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Loans to students defrauded by for-profit colleges may be forgiven

Education Secretary John B. King Jr. on Monday announced new proposals aimed to protect student borrowers who are victims of fraud in the for-profit college sector.

King, in an afternoon news conference, said the proposal would “clarify, simplify, and strengthen” existing regulations that grant students loan forgiveness if they were defrauded or deceived by a postsecondary institution.

The proposed regulations would also hold financially risky institutions accountable and make it easier for former students to bring legal action against such colleges and apply for loan forgiveness if it is found their college breached its contractual obligation to students.

King called on state education departments and accrediting agencies to help identify fraud and track students’ postgraduate outcomes.

“States can and should do more to protect students,” King said. “Congress needs to join us in protecting students rather than protecting the institutions.”

The move is part of a larger, multiyear effort by the Obama administration to track colleges using various metrics — including graduation and retention rates, average student loan debt and gainful employment after college completion. Many of the new rules, including this one, apply to for-profit colleges, but nonprofit and public colleges have to comply with several of the benchmarks as well.

The proposal builds on fraud committed by the for-profit Corinthian College Inc., which was found to have misrepresented students’ job-placement rates to current and prospective students.

In March, the U.S. Education Department announced students defrauded by Corinthian at 91 former campuses nationwide would have a clear path to loan forgiveness under evidence uncovered by multiple state attorneys general.

The education department approved loan discharges for more than 8,800 former Corinthian students nationwide, totaling more than $130 million.

Students at for-profit institutions including vocational, technical and online colleges are eligible for federal financial aid. The aid can be in the form of grants and work-study programs but are most often issued in federally backed student loans, such as the Federal Family Education Loan, Direct Loan and Federal Perkins Loan.

“Schools that harm their students should be on the hook,” King said.

The proposed rule publishes in the federal register Thursday, and the public comment period ends Aug. 1.

The department will publish a final regulation by Nov. 1, officials said.

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