In a notice published in today’s Federal Register, the Dept. of Education announced that it is postponing  “until further notice” the July 1, 2017 effective date of various provisions of the “borrower defense” final rule issued by the ED last November, including the rule’s ban on arbitration agreements.  In a second notice also published in today’s Federal Register, the ED announced that it plans to establish two negotiated rulemaking committees, with one committee to develop proposed regulations to revise the “borrower defense” rule and the other to develop proposed revisions to the “gainful employment” rule that became effective in July 2015 and includes requirements for schools to make various disclosures such as graduation rates, earnings of graduates, and student debt amounts.

Effective Date Postponement.   Last week, the California Association of Private Postsecondary Schools (CAPPS) filed a complaint in D.C. federal district court against the ED and Education Secretary Betsy DeVos to overturn the “borrower defense” final rule.  In its notice delaying the rule’s July 1 effective date, the ED stated that the postponement “will preserve the regulatory status quo while the litigation is pending and the Court decides whether to uphold the final regulations.”

The Federal Register notice lists the specific provisions of the final rule for which the effective date is postponed.  The ED described the postponed provisions as those “pertaining to the standard and process for the Department to adjudicate borrower defense claims, requirements pertaining to financial responsibility standards, provisions requiring proprietary institutions to provide warnings about their students’ loans repayment rates, and prohibitions against institutions including arbitration or class action waivers in their agreements with students.”  The ED is retaining the July 1 effective date for several provisions of the final rule, such as those expanding the types of documentation that can be used for granting a discharge based on a borrower’s death.

Negotiated rulemaking.  The Federal Register notice indicates that the ED plans to hold public hearings on July 10, 2017 in Washington, D.C. and on July 12, 2017 in Dallas, Texas.  The ED stated that, after it reviews the public comments submitted at the hearing and in written submissions, it will publish one or more documents in the Federal Register announcing the specific topics for which it intends to establish the negotiated rulemaking committees and request nominations for individual negotiators.  The ED anticipates that the committees will begin negotiations in November or December 2017, with the committees meeting in Washington, D.C. area for up to three sessions of three to four days each at roughly five- to eight-week intervals.

Comments on the topics on which the Department intends to conduct negotiated rulemaking and additional topics to be considered for action by the negotiated rulemaking committees must be received by the ED on or before July 12, 2017.

State AGs Motion to Intervene.  Earlier this week, a group of 8 state attorneys general and the D.C. attorney general filed a motion for leave to intervene in the CAPPS lawsuit and to be heard at the hearing on the preliminary injunction sought by CAPPS. While the lawsuit challenges the overall final rule, CAPPS also filed a motion for a preliminary injunction in which it asked the court to preliminarily enjoin only the final rule’s arbitration ban and class action waiver provisions pending the resolution of the lawsuit.  To explain their interest in the case, the AGs highlight the arbitration ban in the “borrower defense” rule and assert that “by protecting borrowers’ ability to bring private lawsuits, the [ban] restore[s] an important component of the State Movants’ consumer protection enforcement frameworks, which were designed to include private lawsuits to supplement public enforcement efforts.”