82 FR 6253 - Student Assistance General Provisions

DEPARTMENT OF EDUCATION

Federal Register Volume 82, Issue 12 (January 19, 2017)

The Secretary amends the Student Assistance General Provisions regulations governing participation in the student financial assistance programs authorized under Title IV of the Higher Education Act of 1965, as amended (title IV, HEA programs). The amended regulations update the Department's hearing procedures for actions to establish liability against an institution of higher education, and establish procedural rules governing recovery proceedings under the Department's borrower defense regulations.

[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Rules and Regulations]
[Pages 6253-6259]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00972]


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DEPARTMENT OF EDUCATION

34 CFR Part 668

RIN 1840-AD22
[Docket ID ED-2015-OPE-0103]


Student Assistance General Provisions

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final rule with request for comments.

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SUMMARY: The Secretary amends the Student Assistance General Provisions 
regulations governing participation in the student financial assistance 
programs authorized under Title IV of the Higher Education Act of 1965, 
as amended (title IV, HEA programs). The amended regulations update the 
Department's hearing procedures for actions to establish liability 
against an institution of higher education, and establish procedural 
rules governing recovery proceedings under the Department's borrower 
defense regulations.

DATES: Effective date: These regulations are effective January 19, 
2017.
    Comment due date: We will accept comments on or before March 20, 
2017. We may consider the comments received and may conduct additional 
rulemaking based on the comments.

ADDRESSES: Submit your comments through the Federal eRulemaking Portal 
or via postal mail, commercial delivery, or hand delivery. We will not 
accept comments submitted by fax or by email or those submitted after 
the comment period. To ensure that we do not receive duplicate copies, 
please submit your comments only once. In addition, please include the 
Docket ID at the top of your comments.
    If you are submitting comments electronically, we strongly 
encourage you to submit any comments or attachments in Microsoft Word 
format. If you must submit a comment in Portable Document Format (PDF), 
we strongly encourage you to convert the PDF to print-to-PDF format or 
to use some other commonly used searchable text format. Please do not 
submit the PDF in a scanned format. Using a print-to-PDF format allows 
the U.S. Department of Education (the Department) to electronically 
search and copy certain portions of your submissions.

[[Page 6254]]

     Federal eRulemaking Portal: Go to www.regulations.gov to 
submit your comments electronically. Information on using 
Regulations.gov, including instructions for accessing agency documents, 
submitting comments, and viewing the docket, is available on the site 
under ``Help.''
     Postal Mail, Commercial Delivery, or Hand Delivery: The 
Department strongly encourages commenters to submit their comments 
electronically. However, if you mail or deliver your comments about 
these regulations, address them to Jean-Didier Gaina, U.S. Department 
of Education, 400 Maryland Ave. SW., Room 6W232B, Washington, DC 20202.

    Privacy Note:  The Department's policy is to make all comments 
received from members of the public available for public viewing in 
their entirety on the Federal eRulemaking Portal at 
www.regulations.gov. Therefore, commenters should be careful to 
include in their comments only information that they wish to make 
publicly available.


FOR FURTHER INFORMATION CONTACT: Annmarie Weisman, U.S. Department of 
Education, 400 Maryland Avenue SW., Room 6W425, Washington, DC 20202-
6244. Telephone: (202) 453-6712 or by email: [email protected].
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: 

Invitation To Comment

    As discussed below, these regulations do not establish substantive 
policy, but instead establish procedures that must be followed. As 
procedural regulations, there is no requirement for a comment period. 
Although these regulations are final regulations, we are interested in 
whether you think we should make any changes in these regulations and 
thus we are inviting your comments. We will consider these comments in 
determining whether to revise the regulations. To ensure that your 
comments have maximum effect, we urge you to identify clearly the 
specific section or sections of the regulations that each of your 
comments addresses and to arrange your comments in the same order as 
the regulations. See ADDRESSES for instructions on how to submit 
comments.
    We invite you to assist us in complying with the specific 
requirements of Executive Orders 12866 and 13563 and their overall 
requirements of reducing regulatory burden that might result from these 
regulations. Please let us know of any further ways we could reduce 
potential costs or increase potential benefits while preserving the 
effective and efficient administration of the Department's programs and 
activities.
    During and after the comment period, you may inspect all public 
comments about these regulations by accessing Regulations.gov. You may 
also inspect the comments in person in room 6W245, 400 Maryland Avenue 
SW., Washington, DC, between the hours of 8:30 a.m. and 4:00 p.m., 
Eastern time, Monday through Friday of each week except Federal 
holidays. If you want to schedule time to inspect comments, please 
contact the person listed under FOR FURTHER INFORMATION CONTACT.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate accommodation or 
auxiliary aid to an individual with a disability who needs assistance 
to review the comments or other documents in the public rulemaking 
record for these regulations. If you want to schedule an appointment 
for this type of accommodation or auxiliary aid, please contact the 
person listed under FOR FURTHER INFORMATION CONTACT.

