The collapse of the controversial for-profit Corinthian Colleges left 16,000 students without degrees that many took on debt to complete, and hundreds of others fighting for the government to forgive debt they are struggling to repay.
Now the government is taking steps to make it easier for those students to get debt relief. But there is still a high bar of proof for some borrowers who may not receive any help, leaving lawmakers and consumer advocates questioning whether the government is doing enough to clean up a mess they say could have been prevented.
Corinthian, which ran Everest Institute, Wyotech and Heald College, filed for bankruptcy in May that the company lied about the success of its programs and trapped students in predatory loans.
The company’s implosion left thousands of students unsure of what to do with their debt or even where to complete their educations.
On Monday, the Education Department said it will allow more students to apply to have their loans forgiven if they attended Corinthian in the last year. Instead of only letting students who attended a Corinthian school within 120 days of it closing request loan forgiveness, the department has extended the window to June 20, 2014–when the government cut off Cortinthian’s access to federal funds. The expansion would make a total of 15,000 students with about $200 million in loans immediately eligible to have their loans forgiven.
Still, students who opt to transfer their credits to another school would not be eligible to have their loans forgiven as a result of Corinthian closing. But they can still file, an appeal to the Education Department to forgive their federal loans on the grounds that Corinthian broke the law.
All former Corinthian students who file a claim can have their federal loans immediately placed into forbearance, stopping their monthly payments while the department works to resolve the claim.
There are already 1,400 former Corinthian students who have filed defense claims, 200 of which are flat out refusing to pay. Those debt strikers have fought for almost five months to have their loans cancelled, meeting with senior officials from the department, Consumer Financial Protection Bureau and Treasury Department.
In a statement, the debt strikers said the department should “immediately” discharge Corinthian students’ debts, rather than force students to endure a “bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape.”
There is no telling whether the defense claims will be successful. 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.
Illinois Senator Dick Durbin said Monday’s announcement “leaves questions about how the department will address students seeking a discharge of their federal student loans based on Corinthian’s fraudulent activities.”
Education officials said Monday the department will rely on evidence established by state authorities in considering whether whole groups of students are eligible for relief to speed up the relief process.
That decision will benefit students at Heald College in California, where the department said it found evidence of misconduct in 80 percent of the programs since 2010. Based on those numbers, the department said about 40,000 students who borrowed $544 million to attend Heald would be eligible for relief under the defense claim.
Heald College was one of the schools at the center of Education Department’s investigation that resulted in the $30 million fine against Corinthian in April. The department found 947 cases of false placement rates given to students and accreditors. The government said there was even a case of one campus counting a 2011 graduate of an accounting program as employed in the person’s chosen field—based on a job behind the counter at Taco Bell. Corinthian is contesting the basis for the fine.
“If you’ve been defrauded by a school, we’ll make sure that you get every penny of the debt relief you’re entitled,” Education Secretary Arne Duncan told reporters on a conference call Monday. “We’re going to make that as simple as we legally can, while also safeguarding the interests of taxpayers.”
With so many unresolved questions about the defense claims, the Education Department said it will appoint a “special master” to oversee the process and develop a system to make it easier for students to apply. Corinthian students can visit www.studentaid.gov/Corinthian for more information or call a borrower defense hotline at (855) 279-6207 to learn about the options available to them.
“There’s more work still to do, but this is a very good first step,” said Ben Miller, senior director for postsecondary education at the Center for American Progress. “Though this all shows how insufficient our upfront protections have been to date. That we now have to forgive millions of dollars of loans from defrauded students could have been avoided with better front end protections.”
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, ECMC Group, which runs one of the biggest debt collectors used by the Education Department, 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.
According to the department, nearly 350,000 students have borrowed about $3.5 billion in federal loans to attend a Corinthian school in the last five years.
“Corinthian Colleges treated its students like commodities on which to make a profit,” said Randi Weingarten, president of the American Federation of Teachers. “This sad situation should be a red-flag warning to all for-profit colleges that seek to make a buck off the backs of students by offering a useless education.”
Want to learn more about Corinthian, check out these stories: