Will New US Government Rules Make it Easier For Students to Get Forgiveness for Defrauded Loans?

Student Loan ForgivenessAccording to new rules issued on Monday by the Obama Administration, students who have been defrauded or misled by colleges may find it easier to get their loans forgiven. Perhaps more importantly, the new rules include stipulations that the schools must pay for this debt, which means the taxpayers will not have to pick up the tab.

Education Secretary John B. King, Jr advises “Our message is clear. The Obama Administration will not sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag. Students who are defrauded deserve an efficient, transparent and fair process to get the loan relief to which they are legally entitled. And schools that harm their students should be on the hook for the damage.”

This proposal did not come lightly; this is the result of months of back and forth over exactly how large the government’s role is in this whole affair. And advocates have long pressed the Department of Education for more broad rules that will give students unlimited time to file claims for unrestricted debt relief. Of course, agreeing to such terms could, in turn, mean the loss of billions of taxpayer dollars.

The department is now setting out to diagram a set of violations that will more easily determine borrower eligibility for this program. Right now, for example, students/graduates can have their federal student loans discharged if they can prove that their school of attendance did, in fact, use illegal or deceptive strategies. These violations might include a breach of contract or a federal court judgment against a school in relation to the loan.

But while this may seem like it should be a good thing, advocates are concerned that such government intervention may do more to harm than help.

For instance, Career Education Colleges and Universities president Steve Gunderson comments, “The regulation put forth today by the U.S. Department of Education will cause millions of students to lose access to higher education and leave American taxpayers on the hook for billions of dollars.” This agency is an advocacy organization for for-profit schools. Gunderson continues, “The steps the Department is taking today puts the future of career education in America at risk. If the Department limits career education opportunities for new traditional students, it will deny millions of Americans a pathway to improving their lives and growing the American economy.”

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