The Education Department forgives federal student loans for students that prove their debt was incurred because they were defrauded by a school. It has been in place for over two decades.
...that “the borrower may assert as a defense against repayment, 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.” 34 C.F.R. § 685.206(c)(1). This rule, which is also contained in federal loan promissory notes, reflects the common-sense conclusion that defrauded students should not be required to pay the federal government when their schools engaged in unfair or deceptive acts or practices to induce them to enroll.
The Rule was clarified in late 2016 in the wake of the Corinthian Colleges closure by codifying a process for defrauded student loan borrowers to apply for loan forgiveness; limiting schools from using forced arbitration clauses and class action waivers on students; providing for automatic loan discharge for students at closed schools that do not complete their studies within three years of the school’s closure; authorizing group discharges when appropriate; and requiring schools at the highest risk of closing to set aside money to cover potential loan forgiveness, in order to protect taxpayers.
There are more than 87,000 applications for debt relief pending with the Education Department, and at least 10,000 of those applications have been recommended for approval. News reports raise questions about whether students will be granted relief or possibly only partial relief.
Why are Veterans defrauded? Why do they need loan forgiveness?
Veterans and their families are widely targeted by fraudulent universities because of the 90/10 loophole, which allows schools to count military education benefits in the 10 percent of revenues that must not come from Title IV federal student aid.
Since 2012, federal and state law enforcement agencies have concluded 17 settlements with for-profit schools. The basis for these settlements were findings of misleading and deceptive advertising and recruiting, including misrepresenting costs, quality, accreditation and the transferability of credits, job placement rates, and post-graduation salaries.
The Federal Trade Commission recently recouped $100 million from DeVry for its deceptive marketing campaign that claimed better job prospects than existed.
In 2015, Education Management Corporation, which operates schools including the Art Institutes and Brown Mackie College, settled with the United States and several co- plaintiff states for $95.5 million following a False Claims Act lawsuit for falsely certifying compliance with the incentive compensation ban.
Recently, Kaplan settled with the Department of Justice for $1.3 million following a lawsuit for employing unqualified instructors at campuses in Texas.
Although the Post-9/11 GI Bill covers in-state tuition at a public college, fraudulent schools are often more expensive (sometimes twice as expensive) and veterans may be forced to take out student loans to cover the gap between tuition and their benefit.
Among veterans that began college in 2012, 37 percent had student loan debt as of 2014.
Among servicemembers’ households, 38 percent 15 had student loan debt, according to a 2012 survey.
The lowest quality programs often engage in the most fraudulent action towards veterans. This targeting by fraudulent schools makes the Borrower Defense Rule important to veterans, specifically. In a bipartisan letter to the Department of Education, Senators highlighted the plight of defrauded veterans among the 784 pending Borrower Defense applications and approximately 1,300 more eligible students from Nevada.