A decision by the U.S. bankruptcy court in Delaware this week to approve Corinthian Colleges' liquidation plan ultimately could mean hundreds of thousands of students won’t have to repay their loans, according to their lawyers.
For now, former students of the now-defunct college chain are still obligated to pay the federal government millions - perhaps billions - of dollars in student loans. U.S. Department of Education officials said it's premature to speculate on how the legal actions might impact loan-relief requests but the bankruptcy approval certainly could mean the loans are never repaid.
The bankruptcy court agreed to allow the Consumer Financial Protection Bureau and attorneys general from California, Massachusetts and Wisconsin to pursue their legal cases against Corinthian. Anne Richardson, a lawyer representing the interests of students in the bankruptcy, told The Chronicle of Higher Education that the decision is important because borrowers have the right to stop repaying their loans if the college they attended undertook actions that would make them liable to a "legal cause of action."
The court also agreed to set aside $4.3 million of the remaining Corinthian assets for a fund called the Student Trust. The money is to be directed first to repay students who were eligible for refunds from Corinthian when it abruptly closed down 30 of its campuses in April or who are otherwise owed refunds.
Richardson said the funds also would be used to orchestrate efforts to win a discharge of student loans for hundreds of thousands of former Corinthian students who attended its Everest, WyoTech and Heald campuses. She’s pushed for the discharges to extend back to 2000 - and that would cover an estimated 500,000 students and up to $2.5 billion in student loans.
The Education Department said students who attended Heald College after July 2010 would automatically qualify for a loan discharge if they were enrolled in programs where Heald misrepresented its job-placement rates. Those students, however, need to apply for the relief.
Sen. Dick Durbin (D-Ill.) and Sen. Elizabeth Warren (D-Mass.), in wake of the closings, asked the Department of Education and major federal loan servicers to ensure Corinthian students know their options for financial relief.
"Finally, we see the end of this rotten company but there are still thousands of students who may never see the end of the damage Corinthian has caused if the Department of Education doesn’t move quickly to provide some relief," Sen. Dick Durbin (D-Ill.) said at the time.
The closings in April marked a quick end to what had been a steady dismantling of one of the country’s largest for-profit schools. Corinthian's network of for-profit schools once included 100 campuses across the U.S., with about 74,000 students.
But in the summer of 2014 the Education Department intervened in the company’s operations, cutting off Corinthian’s access to federal student loans without which it could not survive. It was an unprecedented move that followed allegations that Corinthian falsified graduation statistics, inflated job numbers and abused the student lending process. Since then the school has been winding down its operations.
The government previously struck a deal with ECMC Group, allowing the student debt guarantor to acquire some of Corinthian's campuses. ECMC then agreed to wipe out $480 million in debt to avoid any liability for Corinthian's alleged illegal activity.