On October 28, President Obama’s administration announced a new set of rules designed to help protect students from misleading, predatory, and fraudulent school practices.
The new rules will help potential students evaluate schools and loan repayment prospects before enrolling. In the case of a school’s misconduct, the rules also lay out a clear process for borrowers to apply for loan discharge.
This development comes on the heels of highly publicized fraud charges at several for-profit schools. In some of those cases, the institutions or colleges closed, or the government fined them over misleading and deceptive practices.
State of for-profit schools
For-profit schools are responsible for a disproportionate amount of student loan defaults.
For-profit students make up just 11 percent of college or university attendees, yet account for 43 percent of all student loan defaults. And while the majority of students at community college do not take out loans, the average for-profit student has $14,000 in student loan debt.
More than 25 percent of for-profit institutions receive 80 percent of their revenues from federal student aid. With growing concerns about misconduct, fraud, and skyrocketing student loan numbers, the government has increasingly become involved in for-profit school regulations.
Of the issues addressed, some of the new regulations change practices significantly. Below are some of the most notable changes and requirements.
Loan repayment information
The Obama administration now requires for-profit universities and trade schools to provide potential students with information about poor loan repayment outcomes. Schools must include this info on advertising and promotional materials.
Students must also be notified about the possibility of loan discharge if their school closes.
A clearer path to discharging loans
Prior to the new rules, if your school misrepresented their services or otherwise engaged in fraudulent activities, the application and approval process to discharge your student loans was complicated and could vary by state law.
With this new federal standard, the borrower defense process is more straightforward and ensures that applications for discharge are considered more fairly and efficiently. Additionally, loan servicers can no longer require payments while your claim is in review.
To make it simpler for affected students, student loans may now be discharged for an entire group of borrowers — even if you haven’t filed a discharge claim, in some cases.
If, for example, a school is found guilty of fraud and closes down, students who do not re-enroll elsewhere could have their loans automatically discharged.
What the rules mean for students
“Today’s regulations build on [the Obama administration’s] progress by ensuring students who were lied to and mistreated by their school get the relief they are owed, and that schools that harm students are held responsible for their behavior,” said US Secretary of Education John B. King, Jr. in a statement.
Last year, Corinthian College closed or sold all of its campuses while facing allegations of fraud. The Education Department received more than 15,000 claims from students and alumni who had student loans from the school.
The forgiven loans totaled over $247 million, and that process spurred federal officials to create new processes to help victims of education fraud get rid of their debt.
The new regulations will create an automatic discharge of student loans belonging to borrowers whose school closed on or after November 1, 2013 and who have not enrolled in another Title IV participating institution within three years.
Additionally, the regulations eliminate previous agreements that prevented students from suing schools over misconduct. Under the new rules, students who are the victims of fraud or misconduct can seek justice in the form of a lawsuit.
And students who were unable to complete their degrees due to school closure will also be re-eligible for federal Pell Grants, even if they used up their Pell Grant totals at the closed school.
Consequences for schools
The consequences for some schools are severe.
“This complex and burdensome regulation will crush career education with financial requirements not imposed on others in higher education, including institutions that have lower graduation rates and higher default rates,” said Steve Gunderson, president and CEO of Career Education Colleges and Universities, a professional group that lobbies on behalf of for-profit schools.
Colleges are now financially responsible for repaying or forgiving student loans in cases where fraud or misconduct is present. In the past, that burden fell on taxpayers.
For victims of misconduct or fraud
If you attended a school that the government cited for fraud or has closed, you may be eligible for student loan discharge. That means the government and the schools could eliminate your remaining student loan balance.
If your school closed, you can submit a claim for closed school discharge. If your school committed fraud, misrepresented its services, or otherwise violated state laws, you may be able to get your loans forgiven through borrower defense to repayment.
Contact the US Department of Education if you think these situations apply to you; they can walk you through next steps to get your loans forgiven.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|