Rule Rollback Won’t Keep Defrauded Student Borrowers From Loan Forgiveness

Obama-era rules to expand a forgiveness program for defrauded student loan holders will be revised, but some borrowers can still qualify.
Loans, Student Loans
Student Loan Discharge Eligibility Relaxes for Defrauded Borrowers

New rules set to expand federal student loan forgiveness for borrowers who believe they were defrauded by their schools are now expected to remain in limbo until at least July 1, 2018, or even July 1, 2019, according to the Department of Education in the Federal Register.

Borrower defense to repayment is a federal student loan forgiveness program for borrowers whose schools violated certain laws or defrauded or misled students. For example, a federal court found that the now-defunct Corinthian Colleges engaged in deceptive practices such as advertising programs the schools didn’t offer and false job placement rates. Fifteen thousand forgiveness claims from Corinthian students had been approved as of October 2016.

Borrower defense to repayment is a federal student loan forgiveness program for borrowers whose schools violated certain laws or defrauded or misled students.

The new rules would have simplified borrower defense guidelines, making it easier to obtain loan forgiveness, and would have extended eligibility to existing borrowers who consolidated their loans. The rules also added financial responsibility and disclosure requirements for schools.

They were initially put on hold in June of this year, ahead of their expected July 1 start date. The delay until July 1, 2018 comes amidst a legal battle between a California for-profit group and the Department of Education over the new borrower defense regulations. There may be an even further delay until July 1, 2019, so that the new administration can further revise the rules.

Secretary of Education Betsy DeVos said in a June 14 release that last year’s forgiveness expansion rules “missed an opportunity to get it right.”

DeVos and the Department of Education were recently sued by 19 state attorneys general for rolling back the rules in June. The coalition argued federal law was violated by rolling back the borrower defense rule expansion.

Though the new rules are delayed for now, you can still apply for borrower defense under the existing law.

How to tell if you qualify

You might qualify for borrower defense federal loan discharge if your school:

  • Misled you in any way about your loans or education program
  • Violated certain state laws, such as consumer protection statutes or laws related to your loan or educational services

You can submit a claim whether or not your school closed and even if you’re eligible for other loan forgiveness programs. You can’t submit a claim for private loans or costs you paid out of pocket.

You can’t submit a claim for private loans or for costs you paid out of pocket.

Not sure if you should apply? Find out if your school has been the subject of legal action by the federal government, state attorneys general or the Consumer Financial Protection Bureau. “The biggest indicator is if the college has been sued or are they currently facing legal action for their practices,” says Robert Kelchen, assistant professor of higher education at Seton Hall University in South Orange, New Jersey. “Otherwise, it gets much more subjective: Is there clear fraud? Is there misrepresentation? That’s when it may take a court to decide.”

Forgiveness of loans, even those from the discontinued Federal Family Education Loan Program, should not be subject to a statute of limitations. 

How to apply

You can submit an application electronically at borrowerdischarge.ed.gov or by filling out a PDF and returning it to the Education Department via email or regular mail. Submission details are available on the federal student aid website.

To strengthen your claim, experts suggest submitting a detailed explanation of why your loans might qualify, along with any supporting evidence. This could include:

  • Confirmation of attendance
  • Emails or correspondence with school officials
  • Related promotional or school-produced materials

If you don’t have communication records, you can still apply. “Just because it was verbal doesn’t mean [the borrower] shouldn’t provide a narration of that,” says Betsy Mayotte, director of consumer outreach and compliance at the education nonprofit American Student Assistance. “If they felt they should be pressured to sign something quickly, for example, they should include that information because it’s taken into consideration.”

For help with your claim, contact the National Consumer Law Center, suggests Ben Miller, senior director for postsecondary education at Center for American Progress, a nonpartisan policy institute. Be wary of debt settlement groups that ask for money to submit your application. You can complete this process yourself for free.  

How applying can affect your loans

Once you submit a claim, you should request that your loans be placed into forbearance or stopped collections status, which will halt payments and collections. Interest will accrue while the Education Department evaluates your application.

It might take awhile for your claim to be approved and, if it is approved, for forgiveness to kick in. As of late May, many of the 23,000 borrowers approved for full or partial loan discharges had not received forgiveness within the window promised by the Education Department, according to a letter to DeVos from five Democratic senators. DeVos indicated in a release that 16,000 claims are being evaluated and that some borrowers should expect discharges in the coming weeks.

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