003

7.60

Private Less Than 2 Years

$2,610

$1,461,896

0.10

Proprietary 2 to 3 Years

$3,265

$387,352,052

27.68

Proprietary 4 Years or More

$5,074

$823,679,386

58.85

Proprietary Less Than 2 Years

$3,002

$74,336,389

5.31

Public 4 Years or More

$3,258

$570,211

0.04

Public Less Than 2 Years

$3,692

$116,264

0.01

Institution Group

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

VerDate Sep<11>2014

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 § 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.

18:36 Oct 31, 2022

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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

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Closed
School
Discharges

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
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.

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ER01NO22.016

list to include this and several other
items.
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

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

Grant lifetime eligibility. This is critical
given that these borrowers are likely to
lose credits if they attempt to transfer to
another program.
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 teachout 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,
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.

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education generates social benefits in
the form of productivity spillovers,
reduced crime, and increased civic
participation.184
4.7 Pre-Dispute Arbitration
These final regulations limit predispute 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
By prohibiting Direct Loanparticipating institutions from using
certain restrictive contractual provisions
regarding dispute resolution and
requiring notification and disclosure
regarding their use of arbitration,
schools 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
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.
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.

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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
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
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-contractslimit-students-rights/.

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Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / Rules and Regulations
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
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/correctingthe-record-consumers-fare-better-under-classactions-than-arbitration/.

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settlements were favorable to
borrowers.188
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.
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
188 Arbitration Study: Report to Congress,
pursuant to Dodd-Frank Wall Street Reform and
Consumer Protection Act § 1028(a). Consumer
Financial Protection Bureau. (2015, March).
Retrieved from https://files.consumerfinance.gov/f/
201503_cfpb_arbitration-study-report-to-congress2015.pdf.
189 Urban Institute. (2020, June). Racial and
Ethnic Representation in Postsecondary Education.
Toma´s Monarrez, Kelia Washington. https://
www.urban.org/research/publication/racial-andethnic-representation-postsecondary-education.

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66007

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

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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 broadbased 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
190 81
191 84

FR at 76057.
FR at 49894.

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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 nonconsolidated 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
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
192 https://www2.ed.gov/policy/highered/reg/
hearulemaking/2021/index.html.

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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

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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

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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Cohort

2 Year
Public/
Private
Nonprofit

4 Year
Public/
Private
Nonprofit

1994

$

1. 4

$

18.8

$

2.6

$

10.0

Proprietary

Graduate

Consolidation
$

Grand Total
$

32.7

1995

$

2.2

$

24.8

$

4 .1

$

13. 2

$

0. 7

$

45.1

1996

$

2.2

$

25.7

$

4 .1

$

14. 2

$

2.1

$

48.3

1997

$

2. 4

$

28.2

$

4. 4

$

15.7

$

2.9

$

53.6

1998

$

2. 4

$

29 .1

$

4. 8

$

16.3

$

4. 9

$

57.5

1999

$

2.3

$

28.9

$

5.5

$

17.0

$

16.1

$

69.8

2000

$

2. 4

$

31. 6

$

6. 4

$

18.8

$

10.9

$

70.1

2001

$

2.7

$

33.3

$

7.6

$

20.1

$

15.7

$

79.3

2002

$

3.4

$

36.7

$

9.2

$

23.4

$

17.9

$

90.6

2003

$

4.3

$

41. 8

$

11.1

$

27.4

$

13. 4

$

98.1

2004

$

5.2

$

46.9

$

13. 7

$

31. 3

$

15.5

$

112. 6

2005

$

5.8

$

50.6

$

15.6

$

34.2

$

31. 7

$

137. 9

2006

$

6.2

$

51. 4

$

17.1

$

39.0

$

39.2

$

152.9

2007

$

7.0

$

53.7

$

18.9

$

45.7

$

7 .1

$

132. 3

2008

$

8. 4

$

59.3

$

25.0

$

50.1

$

11. 8

$

154.6

2009

$

11. 5

$

69.1

$

34.4

$

56.4

$

25.3

$

196. 8

2010

$

9. 4

$

49.6

$

26.3

$

38.8

$

34.8

$

158.8

2011

$

8. 2

$

48.2

$

17.8

$

36.5

$

48.4

$

159.1

2012

$

8.3

$

45.7

$

15.2

$

35.1

$

46.2

$

150.6

2013

$

7.7

$

45.0

$

13. 6

$

34.4

$

53.8

$

154.6

2014

$

6.6

$

44.5

$

12.2

$

35.1

$

69.5

$

168.0

2015

$

5.6

$

43.3

$

10.7

$

34.8

$

92.7

$

187.2

2016

$

5.2

$

43.8

$

9. 4

$

35.8

$

91. 2

$

185.5

2017

$

4. 6

$

42.8

$

8. 2

$

36.6

$

97.5

$

189.8

2018

$

4.3

$

41. 4

$

7.7

$

37.0

$

83.3

$

173.7

2019

$

4. 0

$

40.7

$

7.5

$

37.7

$

79.8

$

169.8

2020

$

3.5

$

34.8

$

7. 4

$

38.0

$

60.8

$

144. 4

2021

$

3.0

$

33.9

$

7.6

$

38.5

$

43.3

$

126.4

2022

$

3.6

$

38.7

$

6.7

$

31. 3

$

55.1

$

135. 5

2023

$

3.6

$

39.1

$

6.5

$

31. 3

$

59.2

$

139. 7

2024

$

3.6

$

39.5

$

6.5

$

31. 3

$

77.3

$

158.3

2025

$

3.6

$

39.9

$

6.5

$

31. 5

$

79.7

$

161. 3

2026

$

3.6

$

40.5

$

6.6

$

31. 4

$

81.1

$

163.3

2027

$

3.7

$

40.9

$

6.6

$

31. 6

$

82.0

$

164.8

2028

$

3.7

$

41. 3

$

6.7

$

31. 8

$

82.7

$

166.2

2029

$

3.7

$

41. 7

$

6.7

$

31. 8

$

83.2

$

167.1

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66011

2030

$

3.7

$

42.2

$

6. 8

$

32.1

$

83.8

$

168.5

2031

$

3.8

$

42.7

$

6. 8

$

32.4

$

84.3

$

170.0

2032

$

3.8

$

43.2

$

6. 9

$

32.7

$

84.6

$

171. 2

Conduct Percent (Percentage of loan volume related to BD claims)
2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

pre-2000

5.0%

1.0%

5.0%

1.0%

1. 6%

2000-2005

8.0%

1.5%

8.0%

1.5%

3.2%

2006-2010

12.0%

1. 7%

12.0%

1. 7%

4.1%

2011-2016

16.0%

2.0%

16.0%

2.0%

4.1%

2017-2022

14.0%

1.5%

3.4%

Cohort Range

14.0%

1.5%

2023-2028

9.0%

1. 3%

9.0%

1. 3%

2. 6%

2028+

7.0%

1.1%

7.0%

1.1%

2.1%

Percentage of BD volume from group claims

2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

pre-2000

15.0%

5.0%

15.0%

5.0%

7.0%

2000-2005

35.0%

12.0%

35.0%

12.0%

16.6%

2006-2010

68.0%

14.0%

68.0%

14.0%

24.8%

2011-2016

80.0%

18.0%

80.0%

18.0%

30.4%

2017-2022

70.0%

12.0%

70.0%

12.0%

23.6%

2023-2028

55.0%

8.0%

55.0%

8.0%

17.4%

2028+

45.0%

6.0%

45.0%

6.0%

13. 8%

Cohort Range

2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

85.0%

95.0%

85.0%

95.0%

93.0%

2000-2005

65.0%

88.0%

65.0%

88.0%

83.4%

2006-2010

32.0%

86.0%

32.0%

86.0%

75.2%

2011-2016

20.0%

82.0%

20.0%

82.0%

69.6%

2017-2022

30.0%

88.0%

30.0%

88.0%

76.4%

2023-2028

45.0%

92.0%

45.0%

92.0%

82.6%

2028+

55.0%

94.0%

55.0%

94.0%

86.2%

Cohort Range

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Percentage of BD volume from individual claims

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Percentage of volume approved in group claims

2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

pre-2000

21. 3%

12.8%

21. 3%

12.8%

17.0%

2000-2005

55.3%

42.5%

55.3%

42.5%

51.0%

2006-2010

59.5%

42.5%

59.5%

42.5%

51.0%

2011-2016

63.8%

42.5%

63.8%

42.5%

51.0%

2017-2022

63.8%

42.5%

63.8%

42.5%

51.0%

2023-2028

63.8%

51.0%

63.8%

51.0%

55.3%

2028+

63.8%

51.0%

63.8%

51.0%

55.3%

Cohort Range

Percentage of volume approved in individual claims
2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

4.3%

1. 7%

4.3%

1. 7%

3.4%

2000-2005

6.8%

1. 7%

6.8%

1. 7%

5.1%

2006-2010

10.2%

4.3%

10.2%

4.3%

6.8%

2011-2016

10.2%

4.3%

10.2%

4.3%

8.5%

2017-2022

10.2%

6.8%

10.2%

6.8%

8.5%

2023-2028

10.2%

6.8%

10.2%

6.8%

8.5%

2028+

10.2%

6.8%

10.2%

6.8%

8.5%

Cohort Range
pre-2000

Group Claims

2-yr
proprietary

2-yr
NFPT/Public

4-yr
Proprietary

4-yr
NPFT/Public

GRAD

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0.00%

0.00%

0.00%

0.00%

0.00%

2000-2005

0.3%

0.2%

0.3%

0.2%

0.2%

2006-2010

2.5%

2.0%

2.5%

2.0%

2.0%

2011-2016

2.5%

2.0%

2.5%

2.0%

2.0%

2017-2022

7.0%

5.6%

7.0%

5.6%

5.6%

2023-2028

15.0%

12.0%

15.0%

12.0%

12.0%

2028+

15.0%

12.0%

15.0%

12.0%

12.0%

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66013

Table 8—Assumptions for Primary BD
Scenarios in 2016 and 2019 Regulations

2016 Regulation
Cohort

Public

Private

2019 Regulation

Proprietary

Public

Private

Proprietary

Conduct Percent
2017

3.0%

3.0%

20.0%

N/A

N/A

N/A

2018

2.4%

2.4%

16.0%

N/A

N/A

N/A

2019

2.0%

2.0%

13.6%

N/A

N/A

N/A

2020

1. 7%

1. 7%

11. 6%

1. 6%

1. 6%

11. 0%

2021

1.5%

1.5%

9.8%

1. 4%

1. 4%

9.3%

2022

1. 4%

1. 4%

8.8%

1. 3%

1. 3%

8.4%

2023

1. 3%

1. 3%

8.4%

1. 2%

1. 2%

8.9%

2024

1. 2%

1. 2%

8.0%

1.1%

1.1%

7.6%

2025

1. 2%

1. 2%

7.8%

1.1%

1.1%

7.4%

2026

1. 2%

1. 2%

7. 7%

1.1%

1.1%

7.3%

2027

N/A

N/A

N/A

1.1%

1.1%

7.3%

2028

N/A

N/A

N/A

1.1%

1.1%

7.3%

2029

N/A

N/A

N/A

1.1%

1.1%

7.3%

70.0%

70.0%

70.0%

Allowable Applications Percent
All

Cohorts

N/A

N/A

N/A

Borrower Percent
2017

35.0%

35.0%

45.0%

N/A

N/A

N/A

2018

36.8%

36.8%

47.3%

N/A

N/A

N/A

2019

38.6%

38.6%

49.6%

N/A

N/A

N/A

2020

42.4%

42.4%

54.6%

3.3%

3.3%

4.95%

2021

4 6. 7%

46.7%

60.0%

3.8%

3.8%

5.48%

2022

50.0%

50.0%

63.0%

4.1%

4.1%

5.93%

2023

50.0%

50.0%

65.0%

4.5%

4.5%

6.30%

2024

50.0%

50.0%

65.0%

4.8%

4.8%

6.75%

2025

50.0%

50.0%

65.0%

5.3%

5.3%

6.98%

2026

50.0%

50.0%

65.0%

5.3%

5.3%

7.50%

2027

N/A

N/A

N/A

5.3%

5.3%

7.50%

2028

N/A

N/A

N/A

5.3%

5.3%

7.50%

2029

N/A

N/A

N/A

5.3%

5.3%

7.50%

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2017

75.0%

23.8%

23.8%

N/A

N/A

N/A

2018

75.0%

23.8%

23.8%

N/A

N/A

N/A

2019

75.0%

26.2%

26.2%

N/A

N/A

N/A

2020

75.0%

28.8%

28.8%

75.0%

16.0%

16.0%

2021

75.0%

31.7%

31.7%

75.0%

20.0%

20.0%

2022

75.0%

33.3%

33.3%

75.0%

20.0%

20.0%

2023

75.0%

34.9%

34.9%

75.0%

20.0%

20.0%

2024

75.0%

36.7%

36.7%

75.0%

20.0%

20.0%

2025

75.0%

37.4%

37.4%

75.0%

20.0%

20.0%

2026

75.0%

37.4%

37.4%

75.0%

20.0%

20.0%

2027

N/A

N/A

N/A

75.0%

20.0%

20.0%

2028

N/A

N/A

N/A

75.0%

20.0%

20.0%

2029

N/A

N/A

N/A

75.0%

20.0%

20.0%

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Recovery Percent

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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
194 US Department of Education, 2021. Digest of
Education Statistics, 2021. Table 303.10.

