With a tad less than two months to go before leaving office, the Obama administration has released its final regs on student loan forgiveness for those using the borrower defense claim. This will let people with unpaid student loans have their loans written off if the college they borrowed money to attend victimized them through fraud.
The final regs were issued last week by the U.S. Department of Education (ED).
"Since taking office, the Obama Administration has worked tirelessly to protect students and taxpayers and crack down on dodgy schools," said U.S. Secretary of Education John B. King on October 28. "Today's regulations build on that process by ensuring students who are lied to and mistreated by their school get the relief they are owed and that school that harm students are held responsible."
A flood of borrower defense claims from students of the defunct Corinthian Colleges last year forced ED to act and the September bankruptcy of ITT Tech will only add fuel to this fire. Existing regulations that date to 1995 provided little guidance on how borrowers could submit borrower defense claims after the Corinthian crack-up or how ED could resolve them. The new regs will also replace a hodge-podge of state laws and bring some standardization to the process. Some observers say individual states, especially those with proactive attorneys general such as Massachusetts and Illinois, offer better protection than the new regs.
ED's new regs would require that a letter of credit to be produced by struggling schools who are on the bubble or who have engaged in fraud to prove that they are viable businesses. LoCs are typically issued by banks that guaranty the payment of financial obligations by those seeking such a letter.