If you have used student loans to attend a for-profit college, such as institutions owned by Corinthian Colleges or DeVry University, this blog can help educate you on a Department of Education rule that allows for loan discharges in cases involving fraud. Under the correct circumstances, the Borrower Defense to Repayment Rule may allow loan forgiveness. First, a brief backstory on why this rule is just now gaining media attention.
A recent Brookings Institution study shows graduates of for-profit colleges who entered repayment in 2009 have five-year student loan default rates of 47 percent. In comparison, 2009 graduates of ‘somewhat selective’ 4-year universities have default rates of 18 percent.
Part of the reason for higher default rates is that graduates of for-profit institutions have worse career prospects than graduates of four-year universities. Despite high default rates, for-profit colleges continued insisting their graduates had promising career aspects. In some cases, for-profit colleges used these promises to entice students to accrue student loans.
High default rates, false post-graduate employment statistics and fraudulent marketing tactics have caused the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB) to file lawsuits against several for-profit colleges. For example, the FTC has filed a lawsuit against DeVry University and the CFPB secured a judgment against Corinthian Colleges.
Due to several lawsuits filed against for-profit colleges, the Department of Education announced a little-known rule that could potentially discharge federal student loans. As it exists right now, the Borrower Defense to Repayment Rule allows borrowers to pursue discharges when their colleges have committed fraud under state law. Possible examples of fraud include for-profit colleges using falsified post-graduate employment statistics to boost enrollment and student loan borrowing.
Do I Qualify for this Student Loan Discharge?
Borrowers should assess whether they have met the following criteria, and then take steps to contact the Department of Education.
- To receive discharges, borrowers must have federal loans owned by the Department of Education. You can check on who holds or owns your student loans by going to www.nslds.ed.gov.
- For-profit schools must have committed fraud under state law.
- Borrower defense to repayment can apply to schools that are still open or that have already shut down.
- Borrowers who believe they have been defrauded must submit claims to the Department of Education. After submitting claims, loans are automatically placed in forbearance and collection attempts will cease (even if loans have defaulted). However, borrowers could be responsible for interest that accumulates during forbearance.
In February, the Department of Education took steps to simplify the process of filing borrower defense claims by creating the Student Aid Enforcement Unit. Several months ago, we wrote a blog on the Student Aid Enforcement Unit and how it will work once implemented.
Also keep in mind, that the Department of Education is expanding eligibility for borrower defense claims. A draft of new borrower defense rules was recently released by the Department of Education. However, the new rules will only affect borrowers who have signed federal loans after July 1st, 2017.
The Kansas City bankruptcy attorneys at The Sader Law Firm can help you find solutions for managing excessive student loan debts.