Government forgives student loans due to college’s deceptive tactics

The Washington Post reported last week that per the Obama administration, $28 million in student loans will be forgiven to 1,312 former Corinthian College students, a California-based school that closed due to loss of federal funding and subsequent bankruptcy. 

This is the first big measure on the part of the U.S. Department of Education to ‘discharge federal student loans on the grounds that a school used illegal or deceptive tactics in violation of state law to persuade students to borrow.’

Predictably, responses to this action have been mixed. Advocates say it’s about time, while other lawmakers argue that this preliminary action sets the stage for millions in lost taxpayer dollars. 

Read more: 5 things to know about paying off your student loans

Are colleges delivering on their promises?

An independent investigation revealed that Corinthian’s Heald Colleges were falsifying job rates after graduation in order to boost attendance. The report was instrumental in the push to grant student loan forgiveness, in addition to claims made by former Heald students. 

The top prosecutor in this case found the school’s marketing materials to be deceptive and ill-served. Corinthian schools targeted ‘isolated, impatient people with low self-esteem and few people in their lives who care about them, and who are stuck and unable to see and plan well for their future.’ Specifically, the college’s marketing department targeted single mothers, veterans and low-income people and misrepresented post-graduation employment prospects. 

This new action should have colleges and universities taking a hard look at the job rates of their graduates and hopefully encourage them to be transparent when it comes to making promises to prospective students and delivering on those promises. 

How does this affect you?

Students who attended Corinthian College campuses — including Everest College, Heald College and Wyotech campuses across the country — may be entitled to student loan forgiveness. The administration said that anyone who had attended as of June 2014 could apply for forgiveness of their federal loans, and all other students were invited to file a claim if they could provide proof of being defrauded.

So far, the monitor has reviewed 5,814 claims from former students which has totaled nearly $75 million in federal student loans. Nearly $3.2 billion in federal loan debt from Corinthian students is outstanding since 2010. The number of claims that will be approved and total price tag remains to be seen.

​Read more: New ways to pay down your student loan debt

For the rest of us, this story is an unfortunate lesson in lack of honesty and being aware of how our tax dollars are spent — and it is should definitely prod schools to be truthful about the benefits students will receive as a result of attending. Schools need to be sure to avoid taking advantage of prospective students and making empty promises. 

Go to school debt-free

The best policy when it comes to paying for education is to go debt-free by going to cheaper colleges, getting scholarships and working through school. (That’s how Clark did it!) To learn how to go to school debt-free, check out these 9 ways to pay for college without student loans.