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Why Have 94% of Student Loan Forgiveness Applications Been Denied?
In early September, the U.S. Department of Education told a federal court it denied almost all loan forgiveness applications submitted by student loan borrowers. The Department of Education disclosed that, since April 2020, less than 4,500 applications for loan forgiveness were approved out of the 78,400 applications received, translating to a 94% denial rate.
Many of these borrowers are graduates of for-profit colleges, who claimed these schools had defrauded them. Rather than receiving training for what they thought were good-paying jobs, these students found themselves unqualified for the jobs they supposedly trained for. This, in turn, has led to poor-paying jobs and an inability to repay loans.
Who allows all the student loan debt?
One reason for the high denial rate could be a revamp of what is known as borrower defense to repayment, an Obama-era regulation allowing the federal government to forgive federal student loans of students who were defrauded or misled by colleges. Education Secretary Betsy DeVos has attempted to change the regulation, calling it a “free money” giveaway. In late 2019, the Department of Education finalized stricter policies regarding loan forgiveness claims, which went into effect in July 2020.
A recent lawsuit against the Department of Education noted that the new policy broke federal law, and “unreasonably favors the interests of predatory schools over students, and should deny relief to borrowers who have indisputably harmed by their schools,” according to the complaint.
Voters aren’t happy with the revised policy, either. A new poll from Student Defense, a government watchdog, shows considerable support for student loan forgiveness and stricter guidelines on for-profit university operations. Here’s what people think of loan forgiveness:
78% support change in how predatory colleges operate
Registered voters participating in the Student Defense poll “agree that for-profit colleges should be held to stringent standards,” ensuring their graduates earn enough from good jobs to “realistically repay their loans.”
Specifically, 78% of participants polled believed that those who had oversight of for-profit colleges should be “held personally liable if their institution engages in fraud,” with 58% of Democrats and 53% of Republicans “strongly agreeing” with the statement.
Roughly 39% of voters also felt that for-profit colleges relying on federal student aid should meet certain benchmarks, demonstrating that graduate students would earn enough money to pay back their loans.
What does the policy say now?
- The revised borrower defense to repayment policy supports arbitration versus legal redress, preventing defrauded students from holding schools accountable in court.
- The new regulations also remove automatic loan discharges for students whose schools close. If a school closes after July 1, 2020, students must individually submit closed-school discharge applications to be considered for any loan discharge.
Experts of the new policy point out that the borrower defense is now more confusing, making it more difficult for victimized students to demonstrate to the Department of Education that they are entitled to a borrower defense loan discharge.
“These actions limit a student’s ability to receive federal student loan forgiveness due to school fraud, allow fraudulent schools to profit at the expense of those seeking a better life through education and undermine the entire educational system,” said Jay Fleischman, a lawyer who represents student loan borrowers.
69% support the public service loan forgiveness
The Student Defense fund survey also reported that student loan forgiveness enjoys broad support, with 69% believing that federal student loans should be forgiven. When it came to the overall support of discharging student loans:
- 26% were in favor of discharging all federal student loan debt
- 17% believed that federal student loan debt to borrowers with family income less than $125,000, who attended public colleges, historically Black colleges and universities or other minority-serving institutions should be discharged
- 24% felt federal student loan debt should be discharged to students already eligible for specific relief programs, or those who could show they were defrauded
- 19% believed that student debt should not be discharged
Additionally, 65% of voters surveyed agreed that those who spend 10 years in public service should have their student loans forgiven.
How to cope if you have massive student loans
While the battle over borrower defense to repayment continues to rage, many college graduates find themselves with a massive amount of student loan debt. If you’re one of them, take these steps to deal with massive student loan debt.
First, even if the debt might appear overwhelming, financial attorney and author Leslie H. Tayne suggests that borrowers adjust repayment options if they’re paying off federal student loans. “If you’re struggling to make your payment, consider switching to an income-driven option, which will calculate your payment based on a specific percentage of your income,” she said. While such a move could extend the debt timeline, “it can help make your monthly payments more manageable now,” adds Tayne, Founder of Tayne Law Group P.C.
Refinancing the loan is also a possibility. The federal rates remain at record lows, which means that many student loan borrowers will be able to lock in rates much more competitive than that of their original loans,” says Nishank Khanna, Chief Marketing Officer of Clarify Capital. However, a refinance caveat is that federal loans can be more flexible than private student loans. “For borrowers who require flexible payment plans, sticking with federal loans tends to be the better option,” Khanna advises.
Tayne suggests other options, such as budget readjustments, which “may include living with roommates, moving back home or limiting big-ticket items.” While debt attorneys and other financial professionals can’t settle federal student loans, they can offer advice. “A professional can help you find the right path to take to manage your debt,” says Tayne.
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