The Washington PostDemocracy Dies in Darkness

This for-profit college failed, but its students are left with the wreckage

Students wait outside Everest College in Industry, Calif., on April 28 hoping to get information on loan forgiveness and transferring credits to other schools. (AP Photo/Christine Armario)

Last week, one of the country’s biggest career college chains completed its collapse.

Corinthian Colleges once ran 107 campuses of Everest Institute, WyoTech and Heald Colleges that served more than 100,000 students. It was a darling of Wall Street for its lucrative model of offering degrees to low-income students who borrowed heavily from the government to pay their tuition.

But allegations that the company lied about the success of its programs and trapped students in predatory loans ultimately led to its downfall. Now 16,000 students are left without degrees for programs that many took on debt to complete. Hundreds of others are fighting for the government to forgive debt they are struggling to repay.

The implosion of Corinthian brings into focus the risky gamble students can make in pursuing higher education. Getting a degree is supposed to guarantee access to the middle class, social mobility and financial stability. But when that piece of paper comes with many thousands of dollars of debt, it could do more harm than good.

“Corinthian enticed students to enroll in its schools and to take on enormous debt. Their profit model was to cheat their students,” said Sen. Elizabeth Warren (D-Mass.), at a Howard University forum Monday on student debt. “Corinthian was shut down, but what about the tens of thousands of students who were taken in by the lies? They are still paying those loans back.”

[Embattled for-profit Corinthian Colleges closes its doors]

Even when it became clear years ago that Corinthian’s schools had serious problems, the government allowed students to continue entering classrooms and take on more taxpayer-funded debt. The closings have left thousands of students unsure of what to do with their debt or even where to complete their educations.

Democratic lawmakers and consumer groups are pressuring the department to wipe away the federal student loans – without conditions – of the 16,000 students affected by the closure. As it stands, students who opt to transfer their credits to another school would be ineligible to have their loans forgiven.

And many students are confused about the ramifications of the options available to them, said Lauren Asher, president of the Institute for College Access & Success, an education nonprofit.

“It ought not to be so difficult to figure out your options, and you shouldn’t have to find out the consequences of your actions only after you’ve made them,” she said.

Education officials say they have deployed counselors to the Corinthian campuses. They also say the department doesn’t have the power to grant unconditional loan forgiveness.

Officials, however, encourage students planning to continue their education to file an appeal for loan forgiveness on the grounds that Corinthian broke the law. But that may take months and demands a high bar of proof.

Students would need to prove that the school broke state law in a way the hindered their education. That may be easier in states like California and Wisconsin, where attorneys generals are suing Corinthian. Elsewhere, it could be a challenge.

And that’s not the only problem. It may not be easy for students to transfer their credits to other schools. Corinthian has developed a reputation that could taint how its students are perceived.

The Education Department has offered a list of community colleges and for-profit schools willing to accept Corinthian students. But Sen. Dick Durbin (D-Ill.) expressed outrage at the fact that several of the for-profit schools listed, including ITT Tech, Kaplan University and DeVry University, are under government investigation.

“Has the Department of Education learned nothing? How in good faith can they tell these Corinthian students – who just had their college disappear and are sitting on a pile of debt – that these are viable transfer options?” Durbin said.

Industry trade groups are pushing back against what they view as a witch hunt against schools that have a track record of putting certificates and diplomas in the hands of students.

“The graduation rates for [these schools] outpace those of the community colleges, with some schools graduating well above the national average,” said Noah Black of the Association of Private Sector Colleges and Universities.

He added: “The reality is that private sector institutions serve new traditional students. These students have been underserved by traditional higher education.”

Education undersecretary Ted Mitchell said the department is not endorsing any institutions, nor is it casting judgment on any schools until the investigation is complete. He said the department is just giving students options within 25 miles of their old campuses. “We have students at the center of our mind,” he said. “Our concern is for their welfare and that is what got us started in the first place in creating the agreement with Corinthian.”

It has been nearly a year since the Education Department cut off Cortinthian’s access to federal funds amid allegations that the school falsified job placement and graduation rates.

The move crippled the company, which pleaded with the department for a lifeline to keep the doors open. It gave Corinthian $16 million in federal student aid funds under the condition that it would sell or close its schools.

But lawmakers and consumer groups criticized the department for waiting to take action against a business clouded by charges of misconduct for years.

Problems at the California-based company came to light five 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. (At the time, The Washington Post Co., then the owner of The Washington Post, owned a major stake in Corinthian.)

Yet tens of thousands of students continued to enroll in medical assistant, criminal justice and business programs that often required them to take on five-figure debt. The government kept funneling $1.4 billion in federal aid to the company every year. Corinthian got 80 percent of its annual revenue from the government.

Once the Education Department turned off the funding, many expected Corinthian would close its doors immediately.

But in November, an unlikely savior swooped in. ECMC Group, which runs one of the biggest debt collectors used by the Education Department and has had no experience running schools, paid $24 million for more than half of Corinthian’s campuses.

The department blessed the deal, much to the dismay of consumer advocates, who said the schools should have all closed. That way, advocates said, students would have a clear-cut case to have their loans discharged.

Instead, current and former Corinthian students at schools bought by ECMC have endured the claim process. About 400 Corinthian students have filed claims. A hundred of those students are flat out refusing to pay.

These debt strikers have accused the department of having “coddled [Corinthian] with emergency cash inflows and facilitated sales of distressed assets while continuing to collect from defrauded students.”

Democrats, including Sens. Warren, Durbin and Al Franken (D-Minn.), sent a letter to the Education Department questioning why students were made to jump through hoops when the department had already laid out a clear case of fraud.

“Students should not have to hire attorneys or become private investigators to find out what the government already knows – that they are eligible for student loan relief under federal law,” lawmakers wrote.

Education’s Mitchell said the department is working to simplify the claim process, but couldn’t provide details. He said the department is notifying students at the shuttered schools of their rights to have loans forgiven.

Granting across-the-board discharges to Corinthian students could mean the loss of millions of dollars in taxpayer money and set a precedent for future requests for loan forgiveness. But some lawyers say that state and federal lawsuits against Corinthian present strong evidence that strengthens the defense to repayment claims.

The Education Department and the Consumer Financial Protection Bureau have worked with ECMC to forgive $480 million in private loans in Corinthian’s Genesis program.

Thousands of Corinthian students will have debt forgiven. Students will see an immediate 40 percent reduction in the principal balances on private loans, with the remainder forgiven over the next few years. Students who took out federal loans are still on the hook.

“It is supremely unfair for the government to hold students feet to the fire on loans that were made to finance what the government should have known were valueless products,” said Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School.

Read More:

A senator calls attention to the struggle of seniors losing Social Security benefits to student debt

What happens when you find out a year of college costs $71,000

There’s a way to dramatically lower student debt payments, but hardly anyone uses it