Mid-February will mark the third and final borrower defense negotiated rule -making session with the U.S. Department of Education, affected parties and borrower advocates. The driving force behind the need to modify the borrower defense regulations was the sudden closure of Corinthian Colleges in April 2015 that left more than 70,000 students at 100-plus campuses with outstanding student loans and relatively useless credentials or unfinished degrees.
To address affected borrowers’ growing tide of calls for debt relief, borrower defense — a little known federal loan discharge — was dusted off. This allows federal loan borrowers to have their loans discharged in the event their school’s actions or omissions violated state consumer protection laws. The first of three negotiated rule -making sessions started in November 2017 to update the sparse regulations from 1995.
[Understand student loan discharge eligibility.]
If this sounds vaguely familiar, that’s because the government already completed a borrower defense negotiated rule -making in 2016, which resulted in new rules that were due to be implemented on July 1, 2017. These rules were postponed indefinitely in June 2017, and the new rounds of rule -making were announced soon after. The amended regulations concerning borrower defense are scheduled to be published in the Federal Register by Nov. 1.
Previously, little data had been published regarding borrower defense. Although borrower defense has been on the books since 1995, fewer than 10 borrower defense claims had been submitted to the Department of Education in the preceding 20 years.
The second rule-making session held earlier this month offered a better glimpse of the number of borrower defense claims and how successful borrowers have been.
[Learn how to dispute a student loan.]
By Oct. 30, 2017, 135,470 borrower defense claims had been submitted to the Department of Education for 135,080 borrowers. More than 1,500 schools from all 50 states, Puerto Rico and Washington, D.C., had claims asserted against them. Shockingly, 95 percent of these claims received were for 15 schools — only 1 percent of the total pool.
Most of the claims were received during 2016, with a sharp peak during the summer. Even though claims have now been coming in for nearly three years, far from all are approved or completed.
Only 22 percent of the borrower defense claim reviews have been completed. Approximately 76 percent haven’t made it beyond adjudication.
With a mean of 4,356 claims being submitted per month, this percentage will only continue to grow unless the Department of Education streamlines the approval process. Right now, the mean number of days it takes for a borrower defense claim to be approved — from the date received to the date of approval — is 264 days.
In December, Secretary of Education Betsy DeVos announced a new system of partial relief for former Corinthian College students in an attempt to speed up the approval process and protect taxpayer dollars.
[Read more about the tax implications of eliminating student loans.]
As of January 2017, the Department of Education had approved more than half of the approximately 46,000 borrower defense claims received, but according to James Manning, then-acting undersecretary of education, no claims had been approved between Jan. 20, 2017, and July 7, 2017, leaving thousands of borrowers in limbo not knowing if and when they will see relief.
Additionally, to the best of the Student Loan Ranger’s knowledge, to date no Federal Family Education Loan borrowers have been notified of their claim status. Under the 1995 borrower defense regulations still in place, FFEL borrowers may be eligible for full or partial discharge but they have an additional hurdle: They must prove that the school both violated state consumer protection laws and participated in a prohibited referral relationship with the original lender of the loan. FFEL borrowers may have to wait for the results of the negotiated rule-making process to unfold to know what sort of relief they may qualify for moving forward, or consolidate into the direct loan program without knowing if they will qualify at all.
If you have submitted a borrower defense application and have not heard back yet, your loans are likely in forbearance. You can contact your servicer to check on the status of the application and your loans.
Remember that while your loans are in forbearance, they still accrue interest. As a result, if the borrower defense discharge is not approved, your payments will likely be higher than what they were before you applied.
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Understand Discharge Rates for Defrauded Student Loan Borrowers originally appeared on usnews.com
