The Borrower Defense to Repayment (BD) rules have been in the news a lot lately. The legal decisions and regulatory rollbacks have created a lot of confusion for both federal student loan borrowers and higher education institutions. So, it may be challenging to know how your office is affected. Understanding how we got here is important for being able to assess what the future may bring, so we’re hopping into our time machine and heading back to 1994.

Do you think we went back too far? Most people would since the creation of the rules is often attributed to the Obama administration. However, it was Congress that enacted the original law in 1994. The gist was that if a borrower could show they were duped into enrolling, the loans they borrowed would be discharged, and the institution would potentially be on the hook to repay the government. The law lacked definitions, processes, and mechanisms for enforcement, so it was rarely used for the first twenty years. Fast forward to 2015 when several large, for-profit college chains failed, and their students were left with no credentials or credits that could be transferred. In the postmortem, the Department of Education (ED) found that the institutions may have intentionally misrepresented the opportunities their programs provided to enter certain careers, enrolled students under these false pretenses, and those students paid tuition by borrowing heavily in the federal student loan program.

It was this situation that led the Obama administration to revisit the BD rules and make them workable. They did so in 2016 by defining the terminology and creating a formal claim process. Additionally, they expanded eligibility by removing the burden for the borrower to prove the institution intended to deceive them and allowed groups of borrowers to be considered together. The institutions’ failures and subsequent updates to the BD rules caused a flood of claims to be filed, but before they could be processed, a new administration entered the picture, and everything changed.

Under the Trump administration, there were initially no changes to the BD rules; however, ED did not process most of the claims received. In 2019, the Secretary of Education updated the rules by adding the need to prove financial harm, instituting a three-year statute of limitations, and eliminating the ability to file group claims. Because ED had slowed/stopped processing claims, by 2019, there was an estimated backlog of 200,000 claims that had not been addressed. The result was a lawsuit (Sweet vs. DeVos) that accused ED of violating the Administrative Procedure Act. The suit was re-named Sweet vs. Cardona when the Biden administration took over, and Miguel Cardona was named Secretary of Education.

A settlement was negotiated in 2022 to clear the huge backlog of claims. Of the 210,00 claims more than 200,000 were to be automatically discharged, and the remainder were to be decided in strict timelines. Additionally, 128,000 claims that had been denied during DeVos’ leadership were to be reopened and reviewed again. As soon as the decision was made, the legal challenges began. We’ll come back to Sweet vs. Cardona later in our timeline. 2022 is also the year that the Biden administration re-wrote the BD rules again. This time broadening eligibility rather than restricting it. However, legal challenges to the rule change caused a delay in implementation that was not resolved at the end of Biden’s term. After that, borrowers could be subject to any version of the rules from 1994 to 2019 depending on when they borrowed their first loan — a scenario that added a new level of complexity and slowed review of claims even more.

In 2025, Donald Trump returned to office and his new administration weighed in on the BD rules once again. The One Big Beautiful Bill Act (OBBBA), which was passed into law on July 4, 2025, formally delays implementation of the 2022 rules until July 1, 2035, and stipulates that loans made prior to that date are subject to the rules in effect on July 1, 2020 — the DeVos era rules. This change didn’t garner much attention, but what has brought the program back into the limelight in February 2026 is the Sweet vs. McMahon (formerly Cardona) decision, which after four years of legal wrangling, is now being enforced. In addition to the original orders to immediately discharge most of the loans covered in the settlement and process the remainder timely, the new ruling also bars ED from indefinitely delaying adjudication of claims going forward.

Now that the program is in the news again, it is fair to expect the claims to start rolling in once more. All applications are sent to the named institutions pre-adjudication and institutions have an opportunity to respond. While some claims may be unfounded and some do not meet the criteria for discharge, it is advisable to at least review, if not respond to them all. If you need a refresher on the process, check out this webinar in the Federal Student Aid Training Center.

According to ED, non-response in this initial phase will not be held against institutions during the recoupment process where ED will try to collect funds from the school if the borrower’s claim is approved and their loan discharged. And institutions have an opportunity to refute claims as part of the recoupment process. There are two reasons to consider responding to claims even in the pre-adjudication phase. First, a non-response could be perceived as an agreement with the borrower’s claim. Second, no responses could call into question the institution’s administrative capability. The review/response process can be helpful to identify issues outside the BD process. For example, repeated claims of discrimination on campus are probably something your administration should know about, although it is not a basis for student loan discharge.

All institutions should have, if they don’t already, a procedure for managing BD claims. It is important to write this in collaboration with your institution’s legal team. While the Financial Aid Office will most often be the delivery point of the initial claims, review and response should be a team effort to provide the institution with the best opportunity to avoid financial losses.

We shared the whole history with you to demonstrate the likelihood that today’s rules may not stay in place until 2035 as required by the OBBBA, and processing could come to a grinding halt again if new legal action is taken (although at this point, that seems unlikely). So, stay tuned to the Higher Education Assistance Group blog in case the rules change again!

Are regulatory changes outpacing your ability to update your policy and procedure manual or train your staff? The Higher Education Assistance Group offers services from compliance assessments and policy manual development to optimizing technology in your office. Email info@heag.us and tell us how we can help your office.

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