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It may be a long time before many Corinthian students get debt relief

The Obama administration says it will take time to get through thousands of claims for student loan forgiveness. (Christine Armario/AP)

There is no quick relief in sight for thousands of former Corinthian College students seeking loan forgiveness in the wake of the for-profit giant’s collapse.

The Obama administration said Thursday it will take several months before the government forgives the federal student loans of borrowers who believe they were defrauded by the career college chain. The timeline comes as former Corinthian students contemplate suing the government for collective debt relief rather than waiting for officials to sort through each individual claim.

“Creating a new system to handle thousands of claims will take a little time … we know borrowers and taxpayers are counting on us,” said Education Under Secretary Ted Mitchell on a call with reporters Thursday.

By law, students can apply to have their federal loans discharged if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college. The process, known as a “defense to repayment claim,” has rarely been used and is widely considered to be complicated and difficult to navigate.

[Obama administration plans to overhaul rules on student debt forgiveness]

As it began receiving hundreds of claims from Corinthian students, the Education Department appointed an independent monitor in June to oversee and streamline the process. In his first report released Thursday, monitor Joseph A. Smith said the department has hired four attorneys to review and analyze state laws involved in the 4,140 claims received to date.

[The government has appointed a monitor for its student debt forgiveness program]

Smith said his team is reviewing claims where the “facts and law are clear,” such as the ones from students who attended Corinthian’s Heald Colleges in California, Hawaii and Oregon. Those schools were at the heart of a $30 million fine the Education Department levied against Corinthian in April for lying about job placement rates to students. And yet Smith said it could still take three months before the 1,992 claims tied to that case are resolved.

[How a $30 million fine against a for-profit college could be a win for students]

There is still no clear timetable for the other claims filed by students at Corinthian’s Everest College, WyoTech or Heald schools not covered by the department’s investigation.

Still, students in the 20 states, including Massachusetts and Illinois, that are investigating or suing Corinthian for deceptive sales practices may have an easier time proving their case. Smith said he is creating a process for state attorneys general to submit evidence unearthed in their investigations, so claims from those states can be grouped together to speed up the process.

One reason this is taking time is we’re trying to be careful about the basis to create classes,” Smith said, on the call with reporters. “But wherever we can, we will try to treat those claims alike.”

While the government sorts through thousands of individual claims, a group of former Corinthian students are pressing for widespread student debt relief. In a ruling last week, a bankruptcy judge set aside more than $4 million from Corinthian’s liquidated assets to help the students pursue loan discharges.

Money from the bankruptcy decision will first go to Corinthian students who requested refunds through the courts for classes they paid for right before the school closed its doors in April. But the remainder could be used to sue the Education Department to collectively discharge the federal loans of all former Corinthian students, said Scott Gautier of Robins Kaplan LLP, an attorney for the students.

“Given the fact that the Department of Education and attorneys general have already investigated and identified these deceptive practices, collective relief for students subjected to those practices should be given,” he said.

Allegations and charges that Corinthian lied about the success of its programs ultimately led to the loss of its access to federal funding and bankruptcy. The company’s implosion left thousands of students unsure of what to do with their debt or even where to complete their educations.

Under pressure from lawmakers and advocacy groups, the administration in June said anyone who had attended a Corinthian school as of June 20, 2014, could apply for what’s known as a closed-school discharge of their federal loans. All other students were invited to file a claim if they could prove they were defrauded by their colleges.

In his report, Smith said 7,815 Corinthian students impacted by the school’s closing have applied for loan forgiveness and 3,128 of those applications have been approved as of Aug. 21. Those resolved cases involved about $40 million in federal student loans.

Under Secretary Mitchell said the department has no idea how much it will ultimately cost to forgive the debt of all eligible borrowers, but noted that Corinthian students have borrowed about $3.2 billion in federal loans since 2010.

Want to learn more about for-profit colleges, check out these stories:

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