Pivotal case over student loans heads to court
Corinthian Colleges ceased operations in 2015
Thousands of former Corinthian Colleges students face a potentially pivotal court hearing Monday in a battle to erase millions of dollars in loan debt for their studies at the scandal-scarred, for-profit schools.
Attorneys for the students are trying to force the Department of Education to restore a program that would forgive the student loans. Their argument is that Corinthian defrauded the borrowers with misleading data about career opportunities and post-graduation job placement.
Government lawyers oppose the motion, arguing that a recently revised Department of Education program provides a fair and equitable evaluation of each student loan borrower’s claim for debt relief.
Jason Spencer, a former Corinthian Colleges student, says he owes roughly $25,000 in student loan debt for the nine-month program in heating, ventilation and air conditioning from which he graduated in 2012. Despite what he describes as promises the training would prepare him for “a great career,” the classes didn’t enable him to land a long-term job in the field, he adds.
‘Good sales pitch’
Corinthian representatives gave “a good sales pitch,” says Spencer, 38, of Sunnyvale, Calif. But the promises were “B.S., to be frank,” he says.
His Corinthian training consisted of roughly 90% book learning and just 10% hands-on experience, says Spencer. He lasted about a week at an HVAC job in Redwood City, Calif., after graduation before leaving because he believed he would have been let go for inadequate skills training, he adds.
The federal class-action lawsuit for former students like Spencer was filed in California by the Project on Predatory Student Lending, an organization formed in 2012 to address alleged fraud against students and taxpayers by for- profit colleges, and by Housing and Economic Rights Advocates, a California not-for-profit legal service group.
The fight focuses on Corinthian, a former Santa Ana, Calif.-based company that primarily offered certificate and associate degree programs nationwide through its Everest, Heald and WyoTech colleges. During 2009 and 2010, Corinthian operated more than 100 campuses in 25 states, enrolled more than 110,000 students and collected $1.7 billion in federal student aid, court filings state.
Corinthian ceased operations and closed its remaining campuses in 2015. The shutdown came by agreement after a Department of Education review found that the company’s Heald College system had misled students and the federal government about job hiring rates for graduates.
Liquidated
The department placed a hold on Corinthian’s access to student loans, essentially cutting off much of the company’s funding. Education officials later said they would impose a $30 million fine on the company.
The Consumer Financial Protection Bureau separately obtained a more than $531 million default judgment against Corinthian in late 2015. By then, however, the company had been liquidated in bankruptcy court proceedings.
Thousands of Corinthian students, many unable to find jobs in their fields of study, asked the Department of Education to forgive their student loan debts in response to the company’s misrepresentations. During the Obama administration, the DOE created a procedure that granted full loan discharges to nearly 25,000 Corinthian borrowers who attested that they either had attended one of the company’s colleges that closed in 2015 or believed they had been defrauded by one of the schools.
A Trump administration change
However, the loan forgiveness program for Corinthian student loan borrowers changed last year under the Trump administration. After reviewing student loan borrower claims and other records, the department determined 51 Corinthian programs had met guidelines for instruction that leads to gainful employment, while six had failed.
As a result, education officials in De- cember established a new procedure that would vary the loan forgiveness percentage for former Corinthian students and similar borrowers. The system is based on the programs the students attended and whether they subsequently were able to earn as much as peers in programs that satisfied the gainful employment guidelines.
However, the change “left over 110,000 former Corinthian borrowers who have applied for loan discharge in limbo,” attorneys for the students argued in an amended class-action complaint filed in March.
Instead of providing clear, unambiguous relief, the department’s new procedure subjects the borrowers to “a murky, convoluted, unfair, and irrational process designed to minimize relief,” saving the federal government money, the attorneys argued.
Amid the legal battle over the change, some Corinthian borrowers have had their federal tax refunds taken and applied to their education debts and also had their wages garnished, the lawyers also contended. Many of the borrowers “are living on fixed incomes and cannot absorb the shock of the department’s bait-and-switch,” the attorneys argued.