ED Announces Delays for Borrower Defense and Gainful Employment Rules; Will Convene NegReg on Both Issues & Guarantor Collection Activities

June 14, 2017

Prepared by:  Greg Marak (gmarak@wpllc.net)

Department of Education (ED) officials announced plans to roll back two of the Obama Administration’s rules on institutional accountability in higher education. In a Federal Register notice to be published tomorrow, ED will announce a delay for implementing the gainful employment and borrower defense to repayment rules. While gainful employment was partially in effect, the borrower defense rule was set to go into effect July 1, 2017.

Due to pending litigation challenging the DTR regulations, the Department is postponing the effective date pursuant to section 705 of the Administration Procedures Act. While negotiated rulemaking occurs, the Department will continue to process applications under the current borrower defense rules.

The negotiated rulemaking process (sometimes referred to as “NegReg”) may go on for months and requires ED to seek public comments, hold hearings, and appoint a committee of experts and stakeholders before a new rule is crafted. It will officially begin with a July 10 public hearing in Washington, DC and a July 12 public hearing in Dallas.

In addition to DTR and gainful employment, ED plans to address collection issues associated with defaulted FFEL loans at the negotiated rulemaking sessions. Specifically, the regulations will address the imposition of collection fees by guaranty agencies for borrowers in rehabilitation agreements. This issue has been in the courts for some time, and the Trump Administration rescinded Obama-era guidance indicating the fees are improper for borrowers who quickly enter into a rehabilitation agreement and begin making payments. Guarantors no longer charge the fee in these situations, but it may be permissible under current guidance with the rescission of the memos. 

DeVos said of past efforts to craft gainful employment and borrower defense to repayment rules, “The result is a muddled process that’s unfair to students and schools and puts taxpayers on the hook for significant costs…It’s time for a regulatory reset. It is the department’s aim, and this administration’s commitment, to protect students from predatory practices while also providing clear, fair and balanced rules for colleges and universities to follow.”

The move received significant criticism from Democrats and like-minded consumer groups and think tanks. In a letter to Secretary DeVos before the announcement, Sen. Elizabeth Warren (D-MA) described the decision to delay the DTR rules a “monumental dereliction of the duty you have to protect students and taxpayers.”

The rules are often considered aimed at for-profit colleges, but they are not the only ones in the higher education community concerned with these rules. UNCF and NAFEO, organizations representing 185 HBCUs wrote the Department asking DeVos to revisit the DTR rules. Gainful employment had the biggest impact on proprietary institutions, but it was also a cause for concern for many community colleges and other schools with non-degree programs.

A press release from the Department of Education is available online. A full announcement will be published in tomorrow’s Federal Register.