Ministry of Education launches drafting of negotiated rules | Hogan Lovells

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On October 4, 2021, the US Department of Education (ED) began the first of five negotiated rule-making sessions. The five sessions focus on federal student financial aid programs authorized under Title IV of the Higher Education Act 1965, as amended (HEA), such as Pell Grants and Direct Loans.

ED has established an ambitious fall program with plans to address several topics relevant to higher education institutions. Below we summarize the subjects of the Negotiated Regulatory Agenda, categorized in terms of subjects with direct implications for institutions and those primarily relevant to student borrowers and recipients of Pell Scholarships. Of note, in particular, ED is proposing to consider borrower defense changes to the repayment regulations, which were first enacted under the Obama administration and then changed under the Trump administration.

Based on the HEA Master Calendar, ED must promulgate a final rule by November 1 of any year for the rule to take effect on July 1 of the following year. Therefore, July 1, 2023 is the earliest possible effective date for any regulations developed on the basis of the negotiated rulemaking process.

Topics with direct implications for institutions

  • Closed school discharge (which applies to entire school closures as well as site closures)

    • ED notes that several aspects of the current closed school release process limit the ability of borrowers to receive closed school releases. Consequently, ED proposes the following changes: (1) Reinstate automatic holidays for closed schools; (2) Establish a consistent window of eligibility for students who withdrew from a school prior to its closure; (3) Definition of “comparable program” for the purposes of a closed school trip; and (4) Expand the list of examples of exceptional circumstances. This element deserves special attention as institutions are held financially responsible for loan amounts paid in accordance with the closed schools cancellation process.

  • Defending the borrower against repayment – adjudication process

  • Defending the borrower against repayment – after arbitration

    • ED proposes to address the post-arbitration treatment of the defense of borrowers vis-à-vis repayment requests. ED specifically seeks to address situations where approved claims provide insufficient relief and the absence of a reconsideration process.

    • ED proposes to adopt a presumption of full relief for defense claims approved by borrowers. This presumption could be rebutted by evidence showing that the harm caused to the borrower is less than what he would receive from a full discharge. ED also proposes to establish reconsideration procedures that borrowers can pursue if their borrower defense claim is denied or only granted partial relief.

  • Defense of the borrower on repayment – recovery from institutions

    • ED seeks to clarify the process it uses to recover loan amounts released from institutions and to implement a clearer statute of limitations. ED proposes to implement a six-year limitation period during which the clock would stop when the institution is notified of complaints during the institutional response process.

  • Pre-litigation arbitration

Topics primarily related to recipients of Pell grants and federal loans

  • Exit from total and permanent disability (TPD)

  • Create a new Income Based Repayment Plan (IDR)

    • To improve the IDR program, ED is seeking feedback on several topics, such as lowering the discretionary income repayment rate on undergraduate loans to 5%, exempting income up to 150% of the poverty line federal based on family size, creating greater clarity between different IDR Plans and improving the IDR program to reduce delinquency and default.

  • Fake certificate discharge

  • Eligibility for Pell scholarships for education in prison

    • In December 2020, Congress codified much of the Obama administration’s Second Chance Pell Experiment, which allows inmates to access federal Pell Grant funds for eligible prison education programs. . To implement this law, ED is seeking feedback on several topics, such as the eligibility of students, institutions, and programs, as well as how to structure the annual reporting requirement.

  • Eliminate interest capitalization for non-statutory capitalization events

    • ED has identified several issues with the current interest capitalization process that result in inefficiencies for borrowers. ED notes that capitalizing interest can dramatically increase a borrower’s debt and extend loan repayment terms. ED proposes to remove capitalization events not authorized by law.

  • Improve the Public Service Loan Remission Application (PSLF) process

    • Although ED must write off the outstanding balances of borrowers employed in the public service after 120 qualifying payments have been made, ED has expressed concern that very few borrowers who apply for the PSLF receive a rebate. Accordingly, ED is proposing the following revisions to the application process to improve the PSLF program: (1) Remove application requirements when ED determines borrowers do not need them; (2) Simplify regulations to ensure that an amount paid by the borrower equal to the full expected payment due counts for remission; (3) Allow certain postponements and abstentions to count as payments; (4) Stop restarting the clock during consolidation; (5) Provide notifications to FFEL lenders to borrowers regarding PSLF eligibility; and (6) Establish a PSLF review process allowing for denial of eligibility appeals.

  • Employer eligibility for the PSLF and full-time employment

    • ED highlighted several issues with the current eligibility guidelines, such as the difficulty in determining eligibility when an organization does not have 501 (c) (3) status but is still serving the public. ED proposes the following solutions to improve eligibility issues: (1) Define the main services of a private organization to allow non-501 (c) (3) organizations that serve the public a greater participation in the PSLF; and (2) Clarify the definition of full-time employment.

Committee meetings are public and virtually accessible. ED will post committee tapes and meeting transcripts on its website. Parties interested in registering for future committee meetings can register for sessions on the ED website and access relevant resources and documents here. The remaining two sessions are scheduled for November 1-5, 2021 and December 6-10, 2021.

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