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Debt relief for students of fraudulent for-profit colleges

South Carolina residents may recall that the prominent for-profit higher education company Corinthian Colleges filed for Chapter 11 bankruptcy in May 2015. In a March 25 speech, the U.S. Secretary of Education said that investigations had linked 91 of the troubled educator's campuses with fraud, which observers hope will make it easier for its former students to apply for debt relief.

A report from the Department of Education reveals that only 8,800 former students of the for-profit educator have seen their loans discharged. Corinthian Colleges had more than 70,000 students enrolled when it cancelled all classes in 2014 and as many as 350,000 in 2010. These numbers place a great burden on the DOE, and student advocates are calling for student debt relief rules to be relaxed. Students are currently required to apply for relief individually and complete copious amounts of paperwork.

Lawsuits filed by the attorneys general of several states could result in Corinthian being ordered to pay billions in damages, but these would be symbolic victories only as the company has few assets. Student groups welcomed the news that investigations have revealed widespread fraud, and they point out that some other for-profit colleges engage in behavior that is not entirely dissimilar. With the fraud now acknowledged by the DOE, advocates are hoping that the agency will cease all collection efforts on loans that the former students have incurred.

While student loan debt cannot usually be discharged in a Chapter 7 bankruptcy, there are some exceptions to this rule. Experienced attorneys may suggest including student loan debt in a bankruptcy filing if making the required payments would cause undue hardship to the debtor.

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