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The Secretary establishes new Institutional Accountability regulations governing the William D. Ford Federal Direct Loan (Direct Loan) Program to establish a Federal standard and a process for adjudicating borrower defenses to repayment for Federal student loans first disbursed on or after July 1, 2020, and provide for actions the Secretary may take to collect from schools the amount of financial loss due to successful borrower defense to repayment (BDTR) loan discharges.  We also amend the Direct Loan Program regulations to provide that a school which requires Federal student loan borrowers to sign pre-dispute arbitration agreements or class action waivers as a condition of enrollment must make a plain language disclosure of those requirements to prospective and enrolled students and place that disclosure on its website where information regarding admissions and tuition and fees is presented, and to include information in the borrower's entrance counseling regarding the school's internal dispute resolution and arbitration processes.  We are amending the Student Assistance General Provisions regulations to establish the conditions or events that have or may have an adverse material effect on an institution's financial condition and which warrant financial protection for the Department, update the definitions of terms used to calculate an institution's composite score to conform with changes in certain accounting standards, and account for leases and long-term debt.  Finally, we amend the loan discharge provisions in the Direct Loan Program.  The changes will provide transparency, clarity, and ease of administration while adding protections for students and reducing the cost to the Federal government and taxpayers of potential school liabilities resulting from unsubstantiated defense to repayment and closed school loan discharges.

Statement of Need:

The Secretary initiated negotiated rulemaking to revise current regulations governing borrower defenses to loan repayment.

Summary of the Legal Basis:

Section 492 of the HEA requires that, before publishing any proposed regulations to implement programs authorized under title IV of the HEA, the Secretary obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations from the public, the Secretary conducts negotiated rulemaking to develop the proposed regulations. Section 431 of the Department of Education Organization Act provides authority to the Secretary, in relevant part, to inform the public regarding federally supported education programs; and collect data and information on applicable programs for the purpose of obtaining objective measurements of the effectiveness of such programs in achieving the intended purposes of such programs. 20 U.S.C. 1231a.

Alternatives:

These are identified through the negotiated rulemaking process and presented in the Notice of Proposed Rulemaking.

Anticipated Costs and Benefits:

These are identified through the negotiated rulemaking process and presented in the Notice of Proposed Rulemaking.

Risks:

These are identified through the negotiated rulemaking process and presented in the Notice of Proposed Rulemaking.