Borrower defense claims 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 is only now creating a borrower defense to repayment process. The Department issued final rules on November 1, 2016, but most of these provisions do not go into effect until July 1, 2017.
You do not have to wait for the new rules to go into effect to apply for relief. 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.
Borrowers who submit complete borrower defense claims can have their Direct loans and Department held FFEL loans placed into forbearance or stopped collections. This should stop all collection efforts on those loans, including wage garnishments and tax refund offsets, but it may take a month or two after submitting an application for the forbearance or stopped collection to go into effect. 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. Stay tuned for more information, but at this point, the forbearance or stopped collection for these FFEL loans not held by the Department is not guaranteed. The Department issued guidance about FFEL forbearances in January 2017. (This chart shows that “Defense to Repayment” is available for both FFEL and Direct Loan borrowers). We will post more information as it becomes available, including if the Trump Administration decides to change the existing or pending rules.
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.