A loan-forgiveness plan unveiled on Monday by the Obama administration will provide relief to thousands of student-loan borrowers who attended one of Corinthian Colleges’ closed campuses, and hope to thousands more who believe they were misled by their colleges.
But just how many students will qualify for a loan discharge — and how many millions of dollars the cancellations will cost taxpayers — remains an open question, hinging largely on the recommendations of an individual who has yet to be named.
Under federal law, borrowers are eligible to have their student loans discharged if they were attending a college when it closed, or if they withdrew within 120 days of its closing. In addition, borrowers can raise a “defense to repayment” — the Education Department’s term for a loan-forgiveness claim — if they believe they were defrauded by their institution under state law.
Such “borrower’s defense” claims have been rare, until recently. The spectacular collapse of Corinthian Colleges Inc., a for-profit company that once enrolled thousands, shone a light on the little-used provision, prompting calls for blanket relief for borrowers who were misled by its colleges.
The department’s long-awaited plan extends the window for closed-school discharges for Corinthian students back to June 20, 2014, the day the company agreed to sell a majority of its campuses. All told, 15,000 students with $200 million in debt stand to benefit.
In addition, the department is guaranteeing forgiveness to students who enrolled from 2010 to 2015 in programs at Heald College, one of Corinthian’s larger properties, that misrepresented their job-placement rates. That covers 40,000 more borrowers with about $544 million in federal loans, according to the department.
Unanswered Questions
The remainder of Corinthian borrowers, and any other borrowers who believe they were a victim of fraud — in the past or the future — will have to apply for debt relief through a process that the department will create based on the recommendations of an independent official, known as a “special master,” who will be appointed within the next three weeks. Already, 1,400 Corinthian borrowers have filed “borrower’s defense” claims with the department.
It will be up to the special master to decide what counts as evidence that a state law has been broken, and how much weight to give to the findings of state attorneys general and other federal agencies. And that’s where the uncertainty comes in. If the department sets a high bar for forgiveness, fewer students will qualify, and the costs will be less. If it takes a more expansive view, then costs will go up.
Another variable: the number of claims that are combined into groups. In a fact sheet announcing its plan, the department said it would consider claims in batches “whenever possible,” providing debt relief to all students who attended a particular program, for example. But the government will not provide the kind of blanket relief to Corinthian students that consumer advocates had sought. In this case, the more claims that are consolidated, the more likely it is that large amounts of debt will be written off.
The implications of those unanswered questions will be significant: From 2010 to 2015, nearly 350,000 students borrowed $3.5 billion to attend one of Corinthian’s Heald, Everest, or WyoTech campuses.
And Corinthian isn’t likely to be the “last domino to fall,” as Secretary of Education Arne Duncan put it in a conference call with reporters on Monday. “I wish we could say that Corinthian is the last of these situations, but that’s not reality,” Mr. Duncan said.
In the past only a handful of borrowers who attended troubled colleges might have sought discharges. Today many more would.
Mixed Reaction
Initial responses to the department’s plan were mixed, with congressional Democrats and some student groups praising the agency’s approach, and other lawmakers and advocates saying it fell short.
In a written statement, Sen. Patty Murray of Washington, the top Democrat on the Senate education committee, said the department’s actions would “provide critical relief for those dealing with student loans and limited job opportunities as a result of the company’s actions.”
Sen. Lamar Alexander of Tennessee, the committee’s Republican chairman, was less sanguine, saying the department was “establishing a precedent that puts taxpayers on the hook for what a college may have done.” He added: “If your car is a lemon, you don’t sue the bank that made the auto loan; you sue the car company.”
In the House of Representatives, the leaders of the education committee — Rep. John Kline of Minnesota, the panel’s Republican chairman, and Rep. Bobby Scott of Virginia, its top Democrat — issued a joint statement saying they were “pleased that the Department of Education will carefully review each claim and help qualified students receive the relief they may be entitled to.”
But two Senate Democrats who have called for broad relief for Corinthian students, Sen. Richard J. Durbin of Illinois and Sen. Richard Blumenthal of Connecticut, said they “remain concerned about the effects an overly individualized adjudication process would have on the ability of many students to receive the debt relief they deserve.”
Activists at the Debt Collective, a group representing Corinthian borrowers who are refusing to repay their debt, went further, warning that the department’s process would “revictimize” borrowers.
“The Department of Education’s ‘solution’ is a bureaucratically tortured process designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape,” the group said in a statement.
‘A Wake-Up Call to Congress’
Department officials defended their approach on Monday, touting their “unprecedented” efforts to hold for-profit colleges accountable and help borrowers who are misled by the institutions. “We are committed to acting aggressively to make sure students receive every penny of debt relief they’re entitled to,” the under secretary of education, Ted Mitchell, said during the conference call with reporters.
Mr. Duncan contrasted his agency’s efforts to crack down on the sector with what he characterized as congressional obstructionism. Members of Congress in both parties have fought the department’s attempts to craft a “gainful employment” rule that would judge career programs based on graduates’ ability to repay their student loans.
“This is a wake-up call not just to the industry, but this has to be a wake-up call to Congress,” he said. “Congress has to stop defending a status quo that is indefensible.”
In the fact sheet, the department calls on Congress to “enact rules that hold colleges and their executives responsible for fraudulent acts,” to “ensure that students have access to meaningful information about college costs and outcomes,” and to “consider preventative action” so students “are not pressured into enrolling and can get relief when the program they signed up for is not what they were promised.”
The two officials also had some tough words for accreditors, with Mr. Mitchell saying the organizations “need to wake up to what’s going on around them.”
Mr. Duncan added that when institutions like Heald “are passing with flying colors, the process loses some of its credibility.”
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.
