New federal rules may ease student loan forgiveness

The Obama administration announced new rules intended to help students get their federal education loans erased in the case of fraud or misconduct by the school. Photo by Calvste/Shutterstock

WASHINGTON, Oct. 28 (UPI) — The Obama administration announced new rules intended to help students get their federal loans forgiven in the case of fraud or misrepresentation by the school.

The U.S. Department of Education wrote the new regulations in response to an outcry from thousands of students from the now-shuttered Corinthian Colleges chain, which suddenly closed and sold some of its campuses last year. The rules overhaul the department’s borrower defense to repayment, which allows federal student loans to be forgiven if a school uses deceptive or illegal practices to encourage students to borrow money for higher education.

“To protect students from the start, the regulations seek to deter institutions from engaging in predatory behavior or otherwise exposing the government to risk,” U.S. Under Secretary of Education Ted Mitchell said. “For students who are injured by an institution’s conduct, these regulations provide a clear path to relief with all of their rights intact, and restore their right to sue.”

The regulations provide for automatic discharge of student loans for borrowers whose schools closed on or after Nov. 1, 2013 and have not re-enrolled in another school within three years. It also bans schools from forcing students to agree to not sue the school over misconduct.

Even with the new rules, activists said there is the likelihood many borrowers who should be eligible for student loan discharge will not get what they need. Abby Shaforth, an attorney at the National Consumer Law Center, said the rules leave too much to the discretion of the Department of Education.

“The group relief provision will only be effective in actually providing student relief if the department commits to making it so,” she said. “Since most students who are defrauded will not know about their right to student loan discharge, it will be essential that the department act to pursue this relief on their behalf.”


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