Background

    On November 1, 2016, the Department of Education promulgated new 
regulations governing the William D. Ford Federal Direct Loan Program 
to establish a new Federal standard and a process for determining 
whether a borrower has a defense to repayment on a loan based on an act 
or omission of a school (the borrower defense regulations). If the 
Department determines that a borrower is eligible for relief under the 
borrower defense regulations, it has the authority to recover losses 
stemming from such borrower relief from the institution whose conduct 
gave rise to the borrower defense. These regulations establish the 
procedural rules that would govern such borrower defense and 
institutional recovery proceedings, and are designed to ensure that 
institutions are afforded a full and fair opportunity to defend 
themselves in such proceedings.
    These regulations amend the Department's existing regulations 
governing proceedings to assess a fine, limitation, suspension, or 
termination against an institution by adding procedures for a recovery 
proceeding under the borrower defense regulations. Such a proceeding 
may be used when pursuing an action under either the Department's new 
borrower defense regulation at 34 CFR 685.222 or its precursor at 34 
CFR 685.206. These regulations are designed to balance important 
interests by ensuring that institutions are protected by due process of 
law prior to the imposition of any monetary liability under the 
borrower defense regulations, while also ensuring that determinations 
of the validity of borrower defense claims asserted against 
institutions are resolved fairly, efficiently, and expeditiously for 
all parties. In addition, these regulations clarify and update the 
procedural provisions more broadly applicable to fine, limitation, 
suspension, and termination proceedings.
    Under the borrower defense regulations at 34 CFR 685.222, effective 
July 1, 2017, the applicable process for filing and reviewing claims 
will depend on whether a borrower's application is considered by the 
Department as an individual claim or if the Department identifies the 
application as factually similar to other applications such that the 
Department identifies a group of borrowers (potentially including 
borrowers who have not submitted applications) with similar claims. The 
process will also depend on whether the relevant institution is 
``open'' or ``closed'', as those terms are described in the 
regulations. See 34 CFR 685.222(g)through(h).
    The Department has the authority to pursue claims for recovery for 
losses that the Department has already incurred in granting individual 
borrower relief, either as stand-alone actions or in combination with 
group proceedings where those individual claims presented the same 
facts and circumstances as the group claims. In those instances, the 
determination of the validity of the individual's discharge claim does 
not depend on the hearing official's decision, and the Department does 
not rescind a discharge already granted to an individual if the 
Department does not succeed in proving the validity of that claim in 
this proceeding.
    Beginning July 1, 2017, the Department will use these procedural 
regulations both to determine the validity of borrower claims the 
Department asserts on behalf of borrowers in group claims against 
``open'' institutions, and to hold the institutions liable for losses 
on those claims in accordance with 34 CFR 685.222(h). In these 
instances, the hearing official determines the validity of the borrower 
claims and, correspondingly, whether relief will be granted to these 
group borrowers. Borrowers may opt out of the group process. When the 
Department seeks to recover for losses for claims approved

