Under an Obama-era rule, known as the “borrower defense to repayment” rule, if your school fraudulently convinced you to enroll or remain enrolled, you can get a discharge of your federal student loans relatively easily. Education Secretary Betsy DeVos has long argued that the Obama rule makes it too easy for borrowers to get student loan forgiveness, and that a new rule is necessary to save taxpayers billions of dollars. So, last year, DeVos declared that for loans first disbursed on or after July 1, 2020, a borrower has to show all of the following to get a loan discharge based on fraud:
- The school made a misrepresentation of material fact that the borrower reasonably relied on when deciding to get a Direct Loan or a loan repaid by a Direct Consolidation Loan. (The borrower has to prove that the college made deceptive statements with knowledge of their false, misleading, or deceptive nature.)
- The misrepresentation directly and clearly related to the borrower’s enrollment or continuing enrollment at the school or the school’s provision of education services for which the loan was made.
- The misrepresentation financially harmed the borrower.
This new borrower-defense rule narrows the type of misconduct that triggers loan forgiveness, as well as requires borrowers to provide more extensive documentation about the financial harm they’ve suffered. The revised rule also adds a three-year time limit for borrowers to file claims. And each case will be considered on an individual basis, even if there’s widespread evidence of misconduct at a particular school.
Earlier this year, the U.S. House of Representatives voted 231-180, and the Senate voted 53-42, on a piece of new legislation that would overturn DeVos’s changes to the borrower-defense rule. But on May 29, 2020, President Trump vetoed this legislation. So, Devos’s new borrower-defense rule will most likely go into effect as planned on July 1, 2020. (Congress would have to override the presidential veto for this legislation to become law, which isn’t expected to happen.)
A suit challenging DeVos’s adjustments to the borrower defense to repayment rule is pending in the U.S. District Court for the Southern District of New York.