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DOE seeks to eliminate debt from for-profit college student loans

When thinking about the financial future, one consideration is often whether furthering one’s education will enhance earning potential and increase the odds of living a comfortable lifestyle. But some educational institutions seem to have the opposite effect: the student doesn’t get a quality education and, at the same time, incurs debt that will still have to be repaid regardless of any impact the education may have on earning potential.

The biggest culprit in this scenario is the “for-profit” college. One of those, Corinthian Colleges, has become the symbol of an industry fraught with legal issues.  The chain of schools went bankrupt last year, leaving many students holding the bag for student loan debt, some of which may have even been fraudulently obtained due to the schools’ representations to the students and to the Department of Education. 

The impact on student debt is so strong that the federal government is looking at possibilities that would erase about $3.6 billion in loans made since 2010.  But students shouldn’t assume that relief is available: one source says that the process will require each student to file his or her own paperwork, some of which would require “legal savvy”.

We write frequently about student loan debt and its potential for discharge in bankruptcy. Students in New Jersey who have to use student loan funds to get an education may find themselves in a situation that keeps them from using their education as they intended. Economic downturns, unemployment, and other factors beyond a person’s control can thwart efforts for gainful employment.

As a general rule, student loan debt is not dischargeable in bankruptcy. But for those who have been caught up in situations such as this one, exceptions may be available. Whether the debt is waived for an individual student or not, debt relief may still be available due to the alleged fraudulent nature of the debt incurred.

Where any student loan is concerned, even with the general rule against discharge, specific conditions may apply which can either allow for the discharge or the reduction of the amount of student loan debt. Assumptions should never be made about what may or may not be eligible for discharge, or otherwise managed within a bankruptcy plan, before consulting an attorney familiar with bankruptcy law.

Source: US News & World Report, “Gov't announces plan to ignore debt for more Corinthian students, could cost as much as $3.6B,” Anne Flaherty, June 8, 2015

Secondary Source: Huffington Post, “Former Student Says Corinthian College Left Her With A 'Useless Degree' And $40,000 In Debt,” Rahel Gebreves, June 15, 2015

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