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While getting a school loan is fairly simple, paying off that loan is another matter entirely. And discharging the loan through bankruptcy? That's rarer than a unicorn.
Or so we thought. While the prevailing wisdom has been that you are stuck with federal student loans until you pay them off, some new cases might be indicating there are ways out for debtors that can't afford their student loans. One such exit is the often overlooked "borrower defense" provision. Does it apply to you?
Borrower Defense Eligibility
Borrower defense to repayment allows borrowers to apply for loan forgiveness if the school you used the loan to attend "committed fraud by doing something or failing to do something, or otherwise violated applicable state law related to your loans or the educational services you paid for." While the majority of these applications have been submitted by former students of for-profit colleges like Corinthian Colleges, Heald College, and the Art Institute, Education Department Undersecretary Ted Mitchell told the AP, "We will continue to provide forgiveness to every student who has been similarly mistreated."
So what constitutes mistreatment? A report for the Department of Education says that those reviewing claims will:
"[L]ook for evidence of patterns and practices that show a concerted effort to mislead students or otherwise engage in conduct that violates applicable state law. One way of making these determinations is to determine whether the BD claims filed against a school show common patterns of misconduct with regard to a particular program, campus, or both."
Borrower Defense Application
Those seeking loan forgiveness or discharge through the borrower defense provision can apply on the Department of Education website. Although the interest on the loan will continue to accrue, loan collections will be put on forbearance while the application is under review.
It can help if you have documentation from your school that demonstrates how you were defrauded, like promises from the school or job placement statistics. If you have further questions about the process or would like legal assistance filing a borrower defense application, you can contact an experienced bankruptcy attorney near you.