Debt ties students to fallen chain
Corinthian’s fall puts focus on loans to study at for-profits
WASHINGTON — One of the country’s biggest career college chains recently completed its collapse.
Corinthian Colleges once ran 107 campuses of Everest Institute, WyoTech and Heald Colleges that served more than 100,000 students. It was a darling of Wall Street for its lucrative model of offering degrees to low-income students who borrowed heavily from the government to pay their tuition.
But allegations that the company lied about the success of its programs and trapped students in predatory loans ultimately led to its downfall.
Now 16,000 students are left without degrees for programs that many took on debt to complete. Hundreds of others are fighting for the government to forgive debt they are struggling to repay.
The implosion of Corinthian brings into focus the risky gamble students can make in pursuing higher education. Getting a degree is supposed to guarantee access to the middle class, social mobility and financial stability. But when that piece of paper comes with many thousands of dollars of debt, it could do more harm than good.
“Corinthian enticed students to enroll in its schools and to take on enormous debt. Their profit model was to cheat their students,” Sen. Elizabeth Warren, DMass., said this week. “Corinthian was shut down, but what about the tens of thousands of students who were taken in by the lies? They are still paying those loans back.”
Even when it became clear years ago that Corin- thian’s schools had serious problems, the government allowed students to continue entering classrooms and taking on more taxpayerfunded debt. The closings have left thousands of students unsure of what to do with their debt or even where to complete their educations.
Democratic lawmakers and consumer groups are pressuring the Department of Education to wipe away the federal student loans without conditions of the 16,000 students affected by the closure. As it stands, students who opt to transfer their credits to another school would be ineligible to have their loans forgiven.
Education officials say the department doesn’t have the power to grant unconditional loan forgiveness.
Officials, however, en- courage students planning to continue their education to file an appeal for loan forgiveness on the grounds that Corinthian broke the law. But that may take months and demands a high bar of proof.
Students would need to prove that the school broke state law in a way that hindered their educations. That may be easier in states like California and Wisconsin, where attorneys general are suing Corinthian. Elsewhere, it could be a challenge.
And that’s not the only problem. It may not be easy for students to transfer their credits to other schools. Corinthian has developed a reputation that could taint how its students are perceived.
The Education Department has offered a list of community colleges and for-profit schools willing to accept Corinthian students.
But Sen. Dick Durbin, D-Ill., expressed outrage at the fact that several of the for-profit schools listed, including ITT Tech, Kaplan University and DeVry University, are under investigation.
Industry trade groups are pushing back against what they view as a witch hunt against schools that have a track record of putting certificates and diplomas in the hands of students.
“The graduation rates for (these schools) outpace those of the community colleges, with some schools graduating well above the national average,” said Noah Black of the Association of Private Sector Colleges and Universities.
Education undersecretary Ted Mitchell said the department is not endors- ing any institutions, nor is it casting judgment on any schools until the investigation is complete. He said the department is just giving students options within 25 miles of their old campuses.
Problems at the California-based company came to light five years ago in a Government Accountability Office report that identified Corinthian as one of 15 for-profit colleges where recruiters encouraged students to commit fraud on financial aid applications.
Once the Education Department turned off the funding nearly a year ago, many expected Corinthian would close its doors immediately.
But in November, ECMC Group, which runs one of the biggest debt collectors used by the Education Department, paid $24 million for more than half of Corin- thian’s campuses.
The department blessed the deal, much to the dismay of consumer advocates, who said the schools should have closed. That way, advocates said, students would have a clear-cut case to have their loans discharged.
Instead, current and former Corinthian students at schools bought by ECMC have endured the claims process. About 400 Corinthian students have filed claims. A hundred of those students are refusing to pay.
These debt strikers have accused the department of having “coddled (Corinthian) with emergency cash inflows and facilitated sales of distressed assets while continuing to collect from defrauded students.”
Mitchell said the department is notifying students at the shuttered schools of their rights to have loans forgiven.
Granting across-theboard discharges to Corinthian students could mean the loss of millions of dollars in taxpayer money.
The Education Department and the Consumer Financial Protection Bureau have worked with ECMC to forgive $480 million in private loans in Corinthian’s Genesis program. Thousands of Corinthian students will have debt forgiven. Students will see an immediate 40 percent reduction in the principal balances on private loans, with the remainder forgiven over the next few years.
But students who took out federal loans are still on the hook.
“It is supremely unfair for the government to hold students’ feet to the fire on loans that were made to finance what the government should have known were valueless products,” said Toby Merrill, director of the Project on Predatory Student Lending at Harvard Law School.