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Obama-Era Rule to Relieve Student Debt Finally Goes Into Effect

Student Debt Forgiveness sheet

A rule was passed in the last few months of the Obama administration that would allow expanded and expedited student loan forgiveness under certain circumstances.  The rule’s implementation was delayed by President Trump’s Secretary of Education Betsy DeVos, but it is now finally in effect.  Read on for details about the newly available student loan debt forgiveness, and contact a knowledgeable Maryland debt relief lawyer with any questions.

New Rule Gives Defrauded Students Expedited Debt Relief from Loan

One of the final acts of the Department of Education under President Obama was to pass regulations to protect student borrowers against misleading and predatory schools.  The rule targets post-secondary institutions such as for-profit or trade schools that misled prospective students about job placement rates or otherwise violated consumer protection laws, allowing students from those schools to seek forgiveness for federal student loans.    

More than 100,000 of these discharge requests, so-called “borrower defense claims,” have been filed by borrowers in recent years, most of which have sat unaddressed in a huge backlog.  Many of the claims come from students who attended schools like ITT and Corinthian which were shut down in recent years.  The rule requires the Education Department to create a “clear, fair, and transparent” process for handling these borrower defense claims, and to automatically forgive the loans of some students at schools that have closed.  The rule is aimed at expediting the processing of these claims.  The rule also prevents for-profit schools from requiring students who take out direct loans to sign binding arbitration agreements which prevent students from suing those schools for their misleading practices.

As of October, the department had approved almost 48,000 forgiveness claims, discharging $535 million in student loan debt.  To alleviate the added burden on taxpayers, the new rule requires schools that are at higher risk of generating fraud claims to provide financial collateral.

Delayed Rule Finally Goes Into Effect

The rule, passed in October 2016, was meant to go into effect in July 2017.  Education secretary DeVos suspended the rule and announced plans to rework it.  In September, a federal judge in Washington issued an opinion stating that the current Department of Education had failed to meet the standards required for federal agencies to adopt or change rules, and that the delayed implementation was therefore “arbitrary and capricious.”  After rejecting further arguments from the California Association of Private Postsecondary Schools, the judge ruled in October that the rule must go into immediate effect.

The Education Department has stated that they still plan to rewrite the policy, but any new rule could not go into effect before July 2020 at the earliest.

If you’re struggling with debt in Maryland and want help getting back on the right financial footing, contact an effective and dedicated Germantown bankruptcy lawyer at Haeger Law for a no-cost consultation at 888-463-3520.