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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.
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

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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.
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
195 https://www.federalregister.gov/documents/
2022/07/28/2022-15890/institutional-eligibilitystudent-assistance-general-provisions-and-federalpell-grant-program.

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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

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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
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
196 https://www.ed.gov/news/press-releases/
department-education-announces-approval-newcategories-borrower-defense-claims-totaling-500million-loan-relief-18000-borrowers.
197 https://www.ed.gov/news/press-releases/
department-education-approves-borrower-defenseclaims-related-three-additional-institutions.
198 https://www.ed.gov/news/press-releases/
education-department-approves-238-million-groupdischarge-28000-marinello-schools-beautyborrowers-based-borrower-defense-findings.

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66015

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.

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Table 9—Revised Assumptions for
Alternate Scenarios
Conduct Percent (Percentage of loan volume related to BD claims)

Cohort Range

Low Scenario
Proprietary
NPFT/Public

GRAD

High Scenario
Proprietary
NPFT/Public

GRAD

pre-2000

5.0%

1.0%

1. 6%

5.0%

1.0%

1. 6%

2000-2005

8.0%

1.5%

3.2%

8.0%

1.5%

3.2%

2006-2010

12.0%

1. 7%

4.1%

12.0%

1. 7%

4.1%

2011-2016

16.0%

2.0%

4.1%

16.0%

2.0%

4.1%

2017-2022

14.0%

1.5%

3.4%

16.0%

2.0%

4.1%

2023-2028

9.0%

1. 3%

2. 6%

14.0%

1.5%

3.4%

2028+

7.0%

1.1%

2.1%

9.0%

1. 3%

2.6%

Percentage of BD volume from group claims
Cohort Range

Low Scenario
Proprietary NPFT/Public

GRAD

High Scenario
Proprietary NPFT/Public

GRAD

5%

3%

4%

15%

5%

8%

2000-2005

30%

6%

8%

35%

12%

15%

2006-2010

50%

7%

11%

70%

14%

24%

pre-2000

2011-2016

60%

7%

14%

80%

18%

30%

2017-2022

50%

5%

10%

80%

18%

30%

2023-2028

40%

3%

7%

80%

18%

30%

2028+

30%

2%

5%

80%

18%

30%

Percentage of BD volume from individual claims
Cohort Range

Low Scenario
Proprietary NPFT/Public

GRAD

High Scenario
Proprietary NPFT/Public

GRAD

pre-2000

95%

98%

96%

85%

95%

92%

2000-2005

70%

94%

93%

65%

88%

85%

2006-2010

50%

93%

90%

30%

86%

76%

2011-2016

40%

93%

86%

20%

86%

70%

2017-2022

50%

95%

90%

20%

86%

70%

2023-2028

60%

97%

93%

20%

86%

70%

2028+

70%

98%

95%

20%

86%

70%

Recovery percentage on approved claims

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High Scenario

Proprietary

NPFT/Public

GRAD

Proprietary

NPFT/Public

GRAD
0%

1.00%

1. 00%

1.00%

0%

0%

2000-2005

6.00%

6.00%

6.00%

0%

0%

0%

2006-2010

10.00%

10.00%

10.00%

0%

0%

0%

2011-2016

23.80%

23.80%

23.80%

0%

0%

0%

2017-2022

37.40%

37.40%

37.40%

0%

0%

0%

2023-2028

37.40%

37.40%

37.40%

0%

0%

0%

2028+

37.40%

37.40%

37.40%

0%

0%

0%

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Low Scenario
Cohort
Range
pre-2000

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66017

Table 10—Budget Estimates for BD
Scenarios Runs

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5.2

Low Budget
Impact

Modification

$2,426

Outlays for
Cohorts
2023-2032
Total

$1,696

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

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$2,995
$5,750

$4,112

Closed School Discharge

Sweet
Budget
Impact
$2,755

Primary
Budget
Impact
$4,217

High
Budget
Impact
$4,794

$2,995

$6,603

$7,212

$11,397

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

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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
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/pressreleases/over-323000-federal-student-loanborrowers-receive-58-billion-automatic-total-andpermanent-disability-discharges.

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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.
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

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counting of progress toward incomedriven repayment announced in April
2022, and the announcement of a onetime 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,
200 Youngclaus J, Fresne JA. Physician Education
Debt and the Cost to Attend Medical School: 2020
Update. Washington, DC: AAMC; 2020. Available at

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these changes with respect to
consolidations led to the $19.7 billion
estimated increase in transfers for the
PSLF changes.
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 predated 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
https://store.aamc.org/downloadable/download/
sample/sample_id/368/.

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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 2year 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

66019

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.
Table 11—Alternate Assumptions for
Percentage of Borrowers Receiving
PSLF by Cohort Range Under Different
Scenarios

Percentage of Borrowers Assigned PSLF
PB23 Baseline Scenario
2-year

4-year

Graduate

0.20%

0.36%

0.44%

2011-2015

6.28%

10.83%

13 .18%

2016-2020

10.46%

18.05%

21. 96%

2021 and later

14. 65%

28.88%

30.74%

Cohort Range
2010 or earlier

Primary Regulation Scenario
2-year

4-year

Graduate

0.20%

0.36%

3.44%

2011-2015

6.28%

10.83%

16.18%

2016-2020

10.46%

18.05%

24. 96%

2021 and later

14. 65%

28.88%

33.74%

2010 or earlier

Alternate Scenario
2-year

4-year

Graduate

6.28%

10.83%

16.18%

2011-2015

10.46%

18.05%

24. 96%

2016-2020

14. 65%

28.88%

33.74%

2021 and later

20.00%

32.00%

38.00%

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

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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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.

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Table 12—Net Budget Impacts of PSLF
in Primary and Alternate Assumptions

PSLF Primary

PSLF Alternate

3,989

31,456

Outlays for Cohorts 2023-2032

15,696

26,203

Total

19,685

57,659

Modification

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.

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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,

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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

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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 predispute 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

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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

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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)

Benefits

Reduced likelihood of
default and other
adverse outcomes by
awarding discharges
to borrowers
otherwise eligible
for relief,
particularly under
borrower defense,
closed school
discharges, or total
and permanent
disability
discharges.

not quantified

Time savings for
Department staff and
borrowers due to
streamlined
processes, including
BO group claims,
automated
identification of
public servants in
PSLF, and automatic
closed school
discharges.

not quantified

Decreased instances
of conduct that could
lead to an approvable
borrower defense
claim, resulting in
improved information
for student decisionmaking and enrollment
gains for
institutions that do
not engage in conduct
subject to BO claims.

not quantified

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Improved student
outcomes such as
gains in earnings or
educational
attainment for
students who switch
to higher-performing
institutions in
response to BO or
have access to
higher-quality
continuation options
under closed school
discharge.

not quantified

Increased ability to
repay loans by not
capitalizing
outstanding interest.

not quantified

Category

Costs

Costs of compliance
with paperwork
requirements.
Category
BO claims from the
Federal government to
affected borrowers.
Reimbursements of BO
claims from affected
institutions to the
Federal government.

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3%

$6.27

$6. 29

Transfers
7%

3%

Primary

903.1

819.1

Primary

36.9

37.1

758

693

1,503

1,422

Closed school
discharges from the
Federal government to
affected students
Total and Permanent
Disability discharges
from the Federal
government to
affected students.

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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

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2,088

2,019

$2,544

$2,508

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

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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

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ER01NO22.027

Increased PSLF
amounts to eligible
borrowers from
administrative
changes, better
definitions of
qualifying
employment, allowing
lump sum and
installment payments,
and counting payments
prior to
consolidation, and
counting certain
periods of deferment
and forbearance.
Elimination of nonstatutory interest
capitalization.

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

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.

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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

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

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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
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
203 5

U.S.C. 603.
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.
204 Two-year

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

66025

Table 14—Small Institutions Under
Enrollment-Based Definition

Level

Type

2-year ..................

Public .................................................. .

Small

Total

Percent

328

1182

27.75

182

199

91. 4 6

Private,
2-year ................. .
Nonprofit ............................................ .
2-year..................

Proprietary ................................... .

1777

1952

91.03

4-year ..................

Public .................................................. .

56

747

7.50

789

1602

49.25

249

331

75.23

3381

6013

Private,
4-year ................. .
Nonprofit ............................................... .
Proprietar~ .................................. .

Total .................... .

2018-19 data reported to the Department.

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

Table 15—Estimated Count of Small
Institutions Affected by the Final
Regulations

Borrower Defense ........................................................... .

Small
institutions
affected
50

As percent of
small
institutions
1. 4 7

False Certification .................................................. .

0

0

PSLF ............................................................................................... .

0

0

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

0

0

TPD Discharge

0

0

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

0

0

Pre-dispute Arbitration ...................................... .

1,285

38.0

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

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18:36 Oct 31, 2022

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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

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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

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ER01NO22.029

Source:

56.23

ER01NO22.028

4-year ................. .

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

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

Compliance Area

Small
institutions
or entities
affected

BO employment
rate background
check
Pre-dispute
arbitration
update future
agreements
Lenders

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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

Cost range per
institution or
entity
750

25,000

37,500

1285

125

160

160,625

205,600

310

2,231

2,343

691,622

726,330

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

207 North American Industry Classification
System (NAICS) is the standard used by Federal
statistical agencies in classifying businesses to

Jkt 259001

Estimated overall
cost range

500

9. Paperwork Reduction Act of 1995

18:36 Oct 31, 2022

Table 16—Estimated Annual Cost
Range for Small Institutions and
Entities Affected by the Final
Regulations

50

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.

VerDate Sep<11>2014

anticipate there is a significant cost
impact to amend future contracts.

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

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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.

collect, analyze, and publish statistical data related
to the U.S. business economy.

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ER01NO22.030

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66027

Student Assistance General
Provisions—Student Right to Know
(SRK)—OMB CONTROL NUMBER:
1845–0004

Affected

Respondent

Responses

Entity

Burden

Cost $44.41 per

Hours

institution from the
2019 Final Rule

For-Profit

-944

-944

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

Affected

-$209,615

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

Respondent

Entity

Private Not-

-4,720

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 × 1
response × 8 hours = 48 burden hours).
Student Assistance General
Provisions—OMB Control Number
1845–0022

Responses

Burden

Cost

per

Hours =

$46.59 per

respondent

8 hours per

hour for

response

institutions

2

1

16

$745

For-Profit

2

1

16

$745

Public

2

1

16

$745

Total

6

48

$2,235

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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

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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.

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ER01NO22.032

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.

ER01NO22.031

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for-Profit

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

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

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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 × 20

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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 × 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 × 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 × 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 × 30
minutes (.50 hours) = 15 burden hours)
under OMB Control Number 1845–0020.

