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Substantial Misrepresentation & Borrower Defense to Repayment Rule
Eligible Career Pathway Programs for Non-High School Graduates
ACCET Annual Conference 2016
Katherine D. Brodie, Special Counsel, Duane Morris LLP
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Borrower Defense to Repayment Rule
Purpose:
“To protect student loan borrowers from misleading,
deceitful, and predatory practices of, and failures to
fulfill contractual promises by, institutions
participating in the Department’s student aid
programs.”
- Preamble to Final Rule
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Borrower Defense to Repayment Rule
• Published in Final on November 1, 2016
• Effective July 1, 2017
– Effective as to loans first disbursed on or after July 1, 2017
– More regulations to be published by the Department regarding the
administrative hearing procedure for student claims
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Borrower Defense to Repayment Rule
• $14.9 Billion in estimated discharge cost to taxpayer (2017-2026 cohorts)
• 2 year and less proprietary schools:
– Estimated to represent 20% of loan volume affected by current
conduct of schools (2017)
– Estimated to represent 45% of the loan volume of eligible borrowers
who file successful claims (2017)
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Borrower Defense to Repayment Rule: Existing Rule
• The existing Borrower Defense rule will apply only to loans first
disbursed prior to July 1, 2017:
• “A borrower defense may be asserted as to an act or omission of
the school that relates to the making of the loan or the provision
of educational services that would give rise to a cause of action
against the school under applicable State law.”
• Secretary can collect from a school within 3 years from the end of
the last award year in which the student attended the institution or
the period applicable under state law (but if the institution
received notice of the claim within that period the Secretary can
collect at any time)
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Borrower Defense to Repayment Rule: New BasesClaims arising from acts or omissions of a school that relate to the making of
the loan or the provision of educational services may also be based on:
1. A non-default, contested judgment against the school based on state
or federal law in a state or federal court or administrative tribunal
2. A breach of contract – the school failed to meet its obligations to the
borrower under written contract (enrollment agreement but also
catalog, notices, handbooks, policies etc)
3. A substantial misrepresentation by the school that the borrower
reasonably relied on to the borrower’s detriment when the borrower
decided to attend, or to continue attending, the school
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Statutes of Limitation
• No time limitation on when a borrower can make a claim for amounts
still owed on loans or for discharge based on State or Federal court
judgment
• Borrower has six years from the discovery of a substantial
misrepresentation to request repayment of funds previously paid to
the ED
• A claim for breach of contract can be brought at any time after
occurrence of the alleged breach
• For claims under the new borrower defenses, there is no limitation on
when ED can seek to recover from school
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Title IV Substantial Misrepresentation Rule
Three categories of communications fall within the rule:
1. Statements or Omissions About the Nature of Educational Program
2. Statements or Omissions About the Nature of Financial Charges
3. Statements or Omissions About the Employability of Graduates
These are categories of information material to a student deciding whether or not to enroll, or stay enrolled.
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Substantial Misrepresentation –
Definition for Borrower Defense Claims
1. False, erroneous or misleading statement or omission likely to mislead under
the circumstances (intent not required)
2. Within the three categories of communications
3. Made by the institution or anyone acting on its behalf (including vendors and
staff)
4. Made directly or indirectly to a student, prospective student or any member
of the public, or to an accrediting agency, State agency, or the Secretary
5. The person to whom it was made reasonably relied on the statement to that
person's detriment when deciding to enroll or stay enrolled.
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Borrower Defense to Repayment
• “Preponderance of the evidence” standard
(claim is more likely true than not)
• “Rule of Reasonableness”
• “Under the Circumstances”
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Nature of Educational Program
Includes false, erroneous or misleading statements or omissions,
concerning —
•Institutional, programmatic, or specialized accreditation;
•Transfer of course credits in or out of institution;
•Whether completion of a course of instruction qualifies a student to:
– receive or apply for a license or certification required as a
precondition for employment or
– meet additional conditions that needed to secure employment in
the field of study
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Nature of Educational Program
• Requirements for completion or grounds for termination;
• Testimonials by anyone;
• Institution’s size, location, facilities, or equipment;
• Availability, frequency, and appropriateness of courses and programs
to the employment objectives;
• Nature, age, and availability of its training devices or equipment;
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Nature of Educational Program
• Institution’s faculty and personnel;
• Availability of part-time employment or other forms of financial assistance;
• Availability of tutorial or counseling provided to students;
• Any prerequisites for enrollment;
• The degree, diploma, or certificate of completion that students are awarded upon
completion;
• Whether the degree conferred has been authorized by the appropriate State
educational agency; or
• Any other matters required to be disclosed to prospective students re financial and
institutional information disclosures.
