The Obama administration’s plan to forgive the federal loans of Corinthian Colleges students could usher in an unprecedented number of debt forgiveness requests from borrowers at other for-profit schools and cost taxpayers hundreds of millions of dollars.
In announcing steps Monday to make it easier for Corinthian students to get debt relief, the Education Department extended the offer to all students who believe they have been defrauded by their colleges. The department will consider erasing the federal debt of students who can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college.
While the offer is open to students at any type of institution, it has the greatest implications for those at for-profit colleges. Some of the biggest names in the industry, including ITT Tech, DeVry University and Kaplan University, are under government investigation for de ceptive recruitment tactics or falsifying job placement and graduation rates.
Education Secretary Arne Duncan told reporters on Monday that Corinthian will not be “the last domino to fall.” And his second in command, Under Secretary Ted Mitchell, followed up by saying that is why the department is creating a claim process that is “durable beyond Corinthian.”
Students at for-profit colleges represent about 11 percent of the total higher-education population and held about $24 billion in federal student loans last year, according to the Education Department. More than 80 percent of students at for-profits borrow, while less than half of students at public institutions do the same.
There is no telling how many former or current students of for-profit colleges will apply for debt forgiveness or how much it will cost. But judging by the Corinthian case alone, the potential pricetag could be millions, if not billions, of dollars.
The Education Department said nearly 350,000 students who borrowed $3.5 billion in federal loans to attend Corinthian schools could be eligible for forgiveness. But these borrowers have some high hurdles to clear to receive forgiveness.
In a fact sheet detailing the claim process online, the government wants transcripts and registration documents stating specific program of study and dates of enrollment, the kind of information that may be hard to get from a school that has closed down. Corinthian students must also provide the state law that has been broken by the school’s misconduct, which critics say puts the onus on victims.
“There is still much work to be done,” said Sen. Elizabeth Warren (D-Mass.). “I hope the Department of Education will work quickly to provide relief to the hundreds of thousands of other borrowers who were cheated by Corinthian and other colleges that broke the law.”
The government is appointing an independent monitor to hammer out the details of the claims process, including what counts as a violation of state law and how to factor in the findings of state and federal investigations. The monitor will present recommendations within the next two months for streamlining a claim process that has only been used a few times in the last 20 years.
“This is new territory for us,” said Education Under Secretary Mitchell. “And while we may not have it perfect the first time, we’re committed to seeking feedback and as necessary making improvements to the process quickly.”
While a majority of consumer advocates and lawmakers have praised the department’s plan, not everyone finds it laudable.
“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” said Sen. Lamar Alexander (R-TN), chairman of the Health, Education, Labor and Pensions Committee.
On the call with reporters, Duncan defended the department’s efforts to help students and crack down on abusive for-profit schools despite push back from Congress. Many congressional Republicans and some Democrats supported the for-profit lobby’s efforts to block the department’s rules limiting the amount of debt students can carry in career-training programs.
“Congress has fought us every step of the way when we’re just trying to bring some basic accountability to the industry is a huge problem,” Duncan said, calling for Congress to enact rules that hold colleges and their executives responsible for fraud, not taxpayers. “Congress has to stop defending the status quo; it’s indefensible.”
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