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On November 1, the Department of Education published regulations that make changes to borrower defense to repayment, Public Service Loan Forgiveness, several loan discharges, and loan interest capitalization, as well as address institutions’ use of mandatory pre-dispute arbitration.

It is the second set of rules ED issued in less than a week, as the department continues to make changes to the regulations for institutions that receive Federal Student Aid funds.

The effective date for these new regulations is July 1, 2023; however, ED has indicated that the changes to the definitions of full-time employment may be implemented early by entities subject to that provision.

NACUBO will continue to examine the final regulations and report as necessary.

Borrower Defense to Repayment

The final rules establish a new federal standard and process for determining whether a borrower has a defense to repayment of a loan. These simplified borrower defense (BD) changes will apply to all applications received starting July 1, 2023—a significant change from previous iterations of BD where the loan disbursement date determined which rules applied.

ED will use a preponderance of the evidence standard to determine whether the school committed an actionable act or omission and the borrower suffered harm such that the circumstances warrant BD relief and the student’s claim should be approved. ED describes actionable acts or omissions to mean—

  1. The institution made a substantial misrepresentation that misled the borrower in connection with his/her decision to attend—or continue to attend—the institution, or the borrower’s decision to take out a covered loan
  2. The institution made a substantial omission of fact in connection with the same reasons above
  3. The institution failed to perform its obligations under the terms of a contract with the student
  4. The institution engaged in aggressive and deceptive recruitment conduct or tactics
  5. A federal or state judgment against the institution, or sanctions/adverse action against the institution by ED that could give rise to a BD claim

The regulations also provide a path for recouping the cost of approved discharges from institutions when warranted and after significant due process opportunities and in a period not to exceed six years after the borrower’s last date of attendance at the institution. The loan discharge process is separate from any recoupment proceeding that ED elects to pursue against an institution. This is in line with how ED handles closed school and false certification discharges.

Pre-Dispute Arbitration

The final regulations limit pre-dispute arbitration and class action waivers in institutions’ enrollment agreements to ensure Direct Loan borrowers have access to fair processes and to provide insight and evidence to ED that may be needed to adjudicate BD claims. ED notes that this will primarily impact for-profit institutions.

Public Service Loan Forgiveness

ED made several changes to the regulations governing Public Service Loan Forgiveness (PSLF) to improve the application process and to clarify and expand the definitions of full-time employment, employee or employed, and qualifying monthly payments. Many provisions in the rule will codify temporary PSLF waiver provisions that expired on October 31.

For PSLF, ED’s new definition of full-time employment is now a minimum average of 30 hours of work per week. The agency also notes that this provision may be implemented early by affected entities.

ED also changed the definition of the term “employee or employed” to include an individual who works as a contracted employee for a qualifying employer in a position or providing services which, under applicable state law, cannot be filled or provided by a direct employee of the qualifying employer. This was in response to comments ED received regarding physicians working in Texas and California hospitals.

The regulations also clarify that while lump-sum payments can be counted towards future payments—and thus the 120 payments required for forgiveness—the borrower would still have to complete 120 months of qualifying service before seeking forgiveness.

Other Regulatory Changes

The final rule published in the Federal Register also amends:

  • The closed school discharge provisions to expand borrower eligibility for automatic discharges and eliminate provisions pertaining to reenrollment in a comparable program.
  • The Direct Loan and FFEL regulations governing false certification discharges.
  • The Perkins, Direct Loan, and Federal Family Education Loan (FFEL) program regulations to improve the process for granting total and permanent disability (TPD) discharges by eliminating the income monitoring period, expanding the circumstances in which borrowers can qualify for discharges based on a finding of disability by the Social Security Administration, expanding allowable documentation, and allowing additional health-care professionals to provide a certification that a borrower is totally and permanently disabled.
  • The Direct Loan regulations to eliminate interest capitalization in instances where it is not required by statute.


Bryan Dickson

Director, Student Financial Services and Educational Programs


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