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DOE no longer giving full discharge for defrauded cases

The U.S. Department of Education is passing an act that will make it harder for students to sue for-profit colleges for claims of fraud or misleading practices. As of July 1, 2019, this act would evaluate the students’ need for compensation based on their salary compared to their peers, instead of receiving a full discharge for their debt (Borrower beware: Soon it will be tougher to unload college loans, Detroit Free Press). Under the current Borrower Defense to Repayment rule, a student can file against the government for debt relief under the argument that they were mislead about the quality of the education or the cost.

This legislation change is influenced by the Corinthian College, Inc case where thousands of students are suing Corinthian College under charges of “defraud[ing] the borrowers with misleading data about career opportunities and post-graduation job placement”(“Student loans: Court fight looms over debts of former Corinthian Colleges students”, USA Today). The lawyers defending the students are trying to force the Dept of Ed to forgive the loans, but the Dept of Ed is pushing for this new program where they wouldn’t have to forgive millions in loans. During the Obama Administration, The DOE provided an estimated 25,000 Corinthian students discharge from their loans who claimed they were defrauded. Under the Trump Administration, The DOE “has approved for discharge 12,900 pending claims submitted by former Corinthian Colleges, Inc. students, and 8,600 pending claims have been denied”(Improved Borrower Defense Discharge Process Will Aid Defrauded Borrowers, Protect Taxpayers, www.ed.gov).Instead of fulfilling the requirement of cancelling all the borrowers loans, the government would save money but providing only a partial discharge.

The DOE admits that they will no longer completely discharge the debt of a student who attended a scam school or program and will instead “provide tiers of relief to compensate. . .based on damages incurred.” This means that the DOE has created a loophole in which they can still force students to repay federal loans while appearing like they acted in favor of the student. Unless the DOE will force the scam schools to repay the loan incurred by students who were mislead, the students will end up in an empty lawsuit where they are not refunded for the time and money they wasted on a false education.

The system the DOE will use to judge the damages students incurred is by comparing the student’s earning to their peers. So this system will be based on evaluating the financial need of a person by comparing them to their most successful peers. Then, that student must receive 50% less income to receive a full refund. Even if the college did not benefit the student by granting them the education they paid for, if the student can secure a job that pays more than 50% of their peers, they will not have their debt fully discharged.

Sources: https://www.freep.com/story/money/personal-finance/susan-tompor/2018/08/05/student-loan-for giveness-rules/882121002/ https://www.ed.gov/news/press-releases/improved-borrower-defense-discharge-process-will-aid -defrauded-borrowers-protect-taxpayers

https://www.usatoday.com/story/money/2018/04/29/student-loans-corinthian-colleges-court-fight -debts/557436002/#