New Education Department Program Could Help College Fraud Victims

The Department of Education is creating a new program that would partially forgive student loans for borrowers defrauded by for-profit colleges. If the program is finalized and implemented (the program will not be finalized until later this year and implemented until July, 2017), former students and graduates could seek partial loan forgiveness for up to six years after the discovery of wrongdoing. If the program is implemented, students may seek forgiveness if they meet one of the following criteria.

• If a college has had a court judgment filed against it for an act or omission relating to students taking out Direct Loans, students can seek loan forgiveness. In other words, the school in question lied to get students to take out loans and was then successfully sued.
• Students may seek loan forgiveness if the college breached its contract with the student.
• If a school made ‘substantial misrepresentations’ about post-graduation employment statistics or the amount of debt required for attendance, students may seek loan forgiveness.
• Have signed loans after July 1st, 2017.

Although the Department of Education’s language for the program is somewhat nonspecific, we can discuss common types of fraudulent behavior that have allegedly been perpetuated by some for-profit colleges.

Do Some For-Profit Colleges Make Misleading Claims?

Several months ago, we discussed a lawsuit filed against DeVry University by the Federal Trade Commission. According to the lawsuit, DeVry made deceptive claims about post-graduate employment statistics. Specifically, the for-profit college claimed in ads that 90 percent of its graduates were employed within their fields six months after graduation. In addition, DeVry allegedly claimed its graduates made 15 percent more than graduates from other universities.

The lawsuit claims DeVry counted graduates as ‘working in their fields’ despite holding jobs at Cheesecake Factory or Macy’s after earning degrees in business administration.

Similar protections for student loans borrowers have existed for years (traditionally called borrower defense to repayment), but few knew how to take advantage. Students, former students and graduates can receive loan forgiveness if their colleges violated state laws during the recruiting process (such as by committing fraud). Clearly, the Department of Education is seeking to further expand and publicize this program.

The Kansas City bankruptcy attorneys at The Sader Law Firm regularly update our blog with student loan repayment information.