Department of Education Explores Loan Forgiveness

You might have seen the subway ads, received the recruitment materials, or spotted representatives on your high school campus or military base. For a brief period of time, for-profit colleges were everywhere.

They often preyed upon people without the resources to make informed decisions about where they went to school. Many acted as little more than diploma mills, profiting on student aid and G.I. Bill funds.

When the for-profit college bubble began to burst, it left thousands of students across the nation burdened and defrauded. Promises of job placement and career opportunities gave way to extremely high student loan debt — sometimes from private lenders who charged very high interest rates. Under pressure, the government has begun to take on the issue, primarily focusing on student loan forbearance and forgiveness.

The Department of Education has struggled to write coherent rules to streamline the application process for forbearance and forgiveness, but it’s very close to creating some standards that will make it easier for students to make their way through the inevitable red tape.

Oddly enough, some students aren’t happy with the idea because they think the standards will be too narrow. Conversely, universities aren’t pleased at the prospect of overly broad “triggers” — events that would require a college to submit a letter of credit. Though officials haven’t determined the standard yet, some likely triggers could include signs that a college is struggling.

Corinthian Colleges exhibited those signs last year and became, by many accounts, the chain that brought down the industry.

Corinthian was the largest for-profit education chains in the U.S., with an extremely wide reach and a range of programs. In early 2015, however, it started to sell off and close its properties, indicating trouble. Then, Corinthian abruptly closed the remainder of its campuses. Students left without degrees and certificates still owed thousands of dollars.

Furious students and concerned industry advocates demanded more options than the closed school discharge benefit. The program allows students attending closed schools to apply for student loan relief, but it hurts taxpayers. When students qualify for discharges, if a college can’t cough up the money, the Department of Education has to pay out — sometimes to the tune of millions of dollars.

Borrower defense to repayment became the obvious solution, but it’s not without its own flaws. The program requires a case-by-case evaluation of a student’s situation and the circumstances surrounding the debt.

A borrower must show that a college engaged in fraud or deception such as aggressive recruitment, predatory lending practices, inadequate support from staff and counselors, inability to transfer credits to other institutions, falsification of financial records, or the provision of other inaccurate information. Other red flags include high student loan default rates and faulty post-graduation employment statistics. For example, a graduate who ends up working on the floor in a meatpacking plant is certainly employed, but it’s not necessarily because of her education.

Borrower defense to repayment isn’t very practical either, as the DOE was faced with thousands of claims from angry students.

By setting a clear rubric, the agency can make it much easier to assess claims and ensure fairness — students will get the same results when applying from state to state, as long as they have similar situations.

New DOE guidelines represent a big and potentially revolutionary step that could put a final nail in the coffin for for-profit colleges. These institutions have become synonymous with poor employment rates, crippling debt and high tuition — exceeding $15,000 annually in some cases.

Some for-profit lenders have already experienced the serious effects of closer scrutiny.

Now with the push to improve federal regulation and cut off the student loan tap, it’s likely that more for-profit chains will close. Those that remain will have to radically reform their practices.

Photo credit: COD Newsroom

66 comments

william Miller
william Miller2 years ago

thanks

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Siyus Copetallus
Siyus C2 years ago

Thank you for sharing.

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Kathryn Irby
Past Member 3 years ago

This makes me glad I'm no longer in school. Thanks for posting.

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Amy C.
Amy C3 years ago

ty

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Amy C.
Amy C3 years ago

ty

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Amy C.
Amy C3 years ago

ty

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Amy C.
Amy C3 years ago

ty

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Cela V.
Cela V3 years ago

tyfs

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Tamara H.
Tamara H3 years ago

I wish I could be "forgiven" for bad purchases I've made throughout my life. The case of a college closing is a separate issue. The definition of a loan includes the phrase "expected to be paid back with interest". NO ONE should be forgiven a loan. Adjustments can be made, but making choices and benefiting or suffering the consequences is part of life. No one gets a free pass.

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Ullrich Mueller
Ullrich Mueller3 years ago

No civilized country can afford making the young generation pay for the privilege to create the country's future. Sounds like a stupid idea, is a stupid idea. The future of these countries, or better the lack thereof, will show.

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