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From Banking and Finance Law Daily, April 10, 2015

State AGs call for debt forgiveness for Corinthian Colleges students

By Stephanie K. Mann, J.D.

In a continued push to help students who were deceived by Corinthian Colleges, Attorneys General from California, Connecticut, Illinois, Kentucky, Massachusetts, New Mexico, New York, Oregon, and Washington submitted a letter to Arne Duncan, the Secretary of Education, requesting that the Department of Education immediately relieve the debt burden of thousands of students who attended the schools and establish clear systems to help individual student borrowers obtain relief when for-profit schools violate state law.

“Corinthian took advantage of students who were trying to build a better life for themselves and their families,” Massachusetts AG Maura Healey said. “It is critical that we work together to counter fraud and abuse within the for-profit school system and provide relief for those students who now face incredible financial burdens. We urge the Department to help students who went to schools that violated our laws.”

Illinois AG Lisa Madigan added, “We must protect the victims of the predatory practices of for-profit schools such as Corinthian, which was more concerned with their profits than they were about the quality of education they provided.”

Letter. As explained in the letter, the Department has the legal authority to help students who have been harmed by for-profit schools like Corinthian. The Higher Education Act, department regulations, and federal student loan documents all make clear that students can assert legal claims against schools as a defense to repayment of their loans.

In addition to calling for the cancellation of Corinthian loans, the letter urges the Department to clarify the grounds needed for students to have their loans discharged, and to specify a process for students to help them raise these issues with their loan servicers and obtain relief. The letter also suggests that the Department develop a process by which the findings in a state attorney general’s investigation could be utilized as a defense to repayment—or to provide forgiveness of federal loans—for all affected students.

Misrepresentation. As alleged in a lawsuit against Corinthian brought by the California, Massachusetts, and Wisconsin AGs, and the Consumer Financial Protection Bureau, Corinthian’s acts and practices provide its student borrowers with state law defenses to repayment. These enforcement actions together show that Corinthian misrepresented to students:

  • the urgency of enrollment to secure a spot in a program;

  • the schools’ historical success placing students in jobs in the students’ fields of study;

  • the earnings of graduates;

  • the availability of advertised programs;

  • the employment assistance the schools provides graduates;

  • the schools’ role in its private loan program;

  • the nature, character, and quality of educational programs;

  • the schools’ purported affiliation with the United States Military;

  • the transferability of credits;

  • the availability of externships; and

  • the nature and availability of financial aid.

“Our greatest concern comes from certain large, predatory for-profit schools that are actively undermining our federal loan programs, depriving students of the education they promise and that the students deserve,” the letter states.

Outstanding student loan debt. According to the letter, 40 million Americans have an outstanding student loan, up from 29 million in 2008. Borrowers carry an average balance of $29,000 in student loan debt. Nationwide, student loan debt now stands at $1.2 trillion, representing an increase of more than 150 percent since 2005. The Senate Health, Education, Labor, and Pensions Committee reported that, during the 2009-2010 school year, for-profit colleges took in $32 billion in taxpayer-backed student aid and spent nearly 25 percent of their revenue on marketing and recruiting, exceeding what was spent on student instruction.

In December 2014, a group of Senators wrote to ask the Department to use its authority to discharge the loans of students enrolled in Corinthian programs and to establish clear procedures for borrowers to assert their rights when schools break the law.

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