This is America's worst college: Screwed-over Corinthian College students get screwed again by so-called debt relief

Internships at Sonic? Career counseling via Craigslist? These students were taken for a ride -- and need more help

Published June 9, 2015 9:58AM (EDT)

       (Benjamin Wheelock)
(Benjamin Wheelock)

For the past several months, I’ve been writing about the “debt strikers” who attended for-profit colleges in the Corinthian network, which included Heald, Everest and Wyotech campuses. These students have refused to pay back their loans, because they allege Corinthian scammed them, recruiting them into high-cost career training programs with promises of well-paid employment, and instead giving them substandard educations and a worthless degree that’s useless in the job market. Corinthian closed its campuses and announced bankruptcy in early May.

The Corinthian 100, as the debt strikers are known, are demanding full debt forgiveness for all former Corinthian students. And yesterday, the Education Department, which handles all federal student loans, announced a number of steps that they’re calling debt relief. But the announcement only goes so far. The vast majority of student borrowers will need to prove they were defrauded through a documentation process that forces them to become both private investigators and lawyers. This burdensome hurdle will limit any forgiveness the Education Department will have to make.

This didn’t have to be the solution. As I wrote for Salon in March, under the Higher Education Act, the education secretary has broad authority to issue blanket relief when colleges defraud students. In fact, Arne Duncan used that authority for one class of students, which turns this sad situation into something like the lottery. The difference between getting your loan tossed and having to wade into a bureaucratic process depends on what Corinthian campus you happened to attend, even though there’s no indication that Corinthian altered anything across their network.

The announcement covers two groups of students: those at 30 campuses that Corinthian shut down (they sold off several dozen others, which are still operating), and those who believe they were defrauded. Students from a shut-down campus, or those who left without getting a degree within 120 days of closure, can either receive full student loan forgiveness, or transfer credits from that campus to another college. The Education Department extended these benefits to students who withdrew from the schools as far back as June 20, 2014, beyond the usual 120-day window.

This is a mild change, but public reports indicate that Education Department officials personally encouraged students at closed Corinthian campuses to transfer instead of discharging their loans, saying that they “would be wasting two or three years” if they relieved the debt. This pressure appears designed to save money for the Education Department by keeping the loans open, and the students would likely acquire more debt at their new schools.

Borrowers who believe they were defrauded can trigger a clause in all student loan contracts called “defense to repayment,” where they can seek debt forgiveness. The Education Department said they would make anyone who initiates defense to repayment immediately eligible to stop payments on their loans. But borrowers would have to fill out a special application, and include:

• A statement asserting defense to repayment

• Their personal information

• Transcripts and registration documents for the school they attended, the program of study, and any degree or certificate they earned

• A detailed description of the school’s misconduct in their personal situation, what state law it violated, how this applied to the borrower’s decision to take out loans to pay for school and what specific injury the borrower suffered, along with supporting information.

Even getting a transcript from Corinthian, especially if the particular campus went out of business, may be challenging. Additionally, the application demands highly specific legal formulations, and borrowers would have to make the right citations of state law and fulfill the proper definitions of injury. This is a job for a lawyer, not a struggling borrower, who may not even be aware of Corinthian’s behind-the-scenes machinations.

The Education Department, which has a vested interest in preventing defense to repayment claims because granting them loses the government money, will adjudicate the claims. The Department vowed to hire a “special master” to oversee the process, but ultimately they would make the final decision on who gets relief and who doesn’t.

We already have plenty of information about Corinthian’s practices. In a long article for the Huffington Post, I talked to dozens of Corinthian students, all of whom provided virtually the same story. They were targeted for recruitment and promised a successful future in their career of choice. But career counseling consisted of Corinthian employees sending them Craigslist ads. Internships consisted of Sonic fast food gigs. Students learned when they went on job interviews that they weren’t taught what they needed to get a job in their field. Some graduates had prospective employers laugh in their faces when they saw a Corinthian school’s name on their résumé.

And these are not just anecdotes. The attorney general of California has an active lawsuit alleging practices like Corinthian schools bribing temp agencies to hire their graduates for 30 days to keep their job placement statistics high. The Consumer Financial Protection Bureau has a similar lawsuit alleging predatory activities. The Education Department itself fined one branch of Corinthian, Heald College, $30 million for inflating job placement statistics. Law enforcement officials with subpoena power have largely proven the fraud scheme already.

Because of the Education Department’s existing enforcement action, they made an exception for about 40,000 students enrolled in certain Heald College programs between 2010 and 2015. Those students relied on misrepresented job placement rates, and will not have to file a defense to repayment application, just an “attestation form,” to have their loans forgiven.

So because California Attorney General Kamala Harris aggressively pursued Corinthian fraud and the Education Department managed to confirm it, students at Heald colleges can get relief. Students from Everest and Wyotech colleges have to instead jump through bureaucratic hoops. Yet there’s no reason to believe that Corinthian’s practices were limited to Heald. The order today gives blanket relief only to borrowers with $500 million to $600 million in outstanding federal loans; in all, there is $3.5 billion outstanding. So only about one-seventh of the debt gets forgiven without hassle.

Ted Mitchell, the undersecretary for education, said in a blog post that “wherever possible, we will work to use legal findings applicable to groups of students” to give blanket relief. But that’s not actually a requirement: the Education Secretary can simply make a finding that Corinthian students were defrauded, and allow them to start over without a pile of crushing debt.

In a response, the Debt Collective, which has been organizing the Corinthian 100 student strikers, called the Education Department derelict in its duty. “Just as Corinthian Colleges portrayed its programs as a path to a better life when they were in fact debt traps, the Department of Education is portraying a process that re-victimizes students as a solution to a problem they created,” the Debt Collective wrote. They described the process as “designed to provide relief only to those who hear about it and can figure out how to navigate unnecessary red tape.”

The Education Department has resisted blanket relief because of perceived cost to its bottom line. But the Debt Collective makes the point that the department sustained this fraud for years, as the primary source of revenue for Corinthian and other for-profit colleges. Nearly 90 percent of Corinthian’s funding came from Education Department loans and grants. They effectively owned these fraudulent schools, and should own the mistakes made too.

Though some lawmakers who were pushing for Corinthian debt relief praised the Education Department announcement, more than 1,200 student debtors, from public and private universities as well as for-profit colleges, have walked out on their loan payments in solidarity with the Corinthian 100. And this announcement has not stifled the calls for justice. If the Education Department thought it could end the debt strike on the cheap, it was completely mistaken.


By David Dayen

David Dayen is a journalist who writes about economics and finance. He is the author of "Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud," winner of the Studs and Ida Terkel Prize, and coauthor of the book "Fat Cat: The Steve Mnuchin Story." He is an investigative fellow with In These Times and contributes to the Intercept, the New Republic and the Los Angeles Times. His work has also appeared in the Nation, the American Prospect, Vice, the Huffington Post and more. He has been a guest on MSNBC, CNN, Bloomberg, Al Jazeera, CNBC, NPR and Pacifica Radio. He lives in Los Angeles.

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