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66029

Federal Family Education Loan
Program Regulations—OMB Control
Number 1845–0020

Affected
Entity

Respondent

Responses

Burden
Hours

Individual
Private
Not-forProfit
For-Profit
Public
TOTAL

50
14

50
55

25
23

Cost
$46.59 Institutional
$22.00 Individual
$550
$1,071.57

24

99
46
250

31
23
102

$1,444.29
$1,071.57
$4,137.43

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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

to update systems and to initially
provide the additional data, for a total
of 15,500 burden hours (310 institutions
× 50 hours = 15,500 burden hours)
under OMB Control Number 1845–0020.
Federal Family Education Loan
Program Regulations—OMB Control
Number 1845–0020

Affected
Entity

Respondent

Responses

Burden
Hours

Private Notfor-Profit
For-Profit
Totals

64

64

3,200

Cost
$46.59
Institutional
$149,088

246
310

246
310

12,300
15,500

$573,057
$722,145

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

VerDate Sep<11>2014

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

18:36 Oct 31, 2022

Jkt 259001

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 predispute agreement with a student who
obtained or benefitted from a Direct

PO 00000

Frm 00127

Fmt 4701

Sfmt 4700

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 predispute 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

E:\FR\FM\01NOR3.SGM

01NOR3

ER01NO22.034

99

ER01NO22.033

11

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

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submissions for each filing. Because
these are copies of documents required
to be submitted to other parties, we
anticipate 5 burden hours to produce
the copies and submit to the Secretary,
for an increase in burden of 6,320 hours
(79 institutions × 4 filings × 4
submissions/filing × 5 hours) under
OMB Control Number 1845–0021.
William D. Ford Federal Direct Loan
Program (DL) Regulations—OMB
Control Number 1845–0021

Affected
Entity

Respondent

Responses

Burden
Hours

For-Profit
Total

1,587
1,587

678,712
678,712

121,486
121,486

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

William D. Ford Federal Direct Loan
Program (DL) Regulations– OMB
Control Number 1845–0021

Respondent

Responses

Burden
Hours

Individual
For-Profit
Total

-342,407
-944
-343,351

-342,407
-944
-343,351

-27,393
-2,832
-30,225

18:36 Oct 31, 2022

Jkt 259001

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 thirdparty requestors for § 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

PO 00000

Frm 00128

Fmt 4701

Sfmt 4700

Cost
$46.59
Institutional
$5,660,033
$5,660,033

Department will remove the associated
burden of 30,225 hours under OMB
Control Number 1845–0021.

Affected Entity

Section 685.402—Group process for
borrower defense.
Requirements: In § 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 thirdparty 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

VerDate Sep<11>2014

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

Cost
$44.41 per
institution;
$16.30 per
individual
from 2019
Final Rule
-$446,506
-$125,769
-$572,275

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 × 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

E:\FR\FM\01NOR3.SGM

01NOR3

ER01NO22.036

student to develop these agreements or
notices, research who is required to
receive them, and forward the
information accordingly for 115,166
burden hours (677,448 students × .17
hours) under OMB Control Number
1845–0021.
Requirements: Under the 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.

ER01NO22.035

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

Affected
Entity
Private NotFor-Profit
For-Profit
Public
Total

Respondent

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Section 685.405 –Institutional
response.
Requirements: In § 685.405, the
Department will continue to provide for
an institutional response process to BD
claims. Under the final regulations in
§ 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 § 685.405(b), the
institution will have 90 days to respond.
Under the final regulations in
§ 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 § 685.405(c)
will be created and made available for
comment through a full public clearance

VerDate Sep<11>2014

18:36 Oct 31, 2022

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 ×
378 hours/reconsideration request =

Jkt 259001

Responses

4

4

Burden
Hours
1,512

18
2
24

18
2
24

6,804
756
9,072

1,512) under OMB Control Number
1845–0021.
William D. Ford Federal Direct Loan
Program (DL) Regulations— OMB
Control Number 1845–0021

Cost
$46.59 Institutional
$70,444.08
$316,998.36
$35,222.04
$422,664.48

package before being made available for
use by the effective date of the
regulations.
Section 685.407—Reconsideration.
Requirements: § 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.
§ 685.407(a)(4) identifies the
reconsideration process, which includes
an application approved by the
Secretary.
Burden Calculation: A new form to
capture the requirements of § 685.407(a)
will be created and made available for
comment through a full public clearance
package before being made available for
use by the effective date of the
regulations.
Consistent with the discussions
above, the following chart describes the
sections of the final regulations
involving information collections, the

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Fmt 4701

Sfmt 4700

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

E:\FR\FM\01NOR3.SGM

01NOR3

ER01NO22.037

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

66031

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

COLLECTION OF INFORMATION

668.41

The Department
removes the
requirements in
current Section
668.4l(h).

1845-0004;
-4,720 hrs.

§

668.74

Section 668.74(g) (2)
contains a provision
that allows the
Department to verify
that an institution
correctly calculated
its job placement
rate by requiring an
institution furnish
to the Secretary,
upon request,
documentation and
other data that was
used to calculate the
institution's
employment rate
calculations.
Sections
674.33(g) (4),
682. 402 (d) (3) and
685.214 (d) (1) will
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.
Finalized changes
expand the type of
medical professional
who can certify the
TPD application.
The

1845-0022
+48 hrs.

674.33(g),
682. 402 (d),
685.214

674.61,
682. 402 (d),
685.213

§§

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0MB Control
Number and
estimated
burden

§

§§

VerDate Sep<11>2014

Information
Collection

18:36 Oct 31, 2022

Jkt 259001

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Frm 00130

Fmt 4701

Estimated cost
$46.59
Institutional
$22.00
Individual
unless
otherwise
noted.
Cost from the
2019 Final
Rule ($44.41
per
institution)
-$209,615.
+$2,235

1845-0058
Burden will be
cleared at a
later date
through a
separate
information
collection for
the form.

Costs will be
cleared
through
separate
information
collection for
the form

1845-0065
Burden will be
cleared at a
later date

Sfmt 4725

E:\FR\FM\01NOR3.SGM

Costs will be
cleared
through

01NOR3

ER01NO22.038

Regulatory
section

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

682. 402 (e),
685.215(c)
and
685.215(d)

§

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682.402 (e) (6)

VerDate Sep<11>2014

18:36 Oct 31, 2022

Jkt 259001

PO 00000

Frm 00131

Fmt 4701

through a
separate
information
collection for
the form.

separate
information
collection for
the form

1845-0058
Burden will be
cleared at a
later date
through a
separate
information
collection for
the form.

1845-0020
+10 2 hrs .

Sfmt 4725

E:\FR\FM\01NOR3.SGM

Costs will be
cleared
through
separate
information
collection for
the form

+$4,137.43

01NOR3

ER01NO22.039

§§

final changes also
include an expansion
of the acceptable
Social Security
Administration
documentation for
filing a TPD
application.
The
final regulations
also eliminate the
income monitoring
period for all TPD
applicants except
those who receive a
new TEACH Grant or
new Direct Loan
within 3 years of the
TPD discharge.
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)
adds qualification
for a false
certification
discharge if the
school certified the
borrower's
eligibility for a
FFEL or Direct Loan
as a result of the
crime of identity
theft. Additionally,
685.215 (c) (10)
provides for a new
application to allow
a State Attorney
General or nonprofit
legal services
representative to
submit a request to
the Secretary for a
group discharge.
Under Section
6 8 2 . 4 0 2 ( e) ( 6) ( i) if a
holder of a
borrower's FFEL loan
determines that a

66033

Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / Rules and Regulations
borrower may be
eligible for a false
certification
discharge the holder
provides the borrower
with the appropriate
application and
explanation of the
process for obtaining
a discharge.
Under
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.
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.
Section
682.402(e) (6) (ix)
will provide the
borrower with the
option to request

VerDate Sep<11>2014

18:36 Oct 31, 2022

Jkt 259001

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Frm 00132

Fmt 4701

Sfmt 4725

E:\FR\FM\01NOR3.SGM

01NOR3

ER01NO22.040

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66034

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

§ 685.219

§ 685.219(g)

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§ 685.300

VerDate Sep<11>2014

18:36 Oct 31, 2022

These final
regulations create a
reconsideration
process for borrowers
whose PSLF
applications were
denied or who
disagree with the
Department's
determination of the
number of qualifying
payments or months of
qualifying employment
that have been earned
by the borrower which
formalizes the
current nonregulatory process.
These final
regulations reinstate
prior regulations
that barred
institutions, as a
condition of
participating in the
Direct Loan program,
from requiring

Jkt 259001

PO 00000

Frm 00133

Fmt 4701

1845-0020
+15,500

+$722,145

1845-0110
Burden will be
cleared at a
later date
through a
separate
information
collection for
the form.
1845-0164

Costs will be
cleared
through
separate
information
collection for
the form

This process is
currently in
public review
under docket
number ED-2022SCC-0039.

Costs will be
cleared
through
separate
information
collection for
the form

1845-0021
+121,486

Sfmt 4725

E:\FR\FM\01NOR3.SGM

+$5,660,033

01NOR3

ER01NO22.041

§ 682.414(b)

that the Secretary
review the guaranty
agency's decision.
In Section
682.414(b) (4), the
Department will
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.
These final
regulations provide
new, modified, and
restructured
definitions for the
PSLF Program in
Section 685.219(b)
which will expand the
use of the form.

66035

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

§ 685.304

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§ 685.402

VerDate Sep<11>2014

18:36 Oct 31, 2022

borrowers to accept
pre-dispute
arbitration
agreements and class
action waivers.
Also, institutions
will be required to
submit certain
arbitral records and
judicial records
connected with any BO
claim filed against
the school to the
Secretary by certain
deadlines.
These final
regulations remove
Section
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.

In Section
685. 402 (c) (1), the
Department may
initiate a group
process upon request
from a third-party
requestor, on the
condition that the
third-party requestor
submits an
application and 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
BO group.
The
institution will have
90 days to respond to
the Secretary
regarding the third-

Jkt 259001

PO 00000

Frm 00134

Fmt 4701

1845-0021
-27, 393
individual
hrs.;
-2,832
institutional
hrs. =
-30,225 hrs.

Costs from
2019 Final
Rule ($44.41
per
institution;
$16.30 per
individual)
-$446,506
individual
costs;
-$125,769
institutional
costs=
-$572,275

1845-NEW
Burden for
685.402(c) (1)
will be cleared
at a later date
through a
separate
information
collection for
the form.

Costs will be
cleared
through
separate
information
collection for
the form

Burden for
685.402(c) (4)
and
685.402(c) (6)
is +9,072.

Sfmt 4725

E:\FR\FM\01NOR3.SGM

01NOR3

ER01NO22.042

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§ 685.407

VerDate Sep<11>2014

18:36 Oct 31, 2022

Jkt 259001

PO 00000

Frm 00135

Fmt 4701

1845-NEW
Burden will be
cleared at a
later date
through a
separate
information
collection for
the form.

Costs will be
cleared
through
separate
information
collection for
the form

1845-NEW
Burden will be
cleared at a
later date
through a
separate
information
collection for
the form.

Sfmt 4725

E:\FR\FM\01NOR3.SGM

Costs will be
cleared
through
separate
information
collection for
the form

01NOR3

ER01NO22.043

§ 685.405

party requestor's
application.
Under Section
865.402(c) (6), if 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.
Under the final
regulations in§
685.405(a), the
Department official
will notify the
institution of the BO
claim and its basis
for any group or
individual BO claim.
Under the final
regulations in§
685.405(b) the
institution will have
90 days to respond.
Under the final
regulations in§
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.
The final regulations
in§ 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 BO
claim.
§
685.407 (a) (4)
identifies the
reconsideration

66037

66038

Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / Rules and Regulations
process, which
includes an
application approved
by the Secretary.

Control No.

Total burden hours

Change in burden hours

1845-0004

24,016

-4,720

1845-0020

8,265,122

+15,602

1845-0021

851,009

+100,333

1845-0022

2,288,248

+48

11,428,395

+111,263

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 OIRA_
[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.

