US Government to Forgive Student Loans worth $3.5 Billion

In a historic move, the US government plans to grant debt relief to tens of thousands of students. On Monday, Secretary of Education Arne Duncan announce that the Department of Education would forgive federal loans given to an estimated 350, 000 former students of Corinthian Colleges, the New York Times reports. The total amount of debt held by Corinthian students is estimated to be around $3.5 billion.

California-based education company Corinthian Colleges Inc., which ran several campuses in the US and Canada, was closed last month and filed for bankruptcy amidst charges of fraud and financial misappropriation. The company’s subsidiaries offered job-oriented courses in the fields of health care, management, law, logistics and computer sciences.

The students at Corinthian Colleges were given misleading statistics about their placements rates. Additionally they were assured of assistance in job searches. The students did not receive any help from the college authorities, and many ended up unemployed and with outstanding loans to the tune of $100, 000 each.

The debt relief could be extended beyond the students of Corinthian Colleges. Media reports cited an official of the Education Department saying that a “special master” could be appointed as early as this month, to set in place procedures to apply for debt relief — “durable, not just for Corinthian but beyond.”

The step taken by the Department of Education is unprecedented. No US government has ever granted debt relief to such a large group of students, the New York Times confirmed. Taxpayers could be asked to pick up a huge tab if procedures are put in place to apply a broader criteria to waive federal student loans.