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What Is Borrower Defense and Does It Apply to My Student Loans?

Meghan Lustig

You may have seen the term "borrower defense" in the news and wondered what it is and whether it applies to you. If you have federal student loans and suspect that the school you attended made false promises about your education, there is a chance you may be eligible to receive full or partial student loan forgiveness under this rule.

Here is what you need to know about borrower defense.

What Is Borrower Defense?

The borrower defense to repayment rule is a federal regulation issued by the U.S. Department of Education that allows federal student loan borrowers who were defrauded by a college, university or career school to seek full or partial forgiveness of those loans.

[READ: Where Do Federal Student Loans Come From?]

The issue has drawn national attention since 2015, when the for-profit Corinthian Colleges closed amid allegations of fraud. In response, the Obama administration issued a new borrower defense rule, creating a process for borrowers to petition for federal student loan discharge if they feel they were defrauded under state law.

In 2019, the Trump administration made some changes to the borrower defense rule that set stricter standards. Starting in July 2020, borrowers will need to show that their school committed fraud "with knowledge" that the claims were deceptive and prove that they experienced financial harm as a result.

The new regulation will also allow borrowers who discontinued their enrollment at an institution 180 days prior to its closure to file a claim -- a larger window than the 120 days the Obama-era regulation provided. Earlier this month, the U.S. House of Representatives voted to overturn the Trump administration's policy, but it remains to be seen if the Senate will pass the measure.

Should I Apply for Borrower Defense?

To decide whether you should submit an application for loan forgiveness under borrower defense, first find out if your student loans are eligible.

Only federal direct loans are eligible for forgiveness under borrower defense, and those loans must have been taken out for payment to the school that is the source of your claim.

[Read: What to Know About Federal Student Loan Repayment Options.]

If your claim relates to federal loans taken out prior to 2011, they may not be eligible if they are part of the federal Perkins loan program or the Federal Family Education Loan Program. However, if you consolidate FFEL or Perkins loans into a direct consolidation loan, you may be eligible for borrower defense loan forgiveness. You can check to see if your student loans are eligible at StudentAid.gov.

You may have a case for borrower defense if you were misled by a school about the education you received. Some examples are if your school made false promises about your employment prospects, the cost of the education or whether the school was accredited.

By contrast, claims that do not relate to your loan or educational services are not eligible for borrower defense. These include personal injury claims or allegations of harassment.

Your school does not need to have closed as a result of fraud. In fact, if your school closed and you are not able to transfer the credits, you should also apply for a closed school loan discharge. You can apply for both at the same time.

If you think you may have a claim for loan forgiveness under borrower defense, there are two key things to consider before you submit your claim.

First, for your claim to be successful, your school must have violated a state law or certain federal standards, depending on when you received your student loan. State laws vary, so check with your state attorney general's office to see whether you have a case based on the laws in your state.

[Read: 4 Student Loan Questions You Shouldn't Be Afraid to Ask.]

Second, you should consider that if your application turns out to be unsuccessful and you did not continue making monthly payments while it was under review, your loan balance may have grown.

The Department of Education has a backlog of borrower defense applications and it may take a long time to get a determination about your application. While your application is evaluated, your student loans are placed into forbearance, which means that you will not need to make payments, but the loans will still accrue interest.

That interest would be added to your loan balance if your application is not eligible for loan forgiveness , and you are responsible for paying the full amount.

If you are worried about your student loan balance growing, you can consider making payments even though they are not required, or at least paying the interest that accrues while you wait.

How Do I Submit an Application for Borrower Defense?

If you think you have a strong case and want to seek student debt relief under borrower defense, visit StudentAid.gov/borrower-defense to submit an application. Review the application ahead of time and prepare your documentation before beginning the process.

You can also call the Department of Education's borrower defense hotline at 855-279-6207 for assistance. Telephone representatives are available Monday through Friday from 8 a.m. to 8 p.m. Eastern time.

When considering whether to submit a borrower defense claim, if you suspect you may have a case and would like legal advice, the National Consumer Law Center's Student Loan Borrower Assistance Project maintains a list of referral resources that you can check for assistance.

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