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Some Finer Points to Beware of in the Borrower Defense to Repayment Program

By on September 20, 2016

I just stumbled across this little tidbit of additional information regarding the federal student loan Borrower Defense to Repayment Program. Under this evolving and new program, details here, students can apply for a complete elimination of their federal student loans if their schools defrauded them.

I’ve covered some of the potholes of the program in The Borrower Defense Pothole That Will Swallow Many Trying to Forgive Student Loans but this new fine tuned information provides yet another gotcha to watch out for.

When a student files a Borrower Defense claim the loans go into forbearance where no payments are required to be made. But according to the Department of Education, “During any period that your loans are in forbearance, you do not have to make payments on those loans, and the loans will not go into default. If your loans are already in default, collections will stop. This will continue until the loan discharge review process is completed. Your servicer will notify you when your loan has been placed into forbearance or stopped collections if those loans are being serviced by a federal loan servicer. Until you receive that notice, you should continue to make payments.

The forbearance or stopped collections will affect all of a borrower’s federal loans that are serviced by a federal loan servicer (or defaulted and serviced by a private collection agency), including loans that are not eligible for a borrower defense to repayment loan discharge, such as loans taken out to attend a different institution than the one related to your claim. Note that interest will continue to accrue on all of these federal loans, including subsidized loans, during the forbearance or stopped collections period.

If you want the forbearance or stopped collections to apply only to those loans related to your borrower defense claim, or if you do not want your loans to continue in forbearance or stopped collections, you must notify your loan servicer after you hear from them confirming the forbearance or stopped collection. At any time during the forbearance or stopped collections period, you may voluntarily make payments on your loans, including payments for accrued interest, or end the forbearance or stopped collections by contacting your servicer.

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If your borrower defense claim is successful, your federal loans related to your claim will be discharged. Also at that time, the forbearance or stopped collections period for your other federal loans will end. You will be responsible for repaying these other loans, including interest that accrued during the forbearance or stopped collections period, under the terms of your promissory note.

If your borrower defense claim is denied, you will not receive a discharge of any of your loans and the forbearance or stopped collections period will end for all of your loans. You will be responsible for repaying these loans, including interest that accrued during the forbearance or stopped collections period, under the terms of your promissory note.”

I think this is the first time I’ve discovered that the potentially bad forbearance will apply to ALL federal student loans that are serviced by a federal loan servicer. So this means that even loans not used for the school you felt defrauded you, will be put on hold.

Having a student loan in forbearance might feel like a good thing, but forbearance makes your balance exponentially grow.

But the information from the Department of Education gives students a way to unlock loans from forbearance that should not be put on hold. That’s good.

So if you file a Borrower Defense claim, please watch these finer points so you don’t get surprised with larger student loan balances by accident.

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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