Borrower defense is a process that allows a Direct Loan borrower to seek discharge of some or all of the loan balance if the institution engaged in certain misconduct related to the making of the loan.
How it works
The borrower files an application online with supporting evidence. The Department reviews the claim, may seek a response from the institution, and issues a decision. Approved discharges are applied to the borrower’s NSLDS record, and servicers stop collection on the discharged portion. Denied claims can sometimes be reconsidered if new evidence appears. Group discharges have been granted in some large cases involving widespread misconduct.
Example: a borrower who was induced to enroll by false job-placement claims submits a borrower-defense application. The Department approves the claim, discharges the $15,000 Direct Loan balance associated with that enrollment, and refunds payments the borrower had already made.
How it differs
Closed-school discharge is available when a school closes while the student is enrolled or soon after withdrawal and does not require a finding of misconduct. Public Service Loan Forgiveness requires qualifying employment and payments. Borrower defense is specifically tied to institutional misconduct.
Common errors
Assuming every dissatisfied student qualifies for borrower defense. Filing a claim without describing a specific misrepresentation or other covered act. Expecting automatic discharge simply because an institution later closed.
References
- 1. Federal Student Aid borrower defenseDischarge process
- 2. 34 CFR 685.206 and relatedRegulatory standards
Borrower defense is a process that allows a Direct Loan borrower to seek discharge of some or all of the loan balance if the institution engaged in certain misconduct related to the making of the loan.