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Profit Colleges and Student Loan Forgiveness

Several for-profit colleges have been making headlines lately for the worst reasons: they are being ordered to forgive student loan balances and to refrain from collecting any more federal aid. The for-profit institutions at Corinthian Colleges, which includes Everest, Heald, and WyoTech, along with ITT Technical Institute and some branches of Brown Mackie College have been sanctioned under the defense to repayment law and now owe the government millions of dollars to reimburse student loans they accepted. There is a bright side to news, at least as far as the students are concerned: those who attended these colleges benefit from the Department of Education’s student loan forgiveness program provided under the law and will get their loan balances wiped out.

The defense to repayment law allows students to discharge their loans based on the argument that their college committed fraud by misrepresenting its services or failing to do something it promised to do. Students may be able to get their financial aid balances forgiven and even receive a reimbursement for anything they already paid, whether or not their school remains open or has been closed. Colleges who accepted student loans are now on the hook for reimbursing the government, rather than the students who took out the loans to attend the colleges.

How Does a For-Profit College Operate?

The colleges named above have been found guilty of several violations, including using misleading advertising practices, recruiting students based on padded employment records of former students, and various other fraudulent activities. The Corinthian Colleges and ITT Institutes have all since been shuttered, and Brown Mackie seems to be heading that way as well. The colleges face huge fines and are no longer allowed to accept new students that are planning to use federal aid to pay their tuition (which last year accounted for $580 million of ITT’s $850 million in revenue,) and could lose their accreditation.

For-profit colleges differ from non-profit private universities or state schools in that they are run by large companies and typically need to answer to investors or stockholders. These institutions are popular because they often offer year-round enrollment, many online degrees, and classes, and have fairly lenient acceptance requirements. These benefits are very attractive to students who work full-time or have families or other commitments that leave them wanting a degree but having little time to be in an actual classroom.

While these schools can cost more than a state school, for example, they accept federal aid as well as student loans from private lenders. Unfortunately, because the intention of these schools is to make a profit, they sometimes resort to less-than-scrupulous practices to try to attract students. Consequently, students who attend or graduate from these schools may have fewer options in prospective jobs than they were previously told, and have to figure out how to repay large student loans on little to no income.

What Options Are Available to Students?

Luckily, the Department of Education does not tolerate fraudulent practices of these for-profit colleges; instead, they will be held responsible for their actions and the onus of the student loan debt will fall on them. This is good news for students who attended, and may be especially helpful for the students who have been struggling so much financially that they have filed for bankruptcy because they might actually have their student loans forgiven. Generally, student loans are not subjected to the terms of bankruptcy and cannot be forgiven, so no matter what type of bankruptcy you apply for, you will still owe this money. However, under the borrower defense law, you can have your loans discharged if you successfully prove your school committed fraudulent activity that violated laws pertaining to your student loans.

The Department of Education is currently creating a simpler, more streamlined process for students to use when filing their borrower defense repayment claims. Once they receive all the information from the student, that student’s loan immediately goes into forbearance while the claim is reviewed. If the Department determines your claim is just, all loans associated with the claim will be discharged. It’s important to note that any loans you may have outside if the claim will not be discharged and therefore will still need to be repaid.

Contact a Cleveland Bankruptcy Lawyer

If you are one of the many students affected by the unethical actions of your college, or if you’re thinking about filing for bankruptcy and want to know how it affects your student loans, you may benefit from contacting a bankruptcy attorney. Cleveland Bankruptcy Attorneys has years of experience assisting consumers with their financial issues; they might be able to help you, too.

Call today for a free consultation at (216) 586-6600.

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