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Will Defrauded Law Grads Ever Be Able to Cancel Loans?

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By Jonathan R. Tung, Esq. on June 29, 2016 6:57 AM

If you're a law graduate from Thomas Jefferson School of Law, chances are you're applauding the Education Department's proposed rule to modify the defense to repayment in favor of defrauded students. But if you're a taxpayer who didn't go to law school, you're probably a little less jubilant.

It's a touchy subject: student debt forgiveness. For years, the general taxpayer was up in arms about proposals of providing debt relief for overburdened undergrad students who couldn't find a job. But providing relief to more "sophisticated" law students is surely to raise controversy and costs to the American taxpayer.

We've Heard This Song Before

Law school applications are down. Bar exam pass rates are falling. Pay disparity is increasing. Tuition costs have been climbing. Something is amiss, and yet no one has a universally acceptable solution on hand.

To a lesser degree, the economics of being a student started to show their grim visages during the sub-prime mortgage downturn of 2009. As of late 2015, the total student debt topped out at approximately $1.32 trillion dollars, much of that now in hands of Joe-taxpayer. At the same time, grads complained of an inability to secure a job that was commensurate with their education levels.

Law Not Unscathed

And if people thought the problem was big at the undergrad level, they didn't even see what was taking place at the graduate level. At Thomas Jefferson Law School of Law, student tuition bills average around $180,000 for a degree that may be put to best use working as a full-time Uber driver or Victoria's Secret sales associate.

Momentum, however, is moving in favor of debt-ridden law grads who'd like to benefit from some of the government's largess.

Proposal: Law Grads Can Discard Debt?

Last week, the DOE proposed modifications to federal student debt laws that would allow law grads to toss off debt to schools that had made "substantial misrepresentation[s]" in employment prospects meant to entice higher enrollment. This is nice, we get it ... but we get concerned by some of the issues that get implicated here. A broad reading would be that debt could be dropped whenever institutions do anything awry of state law. Can you see a potential problem here?

It looks like this idea will get tested out sooner or later. The fact that a number of for-profit law schools were even dragged into court was a bit of a win. One thing's for certain, somebody is going to lose.

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