Education

Feds Finally Go Big On Debt Relief For Corinthian College Victims, With A Big Asterisk

CREDIT: AP Photo/Christine Armario

Students outside a now-closed Everest College campus in California in 2015.

The government is reaching out to​ more than 250,000 of Corinthian Colleges’ victims ​about new opportunities​ to get out from under massive and fraudulent student loan debts, Education Secretary John King will announce Friday in Boston.

King and Massachusetts Attorney General Maura Healey will unveil a list of 91 Corinthian-owned schools in almost two dozen states where the Department of Education (ED) is confident recruiters broke the law and misled prospective students.

The announcement dramatically expands ED’s program to lift debts off of people deceived into borrowing federal dollars to attend Corinthian. Roughly nine months into that work, just under 9,000 students have gotten their debts discharged, while another 8,000-plus applications for relief are still pending.

The department calculates it will reach out to more than a quarter-million people potentially affected by the list of fraud findings, an ED official told ThinkProgress.

The list confirms that findings of investigators like Healey are sufficient to justify debt discharges, and illustrates just how widespread the Corinthian scam was. ED is certifying fraud at three separate campuses in Houston alone, for example, in programs ranging from carpentry to dental assistant to plumbing.

ED will send letters and emails to ​every student who enrolled at the 91 campuses during the dates in question to figure out who was enrolled in a fraudulent program and encourage those students​ to apply for relief. For students who do so, this new formal determination of fraud will speed up debt relief substantially.

But Friday’s announcement isn’t going to calm the fiery criticisms of ED’s response to the scandal from former students turned radical debt activists. The announcement reflects choices ED made long ago that the activists say are unjust, legally incorrect, and designed to minimize the cost of resolving the Corinthian scandal rather than maximize help to people who tried to better their lives and got scammed.

The system the agency has adopted for lifting debts off of people it agrees were defrauded still leaves the onus on the borrower to take action. People among that quarter-million who can’t be reached, or who don’t manage to fill in their forms for some reason, will continue living with the consequences of the defunct company’s abuses.

The Loot, The Crook, And The Warrant

For more than a year now, debt activists have cried foul over the opt-in element of ED’s policy approach. The department has a firm list of victims — these programs, at these schools, from this date to that date — and all of the records it would need to simply void the debts of every one of those 250,000 victims.

The agency says that’s impossible.

ED believes it has the loot and the crook, but not the warrant. It holds exact records of how much is owed by which defrauded borrowers and proof that schools operated fraudulently. But without a formal assertion by each borrower that they were defrauded, ED lawyers insist, it can’t act on that information.

Lawyers from the activist side insist the agency’s reading of the law is wrong and argue ED can grant discharges more proactively if it chooses. Neither interpretation has been tested in court. The law in question is brief and vague.

But the Department itself appears poised to reverse course very soon, giving future victims of similar swindles an opportunity currently denied to Corinthian’s marks. ED’s most recent proposal in negotiations over how borrower’s defense rules will work in the future says the Secretary of Education can initiate group debt discharges even for students who haven’t applied for them if the evidence of fraud is there.


It’s hard to resolve the tension between the legal opinions behind Friday’s opt-in announcement and the opposite view the agency is taking into the negotiating room. But the agency has repeatedly called for Congress to clarify the murkiness it sees in the law here, and ED officials frequently note the role lawmakers have played in stymieing various efforts to combat abusive for-profit college practices in recent years.

To skeptics, though, the agency’s insistence on opt-in relief today is all about the bottom line. Debt strikers have called the opt-in system "a bureaucratically tortured process designed to provide relief only to those who hear about it." Corinthian’s fraud took down roughly $3.5 billion just in the last five years of its operations, and ED might struggle to claw that money back from a bankrupt firm if it dished out the across-the-board debt relief which strikers are demanding.

Last June, then-Secretary Arne Duncan emphasized to reporters that the cost of unwinding similar fraud at the Corinthian schools that had already closed could well be lower than published estimates because “we really don’t know how many students will apply for this.”

A $130 Million Drop In A Multi-Billion-Dollar Bucket

Whatever the motivations, the choices ED made are starting to bear fruit. And the early numbers from the process to date suggest that delivering justice to another 250,000 people will be very expensive.

The agency has issued “loan discharges for more than 8,800 former Corinthian students nationwide” totaling over $130 million, Friday’s press release notes. The figures are from a new report on how the process is going from Borrower’s Defense Special Master Joseph Smith.

A closer look at the numbers, though, helps explain why debt activists were so critical of ED’s decision to help Corinthian sell half its campuses to another company rather than let all of them go under.


The new owners transitioned the schools to non-profit business models, cut tuition by 20 percent across the board, and worked to provide refunds or other compensation to some students. But the sale kept the Corinthian schools from closing, which would have allowed automatic loan discharges for the students the for-profit company defrauded.

Closed-school discharges are a much faster path to relief for defrauded students. Smith’s report notes that 6,838 of the total discharges to date came from closed-school claims. That means 77 percent of the Corinthian victims who’ve been given a new lease on life since the scandal unfolded got a form of help which ED denied to current enrollees at the other campuses.

Many of those very same people can now ask for help pursuant to Friday’s announcement. If they do, and if they were indeed enrolled at one of the programs on the list, they’ll get a fresh start.

But first they have to contend with those ifs.

This article has been updated with new information from ED. Based on their calculations, ED officials believe the number of students who will be ultimately eligible for relief will likely be smaller than the initial 250,000 estimate.