Using the “Borrower Defense” To Wipe Out Your Student Loans
Student loan debt in America is in the trillions. And student loan debt it is very difficult, if not impossible, to discharge through bankruptcy. So, if you are not likely to be able to discharge your student loans by filing for Chapter 7 bankruptcy, is there another way to wipe out that debt? According to a recent article in Fortune Magazine, you may be able to rely on the “borrower defense” to get rid of your monthly student loan payments.
Students Seeking Loan Forgiveness for Fraudulent College Marketing Tactics
According to the article, debtors throughout the country are looking to an obscure federal law that may allow them to wipe out their student loan debts. As the article notes, “for many of them, it’s working.” What is this obscure federal law? In short, it says that students can be eligible to “ditch their loans if they can show their school made false or fraudulent claims to recruit them.” What do false or fraudulent claims during recruiting look like? Such claims could take many different forms, but many students allege that their colleges made false statements about their likely earnings after graduation.
The law is not new. Until last year, debtors only used it in three different cases. However, last year, everything changed. The Department of Education “announced it would forgive the loans of students who attended Corinthian College, a vocational school that went bankrupt amid a scandal over its marketing and lending practices.” In other words, if colleges use false or fraudulent marketing tactics, students who attended such colleges may be able to have their loans forgiven.
In the case of Corinthian College, the federal government canceled loan debts of 1,300 students. Now, more than 7,500 students who allege they are in similar situations have asked the Department of Education to forgive their loans. The total of those student loans is more than $164 million. And if students are successful, then they can also be refunded for student loan payments they have already made.
Learning More About the “Borrower Defense” Law
So what, precisely, is this “borrower defense” law? It went into effect in 1994 and was aimed at providing a remedy for students who believed that their colleges had defrauded them. To attempt to use the law to have student loans wiped out, debtors can fill out a form through which they can get a temporary “time-out on payments while they prepare and submit a fraud claim.” This time-out will not prevent interest from accruing on student loans, however. Thus, if a debtor’s claim is unsuccessful, they will be responsible for any interest that accrues during the claim period.
If the claim is successful, who pays back the government for student loan debts owed? In short, the government can attempt to recover the debt from the colleges alleged to have defrauded students. If the college is no longer solvent, that debt burden may fall upon taxpayers.
It is not yet clear how broadly the “borrower defense” law will be construed. For instance, can a former student whose education simply did not deliver the kind of job and income expected result in a successful claim? We will need to wait and see some of the current claims are handled by the Department of Education.
If you have questions about student loan debt or filing a “borrower defense” claim, you should discuss your options with an experienced Oak Park consumer protection lawyer as soon as possible. Contact the Emerson Law Firm to learn more about how we can assist you.
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