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How (And Whether) To Respond To Student Borrower’s Defense To Repayment Applications
Students who take out loans from the Department of Education may submit an application requesting that the Department discharge their federal loans if the educational institution committed certain misconduct. These applications are known as Borrower’s Defense to Repayment Applications. While the regulations authorizing these claims have been in place since 1994, the Department has received in influx of applications in recent years, which has prompted litigation from both educational intuitions and student borrowers. As the Department is processing these Applications, it is requesting educational institutions to respond to the student borrower’s allegations.
To establish a claim, the student must show the educational institution acted inappropriately in influencing the student’s decision to attend, continuing to attend, or the decision to take out the loan. The institution’s misconduct must relate to graduate employment outcomes, the intuition’s educational programs, or the institution’s finance charges. A student may also establish a claim if it can establish that the educational institution breached its contract with the student.
Responding to Claims
Upon receipt of a notice of application from the Department, the educational institution has 60 days to respond. The educational institution should review each borrower’s allegations individually and respond to each of the claims individually. The educational institution should review the individual borrower’s records as well as its own internal information to develop a defense.
The three most recent presidential administrations – Obama Administration (2016), Trump Administration (2019), and Biden Administration (2022) have each amended the Borrower’s Defense to Repayment rule. The different versions of the rule require the Department to place a different inference on the educational institution’s non-response. Under the initial versions, the Department would not draw an adverse inference against an educational institution that does not respond. The 2022 Rule is applicable to all applications pending or filed as of July 1, 2023 and explicitly states that the educational institution’s failure to respond means the educational institution does not contest the borrower’s claim. However, the United State Court of Appeals Fifth Circuit granted a preliminary injunction on the 2022 rule which currently prevents the Department from enforcing that rule. Under the prior versions of the Borrower’s Defense to Repayment rule, which the Department is currently enforcing, the Department will not draw an adverse inference against an educational institution that does not respond. If the Court lifts the injunction, the Department will be able to enforce the 2022 rule against any pending claims, meaning that if an educational institution did not respond to a claim that is still pending at that time, the Department may draw an adverse inference against an educational institution that did not respond. Thus, it is important for the educational institution to respond because depending on when the Department originally dispersed the loan, when the borrower submitted the application, which version of the rules are applicable and when the Department actually processes the claim, the Department may, in certain instances, presume that the educational institution’s failure to respond means the educational institution does not contest the borrower’s claim.
Department’s Right to Recoup the Costs
If the Department discharges a student’s loan, the Department has a right to seek “recoupment” or reimbursement from the educational institution. The Department will determine whether to engage in a separate proceeding to recoup borrower defense costs from the educational institution. The educational institution may challenge any recoupment action. During that process, the Department will send a second notification to the educational institution with the student’s financial aid application and supporting documents, and set out the Department’s rationale for its decision to discharge the loan.
Upon receipt of notice that a student has submitted a Borrower’s Defense to Repayment Application or the Department is seeking to recoup the costs from an educational institution, the institution should consult with legal counsel to identify the issues, prepare a defense, and ensure the educational institution protects its interests.