Client Alert: Department of Education Issues Q&A on 2016 Borrower Defense to Repayment Regulations

The Office of Postsecondary Education (OPE) has issued a Q&A document on OPE’s implementation of the 2016 Borrower Defense to Repayment (BDR) regulations, which took effect following unsuccessful litigation by the Department to delay their implementation. Recall that under the 2016 BDR regulations, an institution must demonstrate to the Secretary that it is “financially responsible” under specific standards. An institution is not financially responsible when it fails to meet financial and administrative obligations due to the occurrence of a “triggering event,” which in turn require the institution to meet certain reporting requirements.

Triggering events identified in the 2016 BDR final regulations include:

• Debt or liability arising from a judicial final judgment, administrative proceeding or determination, or from a settlement;
• Lawsuits pending for 120 days and brought by a federal or state authority for financial relief on claims related to the Institution making Direct Loans for student enrollment;
• Any other litigation brought on or after July 1, 2017 that is close to or past the summary judgment or pretrial conference stage;
• An accrediting agency’s requirement that the institution submit a teach-out plan;
• Insufficient debt-to-earning rates for gainful employment programs that would make the programs ineligible for the next award year;
• Withdrawal of an owner’s equity from the institution when the institution has a composite score of less than 1.5; and
• An institution that is one year from losing eligibility due to its cohort default rates or due to more than 90% of a school’s source income deriving from Title IV funds (“90/10 rule”).

The recently issued Q&A document answers questions that the Department received relating to the scope and applicability of the 2016 BDR regulations as it relates to financial responsibility triggers and reporting requirements. Specifically, the Q&A makes clear that:

• Institutions must report all debts and liabilities, including those arising from settlements prior to legal action.
• Institutions must report all litigation, regardless of the type of legal action or size of the claim.
• All institutions participating in Title IV, HEA programs—including public institutions—are subject to the reporting requirements of 34 CFR § 668.171(h), which require an institution to notify the Department within 45 days after the end of the institution’s fiscal year for a triggering event related to the 90/10 rule and within 10 days for all other triggering events.

Institutions should submit any necessary supplemental reporting to the Department by June 13, 2019 and, moving forward, will want to ensure that they continue to comply with these regulatory requirements.

Should you have any questions or concerns about the implications of this guidance or the 2016 BDR regulations, please do not hesitate to contact us by email or at 312-946-1800.