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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

18:36 Oct 31, 2022

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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

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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,

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burden hours associated with each OMB

Federal Register / Vol. 87, No. 210 / Tuesday, November 1, 2022 / Rules and Regulations
Education, Loan programs—education,
Reporting and recordkeeping
requirements, Student aid, Vocational
education.

■

Miguel A. Cardona,
Secretary of Education.

§ 668.41 Reporting and disclosure of
information.

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
1. The authority citation for part 600
continues to read as follows:

■

Authority: 20 U.S.C. 1001, 1002, 1003,
1088, 1091, 1094, 1099b, and 1099c, unless
otherwise noted.

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

■

§ 600.41 Termination and emergency
action proceedings.

(a) If the Secretary believes that a
previously designated eligible
institution as a whole, or at one or more
of its locations, does not satisfy the
statutory or regulatory requirements that
define that institution as an eligible
institution, the Secretary may—
(1) Terminate the institution’s
eligibility designation in whole or as to
a particular location—
(i) Under the procedural provisions
applicable to terminations contained in
34 CFR 668.81, 668.83, 668.86, 668.88,
668.89, 668.90(a)(1) and (4) and (c)
through (f), and 668.91; or
*
*
*
*
*
PART 668—STUDENT ASSISTANCE
GENERAL PROVISIONS
3. The authority citation for part 668
is revised to read as follows:

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■

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.

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

*
*
*
*
(c) * * *
(2) An institution that discloses
information to enrolled students as
required under paragraph (d), (e), or (g)
of this section by posting the
information on an internet website or an
Intranet website must include in the
notice described in paragraph (c)(1) of
this section—
*
*
*
*
*
■ 5. Subpart F is revised to read as
follows:
Subpart F—Misrepresentation
Sec.
668.71 Scope and special definitions.
668.72 Nature of educational program or
institution.
668.73 Nature of financial charges or
financial assistance.
668.74 Employability of graduates.
668.75 Omission of fact.
668.79 Severability.

Subpart F—Misrepresentation
§ 668.71

Scope and special definitions.

(a) If the Secretary determines that an
eligible institution has engaged in
substantial misrepresentation, the
Secretary may—
(1) Revoke the eligible institution’s
program participation agreement, if the
institution is provisionally certified
under § 668.13(c);
(2) Impose limitations on the
institution’s participation in the title IV,
HEA programs, if the institution is
provisionally certified under
§ 668.13(c);
(3) Deny participation applications
made on behalf of the institution; or
(4) Initiate a proceeding against the
eligible institution under subpart G of
this part.
(b) This subpart establishes the types
of activities that constitute substantial
misrepresentation by an eligible
institution. An eligible institution is
deemed to have engaged in substantial
misrepresentation when the institution
itself, one of its representatives, or any
ineligible institution, organization, or
person with whom the eligible
institution has an agreement to provide
educational programs, marketing,
advertising, recruiting or admissions
services, makes a substantial
misrepresentation about the nature of its
educational program, its financial
charges, or the employability of its
graduates. Substantial

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misrepresentations are prohibited in all
forms, including those made in any
advertising, promotional materials, or in
the marketing or sale of courses or
programs of instruction offered by the
institution.
(c) The following definitions apply to
this subpart:
Misrepresentation. Any false,
erroneous or misleading statement an
eligible institution, one of its
representatives, or any ineligible
institution, organization, or person with
whom the eligible institution has an
agreement to provide educational
programs, or to provide marketing,
advertising, recruiting or admissions
services makes directly or indirectly to
a student, prospective student or any
member of the public, or to an
accrediting agency, to a State agency, or
to the Secretary. A misleading statement
includes any statement that has the
likelihood or tendency to mislead under
the circumstances. A misleading
statement may be included in the
institution’s marketing materials,
website, or any other communication to
students or prospective students. A
statement is any communication made
in writing, visually, orally, or through
other means. Misrepresentation
includes any statement that omits
information in such a way as to make
the statement false, erroneous, or
misleading. Misrepresentation includes
the dissemination of a student
endorsement or testimonial that a
student gives either under duress or
because the institution required such an
endorsement or testimonial to
participate in a program.
Misrepresentation also includes the
omission of facts as defined under
§ 668.75.
Prospective student. Any individual
who has contacted an eligible
institution for the purpose of requesting
information about enrolling at the
institution or who has been contacted
directly by the institution or indirectly
through advertising about enrolling at
the institution.
Substantial misrepresentation. Any
misrepresentation, including omission
of facts as defined under § 668.75, on
which the person to whom it was made
could reasonably be expected to rely, or
has reasonably relied, to that person’s
detriment.
§ 668.72 Nature of educational program or
institution.

Misrepresentation concerning the
nature of an eligible institution’s
educational program includes, but is not
limited to, false, erroneous or
misleading statements concerning—

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(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;

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(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
§§ 668.42, 668.43, and 668.45.
§ 668.73 Nature of financial charges or
financial assistance.

Misrepresentation concerning the
nature of an eligible institution’s
financial charges, or the financial
assistance provided includes, but is not
limited to, false, erroneous, or
misleading statements concerning—
(a) Offers of scholarships to pay all or
part of a course charge;
(b) Whether a particular charge is the
customary charge at the institution for a
course;
(c) The cost of the program and the
institution’s refund policy if the student
does not complete the program;
(d) The availability, amount, or nature
of any financial assistance available to
students from the institution or any
other entity, including any government

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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.
§ 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

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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.

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§ 668.75

Omission of fact.

An omission of fact is a
misrepresentation under § 668.71 if a
reasonable person would have
considered the omitted information in
making a decision to enroll or continue
attendance at the institution. An
omission of fact includes, but is not
limited to, the concealment,
suppression, or absence of material
information or statement concerning—
(a) The entity that is actually
providing the educational instruction,
or implementing the institution’s
recruitment, admissions, or enrollment
process;
(b) The availability of enrollment
openings 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

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of the institution’s graduates as defined
in § 668.72–74.

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

§ 668.79

(a) If the Department determines that
the institution is liable for any amounts
discharged or reimbursed to borrowers
under the discharge process described
in § 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 §§ 668.115 to 668.124
of this subpart. For purposes of this
section references in §§ 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
§ 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

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

Scope and special definitions.

(a) * * *
(5) * * *
(i) Borrower defense to repayment
claims that are brought by the
Department against an institution under
§ 685.206, § 685.222 or part 685, subpart
D, of this chapter; and
*
*
*
*
*
§ 668.87

[Removed and Reserved]

7. Section 668.87 is removed and
reserved.
■ 8. Section 668.89 is amended by
revising paragraph (b)(3)(iii) to read as
follows:
■

§ 668.89

Hearing.

*

*
*
*
*
(b) * * *
(3) * * *
(iii) For borrower defenses under
§§ 685.206(c) and (e) and 685.222 of this
chapter, the designated department
official has the burden of persuasion in
a borrower defense and recovery action;
however, for a borrower defense claim
based on a substantial misrepresentation
under § 682.222(d) of this chapter, the
designated department official has the
burden of persuasion regarding the
substantial misrepresentation, and the
institution has the burden of persuasion
in establishing any offsetting value of
the education under § 685.222(i)(2)(i).
*
*
*
*
*
§ 668.91

[Amended]

9. Section 668.91 is amended by:
a. Removing paragraph (a)(2)(ii);
b. Redesignating paragraph (a)(2)(i) as
(a)(2); and
■ c. Removing paragraph (c)(2)(x).
■ 10. Section 668.100 is added to
subpart G to read as follows:
■
■
■

§ 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.
■ 11. Section 668.125 is added to read
as follows:

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defense claims and pursuing
recoupment from the institution.
■ 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
§ 668.500

Scope and purpose.

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(a) This subpart identifies the types of
activities that constitute aggressive and
deceptive recruitment tactics or conduct
by an eligible institution. An eligible
institution has engaged in aggressive
and deceptive recruitment tactics or
conduct when the institution itself, one
of its representatives, or any ineligible
institution, organization, or person with
whom the eligible institution has an
agreement to provide educational
programs, marketing, advertising, lead
generation, recruiting or admissions
services, engages in one or more of the
prohibited practices in § 668.501.
Aggressive and deceptive recruitment
tactics or conduct are prohibited in all
forms, including in the institution’s
advertising or promotional materials, or
in the marketing or sale of courses or
programs of instruction offered by the
institution.
(b) If the Secretary determines that an
eligible institution has engaged in
aggressive and deceptive recruitment
tactics or conduct, the Secretary may:
(1) Revoke the eligible institution’s
program participation agreement, if the
institution is provisionally certified
under § 668.13(c);
(2) Impose limitations on the
institution’s participation in the title IV,
HEA programs, if the institution is
provisionally certified under
§ 668.13(c);
(3) Deny participation applications
made on behalf of the institution; 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.

(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

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§ 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
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.

14. Section 674.30 is added to read as
follows:

■

§ 674.30

§ 668.501 Aggressive and deceptive
recruitment tactics or conduct.

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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]

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.
■ 15. Section 674.33 is amended by:

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

§ 674.33

Repayment.

*

*
*
*
*
(g) * * *
(1) General. (i) The holder of an NDSL
or a Federal Perkins Loan discharges the
borrower’s (and any endorser’s)
obligation to repay the loan if the
borrower did not complete the program
of study for which the loan was made
because the school at which the
borrower was enrolled closed.
(ii) For the purposes of this section—
(A) 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

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borrower’s obligation to repay an NDSL
or Federal Perkins Loan without an
application from the borrower if the—
(A) Borrower qualified for and
received a discharge on a loan pursuant
to § 682.402(d) (Federal Family
Education Loan Program) or § 685.214
(Federal Direct Loan Program) of this
chapter, and was unable to receive a
discharge on an NDSL or Federal
Perkins Loan because the Secretary
lacked the statutory authority to
discharge the loan; or
(B) Secretary determines that the
borrower qualifies for a discharge based
on information in the Secretary’s
possession. The Secretary discharges the
loan without an application from the
borrower 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

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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

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66043

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 180day look back period for a closed school
discharge;
(viii) The school responsible for the
teach-out of the student’s educational
program fails to perform the material
terms of the teach-out plan or
agreement, such that the student does
not have a reasonable opportunity to
complete his or her program of study;
(ix) The school discontinued a
significant share of its academic
programs;
(x) The school permanently closed all
or most of its in-person locations while
maintaining online programs;
(xi) The Department placed the school
on the heightened cash monitoring
payment method as defined in
§ 668.162(d)(2).
■ 16. Section 674.61 is amended by:
■ a. Revising paragraphs (b)(2) through
(6);
■ b. Removing paragraph (b)(7);
■ c. Redesignating paragraph (b)(8) as
paragraph (b)(7);
■ d. Revising newly redesignated
paragraph (b)(7); and
■ e. Revising paragraphs (d) and (e).
The revisions read as follows:
§ 674.61

Discharge for death or disability.

*

*
*
*
*
(b) * * *
(2) Discharge application process for
borrowers who have a total and
permanent disability as defined in
§ 674.51(aa)(1). (i) If the borrower
notifies the institution that the borrower
claims to be totally and permanently
disabled as defined in § 674.51(aa)(1),
the institution must direct the borrower
to notify the Secretary of the borrower’s
intent to submit an application for total
and permanent disability discharge and
provide the borrower with the
information needed for the borrower to
notify the Secretary.
(ii) If the borrower notifies the
Secretary of the borrower’s intent to
apply for a total and permanent
disability discharge, the Secretary—
(A) Provides the borrower with
information needed for the borrower to
apply for a total and permanent
disability discharge;
(B) Identifies all title IV loans owed
by the borrower and notifies the lenders
of the borrower’s intent to apply for a
total and permanent disability
discharge;

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(C) Directs the lenders to suspend
efforts to collect from the borrower for
a period not to exceed 120 days; and
(D) Informs the borrower that the
suspension of collection activity
described in paragraph (b)(2)(ii)(C) of
this section will end after 120 days and
the collection will resume on the loans
if the borrower does not submit a total
and permanent disability discharge
application to the Secretary within that
time.
(iii) If the borrower fails to submit an
application for a total and permanent
disability discharge to the Secretary
within 120 days, collection resumes on
the borrower’s title IV loans.
(iv) The borrower must submit to the
Secretary an application for total and
permanent disability discharge on a
form approved by the Secretary. The
application must contain—
(A) A certification by a physician,
who is a doctor of medicine or
osteopathy legally authorized to practice
in a State, that the borrower is totally
and permanently disabled as defined in
§ 674.51(aa)(1);
(B) A certification by a nurse
practitioner or physician 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
§ 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.

