On June 11, 2015, we discussed the issue of student loan discharge by virtue of the student having a state law cause of action against the school (pursuant to 34 C.F.R. § 685.206(c)(1)). We also reported that “on June 10, the Department published a notice in the Federal Register seeking comment on a proposed “emergency collection” that would “facilitate the collection of information for borrowers who believe they have cause to invoke the borrower defenses against repayment of a loan.” (It does not look like there is a comment period specified).” On June 16, the Department published a correction to the June 10 Federal Register Notice providing for a 60-day comment period for this collection. As a result, all comments must be due by August 17, 2015.
On June 9, 2015, as reported by Insider Higher Ed and the The Chronicle of Higher Education, the US Department of Education (“Department”) released information related to the loan discharge options of students at schools formerly owned by Corinthian Colleges Inc. (“CCI”). The fact sheet released by the Department (and a related blog post by Department Undersecretary Ted Mitchell, and the transcript of a call with the press) describes a number of efforts to discharge loans owed by students at CCI’s Heald College, WyoTech and Everest College. In addition, on June 10, the Department published a notice in the Federal Register seeking comment on a proposed “emergency collection” that would “facilitate the collection of information for borrowers who believe they have cause to invoke the borrower defenses against repayment of a loan.” (It does not look like there is a comment period specified). [JUNE 23, 2015 UPDATE: The Department published a Federal Register notice providing a 60-day comment period]
The fact sheet describes how students of Heald College — which the Department fined nearly $30 million for alleged misrepresentations made related to job placement statistics — “who relied on misrepresentations found in published job placement rates for many Heald programs qualify to have their federal direct student loans discharged.” While students at other CCI schools may be eligible for discharge due to state law violations, Heald College students can rely on the Department’s finding as a finding that the Heald committed an “act or omission” “that would give rise to a cause of action against the school” which, in turn, serves as a defense to the repayment of the student loan pursuant to 34 C.F.R. § 685.206(c)(1). The Department will also appoint a Special Master to review the claims.
For those unfamiliar with the concept of student loan discharge under 34 C.F.R. § 685.206(c)(1), you are not alone. This defense to repayment of a student loan has only been used five times in over a twenty years. Specifically, the regulation provides:
In any proceeding to collect on a Direct Loan, the borrower may assert as a defense against repayment, any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable State law.
Importantly, the Special Master appointed by the Department “will help develop a broader system that will support students at other institutions who believe they have a defense to repayment.” Given the Department can seek recoupment of any discharged loan funds from an institution, this is a very serious development that could impact every institution of higher education. Continue reading “Information Released on “State Law Cause of Action” Student Loan Discharge”
I will be presenting on two topics at the Association for Private Sector Colleges and Universities Annual Convention and Expo: Outcomes 2025 – being held at the Denver Convention Center from June 2nd to the 4th. On Tuesday, I will be presenting “Title IX, the Clery Act and the Violence Against Women Act” which addresses the concerns about which auditors and CPAs that work with Title IV eligible schools must be aware involving those statues and the recent regulatory developments related to sexual harassment.
On Wednesday, together with colleagues Tim Hatch and Jim Zelenay of Gibson Dunn, Tony Guida of Duane Morris, and Dave Adams, the General Counsel & Senior Vice President, Global Regulatory and Government Affairs of Kaplan, Inc., we will present “Government Regulators & New Theories of Liability: Threat, Menace, Or Much Ado About Nothing?“. My specific presentation will concern the new issue of student loan discharge associated with state law violations committed by Title IV institutions. Its an area in great flux, but could present a significant issue for schools given the Department of Education’s ability to seek recoupment of any discharged loan funds from the institutions involved.
Lastly, on Thursday, together with my colleague Katherine Brodie of Duane Morris, I will present Title IX and Clery Act for Career Schools. This is a broader discussion then the one for the auditors and raises a number of issues for schools.
I hope to see you there.