What Is a Borrower Defense to Repayment and Can It Help You With Student Loans?

Student loan solutions to fraud

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There’s a special type of student loan forgiveness targeted at people with college debt that were done wrong by their school. It’s called a “borrower defense to repayment” and allows you to request cancellation of your student loans. Even better, if you qualify, you can get back payments you made on the student loans. Here is what you need to know about this one-of-a-kind program and whether it could benefit you.

Guidelines for loan forgiveness and cancellation

In 1995, a regulation was enacted allowing student loan borrowers to fight back against student loans when the schools misled them or violated certain other state laws. The law mandates that if the borrower can prove under state law where they reside that the school defrauded them, federal loans may be canceled.

So, that means there’s some disparity in the enforcement of this federal regulation based on the laws in North Carolina. The intent is to show that you were misled in a way that encouraged you to take student loans. Perhaps you were told misleading employment figures or were lied to about school cost, credit transfers, and job opportunities.

It’s also important to know that only Direct federal loans are eligible for this fraud discharge. Not eligible are Perkins, Unsubsidized Stafford, Stafford, Parent PLUS, and consolidated loans. More than 15,000 consumers have seen student loans discharged under this program. Depending on your circumstances, it might be a solution for your school debt.

The Department of Education reports that these are the top institutions generating the most student loan borrower defense to repayment claims:

Adtalem Global Education schools

• Carrington College-Sacramento
• Chamberlain College of Nursing
• DeVry University
• DeVry College of New York
• Keller Graduate School of Management
• Ross University

Alta Colleges schools

• Redstone College
• Westwood College

Apollo Education Group schools

• University of Phoenix
• Western International University

Career Education Corporation schools

• American InterContinental University
• Briarcliffe College
• Brooks Institute
• Colorado Technical University
• Harrington College of Design
• Le Cordon Bleu College of Culinary Arts
• Missouri College
• Sanford-Brown College

Education Management Corporation schools

• The Art Institutes
• Argosy University
• Brown Mackie
• South University

Globe Education Network schools

• Broadview University
• Duluth Business University
• Globe University
• Institute of Production and Recording
• Minnesota School of Business

Graham Holdings schools

• Kaplan Career Institute
• Kaplan College
• Kaplan University
• TESST College of Technology

InfiLaw Corporation schools

• Arizona Summit Law School
• Charlotte School of Law
• Florida Coastal School of Law

Also: American Career Institute, ITT Technical Institute, and Daniel Webster College.

Student loan debt in bankruptcy

Another option for embattled student loan borrowers to consider is bankruptcy. If you’re weighed down by student loans, credit card debt, medical bills, and more, then Chapter 7 or Chapter 13 bankruptcy might help. Ideally, bankruptcy is a solution for someone with a lot of debt, beyond student loans. But if you’re drowning in student loans, you’re likely struggling with other bills, too.

With bankruptcy, you must usually prove undue hardship to get student loan discharge. This means that if you repay the loans, you can’t maintain a decent standard of living for you and your dependents. However, what that means is open to interpretation by the courts. Some courts are more flexible while some are more rigid.

Adversary Proceeding required

When you file North Carolina bankruptcy, your student loans aren’t automatically part of the case. You must file a separate action called an Adversary Proceeding. This is a motion that’s an accessory to your bankruptcy case. It sues your student loan servicer(s) to get relief from your debt. That may sound strange, but it’s how the law works.

This step costs a little more, but of those who ask for help, roughly 40% see a reduction or elimination of their student loan debt, so it might be worth it. Whether you qualify depends on your unique circumstances, so talk to a reputable North Carolina bankruptcy lawyer who knows the student loan ropes.

Read reviews from our clients, then contact the Law Offices of John T. Orcutt. Call +1-833-627-0115 for a free student loan bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington.

Resources:

Defense Application Form