Student debt can be brutally unforgiving for those who don’t pay back the money. Students who default can lose their paychecks, tax refunds, or even a portion of their Social Security. Not paying back debt can also ruin someone’s credit, making it difficult to buy a house, car or get a job.
This is what makes a “debt strike” announced this week so startling. Fifteen former students of the failing for-profit giant Corinthian Colleges are refusing to repay their federal student loans in a protest designed to pressure the government into forgiving their debt.
Corinthian, which runs 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. Clouded by allegations of deceptive marketing and lying to the government about its graduation rates, Corinthian lost its access to federal funds last year, forcing the company to sell or close its schools.
Since then, current and former students of the for-profit schools have called on the Department of Education to wipe away debt they say Corinthian pressured them into taking. Sen. Elizabeth Warren (D-Mass) and other Senate Democrats wrote Education Secretary Arne Duncan in December, urging him to at least discharge some of the loans on the grounds that Corinthian broke the law and “failed to hold up their end of the bargain”–the same argument the protesters are making.
“Corinthian took advantage of our dreams and targeted us to make a profit,” the so-called Corinthian 15 wrote in a letter to the Education Department. “You let it happen, and now you cash in. We paid dearly for degrees that have led to unemployment or to jobs that don’t pay a living wage. We can’t and won’t pay any longer.”
Refusing to make student loan payments could come at a huge cost. But it’s a gamble Mallory Heiney, 21, is willing to make.
“The repercussions are intimidating, but without dissonance there will be no change,” said Heiney, one of the 15 protesters. “People have stood up against things that are so much more terrifying than someone coming in and garnishing my wages or damaging my credit.”
Heiney enrolled in a nursing program at Everest Institute in Grand Rapids, Mich. in 2013, after spending time in Guinea helping out at a health clinic. Heiney said school officials pressured her into signing up for Corinthian’s private loan program, called Genesis, but said she wouldn’t have to make any payments while in school. Three months into the program, she began receiving bills for the interest on the $4,000 loan.
“[School officials] told me I wouldn’t be able to get books or finish out the program unless I took out a Genesis loan,” Heiney said.
Calls to Corinthian for comment were not returned.
By the time Heiney graduated in August 2014, she said she had racked up $18,810 in debt, with nearly 80 percent coming from federal loans. This month marks the end of the six-month grace period on her student loans, which means the government will starting asking Heiney for its money. But she won’t pay.
Heiney has landed a job as a home-health care attendant, but still feels trapped. “Don’t get me wrong. I’m happy to have my job, but my dream is to go back to Africa and start a medical clinic. Because I’m now a slave to these loans I can’t pursue my dreams,” she said.
Heiney and the other 14 protesters have been working with an offshoot of the Occupy Wall Street movement known as the Debt Collective. The group organized a campaign last year, called Rolling Jubilee, to buy student loans from debt buyers for cents on the dollar and wipe out the debt. To date, the campaign has erased over $30 million in medical and education debt, including $13 million in private student loans for Everest students.
Organizers reached out to Corinthian students as the for-profit schools ran into trouble. After months of pleading with the Education Department to forgive the federal loans, the students and the organizers came up with the idea for the strike, said Ann Larson, a Debt Collective organizer.
More than 100 borrowers have contacted the group since the strike started this week. Before any of them can join, they must attend a financial literacy workshop on the consequences of not repaying their debt, Larson said, noting that most people are already in default.
An attorney working with the Collective is helping the Corinthian students file what’s known as a defense to repayment claim, an appeal to the Education Department to discharge the federal loans on the grounds that the for-profit school broke the law.
“Our attorneys say it’s a very untested law and no one has really done it because the process is unclear,” Larson said. “But rather than wait for the Department of Ed to clarify the process, we’re just going to dispute the legitimacy of the debt and see what happens.”
The Education Department has broad authority to cancel federal student loans when colleges violate students’ rights and state law. There is even a clause in federal student loan agreements that says: “In some cases, you may assert, as a defense against collection of your loan, that the school did something wrong or failed to do something that it should have done.”
Department spokesperson Denise Horn said the agency is committed to “upholding the rights of students who may have been harmed by the actions of institutions that participate in federal student aid programs,” but stopped short of saying whether the department will forgive any federal loans.
Horn pointed out that the department has worked with ECMC, the student debt collector which recently bought more than half of Corinthian’s campuses, to forgive many of the private loans in Corinthian’s Genesis program.
Students will see an immediate 40 percent reduction in the principal balances on their loans, with the remainder forgiven over the next few years. But that’s just the private loans. Students who took out federal loans are still on the hook.
Officials at the department are still working on options for borrowers, Horn said. She advises borrowers to “continue paying their student loans and to explore income-based repayment options…to avoid risking the serious consequences of default.”
The government is in a precarious position. State attorneys general and the Consumer Financial Protection Bureau lawsuits against Corinthian present damning evidence of years of misconduct that could strengthen the students’ cases. Still, granting the discharges could mean the loss of billions of dollars in taxpayer money and set a precedent for future requests for loan forgiveness.
“The department hasn’t really included students in the whole Corinthian discussion or process. They’ve been deaf to calls for student relief, so it is understandable that students are frustrated and want to have their voices heard,” said Robyn Smith, an attorney with the National Consumer Law Center.
The debt strike, she said, “is one way they are trying to do that. Yes, it is really going to have difficult consequences for these students, but how else are they suppose to have their voices heard?”