It’s been a year since 15 former students of the now-defunct Corinthian Colleges refused to repay their federal student loans, alleging the for-profit giant defrauded them. The “debt strike” sparked a movement of students pressuring the government into forgiving debt they obtained pursuing dubious degrees and certificates from for-profit colleges.
The movement gained the support of dozens of state attorneys general and federal lawmakers, including Sen. Elizabeth Warren (D-Mass.), who petitioned the Department of Education to at least discharge the loans amassed by Corinthian students. The fight ultimately culminated in the Obama administration’s decision to make it easier for students harmed by colleges to get debt relief.
Now the administration is revising the process for students to have their federal loans discharged, known as borrower defense to repayment. But leaders of the strike say the changes proposed by the department uphold a complicated system that will actually make it harder for victims of fraud to get help.
“It’s an insult and its baffling,” said Luke Herrine, an organizer working with the debt strikers. “It seems like the true goal here, unless we see some real changes from [the Department of Education], is to contract the amount of relief they can provide, rather than expand it, which was the stated goal.”
As part of its rule-making process, the department convened a panel of negotiators this week to create a new standard to judge appeals for debt relief. The government wants to give students only two years from the time they discover a breach of contract or “substantial misrepresentation” to file a claim. Students with loans issued after July 1, 2017, could side-step the statute of limitations if they, or their state attorney general, successfully sue a college.
“There is so much shame about coming forward, and these are people who don’t know what college is supposed to be like … they’re not going to necessarily know right away that something is wrong,” said Maggie Thompson, executive director of Generation Progress at the Center for American Progress. “If the repayment can continue into perpetuity, why cut off the ability to defend against that repayment for as long as the repayment is going on?”
Thompson, one of the consumer advocacy representatives on the negotiating panel, said students rarely win court cases against for-profit colleges, because those schools place mandatory arbitration clauses in student contracts to avoid the courts, so including judgments in the proposal makes no sense. The proposal sets a high burden of proof just like the current law, she said. As it stands, people can apply for forgiveness if they can prove a school used illegal or deceptive tactics in violation of state law to persuade them to borrow money for college.
Gail McLarnon, who represents the department on the panel, defended the statute of limitation, but she told the panel Wednesday that she is open to alternative timelines.
“We know that many of you don’t want any limitations, but it gives the department a heads up that something is wrong and needs to be done to stop this from occurring to subsequent borrowers,” McLarnon said. “If you have ideas for different lengths of time, we’re interested in hearing your thoughts.”
Still, there are other provisions that don’t sit right with consumer groups.
The government is proposing pegging the amount of forgiveness to the extent of harm determined by the department or a hearing official. People who land a job after graduation or receive credits that can be transferred to other schools might only be eligible for partial forgiveness. And the government would not provide group relief to students with similar claims against a school.
Barring group forgiveness runs counter to how the department is currently handling thousands of claims from former Corinthian students. After a joint investigation with California, Attorney General Kamala Harris found evidence that Corinthian widely misrepresented job placement rates at its Heald, Everest and Wyotech schools, and the department agreed to group claims to speed up the process.
As of last week, the department said it has approved 1,312 claims from Corinthian students, many of whom were a part of the group process. Activists say the government is still moving too slowly in discharging the debt of Corinthian students, despite its own evidence that the school lied about graduation rates and steered students into predatory loans.
The government is in a precarious position. It is cleaning up a mess that many say could have been avoided if the department and accreditors had reined in Corinthian before the school had collapsed, leaving students in the lurch. But blanket relief could mean the loss of billions of dollars in taxpayer money.
To avoid another Corinthian fiasco, the government wants to expand the conditions under which colleges have to get a letter of credit from a bank assuring the availability of cash. The letter is meant to protect students and taxpayers if the school is unable to cover federal student-aid liabilities.
A recent report from Chris Hicks, a student debt consultant, criticized the department for not forcing more risky schools to post letters of credit and questioned whether the agency is living up to its responsibility to take decisive action against bad actors.
If the department’s proposal is successful, schools could be required to post letters for having high student loan default rates or running afoul of an accreditor.
The advisory panel will meet one final time in March to finalize the proposed changes.
In the meantime, the debt strikers, whose protest shed light on the arduous claims process, are still waiting for relief, Herrine said.
“These are claims, which frankly a competent attorney could turn out in a couple of months with some serious legal research and work. They’re just drawing it out,” he said. “People have lost trust in the government based on this experience, and the Department of Education is giving them less and less reason to regain their faith.”
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