quote:

Thousands Apply to U.S. to Forgive Their Student Loans, Saying Schools Defrauded Them

Borrowers owing $164 million have stepped forward in the past six months, citing a previously obscure federal law

By JOSH MITCHELL
Jan. 20, 2016 5:30 a.m. ET

Americans are flooding the government with appeals to have their student loans forgiven on the grounds that schools deceived them with false promises of a well-paying career—part of a growing protest against years of surging college costs.

In the past six months, more than 7,500 borrowers owing $164 million have applied to have their student debt expunged under an obscure federal law that had been applied only in three instances before last year. The law forgives debt for borrowers who prove their schools used illegal tactics to recruit them, such as by lying about their graduates’ earnings.

The U.S. Education Department has already agreed to cancel nearly $28 million of that debt for 1,300 former students of Corinthian Colleges—the for-profit chain that liquidated in bankruptcy last year. The department has indicated that many more will likely get forgiveness.

The program could prove to be one of the few lifelines for hundreds of thousands of Americans buried in student debt after attending disreputable schools that failed to land them a decent job. Federal law prohibits student debt from being discharged in bankruptcy, except in rare circumstances, and the Supreme Court last week declined to hear a case that could have expanded bankruptcy options.

The sudden surge in claims has flummoxed the Education Department, which says the 1994 forgiveness program is overly vague. The law doesn’t specify, for example, what proof is needed to demonstrate a school committed fraud. Last week, the department began a monthslong negotiation with representatives of students, schools and lenders to set clear rules, including when the department can go after institutions to claw back tuition money funded by student loans.

Education Department officials say they are still trying to grasp the potential bill that will be footed by taxpayers. They say the cost of forgiveness could ultimately be in the billions of dollars.

“We just don’t know” the potential scope, said Ted Mitchell, the Education Department’s undersecretary. “This is new territory for us.”

Mr. Mitchell added that borrowers are entitled to forgiveness—as well as potential reimbursement of repaid loans—if they have been defrauded, regardless of the taxpayer cost. “The law is clear about giving students redress when they’ve been defrauded,” he said.

Andrew Kelly of the American Enterprise Institute, a conservative think tank, said there is a danger that the program will become overly broad, encompassing not just instances of outright fraud, but also cases in which borrowers simply regret taking out the debt because they can’t find a job, through no fault of the colleges.

“It gets much more difficult when students say, ‘Well, I was told this would improve my job prospects.… I don’t have a job, and I’m mad about it, and I think I’m defrauded,’” Mr. Kelly said.

The surge in applications reflects the growing savvy of student activists, who discovered the law last year after it had largely sat dormant for two decades. Education Department officials say the agency failed to draft rules after the law was passed in the early 1990s and lacked the urgency to do so because it had only received five applications—three of them granted—before last year.

The clamoring for forgiveness represents the fallout of a college-enrollment boom—driven by a surge in students attending for-profit colleges—that caused student debt to nearly triple in the past decade to $1.2 trillion, New York Federal Reserve figures show. Seven million Americans have defaulted, government data show.

So far, almost all of the borrowers applying for forgiveness under the 1994 program attended for-profit schools. Three-quarters went to Corinthian-owned institutions, while hundreds of others attended the Art Institutes, owned by Education Management Corp.; and ITT Technical Institutes, owned by ITT Educational Services Inc. All three have been the subject of federal investigations into illegal recruiting tactics in recent years.

An Art Institutes spokesman declined to comment. Corinthian Colleges was liquidated in bankruptcy last year; the company denied allegations of illegal recruiting tactics.

ITT said it wants “to assist students with a legitimate grievance.” But it added that it believes the company has been unfairly targeted by the Obama administration in what it characterized as a broad campaign against for-profit colleges.

In letters to the Education Department, borrowers speak of frayed lives after taking on huge debts to attend schools that they say provided inept instructors and failed to land them the industry jobs they promised.

“I feel robbed of my life,” wrote one student who said she owes $114,000 in federal student debt—most of it in her mother’s name—for her time at a branch of the Art Institutes chain of for-profit schools. “Even after paying my student loans on time and in full every month for over seven years, I’ve barely made a dent.”

Syd Andrade’s story is emblematic. He said in an interview that during his high-school senior year, he received a call from an Art Institutes recruiter promising “great facilities, great teachers, use of industry-standard software” for a game-art design program.

Mr. Andrade, who graduated from the company’s Tampa, Fla., location, said the classes used outdated software and were taught by an instructor who knew less than the students. “Most of the time spent in her classes were us teaching her,” he said. “It was a group effort of everyone trying to learn together.”

The school had also promised to help him land an industry job, he said. But when he graduated in 2011, the school placed him in an $8-an-hour job working behind the counter at a local Office Depot. He said they did the same for his girlfriend, another graduate of the school.

Mr. Andrade and his girlfriend moved to Austin, Texas, where he now makes $44,000 a year working in technical support for a major media company, outside his desired field. “They promised us to get jobs in the field, and most of us ended up at Office Depot,” he said.

The Art Institutes spokesman, Bob Greenlee, declined to comment.

The case of Mr. Andrade, who is trying to document the school’s actions, points to tough decisions facing the Education Department. Many students say recruiters verbally made misleading promises and cited fraudulent job-placement data, but the students often lack documentation to prove it. Moreover, consumer-protection laws vary by state, and a recruiting practice might be legal in one state but illegal in another. The Education Department has hired a special master to sort through existing claims as it drafts permanent rules.

Luke Herrine, an organizer with the student-activist group Debt Collective, said the number of borrowers defrauded by colleges, most of them in the for-profit sector, is likely in the millions. His group is pushing for the Education Department to cancel loans for entire classes of students instead of individually. “An individualized process is likely to underprovide relief,” he said, pointing out that many borrowers might not realize they are entitled to loan forgiveness.

antiga posted:

You can contribute to an IRA for tax year 2015 until the filing deadline in April. If it's traditional you may be eligible for a tax break depending on MAGI.

