School-related cancellations offer very broad relief, but are available only in limited circumstances. There is no such thing as a “bad school” cancellation that allows you to cancel your loans because you were dissatisfied with the instruction, degree, job placement services, or other aspects of the school you attended. The school related discharges described in this section are quite narrow. But they are worth reviewing because you can get very broad relief if you qualify for one of these cancellations. All of the school-related cancellations require you to fill out an application form.
The three main categories of school-related cancellations are:
1. Closed School: This cancellation is available if you attended a school that closed while you were a student there or if you withdrew shortly before the school closed.
2. False Certification: There are four categories of false certification cancellations.
3. Unpaid Refund: You do not always have to pay the full amount if you left school early.
Defense to Repayment
If you have a legitimate complaint about your school, but are not eligible for a discharge, you may still be able to raise a school-related claim as a defense to collection in litigation or outside of court. These defenses may be raised even if you are current on the loan and there are no collection actions. If you are in default and facing collection, the defenses may be raised in response to all types of collection actions, not just lawsuits. If your school violated state or federal law, you may claim that you are not obligated to pay it back. You may also seek a refund for amounts you already paid.
To submit this type of claim, you should provide information identifying the law that your school violated and evidence showing the violation. Because this can be complicated, you should consider seeking assistance from an attorney.
Although borrowers have long had the right to raise defenses to repayment, the Department is only now creating a defense to repayment process. So far, the Department has provided more specific information for those borrowers who attended a Corinthian school. However, borrowers who attended other schools and who have legal claims against their schools may also use this borrower defense process to apply for loan cancellations and other relief.
The Department will make more information available hopefully soon on borrower defense to repayment, including a borrower defense claim form for borrowers to use. According to the Department, “Borrowers may therefore wish to wait for those updates before applying for a Borrower Defense to Repayment Loan Discharge. However, if you choose instead to submit your claim before the new process is available, you may submit materials via e-mail to FSAOperations@ed.gov or by mail to: U.S. Department of Education, PO Box 194407, San Francisco, CA 94119. ” Information on what to include in your borrower defense application is available on-line.
Borrowers who submit complete borrower defense claims can have their loans placed into forbearance or stopped collections. This is for loans that are owned by the Department and are being serviced by the Department (or defaulted and serviced by a private collection agency.). This includes all Direct Loans and some FFEL loans that are owned by the Department. Borrowers with FFEL loans that are not owned by the Department should also be able to raise defenses, but the Department has not yet announced details for this process. FFEL borrowers can still apply in the meantime for this relief. (This chart shows that “Defense to Repayment” is available for both FFEL and Direct Loan borrowers). We will post more information about this process when it becomes available.
Compromise and Settlement
The government has broad discretion to “compromise and settle” student loan debts. This means that if you don’t qualify for a discharge or debt cancellation, you may still ask the Department of Education (often through your servicer) to cancel your debt and/or provide a refund based on your complaint about your school. The Department, however, is not required to approve this request.