February 11, 2020

H.J.Res.76 – Disapproval of Borrower Defense Rule

NOTEWORTHY

Background: A process known as “borrower defense to repayment” lets students who have been defrauded by their college or university apply to the Department of Education for relief from their student loans. In September 2019, the department finalized a new rule for this process. It will apply to borrowers filing claims for loans taken out on or after July 1, 2020. On January 16, the House passed H.J.Res.76, a joint resolution under the Congressional Review Act that disapproves of the Trump administration’s rule. Its co-sponsors are all Democrats. The vote was 231-180. In September 2019, Senator Durbin introduced a companion resolution, also only with Democratic co-sponsors.

Floor Situation: The Senate may consider H.J.Res.76 as soon as this week. The vote on a motion to proceed to the resolution has a simple majority threshold.

Executive Summary: H.J.Res.76 disapproves of the Trump administration’s 2019 rule governing the borrower defense to repayment process. The rule outlines a process for defrauded student loan borrowers to file claims and seek debt relief. It sets a new, federal standard for the actions by a school that a student could assert in a claim. The rule’s purpose is to protect students and taxpayers and to establish a fair process for all parties involved. It also adds safeguards for students when their schools close, and it updates the regulations for assessing institutions’ financial conditions and detecting at-risk schools. If enacted, H.J.Res.76 would cancel the Trump administration’s rule, and the Obama administration’s 2016 version of the rule would continue to apply in borrower defense cases regarding loans taken out after July 1, 2020. 

OVERVIEW OF THE ISSUE

“Borrower defense to repayment” regulations give students a way to seek loan forgiveness if they have been defrauded by their college or university. For example, a school might misrepresent its employment rates, or it might mislead students on whether the school is certified. The Department of Education first regulated borrower defense in 1995 but did not outline a claims process. Few claims were submitted over the next two decades. In 2015, Corinthian Colleges closed, and the department began receiving thousands of applications from students asserting their schools defrauded them.

In November 2016, the Obama administration issued a borrower defense rule that said a school’s “substantial misrepresentation” could be grounds for a student’s successful claim for loan forgiveness. The rule vaguely defined a misrepresentation by a school to include an action or omission having “a likelihood or tendency to mislead under the circumstances.” Some observers warned the broad definition meant even honest advertisements and mistakes could be the basis of claims for loan forgiveness. Republican leaders on the House Committee on Education and the Workforce said the rule was “extreme” and “a missed opportunity to serve the best interests of institutions, students, and taxpayers.”

The Trump administration’s 2019 rule aims to fix problems in the Obama administration’s rule, help defrauded students, and protect taxpayers. It sets a clearer federal standard for claims for loan relief: the school had to misrepresent a material fact that the borrower relied on when taking out a federal loan and enrolling, and the borrower had to suffer financial harm as a result. The rule also outlines how the department will ensure due process for students and schools. The department estimates the rule will save taxpayers $11.1 billion over 10 years. It will apply to loans issued on or after July 1, 2020.

H.J.Res.76, introduced under the Congressional Review Act, would overturn the Trump administration’s rule. Under the CRA, a motion to proceed to the disapproval resolution is non-debatable and requires a simple majority vote for passage. There may be up to 10 hours of debate on the resolution. Passing the resolution also requires a simple majority vote.

CONSIDERATIONS ON THE RESOLUTION

There is bipartisan agreement that the department should assist defrauded student loan borrowers. Education Secretary Betsy DeVos said when the regulation was finalized: “There is no place for fraud in higher education, and it will not be tolerated by this administration.”

Supporters of H.J.Res.76 say the 2019 rule imposes burdens on students by requiring them to submit evidence to support their claim. The Education Department says that its 2019 rule will require the same preponderance-of-the-evidence standard as in the 2016 Obama rule. It does not require students to prove the school intentionally misled them. It does require evidence of financial harm, such as if the school stops offering a required course, preventing the student from finishing a program.

The resolution of disapproval’s supporters also criticize the Trump rule for requiring borrowers to file claims individually, rather than permitting group loan cancellations as the Obama administration’s rule did. That rule let the department open claims and forgive debt for groups of borrowers with “common facts and claims,” even for borrowers who had not filed claims. Further, the Obama rule prohibited schools from using class-action waivers or pre-dispute arbitration agreements. The Trump administration takes the view that the department should weigh the facts in each borrower’s claim and process them individually. The secretary can look at other evidence the department already has, as long as the school and borrower get to respond to that evidence. Additionally, the rule will tailor loan forgiveness for borrowers based on the amount of financial harm they suffered.

Opponents of H.J.Res.76 say the 2019 rule sets up a transparent process for resolving claims – one that is fair to students, schools, and taxpayers. It gives both the student and school the chance to respond to the evidence the other submits as part of a claim, with the student getting the final opportunity to respond. This process ensures the department has a thorough record as it considers claims.

Opponents of the resolution also note the rule gives more help to students when their school closes. Currently, students whose school closes while they are enrolled, or within 120 days after they withdraw, may be eligible for loan cancellation. The 2019 rule extends this lookback period to 180 days, giving students more time to qualify if they withdrew because their school’s decline was evident. It also discourages schools from closing abruptly and instead encourages them to follow orderly “teach-out” plans, which could be offered through a partner institution. This gives students the chance to finish their programs. Under the Trump administration’s rule, students can choose between the teach-out option and applying for a closed school loan discharge with the department. 

ADMINISTRATION POSITION

The Trump administration issued a statement of administration policy opposing H.J.Res.76.

COST

As of publication, the Congressional Budget Office has not issued a cost estimate of H.J.Res.76.

AMENDMENTS

In the Senate, amendments to CRA joint resolutions of disapproval are not in order.