[[Page 6255]]

under current authority and before July 1, 2017, the Department will 
use the procedures in these regulations to pursue recovery from the 
institution. As with any other proceedings to recover on claims already 
approved, the outcome of a proceeding brought to recover for claims 
already approved prior to July 1, 2017 will not affect relief already 
granted to borrowers, but only the accountability of the institution. 
At its discretion, the Department may also use these regulations to 
bring actions against ``closed'' institutions, as defined in 34 CFR 
685.222(g), in order to establish an institution's liability for 
damages due to the Department as a result of individual or group 
borrower defense relief.
    The Department bears the burden of proof in any recovery action 
against an institution for all claims the Department asserts. The 
Department must therefore prove the merit of the claims it asserts for 
members of the group. A hearing official will determine the merit of 
the claims, the relief for members of the group, and the liability of 
the institution. The Department must also prove in the hearing process 
the merit of claims it asserts for losses on discharges it has already 
approved as individual claims, although, as previously indicated, 
individual discharges already granted by the Department will not be 
affected if the Department is not successful in proving the claim in 
this proceeding against the institution.
    These regulations are only applicable to actions initiated by the 
Department to fine an institution, to limit, suspend, or terminate the 
eligibility of an institution or servicer, or to recover from an 
institution for losses from borrower defense claims, and do not 
encompass the process by which the Department evaluates individual 
borrower claims or claims for which the Department does not seek to 
obtain a recovery. That process is set forth in the borrower defense 
regulations at 34 CFR 685.222(e). In addition, the Department plans to 
issue a borrower guide before the borrower defense regulations go into 
effect to ensure borrowers understand the application process and 
criteria for seeking debt relief.

Waiver of Proposed Rulemaking, Negotiated Rulemaking, and Delayed 
Effective Date

    Under the Administrative Procedure Act (5 U.S.C. 553), the 
Department generally offers interested parties the opportunity to 
comment on proposed regulations. These regulations only govern the 
procedures for initiating an action against an institution and the 
hearing rules applicable to such a proceeding. As such, these 
regulations make procedural changes only and do not establish 
substantive policy. The regulations are therefore rules of agency 
practice and procedure, and exempt from notice and comment rulemaking 
under 5 U.S.C. 553(b)(A). However, the Department is providing a 60-day 
comment period and invites interested persons to participate in this 
rulemaking by submitting written comments. The Department may consider 
the comments received and may conduct additional rulemaking based on 
the comments.
    The APA also generally requires that regulations be published at 
least 30 days before their effective date, unless the agency has good 
cause to implement its regulations sooner (5 U.S.C. 553(d)(3)). Again, 
because these final regulations are merely rules of agency practice and 
procedure, there is good cause to make them effective on the day they 
are published. For the same reasons, the Secretary has determined, 
under section 492(b)(2) of the HEA, 20 U.S.C. 1098a(b)(2), that these 
regulations should not be subject to negotiated rulemaking.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this regulatory action is ``significant'' and, therefore, subject to 
the requirements of the Executive order and subject to review by the 
Office of Management and Budget (OMB). Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as an action likely 
to result in a rule that may--
    (1) Have an annual effect on the economy of $100 million or more, 
or adversely affect a sector of the economy, productivity, competition, 
jobs, the environment, public health or safety, or State, local, or 
tribal governments or communities in a material way (also referred to 
as an ``economically significant'' rule);
    (2) Create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impacts of entitlement grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles stated in the 
Executive order.
    This final regulatory action is not a significant regulatory action 
subject to review by OMB under section 3(f) of Executive Order 12866.
    We have also reviewed these regulations under Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only on a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives and taking into 
account--among other things and to the extent practicable--the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages; distributive impacts; and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than the behavior or manner of compliance a regulated entity must 
adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including economic incentives--such as user fees or 
marketable permits--to encourage the desired behavior, or provide 
information that enables the public to make choices.
    Executive Order 13563 also requires an agency ``to use the best 
available techniques to quantify anticipated present and future 
benefits and costs as accurately as possible.'' The Office of 
Information and Regulatory Affairs of OMB has emphasized that these 
techniques may include ``identifying changing future compliance costs 
that might result from technological innovation or anticipated 
behavioral changes.''
    We are issuing these final regulations only on a reasoned 
determination that their benefits justify their costs. In choosing 
among alternative regulatory approaches, we selected those approaches 
that maximize net benefits. Based on the analysis that follows, the 
Department believes that these final regulations are consistent with 
the principles in Executive Order 13563.
    We also have determined that this regulatory action does not unduly 
interfere with State, local, and tribal governments in the exercise of 
their governmental functions.
    In accordance with both Executive orders, the Department has 
assessed the potential costs and benefits, both quantitative and 
qualitative, of this regulatory action. The potential costs associated 
with this regulatory action

