WASHINGTON, DC – JANUARY 27: U.S. Education Secretary Miguel Cardona delivers remarks at the … [+]
Hundreds of thousands of borrowers may qualify for federal student loan cancellation under a program designed to address school misconduct.
Several developments in the last few weeks initiated by both the Biden administration and student loan borrowers will have sweeping impacts on eligibility, and could dramatically expand student loan forgiveness availability. Here’s what you need to know.
The new developments concern Borrower Defense to Repayment — a federal student loan discharge program designed to remedy certain forms of school misconduct. Borrowers can apply for federal student loan forgiveness if a school misled them about key aspects of their program such as admissions selectivity, job or income prospects, or transferability of credits.
According to the Department of Education, “Under the Borrower Defense to Repayment [program], certain conduct by a school you attended might make you eligible to receive a discharge of some or all of your federal student loans… The most common types of conduct that might make a borrower eligible for loan relief… are misrepresentations of the truth made by the school or its representatives during their efforts to recruit you to enroll at the school or to continue your enrollment at the school. These misrepresentations typically take the form of untruthful representations of the school’s selectivity in admitting students, its rankings… the job placement and earnings outcomes of its prior graduates, or the likelihood that its credits will be accepted by another school.”
But the Borrower Defense to Repayment program has been plagued by political, legal, and bureaucratic challenges since regulations governing the program were first enacted in 2016. The program rules have been changed several times, and tens of thousands of applications have been denied or have remained unprocessed, in some cases for years.
Earlier this month, the Biden administration announced that it would be automatically cancelling $6 billion in federal student loans for over half a million former students of Corinthian Colleges — a now-defunct national chain of for-profit schools that included Everest College, Heald College, and Wyotech.
Several lawsuits, investigations, and enforcement actions brought against the schools alleged that the Corinthian schools intentionally misrepresented job placement rates, engaged in false advertising, and misled prospective students abut the transferability of their credits. When Corinthian colleges shut down in 2015, former students were left with useless degrees (or no degrees at all) and significant student loan debt burdens. Dozens of these former students organized a debt strike that year to convince the government to cancel their debts. This eventually led to a formal regulatory and application regime for the Borrower Defense to Repayment program.
But after the program was created, tens of thousands of applications languished. In an effort to speed up processing, the Biden administration will be cancelling the federal student loan debt associated with any student’s attendance at Corinthian Colleges. Importantly, to benefit from this initiative, borrowers do not even need to submit a formal Borrower Defense application.
“As of today, every student deceived, defrauded, and driven into debt by Corinthian Colleges can rest assured that the Biden-Harris administration has their back and will discharge their federal student loans,” said U.S. Secretary of Education Miguel Cardona in a statement announcing the initiative.
In a separate development, the Department of Education and a class of student loan borrowers announced a settlement agreement last week in Sweet v. DeVos, a lawsuit brought by borrowers against the Department several years ago over stalled Borrower Defense applications.
Under the terms of the settlement, any borrower who submitted a Borrower Defense to Repayment application before June 22, 2022 and went to one of the schools covered by the agreement would have their federal student loans cancelled and any payments refunded. Over 200,000 borrowers may benefit from the agreement. The covered schools include (but are not limited to):
The full list of covered schools can be found here. Importantly, the court must approve the settlement proposal before any student loan forgiveness can be implemented.
Even for borrowers who have not yet submitted a Borrower Defense application yet, it’s not too late. While only borrowers who submitted applications by June 22, 2022 would be covered by the automatic student loan cancellation benefits of the settlement, borrowers who submit a Borrower Defense application between June 22, 2022 and the date of final approval of the settlement (which could be months away) would be entitled to a final decision from the Department of Education within 36 months; if no final decision has been made by then, the borrower would be entitled to student loan cancellation.
In addition, the Department of Education has made clear that borrowers who attended one of the covered institutions may stand a reasonable chance of approval for student loan forgiveness. The settlement agreement states that “attendance at one of these [listed] schools justifies presumptive relief [under Borrower Defense to Repayment]… based on strong indicia regarding substantial misconduct by listed schools.”
For more information on the Sweet v. DeVos case and the associated settlement, the Project on Predatory Student Lending — which has been representing the student loan borrowers in the lawsuit — has set up a detailed information website. The site includes a flow-chart illustrating who may benefit from the settlement agreement, as well as a comprehensive list of schools that are covered.
Borrowers looking to submit a Borrower Defense to Repayment application can do so via the Department of Education’s website. The application is long and somewhat complex; borrowers can check out this detailed guide on how to complete the application. Note that in some cases, schools can withhold transcripts for borrowers who are approved for relief through Borrower Defense to Repayment.
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