If you have a legitimate complaint about your school, but are not eligible for school-related discharges, 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.
Although borrowers have long had the right to raise defenses to repayment, the Department is only now creating a 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 two different borrower defense application processes:
1. Process for Some Former Corinthian Borrowers. The Department has provided specific information and a streamlined process 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. 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. The Department now 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 loans placed into forbearance or stopped collections. If you request forbearance and you have guaranteed (FFEL) loan that are not held by the Department, the Department says that it will request forbearance on your behalf. (This chart shows that “Defense to Repayment” is available for both FFEL and Direct Loan borrowers). We will post more information about this process as it becomes available.
The government still needs to clarify whether amounts forgiven through this process will be potentially taxable. The Department of Treasury has issued a ruling 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.