In this Federal Register notice, the Department amends regulations on a range of student loan relief programs authorized by the Higher Education Act (HEA).
Borrower Defense to Repayment: These regulations establish a framework for borrowers to raise a defense to repayment. This includes the ability to decide claims individually or as a group. Claims may be based on one of five categories of actionable circumstances: substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, or judgments or final secretarial actions. It will apply to all claims pending on or received on or after July 1, 2023. The rule also lays out a clear process for the Department to pursue institutions for the cost of approved claims.
Pre-dispute Arbitration: The final rule prohibits institutions that participate in the Direct Loan Program from requiring borrowers to agree to mandatory pre-dispute arbitration agreements and/or requiring them to waive the ability to participate in a class-action lawsuit with respect to a borrower defense claim. It also requires institutions to disclose the use of arbitration and to provide the Department with certain records connected with any borrower defense claim filed against the school.
Interest Capitalization: The final rule eliminates all instances where interest capitalization is not required by statute. This means interest will no longer be added to a borrower’s principal balance the first time a borrower enters repayment, upon exiting a forbearance, and leaving any income-driven repayment plan besides Income-Based Repayment. This includes the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans.
Public Service Loan Forgiveness: The rule allows borrowers to receive credit for payments that are made late, in installments, or in a lump sum. The rule also allows certain periods in deferment or forbearance to count toward PSLF to avoid instances where a borrower may have faced confusing choices about pausing payments or getting credit toward PSLF. Borrowers will also receive a weighted average of existing qualifying payments toward PSLF when they consolidate their Direct loans.
Additionally, the rule provides a hold harmless option for borrowers to have other periods of deferment and forbearance potentially counted toward PSLF if they make payments equivalent to what they would have owed at the time. It further formalizes the reconsideration process for borrowers to have their applications reviewed again if there are errors made in review.
The rule adopts a single standard of full-time employment at 30 hours a week and requires employers, for purposes of PSLF, to give adjunct and contingent faculty credit of at least 3.35 hours of work for every credit hour taught. It further allows a qualifying employer to certify employment for a contractor if that individual is providing services that by State law cannot be filled or provided by an employee of that organization.
Total and Permanent Disability: The final rule provides additional pathways for borrowers who have a total and permanent disability to receive a discharge including additional disability review codes from the Social Security Administration (SSA) qualifying for a discharge. The rule also eliminates the three-year income monitoring requirement.
Closed School Discharge: The final rule provides an automatic discharge one year after a college’s closure date for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or a continuation of the program at another location of the school. Those who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after their last date of attendance.
False Certification: The final regulation streamlines the process for when a college falsely certifies a borrower’s eligibility for student loans when, in fact, the student was ineligible. The rule expands the types of allowable documentation and clarifies the applicable dates for a discharge and allows for group false certification claims.
The regulations are effective July 1, 2023.
To view this Federal Register publication, click here.