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(General) Subject: Final Regulations for Borrower Defense

Posted Date:November 1, 2016

Author: Lynn Mahaffie, Deputy Assistant Secretary for Policy, Planning, and Innovation Delegated the Duties of Assistant Secretary for Postsecondary Education

Subject: Final Regulations for Borrower Defense

Today, November 1, 2016, the Department published in the Federal Register final regulations (PDF copy attached) to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. These final regulations further cement the Obama Administration's strong record and steadfast commitment to protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars, and holding institutions accountable for their actions. These final regulations will become effective July 1, 2017.

The final regulations strengthen several provisions in response to public comment on the proposed regulations, including:

  • Early Implementation of Automatic Closed School Discharge: The final regulations provide for the automatic discharge of the loans of borrowers whose school closed on or after Nov. 1, 2013 and the borrower has not re-enrolled in another Title IV participating institution within three years of the date the school closed. The Department intends to designate this provision for early implementation as soon as operationally possible before July 1, 2017, which will allow many eligible borrowers to benefit from this streamlined process sooner.

  • Banning All Pre-dispute Arbitration Agreements: The final regulations strengthen the limitations on pre-dispute arbitration agreements. The regulations permanently ban any pre-dispute arbitration agreements for all Direct Loan borrowers for disputes related to the educational services provided or the making of Direct Loans, regardless of whether such clauses are a condition of enrollment. These provisions not only allow students to choose where to pursue claims against an institution after claims arise, but also prohibit institutions from banning class action lawsuits by students.

  • Determining Borrower Defense Loan Relief: The final regulations make clear that the Department will determine in a reasonable and practicable way the appropriate relief for a borrower defense claim, taking into account any educational benefit received.

Last Modified: 10/31/2016