Student loans affect millions of Americans, many of whom struggle to make their payments every month. Besides income-based repayment options and refinancing, there are few options for those barely squeezing by. However, one that is rarely discussed, but still applies to some borrowers, is student loan discharge.
Discharging student loans is still a fuzzy concept for many. It sounds like it’s too good to be true, but it can be a reality for those who qualify. It’s a complicated process and might require the help of a lawyer or someone with direct experience. In fact, the Department of Education just clarified the rules last month to help borrowers understand how this process works.
Read below to see if you qualify and what you need to be able to discharge your loans.
Note: The Biden Administration has been expediting Borrower Defense to Repayment claims over the last few months. You can see more and learn how to get help if you were defrauded by your college here.
How Borrower Defense To Repayment Works
Borrower defense to repayment involves proving that the university or college deceived the student in some way that involved them taking out student loans. If a university defrauded a student in a manner that led to the student taking out student loans, he or she may be a good candidate to have their loans discharged.
Some examples of fraud include falsifying job placement figures, total school costs, successful credit transfer records and what kinds of degree programs would be offered. That’s part of what happened to students who attended Corinthian Colleges, a network of schools that was found guilty of lying to students. Over 15,000 students have had their federal loans discharged as a result, according to the latest report from the Department of Education.
Only Direct Loans are eligible for discharge for fraud, so graduates with Perkins, unsubsidized Stafford, Parent PLUS, Stafford or Federal Consolidation loans aren’t able to discharge their loans.
Student loan lawyer Jay Fleischman said successful discharge “can lead to not only a forgiveness of the unpaid balance, but also reimbursement for any money you’ve previously paid and removal of any negative information on your credit report related to the loan.”
However, “personal injury or civil rights claims” according to Fleischman, aren’t grounds for having your federal student loans discharged. This is important to note - simply because a lawsuit has been filed against a college or university doesn't mean anything for your student loan debt. You personally need to look at your situation and go through the process if you believe you might be eligible for borrower defense to repayment.
Students who want to discharge their loans must send some required information to the Department of Education, including:
- What laws the school violated
- When you were a student
- What degree program you were enrolled in
- Your contact information
- How the school’s alleged fraud affected your decision to take out student loans
More details on what you need to file a claim can be found here. After the claim has been submitted, the loans will go into deferment for up to 12 months where they will still accrue interest.
The process to discharge your loans is a serious legal matter, and you may need extra help to go through it.
“You’ll need to prove to the government not only that your claim meets the state standard, but also that the statute of limitations for bringing such a claims have not expired,” Fleischman said. “You’ll also want to understand the implications of a discharge of your federal student loans on your taxes, and whether you may be taxed on the forgiven debt.”
Borrower Defense To Repayment And Your Repayment Plan
It's important to note that borrower defense to repayment is an option to get your student loan debt discharged - it's not a student loan repayment plan that offers loan forgiveness. This is important because there are student aid companies and student loan assistance companies that are directly advertising to students who attending Corinthian Colleges and similar with the promise of student loan forgiveness.
If you are looking for help with your student loan debt, make sure you ask specifically what the company is going to do for you. In many instances, these companies are simply signing you up for an income-based repayment plan that includes forgiveness. And while that may work for the short term to help you afford your student loan debt - it's not borrower defense to repayment which may get your total student loan debt discharged.
Whenever you get help for your student loan debt, make sure you fully understand and research the options for yourself. Nobody will care more about your situation and your money than you.
Private Student Loan Debt
Getting private loans discharged is much more difficult. Every loan provider has a different policy, so contact your individual provider to see what theirs is.
Some allow discharge if you’re disabled and cannot work. In that instance, you must be able to prove that you don’t realistically earn enough to pay back your student loans, and there is no hope you ever will.
A few borrowers have successfully discharged their student loans in bankruptcy, but that’s a rare circumstance. A lawyer specializing in private student loan matters might be able to say if your case is sound enough to go to court or not. Make sure to understand their fees before you take on a court case, so you don’t end up worse off financially than you were before.
If you think you've been defrauded by your school and are buried in student loan debt as a result, this could be a good option to get help. Furthermore, there are even more protections coming for borrowers starting in 2017 that should provide even more relief.
The tough part is proving you've been defrauded. It's important to keep copies of everything with your school in writing, and save brochures and other documents in a safe place. While many schools are honest and straightforward, a few proactive steps can save a lot of heartbreak later in life.
If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.
Have you, or do you know anyone, who's been successful in taking advantage of borrower defense to repayment?
Zina Kumok is a freelance writer specializing in personal finance. She has been featured in Lifehacker, DailyWorth and Time, and she paid off $28,000 worth of student loans in three years. She also works with people one-on-one as a money coach at ConsciousCoins.com.