The New Way People Are Trying to Ditch Their Student Loan Debt

Thousands of student loan borrowers have applied to have their debts forgiven under a vague, rarely used federal law, and the government isn’t really sure what to do about it. The law allows borrowers to apply for loan forgiveness if they can prove their schools used illegal tactics to recruit them, but the statute is light on details, reports the Wall Street Journal. For example, it doesn’t describe exactly what constitutes proof of illegal recruitment practices, potentially allowing the law to be widely interpreted and applied.

Before last year, the government had only received five applications for forgiveness under the 1994 law — it granted three. As of WSJ’s story on Jan. 20, that application figure exceeded 7,500, representing more than $164 million in student loans.

Now, the government has to figure out what to do with them. Ted Mitchell, the Education Department’s undersecretary said it’s unclear how much this loan forgiveness would cost taxpayers (it could be billions of dollars), but that doesn’t mean it won’t happen. The WSJ article explains:

Mr. Mitchell added that borrowers are entitled to forgiveness—as well as potential reimbursement of repaid loans—if they have been defrauded, regardless of the taxpayer cost. “The law is clear about giving students redress when they’ve been defrauded,” he said.

The vast majority of applicants attended for-profit colleges — about 75% alone went to now-defunct Corinthian Colleges-owned schools — and many of the schools represented in the applicant pool have been investigated for illegal recruiting practices. Corinthian Colleges filed for bankruptcy in 2015 but has denied fraud accusations, WSJ reports. The Department of Education announced in June that up to 350,000 of the for-profit school’s students would be eligible for student loan debt relief.

The Education Department will now have to decide how to handle the onslaught of loan forgiveness applications. Meanwhile, Americans owe more than $1.3 trillion in student loans. Every payment they make (or miss) plays a part in determining their credit scores, which can make or break their financial stability for years to come. (You can get a free credit report summary every 30 days on Credit.com to see how your student loans are impacting your credit.)

If you’re having trouble paying back your student loans, you can look into student loan forgiveness or income-based repayment programs. You may also want to consider student loan consolidation or, even, refinancing options. (You can go here to learn more about strategies for paying off student loan debt.)

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