This analysis was prepared by Venable, LLP, on behalf of AACOM.

On October 25, 2022, the U.S. Department of Education (the “Department”) announced a suite of actions affecting several student loan forgiveness programs, including a one-time payment count adjustment to credit more payments toward forgiveness under income-driven repayment (“IDR”) plans and permanent changes to the Public Service Loan Forgiveness (“PSLF”) program and Borrower Defense to Repayment (“BDR”) regulations. The PSLF program and BDR final rules were subsequently published on November 1, 2022 and will become effective on July 1, 2023.

One-Time Payment Count Adjustment for IDR and PSLF

In April 2022, the Department announced a one-time adjustment to count additional payments toward forgiveness for borrowers who are enrolled in IDR plans. The Department’s October announcement clarified that updated payment counts credited toward IDR forgiveness also count toward PSLF for any months in which a borrower has certified qualifying employment on loans borrowed as a student. Borrowers with eligible loans (i.e., Direct Loans or Federal Family Education Loans (“FFEL”) managed by the Department) need not apply for this credit—it will be automatically computed by the Department and applied in July 2023. Borrowers who do not have eligible loans must apply to consolidate their loans no later than May 1, 2023 to ensure they benefit from the one-time account adjustment. 

Specifically, the one-time account adjustment will award credit for qualifying payments for:

• Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the loan type, or the repayment plan;
• Any month in which loans were in an eligible repayment, deferment, or forbearance status prior to consolidation;
• Months while a borrower spent at least 12 months of consecutive forbearance;
• Months while a borrower spent at least 36 cumulative months in forbearance; and
• Any month spent in deferment (exception for in-school deferment) prior to 2013.

These periods will also result in credit toward PSLF if the borrower has certified qualifying employment that overlaps the same periods. As such, borrowers who did not apply for the Limited PSLF Waiver by the October 31, 2022 deadline will effectively have one more chance to have their payment count corrected. These borrowers will have their PSLF application assessed under the normal PSLF rules (not the Limited Waiver rules) and will receive credit toward PSLF for any periods of certified employment when the one-time account adjustment occurs in July 2023. 

The IDR and PSLF account adjustments will be permanent and count toward IDR or PSLF forgiveness at anytime in the future. 

While the one-time account adjustment is largely similar to the Limited PSLF Waiver, there are key differences in benefits and process, including:

• The one-time account adjustment provides credit for periods that were not added under the PSLF Waiver, including certain periods in deferment and forbearance beyond those allowable in the Waiver.
• A borrower will no longer be allowed to count the same period of service toward both Teacher Loan Forgiveness and PSLF.
• A borrower will have to be employed by a qualifying employer when they apply for and receive PSLF forgiveness. This requirement was waived under the Limited PSLF Waiver.

Final PSLF Rules

The Department also released final rules to make permanent changes to the PSLF program as an additional effort to reduce regulatory barriers that have made it harder to progress to forgiveness under the PSLF program. The final rule does not materially differ from the proposed rule published in July 2022. For a section-by-section summary, please refer to AACOM’s summary of the proposed rules, available here.

Key points of the final PSLF rule include the following:

• Helping borrowers earn progress toward PSLF by:
  • Allowing borrowers to receive credit toward PSLF on payments that are made late, in installments, or in a lump sum. (34 CFR § 685.219(c).) Prior rules only counted a payment as eligible if it was made in full within 15 days of its due date.
  • Counting certain periods in deferment or forbearance toward PSLF. (§ 685.219(c)(2)(v).) These periods include:
    • Cancer treatment deferment;
    • Military service deferment;
    • Post-active-duty student deferment;
    • Economic hardship deferment, which includes service in the Peace Corps;
    • AmeriCorps and National Guard service forbearances;
    • U.S. Department of Defense Student Loan Repayment Program forbearance; and
    • Administrative or mandatory administrative forbearances.
  • Allowing borrowers to receive a weighted average of existing qualifying payments toward PSLF when they consolidate their Direct Loans. (§ 685.219(c)(3).) Under current rules, borrowers lose all progress toward forgiveness when they consolidate. Under the new regulations, for example, a borrower with 60 qualifying payments on Direct Loan with a balance of $30,000 who consolidates their loan with another Direct Loan with a balance of $30,000 with 0 qualifying payments will have a new payment count of 30 payments.
• Simplifying criteria to help borrowers certify employment by:
  • Adopting a single standard of full-time employment at 30 hours a week. (§ 685.219(b).) Prior rules required borrowers to either work 30 hours per week at multiple jobs or whatever their employer defined as full-time. A single 30-hour-a-week requirement is intended to make it easier for borrowers and employers to establish what it means to be full-time.
  • Requiring employers, for purposes of PSLF, to give adjunct and contingent faculty credit of at least 3.35 hours of work for every credit hour taught. (§ 685.219(b).) The Department received comments claiming employers have struggled to determine the work hours of adjunct instructors. This minimum conversion factor is intended to help employers identify the number of hours to certify.
  • Allowing a qualifying employer to certify employment for a contractor if that individual is providing services that by state law cannot be filled or provided by an employee of that organization. (§ 685.219(b).) The Department became aware of specific circumstances where existing state laws generally prevent doctors at nonprofit hospitals in California and Texas from working for the hospital directly. This change would cover those individuals as well as any other contractor whose employment is similarly barred by state law.
• Providing opportunities to correct problems by:
  • Giving borrowers a hold harmless option to have other periods of deferment and forbearance potentially counted toward PSLF if they make payments equivalent to what they would have owed at the time. This includes getting credit for periods during which the borrower would have had a $0 payment. (§ 685.219(g).)
  • Formalizing the reconsideration process for borrowers to have their applications reviewed again if there are errors made in review. (§ 685.219(g).)

