Sen. Elizabeth Warren and other Senate Democrats are calling on the Department of Education to forgive the debt of thousands of students who attended the failing for-profit giant Corinthian Colleges, following the controversial sale of the school’s campuses to a student loan debt collector.
Lawmakers and student advocates have been critical of the $24 million deal last month allowing ECMC Group, which collects student debt for the government, to run more than half of Corinthian’s 107 campuses.
After receiving a blessing from the U.S. Education Department, the company, which has no experience teaching, is set to oversee campuses serving nearly 40,000 students.
But critics say the department should have just closed the Corinthian campuses, which have been criticized for saddling students with debt they can’t repay. If the campuses had been closed, borrowers would have been eligible for a discharge of their federal loans.
On Tuesday, a group of 13 Senate Democrats, led by Warren, sent a letter urging the Department of Education to at least discharge the loans of former Corinthian students who are battling the company in court.
Corinthian is facing dozens of lawsuits from students and state attorneys general in Massachusetts and California for allegedly using deceptive marketing to lure students into taking out loans they had no hope of paying back.
The Education Department has also accused the company of misrepresenting graduation and job placement rates to the government.
“When students take on loans to pay for college,” the senators wrote in the letter, “they are making a serious financial decision that will affect them for years to come…If colleges fail to hold up their end of the bargain — if they break the law in ways that bear on their students’ educational experience or finances — students should not literally be stuck paying the price.”
The Democrats say the department has broad authority to cancel federal student loans when colleges violate students’ rights and state law, yet the agency has failed to weigh in on the fate of former Corinthian students.
Department of Education spokeswoman Denise Horn did not address the demands made in the letter, but said the agency appreciates “the senators’ concerns for the welfare of Corinthian students” and would continue “to work on behalf of students’ best interest.”
Corinthian, which operates Everest Institute, Wyotech and Heald College, has become the poster child for the worst practices in the for-profit education sector, including high loan defaults and dubious programs.
Problems at the California-based company came to light four years ago in a Government Accountability Office report that identified Corinthian as one of 15 for-profit colleges where recruiters encouraged students to commit fraud on financial aid applications. Evidence of impropriety at Corinthian continued to surface through litigation and state probes, though the government kept funneling $1.4 billion in federal financial aid to the company every year.
In September, Corinthian ran afoul of the Consumer Financial Protection Bureau, which accused it of steering thousands of students into private loans, known as “Genesis loans,” that had interest rates as high as 15 percent. The consumer watchdog said that Corinthian set its tuition and fees for bachelor’s degrees at $60,000 to $75,000 to force students to borrow from the program and that Corinthian then received a slice of the lender’s fees. CFPB is suing Corinthian for $500 million.
When the CFPB lawsuit was announced, officials at Corinthian “strongly” disputed the allegations. The company has long maintained that it has been quick to fix any problems that are brought to its attention.
As part of the ECMC transaction, many of the loans in the Genesis program will be forgiven. But thousands of students struggling with federal debt will not see any help, unless the Democrats are successful in their bid to get the Education Department to offer some relief.