The Department of Education recently released the final version of what has been commonly referred to as the “Borrower Defense Rule” to the benefit of students nationwide. The rule has several features that benefit students:
- The rule strictly limits pre-dispute arbitration agreements between a school and a student. Too often, these arbitration agreements buried in the fine print of enrollment forms have stifled or outright stripped students of their right to a day in court, as well as the right to form a class action. The elimination of these arbitration clauses will increase the odds that bad actors can be held accountable to benefit of students and taxpayers.
- The rule moves to hold risky institutions accountable to students and taxpayers by creating clear pathways and triggers that enact taxpayer protections in case of institutional failure. This includes requiring letters of credit from flagging schools to ensure that should they close, students can be made whole and taxpayers are protected. While the statutory rights of defrauded students and students at closed schools are not dependent on the financial holdings of the institution they attended, the rule provides important mechanisms to hold schools accountable, limit harm, and prevent future fraudulent behavior.
- The rule also includes early warning provisions for students and provides essential information about closed school discharges, including automatic discharge for students that do not re-enroll within three years and retroactive relief. Borrower outreach and education about their options is extremely necessary, as is automatic discharge where it can be granted.
The rule also creates a standard process for borrower defense relief and enables automatic group discharge when determined by the Department of Education. While it is important this option was maintained and clarified, it is important that automatic group discharge be granted wherever possible to make defrauded students whole wherever the Department has determined evidence of fraud. This would include, but certainly not be limited to, the situation with Corinthian Colleges, where fraud was rampant and the vast majority of students have yet to receive relief.
Additionally, the Department announced that it will be restoring Pell Grant eligibility to students who attended closed schools. This is an enormous relief to an untold number of students, both past, present, and future, who will now have vital grant aid to help them continue their pursuit of higher education. This comes in the wake of the bipartisan support for Pell reinstatement in letters from Sen. Murray and Rep. Messer asking the Department to use its authority to reinstate Pell for students affected by closed schools. It is our hope that this restoration of Pell tied to closed school discharges will prompt Congress to pass legislation to both restore Pell for defrauded borrowers, as well as restore GI Bill educational benefits for student veterans who attended a closed school or were defrauded.