The recent proposal by the Department of Education, a push to set new standards for student loan forgiveness, has received quite a bit of attention from the media.  Certain interest groups seek to influence the Office of Management and Budget which is reviewing the proposal this month.
Increased activity from these interest groups, namely labor groups, for-profit colleges, and consumer advocates, is due to the fact that the Office of Management and Budget plans to make the announcement on its decision regarding the proposal this month.  The proposal, or informally known as “Obama’s Student-Loan Swan Song,” seeks to alleviate strict standards on loan forgiveness standards in cases where borrowers are defrauded by colleges.
There are several ways a college can defraud their students.  One way is misdirection; for instance, in the Corinthian College case, students were mislead with untrue job placement rates and lending practices.  There are some other more extreme cases such as barring students from class for defaulting on payments.  In general cases, students are schemed by for-profit colleges in ways that put students in unfair situations either during enrollment or post graduation.  The main incentive is to increase attendance at these colleges; it is viewed as predatory.
Despite the effort to loosen standards on debt forgiveness for these affected students, there has been some opposition to the proposal.  The representatives of for-profit colleges point out the “defense to repayment provision” from the Higher Education Act of 1965; this provision states that loans may be forgiven if  college defraud can be proven.  The main point of the opposition is that the new debt-relief regulations may violate a college’s right to due process against fraud claims.
On the other hand, consumer advocates paired with a student coalition are calling for loose standards on debt forgiveness.  This is no surprise coming from the supposed victims, but this proposal can greatly aid a portion of students who experience tough circumstances, especially those who move into low-paying labor fields such as teaching.  Contrary to this point, it may also open up the debt forgiveness program unfairly to predatory students.
There are two main sides to the story.  One side wants to protect the rights of colleges using the Higher Education Act of 1965 while the other is attempting to champion mislead college students.  At any rate, the proposal has been deemed to be economically significant which explains the relevance.  Many are viewing this as one of the Obama administration’s final attempts at dictating federal student loans.

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