What New 2020 Loan Forgiveness Rule Means For College Students

Secretary of Education Betsy DeVos recently released a new loan forgiveness policy that will go into effect on July 1, 2020. The new program will replace Obama-era regulations for student borrowers defrauded by their colleges, policies which DeVos and the Trump administration have claimed were ineffective. “If a school defrauds students, it must be held accountable,” DeVos said. “We believe this final rule corrects the wrongs of the 2016 rule through common sense and carefully crafted reforms that hold colleges and universities accountable and treat students and taxpayers fairly.”

How will this change impact current college students?

Here’s a simplified breakdown of what you should know.

The rules for seeking loan forgiveness are stricter.

DeVos’s policy includes harsher deadlines and a stricter process that could make it more difficult for students to be approved for loan forgiveness. The requirements include extensive documentation which critics say will be tough for students to obtain. Student borrowers will have to prove not only that they were misled about the college’s outlook, but also that they suffered financial harm. This includes evidence that they actively searched for employment in their field. For example, they might produce emails that would confirm they had applied for work or attended a career fair.

The new rule also mandates that applications will be reviewed on an individual basis rather than in groups, which could demonstrate evidence of widespread deception at a school. It also imposes a three-year time limit for filing claims. According to DeVos, these more stringent standards will both protect institutions from false claims and aid victims of fraud, but opponents believe they will weed out a large percentage of borrower claims that should have been approved.

There is no guarantee borrowers will receive the full amount of loan forgiveness they ask for.

Under the new policy, the Department of Education will ultimately have the ability to decide the amount of financial relief to grant victims of fraud. It also provides colleges with an avenue to internally dispute the resolution process. These measures mean that even if students’ claims are approved, they might only receive partial loan forgiveness. The arbitration agreements also protect colleges from students taking the cases to court. Opponents worry that this policy defends predatory practices used by the for-profit college industry to rip off students.

It will be tougher for students whose schools close suddenly to receive loan forgiveness.

Before the DeVos rule borrowers whose schools closed before they finished their degrees were immediately eligible for loan forgiveness. Now they will have to apply for it. An option will be offered to students in schools facing closure to participate in a “teach-out” program which will allow students to complete their programs. The window for closed-school discharge has also been widened, from 120 to 180 days. However, the previous policy automatically canceled the debt of eligible borrowers who hadn’t re-enrolled in another college within three years. This provision no longer exists under the DeVos regulations.

The Bottom Line

Overall, receiving financial relief for loan fraud will be a lot harder in 2020. But the regulations are expected to save the federal government, which will pay the loan discharge if the institutions themselves are unable to, about $11 billion over 10 years. Critics say these savings are possible because the program is rigged against student borrowers.

There are currently more than 150,000 applications for claims which the Education Department hasn’t approved or denied, and have been pending for longer than a year. The Trump Administration has been sued multiple times by student advocacy groups and former college students whose claims for debt relief haven’t been processed. Betsy DeVos is currently facing another lawsuit over her public service loan forgiveness program, PSLF, by the American Federation of Teachers for denying 99 percent of applicants.

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