Department of Education issues new rules to help students seek relief from loans where school engaged in fraud

The Department of Education today issued new rules to help students get their federal loans erased in cases involving fraud and misconduct by their schools. The rules were prompted in part the closing of Corinthian Colleges amid allegations of fraud.

As the New York Times explains, the new rules will clarify that students are eligible to have loans erased if their college misrepresents the quality of its programs or the success of students; if the college breaks a "contractual promise" with its students; and if a state or federal court rules that the loan should be forgiven.

The new rules also ban schools receiving federal funding from requiring students to agree to predispute arbitration clauses or to bar students from bringing their claims through class actions.

Public Citizen, and in particular my colleague Julie Murray, submitted a citizen petition to the Department earlier this year asking it to condition school participation in the federal student loan program on a school's commitment not to require students to sign predispute arbitration agreements, and Public Citizen's/Julie's comments on the subsequent proposed rule are reflected in the strong final rule issues today. Julie is quoted discussing the new rule in this Market Watch article, which also provides some details and context.

The final regulations are here.

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