Some college students across the nation have recently been applying for loan forgiveness for their college loans through a federal program allowing students to appeal their student debt.
According to CBS News, “more than 7,500 people have asked the federal government to forgive a total of $164 million in student loans…” Many of these students are forming their arguments based on the claim that these colleges have committed fraud by advertising guarantees made in regard toregarding future careers and earnings after graduation. Other students have claimed benefits on closed school loan discharges.
In the U.S. Higher Education Act of 1965, there is a clause that “allows students who were defrauded by their colleges to request loan forgiveness,” according to CBS News.
This act also authorized most federal student financial aid programs. This included the Educational Opportunity Grant Program and the Guaranteed Student Loan Program.
Attention to the program was limited until an incident with Corinthian Colleges, a for-profit institution. According to CBS News, the institution liquidated after declaring bankruptcy last year. A majority of the students from the colleges, mainly Everest Institute and Wyotech and Heald College, sought loan forgiveness or borrower defense to repayment from the Federal Student Aid (FSA), an office of the U.S. Department of Education.
The event brought attention to the federal program and the number of students submitting claims for loan forgiveness has risen, according to CNN.
“I don’t know if it’s the government’s job to compensate (students for the loans)…(loan forgiveness) is rare and underutilized,” said Melissa Shepherd, the director of Financial financial Aid aid at Longwood University.
There are two types of federal loans that are packaged with student financial aid at Longwood: student loans and parent loans.
Fifty-four percent of Longwood students receive federal loans. For undergraduate borrowers who complete their education the typical total debt they face is $25,327 with a typical monthly loan payment of $281 a month, according to the FSA.
“Those that graduated in the fall had an average federal student loan debt of $24,365,” stated Shepherd.
According to Shepherd, a freshman has the ability to receive $5,500 in a federal loan, which will not come close to the full amount of tuition that is typically sought out through scholarships and grants.
However, if a student is independent and does not report their parent’s information on FAFSA (Free Application for Federal Student Aid) for any given reason, then they would be eligible to receive $9,500.
For a federal loan provided by the government, there are two types of loans, subsidized and unsubsidized. Subsidized loans are need-based and result in the government paying for the interest on the loan while the student is in school. Unsubsidized refers to interest that accumulates over a period of time while a student is in school, and once a student graduates then the student is “paying interest on top of interest” to pay off the loan, according to Shepherd.
Whoever applies for a loan whether that they beare a student or a parent, one must sign a legal Master Promissory Note (MPN) which is an agreement to pay back whatever amount of money taken in loans.
Although the cost of tuition for most universities has gone up, the amount of money that a student can borrow has remained the same.
“In reality, a lot of people don’t have that money that are getting loans, but if you do, it’s a smart option to pay (the loan) off,” said Shepherd.
Under the direction of President Barack Obama, the Obama Student Loan Forgiveness program has allowed that “the federal government will no longer give subsidies to private lending institutions for federally backed loans…borrowers of new loans starting in 2014 will qualify to make payments based on 10% of their discretionary income…new borrowers would also be eligible for student loan forgiveness after 20 years instead of 25 on qualifying payments… money will be used to fund poor and minority students and increase college funding,” according to Student Debt Relief.
“Student loans are a hot button issue,” said Shepherd. “Even though over-borrowing is definitely bad, borrowing is not necessarily bad.”
If a student or parent is struggling to pay off the debt from student loans, Shepherd suggests, “Do not avoid the problem, (student loans are a) problem that doesn’t go away.”
