Debt Relief for Some Former Corinthian Students

December 4, 2015

The U.S. Department of Education announced Thursday that it has granted the requests for debt forgiveness made by more than 1,300 federal student loan borrowers who attended Heald College, a subsidiary of the now-defunct for-profit Corinthian Colleges chain.

The debt relief, which totals $27.8 million, is the first time the Education Department has canceled a significant number of loans under a seldom-used provision of federal law that allows borrowers to seek loan forgiveness based on their college’s misconduct.

Amid the collapse of Corinthian Colleges earlier this year, the Education Department received thousands of claims for debt forgiveness. The department said Thursday that it has not yet reached any decisions about 5,379 outstanding claims.

In addition, the department also detailed for the first time Thursday the debt relief claims it has received from borrowers who attended colleges aside from Corinthian.

Officials have received 931 debt relief claims relating to Art Institute campuses, which are owned by the Education Management Corporation; 159 claims relating to ITT Tech; and 22 claims relating to the University of Phoenix.

If those claims are granted, those colleges could be on the hook to pay for that loan forgiveness. Although Corinthian has since been dissolved in bankruptcy, the department could seek to recoup money from open campuses.

The Obama administration has announced plans to rewrite federal debt forgiveness rules to set clearer, more uniform standards and also give the Education Department greater power to hold colleges accountable for loans the department cancels based on a college’s misconduct. Negotiations over those rules will begin in January.

Meanwhile, student debt activists and other advocates criticized the department for moving too slowly on those claims and not providing broader debt relief.

Americans for Financial Reform said in a statement that the group was “gravely concerned by the department’s unjustifiably narrow approach to debt cancellation, which if it continues unchanged may leave hundreds of thousands of students burdened with debts foisted on them by deceptive and abusive practices.”

The Debt Collective, a group of activists who have been urging the department to provide more sweeping debt relief to former Corinthian students, said that the department’s debt relief process remained too complicated and burdensome.

In a statement, the group urged the department to provide broader debt relief rather than trying to “save face by creating a Rube Goldberg-type contraption to prevent as many people as possible from the seeking the relief they deserve.”

The department, the group wrote, “is well aware that Corinthian and EDMC are the tip of the iceberg and that providing broad relief will open the floodgates and embolden other defrauded borrowers to come forward.”

Senators Dick Durbin and Richard Blumenthal, both Democrats, said in a statement Thursday that the Education Department should “step up the pace and scope of its Corinthian debt relief efforts.”

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