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Loan forgiveness rules proposed by Department of Education

People in Kentucky and throughout the United States who took out federal loans to attend for-profit colleges accused of fraud may be able to get those loans forgiven under a new Obama administration initiative. The Department of Education would also prevent universities that get money from federal student loans from requiring students to enter into mandatory arbitration agreements.

The proposed rule comes in the wake of growing concern about for-profit colleges and whether they offer any value to students. More than a year ago, Corinthian Colleges faced a federal investigation that claimed it misrepresented job placements. It has since closed. Another allegation leveled against the for-profit college industry is that the schools do not adequately train their students. The Obama administration has been putting a number of measures in place to address these concerns, but now the focus has shifted to loan forgiveness.

More than 100 for-profit colleges closed their doors between 2012 and 2015 compared to an annual average of five nonprofit educational institutions during that period. Students from colleges have filed borrower defense claims, but fewer than 10 percent have been able to obtain relief.

The new plan is scheduled to take effect in 2017, but it will only offer relief to students who took out federal loans and who can claim fraud on the part of the educational institution. Students with private loans may have to file lawsuits against the schools.

People with student loans seeking debt relief might want to consider filing for bankruptcy. Although most student loans are not dischargeable in bankruptcy, getting rid of other debts may make it possible to become current on these loans. People might fall into debt for other reasons as well including medical bills, divorce and unemployment. Bankruptcy can offer a fresh start and an opportunity to begin rebuilding credit. An attorney can be of assistance in describing the eligibility requirements and how the process commences.

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