New regulations could allow student loan forgiveness

Many Texas college students pursue degrees that they believe will lead to jobs. When colleges misinform students about job placement rates, unemployed graduates are left with a large amount of debt and no means to pay it back. Now, students who acquired federal student loan debt while going to a college that defrauded them will be able to have their loans forgiven.

The U.S. Department of Education has proposed a set of education reforms that include debt forgiveness for some students. Under the proposed rule, students can have their federal student loans forgiven if the loans were acquired while going to a for-profit college that used fraud to attract new students. The rule would also prevent colleges that accept federal student loan money from enforcing mandatory arbitration agreements.

For-profit schools that the Obama administration has described as ‘predatory institutions” are being targeted by the new reforms. These types of colleges may be in financial distress and misrepresent job placement rates to prospective students. The proposed regulations would require for-profit schools to prove to the Department of Education that they are solvent. Schools that may be affected by these rules are institutions like Corinthian Colleges, the for-profit chain of schools that was forced to close its doors after federal investigators found evidence of fraud.

Federal student loans usually cannot be discharged in a typical bankruptcy filing. However, there is a possibility of discharge if the borrower can demonstrate that requiring repayment in full would constitute an extreme hardship. This could be one of the benefits of bankruptcy that an attorney could explain.