Debt Relief Battle Continues

As Corinthian files for bankruptcy, Education Department officials race to head off the political firestorm over debt forgiveness sparked by unprecedented collapse of the for-profit college. 

May 5, 2015

Corinthian Colleges’ declaration of bankruptcy on Monday finalizes the for-profit college’s unprecedented collapse that has morphed into a political firestorm for the Obama administration -- which U.S. Department of Education officials are racing to extinguish.

What began last year as a paperwork dispute between Corinthian and Education Department regulators is now a high-profile battle over student debt forgiveness. And department officials are scrambling to figure out how, and in what form, they will provide debt relief to former Corinthian students.

Amid growing pressure from congressional Democrats and labor and consumer groups, federal officials sought to make clear Monday that they’re committed to debt relief for students who were “defrauded by Corinthian” -- even if they’re not yet sure how to provide it.

“We will do everything we can to get defrauded borrowers the relief to which they are entitled by law,” Under Secretary of Education Ted Mitchell said in an interview.

Mitchell spoke after a group of former Corinthian students pushing to have their loans forgiven backed out of a meeting with Education Secretary Arne Duncan that was scheduled for Monday.

The group said it was concerned that the department would use the meeting as political cover to announce a debt relief process that was more stringent than the students are seeking.

The students, known as the Debt Collective, are pressing the Education Department to forgive the loans of hundreds of former Corinthian students under a virtually unused provision of federal law that allows borrowers to assert a college’s misconduct as a reason why they shouldn’t have to repay their federal loans.

The group canceled the meeting with Duncan because, they said, they believed the department planned to require individual students to prove that Corinthian had injured them before forgiving the loans. That would be an unfair burden on students, the group said. Instead they want the department to wipe out the federal loans of a large swath of students who attended Corinthian.

“Systemic fraud is not something that should receive an individualized response,” said Luke Herrine, a representative of the group. He said former Corinthian students should not have to individually prove their cases, which would be extremely difficult, when the department has sufficient evidence to establish their claims.

The Education Department last month fined Corinthian nearly $30 million over findings by regulators, outlined in a 14-page letter, that the company had misrepresented job placement numbers.

But department officials said Monday that they are still deciding how to structure a loan forgiveness process.

“To be clear, we have not made a decision yet on how that process will work,” Mitchell said, declining to outline a timeline for making a decision.

But “we feel a huge sense of urgency about setting up the structure,” Mitchell said of the timing.

The department is starting from scratch when it comes to creating a formal process for borrowers to assert misconduct by their college as a reason why they shouldn’t have to repay their loans. That provision of the law, known as defense to repayment, has been on the books since the mid-1990s but used only about five times, according to the department.

The department now faces 254 claims, with more than 700 on their way, according to Debt Collective organizers.

“The devil is in the details in a very real sense here,” Herrine said. 


Back to Top