Department of Education to Grant Full Loan Relief to Student Borrowers with Borrower-Approved Defense Applications | Ballard Spahr LLP
The Ministry of Education announced last week that it change the way it determines relief for borrowers who invoke “borrower defense claims”. Such allegations allege that the borrower was misled by his school or that the school engaged in other misconduct in violation of certain laws. The borrower’s defense claims apply only to federal loans made under the William D. Ford Direct Lending Program. ED predicts that this change will impact approximately 72,000 borrowers and lead to a billion dollar loan cancellation.
Under ED’s new approach, a borrower will receive full loan relief when there is evidence that the school has engaged in certain types of misconduct that impacted the decision of the borrower to apply or stay enrolled in this school. By making this change, ED plans to override the formula ED used under the Trump administration to calculate partial loan relief. (Based on information on the ED website, this formula calculated the amount of borrower’s defense discharge relief by comparing the earnings of those who completed the same or similar program at a borrower’s school to the earnings of those who completed the same or a similar program in other schools.
An article published in The hill reports that, according to an ED representative, after reviewing the formula used under the Trump administration, ED determined that it did not result in appropriate relief for borrowers. The hill The article states that in order to provide full relief to eligible borrowers, ED will repay the amounts paid on the loans, ask the credit bureaus to remove negative reports associated with the loan, and restore eligibility for federal aid. to students.
ED’s announcement states that full relief “will apply to the borrower’s defense claims approved to date; the amendment applies to claims for which borrowers have received only partial loan relief and to claims approved to date that have not yet been the subject of a relief decision. “
The changes, while not unexpected, herald ED’s tougher stance towards for-profit institutions under the leadership of new Education Secretary Miguel Cardona. Lawyers in our Consumer Financial Services and Higher Education groups work with for-profit colleges and universities, as well as non-traditional bootcamps and other training programs, to prepare for further regulation by ED and CFPB .