Sec. 205. Borrower defense to repayment
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Section 455(h) ( 20 U.S.C. 1087e ) is amended to read as follows: A borrower of a loan under this part or part B may submit an application to the Secretary claiming a defense to repayment of the loan (as described in paragraph (7)) (referred to in this subsection as a borrower defense ), at any time and regardless of the current payment status of the loan. The application shall— certify that the borrower received the proceeds of a loan or loans issued under this part or part B to attend an eligible institution of higher education; provide evidence that supports the borrower defense; indicate whether the borrower has made a claim with respect to the information underlying the borrower defense with any third party, such as the holder of a performance bond or a tuition recovery program, and, if so, the amount of any payment received by the borrower or credited to the borrower’s loan obligation; and provide any other information or supporting documentation reasonably requested by the Secretary.
The Secretary may initiate and carry out a process to determine whether a group of borrowers, identified by the Secretary, has a borrower defense. The Secretary may— identify members of such a group from individually filed applications submitted under subparagraph (A); or if the Secretary determines that there are common facts and claims that apply to borrowers who have not filed an application under subparagraph (A), identify such members based on information in the possession of the Secretary.
In the case of a group identified by the Secretary under this clause, the Secretary shall designate a Department official to present the group’s claim in the process described under paragraph (2). A State attorney general or nonprofit legal assistance organization that represents borrowers may submit an application described in subparagraph
(A)on behalf of a group of borrowers whose claims are similar or identical, without requiring an application from each individual borrower in that group or class. Upon initiation of the process under clause
(i)or receipt of an application under clause (ii), the Secretary shall provide the borrowers who may be members of a group borrower defense claim with a written notice of such initiation or receipt, as the case may be, and an option to opt out of the proceeding under this subsection for that group. Upon receipt of an application on behalf of a group of borrowers under clause (ii), the Secretary shall provide the entity submitting that application with a written determination, not later than 120 days after receipt of the application, stating— whether the Secretary will forgo the review of claims for individual borrowers and instead will review the claims for the group described in that application (or for a subset of borrowers in that group, if applicable); if the Secretary determines not to evaluate the application for that group (or not to evaluate the application for all the requested members of that group), the reasons for the determination; and that the Secretary may reconsider the determination in item
(bb)if presented with new evidence that would allow for the consideration of claims for the group described in the application. If the Secretary approves a group application for relief under this subsection, all borrowers in the group who have not affirmatively opted out are entitled to relief, regardless of whether an individual borrower filed an application. Upon receipt of an application from an individual borrower or upon receipt of an application from a group of borrowers or initiation of a claim on behalf of a group of borrowers, as described in paragraph (1)(B), the Secretary shall carry out the following activities: With regard to the borrower's payment status (including each borrower in such group who does not opt out under paragraph (1)(B)(iii)(I)), the Secretary shall— grant an administrative forbearance without requiring documentation from the borrower, including a forbearance for any period necessary for the Secretary to determine the borrower's eligibility for discharge; notify the borrower of the option to decline that forbearance and continue making payments on the loan; provide the borrower with information about the availability of an income-based repayment plan; and if the borrower’s loan is in default— suspend collection activity on the loan, including any garnishments or offsets, until a decision on the borrower’s claim is issued; notify the borrower of the suspension of collection activity; notify the borrower that if the Secretary determines the borrower does not qualify for a discharge of the loan, collection activity will resume unless the borrower chooses to make payments under any repayment plan, including income-based repayment described under section 493C; and notify the borrower that if the Secretary determines the borrower does not qualify for a discharge of the loan, and if the borrower makes payments under any repayment plan, including an income-based repayment, as described in item (cc), the Secretary shall submit a report to the consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B to remove the borrower's record of default and the Secretary shall refund any collection costs paid by the borrower subsequent to the borrower submitting an application under paragraph (1), but prior to the suspension of the collection activity, as described in item (aa). With regard to the fact-finding process, the Secretary shall designate a Department official (which shall not be an official designated under paragraph (1)(B)(i)(III) and shall be a staff member in the enforcement unit, in accordance with section 141(g)) to— notify the institution of higher education of the borrower defense application or the initiation of the borrower defense claim; determine whether the borrower has established a borrower defense, which shall include— consideration of evidence or argument presented by the borrower; and consideration of additional information, including— Department records; any response or submission from the institution; and any additional information; and upon the borrower’s reasonable request, identify and provide to the borrower any records the Secretary is considering as part of the borrower’s claim. Not later than 18 months after the date of receipt of an application under paragraph (1)(A) or (1)(B)(ii), or the initiation of a claim under paragraph (1)(B)(i), as the case may be, the Secretary shall determine if a borrower or group of borrowers has a successful borrower defense claim. If the Secretary fails to issue a determination by the date that is 18 months after the date of receipt of such application or initiation, the loan underlying the borrower defense claim shall be automatically discharged. An institution shall provide information to the Secretary, not later than 30 days after the date of a request by the Secretary, and as directed by the Secretary, regarding any response or submission that is requested from the Secretary relating to a borrower defense claim. A borrower defense claim shall be approved under this subsection, if the Secretary finds that a preponderance of the evidence shows that the borrower has established a borrower defense that meets the requirements of this subsection. If a borrower is determined to have a borrower defense in accordance with this subsection, the Secretary shall— discharge the borrower of the borrower’s obligation to repay the loan (including associated interest, costs, and fees that the borrower would otherwise be obligated to pay) in regards to which there is a borrower defense; notify the borrower of the discharge described in clause
