Department of Education Proposes Rule to Protect Student Borrowers from Alleged Predatory Practices by Postsecondary Institutions

Arbitration Student Lending Department of Education Agency Rule-Making & Guidance

On June 16, the Department of Education’s (Education) proposed rule to amend the regulations governing the Direct Loan program was published in the Federal Register. The proposal seeks to clarify and expand upon existing regulations intended to protect student borrowers from alleged predatory practices by postsecondary institutions. Specifically, Education proposes to amend existing regulations by, among other things, (i) establishing a more accessible and consistent borrower defense standard and streamlining the borrower defense process to ensure protection from institutions’ alleged predatory actions and omissions resulting in loan discharges; (ii) requiring certain institutions provide Education-issued plain language warnings to prospective borrowers and enrolled students on its Web sites and in all promotional materials and advertisements; (iii) prohibiting the requirement to use arbitration to resolve claims brought by a borrower against the school or waivers of his/her right to initiate or participate in a class action lawsuit regarding such claims; and (iv) prohibiting the requirement for students to engage in internal institutional complaints or grievances before contacting accrediting or government agencies with authority over the school regarding such claims. Comments on the proposed rule must be received by Education on or before August 1, 2016.