Borrower Defense Claims
Interested in all of the challenges that student loan borrowers face? A major legal settlement shows just how hard it can be to get what you’re entitled to, if you’re unlucky enough to choose a school that offers you misleading information.
Check out this Forbes article from August announcing what the writer calls a “landmark settlement agreement” between borrowers and the Federal Department of Education.
Adam Minsky reported “A federal court granted preliminary approval for a landmark settlement agreement between President Biden’s Education Department and a class of student loan borrowers,” detailing the expected benefits for most eligible individuals.
Minsky notes that the settlement resolves a lawsuit based on “stalled applications for student loan forgiveness.”
It also uses the term “borrower defense to repayment.” If you’ve never heard of borrower defense before, you’re going to want to.
What does it mean, though? Let’s break that down a little bit…
The Federal Student Aid Office has a program that borrowers can use to get relief due to borrower defense – if the borrower can show proof that a school or institution was misleading or acted in bad faith.
As usual, the devil is in the details, this time with the application process to the program.
Borrower Defense Repayment Vs Borrower Defense Forbearance
Now, you may see the phrase “borrower defense to repayment” along with the phrase “borrower defense to forbearance.” What’s the difference?
Let’s detail how that process typically works…
In most cases, the student debt isn`t dissolved right away. Borrowers usually begin by applying to the federal program, leading to their loan entering forbearance during the investigation process.
You probably heard about the Corinthian scandal and other instances of schools being unveiled as fraudulent. This is the type of thing that the federal government wants to address with the borrower defense program.
How Big is the Borrower Defense Program?
Reporting reveals that the case could lead to $6 billion in student loan forgiveness for a quarter of a million borrowers.
There’s also a fairly long list of schools that could be named in these types of cases, including Corinthian, as well as the University of Phoenix, Colorado Technical University, DeVry, and others.
The Facts of the Case
So if the federal government has the borrower defense program, why was the lawsuit initiated in the first place?
If you’re used to reading these kinds of accounts, you may have already guessed it. That’s right – the borrowers applied, and their applications went nowhere.
Minsky’s coverage characterizes the claims against the education department saying the department either “ignored or arbitrarily rejected applications.”
That’s a clear-cut example of turning down people for something they deserve, and the kind of loophole that lets so many borrowers fall through the cracks, which is one of the reasons prompting the Biden administration’s initiating the student loan forgiveness program.
Unfortunately, out in the world, as soon as people hear the term ‘forgiveness’, they don’t think about much else. If they had a notion of the kind of craziness that goes on in the student loan business, they might feel differently! In ALL of these cases (and millions of others) someone screwed up, and it wasn’t the student. It was either the school, the lender, or the loan servicer. And sadly, as we see every day, this is not unusual.
Avenues for Student Loan Borrowers Who Have Been Mislead
Due to the outcome of the case, the borrowers can reapply based on the list of schools.
File this one in the ‘good things to know’ category if you’re a borrower who has a big student loan after attending a shady school. You paid the bill, and got stuck high and dry. Programs are available to you.
And even if the school wasn’t misleading or fraudulent, you may have a case against the lender or loan servicer. So look through the rest of our blogs for more examples of the opportunities you can take when you know your rights!
