New Loan Discharges

Education Department action helps those who attended Corinthian, as well as ITT Technical Institute and American Career Institute.

January 16, 2017
 
Ted Mitchell

The U.S. Department of Education on Friday announced thousands of new loan discharges for students who attended several closed for-profit colleges.

The discharges are part of a major push to provide loan relief to students that began with the closure of Corinthian Colleges two years ago. Friday's announcement affects students who attended Corinthian, as well as ITT Technical Institute and American Career Institute (ACI).

Out of about 4,500 students who attended ACI, 650 will receive closed-school discharges. The rest will receive a borrower-defense discharge, which requires a finding of fraud or misrepresentation. Friday's announcement marks the first time the department has granted automatic loan relief to all students of a college without requiring individual applications.

The for-profit closed in January 2013 and later that year was the target of a complaint by the Massachusetts attorney general's office for a range of deceptive practices. The defunct college in June admitted to defrauding students.

Efforts to process the claims of Corinthian and ITT students had been well underway for months. The department announced Friday that it has approved more than 28,000 borrower-defense claims from former students of Corinthian Colleges -- almost double the most recent number released in an October report from the Federal Student Aid enforcement office.

About 6,300 closed-school discharge claims from former students of ITT have also received approval from the department. The for-profit chain announced in September that its campuses would close their doors, leading to a flood of new discharge applications. The department began an outreach campaign last fall to inform ITT students about their options to receive relief in the wake of the closures. Most students pursued the closed-school discharge, which is easier to obtain because it does not require a finding of fraud. About 14,200 students have pursued that option to wipe out federal loans they used to attend ITT campuses. Another 2,500 submitted borrower-defense claims to the department.

Activists and borrowers have stepped up pressure on the administration in recent weeks to provide loan relief to student borrowers affected by fraud and misrepresentation in the for-profit sector, warning it may not be a priority under the incoming Trump administration. The Education Department in October released the final version of ambitious new borrower-defense regulations it wrote to make clear the process to have loan debt discharged for students who are victims of fraud or misrepresentation. But congressional Republicans have said the rule will be among a number of Obama-era regulations targeted for rollback or repeal.

In a statement released as part of the announcement, Ted Mitchell, the U.S. under secretary of Education, said the Massachusetts attorney general's office played a crucial role in uncovering misleading and deceptive practices at ACI, which operated eight campuses in Massachusetts and Maryland.

"We've taken important steps to provide borrowers the relief they deserve. This is real progress. And more work remains to ensure that relief continues for borrowers who are deceived by institutions that engage in fraud," Mitchell said.

The loan discharges provided to former ACI students total about $30 million, while the Corinthian claims add up to $558 million. The total value of closed-school discharges granted to former ITT students so far is $97 million.

Lawmakers have called on the department to provide relief to other failed for-profit schools as well, including Globe University, the Minnesota School of Business and the Westwood College chain. The department said in its announcement Friday that it is continuing to contact student loan borrowers who may be eligible for discharge through various platforms, including social media, phone calls, email and partnerships with state attorney generals' offices.

Pauline Abernathy, vice president of the Institute for College Access and Success, praised the work of Maura Healey, Massachusetts' attorney general, in revealing illegal practices at ACI.

"Today's announcement will change the lives of thousands of people, including veterans, who sought the training they needed in today's economy, only to be swindled by unscrupulous schools at their and taxpayers' expense," she said in a written statement.

But Luke Herrine, legal director at the Debt Collective, said the announcement raised questions about why the department has not granted automatic discharge to students of Corinthian and ITT.

After Senator Elizabeth Warren in September took the Department of Education to task in a letter for slow progress in providing relief to Corinthian students, Education Secretary John B. King Jr. said there had been findings of fraud at some Corinthian campuses and not others. The department's position is that students must attest to being defrauded by an institution in order to receive relief, he said at the time.

The announcement Friday noted that the department has approved two new types of borrower claims for students who were misled about transferability of credits and for those who received false guarantees from Corinthian about employment for graduates. Herrine said students who received notification of loan discharge were "ecstatic." But for others, the announcement provides little additional clarification of the circumstances under which they would have loans forgiven.

"There’s just no coherent logic whatsoever," he said. "The only thing I can think of is it would be deeply embarrassing for them to stop collecting on so much debt."

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