Borrower defense claims (also known as “defense to repayment” or “DTR”) 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. In addition to applying for loan cancellation, you may also seek a refund for amounts you already paid.
Although borrowers have long had the right to raise school-related defenses to repayment, the Department only recently began creating a borrower defense to repayment process. The Department issued final rules on November 1, 2016 that were supposed to go into effect July 1, 2017. However, an industry trade group sued to delay implementation of these rules. The Department subsequently announced that it is postponing the July 1 effective date. Stay tuned for more information.
You do not have to wait for the new rules to go into effect to apply for relief. You have the right to raise these defenses under existing law. The Department says that it will “… continue to process DTR claims under the existing DTR regulations that were in effect prior to the November 1, 2016 final regulations that have now been delayed, and following the process that it has used over the past several years.” It is not clear, however, what process the Department has used.
The Department has created a few different borrower defense application processes:
1. Process for Some Former Corinthian Borrowers. The Department has provided specific information and a streamlined process with special applications for certain borrowers who attended a Corinthian school. Whether you can use this streamlined process depends on when you attended the school.
2. Automatic Group Relief for American Career Institute Borrowers. In January 2017, the Department announced plans to grant borrower defense relief for federal student loan borrowers who attended the now-defunct American Career Institute (ACI) in Massachusetts. Federal student loans taken out to attend ACI should be automatically discharged without requiring students to submit applications. This move follows the Department’s investigation as well as numerous admissions by the school that it made false and misleading representations to students, misstated job placement rates and employed instructors who were unauthorized to teach under applicable state laws.
3. Process for all other borrowers. In January 2017, the Department issued a borrower defense application form for all other borrowers. As of February 2017, the Department says that all borrowers MUST use this application to apply for borrower defense relief. You can complete the online application form or a fillable PDF application form. Information on what to include in your borrower defense application is available on-line and on the application form. According to the Department, ED and/or your federal student loan servicer(s) will contact you once the review of your claim is complete to inform you of whether your claim was successful or denied.
Borrowers who submit complete borrower defense claims can have their Direct loans and Department held FFEL loans placed into forbearance or stopped collections. According to the Department, for borrowers who are in default, “…stopping collections means that no bills will be sent, there will be no collection efforts, and there will be no involuntary offsets or garnishments. Interest continues to accrue during stopped collections. Voluntary payments will still be accepted so that, for example, borrowers who are in a rehabilitation agreement can continue their process on that agreement.”
Collection may not stop right away. To help avoid an unnecessary tax refund offset, borrowers with defaulted loans may want to confirm that they are in stopped collection status by calling the Default Resolution Group at 1-800-621-3115 before filing their taxes. You should also consider calling the I.R.S. at 1-800-304-3107 to get more information about whether your loan is certified for offset.
If you request forbearance and you have guaranteed (FFEL) loans that are not held by the Department, the Department says that it will request forbearance on your behalf. The Department issued guidance about FFEL forbearances in January 2017. The Department clarified in August 2017 that the forbearance or suspension of collection activity should begin on the date that the loan holder or guaranty agency receives notice from the Department that the borrower has submitted a DTR application.
The government still needs to clarify whether amounts forgiven through this process will be potentially taxable. The Department of Treasury has issued rulings that discharges of debts for Corinthian borrowers and of American Career Institute borrowers will not be considered taxable income.
If you have questions about borrower defense, you may call the Department’s borrower defense hotline: (855) 279-6207. Representatives are available Monday through Friday from 8:00 a.m. to 8:00 p.m. Eastern time. If you have questions about borrower defense, you may also send an e-mail to FSAOperations@ed.gov.