BROOKINGS: Lots riding on Ed Dept standard for student-loan forgiveness
Career College Central Summary:
The U.S. Department of Education is opening what could be a very large (and, for taxpayers, expensive) door to debt relief. As the department ponders its standard for forgiving loans, potentially tens of thousands of borrowers could seek relief from repaying tens of billions of dollars in debt.
Student loans are a high-profile issue. Many borrowers have compelling stories: They borrowed to attend classes that didn't pay off in terms of jobs or higher wages and are stuck with loans that can't be discharged in bankruptcy. For-profit colleges account for a disproportionate share of loan defaults. Several Democrats in Congress–Sen. Elizabeth Warren (Mass.) among them–are pushing the administration to use a federal regulatory provision to forgive lots of loans. Other lawmakers, many of them Republican, see this as another unwarranted Obama administration assault on the for-profit college industry.
So far, blanket debt relief has been offered only to students at affiliates of Corinthian Colleges Inc., a large for-profit chain that filed last month for bankruptcy-court protection. About 15,000 Corinthian students with a combined $200 million in loans who were attending schools that were closed are eligible for debt relief under a well-understood federal loan provision that covers shuttered schools.
But there's a long-ignored federal regulation, known as "defense to repayment," that allows borrowers to seek loan forgiveness in the case of "any act or omission of the school attended by the student that would give rise to a cause of action against the school under applicable state law," such as bans on unfair and deceptive practices. Until recently, this clause had been invoked only five times–ever.
Citing that regulation, the Education Department is offering debt forgiveness to students who enrolled in programs at Corinthian's Heald College for which the school, according to the government, published grossly misleading job-placement rates. About 50,000 Heald students borrowed $680 million; most were in programs for which misleading data were posted and thus are eligible for debt forgiveness.
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