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.
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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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective August 10, 2020.