Anticipation has built up during the past few months over an expected announcement from the Obama Administration in regards to student loan forgiveness.  In a final attempt to influence the federal student loan system, the executive branch committee released new guidelines pertaining to student loan debt forgiveness.

These guidelines are not all encompassing because they are specifically meant for students who were victims of a fraudulent, for-profit college.  The circumstances of fraud at such a college include being mislead by false advertising over the value of investing in education at that college.

In the end, graduates from these for-profit colleges are at greater risk of student loan default presumably due to a lack of return on investment.  In short, this lack of return is a by-product of false advertising from the college.  One of the famous examples is the Corinthian College.  The chain was accused of misleading students to increase enrollment;  the chain was shut down after losing federal funding.

A for-profit college advertises certain alumni statistics that are misleading which entices new undergraduates.  After graduation, the degree from that college does not have the same value in the labor market, so the graduate is left in a debt-full situation where income is less than expected.

For people in dire student loan debt situations, there is a program where federal debt can be forgiven.  While this sounds ideal, there is one pronounced issue with this program.  There are strict federal regulations in place that make it highly improbable to qualify for federal loan forgiveness.  In many cases, students who are victims of fraud do not get the help they deserve.

Lower Interest Rates on Student Loans

The new set of guidelines is meant to improve the debt forgiveness process in order to rightfully forgive mislead students.  Under the new plan, students have up to six years to make a claim for debt forgiveness.  Claims will be considered if the school in question has a court judgment against it, breached the contract with the student, or substantially misrepresented their offerings and job prospects.

The all-or-nothing system is being nullified; in its place, there is a new system where the government can forgive certain percentages of a loan.  There is basically a review of the full situation.  Afterwards, the government decides if all, none, or some of the loans are forgiven.  While the regulations are looser, the government has the last say on debt forgiveness on a case by case basis.

This is a step forward in combating for-profit colleges in their attempt to increase enrollment through misdirection.  The new process may have some bugs which are sure to be pointed out in the future, but it is in the right direction when considering the previous system.  The final product will be delivered in November 2016.