Student loan debt is fast becoming the next financial crisis in the United States. In fact, the debt for college graduates is currently at a record high of $1.3 trillion, spread out among about 43 million borrowers, according to Student Loan Hero, a Texas-based company that helps borrowers refinance their payment plans.
With high tuition fees and increased cost of books, many students feel like their college is swindling them. But, there are tens of thousands of people who were actually scammed by their institutes — the former students of the now-defunct for-profit Corinthian Colleges are an avid example of that.
Earlier this year, the Department of Education said it would create a way for the students at 91 different Corinthian campuses in 20 states to get student loan forgiven because of the fraud. All they had to was submit a simple form.
At the time, the department also said it had approved $130 million loan forgiveness for almost 9,000 students of the collapsed for-profit college.
However, as the BuzzFeed reports, only a small number of borrowers have actually filed paperwork required to cancel their loans. The reason: Thousands of people either don’t know if they are eligible for debt relief or have no clue how to go about it.
The federal government’s ineffective communication efforts are mostly responsible for this. The Education Department said in June that it had contacted almost 280,000 students at the Corinthian-owned Everest and Wyotech colleges using email and snail mail — the latter of which is significantly ineffective since most former students move out of the places they lived at the time of applying.
Although recipients reportedly opened the email at high rates (over 30 percent), only 5 percent of those students (around 15,000) applied for the program by mid-June. This, in part, could be attributed to the con artists who operate via telemarketers and social media advertising, promising make student loans disappear for fees of hundreds or even thousands of dollars.
The countless spam emails with similar promises and plans creates confusion, which in turns leads to skepticism. Considering how con artists have thrived using the exact same methods the government is now halfheartedly using to reach out to former students, it is no wonder the turnout is so low.
People cannot distinguish between the real and the fake. They are simply wary of the whole situation.
“The department should be using the servicers and collectors that they are already paying to be in contact with borrowers,” Pauline Abernathy, the vice president of advocacy group Institute for College Access and Success, told BuzzFeed. “Their job is not just to collect money — it’s to tell borrowers about their rights and options.”
She also claimed the government is paying loan servicers and debt collectors to go after defrauded Corinthians for payments, even when those students qualify for debt relief.
“It makes no sense,” Abernathy added.
People are confused and this unenthusiastic approach by the government is not going to work until it directly involves the student loan servicers in the process.
Students can visit the Department of Education’s website to find out if they are eligible for debt relief program.
Corinthian Colleges Inc., once one of the largest for-profit higher-education companies in North America, was slapped with $820 million restitution for students and $350 million in civil penalties for its illegal advertising and lending practices.
The institution declared bankruptcy in May.
Banner/thumbnail credit: Reuters, Brian Snyder