Student loan forgiveness for tens of thousands of students who attended Corinthian Colleges, the for-profit college that closed and filed for bankruptcy last month in the wake of fraud charges, will be expanded, U.S. Education officials said Monday.
But in a move that could affect even more students in years to come, a “streamlined process” will be formulated to discharge loans tied to any college found to have defrauded borrowers, according to a statement by the Department of Education.
“Where students have been harmed by fraudulent practices, I am fully committed to making sure students receive every penny of relief they are entitled to under law,” said U.S. Secretary of Education Arne Duncan. “We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable.”
A legal provision found in every federal promissory note signed by students who take out government loans — called “defense to repayment” or “borrower’s defense” — allow student borrowers to seek loan forgiveness if they believe they were defrauded by their college under state law.
“This provision has rarely been used in the past,” said the Education Department in its statement Monday. “Now, the Department is taking unprecedented action to create a streamlined process that is fair to students who may have been victims of fraud and that holds colleges accountable to taxpayers.”
This move comes after some lawmakers pressured the Obama Administration to protect student-borrower victims of deceptive and illegal marketing practices by for-profit colleges. Last December, a group of Democratic senators wrote to Education Secretary Duncan, saying, “If a college sells its students a bill of goods in order to persuade them to take on massive debt, it is wrong to stick students with the cost of that bill.”
The Cost of Discharged Loans Unknown
The Education Department estimates that if all 350,000 Corinthian students over the last five years receive debt relief, the cost for them could be as much as $3.5 billion. But that’s just a small slice of what could be coming down the line with expanded debt relief in cases of fraud by other college recruiters and marketers. The U.S. government has never before opened debt relief to such a potentially huge group of students.
For-profit colleges normally get the vast majority of their revenue from federal student loans. And these account for nearly half of the defaults on all federal loans.
Corinthian, which at one point had more than 110,000 students enrolled at 100 Heald, Everest and Wyotech campuses nationwide, had been a target for federal and state regulators, as well as lawsuits, charging falsified placement rates, deceptive marketing and predatory recruiting. These practices allegedly targeted the most vulnerable low-income students, many of whom borrowed tens of thousands of dollars.
Read the Education Department’s full statement: Protecting Students from Abusive Career Colleges