Obama Administration Announces New Loan Forgiveness Rules

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On Monday, the Obama administration released new guidelines for the forgiveness of specific student loans. This program would forgive student loan debt incurred by those who can prove they were the victims of scams perpetrated by for-profit colleges that used fraudulent or illegal methods to convince the student to enroll. While there are federal lawsalready in place for this, the application process is difficult, plus few people know the program even exists. These guidelines would make it easier to apply for this type of forgiveness, but they are still under consideration. If finalized, the new program would not go into effect until July 2017.

Under the new plan, students would also be able to ask for debt forgiveness if they can show one of the following:

  • The school had a court judgment against it
  • The school breached their contract with the student
  • The school made a "substantial misrepresentation" about their offerings, graduate job prospects, or the debt the student would take on

Under this proposal, students would be able to seek debt forgiveness up to six years following their discovery of the school's wrongdoing, an increase from the current two-year limit.

However, applicants may not have their entire debt forgiven. Instead, the Department of Education will examine the applicant's claim and determine how much harm they incurred due to the school's actions. This will be translated into a percentage of their student loans that will be forgiven.

The proposal will be finalized in November.

If you want to settle outstanding debts for less than what you owe, try our debt settlement tool.

This article was provided by our partners at moneytips.com.

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