The Department of Education announced final regulations Friday aimed at making it easier to get federal student loan forgiveness if your school misleads you or your college closes.
Most of the new rules are effective July 1, 2017, but some take effect Nov. 1. That should be welcome news for borrowers who formerly attended a for-profit school owned by now-defunct Corinthian Colleges. Corinthian filed for bankruptcy in 2015 after the Education Department fined the company for misrepresenting its job placement rates. Some former Corinthian students have already been approved for forgiveness under existing regulations known as "borrower defense to repayment," but many more likely qualify under both the old and new regulations.
What is borrower defense?
Although the regulations have existed since 1995, few people applied for borrower defense forgiveness until recently. In the fallout after Corinthian's collapse, tens of thousands of former students filed borrower defense claims.
So far, about 16,000 former Corinthian students have been approved for borrower defense forgiveness, and almost 8,000 have been approved for forgiveness under another regulation known as "closed school discharge." With thousands more still awaiting relief and others likely unaware they may qualify for this type of forgiveness, the Education Department elected to overhaul the system for handling more borrower defense claims.
New rules that will help former Corinthian students
- Eligible borrowers with federal Perkins loans or Federal Family Education Loans can get borrower defense forgiveness if they consolidate their federal debt first; effective Nov. 1.
- Eligible borrowers who were enrolled in a college that closed in November 2013 or after and who haven't enrolled in another school within three years will get automatic federal loan forgiveness. This will be implemented "as soon as operationally possible," according to a department news release.
- Students who used Pell Grants to pay for a school that closed can have their Pell Grant eligibility restored. There are typically limits to the amount of Pell dollars students can get over their lifetime. There's no timeline on when this will happen; the department said it's "still exploring the operational changes required to implement this policy."
Smoother debt relief process for future borrowers
- A federal standard for providing borrower defense relief. By this standard, you're eligible for borrower defense forgiveness if your school breaks its contract with you; gets a court judgment against the educational services that your loan paid for; or "substantially misrepresents" information about its services or its graduates' outcomes.
- A process to give student loan relief to groups of borrowers if the department identifies widespread misrepresentation.
- Regulations that make it easier for students to sue their school. For instance, colleges will not be allowed to forbid students from filing class action lawsuits, nor will they be allowed to require students to pursue an internal process before taking an issue to court.
How to seek borrower defense forgiveness
After you apply for borrower defense forgiveness, your federal student loans will be placed in forbearance until your claim is resolved, unless you request otherwise. That means that you won't be required to make monthly loan payments, but your debt will continue to accrue interest. In many cases, the debt relief you get through closed school discharge or borrower defense forgiveness will not count as income for tax purposes.
This article originally appeared on NerdWallet.