Smart Borrower Blog

Proposed Rule Tightens Restrictions on Student Loan Forgiveness


Jul 26th, 2018 @ 8:40 PM by Amber Nelson


Americans with student loan debt may soon have a tougher time getting that debt forgiven in some cases. The U.S. Department of Education has proposed new rules that would place a bigger burden of proof on former students to show that their college misled them about their future employment earnings or opportunities.
The Department of Education says the proposed changes would reduce irrelevant lawsuits, allowing those who have legitimate cases to get the help they need. It also claims that the changes would keep American taxpayers from footing the bill for unwarranted forgiven student loans and give colleges a change to address borrower allegations. Opponents of the changes fear with will limit the rights and recourse of students.
The new rules would make the following changes to federal student loans made on or after July 1, 2019:

  •  If borrowers are alleging fraud against their college as a reason for student loan forgiveness, they would have to prove that the college’s advertising or recruitment showed an “intent to deceive” or a “reckless disregard for the truth.”
  • Student loan borrowers may also have to prove that the school’s alleged fraud “resulted in financial harm” to themselves.
  • Colleges could have the option to require students to go through arbitration, eliminating other legal options like class-action lawsuits.
  • Borrowers would only have three years after their last semester of enrollment to apply for student loan relief.
  • Borrowers who could potentially transfer their credits to another college might not be able to apply for loan forgiveness.

The Department of Education is also deciding whether to allow students to apply for loan forgiveness while they are still current on their payments or if they must be in default before becoming eligible.
After a period of public comment, the new changes are set to take effect Nov.1.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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