An estimated 1,300 former students of defunct for-profit Corinthian Colleges Inc. will have their federal student loans canceled by the U.S. Department of Education after it found students were tricked into taking on the loans, according to a government report released Thursday.
Debts expected to be canceled total $27.8 million. The debt forgiveness plan only affects 1% of the approximately 125,000 student debtors who are eligible for expedited debt cancellation. That amounts to approximately 2% of the students' nearly $1.3 billion in combined loan balances. The Education Department said in June and November that those borrowers were eligible for immediate loan relief after determining that Corinthian likely had defrauded the former students by advertising false job placement rates.
Consumer advocates criticized the Education Department for the low number of approved debt relief applications and the relatively small number of applications the department has received compared to the number of eligible borrowers. As of Nov. 18, the department had received fewer than 6,700 applications for relief.
By comparison, Massachusetts Attorney General Maura Healey on Nov. 30 urged the department to cancel debts owed by an estimated 7,200 borrowers who attended Corinthian’s schools in her state alone. She sent the department 2,700 pages of confidential evidence from her investigation into Corinthian’s alleged frauds and testimonies from former Corinthian students to support their claims for relief.
"The department funneled billions of dollars to executives and shareholders of these fraudulent ‘schools’ for over a decade," said the Debt Collective, a group of activists who helped organize hundreds of allegedly defrauded student debtors to stop making payments on their loans. "It now wants to save face by creating a Rube Goldberg-type contraption to prevent as many people as possible from seeking the relief they deserve."
Denise Horn, an Education Department spokeswoman, said department officials are working quickly to process claims "in a manner that is fair to students and taxpayers." She also said the department's Federal Student Aid office has been contacting and "will continue to contact potentially impacted student borrowers to provide clear information about their options, including loan discharge applications, in addition to providing enhanced information on the department’s website."
In October, a federal judge in Illinois ruled that Corinthian must pay $531 million in damages to former students for misleading them about their career prospects and engaging in other deceptive practices.
Corinthian, which once operated more than 120 schools with more than 110,000 students across North America under the Everest, Wyotech and Heald brands, filed for bankruptcy in May in the largest failure of a college chain in U.S. history. Also in May, 11 state Attorneys General sent a letter to Department of Education Secretary Arne Duncan expressing concerns about information provided to students affected by the sudden closure of 28 colleges operated by Corinthian.
The letter urged the Education Department to provide debt relief to students who do not qualify for a "closed school" discharge but were harmed by misconduct by the school. The letter asserted that such students should be permitted to raise Corinthian’s misconduct as a defense to repayment of their student loans. The letter further urges the Education Department to provide clear guidance to students on how to assert a claim for relief.
The letter was co-signed by the Attorneys General of Connecticut, Hawaii, Illinois, Kentucky, Maine, Maryland, Minnesota, Missouri, New Mexico, New York and Oregon.
In February, the government struck a deal with ECMC Group, allowing the student debt guarantor to acquire some of Corinthian's campuses. ECMC agreed to wipe out $480 million in debt to avoid any liability for Corinthian's alleged illegal activity. Collections & Credit Risk first reported about a possible deal in November 2014.
Corinthian then announced in April the closing of its remaining 28 campuses effective Monday. The closing marked a quick end to what had been a steady dismantling of one of the country’s largest for-profit schools. It impacted approximately 16,000 students nationwide.