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Americans are applying for student debt forgiveness from the government on the basis of “fraud”

By Amy X. Wang

America’s trillion-dollar student debt problem is not going away on its own. To start getting to the bottom of it, the US government last year launched a rigorous investigation into deceptive college recruitment practices that led to the closing of the 28-campus Corinthian Colleges system—the biggest for-profit college shutdown in history.

The schools, the government found, essentially committed fraud by lying to students about their chances of getting a job after graduating, which caused some to take out risky loans.

But the bankruptcy of Corinthian Colleges left a problem: what to do about the giant pile of debt already racked up by the schools’ students?

Several million dollars of these loans will be forgiven, the US Department of Education announced in late 2015. However, according to a Wall Street Journal report today (Jan. 20, paywall), in the last six months more than 7,500 borrowers have rushed to apply for debt forgiveness under the claim that they were defrauded by their colleges. The huge number of applicants—and the $164 million they are collectively asking to be forgiven—has “flummoxed” the Education Department, the Journal reports.

Under the obscure federal debt-forgiveness law these borrowers are using for their claims, students who attended schools that used illegal recruitment tactics (such as lying about post-graduation prospects) are eligible to not pay back their government loans. But the law, which has only been applied three times between 1994 and 2015, is vague. It doesn’t require proof that a school committed fraud—which puts the onus of investigation onto the government.

Thus far, three-quarters of the people applying for the debt forgiveness program are graduates of a Corinthian Colleges institution, and hundreds more attended schools owned by Education Management Corp and ITT Educational Services. All three for-profit schools have been probed by the government for alleged illegal recruitment strategies in the last few years.

And here’s what’s truly appalling: the 7,500 borrowers who’ve applied for forgiveness—assuming most of the claims are legitimate—may just be a tiny portion of hundreds of thousands allowed to not pay back their loans, thanks to the gigantic mess made by shoddy for-profit education in America.

American taxpayers, of course, would be the ones taking on the strain. That ordinary citizens will have to shell out millions to foot the bills for these graduates’ loans is certainly a possibility, if all their claims prove true.

At least the US government is now sure to have learned a valuable lesson in vigilance.