Debt Relief Delayed for Defrauded Students

: Reese Baker & Associates

  Filed under: Loans

In a story that has been unfolding over the last 4 years, students who were defrauded by colleges are still waiting to have their debt forgiven. The problem stems from a string of for-profit colleges, mainly Corinthian College, which closed in 2015. The next year, the Department of Education announced they would allow borrowers who took out federal student aid loans for these defunct schools would be able to have their loans forgiven due to fraud. Now, as 2017 draws to a close, there are thousands of students still waiting to hear if their claim for student loan forgiveness will be approved.

Borrower Defense to Repayment

The borrower defense to repayment is a federal guideline passed by the Department of Education that allows for forgiveness of federal student loans used to attend a school if the school either mislead them or engaged in other misconduct in violation of certain laws. In order to invoke the borrower defense to repayment, a student must demonstrate that the school violated state law related to the student loan or educational services for which the loan was provided. While there were only a handful of students who invoked this prior to 2015, the closing of Corinthian College, DeVry University, and ITT Technical Institute unleashed a torrent of claims for students that were left with no degree and/or no employment.

Student Loan Relief Backlog

According to a recent U.S. Department of Education’s Office of Inspector General Report, since 2016 their offices have received a total of 98,868 borrower defense claims and only 31,773 have been approved and 2 denied leaving over 67,000 individuals waiting to hear if their loan forgiveness will be approved or not.  This student loan relief backlog has drawn criticism from students and their advocates in Congress alike who have repeatedly asked the Department of Education Secretary to finalize the relief and process the claims.

Updated Student forgiveness Regulations

The federal student debt forgiveness was stalled earlier in the year by an update to regulations that the Department of Education Secretary, Betty Devos, claimed were “unfair to students and schools, and put [the] taxpayer on the hook for significant costs.” Now, in anew list of mandates that could derail or father delay the borrow defense forgiveness, Congress has introduced the PROSPER act which many believe will roll back student’s ability to obtain loan forgiveness when defrauded by schools. If you are currently waiting to hear if your student loans will be forgiven, it may be worth it to look into this Act and keep abreast of its developments.