As the Education Department prepares to unveil its plan to provide loan forgiveness to borrowers who attended the defunct Corinthian Colleges, consumer advocates are amplifying their calls for blanket relief.
In a pair of petitions sent on Tuesday, 50 consumer groups and unions asked the department to automatically cancel the debt of a broad group of students rather than requiring each student to prove he or she was a victim of fraud. They argue that the agency, which last month fined Corinthian $30 million for allegedly misrepresenting job-placement rates, has a duty to discharge the debt of all borrowers who were misled by the company.
“These students were playing by the rules, sacrificing to get an education and improve their own and their families’ lives,” said Lisa Donner, executive director of Americans for Financial Reform, a coalition of groups formed in the wake of the 2008 financial crisis. “They should not be buried in debt for a scam that the Department of Education allowed to continue, even once fraud and abuse were clear.”
Denise Horn, a spokeswoman for the department, said the Obama administration was “committed to making sure students who have been defrauded or whose schools closed receive every penny of debt relief that they are entitled to.”
“We will make that as easy as possible for students, and we will hold institutions accountable,” she said in a written statement.
At issue is an obscure provision in the Higher Education Act that allows borrowers to assert a college’s misconduct as a “defense to repayment.” The provision, which was added to the law 15 years ago, was rarely raised before the Corinthian collapse, according to Secretary of Education Arne Duncan.
“We don’t have a lot of practice in this,” he said last month at a conference of the Education Writers Association. “The rules aren’t very clear.”
Now, with hundreds of former Corinthian students seeking debt relief under the clause, the department is working out a process to handle the claims. In doing so, officials have been mindful of the precedent they are setting, as well as the potential cost to taxpayers.
Department officials have said they are leaning toward a case-by-case process, in which students would seek loan discharges as individuals.
But critics say an individualized process would force borrowers to jump through too many hoops, discouraging some from seeking relief altogether.
The only reason the department would pursue that approach “is to prevent as many students as possible from getting relief,” said Ann Larson, an organizer with the Debt Collective, which is leading a debt strike by former Corinthian students. “I think they know that this is just the tip of the iceberg — that offering a discharge to one group of students just opens up the floodgates.”
Tuesday’s petition by the National Consumer Law Center seeks blanket forgiveness for students who attended colleges accused of violating state law or who were “likely to have received falsified job-placement rate disclosures.” It also seeks relief for students who attest that they were deceived by the company.
It seems likely, however, that the department will stick with a case-by-case approach. Last week it advertised for lawyers to adjudicate claims brought by federal loan borrowers. The listing, which was posted on Friday, was removed this week, after officials concluded it was “premature,” Ms. Horn said.
“While no final decisions have been made about how debt relief will work, we are clear that it will require some additional staff in our department,” she added.
But deciding who should qualify for relief — and who shouldn’t — won’t be easy, said Carlo Salerno, a higher-education consultant. For example, should borrowers who found jobs in their field get relief? What about a borrower who took just one class, then dropped out? And how far back should borrowers be able to claim relief?
“Where do you draw the line?” he asked. “I think that if you dig into the details, you’ll find that there are some people who are deserving of debt relief and some who aren’t.”
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.