[[Page 6256]]

are those resulting from statutory requirements and those we have 
determined as necessary for administering the Department's programs and 
activities. There are no costs additional to those described under 
Regulatory Impact Analysis in the notice of final regulations for the 
borrower defense regulations published in the Federal Register on 
November 1, 2016 (81 FR 75926). These regulations will benefit 
institutions by ensuring that, in any action to fine an institution, to 
limit, suspend, or terminate the eligibility of an institution to 
participate in the title IV, HEA programs, or to determine the validity 
of claims against the institution, there are established procedures 
that provide both due process as well as an efficient process for the 
timely resolution of claims.

Clarity of the Regulations

    Executive Order 12866 and the Presidential memorandum ``Plain 
Language in Government Writing'' require each agency to write 
regulations that are easy to understand.
    The Secretary invites comments on how to make these regulations 
easier to understand, including answers to questions such as the 
following:
     Are the requirements in the regulations clearly stated?
     Do the regulations contain technical terms or other 
wording that interferes with their clarity?
     Does the format of the regulations (grouping and order of 
sections, use of headings, paragraphing, etc.) aid or reduce their 
clarity?
     Would the regulations be easier to understand if we 
divided them into more (but shorter) sections? (A ``section'' is 
preceded by the symbol ``Sec.  '' and a numbered heading; for example, 
Sec.  668.81.)
     Could the description of the regulations in the 
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in 
making the regulations easier to understand? If so, how?
     What else could we do to make the regulations easier to 
understand?
    To send any comments that concern how the Department could make 
these regulations easier to understand, see the instructions in the 
ADDRESSES section.

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations will not have a 
significant economic impact on a substantial number of small entities. 
The small entities that are affected by these regulations are small 
postsecondary institutions. These regulations do not have a significant 
economic impact on these entities because all substantive rules that 
govern determinations of liability have already been established in the 
Department's borrower defense regulations promulgated November 1, 2016.

Paperwork Reduction Act of 1995

    The Paperwork Reduction Act of 1995 does not require you to respond 
to a collection of information unless it displays a valid OMB control 
number. We display the valid OMB control number assigned to a 
collection of information in final regulations at the end of the 
affected section of the regulations.

Intergovernmental Review

    This program is not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    The Secretary particularly requests comments on whether these 
regulations require transmission of information that any other agency 
or authority of the United States gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.thefederalregister.org/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or PDF. To use PDF you must have Adobe Acrobat 
Reader, which is available free at the site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.

(Catalog of Federal Domestic Assistance Number: 84.268, Federal 
Direct Student Loans)

List of Subjects in 34 CFR Part 668

    Administrative practice and procedure, Aliens, Colleges and 
universities, Consumer protection, Grant programs--education, Loan 
programs--education, Reporting and recordkeeping requirements, 
Selective Service System, Student aid, Vocational education.

    Dated: January 11, 2017.
John B. King, Jr.,
Secretary of Education.

    For the reasons discussed, the Secretary amends part 668 of title 
34 of the Code of Federal Regulations as follows:

PART 668--STUDENT ASSISTANCE GENERAL PROVISIONS

0
1. The authority citation for part 668 continues to read as follows:

    Authority: 20 U.S.C. 1001-1003, 1070a, 1070g, 1085, 1087b, 
1087d, 1087e, 1088, 1091, 1092, 1094, 1099c, 1099c-1, 1221e-3, and 
3474, unless otherwise noted.


0
 2. Section 668.81 is amended by:
0
A. Adding paragraph (a)(5).
0
B. Adding paragraphs (e) through (g).
0
C. Revising the authority citation.
    The additions and revision read as follows:


Sec.  668.81  Scope and special definitions.