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Nature of Financial Charges
Includes false, erroneous or misleading statements or omissions re:
•Offers of scholarships;
•Whether a charge is customary at the institution;
•Cost of the program;
•Institution's refund policy;
•Availability or nature of any financial assistance, including a student's responsibility to repay; or
•Student's right to reject financial aid or whether student must apply for a type of financial aid.
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Employability of Graduates
Includes false, erroneous, or misleading statements or omissions
concerning —
•Institution's relationship with any organization providing training leading
to employment;
•Institution's plans to maintain a placement service;
•Institution's knowledge about current or likely future conditions,
compensation, or employment opportunities;
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Employability of Graduates
• Whether employment is being offered by the institution or that a
talent hunt or contest is being conducted;
• Government job market statistics in relation to the potential
placement of its graduates; or
• Other requirements needed to be employed in the fields for which the
training is provided (including disqualifiers, such as convictions).
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Borrower Defense to Repayment Rule
A non-exhaustive list of factors that may demonstrate reasonable reliance by
a student on a school misrepresentation, including:
• Demanding the student make immediate enrollment or loan decision
• Unreasonable emphasis on the negative consequence of delay
• Discouraging the student from consulting an adviser, a family member, or
other resource
• Failing to respond for student requests for additional information about
the program, such as program cost or the nature of financial aid
• Unreasonably pressuring the student, or taking advantage of a student’s
distress, lack of knowledge or lack of sophistication.
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Sample BDTR Student Claim FormProvide a detailed description of why you believe you are entitled to
borrower defense:
•Details about what the school told you or failed to tell you.
•Details about how the school communicated with you, whether in a brochure,
online, over the phone, or in person.
•The name/title of people who you believe misled you (if known).
•Details about why you believe you were misled.
You should also attach any documents related to your application.
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information)
about future employment, job placement rates, graduation rates, and/or
post-graduate earnings?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
describe above?
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information)
about tuition and fees, how you would repay the loan, the terms of
repayment, and/or other issues about the cost of your education?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
describe above?
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information) about
the availability of job or career services assistance?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
describe above?
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information)
about the transferability of credits?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
describe above?
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information) about
educational services, such as the availability of externships, teachers
qualifications, the method of instruction, or other types of educational
services?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
described above?
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Questions from Sample Student Claim Form:
Did the school mislead you (or fail to tell you important information)
about the importance of enrolling immediately, the consequences of
failure to enroll, how difficult it was to be admitted, or anything else
about the admission process?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
described above?
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Questions from Sample Student Claim Form:
Do you have any other reasons relating to your school that you believe
qualify you for borrower defense, such as your school failing to perform
its obligations under its contract with you, or that there is a judgment
against your school in a Federal court, a State court, or in front of an
administrative board?
If yes, please provide detailed information in this section.
Did you choose to enroll in your school based in part on the issues you
describe above?
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Misrepresentation Example:
The Minnesota State AG successfully sued Globe University on counts
of false and misleading statements regarding future employment.
• Made false and misleading statements to consumers
• Made false and misleading statements regarding the criminal
justice program
• Misrepresented and misled students into believing they could
become a Minnesota licensed police officer
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Misrepresentation Example:
• Under the proposed restitution plan, Globe would pay a $2.5 million
civil penalty.
• The company would also be required to refund the tuition and other
expenses of 1,239 impacted students.
• The state Office of Higher Education has also moved to revoke state
authorization.
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Misrepresentation Example:
Evidence Against Globe:
• Globes' websites
• Promotional advertising depicting the images of police officers
• Statements of admissions representatives
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Risk Mitigation
• Evaluate your statements: Would a person reasonably rely on the statement (or
omission of information) to make the decision to enroll or stay enrolled?
Employment prospects
License passage rates
Placement rates
Curriculum
Faculty
Flexible Scheduling
Cost, Aid, Scholarships
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What Can Be Done?
• High Risk Areas –
– Specific Claims – Can you substantiate with facts and data that
meet regulatory requirements (ED, FTC, accreditor?)
“Our equipment exceeds industry standards”
“1/10 faculty student ratio”
“90% job placement”
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What Can Be Done? Conduct Internal Review of
Marketing/Admissions Material
“Our graduates earn 15% more than average”
“Hands on Training”
“Teachers Who Work in the Industry”
“Lifetime Placement”
“flexible schedules”
“placement assistance” - type
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Recommendations – Risk Mitigation
• Remember that statements to the public, accreditors, ED, and a
state agency are included within the scope of the Federal
misrepresentation rule
– For example, placement rates inaccurately reported to an
accreditor are a Title IV misrepresentation issue
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Recommendations – Risk Mitigation
• Vendors – Marketing, Advertising, Recruitment, Admissions
– Oversight of conduct
– Contractual obligations
– Vigilance
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Recommendations – Risk Mitigation
• Other Parties Acting On Behalf of School
– Students
– Staff
– Alumni
– Social Media
– Agreements can be written or implied
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Eligible Career Pathway Programs
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What is an “ATB Student” Under Current Law?
