College students in Tennessee and around the country who have been defrauded by their schools may find it easier to have their debt forgiven and pursue legal remedies under education reforms scheduled to be introduced by the Obama administration in June 2016. The measures, which were drafted by the Department of Education, also aim to prevent colleges that accept federal student loans from compelling students to agree to arbitration agreements. The reforms are primarily aimed at curbing the oft-criticized activities of for-profit schools.
The widespread use of mandatory arbitration agreements by for-profit colleges has been roundly criticized by advocacy groups as a cynical way to pressure students into settling their fraud claims out of court. The reforms come a year after a federal investigation led to the closing of Corinthian Colleges. Investigators discovered that the for-profit organization misled thousands of students by misrepresenting their chances of securing future employment.
The Obama administration has had the questionable for-profit education sector in its sights for some time. In 2015, the Department of Education introduced a rule that requires higher education institutions to keep track of how their graduates fare in the workplace. Colleges that perform poorly now face having their funding slashed. These efforts combined with heightened public awareness appear to be bearing fruit. While only five nonprofit colleges closed their doors between 2012 and 2015, nearly 100 for-profit institutions went out of business during that time.
Experienced bankruptcy attorneys will likely welcome any efforts designed to protect students from the activities of predatory for-profit schools. While student loans cannot generally be discharged in a Chapter 7 bankruptcy, attorneys with experience in this area may argue that they should be included when repayment would crate an undue hardship. Attorneys could also explain the merits and drawbacks of the various forms of debt relief to those struggling to cope with an unmanageable financial situation.
