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Feds found widespread fraud at Corinthian Colleges. Why are students still paying the price?

In this July 8, 2014 file photo, a woman walks past the Everest Institute in Silver Spring, Md., which was owned by Corinthian Colleges. (AP Photo/Jose Luis Magana)

Nearly 80,000 students of defunct for-profit giant Corinthian Colleges are facing some form of debt collection, even though the U.S. Department of Education unearthed enough evidence of fraud to forgive their student loans, according to an investigation by the staff of Sen. Elizabeth Warren (D-Mass.).

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

Before it shut down last year, Corinthian, which ran Everest Institute, Wyotech and Heald College, became an example of the worst practices in the for-profit education sector, including high loan defaults and dubious programs. Amid allegations of deceptive marketing and lying to the government about its graduation rates, Corinthian lost its access to federal funds in 2014, forcing the company to sell or close its schools.

On Thursday, Warren sent a letter urging Education Secretary John B. King Jr. to provide the immediate debt relief that Corinthian students are entitled to under federal law. The department has broad authority to cancel federal student loans when colleges violate students’ rights and state law, exactly what education officials accused Corinthian of doing. Yet the agency continues to collect on debt owed by tens of thousands of people eligible for forgiveness.

“It is unconscionable that instead of helping these borrowers, vast numbers of Corinthian victims are currently being hounded by the department’s debt collectors — many having their credit slammed, their tax refunds seized, their Social Security and Earned Income Tax Credit payments reduced, or wages garnished — all to pay fraudulent debts,” Warren wrote to King.

Warren’s staff asked the department for information about the outcomes of former Corinthian students with federal loans. They learned that there are 79,717 people who are eligible to apply for loan forgiveness but are being pursued by debt collectors. The government is using its extraordinary collection powers to seize the tax refunds, tax credits and other benefits of more than 30,000 of those borrowers, while garnishing the wages of another 4,000, according to department data.

All of those borrowers attended Corinthian when education officials discovered the school committed widespread fraud by lying about its job placement rates, making a clear case for their loans to be discharged under a process known as borrower defense to repayment, Warren said. Anyone who can show a school used illegal or deceptive tactics to persuade them to borrow money for college can file a defense claim. Just 23,185 former Corinthian students had filed claims as of June, and just 3,787 of them have been approved.

“This suggests an obvious failure in the effort to inform students of their rights to a discharge,” Warren said of the low submission numbers. It also “highlights the absurdity and ineffectiveness of requiring Corinthian victims who are covered by the department’s own fraud findings to actively apply for relief while at the same time subjecting them to aggressive, automatic and draconian debt collection actions.”

Corinthian students may have a clearer path towards debt relief

At a White House press conference Thursday, King took issue with the assumption that all of the Corinthian students Warren highlighted in the letter are even eligible for loan forgiveness.

“Within the 80,000 borrowers that Senator Warren refers to, folks are in different situations,” he said. “Some are eligible if they seek to apply for closed-school discharge or borrower defense, others would not be. It’s worth pointing out that some of those students attended programs where there were findings of fraud, others did not.”

If the department’s determination of fraud is insufficient to cover former Corinthian students, the Consumer Financial Protection Bureau’s case against the school might be enough. The bureau won a judgement in a case accusing the for-profit chain of steering students into predatory loans, and evidence in that case would cover al students enrolled at the time, regardless of their program. Still, it’s ultimately up to the department to approve the claims.

Government watchdog wins $530 million lawsuit against for-profit Corinthian Colleges. Too bad it will never see a dime.

Earlier in the day, Undersecretary Ted Mitchell released a statement that the department has conducted “ongoing, extensive direct outreach” to those who may be eligible for debt relief. He said this fall, the agency will “build upon that outreach…through a targeted effort to reach Corinthian borrowers who have loans in collections or subject to Treasury tax offsets or wage garnishment.”

Warren’s letter arrives a day after Darnell Williams, a former student at Everest Institute in Massachusetts, filed a lawsuit against the department and Treasury for seizing his tax refund, despite evidence that the school defrauded students. Massachusetts Attorney General Maura Healey submitted a group defense claim on behalf of students who attended the Everest campus, still Williams’ $10,833 student debt remains in collections, according to the complaint.

“The department knows that these borrowers, who have already been cheated of an education, are entitled to relief,” said Deanne Loonin, an attorney at Harvard Law School’s Project on Predatory Student Lending, who is working on the case. “Williams is asking for a court decision that the widespread fraud of Corinthian is a bar to the collection of defaulted loans from former Corinthian students through the mechanism of Treasury offset.”

In the wake of Corinthian’s collapse, Education Department officials said they would use findings from a joint investigation with state attorneys general to expedite the claims process. More than 250,000 students who attended Corinthian schools in 24 states were supposed to benefit from this effort, with education officials promising to notify people through mailers, email and partner organizations. But relief has been slow.

Education officials appointed an independent monitor to oversee and streamline the process last year, and they hired attorneys to review and analyze state laws involved in the claims received. The government is in a precarious position. Granting blanket relief could mean the loss of billions of dollars, but critics say drawing out the process betrays students’ trust and the spirit of the law.

“For years, the Department of Education sat passively while Corinthian Colleges and other predatory for-profit institutions defrauded students and ripped off taxpayers,” said American Federation of Teachers President Randi Weingarten. “While it’s good the department has finally held Corinthian accountable, it now has an obligation to provide defrauded students with complete, immediate and automatic relief.”

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