To receive Title IV FSA funds, a student without a HS diploma or GED (or
equivalent) qualifies if she/he:
Has completed one of the ability-to-benefit (ATB) alternatives, AND
• Is currently enrolled in an eligible career pathway program OR
• Was first enrolled in an eligible postsecondary program prior to July 1,
2012 (grandfathering provision).
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ATB Alternatives
– Passing an independently administered Department of Education
approved ATB test
– Completing at least 6 credit hours or 225 clock hours that are
applicable toward a degree or certificate offered by the postsecondary
institution
– Completing a State process approved by the Secretary of Education.
Note: To date, no State process has been submitted for the
Secretary’s approval
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Components of an ECPP
(1) A Title IV eligible postsecondary program component as
defined under 34 CFR 668.8 and
(2) “component that enables an individual to attain a high school
diploma or its recognized equivalent” (Adult Education component)
The component of the ECPP that enables an individual to attain a high
school diploma or its recognized equivalent may not be paid for using Title IV
aid and should not be incorporated into a student’s Title IV enrollment status
or Title IV cost of attendance.
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• The ECPP must be designed in such a way that students
participate in both the Title IV eligible and Adult Education
component. BUT --
• The attainment of a postsecondary credential is not contingent
on obtaining a high school diploma or its recognized equivalent.
• A student who fails to complete the postsecondary program
may still be awarded the HSD or GED if they fully satisfy the
requirements of the Adult Education component.
• Tracking attendance is critical to timing Title IV returns.
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ECPP Definition – Component 1
A program that combines rigorous and high-quality education,
training, and other services that—
1. Aligns with the skill needs of industries in the economy of the
State or regional economy involved;
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ECPP Definition – Component 2
A program that combines rigorous and high-quality education,
training, and other services that—
2. Prepares an individual to be successful in any of a full
range of secondary or postsecondary education options,
including apprenticeships registered under the National
Apprenticeship Act
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ECPP Definition – Component 3
A program that combines rigorous and high-quality education,
training, and other services that—
3. Includes counseling to support an individual in achieving
the individual’s education and career goals;
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ECPP Definition – Component 4
A program that combines rigorous and high-quality education,
training, and other services that—
4. Includes, as appropriate, education offered concurrently
with and in the same context as workforce preparation
activities and training for a specific occupation or
occupational cluster;
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ECPP Definition – Component 5
A program that combines rigorous and high-quality education,
training, and other services that—
5. Organizes education, training, and other services to meet
the particular needs of an individual in a manner that
accelerates the educational and career advancement of the
individual to the extent practicable;
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ECPP Definition – Component 6
A program that combines rigorous and high-quality education,
training, and other services that—
6. Enables an individual to attain a high school diploma or its
recognized equivalent, and at least one recognized
postsecondary credential; and
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ECPP Definition – Component 7
A program that combines rigorous and high-quality education,
training, and other services that—
7. Helps an individual enter or advance within a specific
occupation or occupational cluster.
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Use of Title IV Funds & Timing of New Definition
Only the enrollment status and costs associated with the Title IV
eligible postsecondary program component can be paid for using
Title IV aid.
The revised definition is applicable to all students who first
enroll in the ECPP during the 2016-17 award year.
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DOCUMENTATION
• You must document that –
– The student satisfied an ATB alternative (ie test or earned credit/clock
hours)
– The program meets each of the ECPP requirements (including that the
program includes workforce preparation activities and training for a specific
occupation or occupational cluster and is aligned with the skill needs of the
State or regional economy)
– The student was enrolled in both the Title IV program component and the
adult education component.
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The Importance of Documentation
• Enrollment Agreements
• Forms
• Attendance Verification
• Title IV program eligibility
• Adult Education component validity
• Program inclusion of workforce preparation activities and training for a specific
occupation or occupational cluster
• Alignment with skill needs of the State or regional economy
• Satisfaction of each required ECPP Component
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Q&A
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Katherine D. Brodie, Special Counsel
Duane Morris LLP
505 9th Street, N.W., Suite 1000
Washington, DC 20004-2166
USA
Phone: +1 202 776 5241
Fax: +1 202 478 2629
Email: [email protected]
Katherine D. Brodie practices in the area of education law. Ms. Brodie’s practice focuses
primarily on the needs of higher education institutions and their partners operating in the United
States and abroad. Her experience and advice includes issues surrounding compliance with the
triad of federal, state and accrediting body regulations and standards applicable to the operation
of U.S. postsecondary institutions, including the complex rules governing participants in the
Title IV student financial aid programs authorized by the Higher Education Act and administered
by the U.S. Department of Education.
