Student loans should be forgiven when colleges act badly
Corinthian Colleges shut down its network of for-profit schools suddenly in 2015 after the US Department of Education found it misled students about features of its program, including job placement rates. Students were the victims of what amounted to fraud: They were not getting the education and job prospects they thought they were paying for. But those who borrowed money to attend the schools would have been stuck with federal loans anyway — were it not for a provision in federal law that’s now under threat.
In Massachusetts, then-attorney general Maura Healey, now governor, was able to sue to have the federal government discharge student loans for 7,200 students who attended two schools run by Corinthian Colleges in Massachusetts. Healey alleged, based on her office’s own investigation, that Corinthian engaged in deceptive misconduct. The lawsuit was successful, and the student loans were forgiven.
For 30 years, federal law has allowed students who were the victims of certain types of institutional misconduct by their school to have their student loans forgiven. For years, few cases were brought. After the 2015 collapse of Corinthian Colleges, there was an influx of claims, and a 2016 rule allowed similar cases to be adjudicated on a groupwide basis.
The regulations governing how a borrower can obtain loan forgiveness, referred to as the borrower defense to repayment rule, have been rewritten by different presidential administrations. In 2022, the Biden administration revised the rule to make it easier for borrowers to have loans forgiven, including instituting new procedures and standards by which cases involving groups of students will be decided.
Career Colleges and Schools of Texas, a trade association of for-profit career-oriented schools, sued in US District Court in Texas arguing that the rule is an attempt to “accomplish massive loan forgiveness for borrowers” while forcing schools to incur fiscal liability and suffer from “financial and reputational harm.” It accuses the Department of Education of seeking “to maximize the number and amount of loan discharges with little regard for the merits of the claims or the rights of schools.” The Texas US District Court Judge ruled against CCST’s motion for a preliminary injunction, but a judge barred the policy from going into effect while the case is on appeal. It is now before the Fifth Circuit Court of Appeals.
As President Biden develops new methods to institute student loan forgiveness, they will be challenged in court, and each rule deserves to be scrutinized on its own merits. In this case, the rule allowing group loan forgiveness should be allowed to stand.
As Massachusetts Attorney General Andrea Campbell and 22 other attorneys general argue in an amicus brief filed Tuesday supporting the US Department of Education, these regulations are critical for ensuring students who are victims of institutional misconduct are not saddled with loans.
Investigations by states, Campbell and her colleagues write, “have revealed that offending schools often commit abuse and deception not on a student-by-student basis, but instead in systemic ways that affect entire cohorts, going to the heart of the educational experience.” Requiring each student to appeal for loan forgiveness would “be profoundly inefficient and waste taxpayer resources.” Most students would not be aware that they could appeal or know how to do so, the brief writers state.
Since 2015, the attorneys general write in their brief, states have filed 29 petitions for group loan discharges. The Massachusetts attorney general asked for relief for Corinthian Colleges students, citing misrepresentations about job placement rates and hands-on training. Several states sought forgiveness for students at ITT Technical Institute citing misrepresentations about projected future earnings.
As of January, the latest available data, the federal government had 464,000 pending applications for student loan relief through the borrower defense rule.
In Massachusetts, the attorney general’s office has obtained relief for students who borrowed money to attend Kaplan Career Institute, which closed in 2013, and American Career Institute. In both cases, state investigations found the schools made false representations to students.
Student loan forgiveness is essential when students attended a college on the basis of false promises from the school. Some students were unable to complete their education and others found their credential was worthless in the job market.
If CCST wins the case, these types of resolutions will be harder to come by. And more students could be stuck repaying debts for educational outcomes they were promised but didn’t receive.
Student loan forgiveness is essential when students attended a college on the basis of false promises from the school.