In what could become a precedent-setting move, the U.S. Department of Education is now “carefully considering” forgiving federal student loans for students affiliated with Corinthian Colleges Inc.
Corinthian Colleges, Inc., which was once one of the largest for-profit higher-education companies in North America, closed or sold dozens of its campuses in a deal with the U.S. Department of Education after the DOE froze the institution’s financial-aid payments for failing to provide required records, including job-placement and attendance statistics.
The DOE’s agreement included $480 million in forgiveness of private student loans, but the loans that Corinthian students owe to the federal government were never addressed, Inside Higher Ed reported.
The issue started grabbing national headlines after a group of senators and consumer groups started calling for loan forgiveness, but really blew up when a group of 15 former students launched a “debt strike” and refused to pay back a cent of their federal loans.
The group gained momentum this week when Rep. Maxine Waters (D- Calif.) publicly stated her support for the so-called “Corinthian 15,” who are striking.
Under Secretary of Education Ted Mitchell wrote to lawmakers last week that the department is “carefully considering the issue.”
At issue here is a fairly obscure part of the federal law that allows borrowers to cite a college’s misconduct as a reason why they shouldn’t have to repay the federal loans they took out to attend that particular institution. But while this is mentioned in the law, there are no details as to how the borrower should prove it, how much they should or shouldn’t be obligated to pay, or under what circumstances the DOE will accept these claims.
“It’s really a tool that has been underutilized,” Robyn Smith of the National Consumer Law Center told Inside Higher Ed. “Primarily because we don’t have any clarity from the department on how to utilize it.”
Attempts in the past to capitalize on this part of the Higher Education Act were unsuccessful.
The New York Legal Aid Group last year sued the Education Department over its use of the discharge relating to a college falsely certifying a student as eligible for student aid. The group argued that former students of a now-defunct for-profit college, found by the department’s inspector general to have fraudulently pushed students into loans, should have their loans discharged.
The department successfully fought the suit. It argued, in part, that it had discretion over how and when to notify students that they might be eligible for loan discharges.
That was an example, consumer advocates argue, of the department’s historical reluctance, spanning various administrations, to grant relief to borrowers from the debt they incurred to attend a college that engaged in predatory practices.”
In the case of Corinthian, the federal government is also likely worried about the cost it will eat by forgiving the loans.
Corinthian said in a legal filing last June that its students had $1.2 billion in outstanding federal loans, according to Inside Higher Ed. Although, it noted, that some of these students may have transferred to other institutions.
But because the Department of Education is the largest student lender in the country and the Obama administration has increasingly decided to go after schools like Corinthian, the steps the DOE takes here will be precedent-setting.
“We know that Corinthian is not the only bad actor,”Maggie Thompson, director of Higher Ed Not Debt, told Inside Higher Ed. “If you were defrauded by a school, you deserve a full refund and a chance to start over.”
