by: Christie Arkovich
Big changes are on the horizon for federal student loan borrowers. While everyone is expected to resume payments in October 2021, there may be a further extension of the forbearance.
Borrower Defense to Repayment. The Borrower Defense to Repayment program is once again a promising route to take toward forgiveness. The U.S. Department of Education has announced that it will streamline claims where institutions have already been found to have engaged in certain misconduct. The Department is rescinding the formula for calculating partial relief for those who have already been approved for partial relief. It is now likely that these 72,000 borrowers will receive full relief.
What is full relief? It includes 100 percent discharge of federal student loans, and even reimbursement of amounts paid where appropriate under the regulations. It also
will include requests to credit bureaus to remove any negative credit reporting. And, if applicable, it will include reinstatement of federal student aid eligibility.
Of course, there are many who oppose this sort of relief arguing that taxpayers should not pay for the education of a borrower who made an ill informed choice of institutions. They oppose the “free education” when speaking of a borrower who is released of their federal loans via BDTR. However, the borrowers who were misled by these for-profit schools, are forever scarred.
They’ve lost the opportunity, time and federal eligibility to re-do their education at an institution that will actually help them obtain higher paying employment. They’ve been in limbo for often more than 10 years – with the associated lost opportunity cost. I analogize the education at Corinthian or ITT Tech to the purchase of a lemon car. It is basically no different than a car up on blocks that has never left the dealership. Sure, the car (or diploma) exists, but it doesn’t do anything to help the borrower. In fact, employers will often tell borrowers to omit such schools from their resume as it can only hurt their employment chances.
Anyone with clients who have attended one of these for-profit schools should advise their clients to consider filing a BDTR application immediately to avoid a possible statute of limitations bar. The borrower must have attended a school which he or she believed misled them or engaged in other misconduct. The borrower must demonstrate that the school violated a state law related to the loan, or to the educational services provided. In
Florida, this may mean a violation of the Unfair and Deceptive Trade Practices Act, for instance. The Discovery rule, Fraudulent Concealment rule or Equitable Tolling rule may be argued to extend the SOL from the usual four years to twelve years here in Florida.
BDTR Claims Approved for Many ITT Tech students. On June 16, 2021, ED announced
the approval of BDTR claims for 18,000 ITT Institute borrowers (roughly $500
million). Two categories of claims were covered by this: likely employment prospects and ability to transfer credits. This is the first approval of a new category of borrower defense claims by ED since January 2017. ED found that ITT made repeated and significant misrepresentations to students related to how much they could expect to earn and the jobs they could obtain after graduation between 2005 and the institution’s closure in 2016. In reality, borrowers repeatedly stated that including ITT attendance on resumes made it harder for them to find employment, and their job prospects were not improved by
attending ITT. Additionally, ED found that credits rarely transferred elsewhere.
Expansion of the CARES Act to older FFEL loans. On March 30, 2021, the protections
afforded to federal borrowers under the CARES Act was expanded to include the older Federal Family Education Loans known as FFEL loans. This extended the 0% interest to FFEL loans which are often commercially held, forbearance of payments, a pause in collections for those FFEL loans in default, and refund of any garnishments or tax refund seizures. All of this will occur automatically except that a borrower would have to request a refund if they wanted any monies back that they had voluntarily paid on a FFEL loan during the pandemic. It’s not likely that someone who kept a job and was able to make a payment on a federal loan would want that money back, generally preferring instead to
have the money applied to principal to pay down the loans. This expansion was retroactive to loans that went into default since March 13, 2020 when the CARES Act became effective. The intent was to return any delinquent or defaulted FFEL loan to good standing, with no record of default and removal of any negative credit reporting. This will do a lot toward easing the confusion of federal loan borrowers who have different loan types.
Tax Forgiveness. The American Rescue Plan signed into law on March 11, 2021, provides
that all student loan forgiveness whether federal or private is tax free for loans forgiven through December 31, 2025.
PPP amendment. On March 30, 2021, ED issued a press release that it had worked with the SBA to waive the limitation that a federal Direct student loan delinquency or default would preclude Paycheck Protection funds under the PPP.
Total and Permanent Disability Discharge. ED also suspended for the Covid period, a requirement that borrower provide updated income documentation following an administrative disability discharge. It is unknown when this suspension will cease.
Employers Can Help Pay Student Loans. Employers can pay student loan payments, up to
$5,250, tax-free through December 31, 2025. Rulemaking Hearings. Public hearings are taking place starting June 21 regarding rulemaking on borrower defense, total and permanent disability discharges and other items.
What can be done to help your clients?
• Try to target forgiveness on federal or private loans to occur before the end of 2025. For example, Borrowers who are repaying their student loans under the Income-Contingent Repayment Plan (ICR), can switch into the Revised Pay-As-You-Earn Repayment plan (REPAYE) to reduce the 25 year repayment period to 20 years for undergrad loans and qualify for tax free forgiveness if that 20 years will end before December 31, 2025.
• Discourage a payoff/settlement prior to a potential $10,000 -$50,000 blanket forgiveness that may be passed later this summer.
• File a BDTR application asap if applicable.
• If you encounter someone who was denied a BDTR application under Secretary DeVos, you might want to have your client request a reconsideration by email to: BorrowerDefense@ed.gov with Request for Reconsideration in the subject line. You can also send this by mail to U.S. Department of Education, P.O. Box 1854, Monticello, KY 42633. Since the application does not have a section for a state law to be named, nor
does it mention an applicable statute of limitations, I believe these omissions may have been the basis why Secretary DeVos denied the vast majority of claims for failure to state a claim. Re-opening the file to preserve the date filed, may be better than re-filing and facing a SOL that has passed.
• In a request for reconsideration, a client should address:
o What you think was decided incorrectly;
o Why you believe the decision was incorrect; and
o Any evidence that you believe establishes that you are eligible for a different decision.
o ED has stated it will not accept a request for reconsideration that includes new allegations of school misconduct – this would require a new application.