Department of Education to develop loan forgiveness regulations

Cases involving students in Texas and around the country being defrauded by their colleges have prompted action by the U.S. Department of Education. It has announced that it will start to develop regulations in September 2015 to establish procedures designed to allow students who have been defrauded to seek loan forgiveness. The department also aims to implement steps to evaluate such claims and determine the liability for fraud of the schools concerned.

Public hearings will be held in September to discuss the new rules, and it is hoped that a regulation will be in place by Nov. 1. The goal of the process is to make it easier for students to obtain financial relief while making educational institutions more aware of their responsibilities. The announcement comes just a few months after one of the nation’s largest for-profit colleges filed bankruptcy amid allegations that inflated graduation rates were used to encourage students to take out costly loans.

The department also hopes to find a way to hold colleges financially responsible for defrauding students. Taxpayers are currently expected to bear the cost of forgiving student loan debt, but college bankruptcies that could lead to billions in forgiven debt has prompted regulators to search for alternatives. While many students have welcomed the department’s announcement, some student advocacy groups are unhappy with the amount of time that will pass before the new regulations go into effect.

Student debt in the United States is higher than credit card debt or installment loans. While this kind of debt is generally not dischargeable in a bankruptcy, a Chapter 7 bankruptcy filing may offer the possibility of a fresh financial start by reducing other kinds of unsecured obligations. An attorney with experience in this area could explain the merits of the various forms of debt relief while pointing out that filing a bankruptcy puts an end to creditor harassment.