New rules set to expand federal student loan forgiveness for borrowers who believe that they were defrauded by their schools have been put on hold until further notice, according to the Department of Education.
The program was designed to ease the burden for students at schools that violated certain laws or defrauded or misled students. For example, a federal court found that the now-defunct Corinthian Colleges engaged in deceptive practices such as advertising programs the schools didn't offer and false job placement rates. About 15,000 forgiveness claims from Corinthian students had been approved as of October 2016.
But Secretary of Education Betsy DeVos said June 14 that last year's expansion of the forgiveness rules "missed an opportunity to get it right."
You can still apply for borrower defense under the existing law, but the new rules are delayed for now.
How to tell if you qualify
You might qualify for borrower defense federal loan discharge if your school:
- Misled you in any way about your loans or education program
- Violated certain state laws, such as consumer protection statutes or laws related to your loan or educational services
You can submit a claim whether or not your school closed and even if you're eligible for other loan forgiveness programs. You can't submit a claim for private loans or costs you paid out of pocket.
Not sure if you should apply? Find out if your school has been the subject of legal action by the federal government, state attorneys general or the Consumer Financial Protection Bureau.
"The biggest indicator is if the college has been sued or are they currently facing legal action for their practices," says Robert Kelchen, assistant professor of higher education at Seton Hall University in South Orange, N.J.
Forgiveness of loans, even those from the discontinued Federal Family Education Loan Program, should not be subject to a statute of limitations.
How to apply
To strengthen your claim, experts suggest submitting a detailed explanation of why your loans might qualify, along with any supporting evidence. This could include:
- Confirmation of attendance
- Emails or correspondence with school officials
- Related promotional or school-produced materials
For help with your claim, contact the National Consumer Law Center, suggests Ben Miller, senior director for postsecondary education at Center for American Progress, a nonpartisan policy institute. Be wary of debt settlement groups that ask for money to submit your application. You can complete this process yourself for free.
How applying can affect your loans
Once you submit a claim, you should request that your loans be placed into forbearance or stopped collections status, which will halt payments and collections. Interest will accrue while the Education Department evaluates your application.
It might take awhile for your claim to be approved and, if it is approved, for forgiveness to kick in. As of late May, many of the 23,000 borrowers approved for full or partial loan discharges had not received forgiveness within the window promised by the Education Department, according to a letter to DeVos from five Democratic senators. DeVos indicated in a news release that 16,000 claims are being evaluated and that some borrowers should expect discharges in the coming weeks.
Anna Helhoski is a staff writer at NerdWallet, a personal finance website.