A rule created under the Obama administration allows federal student loan borrowers to apply to have their loans discharged if they attended a for-profit college that made false claims about student success, job placement or other factors that might entice a student to enroll.
A lawsuit filed by the California Association of Private Postsecondary Schools tried to stop the rule, but a judge declared this week that it must be upheld.
Education Secretary Betsy DeVos proposed a revised rule in July 2017 that would make it harder for borrowers to make the case for fraud to have their debt forgiven.
The government has seen a dramatic increase in applications for loan forgiveness via “borrower defense to repayment” rules, which protect students from institutions’ misleading claims.
How Does the Borrower Defense Rule Affect You?
While DeVos plans to rewrite the rule, the Obama-era rule is here to stay until at least the summer of 2020.
“This is a phenomenal opportunity for people who have a valid claim that a school misled them to apply for borrower defense,” said Nancy Cavey, a St. Petersburg, Florida, student loan attorney.
Claims made under this rule must provide evidence that the school misrepresented the borrower’s job placement prospects or didn’t live up to obligations such as providing tutoring services. An existing judgment against the school, as in the cases against Corinthian Colleges and DeVry University, can strengthen a borrower’s request for forgiveness.
The application form requests documentation of the alleged fraud that might include brochures from your school, emails with school staffers or the institution’s course catalog.
However, if you’re unsure your claim will be accepted, you can still adjust your payment plan now to make life a little easier.
“You should still get into an income-driven [repayment] plan,” said Christie Arkovich, a student loan attorney in Tampa, Florida. According to Arkovich, they are a better guarantee of loan forgiveness after their prescribed time period.
But Cavey goes one step further: She advises borrowers to request their loans be placed in forbearance with “stop collection” status during the review period. Interest will still accrue, but you won’t risk going into default if you’re anxious about affording your loan payments while you wait for a decision.
Arkovich stressed the importance of getting into the virtual queue now. “It will put you in the line if they establish any kind of relief fund,” she said, calling to mind Congress’s authorization of a $350 million fund for Public Service Loan Forgiveness applicants who were in the wrong payment plan. “That’s first-come, first-served.”
Why We’re Suddenly Talking About the Borrower Defense Rule
The Obama-era rule rule is based on regulation from 1995, but wasn’t developed until 2015, after the collapse and closure of Corinthian Colleges. Federal loans have been discharged automatically in certain cases, like those against DeVry University in 2017. But claims against existing and closed for-profit institutions have risen as borrowers have become more aware of complaints against schools with lofty promises of employment or income potential.
A December 2017 report from the U.S. Department of Education showed a more than 170% increase in applications for this type of student loan forgiveness since July 2016.
Meanwhile, the Federal Student Aid’s Borrower Defense Unit, which processes these applications, has gotten smaller, with only seven full-time staffers as of September 2017. DeVos has said it’s too easy to get federal student loan forgiveness through this rule.
But for now, she’ll have to comply.
Lisa Rowan is a senior writer at The Penny Hoarder.
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