Summary: This letter is to inform you of a recent court decision and resulting Department policy change that affects the Department's implementation of the "employment attempt" provisions in the Federal Family Education Loan (FFEL) Program false certification - ability-to-benefit discharge (false certification discharge) regulations.
Dear Guaranty Agency Partner:
This letter is to inform you of a recent court decision and resulting Department policy change that affects the Department's implementation of the employment attempt provisions in the Federal Family Education Loan (FFEL) Program false certification ability-to-benefit discharge (false certification discharge) regulations. 34CFR 682.402(e)(3)(ii)(C).
On November 16, 1999, the U.S. Court of Appeals for the District of Columbia (Court of Appeals), in Jordan v. Riley, ruled invalid the employment attempt provisions in the false certification discharge regulations, finding that the relevant statute did not authorize such provisions. As explained more fully below, the Department has decided to extend the Court's ruling to all borrowers and no longer consider the borrower's employment attempts in resolving false certification discharge claims.
Currently, the false certification discharge regulations requires a borrower first to demonstrate that the school for which the loan was intended certified his or her eligibility to borrow based on his or her ability-to-benefit from the program offered but did not comply with the Higher Education Act requirements in making that determination. If that requirement is met and the borrower did not complete the program, the borrower must show that he or she did not find employment in his or her field of study. A borrower who did complete the program must show that he or she made a reasonable attempt to obtain employment in his or her field of study but was unable to obtain such employment or obtained employment only after receiving additional training from another school. 34 CFR 682.402(e)(3)(ii)(B) & (C).
In Jordan v. Riley, a FFEL borrower who claimed that her ability-to-benefit was falsely certified by the school was denied a false certification discharge because she completed the school's program but failed to make a reasonable attempt to obtain employment. The borrower sued the Department, challenging the employment attempt requirements in the regulations that were the basis for her denial. The U.S. District Court for the District of Columbia upheld the Department's regulations; the borrower appealed to the Court of Appeals.
II. Court of Appeals Decision
The Court of Appeals found that section 437(c) of the Higher Education Act of 1965, as amended, 20 USC 1087(c), does not authorize the Secretary to include criteria in the
regulations that attempt to measure whether, despite any deficient certification by the school, the student nevertheless had the ability-to-benefit from the program. The court believed that a student's post-training employment experience is irrelevant to the truth or falsity of the certification. Rather, the court ruled that the statute only authorizes the Secretary to determine whether the student met the objective criteria for certification before being admitted (e.g., the school properly tested the student and the student passed the test).
III. Department's Policy Change
As a legal matter, the Court of Appeals decision stands as a controlling interpretation of law only in the District of Columbia. The Department, however, has decided to extend the application of the decision and treat all borrowers who apply for a false certification discharge uniformly.
Therefore, in order to be eligible for a false certification discharge, a borrower will now only be required to demonstrate that the school admitted him or her and certified the borrower's eligibility to borrow based on his or her ability-to-benefit from the program offered at the school, but did so without complying with the statutory ability-to-benefit requirements in place at the time of the student's enrollment. 34 CFR 682.402(e)(3)(ii)(B). The borrower will no longer have to demonstrate that he or she meets the employment attempt requirements set forth in 34 CFR 682.402(e)(3)(ii)(C).
The Department is in the process of discussing necessary regulatory changes to reflect this change of policy. Effective as of the date of this letter, guaranty agencies should issue decisions on false certification applications consistent with the policy guidance set forth in this letter.
If you have any questions regarding this matter, feel free to contact Daniel Madzelan at 202-502-7816 or Pamela Moran or George Harris at 202-708-8242.
A. Lee Fritschler