Wickerman posted:

Can I contribute to an IRA for tax year 2016 before April 15th? Specifically, I want to roll over my government retirement to a Roth IRA and I want all that to happen for the 2016 tax year.

antiga posted:

You can contribute to an IRA for tax year 2015 until the filing deadline in April. If it's traditional you may be eligible for a tax break depending on MAGI.

Moneyball posted:

Even if it was not opened in 2015?

Wickerman posted:

E-Money posted:

This is student-loan adjacent so wondering if anyone has experience with this.

My wife and I both have significant student loan debt from law school and are on IBR. This is our first year filing as a married couple. Because of the way our income is imputed it will likely make the most sense for us to do married filing separately. My question is: for folks who have done this, all things being generally equal (income, etc) was your return bigger, smaller, or about the same as when you filed singly?

Trying to figure out if we're going to get hosed this tax season.

PS - yes, we will run it both ways and see which makes more sense but i'm gonna say there's a 99% chance that filing married separately will make the most sense due to how income is calculated for IBR. More interested in whether i can expect to have a big change in my tax burden.

Devian666 posted:

Ask the course provider if they could include a higher specification camera and lenses as a part of the course kit. If not it seems to be a lot of effort to go to just to end up with a camera and lenses that you don't want. If there is a way to legitimately charge the course costs and equipment to a student loan that may be a better option.

You could get a course kit and use it during the course then sell the camera and lenses afterwards and put the money towards a better camera.

The Mantis posted:

Absolutely agree. The grant is for education-related expenses, they just don't make it easy to access.

I guess I'm wondering how most people charge equipment costs to student loans. If Stafford loans are held by/paid to the university, how do people go about buying laptops etc from anywhere but the school store?

I know it's a common thing because I've seen people use student loans for way stupider poo poo than actual materials. I guess I just don't understand how they get less-restricted access to the money. Sorry for the rather basic question!

spwrozek posted:

If your loans and grants are more than tuition for the semester the school sends you a check about a week after school starts for the balance. At least when I was in college 8 years ago that is what happened. Basically you could take out more loans to pay for rent and food if you lived off campus.

E-Money posted:

This is student-loan adjacent so wondering if anyone has experience with this.

My wife and I both have significant student loan debt from law school and are on IBR. This is our first year filing as a married couple. Because of the way our income is imputed it will likely make the most sense for us to do married filing separately. My question is: for folks who have done this, all things being generally equal (income, etc) was your return bigger, smaller, or about the same as when you filed singly?

Trying to figure out if we're going to get hosed this tax season.

PS - yes, we will run it both ways and see which makes more sense but i'm gonna say there's a 99% chance that filing married separately will make the most sense due to how income is calculated for IBR. More interested in whether i can expect to have a big change in my tax burden.

momtartin posted:

What are some good companies to talk to about refinancing one of my loans? I have a private loan with a horrible interest rate (9.1%) that I've been itching to lower the rate on, and I'm finally at a spot to look into that.

antiga posted:

You're confusing refinancing with consolidating. In a consolidation, the new rate is based on a weighted average of the old rates and isn't related to current market interest rates. For a refi, the rate is going to be based on today's interest rates, your creditworthiness, and ability to pay (income). The cost of that lower rate for you is losing some or all protections, so read the terms carefully.

So it shouldn't matter which loans you choose to refinance. Obviously if you have any rates currently below what they offer for your refi, leave those as they are.

E: I could be wrong but those fixed rates should not ever change. They can choose to change the rate for new loans, which is different.

The Mantis posted:

Does actual cost of attendance/tuition matter when the government determines the amount for which you're eligible for an unsubsidized Stafford?

Say a program is only $5k, but you need another $4k just to cover qualifying expenses. All other things being equal, is it even possible for you to qualify for $9k of an unsubsidized Stafford loan?

mastershakeman posted:

That being said, do you have a recap/video of what she said? That's a hell of a position to take.

quote:

I have a very specific plan to make college affordable, and I also have a really aggressive plan to get student debt down. To enable you to repay, refinance at a much lower cost. And be able to get out of it sooner so you're not paying your student debts 30 years from now. That's ridiculous. I didn't have to do that. I had student debt, and I got it paid back within about 15 years. Because I had it at a reasonable amount. And I want to move more young people into what are called Contingency Repayment Plans - that's a mouthful, but it basically means you pay as a percentage of what you earn, not a fixed interest rate. I want to triple the number of national service jobs. I want to double the amount of education grants that go to people who do national service. So I have a comprehensive plan.

mastershakeman posted:

If she wasn't a massive policy wonk I'd simply think she didn't know what she was talking about, especially because ICR went into effect when she was First Lady. Weird.

quote:

Under Hillary’s plan, if you have student debt, you will be able to refinance your loans at current rates. An estimated 25 million borrowers will receive debt relief, and the typical borrower could save $2,000 over the life of his or her loans.

For future undergraduates, the plan will significantly cut interest rates so they reflect the government’s low cost of debt. This could save students hundreds or thousands of dollars over the life of their loans.

Everyone will be able to enroll in a simplified, income-based repayment program so that borrowers never have to pay more than 10 percent of what they make.

EugeneJ posted:

Yeah, I'm old and have FFEL loans

Also apparently there's no mechanism in REPAYE that will cap your monthly payment at the standard repayment amount like there is with IBR once you start making more money. That's awful.

Ancillary Character posted:

It would still be 10% of your discretionary income, so it should be still affordable.

EugeneJ posted:

But wouldn't all the unpaid interest capitalize if I consolidate?