The Borrower Defense Pothole That Will Swallow Many Trying to Forgive Student Loans

The Federal Trade Commission recently put out advice advising student not to pay for help in submitting a claim to have all of their federal student loans forgiven due to fraud. This fraud issue is one where many people could actually have all of their federal student loans forgiven. See my recent article on this here, here, here and here.

Right now the Department of Education has a page on their website that shows what the average student loan debtor will have to do to apply to have their loans forgiven due to school fraud.

The items needed for a claim are apparent, innocent, and simple, until you get to the last bullet point. And this is where people are going to scupper their chances of getting their loans forgiven and drive up their student loan balances.

To make a request to have federal student loans forgiven under the borrower defense claim process you must demonstrate how the school violated state law. I have little confidence the average person is going to have the skills, knowledge, and experience to research what specific state laws apply in their situation.

The Department of Education says when it comes to how a borrower was defrauded then they want at least the following information:

  • The state and applicable law or cause of action (if available)
  • Specific acts (including failures to act) of alleged misconduct by the school
  • How the alleged misconduct affected the borrower’s decision to attend the school and take out a loan to pay to attend the school
  • The injury suffered by the borrower as a result of the school’s alleged misconduct
  • Any other supporting information that would help the U.S. Department of Education review the borrower’s claim

I predict masses of these borrower defense claims will be submitted. And here is where the big financial damage can occur to the individuals submitting poorly researched claims. When a claim is submitted the borrower “can have their federal loans placed into forbearance or stopped collections if those loans are owned by the U.S. Department of Education (ED) and are being serviced by a federal loan servicer (or defaulted and serviced by a private collection agency).”

See also  Federal School Code List 1996-1997

But while the poorly researched and documented claim is winding it’s way though the review process and the loan is in forbearance, interest will continue to accrue on the loan balance and if the claim is eventually not accepted then the amount the borrower owes, will be higher than when they began.

Borrower defense claims can be a good tool when researched and documented professionally by an expert in this like Damon Day or Michael Bovee, or when prepared by an attorney who is licensed in your state. But if the claim is not reasonable or properly documented then financial harm may be the byproduct.


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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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