Some students harmed by bankrupt Corinthian Colleges, Inc. can apply to have their student loans canceled by the federal government through a new opt-in system Education Secretary Arne Duncan announced on a Monday press call, and students who apply for debt relief will not have to make loan payments or field collections calls for the next year.
The debt relief system has two distinct tracks. Only one provides a near-certainty that the for-profit college’s victims will get out from under their loans. The Department of Education is opening up that first, surer path to many more students than had previously been eligible for it. But both debt relief tracks require individual students to make complicated personal decisions and complete a series of forms.
Radical debt activists blasted Monday’s announcement as “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” in a statement. The student debt strikers who have forced the government’s hand throughout the Corinthian collapse were sharply critical of Duncan’s choice of an opt-in process over a system of across-the-board, automatic discharges for affected students.
The more straightforward path announced Monday provides full loan discharges to students who were enrolled or had recently withdrawn when their campus shut down. Students who withdrew more than 120 days before their school closed are normally ineligible for the discharges. But Duncan announced Monday that students who withdrew as far back as last June are eligible if their school closed this spring. As many as 15,000 students in California will be eligible for such discharges, officials said.
But anyone who transferred Corinthian credits would lose their eligibility for this straightforward debt relief track and face a much more convoluted process, along with the tens of thousands of Corinthian students outside of California who went deep into debt to chase a degree from the company. Ineligible for closed-school discharges, this second class of victims will have to pursue something called “borrower’s defense to repayment,” a provision of federal education law so obscure that the Education Department did not even have a form associated with it for Corinthian students to use when debt activists first began seeking the discharges.
The debt strikers, who set this whole process in motion by submitting over 1,400 individual applications for debt relief earlier this spring, had instead asked Duncan to sign a declaration of automatic discharges across the board. He declined. Instead, Duncan and Mitchell offered the first glimpse at how the agency will manage students’ attempts to exercise their untested “borrower’s defense” rights, but there were more questions than answers on how the second track of debt relief appeals will proceed.
Borrower’s defense claims hinge upon evidence that a student was defrauded or that some state law was broken — something that the department itself has already uncovered in the case of Corinthian’s Heald College brand of schools. The agency hopes to create “fast-track relief for large categories of students involved in legal proceedings,” Mitchell said, adding that the “large majority of Heald College programs will be eligible for fast-track relief.” The department fined Heald $30 million earlier this spring for serial misrepresentations of graduate job placement rates for about four out of five of its degree programs. Students who enrolled in those fraudulently-marketed programs at Heald are all eligible to receive a discharge.
But “fast-track” does not mean “automatic” in this case. Even the Heald students who Mitchell said are presumed to be eligible for relief must apply for a discharge through a form on the department’s website. The department has reached out to students by email so far but not by snail mail, Mitchell said.
That initial round of categorical debt relief for Heald students is estimated to cost a bit over $500 million, a department official said Monday. Bankruptcy proceedings for Corinthian may allow the government to recoup part of the cost of discharging these loans. “We need to make sure that as we go forward with these processes that we are able to put institutions on the hook” for the cost, Mitchell said.
Choosing an opt-in system over the automated, sweeping relief activists prefer will also influence the final price tag. “We really don’t know how many students will apply,” Duncan said when asked how much the steps he announced Monday will cost.
Students like Tiffany Contreras face a harrowing choice between seeking a debt discharge and completing an education they were within months of finishing, even if it is a practically worthless one in job market terms. The department’s past conduct in the Corinthian case has been based on the belief that it knows what’s best for students facing such a choice — and that it’s staying in school and in debt. Multiple Corinthian students in California told ThinkProgress of feeling steered by both federal and school officials into transferring their course credits rather than applying to clear their credit report.
Creating a system for students to obtain discharges is a major step, in the context of the department’s past decisionmaking on behalf of Corinthian’s victims. But it’s also the bare minimum that the law requires for debt discharge claims. And for students outside the Heald campuses and the other California locations, the path forward remains murky despite similar evidence of false advertising at other, non-Heald brand schools under Corinthian’s control. The whole scandal that brought the company down was triggered by a years-long investigation into bribes that Corinthian schools allegedly paid to nearby companies willing to give graduates temporary make-work jobs, then lay them off after they’d been working long enough to be counted in the school’s official job placement stats. But it remains to be seen how aggressive the department will be in expanding the kind of categorical discharge eligibility that it’s giving to Heald’s former customers. Monday’s call did little to clarify that question.
“To ensure that we have a clear, efficient process for borrowers, we will announce in the next three weeks a debt relief Special Master who will present recommendations within two months for what the department should do,” Mitchell said. This “special master” will play a key role in sculpting the agency’s debt relief program, and her decisions could exclude tens of thousands of Corinthian students from the streamlined loan discharge process. The special master will help determine what constitutes evidence of fraud for purposes of borrower’s defense claims; decide whether or not the department should apply a statute of limitations that could bar many former students from seeking relief; and establish a permanent process for evaluating the claims not just in the Corinthian case but in any future for-profit college scandal.
Debt Collective spokeswoman Laura Hanna declined to speculate on who would be an ideal candidate for this “special master” role because the group rejects the department’s approach wholesale. “For Corinthian relief the only acceptable path is a class wide discharge,” Hanna told ThinkProgress.
Unless the debt strikers — who number in the hundreds and have more than a thousand non-Corinthian student borrowers threatening to join them in a solidarity strike — can get Duncan and Mitchell to reverse course, though, Monday’s plan will guide what happens to billions of dollars in loans and tens of thousands of people victimized by Corinthian. All the uncertain details from Monday’s announcement will make a big difference to students whose Corinthian schools were bought and rebranded under the department’s guidance this past winter. It is unclear exactly how those re-opened schools are communicating with students about the choice they have to make between locking in a lifetime of education debt and starting over educationally. But as the alleged steering of students in California and the complex, opt-in system announced Monday illustrate, there are many, many different ways for students who should be eligible for debt discharges to end up tied to their Corinthian borrowing in perpetuity.