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(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 § 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

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borrower is totally and permanently
disabled as defined in § 674.51(aa)(1),
the Secretary may require the borrower
to submit additional medical evidence.
As part of the Secretary’s review of the
borrower’s discharge application, the
Secretary may require and arrange for an
additional review of the borrower’s
condition by an independent physician
or other medical professional identified
by the Secretary at no expense to the
borrower.
(iii) After determining that the
borrower is totally and permanently
disabled as defined in § 674.51(aa)(1),
the Secretary notifies the borrower and
the borrower’s lenders that the
application for a disability discharge has
been approved. With this notification,
the Secretary provides the date the
physician, nurse practitioner, physician
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 § 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;

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(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

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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

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66045

any payments from or on behalf of the
borrower on or attributable to a loan that
has been assigned to the Secretary based
on the Secretary’s determination of
eligibility for a total and permanent
disability discharge, the institution must
return the payments to the sender.
(ii) At the same time that the
institution returns the payments, it must
notify the borrower that there is no
obligation to make payments on the loan
after it has been discharged due to a
total and permanent disability unless
the loan is reinstated in accordance with
§ 674.61(b)(6), or the Secretary directs
the borrower otherwise.
(iii) When the Secretary discharges
the loan, the Secretary returns to the
sender any payments received on the
loan after the date the borrower became
totally and permanently disabled.
*
*
*
*
*
(d) Discharge without an application.
(1) The Secretary will discharge a loan
under this section without an
application or any additional
documentation from the borrower if the
Secretary—
(i) Obtains data from the Department
of Veterans Affairs (VA) showing that
the borrower is unemployable due to a
service-connected disability; or
(ii) Obtains data from the Social
Security Administration (SSA)
described in paragraph (b)(2)(iv)(C) of
this section.
(e) Notifications and return of
payments. (1) After determining that a
borrower qualifies for a total and
permanent disability discharge under
paragraph (d) of this section, the
Secretary sends a notification to the
borrower informing the borrower that
the Secretary will discharge the
borrower’s title IV loans unless the
borrower notifies the Secretary, by a
date specified in the Secretary’s
notification, that the borrower does not
wish to receive the loan discharge.
(2) Unless the borrower notifies the
Secretary that the borrower does not
wish to receive the discharge, the
Secretary notifies the borrower’s lenders
that the borrower has been approved for
a disability discharge.
(3) In the case of a discharge based on
a disability determination by VA—
(i) The notification—
(A) Provides the effective date of the
disability determination by VA; and
(B) Directs each institution holding a
Defense, NDSL, or Perkins Loan made to
the borrower to discharge the loan; and
(ii) The institution returns to the
person who made the payments any
payments received on or after the
effective date of the determination by
VA that the borrower is unemployable
due to a service-connected disability.

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(4) In the case of a discharge based on
a disability determination by the SSA—
(i) The notification—
(A) Provides the date the Secretary
received the SSA data described in
paragraph (b)(2)(iv)(C) of this section;
and
(B) Directs each institution holding a
Defense, NDSL, or Perkins Loan made to
the borrower to assign the loan to the
Secretary within 45 days of the notice
described in paragraph (e)(2) of this
section; and
(ii) After the loan is assigned, the
Secretary discharges the loan in
accordance with paragraph (b)(3)(v) of
this section.
(5) If the borrower notifies the
Secretary that they do not wish to
receive the discharge, the borrower will
remain responsible for repayment of the
borrower’s loans in accordance with the
terms and conditions of the promissory
notes that the borrower signed.
*
*
*
*
*
■ 17. Section 674.65 is added to read as
follows:
§ 674.65

Severability.

If any provision of this subpart or its
application to any person, act, or
practice is held invalid, the remainder
of the subpart or the application of its
provisions to any person, act, or practice
will not be affected thereby.
PART 682—FEDERAL FAMILY
EDUCATION LOAN (FFEL) PROGRAM
18. The authority citation for part 682
continues to read as follows:

■

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

19. Section 682.402 is amended by:
a. Revising paragraphs (c)(2)(iv)
through (vii) and (c)(3) through (6);
■ b. Removing paragraph (c)(7);
■ c. Redesignating paragraphs (c)(8)
through (11) as paragraphs (c)(7)
through (10), respectively;
■ d. Revising newly redesignated
paragraphs (c)(7), (9), and (10);
■ e. Revising paragraphs (d)(1) through
(3);
■ f. In paragraph (d)(6)(ii)(B)
introductory text, removing the number
‘‘120’’ and adding in its place the
number ‘‘180’’;
■ g. In paragraph (d)(6)(ii)(B)(2),
removing the number ‘‘120’’ and adding
in its place the number ‘‘180’’;
■ h. In paragraph (d)(6)(ii)(H), removing
the number ‘‘60’’ and adding in its place
the number ‘‘90’’;
■ i. In paragraph (d)(7)(ii), removing the
number ‘‘60’’ and adding in its place the
number ‘‘90’’;
■ j. Revising paragraph (d)(8);

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■
■

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k. Adding paragraph (d)(9);
l. Revising paragraph (e)(1);
m. In paragraph (e)(2)(v) removing the
citation ‘‘(e)(1)(ii)’’ and adding in its
place the citation ‘‘(e)(1)(iii)’’;
■ n. Revising paragraph (e)(3);
■ o. Removing paragraph (e)(13);
■ p. Redesignating paragraphs (e)(6)
through (12) as (e)(7) through (13),
respectively;
■ q. Adding a new paragraph (e)(6);
■ r. Revising redesignated paragraphs
(e)(7) through (13) and paragraphs
(e)(14) and (15); and
■ s. Adding paragraph (e)(16).
The revisions and additions read as
follows:
■
■
■

§ 682.402 Death, disability, closed school,
false certification, unpaid refunds, and
bankruptcy payments.

*

*
*
*
*
(c) * * *
(2) * * *
(iv) The borrower must submit to the
Secretary an application for a total and
permanent disability discharge on a
form approved by the Secretary. The
application must contain—
(A) A certification by a physician,
who is a doctor of medicine or
osteopathy legally authorized to practice
in a State, that the borrower is totally
and permanently disabled as described
in paragraph (1) of the definition of that
term in § 682.200(b);
(B) A certification by a nurse
practitioner or physician assistant
licensed by a State, or a licensed or
certified psychologist at the
independent practice level, that the
borrower is totally and permanently
disabled as described in paragraph (1) of
the definition of that term in
§ 682.200(b); or
(C) An SSA Benefit Planning Query
(BPQY) or an SSA notice of award or
other documentation deemed acceptable
by the Secretary, indicating that—
(1) The borrower qualifies for Social
Security Disability Insurance (SSDI)
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

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(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
§ 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
§ 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

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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
§ 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
§ 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;

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(D) An explanation that the borrower
is not required to submit a new total and
permanent disability discharge
application if the borrower requests that
the Secretary re-evaluate the application
for discharge by providing, within 12
months of the date of the notification,
additional information that supports the
borrower’s eligibility for discharge; and
(E) An explanation that if the
borrower does not request re-evaluation
of the borrower’s prior discharge
application within 12 months of the
date of the notification, the borrower
must submit a new total and permanent
disability discharge application to the
Secretary if the borrower wishes the
Secretary to re-evaluate the borrower’s
eligibility for a total and permanent
disability discharge.
(vi) If the borrower requests reevaluation in accordance with
paragraph (c)(3)(v)(D) of this section or
submits a new total and permanent
disability discharge application in
accordance with paragraph (c)(3)(v)(E)
of this section, the request must include
new information regarding the
borrower’s disabling condition that was
not provided to the Secretary in
connection with the prior application at
the time the Secretary reviewed the
borrower’s initial application for a total
and permanent disability discharge.
(4) Treatment of disbursements made
during the period from the date of the
physician, nurse practitioner, physician
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

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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;

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(B) If the claim satisfies the
requirements of paragraph (g)(1) of this
section and § 682.406, the guaranty
agency must pay the claim submitted by
the lender;
(C) After receiving a claim payment
from the guaranty agency, the lender
must return to the sender any payments
received by the lender after the date the
physician, nurse practitioner, physician
assistant, or psychologist certified the
borrower’s loan discharge application or
after the date the Secretary received the
SSA data described in paragraph
(c)(2)(iv)(C) of this section as well as any
payments received after claim payment
from or on behalf of the borrower;
(D) The Secretary reimburses the
guaranty agency for a disability claim
paid to the lender after the agency pays
the claim to the lender; and
(E) The guaranty agency must assign
the loan to the Secretary within 45 days
of the date the guaranty agency pays the
disability claim and receives the
reimbursement payment, or within 45
days of the date the guaranty agency
receives the notice described in
paragraph (c)(3)(iii) of this section if a
guaranty agency is the lender.
(ii) If the Secretary does not approve
the borrower’s total and permanent
disability discharge request, the lender
must resume collection of the loan and
is deemed to have exercised forbearance
of payment of both principal and
interest from the date collection activity
was suspended. The lender may
capitalize, in accordance with
§ 682.202(b), any interest accrued and
not paid during that period, except if
the lender is a guaranty agency it may
not capitalize accrued interest.
*
*
*
*
*
(9) Discharge without an application.
The Secretary will discharge a loan
under this section without an
application or any additional
documentation from the borrower if the
Secretary—
(i) Obtains data from the Department
of Veterans Affairs (VA) showing that
the borrower is unemployable due to a
service-connected disability; or
(ii) Obtains data from the Social
Security Administration (SSA)
described in paragraph (c)(2)(iv)(C) of
this section.
(10) Notifications and return of
payments. (i) After determining that a
borrower qualifies for a total and
permanent disability discharge under
paragraph (c)(9) of this section, the
Secretary sends a notification to the
borrower informing the borrower that
the Secretary will discharge the
borrower’s title IV loans unless the
borrower notifies the Secretary, by a

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date specified in the Secretary’s
notification, that the borrower does not
wish to receive the loan discharge.
(ii) Unless the borrower notifies the
Secretary that the borrower does not
wish to receive the discharge, the
Secretary notifies the borrower’s loan
holders that the borrower has been
approved for a disability discharge.
With this notification the Secretary
provides the effective date of the
determination by VA or the date the
Secretary received the SSA data
described in paragraph (c)(2)(iv)(C) of
this section and directs the holder of
each FFEL Program loan made to the
borrower to submit a disability claim to
the guaranty agency in accordance with
paragraph (g)(1) of this section.
(iii) If the claim meets the
requirements of paragraph (g)(1) of this
section and § 682.406, the guaranty
agency pays the claim and must—
(A) Discharge the loan, in the case of
a discharge based on data from VA; or
(B) Assign the loan to the Secretary,
in the case of a discharge based on data
from the SSA.
(iv) The Secretary reimburses the
guaranty agency for a disability claim
after the agency pays the claim to the
lender.
(v) Upon receipt of the claim payment
from the guaranty agency, the loan
holder returns to the person who made
the payments any payments received on
or after—
(A) The effective date of the
determination by VA that the borrower
is unemployable due to a serviceconnected disability; or
(B) The date the Secretary received
the SSA data described in paragraph
(c)(2)(iv)(C) of this section.
(vi) For a loan that is assigned to the
Secretary for discharge based on data
from the SSA, the Secretary discharges
the loan in accordance with paragraph
(c)(3)(iv) of this section.
(vii) If the borrower notifies the
Secretary that they do not wish to
receive the discharge, the borrower will
remain responsible for repayment of the
borrower’s loans in accordance with the
terms and conditions of the promissory
notes that the borrower signed.
*
*
*
*
*
(d) * * *
(1) General. (i) The Secretary
reimburses the holder of a loan received
by a borrower on or after January 1,
1986, and discharges the borrower’s
obligation with respect to the loan in
accordance with the provisions of
paragraph (d) of this section, if the
borrower (or the student for whom a
parent received a PLUS loan) could not
complete the program of study for

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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.

