Education Secretary Arne Duncan should stop delaying promised debt relief to defrauded student loan borrowers and use a recent federal court ruling to immediately cancel all federal loans owed by former Corinthian Colleges Inc. students, a group of Democratic lawmakers urged Monday.
A federal judge in Chicago ruled on Oct. 27 that Corinthian violated federal law by defrauding more than 115,000 of its former students when its schools used false job placement rates to deceive them into taking out private student loans. Students typically take out private loans after reaching federal student loan borrowing limits.
The company declared bankruptcy in May, eight months after the federal Consumer Financial Protection Bureau alleged it systematically cheated students by advertising "bogus" job prospects to lure them into enrolling and taking out the private loans. At its peak, Corinthian operated more than 120 colleges under the Everest, Wyotech and Heald brands.
A little-used provision in federal law allows defrauded student borrowers to apply for debt cancellations when they believe they’ve been misled into taking out federal student loans. Debtors hoping to get their loans discharged by arguing they were duped by their schools into taking out the debt would have an easier time if they obtained court judgments in their favor, Education Undersecretary Ted Mitchell said in June.
"The department should use this judgment to make good on that promise to students and move expeditiously in granting relief for Corinthian’s former students who were the victims of harmful and deceptive practices," 17 lawmakers, including Sen. Elizabeth Warren (D-Mass.), wrote in a joint letter dated Monday.
Dorie Nolt, an Education Department spokeswoman, said department officials "appreciate the concerns for the welfare of Corinthian students."
Their demand comes as influential Democrats increasingly criticize Duncan for what they describe as inaction in the face of mounting evidence that some for-profit colleges routinely mislead prospective students into enrolling with false job placement and graduation rates, then load them up with debt in exchange for credentials of dubious value.
"The Department of Education for far too many years has not ensured that for-profit schools have credible programs," Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee, said in a Friday interview. And when misconduct has been found, the department "hasn’t held for-profit schools accountable," Waters added.
As Duncan prepares to leave the department in December following an October resignation announcement, his deputies will have to contend with a legacy in which an increasing number of student borrowers are demanding the Education Department discharge debts on the grounds that they were tricked into enrolling at dodgy schools and taking out loans.
More than 4,100 borrowers had submitted claims to the Education Department requesting debt cancellations as of late August, the department said in September. It hired Joseph Smith, a former North Carolina banking regulator, to help department officials handle an expected flood of debt relief claims from former for-profit college students.
Student advocates hope that active investigations by the consumer bureau, Federal Trade Commission, U.S. Department of Justice and several state attorneys general eventually will yield enough evidence against large for-profit schools that it forces the Education Department to use its authority to discharge alleged victims’ debts.
For former Corinthian students alone, the Education Department has estimated that complete debt cancellations could cost the federal government nearly $4 billion in forgone loan payments.
A Justice Department lawyer said in June about 40,000 student borrowers who attended Corinthian schools were in default on their federal loans. A few hundred former Corinthian students have banded together to publicly refuse to make any payments on their federal loans as part of a "debt strike" in protest against the Education Department.
"Corinthian got people to sign up for student loans by scamming them," Warren said Wednesday in remarks on the Senate floor. "If an insurance salesman or a car dealer did that, the buyer wouldn’t have to pay. The law is just as clear here: When a school breaks the law, students are entitled to cancel their student loans."
Education Department officials "have dragged their feet long enough," Warren said. "These students don’t owe the student loans that Corinthian tricked them into signing."
Though few experts expect total debt forgiveness, a recent Brookings Institution study shed some light on the scale of distress among Americans who borrowed from the Education Department to attend for-profit colleges.
For every $1 that students owed when their payments came due in 2009, they collectively owed $1.05 five years later, according to a study published in September by Adam Looney, a Treasury Department economist, and Constantine Yannelis, a graduate student at Stanford University. About 47 percent of student borrowers whose bills came due in 2009 had defaulted by 2014. A loan goes into default when a borrower misses nine months of payments.
For-profit colleges battling lawsuits and government investigations have generally denied wrongdoing. They’ve said their students typically come from low-income backgrounds, are the first in their families to attend college, and are facing a historically weak job market that has led to their loan repayment difficulties.
Corinthian repeatedly denied the CFPB’s allegations and fought to kill the lawsuit. In September, the company told Judge Gary Feinerman in Chicago that it would no longer defend itself against the CFPB's allegations as a result of its bankruptcy. Feinerman then ruled in favor of the CFPB in a default judgment, finding that Corinthian owed its former students who took out its private student loans more than $531 million in restitution.
In the case of Corinthian, Democratic lawmakers said in their Monday letter that the department need not wait for additional evidence before it decides whether to cancel loans owed by the company’s former students. Nor should the department force borrowers to navigate a complex application process to get the relief they’re entitled to under law, they said.
"There is no need for borrowers who were victims of harmful practices to have to jump through any additional hoops," legislators including Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.) -- the top Democrats on the Senate and House education committees -- said in their letter.
"It’s absolutely unconscionable that we’d make these students pay this money back," Waters said. "I hold the Department of Education responsible."
Update: This article has been updated to include a comment from the Education Department.