Student loan forgiveness for some borrowers just got harder.
Here’s what you need to know.
Student Loan Forgiveness
U.S. Secretary of Education Betsy DeVos announced Friday stricter rules for students who seek student loan forgiveness if they were defrauded by their college. The new rules, which will become effective July 1, 2020, rewrite a 2016 Obama-era policy that primarily regulated for-profit schools.
“If a school defrauds students, it must be held accountable,” DeVos said. “There is no place for fraud in higher education, and it will not be tolerated by this Administration…The new regulations are aimed at preventing this behavior because students deserve better, and all institutions must do better.”
The new rules, among others, include the following:
- Grant borrowers the right to file borrower defense to repayment claims, regardless of their student loan repayment status
- Allow borrowers to file claims three years from either their date of graduation or withdrawal from the institution
- Create streamlined procedures regardless of the borrower’s student loan repayment status
- Extend the closed school discharge window from 120 to 180 days
- Allow schools to provide a teach-out opportunity for students to complete their program at the closed institution or another institution
Critics have some reservations, including:
- The deadline to file claims
- The ability for colleges to set their own internal dispute resolution processes
- The Education’s Department ability to decide the amount of student loan forgiveness
Bottom line: Under the final borrower defense rules, borrowers should not expect student loan forgiveness to be guaranteed. Similarly, for those borrowers approved for student loan forgiveness, they should not necessarily expect the full amount of student loan forgiveness they seek.
Borrower Defense To Repaying
Borrower Defense To Repaying allows students to have their federal student loans forgiven if a school employed illegal or deceptive practices to encourage the students to borrow debt to attend the school. DeVos believes that the original borrower defense to repaying rule was confusing and unfair to both students and schools. While critics viewed the Education Department’s rewrite as a potential win for the for-profit college industry, DeVos has said that the rule changes will still help students who are victims of fraud.
According to the latest data from the Education Department, as of March 2019, the Education Department has received approximately 240,000 applications for student loan discharge based on the borrower defense rule. Approximately $535 million across 48,000 claims have been granted to students for student loan debt relief. More than 179,000 applications – many from borrowers who attended now-defunct, for-profit colleges – are still waiting for their claims to be processed.
DeVos has said she wants to strike a fair balance between protecting students from predatory practices and creating balanced rules to which colleges can adhere. When the federal government forgives student loans – even if a college committed fraud – taxpayers effectively foot the bill. DeVos expects that the final rules will save taxpayers $11.1 billion.
Your Next Steps
If you’re not impacted by the final rules, there are other proactive steps you can take regarding your student loans:
- Refinance student loans: lower your interest rate and pay off student loans faster with this student loan refinancing calculator
- Extra student loan payment: make an extra student loan payment to lower principal and save interest costs
- Explore other student loan forgiveness: public service loan forgiveness and teacher loan forgiveness are two potential programs
- Student loan repayment: This student loan quiz takes less than one minute to complete and provides you with a free, customized student loan repayment plan