Sec. 102. Borrower defense and substantial misrepresentations
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Section 455(h) ( 20 U.S.C. 1087e(h) ) is amended to read as follows: Notwithstanding any other provision of State or Federal law, the Secretary shall discharge a covered loan in repayment made to a borrower with a defense to repayment of the loan, as described in this section. In this subsection: The term repayment means the period after any in-school deferment or grace period and before a loan is paid in full other than by a consolidation loan made under this title, including, without limitation, a loan in default.
The term covered loan means a loan made, insured, or guaranteed under this title that has an outstanding balance comprised in whole or in part by repayment obligations incurred to cover the cost of attendance at an institution of higher education. For purposes of discharge under this section, a borrower defense to repayment is established when the Secretary concludes by a preponderance of the evidence that a qualifying act, omission, or event occurred, and the student whose cost of attendance was paid in whole or in part by the proceeds of a covered loan suffered detriment in the nature and degree warranting a borrower defense discharge.
A qualifying act, omission, or event includes without limitation any of the following: The institution, one of its representatives, or a third-party servicer of the institution made a substantial misrepresentation (as described in section 481(g)), directly or indirectly, to the borrower in connection with the borrower’s decision to attend, or to continue attending, the institution or the borrower’s decision to take out a covered loan. The institution failed to perform its obligations under the terms of a contract with the student and such obligation was undertaken as consideration or in exchange for the borrower’s decision to attend, or to continue attending, the institution, for the borrower’s decision to take out a covered loan, or for funds disbursed in connection with a covered loan.
The institution engaged in aggressive and deceptive recruitment conduct or tactics in connection with the borrower’s decision to attend, or to continue attending, the institution or the borrower’s decision to take out a covered loan. Aggressive and deceptive recruitment tactics or conduct include actions by the institution, any of its representatives, or any entity, organization, or person with whom the institution has an agreement to provide educational programs, marketing, recruitment, or lead generation services that pressure a student to make enrollment or loan-related decisions, take unreasonable advantage of a student’s lack of knowledge, discourage a student or prospective student from consulting an advisor prior to making enrollment or loan-related decisions, use threatening or abusive language, or repeatedly engage in unsolicited contact.
The borrower, whether as an individual or as a member of a class, or a governmental agency has obtained against the institution a favorable judgment based on State or Federal law in a court or administrative tribunal of competent jurisdiction based on the institution’s act or omission relating to the making of a covered loan, or the provision of educational services for which the loan was provided, notwithstanding any possible appeal. The Secretary sanctioned or otherwise took adverse action against the institution at which the borrower enrolled, based on the institution’s acts or omissions that could give rise to a borrower defense under clause (i), (ii), or (iii).
The institution committed any act or omission that relates to the making of the covered loan for enrollment at the institution or the provision of educational services for which the covered loan was provided that would give rise to a cause of action against the institution under applicable State law without regard to any statute of limitations. In determining whether the nature and degree of detriment warrants a borrower defense discharge, the Secretary shall consider the totality of the circumstances, including the nature and degree of detriment shown by previous recipients of borrower defense discharge, and drawing all inferences and presumptions warranted by the evidence under the circumstances.
To effectuate a borrower defense discharge of a covered loan in repayment, the Secretary shall carry out the following: Discharge all amounts owed to the Secretary, including interest and fees, on the covered loan, subject to the limitation in paragraph (5). In the case of a covered loan that is a Federal Direct Consolidation Loan or a Federal Consolidation Loan under section 428C comprised only in part of repayment obligations incurred to cover the cost of attendance at the institution whose acts or omissions are the basis of the discharge, the Secretary may discharge less than the total amount of the covered loan when loan account records clearly establish the portion of the covered loan not subject to the defense to repayment.
Reimburse all payments previously made to the Secretary on the covered loan, subject to the limitation in paragraph (5). For borrowers in default, determine that the borrower is not in default on the covered loan and therefore not ineligible to receive assistance under this title on the basis of default on the covered loan. Update or delete adverse reports the Secretary previously made to consumer reporting agencies regarding the covered loan. Remove the discharged covered loan and any grant made under this title related to the student’s attendance at the institution whose acts are omissions are the basis of the discharge from the borrower’s loan history for purposes of calculating eligibility for further grants and loans under this title.
The Secretary may reduce the amount of discharge and reimbursement provided for in paragraph
(4)if the borrower received a money payment from the institution or related entity in compensation for the acts or omissions forming the basis of the borrower defense. In deciding whether a reduction is warranted, and in what amount, the Secretary shall consider the extent to which the payment received by the borrower compensated for non-economic damages, out-of-pocket expenses, or payments previously made directly to the institution, and whether the borrower has non-Federal student loans as a result of attending the institution. The Secretary may not reduce the amount of discharge and reimbursement provided for in a covered loan in paragraph
(4)because the borrower received funds from a State tuition recovery fund. A borrower defense discharge is final upon the Secretary’s notification to the borrower. The Secretary may not thereafter revoke or reduce the amount of discharge or reimbursement, absent a finding of fraud on the part of the borrower. Where substantial misrepresentations are widespread, the Secretary shall seek to assess the eligibility of all potentially affected borrowers as a group or in multiple groups to expedite the process. If such discharges are approved, the Secretary shall discharge the covered loans of all eligible borrowers in the group, in accordance with the processes in this section and without requiring application materials, to the extent practicable. The Secretary may promulgate regulations or otherwise prescribe procedures in relation to borrower defense discharge, consistent with the provisions of this section. Nothing in this section modifies or displaces existing powers, authorities, and obligations of the Secretary, including obligations imposed under chapter 5 of title 5, United States Code (commonly known as the Administrative Procedures Act ). . Section 481 ( 20 U.S.C. 1088 ) is amended by adding at the end the following: In this title, the term substantial misrepresentation , when used with respect to an institution of higher education, includes— any statement about the nature of the institution’s educational program, its financial charges, or the employability or earnings of its graduates that is false, erroneous, or has the likelihood or tendency to mislead under the circumstances, on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment; and any omission of fact, such as the concealment, suppression, or absence of material information about the nature of the institution’s educational program, its financial charges, the employability or earnings of its graduates, the availability of enrollment openings in the student’s desired program, the factors that would prevent an applicant from meeting the legal or other requirements to be employed, licensed, or certified in the field for which the training is provided which a reasonable person would have considered in making a decision to attend, or to continue attending, the institution or to take out a covered loan. .
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