(i)and the other information described in subparagraph (C); retroactively waive any interest that accrued after the borrower submitted an application under this subsection; provide the borrower such further relief as the Secretary determines is appropriate under the circumstances, which shall include— reimbursing the borrower for amounts paid toward the loan voluntarily or through enforced collection; and determining that the borrower is not in default on the loan and is eligible to receive assistance under title IV; and not later than 30 days after the date of such determination, submit new reports to consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B. There shall be a presumption that on the finding of a successful borrower defense claim, the full amount of the borrower's loan shall be discharged as described in subparagraph (A). If the Secretary determines that discharge of the full amount of the loan is not appropriate in a particular case, the Secretary shall provide the borrower with— a written explanation as to why partial relief is appropriate; and if the borrower defense is a defense based on State law and described in paragraph (7)(B)(i) or is a defense described in paragraph (7)(B)(ii) or (7)(B)(iii), include an assurance that the amount of relief is not less than the amount of relief that would be afforded under State law. Notwithstanding clause (i), in the case of a determination that a borrower defense based on paragraph (7)(B)(iv) has been established, the full amount of the borrower's loan shall be discharged. The total amount of relief granted with respect to a borrower defense regarding a loan under this part or part B shall not exceed the amount of the loan under this part or part B, as the case may be, and any associated interest, costs, and fees. Such amount will be reduced by the amount of any refund, reimbursement, indemnification, restitution, compensatory damages, settlement, debt forgiveness, discharge, cancellation, compromise, or any other financial benefit received by, or on behalf of, the borrower that was related to the borrower defense and that reduced the borrower’s debt for the loan under this part or part B. Any relief provided to a borrower, such as relief for an education loan that is not a Federal loan or refunds from a State tuition recovery fund for out-of-pocket expenses, shall not decrease the amount of relief that the borrower shall be entitled to for a loan under this part or part B based on a borrower defense. A borrower that has a borrower defense based on State law and described in paragraph (7)(B)(i) or a defense described in paragraph (7)(B)(ii) or (7)(B)(iii) shall not receive an amount of relief that is less than the relief the borrower would receive under the applicable State law. If a borrower defense is successful the Secretary shall notify the borrower (or the entity that submitted the application, in the case of an application described in paragraph (1)(B)(ii)) in writing— of the reasons for the approval and the evidence that was relied upon; that the borrower is relieved of the obligation to repay the loan (or a portion of the loan, as described in subparagraph (B)) and associated costs and fees that the borrower would otherwise be obligated to pay; in the event the Secretary does not grant a discharge of the full amount of the loan, an explanation of the reason why partial relief is granted, and (if applicable) an assurance described in subparagraph (B)(i)(II); that the borrower will be reimbursed for some or all of the amounts paid toward the loan voluntarily or through enforced collection, if applicable; of the amount of any portion of the loan that is due and payable to the Secretary; that if any balance remains on the loan, the loan will return to the status prior to the borrower's submission of the application, except that in the case of a loan that was in default prior to such application, the borrower shall first be removed from default status and given the opportunity to enter repayment, including income-based repayment described under section 493C, before the loan will be sent to collections; that if the borrower chooses to make payments, including payments under income-based repayment as described in clause (vi), the Secretary shall— submit a report to the consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan under this part or part B to remove the record of default; and refund any collection costs paid with regard to that loan by the borrower subsequent to the borrower submitting an application under paragraph (1); that if only some of the loan will be discharged, the borrower will have the opportunity for reconsideration of the borrower's claim as described in paragraph (6); that the borrower is eligible to receive assistance under title IV, if applicable; and that reports to consumer reporting agencies to which the Secretary previously made adverse credit reports with regard to the borrower’s loan shall be updated not later than 30 days from the date the determination under this paragraph was made. If the Secretary denies a borrower defense, the Secretary shall retroactively waive a portion of interest that accrued during the forbearance period (as described in subparagraph (B)) and notify the borrower— of the reasons for the denial and the evidence that was relied upon; that the interest accruing on the relevant loan after the first 12-month period of forbearance that occurred from the time the borrower's application was submitted under this subsection will be retroactively waived; of the amount of any portion of the loan that is due and payable to the Secretary; whether the Secretary will reimburse any amounts previously collected prior to the suspension of the collection activity, as described in paragraph (2)(A)(i)(IV)(aa); that if any balance remains on the loan, the loan will return to the status prior to the borrower's submission of the application, except that in the case of a loan that was