Thousands Say Colleges ‘Defrauded’ Them, Apply For Loan Forgiveness

Student loans can be crushing, particularly on someone right out of college and probably making entry level pay at their chosen career. Federal loans are the most common way that students pay for college in the United States, with many owing $100,000 or more, depending on their degree and how long it took to accomplish said degree.

Typically, school loans need to begin repayment six months after graduation from a college. But what happens if you haven’t found a job? Your loans go into default, and that winds up on your credit report. Many employers check credit reports as part of a determination of your dedication to your obligations, whether that is fair or not, so this may further compound the issue.

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Graduates often end up feeling frustrated, and some are looking back at what the colleges they attended originally said about their chosen degree – that a certain percentage got hired immediately after graduation, or that the average median salary of a new graduate was a certain amount. That leaves the graduate wondering, “What happened to me?” They then are beginning to question fraudulent advertising on the part of the university that they now are in major debt over.

According to The Wall Street Journal, Americans are hitting the government with a large amount of appeals to have their student loans forgiven – on the legal grounds that schools deceived them with false promises of a well-paying career—part of a growing protest against years of inflated college costs and seemingly little to show at the end of the academic and financial struggle. In fact, the exponential growth of these complaints is difficult to comprehend or quantify – a virtual explosion of loan forgiveness cases. In the past six months, more than 7,500 borrowers owing in the vicinity of $164 million have applied to have their student debt removed from their obligations under a little known federal law that had previously been applied only in three instances before last year. The law allows for forgiveness of debt for borrowers who prove their schools used illegal tactics to entice them, such as by lying about employment rates or average beginning salaries after graduation.

School Problems
WASHINGTON, DC - JUNE 20: An installation of 857 empty school desks, representing the number of students nationwide who are dropping out every hour of every school day, is on display at the National Mall June 20, 2012 in Washington, DC. The installation was presented by not-for-profit organization College Board to call upon presidential candidates who are running for the White House to make education a more prominent issue in the 2012 campaigns and put the nation’s schools back on track. (Photo by Alex Wong/Getty Images)

Meanwhile, the sudden surge in these claims has overwhelmed the Education Department, which says the 1994 forgiveness program is vague and difficult to dispute. The law doesn’t specify what bearing of proof is needed to prove that a particular school committed fraud. Last week, the department began a negotiation period with representatives of students, schools, and lenders to lend clarity to rules, including when the department can legally go to institutions to demand back tuition money funded by student loans. Otherwise, the Education Department says that taxpayers are paying the burden of the “forgiven” student loans.


While the law has been in effect for two decades, experts believe that many students did not know about it because they had no reason to investigate – the had manageable debt that was able to be paid for by decent jobs after graduation. A combination of recession, for-profit colleges, and exorbitant tuition costs, with nowhere to go after graduation, left savvy generation Y searching for answers and help.

And rightly so, feel many Americans, including one commenter on the Wall Street Journal. Many feel the higher education institution has been far more about profit that creating competent professionals who are prepared for the workforce.

“Today the education sector is a business more than an academic environment to educate and form new professionals. A lot of institutions don’t have ethical principles and they don’t give to the students the real tools and background they need to be successful in the professional market.”

[Photo via Savannah State University]