Guidance Issued on the Borrower Defense Notices Institutions Are Receiving

This week, the Department of Education sent a notice to institutions providing context to the many unexpected borrower defense to repayment (BDR) notices campuses are receiving. Until the notice was sent, institutions had little understanding of the context for the claims and what it could mean for future legal and fiscal liabilities. 

Adding to the confusion campuses have is that notices have been sent during a period in which the Department has intentionally dismissed billions of dollars in borrower claims from large for-profit institutions that have either closed or been accused of mishandling student aid funds.

The guidance helps answer many of these questions. In general, the small batch claims private, nonprofit institutions are receiving have little to do with the kind of mass scale investigations the Department is conducting of mismanagement at for-profit institutions and more to do with the terms of a recent class action law settlement. As such, the potential liability for institutions that are receiving notices is not of the same type or scale as the BDR claims in the for-profit sector.

The Department’s guidance makes clear that most BDR notices schools are receiving are part of the implementation of the settlement from Sweet v. Cardona, and nearly every college in the country will receive at least one BDR claim. The claims being sent to institutions are from a settlement post-class applicant pool, which includes BDR complaints filed between June 23 and November 15, 2022.

These claims are being adjudicated under the 2016 BDR regulations, which have a few important features to be aware of:

• The Department is required to notify schools that a BDR application has been received, whether the claim has merit or not and whether the application is complete or not.
• Schools are not required to respond to these claims, and not responding will not be held against the school. The adjudication process and the recoupment process are two separate and distinct processes. Should the Department later decide to try and recoup funds from the institution, the institution will have an opportunity to respond at that time.

The Department is sending out notices to individual schools in waves, beginning with those institutions that have the lowest number of claims against them. Therefore, if an institution has received a BDR notice already, it is likely that it is all that the institution will receive in this tranche, barring any technical issues or one-offs that were missed. However, schools that have large numbers of claims, which are likely to be institutions with higher enrollment and a broader national online presence, have yet to be notified about any claims.

There was an unusual spike in applications for BDR claims during the June-November period in 2022—seemingly generated by rumors that student loan forgiveness was possible by simply filling out a BDR form against an institution. This means institutions may receive a large number of meritless claims.

NAICU has been working with the Department to encourage the release of this guidance. The notice also indicates that institutions will not be informed about the outcome of an application unless the loan is dismissed and, in a separate process, the Department decides to seek recoupment from the institution. NAICU will continue to encourage the Department to proactively inform institutions regarding the outcome of all claims against the institution.

For more information, please contact:
Justin Monk