Final BDR Rules

The final regulations also included new rules to reform the BDR process. The final rule establishes new requirements for what information borrowers must show to obtain a discharge, allows for consideration of claims as a group instead of only considering individual applications, and provides a mechanism to ensure institutional due process. The final rule also revises the process for recouping discharged amounts from schools when claims are approved. 

Like the PSLF final rule, the BDR final rule is largely similar to the proposed rules released in July 2022. For a section-by-section summary of the please refer to AACOM’s summary of the proposed rules, available here.

Key points of the final BDR rule include the following:

• Standards for approval: All claims pending on or received on or after July 1, 2023 may be approved based on any of the following acts or omissions:
  • Substantial misrepresentation;
  • Substantial omission of fact;
  • Breach of contract;
  • Aggressive and deceptive recruitment; or
  • Judgments and secretarial final actions.

Under the final rule, to approve a borrower defense claim, the Department must conclude, based on a preponderance of the evidence, that the act or omission occurred and that it caused detriment to the borrower that warrants relief, which includes a discharge of the remaining loan balance and refunds of amounts paid to the Secretary, among other benefits. Such a determination will consider the totality of the circumstances, including the nature and degree of the acts or omissions and of the detriment caused to the borrower. 

The final rule also revises the standard for aggressive and deceptive recruitment by deleting failure to respond to the student’s or prospective student’s requests for more information about the cost of the program and the nature of any financial aid. The final rule also clarifies that the final secretarial actions that can serve as the basis for borrower defense approvals will only include fines, limitations, and suspension actions, including denials of recertifications and revocation of program participation agreements. (34 CFR §§ 685.401(b), .501.)

• Claims process: The final rule continues the options for reviewing claims on either an individual or group basis from the proposed rule. The Department can initiate a group process or may choose to form one based upon a request from a third-party requestor. In the final rule, the third-party requestor can be a state entity, such as an attorney general, or a nonprofit legal assistance organization.

The final rule also adjusts the group formation process to afford institutions an opportunity to respond to the group request before the Department decides whether to form a group. Because of the expanded category of requestors and additional due process steps, the final rule adjusts the timeline for the Department to respond to a group claim to two years instead of one, but the decision on the group claim will then be rendered within one year of formation rather than two, leaving the total timeline unchanged. Individual borrowers in a group may opt out of the group discharge if it is approved. 

As was the case in the proposed rule, borrowers who have an outstanding balance will be able to bring a borrower defense claim at any point.

• Approval amounts: The final rule provides that all approved claims will receive a full discharge and refund of all amounts paid to the Secretary. Where applicable, this relief will also include restoring borrowers’ federal aid eligibility and changes to credit reporting. The Department concluded there is no workable process to determine partial discharge amounts. Instead, to approve a claim, the final rule will require the Department to conclude that the act or omission cause detriment that warrants a full discharge and refund. (§ 685.401.)
• Reconsideration: The final rule allows borrowers to have their claim reconsidered if it is denied, so long as they have new evidence or are raising an administrative or technical error. Borrowers whose loans were first disbursed prior to July 1, 2017, may also request reconsideration under a state law standard that would have been available to them under older borrower defense regulations. This is a change from the proposed rule, which proposed giving all borrowers the option of reconsideration under a state law standard. (§ 685.407.)
• Recoupment: The final rule clarifies the procedures for recouping the cost of a discharged claim in several ways. It notes that recoupment actions will follow the same procedures used by the Department to collect any other liability owed to the Department, which places the burden of persuasion on the institution once the Department has made factual determinations that account for various parties’ input. The Department has added regulatory text explaining how these procedures will work. The final rule also clearly states that recoupment cannot occur on a claim approved under this rule that would not have been approved under the standards for borrower defense in place at the time the loans associated with the claim were first disbursed. The final rule also adopts a six-year limitations period for recoupment. That period may be tolled once the institution is notified of the claim, including through the filing of lawsuits and other steps. (§ 685.409.)

Response to AACOM Comments

AACOM submitted comments on behalf of its member institutions suggesting several edits to the proposed PSLF and BDR rules. 

With respect to PSLF, one of AACOM’s proposals was incorporated in the final rules—the final PSLF rule allows a qualifying employer to certify employment for a contractor if that individual is providing services that by state law cannot be filled or provided by an employee of that organization. Texas and California laws prohibit private nonprofit institutions, including community hospitals, children’s hospitals, rural hospitals, and district hospitals, from directly employing physicians.

Several of AACOM’s PSLF proposals, however, were not incorporated. For example, the final rules do not:

• Require the Department to publish a registry of “qualifying employers” for the PSLF program.
• Increase transparency for borrowers whose PSLF applications are denied.
• Count toward PSLF student loan payments for individuals employed full time in public service before the coronavirus emergency, that are deferred as a result of the public health emergency, if the employees lost their job during the public health emergency.

With respect to BDR, the Department did not incorporate any changes sought by AACOM, specifically. However, the final BDR rule does improve institutional protections with regard to group formation claims by allowing institutions an opportunity to respond to the group request before the Department decides whether to form a group. Additionally, the final rule removes problematic regulatory language regarding deceptive recruitment practices, which should mitigate some concerns regarding frivolous claims in response to change to financial aid award letters and marketing materials. 

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