Tougher Loan Forgiveness Standards for Defrauded Students

Starting in 2020, getting a loan discharged because your school made misleading or deceptive claims will be harder.

If your school fraudulently convinced you to enroll or remain enrolled, you can apply for a discharge of your federal student loans. But on August 30, 2019, Education Secretary Betsy DeVos announced new federal rules that will make it more difficult to cancel your debt on the grounds that your college defrauded you.

DeVos’ Rewrite of the Borrower Defense to Repayment Rule

For loans first disbursed on or after July 1, 2020, to get a loan discharge based on what’s called a “borrower defense to repayment,” you must prove all of the following by a preponderance of the evidence:

  • The school made a misrepresentation of material fact upon which you reasonably relied in deciding to get a Direct Loan, or a loan repaid by a Direct Consolidation Loan. (You’ll have to show that the college made deceptive statements with knowledge of their false, misleading, or deceptive nature.)
  • The misrepresentation directly and clearly related to your enrollment or continuing enrollment at the school or the school’s provision of education services for which the loan was made.
  • The misrepresentation financially harmed you. (34 C.F.R. § 685.206(e)(2)(i)).

These standards are stricter than the current Obama-era requirements: The new rules narrow the type of misconduct that could trigger loan forgiveness, and they also require borrowers to provide more extensive documentation about the financial harm they suffered.

Also, the latest changes add a three-year time limit for borrowers to file claims, and each case will be considered individually—even if evidence of widespread misconduct exists at a particular school.

Consumer Advocates: The New Rules Don’t Protect Students from Predatory For-Profit Colleges

Consumer advocates say that, under the new standards, schools can more easily defraud student borrowers and still get the benefits of federal student aid.

Harvard Law School’s Project on Predatory Student Lending and others have said they’ll file a lawsuit to try to stop these regulatory changes from going into effect.

Effective date: July 1, 2020