Law Schools

Former Students Of 4 Law Schools Will Have Their Loans Forgiven Under The Borrower's Defense Program (And There Is Still Time To Apply)

If their applications do not receive a response within the designated time frame, their loans will be forgiven automatically.

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(Photo via iStock)

In 2019, a class action lawsuit was filed against then Secretary of Education Betsy DeVos. The suit alleges that the Department of Education ignored over 200,000 borrower’s defense applications from students seeking federal student loan forgiveness. And when push came to shove, the department issued mass denial letters either with no explanation or citing lack of evidence despite the documentation provided by the applicants. I wrote about this program back in 2016 when the program was not well known and again last March.

Under the borrower defense program, an applicant can qualify for full or partial loan forgiveness if they can prove that they attended the school in reliance of false information about graduates’ job prospects.

Last week, the parties have reached a preliminary settlement. It provides that former students of designated for-profit schools who submitted their borrower’s defense application before the settlement date will be eligible for loan forgiveness. All of these schools are for-profit schools, including four law schools, three of which are permanently closed: Arizona Summit Law School, Charlotte School of Law, Florida Coastal School of Law, and Western State University College of Law.

Those who submitted their borrower’s defense applications before the settlement date but are not graduates of the designated schools will have their applications reviewed by the Department of Education within a certain period depending on when their applications were submitted. If their applications do not receive a response within the designated time frame, their loans will be forgiven automatically. The department will use a streamlined procedure to decide applications. This means that the department will accept all allegations in the application as true without supporting evidence or proof of reliance. Also, they will not apply any statute of limitations.

But what about those who have not yet filed a borrower’s defense application? They are considered post-class applicants and the settlement agreement provides that if they apply before the court enters final judgment, they will get a decision within 36 months of the final approval date of the settlement. If they do not get a response by then, their loans will be automatically forgiven. However, the very favorable streamlined review procedure will not be available to post-class applicants. Instead, their applications will be reviewed under the regulations established by the Obama administration in 2016. The final judgment date has not been set, but a hearing on the proposed settlement is set for July 28, 2022, and it is possible that a judgment and final approval will be issued then.

I want to point out a few observations on this settlement agreement since law schools are involved. First, some might find it surprising that only four law schools made it to the designated automatic forgiveness list. Longtime ATL readers will know that a few other schools were notorious for creatively finessing their post-graduate employment information. Yet they are not on the list because of their tax exempt 501(c)(3) status although they behaved just like their for-profit colleagues.

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Second, it is unfortunate that post-class applicants will be treated very differently solely because they did not file a borrower’s defense application earlier. I am assuming it will be harder for them to prove their borrower’s defense applications. Understandably the government does not want to open the floodgates of applications filled with “woe is me” stories. But the people who graduated between 2000 and 2010 were the ones likely to have relied on questionable employment numbers. A lot of these people did not apply for borrower’s defense because they did not know about the program soon after they graduated. Also, since so much time has passed, they no longer had the paperwork the application was requesting so they thought their applications would be denied. Let’s put it this way: Who is going to keep their acceptance letter and student handbook from Trump University?

Is it worth submitting a borrower’s defense application now and being a post-class applicant? Possibly. First, the worst that can happen is your application will be denied. Second, the current administration wants to provide student loan relief without resorting to a massive executive order that will alienate half of voters. And the current administration has provided relief on a targeted basis on numerous occasions. For those who do not have paperwork, there are resources available. For example, there is a group of people sharing documents that others can use to supplement their own borrower’s defense applications.

Finally, it might be best to apply as soon as possible. Because the department has 36 months to respond, your application might be reviewed in 2025 by a new administration that thinks you should pay your loans in full by working harder than the Hedley family.

Hopefully, some of you that read my earlier columns about the borrower’s defense program applied because if you did, there is a good chance your federal loans will be forgiven. But if you have not, then it might still be worth applying if you qualify as the potential benefits outweigh the costs. If you want to apply, start here.

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Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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