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(iv) A discharge of a loan under this
paragraph (d) must be reported by the
loan holder to all consumer reporting
agencies to which the holder previously
reported the status of the loan, so as to
delete all adverse credit history assigned
to the loan.
(3) Borrower qualification for
discharge. Except as provided in
paragraph (d)(8) of this section, to
qualify for a discharge of a loan under
this paragraph (d), a borrower must
submit a completed closed school
discharge application on a form
approved by the Secretary and the
factual assertions in the application
must be true and must be made under
penalty of perjury. The application
explains the procedures and eligibility
criteria for obtaining a discharge and
requires the borrower to state that the
borrower (or the student on whose
behalf a parent borrowed)—
(i) Received the proceeds of a loan, in
whole or in part, on or after January 1,
1986, to attend a school;
(ii) Did not complete the program of
study at that school because the school
closed while the student was enrolled,
or the student withdrew from the school
not more than 180 calendar days before
the school closed. The Secretary may
extend the 180-day period if the
Secretary determines that exceptional
circumstances, as described in
paragraph (d)(9) of this section, justify
an extension;
(iii) On or after July 1, 2023, state that
the borrower did not complete 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—

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(A) Borrower received a discharge on
a loan pursuant to § 674.33(g) of this
chapter under the Federal Perkins Loan
Program, or § 685.214 of this chapter
under the William D. Ford Federal
Direct Loan Program; or
(B) 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 180day look back period for a closed school
discharge;
(viii) The school responsible for the
teach-out of the student’s educational

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66049

program fails to perform the material
terms of the teach-out plan or
agreement, such that the student does
not have a reasonable opportunity to
complete his or her program of study;
(ix) The school discontinued a
significant share of its academic
programs.
(x) The school permanently closed all
or most of its ground-based or in-person
locations while maintaining online
programs.
(xi) The school was placed on the
heightened cash monitoring payment
method as defined in § 668.162(d)(2).
(e) * * *
(1) General. (i) The Secretary
reimburses the holder of a loan received
by a borrower on or after January 1,
1986, and discharges a current or former
borrower’s obligation with respect to the
loan in accordance with the provisions
of this paragraph (e), if the borrower’s
(or the student for whom a parent
received a PLUS loan) eligibility to
receive the loan was falsely certified by
an eligible school. On or after July 1,
2006, the Secretary reimburses the
holder of a loan, and discharges a
borrower’s obligation with respect to the
loan in accordance with the provisions
of this paragraph (e), if the borrower’s
eligibility to receive the loan was falsely
certified as a result of a crime of identity
theft. For purposes of a false
certification discharge, the term
‘‘borrower’’ includes all endorsers on a
loan.
(ii) A student’s or other individual’s
eligibility to borrow will be considered
to have been falsely certified by the
school if the school—
(A) Certified the eligibility for a FFEL
Program loan of a student who—
(1) Reported not having a high school
diploma or its equivalent; and
(2) Did not satisfy the alternative to
graduation from high school
requirements in 34 CFR 668.32(e) and
section 484(d) of the Act that were in
effect at the time the loan was certified,
as applicable;
(B) Certified the eligibility of a
student who is not a high school
graduate based on—
(1) A high school graduation status
falsified by the school; or
(2) A high school diploma falsified by
the school or a third party to which the
school referred the borrower;
(C) Certified the eligibility of the
student who, because of a physical or
mental condition, age, criminal record,
or other reason accepted by the
Secretary, would not meet State
requirements for employment (in the
student’s State of residence when the
loan was certified) in the occupation for

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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

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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

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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

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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.

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(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

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66051

incomplete, the guaranty agency notifies
the borrower of that determination and
allows the borrower an additional 30days 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

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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

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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

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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.

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(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

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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

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66053

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

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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 § 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

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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

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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
§ 682.202(b), any interest accrued and
not paid during that period.
(14) Definition of identity theft. (i) For
purposes of this section, identity theft is
defined as the unauthorized use of the
identifying information of another
individual that is punishable under 18
U.S.C. 1028, 1028A, 1029, or 1030, or
substantially comparable State or local
law.
(ii) Identifying information includes,
but is not limited to—
(A) Name, Social Security number,
date of birth, official State or
government issued driver’s license or
identification number, alien registration
number, government passport number,
and employer or taxpayer identification
number;
(B) Unique biometric data, such as
fingerprints, voiceprint, retina or iris
image, or unique physical
representation;
(C) Unique electronic identification
number, address, or routing code; or
(D) Telecommunication identifying
information or access device (as defined
in 18 U.S.C. 1029(e)).
(15) Discharge without an application.
A borrower’s obligation to repay all or
a portion of an FFEL Program loan may
be discharged without an application
from the borrower if the Secretary, or
the guaranty agency with the Secretary’s
permission, determines based on
information in the Secretary’s or the
guaranty agency’s possession that the
borrower qualifies for a discharge. Such
information includes, but is not limited
to, evidence that the school has falsified
the Satisfactory Academic Progress of its
students, as described in § 668.34 of this
chapter.
(16) Application for a group discharge
from a State Attorney General or
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.
*
*
*
*
*
■ 20. Section 682.414 is amended by
revising paragraph (b)(4) to read as
follows:
§ 682.414

Reports.

*

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

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repayment plans, delinquency and
contact information, or any title IV loanrelated data required by the Secretary,
by the deadline date established by the
Secretary.
*
*
*
*
*
■ 21. Section 682.424 is added to
subpart D to read as follows:
§ 682.424

Severability.

If any provision of this subpart or its
application to any person, act, or
practice is held invalid, the remainder
of the subpart or the application of its
provisions to any person, act, or practice
will not be affected thereby.

§ 685.206 Borrower Responsibilities and
Defenses.

PART 685—WILLIAM D. FORD
FEDERAL DIRECT LOAN PROGRAM

*

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.

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

■

§ 685.103

Applicability of subparts.

*

*
*
*
*
(d) Subpart D of this part contains
provisions regarding borrower defense
to repayment in the Direct Loan
Program.
■ 24. Section 685.109 is added to
subpart A to read as follows:
§ 685.109

Severability.

If any provision of this subpart or its
application to any person, act, or
practice is held invalid, the remainder
of the subpart or the application of its
provisions to any person, act, or practice
will not be affected thereby.
■ 25. Section 685.202 is amended by:
■ a. Removing paragraphs (b)(2), (4),
and (5);
■ b. Redesignating paragraph (b)(3) as
paragraph (b)(2) and revising it.
The revision reads as follows:
§ 685.202 Charges for which Direct Loan
Program borrowers are responsible.

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*

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

* * *
*
*

Forbearance.

*

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*

*

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(b) * * *
(6) Periods necessary for the Secretary
to determine the borrower’s eligibility
for discharge—
(i) Under § 685.206(c) through (e);
(ii) Under § 685.214;
(iii) Under § 685.215;
(iv) Under § 685.216;
(v) Under § 685.217;
(vi) Under § 685.222;
(vii) Under subpart D of this part; or
(viii) Due to the borrower’s or
endorser’s (if applicable) bankruptcy;
*
*
*
*
*
■ 27. Section 685.206 is amended by
revising paragraph (e) to read as follows:

*
*
*
*
(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)

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may be used interchangeably and
include an eligible institution, one of its
representatives, or any ineligible
institution, organization, or person with
whom the eligible institution has an
agreement to provide educational
programs, or to provide marketing,
advertising, recruiting, or admissions
services.
(2) Federal standard for loans first
disbursed on or after July 1, 2020, and
before July 1, 2023. For a Direct Loan or
Direct Consolidation Loan first
disbursed on or after July 1, 2020, and
before July 1, 2023, a borrower may
assert a defense to repayment under this
paragraph (e), if the borrower
establishes by a preponderance of the
evidence that—
(i) The institution at which the
borrower enrolled made a
misrepresentation, as defined in
§ 685.206(e)(3), of material fact upon
which the borrower reasonably relied in
deciding to obtain a Direct Loan, or a
loan repaid by a Direct Consolidation
Loan, and that directly and clearly
relates to:
(A) Enrollment or continuing
enrollment at the institution or
(B) The provision of educational
services for which the loan was made;
and
(ii) The borrower was financially
harmed by the misrepresentation.
(3) Misrepresentation. A
‘‘misrepresentation,’’ for purposes of
this paragraph (e), is a statement, act, or
omission by an eligible school to a
borrower that is false, misleading, or
deceptive; that was made with
knowledge of its false, misleading, or
deceptive nature or with a reckless
disregard for the truth; and that directly
and clearly relates to enrollment or
continuing enrollment at the institution
or the provision of educational services
for which the loan was made. Evidence
that a misrepresentation defined in this
paragraph (e) may have occurred
includes, but is not limited to:
(i) Actual licensure passage rates
materially different from those included
in the institution’s marketing materials,
website, or other communications made
to the student;
(ii) Actual employment rates
materially different from those included
in the institution’s marketing materials,
website, or other communications made
to the student;
(iii) Actual institutional selectivity
rates or rankings, student admission
profiles, or institutional rankings that
are materially different from those
included in the institution’s marketing
materials, website, or other
communications made to the student or

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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

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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;

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(ii) A significant difference between
the amount or nature of the tuition and
fees that the institution represented to
the borrower that the institution would
charge or was charging, and the actual
amount or nature of the tuition and fees
charged by the institution for which the
Direct Loan was disbursed or for which
a loan repaid by the Direct
Consolidation Loan was disbursed;
(iii) The borrower’s inability to secure
employment in the field of study for
which the institution expressly
guaranteed employment; and
(iv) The borrower’s inability to
complete the program because the
institution no longer offers a
requirement necessary for completion of
the program in which the borrower
enrolled and the institution did not
provide for an acceptable alternative
requirement to enable completion of the
program.
(5) Exclusions. The Secretary will not
accept the following as a basis for a
borrower defense to repayment under
this paragraph (e)—
(i) A violation by the institution of a
requirement of the Act or the
Department’s regulations for a borrower
defense to repayment under paragraph
(c) or (d) of this section or under
§ 685.222, unless the violation would
otherwise constitute the basis for a
successful borrower defense to
repayment under this paragraph (e); or
(ii) A claim that does not directly and
clearly relate to enrollment or
continuing enrollment at the institution
or the provision of educational services
for which the loan was made, including,
but not limited to—
(A) Personal injury;
(B) Sexual harassment;
(C) A violation of civil rights;
(D) Slander or defamation;
(E) Property damage;
(F) The general quality of the
student’s education or the
reasonableness of an educator’s conduct
in providing educational services;
(G) Informal communication from
other students;
(H) Academic disputes and
disciplinary matters; and
(I) Breach of contract unless the
school’s act or omission would
otherwise constitute the basis for a
successful defense to repayment under
this paragraph (e).
(6) Limitations period. A borrower
must assert a defense to repayment
under this paragraph (e) within 3 years
from the date the student is no longer
enrolled at the institution. A borrower
may only assert a defense to repayment
under this paragraph (e) within the
timeframes set forth in this paragraph