    (a) * * *
    (5) The determination of--
    (i) Borrower defense to repayment claims that are brought by the 
Department against an institution under Sec.  685.206 or Sec.  685.222; 
and
    (ii) Liability of an institution to the Secretary for losses to the 
Secretary arising from these claims.
* * * * *
    (e) The proceedings described in this subpart provide the 
institution's sole opportunity for a hearing on the existence and 
amount of the debt that is required by applicable law prior to the 
Department collecting the debt from any available funds, including but 
not limited to offsetting the debt or any liability against funds to be 
provided to an institution pursuant to any Title IV, HEA program in 
which that institution participates.
    (f) Nothing contained in this subpart limits the right of the 
Department to gather information, including by subpoena, or conduct any 
examination, audit, program review, investigation, or other review 
authorized by other applicable law.
    (g) Unless directed by a court of competent jurisdiction, the 
hearing official, or the Secretary for good cause, if a collateral 
attack is brought in any court concerning all or any part of any 
proceeding under this subpart, the challenged proceeding shall continue 
without regard to the pendency of that court proceeding. No default or 
other failure to timely act as directed in a proceeding authorized by 
this subpart shall be excused based on the pendency of such court 
proceeding.

[[Page 6257]]


(Authority: 20 U.S.C. 1094)


Sec.  668.83  [Amended]

0
 3. In Sec.  668.83(f)(1), remove ``Sec.  668.90(c)'' and add, in its 
place, ``Sec.  668.91(c)''.

0
 4. In Sec.  668.84 revise paragraphs (b)(3) and (b)(4) to read as 
follows:


Sec.  668.84  Fine proceedings.

* * * * *
    (b) * * *
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official transmits the request for hearing and response to 
the Office of Hearings and Appeals, which sets the date and the place. 
The date is at least 15 days after the designated department official 
receives the request.
    (4) A hearing official conducts a hearing in accordance with Sec.  
668.89.
* * * * *

0
 5. Section 668.85 is amended by:
0
A. In paragraph (b)(1)(iii), removing ``Sec.  668.90(b)(2)'' and 
adding, in its place, ``Sec.  668.91(b)(2)''.
0
B. Revising paragraph (b)(3).
0
C. In paragraph (b)(4), removing ``Sec.  668.88'' and adding, in its 
place, ``Sec.  668.89''.
    The revision reads as follows:


Sec.  668.85  Suspension proceedings.

* * * * *
    (b) * * *
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official transmits the request for hearing and response to 
the Office of Hearings and Appeals, which sets the date and the place. 
The date is at least 15 days after the designated department official 
receives the request. The suspension does not take place until the 
requested hearing is held.
* * * * *

0
 6. Section 668.86 is amended by:
0
A. In paragraph (a)(3), removing ``Sec. Sec.  668.93 and 668.94'' and 
adding, in its place, ``Sec. Sec.  668.94 and 668.95''.
0
B. Revising paragraphs (b)(3) and (b)(4).
    The revisions read as follows:


Sec.  668.86  Limitation or termination proceedings.

* * * * *
    (b) * * *
    (3) If the institution or servicer requests a hearing by the time 
specified in paragraph (b)(1)(iii) of this section, the designated 
department official transmits the request for hearing and response to 
the Office of Hearings and Appeals, which sets the date and place. The 
date is at least 15 days after the designated department official 
receives the request. The limitation or termination does not take place 
until after the requested hearing is held.
    (4) A hearing official conducts a hearing in accordance with Sec.  
668.89.
* * * * *


Sec. Sec.  668.87 through 668.98  [Redesignated as Sec. Sec.  668.88 
through 668.99]

0
 7. Redesignate Sec. Sec.  668.87 through 668.98 as Sec. Sec.  668.88 
through 668.99.

0
 8. Add Sec.  668.87 to read as follows:


Sec.  668.87  Borrower defense and recovery proceedings.

