The U.S. Department of Education (ED) has resumed adjudicating borrower defense to repayment (BDR) applications not impacted by the Sweet v. McMahon settlement, resulting in an increase in claims received by institutions. Updated guidance from ED outlines how schools are notified of BDR claims under both the 1994 and 2016 regulations and provides key information on how institutions may respond.
As part of its review process, ED will provide schools with notice of claims and an opportunity—generally 60 days—to respond with information or documentation. Participation is voluntary, and ED indicated it will not draw negative conclusions if a school does not respond.
The announcement also highlights key differences between the regulatory frameworks, noting that the 2016 rules establish a more formalized notification and response process, along with clearer standards for adjudicating claims. ED may issue notifications in batches, particularly for institutions with multiple claims, and reiterated that this process is separate from any future effort to recoup funds following approved borrower defense discharges.
Overview of the Notification Process
ED’s notification process is part of its fact-finding responsibilities and occurs prior to adjudicating borrower defense claims. Institutions are provided notice of applications associated with their school and given the opportunity to review allegations and submit a response. This process ensures ED considers both borrower claims and institutional perspectives before reaching a determination.
Key Elements for Institutions
Opportunity to Respond
Upon notification, institutions are generally provided a 60-day window to submit a response and supporting documentation.
Voluntary Participation
Schools are not required to respond. ED notes that no negative inference will be drawn if an institution declines to participate.
Content of Notifications
ED may provide:
- Borrower allegations or application details
- Relevant supporting documentation (as applicable)
Batch Processing
Notifications may be issued in groups of claims, particularly for institutions with higher volumes.
Compliance and Operational Considerations
Institutions should be aware of several key implications:
- Centralized Intake and Review: Schools should have a process in place to receive, track, and respond to ED notifications in a timely manner.
- Cross-Department Coordination: Responses may require collaboration across legal, compliance, and academic units.
- Documentation Readiness: Maintaining thorough records related to marketing, disclosures, and student communications remains critical.
- Risk Management: While responding is optional, failure to provide context may limit an institution’s ability to influence ED’s understanding of the claim.
Connection to Recoupment Risk
ED reiterated that the notification process is separate from any future recoupment action. If a borrower defense claim is approved and loans are discharged, ED may later pursue recovery of those funds from the institution through a separate proceeding, which includes its own notification and response process.
Looking Ahead
This guidance reinforces ED’s continued focus on consistency and transparency in borrower defense adjudication, while preserving institutional due process. Financial aid administrators and compliance officers should review internal procedures to ensure readiness to respond to borrower defense notifications in a timely and coordinated manner.
Key Takeaways
ED emphasized several key points in its guidance:
- ED is notifying most institutions of all applications for borrower defense to repayment claims received and will periodically send newly submitted applications. For institutions that have started receiving applications already, ED has issued approximately 70% of the notifications.
- Institutions are notified of all applications prior to any substantive review by ED. This is due to the requirements of fact finding required under the 1994 Regulation and 2016 Regulation before ED adjudicates applications, and the notification process is part of the fact-finding step.
- Under the 1994 Regulation and 2016 Regulation, it is optional for an institution to respond to the applications, and a nonresponse does not give rise to a negative inference against the school.
- For cases adjudicated under the 1994 Regulation, ED will approve applications that allege a misrepresentation only if it has evidence that demonstrates that all elements of the applicable state law are met.
- For cases adjudicated under the 2016 Regulation, ED will approve applications that allege substantial misrepresentations only if it has evidence that demonstrates that a borrower’s school made a substantial misrepresentation that the borrower reasonably relied on to his or her detriment. ED will separately decide whether to recoup funds on any approved claim. Any recoupment actions ED chooses to initiate have their own notification and response processes, which include providing additional evidence to the institution.
Access the full announcement here: (GENERAL-26-22) School Notification Process Under the 1994 and 2016 Borrower Defense to Repayment Regulations (34 C.F.R. 685.206(c) and 34 C.F.R. 685.222)