Secretary of Education Arne Duncan announced Monday that the department would forgive the federal loans of tens of thousands of students – a move that could cost taxpayers as much as $3.5 billion.
Students who attended Corinthian Colleges, a large for-profit college company, are being offered loan forgiveness, after the company filed for bankruptcy and closed its doors amid numerous charges of fraud.
Duncan announced that in addition to forgiving the debt of Corinthian students, the department is planning to develop a broader process that will forgive the loans of any student who has been defrauded by their college.
“We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable,” Duncan said in a news conference call on Monday.
The department fined Corinthian $30 million in April for misleading prospective students and falsifying job placement and graduation rates. Soon afterward, the company filed for bankruptcy and closed its remaining campuses on a day’s notice, leaving thousands of students left stranded without degrees and in debt.
The department estimates that if all 350,000 Corinthian students over the last five years received debt relief the cost would be $3.5 million.
Senator Lamar Alexander (R-TN), chairman of the Senate committee in charge of education legislation, opposes the plan.
“Students have been hurt, but the department is establishing a precedent that puts taxpayers on the hook for what a college may have done,” Alexander told The New York Times.
“This is one more reason it was a bad idea to make the U.S. Department of Education the banker for students as well as the regulator of their colleges,” he continued. “If your car is a lemon you don’t sue the bank that made the auto loan; you sue the car company.”
Alexander announced on Tuesday that he will also attempt to block the Obama administration’s “horrendously complicated” gainful employment rule that is set to go into effect next month and will cut off access to federal student aid at for-profit institutions.
