Borrowers who were defrauded by their colleges may be able to get their federal student loans canceled and previous payments refunded by applying for a borrower defense to repayment discharge.
If approved for the discharge, negative credit reports relating to the loans will also be removed from the borrower’s credit history. Also, eligibility for federal student aid will be reinstated.
As of April 30, 2021, more than 350,000 borrowers have submitted borrower defense to repayment claims. And about 40% of processed claims have been approved. Could you qualify to have your student loans discharged as well? Here's how to find out.
What Is Borrower Defense To Repayment?
The borrower defense to repayment is a set of regulations that specify when federal student loans may be discharged because of harmful acts and omissions by the student’s college.
These regulations are authorized by the Higher Education Act of 1965 at 20 U.S.C. 1087e(h), which states:
The specific regulations that apply to your loans depend on whether they were first disbursed:
- Prior to July 1, 2017
- On or after July 1, 2017 and before July 1, 2020
- On or after July 1, 2020
Recent Changes To Borrower Defense Regulations
The current regulations, which were adopted during the Trump Administration, narrowed eligibility for the borrower defense to repayment. Now, to qualify for borrower defense discharge:
- Misrepresentations must have been made with “knowledge of its false, misleading, or deception nature or with a reckless disregard for the truth.”
- The borrower must have experienced financial harm because of the misrepresentations.
- Borrower defense to repayment claims must be filed within three years of the student’s separation from the college.
The Trump Administration also adopted a partial relief formula that limited the amount of debt discharged under the borrower defense to repayment.
The U.S. Department of Education announced on March 18, 2021, that it was rescinding the partial relief formula and providing full relief to all borrowers with approved borrower defense claims. The U.S. Department of Education also said that it intends to issue new regulations for the borrower defense to repayment. Further developments will be announced on the U.S. Department of Education’s Borrower Defense Updates page.
The IRS has determined that borrower defense to repayment discharges are excluded from income. Borrowers are also not required to repay education tax benefits that were claimed on previous federal income tax returns. [Revenue Procedure RP-20-11]
Which Borrowers Are Eligible To File For Borrower Defense To Repayment Discharge?
How does the federal government determine who's been defrauded by a college? Misconduct that could qualify under the borrower defense to repayment rules includes fraudulent or illegal acts by the college under federal or state law and misrepresentations. A few quick examples include:
- False endorsements
- False certifications (such as the college signing financial aid documents on behalf of the student)
- Providing false information to college ranking organizations
Misrepresentations don't just include false, erroneous and misleading statements, but also omissions that make the statement false, erroneous or misleading. Examples of misconduct include misrepresentations concerning:
- Admissions rates (selectivity), college rankings and student admission profiles
- The qualifications of teachers and the quality of training equipment
- Graduation rates, employment rates and earnings after graduation
- The ability to transfer credits to other colleges
- Licensing passage rates or licensure requirements
- College and program-specific accreditation, approval and certification
- Tuition and fees, and eligibility for financial aid
- The terms or the amount of a loan
- The nature of a loan (e.g., characterizing a loan as a grant)
If any of these types of misrepresentations influenced you to take out student loans, you may qualify as someone who's been defrauded by your college. If so, you can file a defense to repayment claim even if you're eligible for other types of student loan forgiveness. The college is not required to have closed.
Borrower defense to repayment claims are evaluated under a "preponderance of evidence standard." In other words, to have your claim approved there needs to be more evidence in favor of a conclusion than against it.
Which Loans Are Eligible For A Borrower Defense To Repayment Discharge?
Only federal education loans in the Direct Loan program are immediately eligible. Loans made under the Federal Family Education Loan Program (FFELP) and Federal Perkins Loan can may be made eligible, however, by including them in a Federal Direct Consolidation Loan.
Private student loans are not eligible and cannot be made eligible.
Eligibility For Borrower Defense To Repayment Discharge
Federal Family Education Loans
Eligible if consolidated
Federal Perkins Loans
Eligible if consolidated
How To File A Borrower Defense Claim
Borrowers can file a borrower defense to repayment claim online, by calling 1-855-279-6207 (8 am to 8 pm ET, Monday to Friday), or by completing a 9-page Borrower Defense to Repayment Application Form. The completed application form can be sent by email to BorrowerDefense@ed.gov or by postal mail to:
U.S. Dept. of Education — Borrower Defense to Repayment
P.O. Box 1854
Monticello, KY 42633
Borrowers should attach evidence to support their claim, such as:
Evidence of misconduct can also include legal action taken against the college by the federal government (including the Consumer Financial Protection Bureau) and state attorneys general.
Should Loans Continue To Be Paid While Borrower Defense Claims Are Reviewed?
While a borrower defense to repayment claim is being reviewed, the borrower may choose to have their loans placed in a forbearance. But if the claim if not approved, any interest that accrues will be capitalized at the end of the forbearance period.
With this in mind, you may want to continue paying the interest during the forbearance to prevent the loan balance from increasing. If your borrower defense to repayment claim is approved, amounts previously paid on the loan may be refunded.
Other Financial Relief Options If You've Been Defrauded By Your College
If your college shut down while you were enrolled or within 180 days of withdrawal, you may be eligible for a closed school discharge of your student loans. To qualify, you would need to be able to prove that you weren't able to transfer credits or complete your education at another college.
Did your college apply for financial aid on your behalf or sign your name to a Master Promissory Note (MPN) without authorization? If so, you may be eligible for a false certification discharge of your student loans.
Finally, students may qualify for compensation under state tuition recovery funds and surety/performance bonds. This may provide compensation for out-of-pocket costs that weren’t paid using student loans. Information about these options may be found on the websites of the state board of higher education and the state attorney general.
Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time. You can find his work on Student Aid Policy here.
Mark is the author of five bestselling books about scholarships and financial aid and holds seven patents. Mark serves on the editorial board of the Journal of Student Financial Aid, the editorial advisory board of Bottom Line/Personal, and is a member of the board of trustees of the Center for Excellence in Education. He previously served as a member of the board of directors of the National Scholarship Providers Association. Mark has two Bachelor’s degrees in mathematics and philosophy from the Massachusetts Institute of Technology (MIT) and a Master’s degree in computer science from Carnegie Mellon University (CMU).