Lieff Cabraser Civil Justice Blog
US Education Dept Proposes New Student Debt Forgiveness Rules

U.S. Education Dept Proposes New Student Debt Forgiveness Rules

Defrauded students would have their loans forgiven; new rules would also bar mandatory arbitration clauses

In what could lead to a stunning victory for students defrauded by mercernary and predatory “for-profit” colleges, the U.S. Department of Education has released proposed rules that would forgive student loans in situations where colleges committed fraud and other misconduct. There has been a wave of lawsuits and judgments recently where so-called “fraudster colleges” are beginning to be held accountable for their improper and illegal conduct in forcing sudents into crippling student loan debt, often via deceptive manipulations, outrageous missed-class and missed-exam fees, and false promises of post-graduate employment success via wildly distorted alumni job rates.

“We won’t sit idly by while dodgy schools leave students with piles of debt and taxpayers holding the bag,” DOE Secretary John B. King Jr. said in a statement. “All students who are defrauded deserve an efficient, transparent and fair path to the relief they are owed, and the schools should be held responsible for their actions.”

The proposed new regulations would allow groupwide loan discharges for students who experience college misconduct. Colleges would also have to pay penalties if they are found to “engage in misconduct or exhibit signs of financial risk.” Further, schools that are financially risky or whose students repeatedly have bad outcomes on their loans would have to clearly and specifically share that information with current and prospective students, bringing these shady financial dealing fully into public view.

Finally, schools would be banned from using the pernicious and widespread contract arbitration clauses that prevent students from holding schools accountable in court for their illegal and predatory actions, forcing any such attempts into private arbitration where students’ rights are sharply curtailed. The Department of Education noted that for-profit colleges routinely place such lawsuit-banning clauses in enrollment agreements and financing contracts, and these agreements generally include “gag clauses” that seek to prevent students from speaking publicly about the wrongs committed.

Education Fraud Attorneys at Lieff Cabraser

Successful whistleblower lawsuits under the False Claims Act have led to significant recoveries for students and for the government. Lieff Cabraser obtained a record whistleblower settlement against the University of Phoenix in a case that charged that Phoenix had violated the Higher Education Act by providing improper incentive pay to its recruiters. High student loan default rates not only result in wasted federal funds, but the students who receive these loans and then default are burdened for years with tremendous debt without the benefit of a college degree.

In other lawsuits, schools have been sued for practices geared to arbitrarily increasing student fees, including penalty fees for missed classes and schedules designed to make course completion so difficult that many students are forced to retake and re-pay for credits. Still other schools have faced lawsuits for inflating course costs and for wildly exaggerating graduate placement rates and thus degree value.

If you have experienced these or other issues relating to improper or predatory conduct by a college or other school, we welcome the opportunity to speak with you about your case. The information you provide will also help us in holding schools accountable for their misconduct. There is no cost or obligation for our review of your case, and all information you provide will be held in strict confidence.