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Defrauded By Your College? New Rules May Make Canceling Your Loan Harder

President Donald Trump has vetoed a congressional measure that would have blocked new federal loan forgiveness-related regulations from taking effect. These regulations require a higher burden of proof for borrowers claiming they were defrauded by their college and could make it harder for students to win forgiveness.

Under the existing U.S. Department of Education’s “borrower defense to repayment” rule, borrowers can apply for federal student loan forgiveness if their college misled them or misrepresented itself—by publicizing fraudulent job placement rates, for example. 

In September 2019, the Education Department published new borrower defense regulations. In March, Congress voted to overturn them, citing the negative impact they would have on borrowers. But after the president’s veto late last week, these new rules are set to take effect July 1.

Here’s what you need to know.

Rule Last Updated Over For-Profit College Practices

Borrower defense regulations first became law in 1995, and were last updated in 2016 in response to deceptive practices by for-profit colleges that misled students in order to increase enrollment. 

Currently, any borrower seeking relief must submit an application demonstrating how their school’s deceptive or fraudulent activities affected their ability to repay federal loans. For instance, misleading data on average post-graduation earnings could have led students to take on loans for degrees that proved too expensive based on future salaries. 

The Education Department then evaluates the claim to determine whether the borrower is eligible for loan forgiveness. The department also has the ability to provide forgiveness to groups of borrowers from the same institution.

Borrowers from the shuttered for-profit Corinthian Colleges system, in particular, have found relief under the borrower defense rule, and used a streamlined federal process to apply for and receive forgiveness. 

According to department data, as of the first quarter of 2020, it had received more than 300,000 borrower defense applications and discharged more than $500 million in loan funds. 

What the New Rules Say

The new regulations, which Congress attempted to block, but will now proceed after the president’s veto, add several layers of complexity to the application process and could make it harder for a borrower to prove eligibility for forgiveness. The Education Department says the updates will save taxpayers more than $11 billion over 10 years.

The new regulations would make the following changes to the 2016-era updates:

  • Borrowers must show they experienced financial harm as a result of the school’s actions, aside from the fact that they took out a loan they can’t repay.
  • Borrowers’ time to submit a claim is limited to three years.
  • Each borrower must apply for borrower defense relief individually, rather than as part of a group.

In February, the Project on Predatory Student Lending, Public Citizen Litigation Group and the New York Legal Assistance Group filed a lawsuit in the U.S. District Court for the Southern District of New York to prevent the rule from going into effect. If the legal challenges continue, or Congress overrides the president’s veto, that may impact the new regulations’ July 1 start date.

How to Apply for Loan Forgiveness

If you’ve been considering applying for loan forgiveness under borrower defense to repayment, the rules you’re subject to currently depend on the year you took out the loan. If they go into effect, the new regulations will only apply to loans disbursed on or after July 1, 2020. 

That means if you already have a loan, you may still be subject to less stringent loan forgiveness approval standards. Here’s how it breaks down:

  • If you took out a loan before July 1, 2017, you’re subject to the pre-2016 regulations.
  • If you took out a loan on or after July 1, 2017 and before July 1, 2020, you’re subject to the regulations published on Nov. 1, 2016.

To apply for borrower defense relief, you’ll need to gather documents and evidence to back up your claim, no matter which regulations your loans fall under. Based on the current rules, you’ll need to show how the school misled you or left out information regarding issues such as:

  • Your likelihood of future employment, including promising you’d find a job in your chosen field
  • Your ability to get certified or licensed in your course of study
  • The school’s graduation rate
  • Your expected earnings after graduation
  • The cost of your coursework
  • Your loan’s repayment terms
  • Your ability to transfer credits from this particular school to another
  • The amount of career services and job placement assistance offered
  • The educational services available
  • A sense of urgency around immediate enrollment 

You can view more examples of borrower defenses to repayment by taking a look at the application form. The nonprofit New York Legal Assistance Group has put together a free guide with advice on how to assemble your application and gather the necessary supporting documents. You can fill out an online application at BorrowerDischarge.ed.gov.

Source: Forbes – Money

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