    (a) Procedures. (1) A designated department official begins a 
borrower defense and recovery proceeding against an institution by 
sending the institution a notice by certified mail, return receipt 
requested. This notice--
    (i) Informs the institution of the Secretary's intent--
    (A) To determine the validity of borrower defense claims on behalf 
of a group under Sec.  685.222(h), to demonstrate the validity of 
borrower defense claims already approved, or both, as applicable; and
    (B) To recover from the institution by offset, by claim on a letter 
of credit or other protection provided by the institution, or 
otherwise, for losses on account of borrower defense claims asserted on 
behalf of the group and borrower defense claims already approved, as 
applicable;
    (ii) Includes a statement of facts and law sufficient to show that 
the Department is entitled to grant any borrower defense relief 
asserted within the statement, and recover for the amount of losses to 
the Secretary caused by the granting of such relief;
    (iii) Specifies the date on which the Secretary intends to take 
action to recover the amount of losses arising from the granting of 
such relief, which date will be at least 20 days from mailing of the 
notice of intent and informs the institution that the Secretary will 
not take action to recover the amount of such loss on the date 
specified if the designated department official receives, by that date, 
a written response from the institution indicating why the Secretary 
should not recover. The notice shall also inform the institution that 
if it wishes to request a hearing pursuant to this subpart, the 
institution must include such a request with its written response; and
    (iv) Informs the institution whether the designated Department 
official intends to proceed with--
    (A) A single action; or
    (B) An action in two phases--
    (1) The determination whether the institution's act or omission 
gave rise to valid borrower defense claims; and
    (2) The determination of the amount of borrower defense relief.
    (2) Although the hearing official shall have the discretion to 
bifurcate proceedings with, or without, a motion of either party, any 
decision by the designated department official to bifurcate the 
proceeding in accordance with paragraph (a)(1)(iv)(B) of this section 
may only be modified on motion with good cause shown.
    (3) A hearing official conducts a hearing in accordance with Sec.  
668.89.
    (b) Effect of a response by the institution. (1) If the institution 
submits a written response, but does not therein request a hearing, the 
designated department official, after considering that material, 
notifies the institution whether the Secretary will take the proposed 
recovery action for borrower defense claims and, if so, the date of 
such action and the amount of losses.
    (2) If the institution submits a response and requests a hearing by 
the time specified in the notice under paragraph (a)(1)(iii) of this 
section, the designated department official may, in that official's 
sole discretion, withdraw the notice or transmit the response and 
request for hearing to the Office of Hearings and Appeals, which sets 
the date and the place for the hearing. The date of the hearing is at 
least 15 days after the designated department official receives the 
request. No liability shall be imposed on the institution prior to the 
hearing.
    (c) Limitations on participation. The parties in any borrower 
defense and recovery proceeding are the Department and the 
institution(s) against which the Department seeks to recover losses 
caused to the Department as a result of borrower defense relief. 
Borrowers are not permitted to intervene or appear in this proceeding, 
either on their own behalf or on behalf of any purported group, except 
as witnesses put forth by either party. However, nothing in this 
section limits the rights available to borrowers under other 
regulations, including 34 CFR 685.206 and 685.222.
    (d) Effect on the borrower. No proceeding under this subpart 
imposes liability on any borrower who has already obtained a discharge 
in an individual proceeding under 34 CFR 685.206(c) or 34 CFR 
685.222(e). A borrower defense and recovery proceeding may determine 
whether and how much relief is due to, and whether and how much of a 
loan remains owing by, a borrower participating in a group

[[Page 6258]]

process proceeding as defined in 34 CFR 685.222(f) through (h).

(Authority: 20 U.S.C. 1087a et seq., 1094)



0
 9. Revise newly redesignated Sec.  668.88 to read as follows:


Sec.  668.88  Prehearing conference and motion practice.

    (a) A hearing official may convene a prehearing conference if he or 
she thinks that the conference would be useful, or if the conference is 
requested by--
    (1) The designated department official who brought a proceeding 
against an institution or third-party servicer under this subpart; or
    (2) The institution or servicer, as applicable.
    (b) The purpose of a prehearing conference is to allow the parties 
to settle or narrow the dispute.
    (c) If the hearing official, the designated department official, 
and the institution, or servicer, as applicable, agree, a prehearing 
conference may consist of--
    (1) A conference telephone call;
    (2) An informal meeting; or
    (3) The submission and exchange of written material.
    (d) A non-dispositive motion shall be made, if at all, consistent 
with any procedures set forth by the hearing official. In the absence 
of such procedures, non-dispositive motions shall be permitted, and 
responses to such motions shall be permitted though not required.
    (e)(1) A party may make a motion for summary disposition asserting 
that the undisputed facts, admissions, affidavits, stipulations, 
documentary evidence, matters as to which official notice may be taken, 
and any other evidentiary materials properly submitted in connection 
with a motion for summary disposition establish that--
    (i) There is no genuine issue as to any material fact; and
    (ii) The moving party is entitled to a decision in its favor as a 
matter of law.
    (2) A motion for summary disposition must be accompanied by a 
statement of the material facts as to which the moving party contends 
there is no genuine issue. Such motion must be supported by evidence 
that the moving party contends support his or her position. The motion 
must be accompanied by a brief containing the points and authorities 
supporting the motion.