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(e)(6) and paragraph (e)(7) of this
section.
(7) Extension of limitation periods
and reopening of applications. For loans
first disbursed on or after July 1, 2020,
and before July 1, 2023, the Secretary
may extend the time period when a
borrower may assert a defense to
repayment under § 685.206(e)(6) or may
reopen a borrower’s defense to
repayment application to consider
evidence that was not previously
considered only if there is:
(i) A final, non-default judgment on
the merits by a State or Federal Court
that has not been appealed or that is not
subject to further appeal and that
establishes the institution made a
misrepresentation, as defined in
paragraph (e)(3) of this section; or
(ii) A final decision by a duly
appointed arbitrator or arbitration panel
that establishes that the institution
made a misrepresentation, as defined in
paragraph (e)(3) of this section.
(8) Application and forbearance. To
assert a defense to repayment under this
paragraph (e), a borrower must submit
an application under penalty of perjury
on a form approved by the Secretary and
sign a waiver permitting the institution
to provide the Department with items
from the borrower’s education record
relevant to the defense to repayment
claim. The form will note that pursuant
to § 685.205(b)(6)(i), if the borrower is
not in default on the loan for which a
borrower defense has been asserted, the
Secretary will grant forbearance and
notify the borrower of the option to
decline forbearance. The application
requires the borrower to—
(i) Certify that the borrower received
the proceeds of a loan, in whole or in
part, to attend the named institution;
(ii) Provide evidence that supports the
borrower defense to repayment
application;
(iii) State whether the borrower has
made a claim with any other third party,
such as the holder of a performance
bond, a public fund, or a tuition
recovery program, based on the same act
or omission of the institution on which
the borrower defense to repayment is
based;
(iv) State the amount of any payment
received by the borrower or credited to
the borrower’s loan obligation through
the third party, in connection with a
borrower defense to repayment
described in paragraph (e)(2) of this
section;
(v) State the financial harm, as
defined in paragraph (e)(4) of this
section, that the borrower alleges to
have been caused and provide any
information relevant to assessing
whether the borrower incurred financial

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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

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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

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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

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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

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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.
■ 28. Section 685.208 is amended by
removing paragraph (l)(5).
■ 29. Section 685.209 is amended by:
■ a. Removing paragraph (a)(2)(iv);
■ b. Redesignating paragraphs (a)(2)(v)
and (vi) as paragraphs (a)(2)(iv) and (v),
respectively.
■ c. In paragraph (b)(1)(vii), removing
the parenthetical phrase ‘‘(including
amount capitalized)’’;
■ d. Removing and reserving paragraph
(b)(3)(iv);
■ e. Removing paragraph (c)(2)(iv);
■ f. Redesignating paragraphs (c)(2)(v)
and (vi) as paragraphs (c)(2)(iv) and (v),
respectively.
■ g. In paragraph (c)(4)(iii)(B), removing
the words ‘‘paragraphs (c)(2)(iv) and’’,
and adding in their place ‘‘paragraph’’.
*
*
*
*
*
■ 30. Section 685.212 is amended by
adding paragraph (k)(4) to read as
follows:
§ 685.212

Discharge of a loan obligation.

*

*
*
*
*
(k) * * *
(4) If a borrower’s application for a
discharge of a loan based on a borrower
defense is approved under 34 CFR part
685, subpart D, the Secretary discharges
the obligation of the borrower, in
accordance with the procedures
described in subpart D of this part.
■ 31. Section 685.213 is amended by:
■ a. Revising paragraphs (b)(2) through
(7);
■ b. Removing paragraph (b)(8); and
■ c. Revising paragraphs (d) and (e).
The revisions read as follows:

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§ 685.213 Total and permanent disability
discharge.

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*

*
*
*
*
(b) * * *
(2) Disability certification or Social
Security Administration (SSA) disability
determination. The application must
contain—
(i) A certification by a physician, who
is a doctor of medicine or osteopathy
legally authorized to practice in a State,
that the borrower is totally and
permanently disabled as described in
paragraph (1) of the definition of that
term in § 685.102(b);
(ii) A certification by a nurse
practitioner or physician 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 § 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

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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 § 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
§ 685.102(b), the Secretary may require
the borrower to submit additional
medical evidence. As part of the
Secretary’s review of the borrower’s
discharge application, the Secretary may
require and arrange for an additional
review of the borrower’s condition by an
independent physician or other medical
professional identified by the Secretary
at no expense to the borrower.
(iii) After determining that the
borrower is totally and permanently
disabled, as described in paragraph (1)
of the definition of that term in
§ 685.102(b), the Secretary discharges
the borrower’s obligation to make any
further payments on the loan, notifies
the borrower that the loan has been
discharged, and returns to the person

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66059

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
§ 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 reevaluation in accordance with
paragraph (b)(4)(iv)(D) of this section or
submits a new total and permanent
disability discharge application in
accordance with paragraph (b)(4)(iv)(E)
of this section, the request must include
new information regarding the
borrower’s disabling condition that was

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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;

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(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

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remain responsible for repayment of the
borrower’s loans in accordance with the
terms and conditions of the promissory
notes that the borrower signed.
■ 32. Section 685.214 is amended by:
■ a. In paragraph (a)(1), removing the
citation ‘‘paragraph (c)’’ and adding, in
its place, the citation ‘‘paragraph (d)’’.
■ b. Revising paragraph (a)(2);
■ c. Removing paragraph (g);
■ d. Redesignating paragraphs (c)
through (f) as paragraphs (d) through (g),
respectively;
■ e. Adding a new paragraph (c);
■ f. Revising redesignated paragraphs
(d) through (g); and
■ f. Adding a new paragraph (h).
The revisions and additions read as
follows:
§ 685.214

Closed school discharge.

(a) * * *
(2) For purposes of this section—
(i) 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

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

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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

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66061

(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

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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 180day look-back period for a closed school
discharge;
(8) The school responsible for the
teach-out of the student’s educational
program fails to perform the material
terms of the teach-out plan or
agreement, such that the student does
not have a reasonable opportunity to
complete his or her program of study;
(9) The school discontinued a
significant share of its academic
programs;
(10) The school permanently closed
all or most of its in-person locations
while maintaining online programs; and
(11) The school was placed on the
heightened cash monitoring payment
method as defined in § 668.162(d)(2) of
this chapter.
■ 33. Section 685.215 is amended by:
■ a. Revising paragraph (a)(1);
■ b. Adding paragraph (a)(3);
■ c. Revising paragraphs (c)
introductory text and (c)(1) through (5);
■ d. Redesignating paragraphs (c)(6)
through (8) as paragraphs (c)(7) through
(9), respectively;
■ e. Adding a new paragraph (c)(6);
■ f. Adding paragraph (c)(10);
■ g. Revising paragraph (d); and
■ h. Removing paragraphs (e) and (f).
The revisions and additions read as
follows:

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§ 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

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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.

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(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;

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(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

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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.
■ 34. Section 685.219 is revised to read
as follows:
§ 685.219 Public Service Loan Forgiveness
Program (PSLF).

(a) Purpose. The Public Service Loan
Forgiveness Program is intended to
encourage individuals to enter and
continue in full-time public service
employment by forgiving the remaining
balance of their Direct loans after they
satisfy the public service and loan
payment requirements of this section.
(b) Definitions. The following
definitions apply to this section:
AmeriCorps service means service in
a position approved by the Corporation
for National and Community Service
under section 123 of the National and
Community Service Act of 1990 (42
U.S.C. 12573).
Civilian service to the military means
providing services to or on behalf of
members, veterans, or the families or
survivors of deceased members of the
U.S. Armed Forces or the National
Guard that is provided to a person
because of the person’s status in one of
those groups.
Early childhood education program
means an early childhood education
program as defined in section 103(8) of
the Act (20 U.S.C. 1003).
Eligible Direct Loan means a Direct
Subsidized Loan, a Direct Unsubsidized
Loan, a Direct PLUS Loan, or a Direct
Consolidation Loan.

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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 12month 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

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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 schoolbased services. Service as a member of
the U.S. Congress is not qualifying
public service employment for purposes
of this section.
Non-tenure track employment means
work performed by adjunct, contingent
or part time faculty, teachers, or
lecturers who are paid 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 fulltime assignment under the Peace Corps
Act as provided for under 22 U.S.C.
2504.
Public education service means the
provision of educational enrichment 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.

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Qualifying employer means:
(i) A United States-based Federal,
State, local, or Tribal government
organization, agency, or entity,
including the U.S. Armed Forces or the
National Guard;
(ii) A public child or family service
agency;
(iii) An organization under section
501(c)(3) of the Internal Revenue Code
of 1986 that is exempt from taxation
under section 501(a) of the Internal
Revenue Code;
(iv) A Tribal college or university; or
(v) A nonprofit organization that—
(A) Provides a non-governmental
public service as defined in this section,
attested to by the employer on a form
approved by the Secretary; and
(B) Is not a business organized for
profit, a labor union, or a partisan
political organization.
Qualifying repayment plan means:
(i) An income-contingent repayment
plan under § 685.209 or an incomebased repayment plan under § 685.221;
(ii) The 10-year standard repayment
plan under § 685.208(b) or the
consolidation loan standard repayment
plan with a 10-year repayment term
under § 685.208(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 § 685.208(b).
School library services means the
operations of school libraries or services
that support their operation.
(c) Borrower eligibility. (1) A borrower
may obtain loan forgiveness under this
program if the borrower—
(i) Is not in default on the loan at the
time forgiveness is requested;
(ii) Is employed full-time by a
qualifying employer or serving in a fulltime AmeriCorps or Peace Corps
position—
(A) When the borrower satisfied the
120 monthly payments described under
paragraph (c)(1)(iii) of this section; and
(B) At the time the borrower applies
for forgiveness under paragraph (e) of
this section; and
(iii) Satisfies the equivalent of 120
monthly payments after October 1,
2007, as described in paragraph (c)(2) of
this section, on eligible Direct loans.
(2) A borrower will be considered to
have made monthly payments under
paragraph (c)(1)(iii) of this section by—
(i) Paying at least the full scheduled
amount due for a monthly payment
under the qualifying repayment plan;
(ii) Paying in multiple installments
that equal the full scheduled amount
due for a monthly payment under the
qualifying repayment plan;

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(iii) For a borrower on an incomecontingent repayment plan under
§ 685.209 or an income-based
repayment plan under § 685.221, paying
a lump sum or monthly payment
amount that is equal to or greater than
the full scheduled amount in advance of
the borrower’s scheduled payment due
date for a period of months not to
exceed the period from the Secretary’s
receipt of the payment until the
borrower’s next annual repayment plan
recertification date under the qualifying
repayment plan in which the borrower
is enrolled;
(iv) For a borrower on the 10-year
standard repayment plan under
§ 685.208(b) or the consolidation loan
standard repayment plan with a 10-year
repayment term under § 685.208(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 § 685.204(g);
(C) Military service deferment under
§ 685.204(h);
(D) Post-active-duty student
deferment under § 685.204(i);
(E) AmeriCorps forbearance under
§ 685.205(a)(4);
(F) National Guard Duty forbearance
under § 685.205(a)(7);
(G) U.S. Department of Defense
Student Loan Repayment Program
forbearance under § 685.205(a)(9);
(H) Administrative forbearance or
mandatory administrative forbearance
under § 685.205(b)(8) or (9); and
(vi) Being employed full-time with a
qualifying employer, as defined in this
section, at any point during the month
for which the payment is credited.
(3) If a borrower consolidates one or
more Direct Loans into a Direct
Consolidation Loan, including a Direct
PLUS Loan made to a parent borrower,
the 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

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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.

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(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 § 685.209 and
income-based repayment plan under
§ 685.221.

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

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

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*

*
*
*
*
(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 §§ 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.

