In 2014, for-profit education company Corinthian Colleges was forced to close down its schools after losing access to federal funding. And even though Corinthian was accused of fraud and predatory lending practices, many of its former students are facing debt collection and struggling to have their student loans forgiven.
Last month Senator Elizabeth Warren became involved after finding out that the government was seizing tax refunds and garnishing wages from borrowers who are eligible for loan forgiveness. The Department of Education has the ability to cancel federal loans when colleges violate the rights of students, which is exactly what Corinthian has been accused of doing.
In a letter addressed to department Secretary John B. King Jr., Senator Warren urges him to cancel the debt for Corinthian students. She stated that it is unconscionable that these victims have been hounded by debt collectors to pay off fraudulent debt.
On Friday the Obama administration issued new rules to overhaul the debt forgiveness statute known as the borrower defense repayment. This statute discharges any federal loans if the school uses illegal or misleading tactics to convince students to take out loans for college.
This defense had rarely been used until 2014 when Corinthian closed, which caused the agency to create a new system for providing student debt relief.
Many of the provisions proposed outlined what violations allowed borrowers to be eligible for loan forgiveness. A borrower is eligible for loan forgiveness if they attended a school that seriously misrepresented the quality of the program, financial obligations, or the graduate’s opportunity to find work.
Anyone whose school closed on or prior to November 1, 2013 will be given automatic loan forgiveness, as long as that person does not enroll in another program for three years. Officials plan to begin implementing this change prior to July 1, 2017, which is when the rule takes effect, in hopes of making it easier for qualifying borrowers to be given loan forgiveness.
The Department of Education has estimated that of the 250,000 students who attended Corinthian schools and are eligible for debt relief, only about 82,000 have filed claims thus far. Of those 82,000, 15,694 have been given loan forgiveness.
Alexis Goldstein is a senior policy analyst at the Americans for Financial Reform. She pointed out that the majority of students eligible either don’t know they are eligible or have applied for forgiveness and the Education Department has not done anything about their application. She encouraged the department to approve students automatically rather than doing it person by person.
Some advocates are still concerned that even with the new provisions, loan forgiveness is still ultimately left to the discretion of the Education Secretary. Abby Shaforth, an attorney at the National Consumer Law Center, stated that the group relief provision will only effectively provide relief if the Department of Education is committed to doing so. She also said that the department must act on behalf of students who have been defrauded but may not know they have a right to have their loans discharged.
The Department of Education has estimated that the new regulations could impact the annual budget anywhere from $199 million to $4.2 billion.