Any party may oppose such a motion by filing a response setting forth 
those material facts as to which he or she contends a genuine dispute 
exists. Such response must be supported by evidence of the same type as 
may be submitted in support of a motion for summary disposition and a 
brief containing the points and authorities in support of the 
contention that summary disposition would be inappropriate.
    (f) A motion under consideration by the Secretary or the hearing 
official shall not stay proceedings before the hearing official unless 
the Secretary or the hearing official, as appropriate, so orders.

(Authority: 20 U.S.C. 1094)



0
10. Revise newly redesignated Sec.  668.89 to read as follows:


Sec.  668.89  Hearing.

    (a) A hearing is an orderly presentation of arguments and evidence 
conducted by a hearing official. At the discretion of the hearing 
official, any right to a hearing may be satisfied by one or more of the 
following: Summary disposition pursuant to Sec.  668.88(e), with or 
without oral argument; an oral evidentiary hearing conducted in person, 
by telephone, by video conference, or any combination thereof; or a 
review limited to written evidence.
    (b)(1) Notwithstanding any provision to the contrary, the hearing 
official sets the procedures to be used in the hearing, and may take 
steps to expedite the proceeding as appropriate.
    (2) The formal rules of evidence and procedures applicable to 
proceedings in a court of law are not applicable. However, discussions 
of settlement between the parties or the terms of settlement offers are 
not admissible to prove the validity or invalidity of any claim or 
defense.
    (3)(i) The proponent of any factual proposition has the burden of 
proof with respect thereto.
    (ii) The designated department official has the burden of 
persuasion in any fine, suspension, limitation, or termination 
proceeding under this subpart.
    (iii) The designated department official has the burden of 
persuasion in a borrower defense and recovery action; however, for a 
borrower defense claim based on a substantial misrepresentation under 
Sec.  682.222(d), the designated department official has the burden of 
persuasion regarding the substantial misrepresentation, and the 
institution has the burden of persuasion in establishing any offsetting 
value of the education under Sec.  685.222(i)(2)(i).
    (4) Discovery, as provided for under the Federal Rules of Civil 
Procedure, is not permitted.
    (5) The hearing official accepts only evidence that is relevant and 
material to the proceeding and is not unduly repetitious.
    (6) The hearing official may restrict the number of witnesses or 
exclude witnesses to avoid undue delay or presentation of cumulative 
evidence. Any witness permitted to appear may do so via telephonic, 
video, or other means, with the approval of the hearing official.
    (7) Either party may call qualified expert witnesses. Each party 
will be limited to calling three expert witnesses, as a matter of 
right, including any rebuttal or surrebuttal witnesses. Additional 
expert witnesses shall be allowed only by order of the hearing 
official, granted only upon a showing of good cause.
    (i) At a date set by the hearing official, each party shall serve 
the other with any report prepared by each of its expert witnesses. 
Each party shall serve the other party with a list of any rebuttal 
expert witnesses and a rebuttal report prepared by each such witness 
not later than 60 days after the deadline for service of expert 
reports, unless another date is set by the hearing official. A rebuttal 
report shall be limited to rebuttal of matters set forth in the expert 
report for which it is offered in rebuttal. If material outside the 
scope of fair rebuttal is presented, a party may file a motion not 
later than five days after the deadline for service of rebuttal 
reports, seeking appropriate relief with the hearing official, 
including striking all or part of the report, leave to submit a 
surrebuttal report by the party's own experts, or leave to call a 
surrebuttal witness and to submit a surrebuttal report by that witness.
    (ii) No party may call an expert witness at the hearing unless the 
party has listed the expert and has provided reports as required by 
this section.
    (iii) Each report shall be signed by the expert and contain a 
complete statement of all opinions to be expressed and the basis and 
reasons therefor; the data, materials, or other information considered 
by the witness in forming the opinions; any exhibits to be used as a 
summary of or support for the opinions; the qualifications of the 
witness, including a list of all publications authored or co-authored 
by the witness within the preceding ten years; the compensation to be 
paid for the study and testimony; and a listing of any other cases in 
which the witness has testified or sought to testify as an expert at 
trial or hearing, or by deposition, within the preceding four years. A 
rebuttal or surrebuttal report need not include any information already 
included in the initial report of the witness.
    (8)(i) Except as provided in paragraph (b)(8)(ii) of this section, 
if an institution

