The US Department of Education announced this week that it will streamline the process for determining eligibility for federal student loan forgiveness for students defrauded by their colleges. The ministry has estimated that about 72,000 borrowers will benefit and that a total of $ 1 billion will ultimately be forgiven.
Widespread student loan relief has been a frequent topic of discussion among lawmakers in recent months. But this announcement only applies to a certain group of borrowers: those requesting a rebate under the defending the borrower against repayment arrangement.
You may qualify for a discount under this rule if you took out federal direct loans to attend a college that misled you about admissions selectivity, faculty qualifications, placement rates, income. graduates or other factors.
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Here’s what the Ministry of Education announcement could mean for you.
Changes to Borrower Defense Relief Process Extend Forgiveness
Forgiveness as part of the borrower’s repayment defense is intended to provide relief to borrowers who have not received the education promised to them, which affects their ability to repay student loans.
While this rule has been in place for decades, it wasn’t widely used until about five years ago, when it was discovered that the for-profit college chain Corinthian Colleges had defrauded students. The Education Department has developed specialized loan forgiveness requests for former Corinthian students, but anyone who thinks they have been misled by their university can request a forgiveness.
Under the Trump administration, changes to the process for determining who is eligible for the rebate under the borrower defense rules reduced the likelihood that applicants would receive relief.
In December 2019, the Department of Education announced that the rebate would only be available if borrowers “suffered financial harm” outside of their student loan debt. Loan relief would then be granted in stages, from 25% to 100%, depending on the applicants’ income. Borrowers would only get a loan forgiveness if they earned less than the median salary of graduates of similar schools.
The Biden administration will create a new process that provides for full loan cancellation for those with legitimate forgiveness requests. The simplified method will not take into account income data and will not provide progressive relief. If you now successfully apply for a forgiveness under the borrower’s defense rule, you can expect full cancellation of eligible federal loans. The department will also ask credit bureaus to remove late payment information from credit reports of defrauded borrowers.
The announcement means that 72,000 borrowers who received only a partial discount under the previous administration will now get a full discount on qualifying loans, plus repayment of any money they paid for the loans.
How to Apply for a Pardon Under the Borrower’s Defense Rule
If you believe you have been misled by your school and have been encouraged to enroll and stay enrolled under false pretenses, you can request the postponement of the borrower’s defense at any time on the dedicated government page. If you attended one of the Corinthian college campuses, use the application.
You will usually need to show that your school has skewed its college rankings, post-graduation employment rates, the likelihood of its credits being transferred to other schools, or other data. Preview full application for examples of activities that may demonstrate fraud. (Note that the online version of the app does not yet consider the removal of income data as a determinant of forgiveness.)
It is possible to ask abstention, a pause on your loan repayments, while the ministry studies your request. Federal student loans are all mandatory abstention period until September 30, 2021 due to the Covid-19 pandemic. But if the forbearance ends in October and your borrower defense claim is still pending, your payments may remain on hold.
You can also request a break in Debt recovery procedures if the student loans you included in your application are currently in collection.
What this change could mean for greater student loan forgiveness
An expanded discount for defrauded borrowers could be seen as another step in the direction of greater loan forgiveness overall.
The most recent Recovery plan includes a provision that eliminates income tax on canceled loan balances from 2021 to 2026. This means that any additional discounts provided over the next five years will not be taxed, potentially alleviating a major burden on borrowers . (Borrowers whose loans are canceled under borrower defense regulations are never subject to income tax, thanks to an IRS rule put in place in 2020.)
The announcement of the Ministry of Education does not, however, establish a new path for cancellation. Senators Elizabeth Warren (D-MA), Chuck Schumer (D-NY) and Bob Menendez (D-NJ) urged President Joe Biden to write off up to $ 50,000 in student loans for all federal borrowers until March 15. Biden has said he supports the cancellation of $ 10,000 in debt instead, ideally through legislation rather than executive order.