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(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

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school must either ensure the agreement
is amended to contain that provision or
provide the student to whom the
agreement applies with written notice of
that provision.
(iii) The school must ensure the
agreement described in paragraph
(e)(3)(ii) of this section is amended to
contain the provision set forth in
paragraph (e)(3)(i) or must provide the
notice to students specified in that
paragraph no later than the exit
counseling required under § 685.304(b),
or the date on which the school files its
initial response to a demand for
arbitration or service of a complaint
from a student who has not already been
sent a notice or amendment, whichever
is earlier.
(A) Agreement provision. ‘‘We agree
that neither we, nor anyone else who
later becomes a party to this agreement,
will use it to stop you from being part
of a class action lawsuit in court. You
may file a class action lawsuit in court,
or you may be a member of a class
action lawsuit in court even if you do
not file it. This provision applies only
to class action claims concerning our
acts or omissions regarding the making
of the Federal Direct Loan or the
provision by us of educational services
for which the Federal Direct Loan was
obtained. We agree that the court has
exclusive jurisdiction to decide whether
a claim asserted in the lawsuit is a claim
regarding the making of the Federal
Direct Loan or the provision of
educational services for which the loan
was obtained.’’
(B) Notice provision. ‘‘We agree not to
use any pre-dispute agreement to stop
you from being part of a class action
lawsuit in court. You may file a class
action lawsuit in court, or you may be
a member of a class action lawsuit even
if you do not file it. This provision
applies only to class action claims
concerning our acts or omissions
regarding the making of the Federal
Direct Loan or the provision by us of
educational services for which the
Federal Direct Loan was obtained. We
agree that the court has exclusive
jurisdiction to decide whether a claim
asserted in the lawsuit is a claim
regarding the making of the Federal
Direct Loan or the provision of
educational services for which the loan
was obtained.’’
(f) Pre-dispute arbitration agreements.
(1)(i) The school will not enter into a
pre-dispute agreement to arbitrate a
borrower defense claim or rely in any
way on a pre-dispute arbitration
agreement with respect to any aspect of
a borrower defense claim.
(ii) A student may enter into a
voluntary post-dispute arbitration

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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 § 685.304(b),

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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

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(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) § 685.206(c)(1);
(ii) § 685.222(a)(5);
(iii) § 685.206(e)(1)(iii); or
(iv) § 685.401(a);
(2) Class action means a lawsuit in
which one or more parties seek class
treatment pursuant to Federal Rule of
Civil Procedure 23 or any State process

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analogous to Federal Rule of Civil
Procedure 23;
(3) Dispositive motion means a motion
asking for a court order that entirely
disposes of one or more claims in favor
of the party who files the motion
without need for further court
proceedings;
(4) Pre-dispute arbitration agreement
means any agreement, regardless of its
form or structure, between a school or
a party acting on behalf of a school and
a student that provides for arbitration of
any future dispute between the parties.
§ 685.304

[Amended]

35. Section 685.304 is amended:
a. In paragraph (a)(6)(xi), by adding
‘‘and’’ after ‘‘records;’’;
■ b. In paragraph (a)(6)(xii), by
removing the semicolon after ‘‘loan’’
and adding a period in its place; and
■ c. Removing paragraphs (a)(6)(xiii)
through (xv).
■ 36. Section 685.308 is amended by
revising paragraph (a)(3) to read as
follows:
■
■

§ 685.308

Remedial actions.

(a) * * *
(3) The school’s actions that gave rise
to a successful claim for which the
Secretary discharged a loan, in whole or
in part, pursuant to §§ 685.206, 685.214,
685.216, 685.222, or subpart D of this
part.
*
*
*
*
*
■ 37. Subpart D is added to read as
follows:

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Subpart D—Borrower Defense to
Repayment
Sec.
685.400 Scope and purpose.
685.401 Borrower defense-general.
685.402 Group process for borrower
defense.
685.403 Individual process for borrower
defense.
685.404 Group process based on prior
Secretarial final actions.
685.405 Institutional response.
685.406 Adjudication of borrower defense
applications.
685.407 Reconsideration.
685.408 Discharge.
685.409 Recovery from institutions.
685.410 Cooperation by the borrower.
685.411 Transfer to the Secretary of the
borrower’s right of recovery against third
parties.
685.499 Severability.

Subpart D—Borrower Defense to
Repayment
§ 685.400

Scope and purpose.

This subpart sets forth the provisions
under which a borrower defense to
repayment may be asserted and applies
to borrower defense applications

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pending with the Secretary on July 1,
2023, or received by the Secretary on or
after July 1, 2023.
§ 685.401

Borrower defense-general.

(a) Definitions. For the purposes of
this subpart, the following definitions
apply:
Borrower means
(i) The borrower; and
(ii) In the case of a Direct PLUS Loan,
any endorsers, and for a Direct PLUS
Loan made to a parent, the student on
whose behalf the parent borrowed.
Borrower defense to repayment means
an act or omission of the school
attended by the student that relates to
the making of a Direct Loan for
enrollment at the school or the
provision of educational services for
which the loan was provided and 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 § 685.402, the individual process as
described in § 685.403, and the
institutional response process in
§ 685.405.
Direct Loan means a Direct
Subsidized Loan, a Direct Unsubsidized
Loan, a Direct PLUS Loan, or a Direct
Consolidation Loan.
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

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(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 § 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

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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
§ 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

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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.
§ 685.402
defense.

Group process for borrower

(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 § 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 thirdparty 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;

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(C) A description of the conduct that
forms the basis for the group borrower
defense claim under the Federal
standard in § 685.401(b);
(D) An analysis of why the conduct
should result in an approved group
borrower defense claim under the
Federal standard in § 685.401(b); and,
(E) The period during which the
activity in (c)(1)(i)(C) of this section
occurred;
(ii) Provides evidence beyond sworn
borrower statements that supports each
element of the claim made in this
paragraph (c)(1), 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 thirdparty 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

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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 § 685.405;
(2) For borrowers who have an
application pending with the Secretary
prior to the formation of the group,
notifies those borrowers that they are an
identified member of the group formed
under this section and follows
§ 685.403(d) or (e) as appropriate;
(3) For borrowers whose names were
submitted by the 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 § 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
§ 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

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approval of a group borrower defense,
retrospectively applies the benefits
available to the borrower under those
subparagraphs and no other
consequences will apply.
§ 685.403
defense.

Individual process for borrower

(a) Individual process, generally. (1) If
§ 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 § 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
§ 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 § 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 § 685.405;

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(2) Notifies the borrower that the
Department will adjudicate the claim
under § 685.406(c); and
(3) Places all the borrower’s loans in
forbearance in accordance with
paragraph (d) of this section or stopped
enforcement collections in accordance
with paragraph (e) of this section, as
applicable.
(d) Forbearance. The Secretary grants
forbearance on all of the borrower’s title
IV loans that are not in default in
accordance with § 685.205 and—
(1) Notifies the borrower of the option
to decline forbearance and to continue
making payments on the borrower’s
loans, and the availability of incomecontingent repayment plans under
§ 685.209 and the income-based
repayment plan under § 685.221; and,
(2) Does not charge interest on the
borrower’s loans beginning 180 days
from the date the borrower was initially
granted forbearance under this
paragraph (d) if the 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.
§ 685.404 Group process based on prior
Secretarial final actions.

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

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with this section, § 685.405 will not
apply to the affected institutions.
§ 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 § 685.404, the
Department official notifies the
institution of the group claim under
§ 685.402 or individual claim under
§ 685.403 and requests a response from
the school. Such notification also may
include, but is not limited to, requests
for documentation to substantiate the
school’s response.
(b)(1) The notification in paragraph (a)
of this section tolls any limitation
period by which the Secretary may
recover from the institution under
§ 685.409.
(2) The Department official requests a
response from the institution, 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.

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§ 685.406 Adjudication of borrower
defense applications.

(a) Adjudication. The Department
official adjudicates a borrower defense
claim in accordance with this section.
(b) Group process, adjudication. (1)
For a group formed under § 685.402, the
Department official 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 § 685.405, and any other relevant
information.
(2) For a group of borrowers under
§ 685.402 for which the Department
official determines that there may be a
borrower defense under § 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

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§ 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 § 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 §§ 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 § 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 § 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

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66071

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
§ 685.406(b)(1) of their option to file a
new borrower defense application under
an individual process in accordance
with § 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 §§ 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 § 685.407.
(3) Copies of written decisions. The
Secretary provides copies of the written
decision in this subsection to:
(i) An individual whose claim was
adjudicated under § 685.406(c), as
applicable;
(ii) The members of the group whose
claims were adjudicated under
§ 685.406(b)(1), as applicable;
(iii) The school; 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
§ 685.402(c), within 1 year of the date
the Department official notified the
third-party requestor under
§ 685.402(c)(5).
(ii) For an individual claim under
§ 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
§ 685.407.
(3) An individual claim under
§ 685.403 that is included in a group
claim under § 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

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individual adjudication in paragraph
(g)(1)(ii) of this section will be tolled
until the Secretary renders a decision on
the claim under § 685.402.
(4) The Department official will
provide an interim update to the
individual borrower submitting a claim
under § 685.403, the third-party
requestor requesting a group process
under § 685.402, and the institution
contacted for the institutional response
under § 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.

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§ 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
§ 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
§ 685.406(b)(1), any of the third-party
requestors that requested to form a
group under § 685.402(c) may request
that the Secretary reconsider the
borrower defense for the reasons
provided under (a)(1)(i) through (iii) of
this section. A 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

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(D) Why the applicable State law
standard would lead to a borrower
defense.
(ii) An individual borrower from a
group claim initially adjudicated under
§ 685.406(b)(1) may not file a
reconsideration request under this
section.
(3) The borrower or third-party
requestor that requested to form a group
under § 685.402(c) must request
reconsideration under this section no
later than 90 days from the date of the
Department official’s written decision,
for any decisions issued on or after the
effective date of these regulations.
(4)(i) The Secretary 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 § 685.405 to
notify the institution of the claim and
the basis for the group’s borrower
defense under § 685.402 or individual’s
borrower defense under § 685.403 for
purposes of adjudicating
reconsideration of the borrower defense
claim and to request a response from the
school to the reconsideration request.
(d) If accepted for reconsideration by
the Secretary, the Secretary follows the
procedures in § 685.403(d) for granting
forbearance and § 685.403(e) for
defaulted loans, as applicable.
(e) The Department official
adjudicates the borrower’s
reconsideration request under § 685.406,
makes a recommendation to the
Secretary, and the Secretary provides
notice of the final decision upon
reconsideration in accordance with
§ 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 § 685.403(d) for granting

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forbearance and for § 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 § 685.406,
makes a recommendation to the
Secretary, and the Secretary provides
notice of the final decision on the
reopened case in accordance with
§ 685.406(f).
§ 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 § 685.406(f)(1) may request to opt
out of the discharge for the group.
§ 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 § 668.174(b)
of this chapter, any liability to the
Secretary for any amounts discharged or
reimbursed to borrowers for claims
approved under § 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
§ 668.174(b) of this chapter, any liability
to the Secretary for any amounts
discharged or reimbursed to borrowers
under the discharge process described
in § 685.408, under 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 § 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
§ 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 §§ 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 § 685.206(e)(2).
(c)(1) The Secretary will initiate a
proceeding to collect from the school

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the amount of discharge or
reimbursement for the borrower
resulting from a borrower defense under
§ 685.408 no later than 6 years after the
borrower’s last date of attendance at the
institution;
(2) The limitations period described
in paragraph (c)(1) of this section 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 § 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
§ 685.401(b)(5), the Secretary may

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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 § 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.
§ 685.410

Cooperation by the borrower.

To obtain a discharge under this
subpart, a borrower must reasonably
cooperate with the Secretary in any
proceeding under this subpart.
§ 685.411 Transfer to the Secretary of the
borrower’s right of recovery against third
parties.

(a) Upon the granting of any discharge
under this subpart, the borrower is
deemed to have assigned to, and
relinquished in favor of, the Secretary
any right to a loan refund (up to the
amount discharged) that the borrower
may have by contract or applicable law
with respect to the loan or the contract
for educational services for which the
loan was received, against the school, its

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66073

principals, its affiliates, and their
successors, its sureties, and any private
fund.
(b) The provisions of this section
apply notwithstanding any provision of
State law that would otherwise restrict
transfer of those rights by the borrower,
limit or prevent a transferee from
exercising those rights, or establish
procedures or a scheme of distribution
that would prejudice the Secretary’s
ability to recover on those rights.
(c) Nothing in this section limits or
forecloses the borrower’s right to pursue
legal and equitable relief against a party
described in this section for recovery of
any portion of a claim exceeding that
assigned to the Secretary or any other
claims arising from matters unrelated to
the claim on which the loan is
discharged.
§ 685.499

Severability.

If any provision of this subpart or its
application to any person, act, or
practice is held invalid, the remainder
of the subpart or the application of its
provisions to any person, act, or practice
will not be affected thereby.
[FR Doc. 2022–23447 Filed 10–31–22; 8:45 am]
BILLING CODE 4000–01–P

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