Proposed federal legislation will now make it easier for student borrowers, who have been cheated or misled by their college or university, to have their student loan debt forgiven.
The proposed rule changes announced last week by the U.S. Department of Education are part of an ongoing crackdown on the alleged abuses by for-profit colleges and universities.
Major provisions of the proposed debt-relief rule include:
- An easier way to seek relief from federal student loans when a college has committed wrongdoing. The current “defense to repayment” process is complicated and subject to different rules depending on the state. It went largely unused until the collapse of Corinthian Colleges in 2015. As of today, more than 23,000 claims for student loan debt forgiveness have been filed, and the government has wiped out more than $42 million in debt for more than 2,000 borrowers so far.
- Allowing group applications for debt relief in cases where there is school-wide wrongdoing. Currently, each student is required to file individually.
- Requiring schools to warn current and prospective students if former students have poor loan repayment rates.
- Doing more, sooner, to inform students whose schools have closed that they may qualify to have their loans forgiven.
- Completely banning school agreements under which students sign away their right to sue schools and agree to participate in an arbitration process instead of notifying regulators about problems.
- Requiring schools at financial risk to set aside funds, via irrevocable letters of credit, to cover the cost in case students eventually are due debt relief because the school fails to keep its promises to students. Conditions are set that would trigger the requirement (i.e. – a government entity filing a major suit against the school or the school relying too heavily on federal student loans.) Schools that activate these so called, “triggers” would be required to warn current and prospective students that they are at financial risk. Currently, when schools declare bankruptcy, taxpayers are responsible for the forgiven loans.
U.S. Education Secretary John King said, “These rules should make schools think twice,” about misleading students or engaging in risky enrollments.
U.S. Sen. Sherrod Brown, D-Ohio, praised the proposed rule, which is subject to a 45-day comment period, as “a victory for students.” These protections will stop for-profit colleges from using fine print to deny students their right to a day in court.
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