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Lawsuit: It’s Too Hard To Cancel Student Loans

A new lawsuit says it’s too hard to cancel student loans.

Here’s what you need to know.

New Lawsuit

Student loan advocates filed a new lawsuit today that says the U.S. Department of Education, led by Secretary Betsy DeVos, is making it harder for borrowers to cancel their student loans. According to the lawsuit, which was filed in U.S. District Court in New York, defrauded students seeking to assert their legal rights to cancel student loans now have to face “onerous standards” and “procedural hurdles.”

What Happened?

Under federal law, borrowers can seek cancellation of their federal student loans if they attended a school that engaged in misconduct or closed suddenly. In 2016, the Obama administration issued new rules to protect student borrowers and federal taxpayers. The lawsuit claims that DeVos attempted to block those rules three times, thereby harming student loan borrowers. In 2019, the Education Department issued a new rule, and DeVos said then: “Despite the mess we inherited from the previous administration, we committed from day one to getting this right for students and taxpayers. We cannot tolerate fraud in higher education, nor can we tolerate furiously giving away taxpayer money to those who have submitted a false claim or aren’t eligible for relief. This new methodology treats students fairly and ensures that taxpayers who did not go to college or who faithfully paid off their student loans do not shoulder student loan costs for those who didn’t suffer harm.”

However, the plaintiffs claim that the new rule:

  • “Eliminates conditions on the use of forced arbitration and class-action bans;
  • Increases the hoops students must jump through to obtain relief when their schools close;
  • Removes key disclosure requirements that inform students about their schools’ status;
  • Imposes a narrow three-year statute of limitations for borrowers to raise claims;
  • Eliminates the ability of borrowers to seek or be granted relief on a groupwide basis; and
  • Heightens the evidentiary standard to which borrowers’ claims would be held, including requiring students to offer proof of financial harm beyond that of the federal loan itself.”

Borrower Defense To Repayment

Borrower defense to repayment allows students to have their federal student loans forgiven if a school employed illegal or deceptive practices to encourage the students to borrow debt to attend the school. Without these rules, students are potentially on the hook to repay federal student loans even if they didn’t find gainful employment or finish their degree before their school closed.

Your Next Steps

While lawyers debate the merits of student loan forgiveness, waiting to take action on your student loans won’t help you. Make sure you have a game plan to tackle your student loan debt.

1. Know your student loan options

Start with these four options:

For student loan repayment, it’s best to conduct your own independent research, rather than rely on your student loan servicer to give you all the answers.

  1. Refinance student loans: student loan refinancing is a smart way to lower your interest rate, save money and pay off student loans faster
  2. Extra student loan payment: make an extra student loan payment to lower principal and save interest costs
  3. Consolidate student loans: organize your student loan payments, but you don’t get a lower interest rate.
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