Can Student Loans Be Forgiven If Colleges Mislead You?

Officials from the U.S. Department of Education are re-examining a 20-year-old law following thousands of appeals from Americans seeking to have student loans forgiven on the grounds that colleges misled them about post-college employment prospects.

The Wall Street Journal reports that in the past six months, more than 7,500 borrowers owing $164 million have made such appeals under a 1994 law that has been applied in only three instances prior to last year.

The newspaper continues:

Last week, the department began a monthslong negotiation with representatives of students, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans.

The newspaper attributes the sudden surge in appeals to “the growing savvy of student activists, who discovered the law last year after it had largely sat dormant for two decades.”

Department of Education officials say application of the law is complicated because the law itself is vague. For example, it lacks specifics about the proof needed to show that a school defrauded a student.

That lack of clarity stems from a failure to draft rules after the law was passed. The Journal reports that the Department of Education lacked the urgency to draft rules because only five appeals had been made under the law prior to last year.

The Department of Education has already agreed to cancel nearly $28 million of debt for 1,300 former students of Corinthian Colleges, a for-profit chain that closed last year. The agency has indicated that many more will likely get forgiveness, according to the Journal.

Taxpayers’ total costs resulting from such loan forgiveness remain unknown. However, Department of Education officials say it could be in the billions of dollars.

If you’re struggling with student loan debt — or another type of debt — be sure to visit the Money Talks News Solutions Center, where you can be matched with a reputable expert who can develop a customized plan to help you get out of debt.

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