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

Corinthian Colleges, which owns Everest, Heald College and WyoTech schools, has been hit with a $30 million fine by the government. (AP Photo/Jose Luis Magana, File)

For the better part of a year, the government has faced unyielding criticism of its handling of one of the most notorious for-profit schools: Corinthian Colleges.

The school has been accused of falsifying job placement records, lying about graduation rates and steering students into high-cost loans dating back as far as four years ago. Yet it wasn't until June that the Education Department cut off the schools' access to federal aid, forcing it to sell or close. And even then, lawmakers and consumer groups called for tougher action.

Now Corinthian, which until recently ran Everest Institute, Wyotech and Heald College, is facing a $30 million fine and the imminent closure of some of its remaining campuses. And the government is still in the untenable position of deciding whether to do more—not against the school, but for the students demanding their loans be forgiven because Corinthian broke the law.

[A revolt is growing as more people refuse to pay back student loans]

On Tuesday, the Education Department fined Corinthian for misrepresenting job placement rates to students at its Heald College campuses, located throughout California, Hawaii and Oregon.

The department found 947 cases of false placement rates given to students and accreditors. In some instances, Heald Colleges paid temp agencies to hire its graduates to work as few as two days, and counted those students as having found jobs. 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.

"Instead of providing clear and accurate information to help students choose which college to attend, Corinthian violated students' and taxpayers' trust," undersecretary of education Ted Mitchell said in a statement. "Their substantial misrepresentations evidence a blatant disregard not just for professional standards, but for students' futures."

As a part of the fine, Heald College can no longer enroll students, and Corinthian must help current students either complete their education or finish up elsewhere.

For its part, Corinthian called the allegations "highly questionable" and "unsubstantiated."

In a statement, the company said, "Heald has a well-documented track record of providing quality education and significant value to its students for more than 150 years—and should be allowed to continue to do so."

Corinthian has spent the last year in a tailspin. Within months of losing access to federal aid, the Consumer Financial Protection Bureau sued the company for steering students into private loans, known as “Genesis loans,” with interest rates as high as 15 percent. The agency said that Corinthian set its tuition and fees for bachelor’s degrees at $60,000 to $75,000 to force students to borrow from the program and then received a slice of the lender’s fees.

When the CFPB lawsuit was announced, officials at Corinthian “strongly” disputed the allegations. Around the same time, attorneys general from California, Massachusetts and Wisconsin either launched investigations or filed lawsuits against the company.

Under the weight of the lawsuits, investigations and loss of federal funding, lawmakers and consumer groups expected, if not hoped, Corinthian would close its doors. But in November, an unlikely savior swooped in. ECMC Group, which runs one of the biggest debt collectors used by the Education Department and has had not experience running schools, paid $24 million for more than half of Corinthian’s 107 campuses.

The department gave the deal its blessing, 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 student loans discharged.

About 400 Corinthian students, including 100 who are flat out refusing to pay their loans, have filed what’s known as defense to repayment claims. It's an appeal to the Education Department to forgive their federal loans on the grounds that Corinthian broke the law. Nine state attorneys general are backing the students' claims.

[The student debt revolt might just work]

"Alarms have been sounding about Corinthian...for nearly a decade," the strikers wrote in a statement regarding the fine. Strikers said the Education Department has "coddled the embattled corporation with emergency cash inflows and facilitated sales of distressed assets while continuing to collect from defrauded students."

While the group said the $30 million fine is a step in the right direction, they called the penalty a "slap on the wrist for a company that took in over $1 billion per year in federal student loan money."

The department has broad authority to cancel loans when colleges close or commit fraud against students. Granting the discharges could mean the loss of billions of dollars in taxpayer money and set a precedent for future requests for loan forgiveness. But some lawyers say that state and federal lawsuits against Corinthian present strong evidence that strengthens the strikers’ cases. And this latest fine only adds to the students' defense.

The Education Department and the CFPB have worked with ECMC to forgive many of the private loans in Corinthian’s Genesis program. The new owner reached a settlement with a company that bought a majority of the Genesis portfolio to write down $480 million of the debt.

That means that thousands of current and former Corinthian students struggling to repay their loans will have the debt forgiven. Students will see an immediate 40 percent reduction in the principal balances on their loans, with the remainder forgiven over the next few years.

But that’s just the private loans. Students who took out federal loans are still on the hook. Officials at the Education Department have said they are still working on options for borrowers.

Want to learn more about Corinthian, check out these stories:

How dozens of failing for-profit schools found an unlikely savior: a debt collector

Here's how a debt collector plans to turn around failing for-profit colleges

A dangerous revolt: People are refusing to pay back student loans