Approximately 40 million Americans collectively owe about $1.2 trillion in student loan debt. Of these, approximately eight million Americans have defaulted on their student loans. Defaulting on your student loan will have a considerable impact on your credit score and credit history. But, in the murky world of for-profit education, some students fall prey to the predatory practices of their schools.
Instead of arming these individuals with a sound education that would enable them to launch their careers on a strong footing, these for-profit schools fleece them. Their false placement promises lead to several students taking out enormous amounts of student loans. After several months, many students find that the schools had misled them. At that time, they have to deal with a massive student loan and a degree that doesn’t amount to much in the real world, if at all.
Department of Education Announces Plan to Forgive Federal Student Loans for Corinthian Students
After days of suspense, the US Department of Education announced its debt relief plan for over 16,000 students of the now-closed for-profit behemoth Corinthian Colleges Inc. The debt relief plan loosens the restrictions on students eligible for seeking federal loan discharges – a move that estimates suggest would cost the government approximately $3.6 billion.
Under the provisions of the debt relief plan, students of Corinthian Colleges can file requests for:
- A transfer of credits or,
- A closed school loan discharge
Typically, only students who attended a school within four months of its closing are eligible for these options. However, the Department of Education has extended this facility to the students of the 28 remaining Corinthian campuses that wound up in April.
In effect, students who withdrew from a Corinthian school after June 20, 2014 are eligible for availing either of these options. It is worth noting that Corinthian agreed to sell or shutter all of its campuses on June 20, 2014. In addition, the Department of Education has clarified that students seeking closed school loan discharges would need to forsake their class credits to qualify for these loan discharges.
Students Eligible for Loan Forgiveness Even if Schools Did Not Close
Furthermore, the Education Department has specified that students can request for federal loan forgiveness even if their schools did not close. In this case, students would qualify for federal loan forgiveness if they believe that they were victims of fraud under the provision of ‘borrower defense to repayment.’
Typically, these borrowers would need to provide evidence that the college violated the law. However, the Department of Education mentioned that it would rely on the evidence provided by the appropriate authorities for considering whether entire groups of students are eligible for borrower defense relief. For instance, in some cases, it is possible that all students in a specific academic program at a specific campus during a particular timeframe will be eligible for federal loan forgiveness.
Julia Glum writes that many students at Heald College enrolled because the school misrepresented job placement rates from 2010 to 2014. Based on the details shared by the Department of Education, students from Heald College would need to fill out an attestation form. These students, who currently hold about $600 million in unpaid debt, would become eligible for federal loan forgiveness. In addition, as the authorities process the approximately 1,400 applications, students’ loans would enter forbearance i.e. their payments would pause.
It is worth noting that the Department of Education plans to hire a Special Master for overseeing borrower defense issues. This individual would be responsible for ensuring that the loan forgiveness process for borrower defense issues is:
- Streamlined and,
- Fair to students and taxpayers alike
The Special Master would also help in developing a broader system for supporting students from other institutions who believe that they have a defense to repayment.
Moreover, the department also plans to develop new regulations for streamlining loan forgiveness under the defense to repayment provision. At the same time, the department plans to maintain or enhance current consumer protection standards, whilst strengthening the provisions that hold schools accountable for actions that lead to loan discharges.
An Overview of the Crisis of Corinthian Colleges
Corinthian Colleges used to be one of the largest for-profit schools in the US, before it collapsed last year. As federal and regulatory bodies investigated the for-profit behemoth, Corinthian Colleges fast became a symbol of fraud in the world of higher education and student loans. These schools charged exorbitant fees and even encouraged students to lie about their circumstances for receiving additional federal aid. Even worse, they blatantly lied about their placement rates for graduates, thereby increasing their enrollments considerably.
As the investigations brought to the fore allegations of misconduct and predatory practices, the Department of Education came up with a plan. The plan involved the sale of 56 Everest and WyoTech campuses from Corinthian Colleges Inc. to the Educational Credit Management Corporation (ECMC) Group for approximately $24 million. The sale became official earlier this year. According to the terms of the deal, the ECMC Group would not offer proprietary student loans for a duration of seven years. In addition, it expressed its willingness to forgive $480 million in student debt borrowed from Corinthian’s infamous Genesis loan program.
In May, Corinthian Colleges filed for bankruptcy, a week after it closed down its remaining 30 campuses. The closure left approximately $16,000 students in the lurch. At its peak, the for-profit education behemoth operated over 120 colleges with more than 110,000 students across North America. Investors estimated the company’s value at over $1.4 billion.
The Details Surrounding the Closed School Loan Discharge
Students that attended a Corinthian school that closed can apply for a closed school loan discharge. If found eligible for relief, they could obtain forgiveness for 100 percent of the federal student loans they took out for attending the school that closed. In addition, they would receive a reimbursement of the amount they had repaid until the school wound up.
Students could consider applying for this if:
- They did not finish their programs at a Corinthian school
- They have not already transferred their Corinthian credits to another school in a similar program and,
- They were attending the school when it closed or withdrew not later than June 20, 2014
The Process for Students Who Were Victims of Fraud at a Corinthian School
The Department of Education has also specified the process for students at Corinthian schools (whether they closed or not) who believe that they were victims of fraud or another violation of state law.
These individuals would need to make a claim for debt relief under a legal provision titled ‘borrower defense to repayment.’ Students taking the recourse of this provision would need to demonstrate that they have a legal claim against their college. This rule applies to all public, private and for-profit schools across the US.
Corinthian students applying for borrower defense have the option of placing their federal loans into forbearance. This would enable them to cease making repayments until the authorities resolve their claims. This would ensure that they don’t fall behind on their loans. Similarly, Corinthian students in default can request for a suspension to collection activities. However, both categories of borrowers would need to note that the interest will continue to accrue on their loans during the forbearance or stopped collections period.
Education Department Wants Congress to Play its Part
The Department of Education is taking steps to:
- Secure debt relief for defrauded borrowers
- Step up oversight and enforcement measures for identifying colleges that present risks to students and taxpayers alike and,
- Hold schools accountable for their actions
However, for these measures to work, the Congress needs to play its part too. The department wants Congress to:
- Strengthen efforts for protecting students and taxpayers from fraud and waste
- Enact rules that hold colleges and their executives responsible for fraudulent acts
- Provide students with access to meaningful information about college costs and outcomes instead of bearing the brunt of aggressive and deceptive marketing tactics
- Provide preventative action for protecting prospective and current students by preventing schools from pressurizing them into enrolling and by enabling students to obtain relief when they find that the programs they signed up for are not delivering what was promised and,
- Protect service members and veterans from becoming targets of the aggressive marketing and recruitment drives of for-profit colleges by eliminating the existing loopholes
Education Department Has No Estimate on the Number of Students that will Apply for Federal Loan Forgiveness
Education Secretary Arne Duncan informed reporters that the Department of Education had no estimates to share about the number of students that would apply for federal loan forgiveness. However, officials believe that approximately 40,000 borrowers took on $542 million in loans at the Heald College alone.
If students across all the Corinthian campuses were to apply for federal loan forgiveness, taxpayers might find themselves footing a bill of about $3.6 billion. Yet, officials also believe that not every student will apply for relief or qualify for full relief. Therefore, the actual amount might be much lower than that figure.