ED's Student Assistance & Loan Programs

September 8, 2018

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The Department published a final rule on November 1, 2016 which made substantive changes to its treatment of borrower defenses and other loan discharges (i.e., loan forgiveness for borrowers) related to its Federal Direct Loan Program. The final rule also broadened the agency’s ability to recover losses directly from institutions resulting from approved borrower defenses. Finally, it expanded the conditions under which postsecondary schools would have to satisfy additional requirements to continue being eligible to be paid by borrowers using federal funds appropriated under title IV of the Higher Education Act (HEA). This rule had an original effective date of July 1, 2017.

However, in response to the California Association of Private Postsecondary Schools (CAPP) court challenge to the 2016 final rule, ED issued both a final rule on June 16, 2017 delaying its implementation until further notice and a proposed rule to establish negotiated rulemaking committees to inform changes to its Federal Direct Loan Program. Additional regulatory actions taken by ED have further delayed the effective date until July 1, 2019. 

ED’s current proposed rule would rescind a majority of the changes made by the 2016 rule which have not yet taken effect. Additionally, the proposed rule would make several new amendments to the regulations governing ED’s Federal Direct Loan Program—with which schools have had to comply since 1992 to be eligible to be paid by student borrowers using federal funds appropriated under title IV of the Higher Education Act (HEA).

ED estimates its proposed rule would have annual federal budget savings of $1.27 billion over 10 years compared to changes from the 2016 rule that would otherwise go into effect on July 1, 2019 (i.e. in the absence of the proposed rule). That makes it a deregulatory action under Executive Order 13771 (E.O. 13771). The Department specifically requests comments on “complying with…Executive Orders 12866 and 13563 and their overall requirement of reducing regulatory burden that might result from these proposed regulations.”