Student Loan Forgiveness : Fact or Fiction?

There has been a known and widely reported problem of colleges closing leaving students in debt without having received the education they paid for or received other benefits from the school shortly after attending they would otherwise have been entitled to. While relief in these situations is available for those who paid for an education through Federal Student Loans to schools which closed prior to or shortly after completing the educational program, known as Closed School Debt Relief, it has left many other borrowers without relief. Borrowers for which the schools directly mislead students in connection with obtaining Federal Student Loans and they completed their education before the school closed or the school remains open, making them ineligible for debt relief through Closed School Debt Relief.

Due to colleges having obtained funds from student loans by deceptive means leaving the student borrowers with the debt and without the promised educational advancement and perspectives from it, the “Borrower Defense”, made into law in 34 CFG 685.206(c), was created on November 1, 2016 providing debt forgiveness of Federal Student Loans under certain circumstances of wrongful acts by the schools. It finally went into effect after the US District Court ruled on BAUER V. DEVOS in 2018 the delay in implementing the program was unreasonable and the program must finally begin to provide relief to borrowers who obtained Federal student loans as the result of being misled by educational institutions.

The Borrowers Defense only provides a means of forgiveness for currently owed Federal Student Loans. Private student loans are not covered under Borrowers Defense and private loans cannot be forgiven or reduced nor put into forbearance or stop collections under this program. This limitation would also apply if a loan that was originally a Federal Student Loan, but was subsequently refinanced by the borrower with a private lender as in the process the Federal Student Loan would have been paid off and the current loan would be a private one. Federal Student Loans include Federal Direct Consolidation Loans, Direct Federal Loans, and Federal Family Education Loans (FFEL).

Those who qualify for Borrowers Defense Loan Forgiveness will have their debt reduced or eliminated completely, depending on the particular circumstances of their individual claim and even if repayment has already begun. The program provides forgiveness of a loan wrongfully obtained, absolving the borrower of the debt or a portion of their outstanding debt along with possible reimbursement of any portion of the loan that has already been repaid. Unlike the Closed School Debt Relief program, the school which mislead the borrower does not have to be one that has closed its doors. Forgiveness is available to borrowers regardless of the school having closed, the educational program the borrower was in still being discontinued, or still the school and program still being open to conduct classes.

The requirement is limited to only borrowers who received a Federal Student Loan if the loan was obtained due to misconduct of the educational institution as mentioned above. Forgiveness is not available if the loan was not obtained by misconduct by the school in direct relation to obtaining the loan. For example, simple lack of employment after graduation, being personally dissatisfied with the education provided, harassment by school faculty, injuries which occurred at the school, or any other reason not directly related to the Federal Student Loan or the educational services the school provided from obtaining the loan would be ineligible for Borrowers Defense Loan Forgiveness. However, the borrower does not have to be the student that attended. The program is available if a parent took out the Federal Loan on behalf of the student who the loan was for not just if the borrower took out the loan themselves personally.

Borrowers that believe they were misled by the school in relation to their loan and are currently under a repayment program which assesses the monthly repayment amount due as zero, having their loan placed into forbearance would be a detriment. The is due to the present zero due payment being considered on time payments for the purpose of the duration of the Federal Student Loan toward the expiration forgiveness that may apply. For these students, they can apply for Borrowers Defense Forgiveness without having forbearance applied to their account. This allows the process for review of the claim for forgiveness of the loan without losing the on time payments of zero counting toward their long term loan status should the claim be denied.

To be eligible for forgiveness under this, the school has to have done one of the following:

1. The school mislead as to the educational services for which the loan was provided to pay for.
2. The school obtained the student loan by use of misleading activities or other misconduct

While the application for forgiveness is under review, a borrower can have their loan placed in forbearance or to have collection stopped pending the determination of the application. This will allow a borrower to stop payment, or stay collections if in default and such is taking place, while awaiting the decision regarding forgiveness. This allows for payments to stop after the application is filed without penalty and without the loan going into default. Interest would continue to accrue during this time and would have to be paid if the application is ultimately denied.

To apply for relief under Borrowers Defense, an application must be filed either via an online form with the Department of Education, or a form must be completed and mailed or emailed to the Department of Education. A borrower who attended multiple educational facilities is eligible for relief if more than one mislead or defrauded the borrower in connection to the student loan for each school that the loan applies to. Also, if the same institution was attended for different degrees, relief is available as well. In each case, the borrower must make a separate application and show how the school mislead the borrower for each claim.

In applying, the borrower will have to provide:

• Their personal information of name, date of birth, social security number, phone number, address, and email address
• The information of the school they attended, which does include on-line campuses as well as “brick and mortar” facilities
• Date of enrolment
• Educational program or major the student enrolled in
• Degree or Credential sought in attending the educational program
• Current status in the educational program
• If they have had any other student loans forgiven
• If they have made any attempts to recover tuition paid to the school
• What the borrower believes the school stated or failed to disclose
• How the school communicated the information
• Name and title of the people who mislead, if known.
• Why it is believed the school mislead as to the education other matters directly related to the loan

Despite having been implemented and the court ordering the program to commence, there is current litigation due to the failure of the Department of Education from processing applications for relief under Borrowers Defense. At the time of this writing, while over 160,000 applications have been submitted and awaiting determination, the Department of Education has not granted nor denied any applications since June of 2018 leaving a great many borrowers in limbo as to their Federal Student Loans. While those who properly submitted applications can have a forbearance or stop collection to prevent payments from having to be made and the loan not go into default, interest on the debt still accrues and can prevent a student from being able to obtain other Federal Student Loans or other financial aid to get the education they had believed they were going to get, or a different path, in order to qualify for productive employment. This additional interest while awaiting a determination can have a substantial financial effect as the additional interest must be paid if the claim for forgiveness is denied or only partly granted. The lawsuit does not stop borrowers who were misled by the college in obtaining their Federal Student Loan from seeking forgiveness under Borrowers Defense. The lawsuit seeks to have the court order the Department of Education to grant or deny claims under Borrowers Defense and end the policy of indecision. Even though the lawsuit does not prohibit new claims to be filed, the current situation of lack of processing of claims by the Department of Education which has led to the lawsuit should be kept in mind.

It should be noted, borrowers who attended Corinthian Colleges, which include Everest Institute, Heald College, and WyoTech campuses, are subject to a current injection due to an ongoing lawsuit which has put a hold on forgiveness for students who attended these schools while the case goes though the court. The injection applies to borrowers who attended these schools and believe they were misled by the schools misrepresenting job placement rates of some of the educational programs offered. Borrowers that attended these schools before April 27, 2015 can obtain loan forgiveness if they can show they were defrauded by Corinthan or the school engaged in actions which violated State law no matter when the school closed. For those who attended a Corinthian school that closed on April 27, 2015 may be eligible for relief on their Federal Student Loan though Closed School Debt Relief. Even though forgiveness is currently unable to be given under Borrowers Defense due to the injunction, those who believe they were misled or defrauded by Corinthian can still apply and relieve loan forbearance to allow the borrower to stop paying on their loan without going into default, or for collections to be stopped if their loan is already in default.

US Department of Education, Federal Student Aid, If your school closes while you’re enrolled or soon after you withdraw, you may be eligible for discharge of your federal student load. (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/closed-school)

BAUER v. DEVOS, 332 F.Supp.3d 181 (2018)

US Department of Education, Federal Student Aid, Borrowers may be eligible for forgiveness of the federal student loans used to attend a school if that school mislead them or engaged in other misconduct in violation of certain laws. (https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/borrower-defense)