[[Page 6259]]

has been required through compulsory process under section 490A of the 
HEA or other applicable law to submit to the United States or to the 
Department material regarding an express or an implied representation, 
the institution cannot thereafter, in any proceeding under this subpart 
in which it is alleged that the representation was false, erroneous, or 
misleading, and for any purpose relating to the defense of such 
allegation, introduce into the record, either directly or indirectly 
through references contained in documents or oral testimony, any 
material of any type that was required to be but was not timely 
submitted in response to that compulsory process.
    (ii) The hearing official shall, upon motion at any stage, exclude 
all material that was required to be but was not timely submitted in 
response to a compulsory process described in paragraph (b)(8)(i) of 
this section, or any reference to such material, unless the institution 
demonstrates, and the hearing official finds, that by the exercise of 
due diligence the material could not have been timely submitted in 
response to the compulsory process, and the institution notified the 
Department or such other party that issued the order to produce, of the 
existence of the material immediately upon its discovery. The hearing 
official shall specify with particularity the evidence relied upon.
    (9) When issues not raised in the notice of proposed action are 
tried without objection at the hearing, they will be treated in all 
respects as if they had been raised in the notice of proposed action, 
and no formal amendments are required.
    (c) The hearing official makes a transcribed record of the 
proceeding and makes a copy of the record available to the designated 
Department official and to the institution or servicer.

(Authority: 20 U.S.C. 1094)



0
11. Newly redesignated Sec.  668.91 is amended by:
0
A. Redesignating paragraph (a)(2) as paragraph (a)(2)(i).
0
B. In newly redesignated paragraph (a)(2)(i) adding ``or recovery'' 
after ``fine, limitation, suspension, or termination''.
0
C. Adding paragraph (a)(2)(ii).
0
D. Removing the second sentence in paragraph (a)(4).
0
E. Adding paragraph (c)(2)(x).
    The additions read as follows:


Sec.  668.91  Initial and final decisions.

    (a) * * *
    (2)(i) * * *
    (ii) In a borrower defense and recovery proceeding conducted in two 
phases under Sec.  668.87(a)(1)(iv)(B), the hearing official's initial 
decision determines whether the institution is liable for the act or 
omission described in the notice of intent to recover, and the hearing 
official issues an initial decision on liability only.
* * * * *
    (c) * * *
    (2) * * *
    (x) In a borrower defense and recovery proceeding conducted in two 
phases under Sec.  668.87(a)(1)(iv)(B), if a party appeals an initial 
decision of the hearing official in the first phase, the Secretary may 
affirm, modify, or reverse the initial decision, or may remand the case 
to the hearing official for further proceedings consistent with the 
Secretary's decision.
* * * * *


Sec.  668.96  [Amended]

0
12. Newly redesignated Sec.   668.96 is amended by:
0
A. In paragraph (a) removing the word ``The'' and adding, in its place, 
the words ``In an action to fine an institution or servicer, or to 
limit, suspend, or terminate the participation of an institution or the 
eligibility of a servicer, the''.
0
B. In paragraph (b), after the words ``The corrective action'', adding 
the words ``under paragraph (a) of this section''.
0
C. In paragraph (c), after the word ``decision'', adding the words ``in 
any action under this subpart''.


Sec.  668.99  [Amended]

0
13. In newly redesignated paragraph (c) of Sec.  668.99, remove ``Sec.  
668.91(a)(4)'' and add, in its place, ``Sec.  668.92(a)(4)''.

[FR Doc. 2017-00972 Filed 1-18-17; 8:45 am]
 BILLING CODE 4000-01-P