By: Kyle Southern, TICAS and Sarah Sattelmeyer, New America
Last Monday, negotiators for this fall’s Affordability and Student Loans Committee began their work on the first of two anticipated negotiated rulemakings (“neg reg”), a process through which the Department of Education (ED) works with a group of external stakeholders to try and find consensus on proposed higher education regulations—ideally to shorten the rulemaking process. To achieve consensus on any of the 12 issue proposals that ED presented, negotiators must reach unanimous approval on regulatory language.
This round of negotiated rulemaking focuses on student loan issues–including borrower defense to repayment, Public Service Loan Forgiveness (PSLF), and income-driven repayment programs (among others), as well as rules to expand Pell eligibility to incarcerated students. Rulemaking sometimes cannot go as far as advocates might like when the statutory changes are required, but the set of proposals offered by ED are welcome news for students and borrowers.
In a departure from prior rulemaking processes, this set of negotiators effectively centered students’ voices and experiences. Negotiators include a student parent, as well as first-generation college students, who all committed significant time to neg reg while attending school full-time. Legal aid organizations, disability rights advocates, student veterans, state attorneys general, and consumer advocates—as well as institutional leaders, financial aid professionals, and accreditors—are also at the virtual negotiating table.
During the first week, negotiators sought to broaden and strengthen proposals including:
Borrower Defense to Repayment (BD) – ED’s proposals are stronger than and go beyond restoring the 2016 BD rule. The proposals would provide a simpler application process for borrowers whose schools misled and defrauded them, and for consumer advocates to bring claims on behalf of groups of students defrauded by the same institution. Negotiators asked to expand the definition of misrepresentation by institutions and a quicker timeline for claim adjudication. They also debated how and when the Department should pursue recovering funds from colleges that have misled students.
ED is seeking to restore a provision—rescinded by the previous administration—that prohibits enrollment contract arbitration clauses and class action waivers that prevent students from going to court and enable schools to settle claims outside of public view. Negotiators encouraged ED to extend regulations to third parties–including marketing companies, private lenders, and income share agreements (ISAs).
Closed School Discharge – ED proposes to strengthen the process for loan discharges for students whose schools close. Restoring automatic discharges for students whose colleges close suddenly (as Vista College did in the past week), expanding the eligibility window, and shortening the period students must wait before re-enrolling in order to qualify for closed school discharge would all make school closure rules more borrower friendly.
Recent Government Accountability Office (GAO) analysis found that 90 percent of borrowers who attended a closed school between 2010-20 attended for-profit colleges and that very few students from closed schools re-enroll soon after their colleges close, primarily because of difficulty transferring credits.
Negotiators suggested further streamlining eligibility for closed school discharge, better ensuring students are informed of this option, and eliminating the requirement that students wait one year to re-enroll or forego their right to receive a discharge.
False Certification Discharge – ED proposes streamlining the loan discharge process when students are saddled with loans because their schools fraudulently certify them for federal loan programs. The Department would do so by creating one set of regulatory standards (as listed here).
Negotiators discussed how to identify fraud (by institutions and students, as brought up by different committee members), whether and how to consider other potential grounds for this type of discharge, the timeline for applications, and whether group discharges should be considered.
Total and Permanent Disability (TPD) Discharge – The Department seeks to improve the loan discharge process for borrowers with total and permanent disabilities by ending the existing three-year post-discharge income monitoring period; expanding the number of Social Security Administration (SSA) disability categories qualifying for discharge; expanding allowable documentation; and adding categories of medical professionals who may certify a borrower’s eligibility.
A 2016 GAO report found 98 percent of rejected disability discharges resulted from missed paperwork filings—not because borrowers’ incomes were too high. Negotiators generally agreed on principles of strengthening the TPD process, but stressed the need to keep discussing how aspects of new regulations could affect borrowers with disabilities.
Public Service Loan Forgiveness (PSLF) – Borrowers who work in public service for 10 years while repaying certain types of student loans through designated repayment plans are eligible to have their loans forgiven under the PSLF program. However, many eligible borrowers have struggled with the application process and eligibility requirements.
ED is proposing changes to categories of borrowers who need to file an application, how and which payments and statuses are counted toward a borrower’s 120 required payments, borrower communication, the definition of full-time employment, and which employers are eligible—in addition to establishing an appeals process for denied applications. Negotiators had these discussions the same day as the Department’s announcement of executive actions—some temporary and some permanent—to expand eligibility for the program and retroactively account for more payments to bring many borrowers to or closer to forgiveness.
During the discussion, negotiators brought up ways to simplify the PSLF program going forward when automatic enrollment in PSLF isn’t possible, additional statuses that should count toward forgiveness, and how the Department should codify the definition of an eligible employer to both expand eligibility and clarify who is eligible.
Income-Driven Repayment (IDR) and Interest Capitalization – IDR plans, a suite of programs that aim to provide more affordable options by tying borrowers’ monthly payments to their incomes and family sizes, result in borrowers defaulting at lower rates than those in non-IDR plans. They are intended to lead to loan discharge after 20-25 years’ worth of qualifying payments. Despite significant improvements over time, too many IDR borrowers continue to struggle with IDR enrollment and unaffordable payments. Many borrowers who might benefit from IDR plans are not enrolled.
The Department released a list of questions to guide discussion of creating a new IDR plan that better serves borrowers, ensures equity, and addresses fraud. Negotiators discussed accounting for wealth versus income, distinctions between undergraduate and graduate borrowers, capitalization and interest accrual during IDR, and the importance of automatic enrollment for borrowers struggling to make payments.
A TICAS and New America joint blog post discusses possible improvements to IDR.
Related to improving IDR, ED also proposes eliminating interest capitalization for borrowers in all instances that are not required by law. If a borrower leaves IDR, fails to recertify for IDR, exits a deferment or forbearance, or consolidates loans, their unpaid, accrued interest can capitalize. This means interest is added to the principal and begins accruing interest itself. Eliminating capitalization would limit the growth of loan balances. Negotiators largely favored this reform, and some encouraged ED to consider what actions could be taken retroactively and to examine flexibilities where the law does require capitalization.
Negotiators also asked ED to consider two additional proposals: one to allow borrowers to access IDR while in default, and another to stop acceleration of payment due on defaulted loans. ED representatives suggested that allowing borrowers in default to access IDR could be considered through an informal working group, and that additional thinking about better assisting borrowers in default could be further addressed in the upcoming regulatory process focused on debt collection.
Pell Grant Eligibility for Prison Education Programs. Department officials presented a framework for implementing restoration of Pell eligibility for incarcerated students. A subcommittee will meet October 18-20 and again in November. Subcommittee members will then make recommendations to the full committee later this fall.
Public Comments. At the end of each day, the committee heard from members of the public. Speakers addressed concerns about the lack of a student with experience navigating the borrower defense process on the panel; struggles veterans have experienced with borrower defense; and the unwieldy debt of Parent PLUS borrowers that is rarely addressed in policy conversations. Representative Kathy Manning (NC) spoke on the importance of a vigorous borrower defense rule and streamlining closed school discharges.
The full committee will reconvene the weeks of November 1-5 and December 6-10 to discuss revisions proposed by ED. To view all materials provided to the committee and the public, visit the Department of Education’s negotiated rulemaking website.