Final Rules Released by the Department of Education

A number of final rules stemming from the past year’s two negotiated rulemaking sessions were recently released by the Department of Education and will impact private, nonprofit colleges and universities in a number of ways. The final rules amend the regulations regarding borrower defense to repayment, interest capitalization, public service loan forgiveness, closed school discharge, false certification discharge, total and permanent disability discharge, 90/10 for proprietary institutions, change in ownership/change in control, and prison education programs.  NAICU has created an overview of the final regulations, which were released in October and November.

Because the Department was able to issue the final rules by November 1, they will go into effect on July 1, 2023. 

The final rules reflect the conclusion of a more than year-long negotiation process.  The rules increased liabilities for colleges, most notably by a change to the definition of a private, nonprofit institution and by holding institutions financially accountable for closed school discharges, borrower defense to repayment, false certification, and unpaid refund discharge.  However, months of negotiations, which NAICU was deeply involved in, lead to definitive improvements in the regulations for our sector. Those include:

• Ensuring that only revenue-sharing agreements with a former owner of an institution that has converted from for-profit to nonprofit status is prohibited when defining a nonprofit institution; 
• Creating an additional process to allow institutions to appeal a final determination of a borrower defense claim before the Department seeks to recoup funds from the institution; 
• Allowing the 6-year statute of limitations to pause when a borrower defense claim is adjudicated instead of having the statute of limitations start over completely; 
• Mandating that the Secretary notifies the institution and gives the institution an ability to respond after a third-party requestor successfully files a group borrower defense claim; 
• Amending the definition of a closed school to focus on when an institution ceases to provide educational instruction in programs where the most number of students are enrolled or ceases to provide educational instruction for all of its students instead of the Department’s original proposal to define a closed school as one that has closed most of its programs; and 
• Lessening the reporting burden on institutions that choose to offer programs for incarcerated individuals by no longer mandating an assessment of whether the rate of incarcerated individuals continuing their education post-release meet the threshold determined by the Department, whether the job placement rates meet accrediting standards, and the earnings rates of the students who complete the program.

While there are benefits to the private, nonprofit sector stemming from the final rules, there are also outstanding concerns. Among the concerns are:

• Including in the definition of a nonprofit institution a prohibition against any net profit benefiting a private entity or natural person with no definition of a private entity, which deviates from the definition of a private, nonprofit institution in the Higher Education Act; 
• Holding institutions financially accountable for closed school discharges, borrower defense to repayment, false certification, and unpaid refund discharges;
• Allowing for the statute of limitations on a borrower defense claim to not apply if the borrower receives a favorable judgement based on state or federal law in a court or administrative tribunal of competent jurisdiction in connection with the borrower’s decision to attend the institution;
• Adding new language that only ceases the pause on the statute of limitation when a borrower defense claim is denied; 
• Enabling borrowers to claim that an institution participated in a misrepresentation if the borrower believes that the institutional intentionally withheld facts that influenced the borrower’s decision to enroll;
• Defining a prospective student who could have been subject to misrepresentation as including anyone that either directly or indirectly received marketing materials from the institution;
• Allowing borrowers to state that an institution participated in aggressive recruitment if the use of threatening or abusive language, or behavior, toward the student or prospective student took place without any definitions of what the standards for determining aggressive recruitment would be; and 
• The broadening of the definition of a closed school from what is currently in regulations. 

For more information, please contact:
Emmanual Guillory