President Obama often cites escalating college costs and student debt burdens as major obstacles to upward mobility for many young Americans. He is right, but the White House just proposed a new rule that, rather than make college more affordable, makes it too easy for students to get out of paying back their student loans. The problem is that it could stick American taxpayers with the bills, lead to speculative litigation against colleges, and deprive students of valuable courses.
What triggered the new rule was last year’s collapse of Corinthian College, a for-profit college with more than 100 campuses. After it closed, thousands of Corinthian students asked the Department of Education to discharge their loans. Among other things, they alleged that Corinthian had misrepresented job placement rates. A special master has been appointed to discharge the debt of any student illegally duped into attending Corinthian.
This loan discharge program, first adopted in 1995, has worked fairly well. It provides a legal backstop for vulnerable students when a college commits fraud or otherwise violates state law related to the loan or services for which the student paid. The government forgives the loan and tries to recoup the costs from the college, but taxpayers generally pay the tab. The program had been sparingly used, and the recent mass of claims exposed some procedural inefficiencies.
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