Skip to footer

Your student loan paid for a shady school? New rules may bring relief.

The US Department of Education announced final regulations Friday aimed at making it easier to get federal student loan forgiveness if your school misleads you or your college closes.

|
Gene J. Puskar/AP/File
A student walks past Old Main on the campus of Pennsylvania State University in State College, Pa., on July 12, 2012.

The US Department of Education announced final regulations Friday aimed at making it easier to get federal student loan forgiveness if your school misleads you or your college closes.

Most of the new rules are effective July 1, 2017, but some take effect Nov. 1. That should be welcome news for borrowers who formerly attended a for-profit school owned by now-defunct Corinthian Colleges. Corinthian filed for bankruptcy in 2015 after the Education Department fined the company for misrepresenting its job placement rates. Some former Corinthian students have already been approved for forgiveness under existing regulations known as “borrower defense to repayment,” but many more likely qualify under both the old and new regulations.

What is borrower defense?

Under existing borrower defense rules, you can apply to get your federal student loans forgiven if you believe your college defrauded you in some way. Currently, state law determines whether those who make borrower defense claims actually qualify for forgiveness. Effective July 1, 2017, the new rules create a federal standard for those claims.

Although the regulations have existed since 1995, few people applied for borrower defense forgiveness until recently. In the fallout after Corinthian’s collapse, tens of thousands of former students filed borrower defense claims.

So far, about 16,000 former Corinthian students have been approved for borrower defense forgiveness, and almost 8,000 have been approved for forgiveness under another regulation known as “closed school discharge.” With thousands more still awaiting relief and others likely unaware they may qualify for this type of forgiveness, the Education Department elected to overhaul the system for handling more borrower defense claims.

New rules that will help former Corinthian students

To help former Corinthian students currently seeking forgiveness, the department aims to implement certain rules before the full regulations take effect next year. They include:

  • Eligible borrowers with federal Perkins loans or Federal Family Education Loans can get borrower defense forgiveness if they consolidate their federal debt first; effective Nov. 1.
  • Eligible borrowers who were enrolled in a college that closed in November 2013 or after and who haven’t enrolled in another school within three years will get automatic federal loan forgiveness. This will be implemented “as soon as operationally possible,” according to a department news release.
  • Students who used Pell Grants to pay for a school that closed can have their Pell Grant eligibility restored. There are typically limits to the amount of Pell dollars students can get over their lifetime. There’s no timeline on when this will happen; the department said it’s “still exploring the operational changes required to implement this policy.”

Smoother debt relief process for future borrowers

Other parts of the new rules are effective July 1, 2017, but the department believes they may inform the borrower defense process for all borrowers, including former Corinthian students. They include:

  • A federal standard for providing borrower defense relief. By this standard, you’re eligible for borrower defense forgiveness if your school breaks its contract with you; gets a court judgment against the educational services that your loan paid for; or “substantially misrepresents” information about its services or its graduates’ outcomes.
  • A process to give student loan relief to groups of borrowers if the department identifies widespread misrepresentation.
  • Regulations that make it easier for students to sue their school. For instance, colleges will not be allowed to forbid students from filing class action lawsuits, nor will they be allowed to require students to pursue an internal process before taking an issue to court.

How to seek borrower defense forgiveness

The department is still working to finalize a form that borrowers will use to apply for borrower defense forgiveness. In the meantime, you can apply via email by sending your claim to FSAOperations@ed.gov or by mailing your claim to U.S. Department of Education, PO Box 429060, San Francisco, CA 94142. The borrower defense page on the Federal Student Aid website has a list of information you should include, such as documentation to prove your former enrollment and details about your school’s misconduct or legal violations.

After you apply for borrower defense forgiveness, your federal student loans will be placed in forbearance until your claim is resolved, unless you request otherwise. That means that you won’t be required to make monthly loan payments, but your debt will continue to accrue interest. In many cases, the debt relief you get through closed school discharge or borrower defense forgiveness will not count as income for tax purposes.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

This story originally appeared on NerdWallet.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Your student loan paid for a shady school? New rules may bring relief.
Read this article in
https://www.csmonitor.com/Business/Saving-Money/2016/1031/Your-student-loan-paid-for-a-shady-school-New-rules-may-bring-relief
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe