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Borrower Defense Repayment Rules

Borrower Defense Repayment Rules

Members of Salmon Sims Thomas recently attended a Town Hall meeting conducted by Career Education Colleges and Universities (CECU) held in Dallas, Texas. Steve Gunderson, President and CEO of CECU spoke about negotiated rulemaking (neg reg) that is currently underway. Several changes have been proposed that would be of benefit to proprietary schools, including changes to the Borrow Defense Repayment Rule (BRD). The following changes have been proposed during the neg reg committee sessions.

Issue #1: Establishing a federal standard for relief provides requirements related to loans disbursed on or after July 1, 2019 and how the Department of Education (DoE) can recover funds from the school.

Requirement:

If a school acts with the intent to deceive, or falsely misrepresents information to the borrower (student) and the borrower incurred financial harm – then the borrower can file a claim with the DoE within three years of the date the borrower discovered or reasonably should have discovered the misrepresentation. The DoE conducts an inquiry to determine the merit of the claim.

Issue #2: Within 60 days of the Department’s receipt of the borrower defense application, the Secretary provides written notice and a copy of the application to the school. The notice provides the school with the opportunity to submit a response. After the DoE determines the validity of the claim, the borrower or school may request reconsideration based on “newly discovered evidence”.

Issue #3: Financial Responsibility – current financial responsibility standards remain based on:

  1. Composite score of at least 1.5,
  2. Sufficient cash reserves to make required returns of unearned Title IV funds, and
  3. Current in debt payments.

However, the following changes may be added, one of which may provide much needed relief to some institutions.

New Standards:

  • The school may be considered to be financially responsible if it is otherwise able to meet all of its financial obligations. An institution may not be able to meet its financial or administrative obligations if the institution incurs a debt or liability from borrower defense claims adjudicated by the Secretary of the DoE and the recalculated composite score is less than 1.0.
  • The school may not be able to meet its financial or administrative obligations if the composite score is less than 1.5 and there is a withdrawal of owner’s equity (doesn’t apply if the equity was transferred to an entity in the affiliated entity group.

Again, these are proposed changes and may be revised before a final regulation is published. A final regulation must be published on or before October 1st of each year to become effective in the following award year. Therefore, if charges are made to the BRD they will become effective July 1, 2019 at the earliest.

Stay tuned for more updates. If you have questions, please contact Eileen Keller at ekeller@sstcpa.com.