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Understanding Borrower Defense to Repayment

What Is Borrower Defense for Student Loans?
Melissa Brock
Melissa BrockUpdated April 14, 2023
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The Higher Education Act states that students who have been defrauded, misled, or who have experienced a violation of state laws by a college or university may qualify for a borrower defense loan discharge, also called "borrower defense." Borrowers can also get relief if their schools close before they attain their degrees. The borrower defense to student loan repayment rule applies only to those who carry federal student loan debt. The Department of Education announced on March 18, 2021, that it would rescind the previous administration’s calculations for "partial" relief for successful borrower defense claimants and instead grant total relief to borrowers.If you think you qualify, you can apply for discharge. We'll take a deeper look by answering the question "What is borrower defense to repayment," covering how borrower defense to repayment works, learning qualifications, and figuring out how to apply for borrower defense. 

What Is Student Loan Borrower Defense to Repayment? 

If you believe your college has misled you or violated your rights, you may qualify for borrower defense, a discharge of federal student aid, and, more specifically, federal student loans. This means that you would no longer have to repay your federal student loans. You can only receive forgiveness for how much you owe on federal Direct loans if you qualify. You must have taken loans for the school you have a claim against, including the following:
  • Direct Subsidized loans
  • Direct Unsubsidized loans
  • Direct PLUS loans
  • Direct Consolidation loans
The borrower defense rule gained attention when Corinthian Colleges closed due to fraud allegations in 2015. Corinthian misrepresented students' employment prospects and credit transfer and fabricated public job placement rates. The Obama administration more clearly outlined the borrower defense rule so borrowers could petition for loan discharge. Several other colleges and universities have also entitled other borrowers who earned credit hours to forgiveness:
  • ITT Tech
  • University of Phoenix
  • Westwood College
  • Marinello Schools of Beauty
  • The Court Reporting Institute
  • American Career Institute
  • Minnesota School of Business
  • Globe University
  • Le Cordon Bleu
  • Sanford-Brown Colleges and Institutes

How Does Borrower Defense to Repayment Work?

If you feel you have been defrauded or misled, you can apply for borrower defense electronically within three years and get relief. You can also fill out a form and email or send it via mail to the Department of Education. You can file a claim if you leave your school up to 180 days before it closes. You cannot resubmit your claim for further consideration even if your claim is denied and new information becomes available.While waiting for your application to process, you can apply for forbearance, which temporarily stops collection on your loans. However, you must select this option in Section 6 of your application. Your student loan servicer will inform you when your federal loans will go into forbearance status. You must make payments until then, and note that interest will accrue during forbearance. Consider making interest payments to avoid adding to your loan balance if you go this route.

Qualifications for Borrower Defense Repayment 

To qualify for borrower defense, a school must have misled you based on its programs or broken state laws. For example, it may have misrepresented the following to you:
  • Licensure passage rates
  • Employment rates
  • Selectivity and admissions profiles
  • School certifications
  • Credit transferability
  • Graduate placement rates
  • Future salary potential
  • Availability of financial assistance
  • Representations to third parties
  • Enrollment urgency
  • Faculty qualifications
  • Career services
  • Breach of contract
You must prove that a school misled you or engaged in misconduct related to your loan or educational services to qualify for the borrower defense repayment. 

Borrower Defense Repayment Process 

After you apply, your loan servicer (the entity that handles your student loans) will let you know whether your application has been denied or approved. If approved, you'll receive a federal student loan discharge.Borrower defense may also include reimbursement of student loans paid out, requests to remove any negative borrower credit information through the credit bureaus, and reinstatement of federal student loan eligibility. 

Applying for Student Loan Borrower Defense 

For loans disbursed before July 1, 2020, a legal judgment against a school may be sufficient as the only grounds for borrower defense. After July 1, 2020, a legal judgment may not be the only evidence required to cancel loans.You must have a verified account username and password (FSA ID) — your account login. You'll also include the school name and your program of study, list your enrollment dates, and include documentation.Submit a detailed explanation of how you have been misled and suffered financial harm and include supporting evidence. Supporting evidence could consist of documentation and proof that outlines your dates of enrollment, your program of study (such as transcripts or registration paperwork), promotional materials or emails from the admissions office, for example. The more information you can provide, the more it can strengthen your application. Look for the name of your school vs. the Department of Education and list the lawsuit language in your application. You can also fill out text boxes on the form to explain your situation more clearly. 

Can Borrower Defense to Repayment Impact Your Student Loans? 

In some cases, you may get a refund for your previous Direct loan payments, depending on a few factors, including:
  • Your loan eligibility
  • The financial harm you claim
  • The date you submit your application
Applying within the limitation period and loan payments exceeding the amount owed after discharge can mean an eligible payment refund. Your loan servicer will apply the discharge to your student loan balance.If you still have a remaining balance, your servicer will apply prior payments made on the discharged loans to the remaining balance and to the balance of other Direct loans you have in your name. If you no longer have a balance, your servicer will return your refund amount. If you apply outside the limitation period or you have less in loan payments than the amount owed after your discharge, you will not get a refund. 

Pros and Cons of Applying for Borrower Defense to Repayment

Pros of Borrower Defense to RepaymentCons of Borrower Defense to Repayment
Can seek forgiveness if you were misled or wronged by a college or the college violated state lawsSpecific requirements to qualify for a borrower defense to repayment discharge vary depending on when you received your loan. After July 1, 2020, you must apply for student loan relief through the borrower defense program. Loans prior to that date were automatically canceled.
Can put your loans in forbearance as part of your claim, which halts payments and collections Must meet a deadline to qualify — must apply within three years
Quick application process, but it may require some researchTakes a while: You receive notification of your discharge from your loan servicer within 90 to 120 days after approval.

The Takeaway

If you think you've been defrauded or misled, consider applying for borrower defense to repayment. Colleges and universities break the law when they defraud borrowers, so it is important to make sure that you receive reparations for the harm they caused you.

3 Student Loan Tips

  1. Refinancing your student loan can lower your monthly payments and help you adjust your loan term. Compare student loan refinancing rates to find a loan that works for you.
  2. Paying extra each month on your student loan can reduce the interest you pay and so lower your total loan cost over time. (The law prohibits prepayment penalties on federal or private student loans.)
  3. If you teach full-time for five complete and consecutive academic years in a low-income school, you may be eligible for federal student loan forgiveness.

Frequently Asked Questions

What is the borrower defense to student loan repayment rule?
How long does a borrower's defense decision take?
How do I check the status of my borrower's defense?
Photo credit: iStock/Pekic

About the Author

Melissa Brock

Melissa Brock

Melissa Brock is a higher education and personal finance expert with more than a decade of experience writing online content. She spent 12 years in college admission prior to switching to full-time freelance writing and editing. Her work has appeared on Yahoo Finance, Entrepreneur, Investopedia, The Balance, FinanceBuzz, The Journal of College Admission, MarketBeat, College Finance, Rocket Mortgage, LeverageRx, Benzinga, Morty, Ally, and more.
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