in default prior to such application, the borrower shall first be removed from default status and given the opportunity to enter repayment, including income-based repayment described under section 493C, before the loan will be sent to collections; and that the borrower shall have the opportunity for reconsideration of the borrower's claim as described in paragraph (6). The decision of the Secretary and any relief that may be granted on the claim shall be considered the final agency action that shall be subject to appeal in district court, except that— if the borrower defense is denied in full or in part, the borrower may request that the Secretary reconsider the borrower defense upon the identification of new evidence in support of the borrower’s claim; and the Secretary may reopen a borrower defense application at any time to consider evidence that was not considered in making the previous decision on that application. The Secretary shall not reduce the amount of any relief that was previously granted to a borrower under this section, or reinstate any amounts owed on a previously discharged loan. Notwithstanding any other provision of State or Federal law, a borrower may claim as a defense to repayment of a loan made under this part or part B any borrower defense established under subparagraph (B). Such a borrower defense claim may include— a defense to repayment of amounts owed to the Secretary on a loan under this part or part B, in whole or in part; and a right to recover amounts previously collected by the Secretary on such loan, in whole or in part. In the case of a Direct Consolidation Loan— the Secretary shall consider a borrower defense claim to such loan by determining whether a borrower defense described in subparagraph
(B)has been established with regard to a loan made under this part or part B that was paid off by the Direct Consolidation Loan; the Secretary shall discharge the appropriate portion of the Direct Consolidation Loan if the borrower is determined to have a borrower defense with respect to a loan made under this part or part B that was paid off by the Direct Consolidation Loan; and the Secretary shall return to the borrower any payments made by the borrower or otherwise recovered on the Direct Consolidation Loan or the loans that were paid off by the Direct Consolidation Loan that exceed the amount owed on that portion of the Direct Consolidation Loan that was not discharged, if— the borrower is determined to have a borrower defense with respect to a loan made under this part or part B that was paid off by the Direct Consolidation Loan; and the payment was made directly to the Secretary on the loan. In the case of a Direct PLUS Loan made on behalf of a student, the Secretary shall consider a borrower defense claim related to the student on whose behalf the Direct PLUS Loan was borrowed. Any amounts discharged will be applied to the parent or borrower of the Direct PLUS Loan. A borrower has established a borrower defense if— the borrower (whether as an individual or as a member of a group or class) or a government agency, has obtained against the institution of higher education a judgment relating to the borrower's claim based on State or Federal law in a court or administrative tribunal of competent jurisdiction; the institution of higher education that the borrower attended using a loan under this part failed to perform the institution’s obligations under the terms of a contract with the borrower; the borrower was subject to any act or omission of the institution related to the making of the loan for enrollment at the institution or the provision of educational services for which the loan was provided that would give rise to a cause of action against the institution under applicable State law; the institution of higher education, a third servicer that contracts with such institution, or third party contractor made a substantial misrepresentation; or the institution has made any other act or omission that the Secretary, through regulations, or any Federal law, has established is an act or omission that constitutes a borrower defense under this subsection. A violation by an institution of a requirement in this Act (including implementing regulations) is not a basis for a borrower defense under this subsection unless the violation would otherwise constitute a basis for a borrower defense, as described in this paragraph. An eligible institution is deemed to have engaged in a substantial misrepresentation for purposes of this subsection when an eligible institution, third party servicer that contracts with such institution, or third party contractor, commits a substantial misrepresentation, as defined in section 489A. A sworn statement or attestation from the borrower shall be considered as evidence, and, in the Secretary’s discretion, may be sufficient evidence for the Secretary to find that a substantial misrepresentation was made to a borrower. If the Secretary determines that an eligible institution, third party servicer that contracts with such institution, or third party contractor, has engaged in a substantial misrepresentation, the Secretary shall, in addition to finding a borrower defense under this section, take enforcement action against the institution, third party servicer that contracts with such institution, or third party contractor, in accordance with section 489A. If a borrower is determined to have established a borrower defense in accordance with this subsection, the Secretary shall initiate an appropriate proceeding to require the institution whose act or omission resulted in the borrower defense to repay to the Secretary the amount discharged under paragraph (7)(A) whether by offset, claim on a letter of credit, or other protection provided by the institution. Not less than once every 3 months, the Secretary shall publish on a website, and report to Congress, data— for each institution, on— the number of claims considered under this subsection; the number of those claims pending and the date of receipt of the application, or the date of the initiation of the claim by the Secretary, of those claims; and the number of claims under this subsection for which a determination has been made and the results of each such determination; and in the aggregate, and disaggregated by State, on— the total number of claims pending under this subsection; the number of those claims that are approved borrower defense claims and total dollar amount of relief; the percentage of those total approved claims receiving partial relief and the median student loan debt remaining for borrowers receiving partial relief; and the number of those claims that are denied borrower defense claims. .
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Sec. 205
Borrower defense to repayment
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