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Borrowers who have been defrauded by their college may be able to have their federal student loans forgiven and previous payments refunded by filing a petition to appeal the repayment waiver.
If the discharge is approved, negative credit reports related to the loans will also be removed from the borrower's credit history. Additionally, eligibility for federal student aid will be restored.
More than 700,000 borrowers have appealed repayment claims. And about 40% of the processed claims have been approved. Could you also qualify for student loan forgiveness? Here's how to find out.
What is the borrower's protection before repayment?
The borrower's defense of repayment is a set of rules that determine when federal student loans can be forgiven due to harmful acts and omissions by the student's institution.
These regulations are enshrined in the Higher Education Act of 1965 under 20 USC 1087e(h), which states:
The specific rules that apply to your loans depend on whether they have been paid out first:
- Before 1 July 2017
- On or after 1 July 2017 and before 1 July 2020
- On or after 1 July 2020
Recent changes to borrower protection regulations
The current regulations, passed during the Trump administration, limited borrower defense eligibility to repayment. To now qualify for borrower relief:
- False statements must have been made “with knowledge of their false, misleading or deceptive nature or with reckless disregard for the truth”.
- The borrower must have suffered financial loss as a result of the misrepresentations.
- The borrower's appeal of repayment claims must be filed within three years of the student's withdrawal from college.
The Trump administration also passed a partial debt forgiveness formula that limited the amount of debt forgiven under the borrower defense to repayment.
The U.S. Department of Education announced on March 18, 2021, that it is repealing the partial relief formula and providing full relief to all borrowers with approved borrower protection claims. The U.S. Department of Education has also announced that it will issue new regulations to protect borrowers from repayment default. Further developments will be announced on the U.S. Department of Education's Borrower Defense Updates page.
The IRS has determined that borrowers' defenses to repayment exemptions are not deductible from income. Borrowers are also not required to repay education tax credits claimed on previous federal income tax returns. [Revenue Procedure RP-20-11]
Which borrowers are entitled to raise an objection to relief from repayment?
How does the federal government determine who has been defrauded by a college? Misconduct that could fall under the borrower's defense to repayment rules includes fraudulent or illegal acts by the college under federal or state law and making false statements. Some quick examples:
- Wrong recommendations
- False certifications (e.g., that the college is signing financial aid documents on behalf of the student)
- Passing on false information to university ranking organizations
False statements include not only false, erroneous and misleading statements, but also Omissions that make the statement false, erroneous or misleading. Examples of misconduct include misrepresentations regarding:
- Admission rates (selectivity), university rankings and admission profiles for students
- The qualifications of the teachers and the quality of the teaching equipment
- Graduation rates, employment rates and post-graduation earnings
- The possibility of transferring credits to other universities
- Licensing pass rates or licensing requirements
- University and program-specific accreditation, approval and certification
- Tuition fees and eligibility for financial aid
- The terms or amount of a loan
- The type of loan (e.g. classification of the loan as a grant)
If you took out a student loan based on one of these types of misrepresentations, you may be considered someone who was defrauded by your college. In this case, you can appeal the repayment claim even if you are eligible for other types of student loan forgiveness. The college does not have to be closed.
The borrower's defense to repayment claims is evaluated using the “preponderance of the evidence” standard. In other words, to approve your claim, there must be more evidence for a conclusion than against it.
Sweet vs Cardona
Sweet v. Cardona was the most recent case and settlement involving borrowers' defense against repayment claims. Borrowers filed a class action lawsuit against the U.S. Department of Education to end further delays and properly process their requests for relief. (Sweet v. Cardona, Case No. 19-cv-03674-WHA, U.S. District Court, Northern District of California)
The Biden administration has decided to settle this lawsuit. The settlement provides billions in relief for about 200,000 borrowers who attended 153 universities.
The complete list of for-profit universities can be found here.
For which loans is it possible for the borrower to claim exemption from repayment?
Only federal education loans under the Direct Loan Program are immediately eligible. However, loans under the Federal Family Education Loan Program (FFELP) and the Federal Perkins Loan can be made eligible by being included in a Federal Direct Consolidation Loan.
Private student loans are not eligible and cannot be made eligible for funding.
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Borrower’s right to object to relief from repayment |
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Federal loans for family education |
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How to File a Borrower Defense Claim
Borrowers can file a repayment appeal online by calling 1-855-279-6207 (8 a.m. to 8 p.m. ET, Monday through Friday) or by completing a 9-page application form. The completed application form can be emailed to BorrowerDefense@ed.gov or mailed to:
U.S. Department of Education – Borrower’s objection to repayment
PO Box 1854
Monticello, Kentucky 42633
Borrowers should provide supporting documents to support their claim, such as:
Legal actions against the college by the federal government (including the Consumer Financial Protection Bureau) and state attorneys general may also be considered evidence of wrongdoing.
Should loans continue to be paid while the borrower's claims are being assessed?
While a borrower's repayment appeal is being reviewed, the borrower may opt to defer their loans. However, if the appeal is not approved, all accrued interest will be capitalized at the end of the deferral period.
With that in mind, you may want to continue paying interest during the deferment to prevent the loan balance from increasing. If your repayment appeal is approved, any amounts previously paid on the loan may be refunded.
Other ways to get financial relief if you've been cheated by your college
If your college closed while you were enrolled or within 180 days of leaving, you may be eligible to receive forgiveness of your student loans due to the closure. To qualify, you must be able to show that you were unable to transfer credits or complete your education at another college.
Has your college applied for financial aid in your name or put your name under a Master Promissory Note (MPN) without authorization? If so, you may be eligible for forgiveness of your student loans due to false certification.
Finally, students may be eligible for compensation from state tuition reimbursement funds and surety bonds/performance bonds. These can help compensate them for out-of-pocket costs not paid with student loans. Information about these options can be found on the state Board of Higher Education and the Attorney General's websites.
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