PhotoOnce you take out a student loan, you have to pay it back. It can't be discharged in bankruptcy, for example.

But there is one scenario where you might be able to walk away. The law allows consumers to discharge some student loans if the school they were attending closed its doors.

It happened last year when Corinthian Colleges shut down, and more recently when ITT went under. As we reported just a few weeks ago, students who were attending ITT when it closed and had not completed a degree program may be able to cancel their student loans by applying for a student loan discharge.

So Sen. Elizabeth Warren (D-MA) was not pleased when she learned that the U.S. Department of Education was working to collect loans from former Corinthian students who might have otherwise been eligible to cancel their debts.

Troubling new data

"These troubling new data suggest that instead of focusing on getting these students the relief they are entitled to under federal law, the Department's student loan bank - working with its loan servicers and debt collectors - is instead intentionally collecting on debt that it knows may be eligible for discharge," Warren wrote in a letter to Secretary of Education John King.

Warren says the evidence suggests that, instead of helping borrowers who might be eligible to discharge their debt, the government is assisting debt collectors who she said are hounding former students for money they might not owe.

The lawmaker said she received information provided by the Department of Education that showed only a small number of former Corinthian students have been able to discharge their student loan debt. But she says it appears as though some 80,000 former students might be eligible for the relief.

Instead, she says most of these students have had tax refunds and other government benefits seized. She suspects many of these former students are unaware of their rights.

Adding insult to injury

"Instead of adding insult to injury for tens of thousands of Corinthian victims by pushing scores of them into debt collection, the Department of Education should stand up for these students as it has promised to do for more than a year and immediately halt all collections on this debt," Warren wrote.

Warren says the government agency should use its existing authority to discharge Corinthian borrowers' debts and make sure that no other students are being hounded for debts they don't owe.

Who's eligible

If you attended Corinthian or ITT using Direct Loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans and were enrolled when the school closed, you may be eligible for relief.

First, contact your loan servicer about the application process to discharge a loan. The Consumer Financial Protection Bureau (CFPB) says you may also need to contact your school to obtain your academic and financial records.

You may also need to contact the licensing agency in the state where you attended school to get help in acquiring those records. The documents may help support your discharge claim.

You can get more information about that here.


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